In re Aldridge ( 2014 )

An unpublished opinion of the North Carolina Court of Appeals does not constitute
controlling legal authority. Citation is disfavored, but may be permitted in accordance
with the provisions of Rule 30(e)(3) of the North Carolina Rules of Appellate Procedure.
NO. COA14-275
NORTH CAROLINA COURT OF APPEALS
Filed: 16 September 2014
IN RE:
Union County
Foreclosure of Real Property No. 11 SP 578
Under Deed of Trust from GREGORY
THOMAS ALDRIDGE, in the original
amount of $129,500.00, dated April
2, 2007 and recorded in Book 4515,
Page 789, Union County Registry
Appeal by respondent from order entered 19 September 2013
by Judge Kevin M. Bridges in Union County Superior Court. Heard
in the Court of Appeals 28 August 2014.
Brock & Scott, PLLC, by Gregory D. Spink and Graham H.
Kidner, for petitioner-appellee Trustee Services of
Carolina, LLC and Bank of America, N.A.
Steven D. Starnes, P.A., by Steven D. Starnes, for
respondent-appellant Gregory Thomas Aldridge.
Baucom, Claytor, Benton, Morgan & Wood, P.A., by Rex C.
Morgan, for third-parties-appellees Phillip Compton,
Jeffrey Compton, and Debra Compton.
The Duggan Law Firm, P.C., by Christopher Duggan; and
Lewis, Rice & Fingersh, L.C., by Benjamin A. Lipman, for
intervenor-appellee Lawyer's Weekly, LLC.
GEER, Judge.
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Respondent Gregory Thomas Aldridge appeals from an order
denying Mr. Aldridge's motion pursuant to Rule 60(b) of the
Rules of Civil Procedure to set aside a foreclosure sale on the
grounds that the notice of sale was not advertised in a
newspaper published in the county where the property was located
as required by N.C. Gen. Stat. § 45-21.17(1)(b) (2013). We need
not address the majority of Mr. Aldridge's arguments because (1)
we hold that he has failed to demonstrate that any error in
publication was a material irregularity, and (2) the property
was purchased by a bona fide purchaser for value without notice
of any irregularity. The trial court, therefore, properly
concluded that Mr. Aldridge was not entitled to set aside the
foreclosure sale and denied his Rule 60(b) motion.
Facts
On 2 April 2007, Mr. Aldridge executed a deed of trust in
the amount of $129,500.00 for the benefit of Bank of America,
N.A., which was recorded in Book 04515, Page 0789 in the
Register of Deeds of Union County, North Carolina. The real
property described in the deed of trust is located at 2316 Mount
Pleasant Church Road, Monroe, North Carolina, 28112. PRLAP,
Inc. was designated as trustee in the original deed of trust.
On 31 December 2010, Bank of America appointed Trustee Services
of Carolina, LLC as substitute trustee.
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On 5 April 2011, Trustee Services of Carolina initiated a
proceeding to foreclose on the property in accordance with the
deed of trust. The foreclosure hearing was continued until 31
January 2012. On that date, the clerk entered an order allowing
the foreclosure sale. Mr. Aldridge did not appeal the order. A
notice of the foreclosure sale was published in The Mecklenburg
Times on 10 February and 17 February 2012, and Mr. Aldridge was
served with notice 20 days prior to the sale.
The foreclosure sale was held on 22 March 2012, and Bank of
America was the highest bidder. The bid remained open for 10
days and Bank of America assigned the bid to Federal Home Loan
Mortgage Corporation ("Freddie Mac"). No upset bid was made.
On 20 April 2012, Trustee Services of Carolina prepared the
final report and account of foreclosure sale for submission to
the Assistant Clerk for audit and approval in accordance with
sections 45-21.31 and 45-21.33 of the North Carolina General
Statutes.
The Assistant Clerk audited and recorded the final report
on 26 April 2012. According to the final report, the sale
generated proceeds totaling $152,390.29. The Affidavit of
Publication filed with the final report stated that The
Mecklenburg Times is a newspaper published, issued, and entered
as second-class mail in the City of Charlotte, in Mecklenburg
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County, and meets all the requirements and qualifications of
N.C. Gen. Stat. § 1-597 to publish legal advertisements.
On 3 August 2012, Freddie Mac sold the property to Phillip
Compton for $129,900.00. On 31 August 2012, Phillip Compton
reconveyed the property to his parents, Jeffrey and Debra
Compton, since they had supplied the funds for the purchase of
the property.
On 22 March 2013, Mr. Aldridge moved under Rule 60(b) to
set aside the foreclosure sale for lack of proper notice of
sale. Judge Kevin M. Bridges heard Mr. Aldridge's motion on 29
July 2013 and entered an order on 20 August 2013 setting aside
the foreclosure sale based upon his finding that The Mecklenburg
Times is not published in Union County, North Carolina, and,
therefore, the publication of the notice of sale was not in
accordance with N.C. Gen. Stat. § 45-21.17 and was wholly
ineffective.
