Iris Enterprises, Inc. v. Five Wins, LLC , 235 N.C. App. 311 ( 2014 )

NO. COA14-192
NORTH CAROLINA COURT OF APPEALS
Filed: 5 August 2014
IRIS ENTERPRISES, INC.,
Plaintiff,
v. Wake County
No. 13 CVS 4167
FIVE WINS, LLC,
Defendant.
Appeal by defendant from Order entered 18 September 2013 by
Judge Carl R. Fox in Superior Court, Wake County. Heard in the
Court of Appeals 4 June 2014.
Hatch, Little & Bunn, LLP, by John N. McClain, Jr., A.
Bartlett White, and Justin R. Apple, for plaintiff-
appellee.
Morris, Russell, Eagle & Worley, PLLC, by Benjamin L.
Worley, for defendant-appellant.
STROUD, Judge.
Five Wins, LLC (“defendant”), appeals from an order entered
18 September 2013, requiring the trustee of property encumbered
by a deed of trust to pay Iris Enterprises (“plaintiff”)
$24,291.24 as surplus from the foreclosure sale of that
property. We affirm.
I. Background
-2-
On 8 March 2007, Greenfield Durham, LLC executed a
promissory note for $3,959,000.00 in favor of Capital Bank. As
collateral for that loan, plaintiff executed a deed of trust in
favor of Capital on three pieces of real property. Iris is owned
by Massoumeh Valanejad, who is one of two owners of Greenfield.
Greenfield defaulted on the note in 2010. On 31 March 2010,
Capital sent Greenfield a letter declaring a default and
accelerating the terms of the loan. Greenfield did not pay the
balance of $870,902.84. As a result, Capital initiated
foreclosure proceedings against the encumbered properties.
Before the foreclosure sale could proceed, Iris filed for
Chapter 11 bankruptcy, which stayed the foreclosure proceedings.
The United States Bankruptcy Court for the Eastern District of
North Carolina entered a Chapter 11 Plan that required Iris to
make full payment on or before 5 January 2013. Iris failed to do
so.
On 8 March 2013, Capital sold Greenfield’s debt to
defendant. Defendant re-opened foreclosure proceedings and
demanded payment of $971,670.03 in order for Iris to redeem the
property and cancel the deed of trust. On 26 March 2013,
plaintiff filed a complaint in Wake County Superior Court
seeking an injunction to prohibit the foreclosure sale and a
-3-
declaratory judgment on the “payoff on the Note secured by the
Deed of Trust.” The trial court issued a temporary restraining
order halting foreclosure proceedings until it could hold a
hearing.
On 28 June 2013, the trial court entered its declaratory
judgment. It made a number of findings of fact and concluded
that the “pay-off amount that Iris must pay to Five Wins to
redeem the Property and cancel the Deed of Trust is $894,711.25
as of 6 May 2013 . . . .” It further concluded that interest
would accrue at $314.08 per day while Iris would “receive credit
for payments in the amount of $356.45 every day until pay-off by
Iris, or Foreclosure by Five Wins.” It therefore decreed:
The pay-off amount that Iris must pay to
Five Wins to redeem the Property and cancel
the Deed of Trust is $894,711.25 as of 6 May
2013, which includes, in the discretion of
the Court, “attorneys’ fees” of $43,640.92,
with that amount decreasing by $42.37 each
day until pay-off by Iris, or foreclosure by
Five Wins[.]
The trial court also permitted Five Wins to move forward
with its foreclosure sale, which it did. At the foreclosure
sale, Five Wins bid $875,000.00, but WA Venture, LLC made an
upset bid of $918,750.00. WA Venture then assigned its upset bid
to Five Wins. On 27 August 2013, the trustee of the encumbered
property filed a “Final Report and Account of Foreclosure Sale”
-4-
(original in all caps), which reported various disbursements,
including $856,286.33 as the “Right of Redemption pursuant to
Declaratory Judgment” and $24,105.61 as going toward the
“Secured Obligation(s) (partial)”. Under the disbursement made
by the trustee, the entire $917,750.00 was used, leaving no
surplus.
Plaintiff believed that these disbursements contravened the
declaratory judgment. So, it noticed a hearing, without filing
an accompanying motion, and requested that the trial court
“clarify” its previous declaratory judgment. The trial court
rejected defendant’s argument that the prior judgment did not
control because “there is a distinction between ‘the payoff on
the Promissory Note’ and the ‘amount to redeem real
property[.]’” It entered an order on 18 September 2013, wherein
it concluded that its prior judgment determined the
amount of the payoff on the Promissory Note
applicable to Plaintiff, and after payment
by the Substitute Trustee of the amounts set
out therein, along with the three (3)
expenses set out in paragraph 16 above
[relating to expenses incurred after the
judgment was entered], there should have
been surplus funds totaling $24,291.24 to be
paid to Plaintiff as owner of the
Collateral.
