Banks v. Hunter , 251 N.C. App. 528 ( 2017 )

IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA16-666
Filed: 17 January 2017
Pasquotank County, No. 14 CVD 740
TONY R. BANKS, Plaintiff.
v.
KIMBERLY HUNTER, Defendant.
Appeal by defendant to review order entered 2 March 2016 by Judge Meader
W. Harriss, III in Pasquotank County District Court denying defendant’s motion for
relief from judgment. Heard in the Court of Appeals 17 November 2016.
The Twiford Law Firm, by John S. Morrison, for plaintiff-appellee.
Gunther Law Group, by Timothy P. Koller; and The Law Office of Jason E.
Gillis, by Jason E. Gillis, for defendant-appellant.
TYSON, Judge.
Kimberly Hunter (“Defendant”) appeals from order denying her Rule 60(b)
motion for relief from judgment. Defendant argues the trial court lacked subject
matter jurisdiction and, alternatively, that it was error for the trial court to deny her
motion for relief from judgment. We conclude the trial court lacked subject matter
jurisdiction and partially vacate one of the underlying judgments and vacate another.
I. Background
BANKS V. HUNTER
Opinion of the Court
On or about 7 February 2014, Tony R. Banks (“Plaintiff”) loaned Defendant
$3,606.46, evidenced by a promissory note dated 7 February 2014 executed by
Defendant (“the Note”). The Note required Defendant to repay the $3,606.46 within
ninety days. In the event of default, Plaintiff would become the sole owner of
Defendant’s real property located at 1100 Possum Quarter Road in Elizabeth City,
North Carolina (“Real Property”).
The relevant language from the Note purporting to grant Plaintiff ownership
of Defendant’s property states: “[f]or Collateral, the property (house & land) at the
address listed below which serves the purpose for this loan will be titled to me upon
receipt of funds. If the borrower fails to make the payment when due, the loan will
be considered in default and the lender will become the sole owner of the said listed
property.”
Four days later, on 11 February 2014, Defendant executed a deed of trust on
the Real Property as security for the Note. The deed of trust was properly recorded
in the Pasquotank County Register of Deeds that day. The deed of trust was signed
by both parties and lists Plaintiff as both the trustee and the beneficiary. The deed
of trust also includes a power of sale clause, stating, in relevant part:
If, however, there shall be any default (a) in the payment
of any sums due under the Note, this Deed of Trust or any
other instrument securing the Note, and such default is not
cured within ten (10) days from the due date, or (b) if there
shall be default in any of the other covenants, terms or
conditions of the Note and such default is not hereby, or
any failure or neglect to comply with the covenants, terms
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Opinion of the Court
or conditions contained in this Deed of Trust or any other
instrument securing the Note and such default is not cured
within fifteen (15) days after written notice, then and in
any of such events, without further notice, it shall be lawful
for and the duty of the Trustee, upon request of the
Beneficiary, to sell the land herein conveyed at public
auction for cash, after having first giving such notice of
hearing and advertising the time and place of such sale in
such manner as may then be provided by law, and upon
such and any resales and upon compliance with the law
then relating to foreclosure proceedings under power of
sale to convey title to the purchaser in as full and ample
manner as the Trustee is empowered.
After Defendant failed to repay the loan, on 16 October 2014 Plaintiff
instituted an action in district court solely on the Note for specific performance and
sought for the court to convey Defendant’s Real Property to him.
Defendant was personally served. When she failed to file an answer, an entry
of default was entered by the Pasquotank County Clerk of Court on 27 January 2015.
Defendant was later served with a Motion for Default Judgment. After the hearing
on the Motion for Default Judgment, the district court entered an order on 13 March
2015 for Defendant to pay Plaintiff’s attorney’s fees and court costs, and to execute a
deed for all her right, title, and interest in the Real Property within ten days. In its
order, the district court expressly retained jurisdiction to enter further orders, if
necessary.
Defendant was served with the Default Judgment Order, but failed to comply.
Plaintiff filed a Motion for Contempt on 17 June 2015 and sought an order to convey
the Real Property to him. After a hearing on Plaintiff’s motion on 24 June 2015, the
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BANKS V. HUNTER
Opinion of the Court
district court entered an Order of Divestiture and Vesting, which purported to divest
Defendant of her Real Property and vest it with Plaintiff, pursuant to Rule 70 of the
N.C. Rules of Civil Procedure.