Thereafter, petitioners Trustee Services of Carolina and
Bank of America, the Comptons, and Lawyers Weekly, the owner of
The Mecklenburg Times, filed motions to reconsider pursuant to
Rules 59 and 60 of the Rules of Civil Procedure. On 9 September
2013, the trial court granted Lawyer's Weekly's motion to
intervene and the motions for reconsideration were heard before
Judge Bridges.
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In an order entered 19 September 2013, the trial court
found that The Mecklenburg Times is a newspaper published in
Union County in accordance with N.C. Gen. Stat. § 45-21.17 and
that the rights of the parties to the foreclosure sale became
fixed on 3 April 2012 in accordance with N.C. Gen. Stat. § 45-
21.29A. It concluded that Mr. Aldridge's Rule 60(b) motion to
set aside the foreclosure sale was not a proper means for
challenging the sale, but rather the only legal or equitable
method available to Mr. Aldridge to enjoin or challenge the
foreclosure sale was to apply to the superior court to enjoin
the sale pursuant to N.C. Gen. Stat. § 45-21.34 prior to the
time the rights of the parties became fixed. The trial court
granted the motions for reconsideration, vacated the 20 August
2013 order setting aside the foreclosure sale, and denied Mr.
Aldridge's 22 March 2013 motion to set aside the foreclosure
sale. Mr. Aldridge timely appealed the order to this Court.
Discussion
On appeal, Mr. Aldridge argues that the trial court erred
in concluding that Rule 60(b) is not a proper mechanism for
moving to set aside a foreclosure sale pursuant to a power of
sale and that his only legal or equitable recourse was to seek
to enjoin or challenge the sale by filing suit under N.C. Gen.
Stat. § 45-21.34 (2013) prior to the time that the rights of the
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parties to the foreclosure sale became fixed. Further, Mr.
Aldridge contends that the trial court erred in finding that The
Mecklenburg Times is published in Union County. He argues that
because The Mecklenburg Times was not published in Union County,
the advertisement of the sale was ineffective, entitling him to
have the sale set aside. Finally, Mr. Aldridge contends that
even if the property was sold to a bona fide purchaser for
value, he is entitled to have the defective foreclosure set
aside if justice requires it.
This appeal involves a foreclosure by power of sale. "'A
power of sale is a contractual arrangement in a mortgage or a
deed of trust which confer[s] upon the trustee or mortgagee the
power to sell the real property mortgaged without any order of
court in the event of a default.'" In re Foreclosure of Adams,
204 N.C. App. 318, 321, 693 S.E.2d 705, 708 (2010) (emphasis
added) (quoting In re Foreclosure of Michael Weinman Assocs.,
333 N.C. 221, 227, 424 S.E.2d 385, 388 (1993)). It is used as
"'a means of avoiding lengthy and costly foreclosures by
action,' whereby '[t]he parties have agreed to abandon the
traditional foreclosure by judicial action in favor of a private
contractual remedy to foreclose.'" Id. (quoting In re
Foreclosure of Michael Weinman Assocs., 333 N.C. at 227, 424
S.E.2d at 388). A foreclosure pursuant to a power of sale is
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strictly regulated by Article 2A of Chapter 45 of the General
Statutes. Phil Mech. Constr. Co. v. Haywood, 72 N.C. App. 318,
322, 325 S.E.2d 1, 3 (1985).
Nevertheless, prior to exercising the power to sell the
property, N.C. Gen. Stat. § 45-21.16 (2013) requires notice to
all interested parties, a hearing before the clerk of superior
court, and an order authorizing the sale. "The intent of the
1975 General Assembly in enacting the notice and hearing
provisions of G.S. 45-21.16 was not to alter the essentially
contractual nature of the remedy, but rather to satisfy the
minimum due process requirements of notice to interested parties
and hearing prior to foreclosure and sale which the district
court in Turner v. Blackburn, 389 F. Supp. 1250 (W.D.N.C. 1975),
held that our then existing statutory procedure lacked." In re
Foreclosure of Burgess, 47 N.C. App. 599, 603, 267 S.E.2d 915,
918 (1980).
Consequently, "[b]ecause the hearing under G.S. 45-21.16 is
designed to provide a less timely and expensive procedure than
foreclosure by action, it does not resolve all matters in
controversy between mortgagor and mortgagee." In re Foreclosure
of Helms, 55 N.C. App. 68, 72, 284 S.E.2d 553, 555 (1981).