-5-
The trial court therefore ordered the trustee to pay $24,291.24
to plaintiff as surplus from the foreclosure sale. Defendant
filed written notice of appeal on 25 September 2013.
II. Distribution of Foreclosure Sale Assets
Defendant argues that the trial court invaded the sole
province of the trustee by determining that the trustee had
misapplied the funds from the foreclosure sale. We conclude that
defendant lost the opportunity to challenge the trial court’s
decision when it failed to appeal the declaratory judgment,
which determined the “pay-off” amount and the amount of
attorney’s fees.
Any error in the trial court’s 18 September 2013 order
necessarily follows from the declaratory judgment. In that
order, the trial court determined the attorney’s fees and “pay-
off amount” necessary to exercise the equitable remedy of
redemption. Contrary to defendant’s argument, the law of this
state has long been that the right of redemption allows a
mortgagor “to regain complete title by paying the mortgage debt,
plus any interests and any costs accrued.” James A. Webster,
Jr., Webster’s North Carolina Real Estate Law, § 13.05[1] (6th
ed. 2013). The redemption amount thus is the amount of
indebtedness. So, when the trial court concluded that the “pay-
-6-
off” amount was $894,711.25, it was ruling on the amount of the
indebtedness, including accrued interest and fees. Indeed, in
the September order, the trial court specifically concluded that
the June judgment “was intended to set out the amount of the
payoff on the Promissory Note applicable to Plaintiff . . .”
Further, in the prior judgment, the trial court calculated the
amount of interest that would accrue each day and the credit for
payments that Iris would receive until “pay-off by Iris, or
foreclosure by Five Wins.”
Once these amounts were set, any sale price in excess of
that amount, deducting other reasonable expenses incurred after
entry of the order and contemplated by that order, must be
considered surplus. See N.C. Gen. Stat. § 45-21.31(b) (2013)
(“Any surplus remaining after the application of the proceeds of
the sale as set out in subsection (a) shall be paid to the
person or persons entitled thereto, if the person who made the
sale knows who is entitled thereto.” (emphasis added)). Once the
trial court determined the amount of the payoff and the per diem
sums of interest which would accrue until paid in full, and that
determination was not appealed, it was the law of the case and
the trustee was required to follow the court’s order.
-7-
Although we have said that disbursements of proceeds from a
foreclosure sale “are within the sole province of the
trustee[,]” in none of the cases cited by defendant has there
been a prior order from a declaratory judgment action
determining the relevant amounts. In re Foreclosure of Deed of
Trust Executed by Ferrell Bros. Farm, Inc., 118 N.C. App. 458,
461, 455 S.E.2d 676, 678 (1995). “When an order is not appealed,
it becomes[] the law of the case, and other . . . judges [are]
without authority to enter orders to the contrary.” Kelly v.
Kelly, 167 N.C. App. 437, 443, 606 S.E.2d 364, 369 (2004).
Certainly if one superior court judge cannot overrule another,
the trustee of a property in foreclosure lacks authority to
overrule a superior court judge. See Cato v. Crown Financial,
Ltd., 131 N.C. App. 683, 686, 508 S.E.2d 822, 824 (1998)
(holding that a prior final judgment was the law of the case,
which the debtor corporation’s receiver could not reduce or
modify), disc. rev. denied, 350 N.C. 593, 536 S.E.2d 836 (1999).
Even assuming that the declaratory judgment exceeded the trial
court’s authority, defendant cannot now challenge it.1 Defendant
does not argue that the trial court was without jurisdiction to
1
Plaintiff also argues that the trial court erred in concluding
that defendant was entitled to any attorney’s fees, but
plaintiff similarly failed to appeal the declaratory judgment,
so we have no jurisdiction to address that issue.
-8-
enter the declaratory judgment, so any argument to that effect
has been abandoned. N.C.R. App. P. 28(a). Therefore, we affirm
the trial court’s 18 September 2013 order enforcing its
unappealed declaratory judgment.
III. Conclusion
For the foregoing reasons, we affirm the order of the trial
court.
AFFIRMED.
Judges STEPHENS and MCCULLOUGH concur.