The time for timely appeal having expired, Defendant filed a Motion for Relief
from Judgment and Order on 8 September 2015, pursuant to Rules 60(b)(3) and
60(b)(6) of the N.C. Rules of Civil Procedure. After hearing arguments from counsel
and testimony of Defendant, the district court rendered an order denying Defendant’s
motion on 12 February 2016, and signed the order on 2 March 2016. On 23 March,
Defendant filed timely notice of appeal from the district court’s order denying her
Rule 60(b) Motion for Relief from Judgment.
II. Jurisdiction
Jurisdiction lies in this Court pursuant to N.C. Gen. Stat § 7A-27(b)(2) (2015),
which provides for appeal of right from any final judgment of a district court in a civil
action.
III. Issues
Defendant argues for the first time on appeal that the district court lacked
subject matter jurisdiction over Plaintiff’s claim for specific performance to convey
Defendant’s Real Property securing the Note. Defendant also argues that the trial
court abused its discretion in denying her Rule 60(b) motion.
We need not reach the issue of whether the district court abused its discretion
in denying Defendant’s Rule 60(b) motion. The district court lacked subject matter
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BANKS V. HUNTER
Opinion of the Court
jurisdiction over Plaintiff’s claim to transfer ownership of Defendant’s encumbered
Real Property to him by specifically enforcing the Note.
IV. Standard of Review
Subject matter jurisdiction is “[j]urisdiction over the nature of the case and the
type of relief sought.” In re T.R.P., 360 N.C. 588, 590, 636 S.E.2d 787, 790 (2006).
(citation omitted) (alteration in original). Subject matter jurisdiction “involves the
authority of a court to adjudicate the type of controversy presented by the action
before it.” Haker-Volkening v. Haker, 143 N.C. App. 688, 693, 547 S.E.2d 127, 130
(citation omitted), disc. review denied, 354 N.C. 217, 554 S.E.2d 338 (2001). A court’s
lack of subject matter jurisdiction is not waivable and can be raised at any time,
including on appeal. Pulley v. Pulley, 255 N.C. 423, 429, 121 S.E.2d 876, 880 (1961).
“Whether a trial court has subject-matter jurisdiction is a question of law, reviewed
de novo on appeal.” McKoy v. McKoy, 202 N.C. App. 509, 511, 689 S.E.2d 590, 592
(2010) (citation omitted).
V. Analysis
A. Subject Matter Jurisdiction
Defendant raises the district court’s lack of subject matter jurisdiction before
this Court. “Subject matter jurisdiction is conferred upon the courts by either the
North Carolina Constitution or by statute.” Harris v. Pembaur, 84 N.C. App. 666,
667, 353 S.E.2d 673, 675 (1987). “Where jurisdiction is statutory and the Legislature
requires the Court to exercise its jurisdiction in a certain manner, to follow a certain
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Opinion of the Court
procedure, or otherwise subjects the Court to certain limitations, an act of the Court
beyond these limits is in excess of its jurisdiction.” In re T.R.P., 360 N.C. at 590, 636
S.E.2d at 790 (citations omitted).
“A court’s subject matter jurisdiction over a particular case is invoked by the
pleading.” Boseman v. Jarrell, 364 N.C. 537, 546, 704 S.E.2d 494, 501 (2010) (citations
omitted). “When a court decides a matter without the court’s having jurisdiction,
then the whole proceeding is null and void, i.e., as if it had never happened.” Hopkins
v. Hopkins, 8 N.C. App. 162, 169, 174 S.E.2d 103, 108 (1970) (citations omitted). “A
void judgment is in legal effect no judgment. No rights are acquired or divested by
it. It neither binds nor bars any one, and all proceedings founded upon it are
worthless.” Hart v. Thomasville Motors, Inc., 244 N.C. 84, 90, 92 S.E.2d 673, 678
(1956) (citation omitted).
B. Remedies for Mortgage Default
The remedies for default of debt and realizing upon real property secured as
collateral are well settled. “A mortgage is a conveyance by a debtor to his creditor, or
to some one in trust for him, as a security for the debt.” Walston v. Twiford, 248 N.C.