Rather, any other issues that arise regarding the foreclosure
proceedings should be asserted in a separate action and
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"equitable defenses to the foreclosure, . . . should be asserted
in an action to enjoin the foreclosure sale under G.S. 45–
21.34." Id.
Once the clerk authorizes the foreclosure sale, the parties
may proceed with the sale in accordance with the statute. After
the sale is held, the rights of the parties to the sale become
fixed automatically if no upset bid is filed within the period
specified by statute. N.C. Gen. Stat. § 45-21.29A (2013).
Significantly, unlike a judicial foreclosure, further judicial
action in the form of an order of confirmation of sale is not
required to complete the sale. As explained in Certain-Teed
Prods. Corp. v. Sanders, 264 N.C. 234, 244, 141 S.E.2d 329, 336
(1965), "[w]here a foreclosure sale is conducted in accordance
with the provisions of Article 2A of Chapter 45 of the General
Statutes, and no upset bid is filed as provided in G.S. 45-
21.27, there is no legal requirement that the clerk either
confirm the sale or direct the execution of a trustee's deed as
a prerequisite to legal consummation of such sale by the
trustee."
Although no confirmation of sale is required, N.C. Gen.
Stat. § 45-21.33 (2013) mandates a final report of the sale and
an audit by the clerk of superior court:
(a) A person who holds a sale of real
property pursuant to a power of sale shall
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file with the clerk of the superior court of
the county where the sale is held a final
report and account of his receipts and
disbursements within 30 days after the
receipt of the proceeds of such sale. . . .
(b) The clerk shall audit the account
and record it.
(c) The person who holds the sale
shall also file with the clerk --
(1) A copy of the notices of sale
and resale, if any, which
were posted, and
(2) A copy of the notices of sale
and resale, if any, which
were published in a
newspaper, together with an
affidavit of publication
thereof, if the notices were
so published;
(3) Proof as required by the
clerk, which may be by
affidavit, that notices of
hearing, sale and resale were
served upon all parties
entitled thereto under G.S.
45-21.16, 45-21.17, 45-
21.17A, and 45-21.30. In the
absence of an affidavit to
the contrary filed with the
clerk, an affidavit by the
person holding the sale that
the notice of sale was posted
in the area designated by the
clerk of superior court for
posting public notices in the
county or counties in which
the property is situated 20
days prior to the sale shall
be proof of compliance with
the requirements of G.S. 45-
21.17(1)a.
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"[T]he clerk's audit pursuant to section 45–21.33(a) and
(b) is a ministerial act that is limited to determining merely
'whether the entries in the report reflect the actual receipts
and disbursements made by the trustee' in the absence of a grant
of original jurisdiction to determine additional matters." In
re Foreclosure of Vogler Realty, Inc., 365 N.C. 389, 396, 722
S.E.2d 459, 464 (2012) (quoting In re Foreclosure of Webber, 148
N.C. App. 158, 161, 557 S.E.2d 645, 647 (2001)). However, N.C.
Gen. Stat. § 45-21.34 provides that "[a]ny owner of real estate,
or other person, firm or corporation having a legal or equitable
interest therein, may apply to a judge of the superior court,
prior to the time that the rights of the parties to the sale or
resale becoming fixed pursuant to G.S. 45-21.29A to enjoin such
sale, upon the ground that the amount bid or price offered
therefor is inadequate and inequitable and will result in
irreparable damage to the owner or other interested person, or
upon any other legal or equitable ground which the court may
deem sufficient[.]"
Our Supreme Court has held that N.C. Gen. Stat. § 45-21.34
does not affect a party's right to set aside a foreclosure sale
in addition to seeking to enjoin the sale. Swindell v. Overton,
310 N.C. 707, 714, 314 S.E.2d 512, 517 (1984). In Swindell, the
plaintiff brought an action to have a foreclosure sale set aside
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because the trustee improperly conducted the foreclosure sale by
selling two tracts of land together, which resulted in a sales
price below the fair market value of the properties if sold
separately. Id. at 710, 314 S.E.2d at 515. This Court held
that the plaintiffs could not seek to set aside the foreclosure
sale because their action was not brought until after the sale
was confirmed. Id. at 711, 314 S.E.2d at 515.
The Supreme Court reversed, holding that a power of sale
foreclosure sale may be set aside upon a showing of a material
and prejudicial irregularity in the sale. Id. at 713, 314
S.E.2d at 517. The Court further explained:
Our holding today is not affected by
N.C.G.S. 45-21.34, .35. These statutes
limit injunctive relief in foreclosure
proceedings. Here, we are applying common
law equitable principles to set aside a
foreclosure sale. These principles are
unaffected by these statutes.
Id. at 714, 314 S.E.2d at 517. Thus, a party is not barred from
bringing an independent action to set aside a foreclosure sale
after the rights of the parties to the sale have become fixed.
Id. at 712, 314 S.E.2d at 516.
With respect to an action to set aside a foreclosure sale,
the Court explained:
[I]t is the materiality of the irregularity
in such a sale, not mere inadequacy of the
purchase price, which is determinative of a
decision in equity to set the sale aside.
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Where an irregularity is first alleged,
gross inadequacy of purchase price may then
be considered on the question of the
materiality of the irregularity. Where
inadequacy of purchase price is necessary to
establish the materiality of the
irregularity, it must also appear that the
irregularity or unusual circumstance caused
the inadequacy of price.
Id. at 713, 314 S.E.2d at 516 (internal citations omitted).
Thus, "[u]nder Swindell, the trial court [is] required (1) to
evaluate the adequacy of the sales price, (2) to identify
whether any irregularities occurred in connection with the sale,
and (3) to determine if the irregularities were material."
Beneficial Mortg. Co. of N.C. v. Peterson, 163 N.C. App. 73, 80,
592 S.E.2d 724, 728 (2004).
Here, even assuming without deciding, that a party could
proceed under Rule 60(b) rather than through an independent
action, Mr. Aldridge has not shown a material and prejudicial
irregularity sufficient to set aside the sale. He has merely
identified an irregularity in procedure: that notice of sale was
not advertised in a newspaper published in Union County as
required by N.C. Gen. Stat. § 45-21.17. Mr. Aldridge makes no
argument as to how this purported irregularity was material or
that the sales price was inadequate other than making the
conclusory assertion that the defect in publication was a
serious defect.
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This Court explained in Beneficial Mortgage Company that
"[i]n deciding whether an irregularity is material, we must look
at its natural and probable effect on the sales price.
Potential effect and not actual effect is all that is required
if the ultimate sales price is grossly inadequate: Actuality of
injury is not a prerequisite of relief. The potentialities of
the error, considered in connection with the grossly inadequate
price, compel the conclusion that the irregularity in the sale
was material and prejudicial -- sufficient in nature to justify
the interposition of a court of equity." 163 N.C. App. at 83,
592 S.E.2d at 730 (internal citation and quotation marks
omitted).
Mr. Aldridge has made no attempt to show that the sales
price was grossly inadequate. As a result, he has not shown
that any irregularity in the advertisement of the sale was
material and prejudicial. Without such a showing, he was not
entitled to seek to set aside the sale after the rights of the
parties to the sale had become fixed. Compare id. ("Given the
potential effect that the irregularities had on the sales price
for the Dixes' home combined with the gross inadequacy of the
ultimate sales price, we hold that the trial court did not err
in setting aside the sale.").
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In addition, our Supreme Court has held that "where the
defect in a foreclosure sale renders the sale voidable . . . the
mortgagor's right of redemption can be cut off if the land is
bought by a bona fide purchaser for value without notice. In
such instances, a plaintiff is left with an action for damages
against the trustee as his only remedy." Swindell, 310 N.C. at
714, 314 S.E.2d at 517. Here, Mr. Aldridge did not move to set
aside the foreclosure until after the property was sold first to
Freddie Mac and then to the Comptons. Mr. Aldridge does not
challenge the trial court's finding that the Comptons are bona
fide purchasers for value without notice of any alleged defects
in the foreclosure sale. Consequently, even assuming the
advertisement of the sale was defective, Mr. Aldridge's right of
redemption was cut off when the Comptons purchased the property.
Mr. Aldridge's only remaining remedy is to sue the trustee for
breach of fiduciary duty.
While Mr. Aldridge argues that the defective advertisement
of the sale was such a serious defect that he should still be
able to proceed notwithstanding the bona fide purchaser for
value, our Supreme Court rejected his argument in Phipps v.
Wyatt, 199 N.C. 727, 155 S.E. 721 (1930). In Phipps, the
appellant argued that an improper advertisement of the sale
combined with a grossly inadequate sales price entitled him to
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set aside the sale notwithstanding the existence of a bona fide
purchaser for value. Id. at 732, 155 S.E. at 723. The Court
explained that "[w]hile such sale would be set aside as to the
purchaser, a subsequent or remote grantee without notice and in
good faith takes a good title against such defects or
irregularities in the sale of which he had no notice." Id. at
731-32, 155 S.E. at 723.
Based on Swindell and Phipps, we hold that the trial court
properly concluded that Mr. Aldridge did not establish a basis
for setting aside the foreclosure sale. For that reason, the
trial court did not err in denying Mr. Aldridge's Rule 60(b)
motion, and we affirm.
Affirmed.
Judge STEELMAN concurs.
Judge ROBERT N. HUNTER, JR. concurred in this opinion prior
to 6 September 2014.
Report per Rule 30(e).