691, 693, 105 S.E.2d 62, 64 (1958) (citations omitted). “[A]n equity of redemption is
inseparably connected with a mortgage; that is to say, so long as the instrument is
one of security, the borrower has in a court of equity a right to redeem the property
upon payment of the loan. This right cannot be waived or abandoned by any
stipulation of the parties made at the time, even if embodied in the mortgage.” Bunn
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Opinion of the Court
v. Braswell, 139 N.C. 135, 142 51 S.E. 927, 930 (1905) (quoting Peugh v. Davis, 96
U.S. 332, 337, 24 L. Ed. 775, 776 (1877)). Furthermore,
While in a mortgage or deed of trust to secure a debt the
legal title to the mortgaged premises passes to the
mortgagee or trustee, as the case may be, the mortgagor or
trustor is looked upon as the equitable owner of the land-
with the right to redeem at any time prior to foreclosure.
This right, after the maturity of the debt, is designated his
equity of redemption.
Riddick v. Davis, 220 N.C. 120, 125, 16 S.E.2d 662, 666 (1941) (citations and internal
quotation marks omitted).
North Carolina’s public policy does not look favorably upon efforts to deprive a
debtor and mortgagor of real property of his equity of redemption. See Wilson v.
Fisher, 148 N.C. 535, 62 S.E. 622, 624 (1908) (holding, inter alia, that agreement
between debtor and creditor to waive debtor’s equity of redemption is void).
A long settled exception exists in North Carolina which makes it possible for a
lender to cut off a mortgagor’s equity of redemption:
[I]f a lender, A, insists upon and takes a deed in absolute
form from borrower B, to secure the obligation owed to A,
upon an oral promise or representation that A will
reconvey the land to B upon payment of the indebtedness
at the appropriate time, parol evidence will not be
admissible to show that the absolute deed and the oral
agreement to reconvey upon payment of the indebtedness
were intended to constitute a mortgage for security
purposes only. In the absence of fraud, mistake, ignorance,
or undue influence, parol evidence is inadmissible to show
that such a deed in absolute form was intended as a mere
mortgage.
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Opinion of the Court
James A. Webster, Jr., Webster's Real Estate Law in North Carolina § 13.05[2]
(Patrick K. Hetrick & James B. McLaughlin, Jr. eds., 6th ed. 2011) (footnotes
omitted); See, e.g., Sowell v. Barrett, 45 N.C. 50, 50 (1852) (dealing with this type of
agreement and stating, “[i]n a bill filed to redeem property, conveyed to the [creditor]
by a deed absolute on its face, a Court of Equity will not relieve the plaintiff, upon
mere proof of the parties’ declarations. There must be proof of fraud, ignorance or
mistake, or of facts inconsistent with the idea of an absolute purchase.”)
Similarly, an equity of redemption may not exist when an absolute deed is
conveyed by a grantor to a grantee, which is accompanied by a written agreement to
reconvey to the grantor upon the payment of an agreed amount of money by an agreed
upon time. Obriant v. Lee, 214 N.C. 723, 725, 200 S.E. 865, 867 (1939) (citation
omitted). Unlike an oral agreement to reconvey, parol evidence can be introduced,
even in the absence of fraud, mistake, ignorance, or undue influence, to prove the true
character of the parties’ agreement. See Rice v. Wood, 82 N.C. App. 318, 326, 346
S.E.2d 205, 210 (citation omitted), disc. review denied 318 N.C. 417, 349 S.E.2d 599
(1986).
If a preponderance of the evidence shows the parties intended for the
agreement to be an option to purchase, and not a mortgage, then the grantor cannot
assert an equity of redemption. See Obriant, 214 N.C. at 725, 200 S.E. at 867 (citation
omitted). Also, if a preponderance of the evidence tends to show the parties intended
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Opinion of the Court
for the agreement to be a mortgage, then the grantor (mortgagor) would retain an
equity of redemption. See id. at 727, 200 S.E. at 868 (citation omitted).
Here, Defendant-debtor did not convey an absolute deed to the Plaintiff-lender
that was accompanied by either a written or oral agreement for the Plaintiff-lender
to reconvey the land upon payment of a specific sum of money. Defendant-debtor’s
obligation is evidenced by a promissory note, which was secured by a recorded deed
of trust on Defendant-debtor’s Real Property.
“A creditor can seek to enforce payment of a promissory note by pursuing
foreclosure by power of sale, judicial foreclosure, or by filing for a money judgment,
or all three options, until the debt has been satisfied.” Lifestore Bank v. Mingo Tribal
Pres. Trust, 235 N.C. App. 573, 574, 763 S.E.2d 6, 7 (2014), disc. review denied, 368
N.C. 255, 771 S.E.2d 306 (2015).
C. Foreclosure
In North Carolina, the term “foreclosure” is not defined by statute or case law.
Other jurisdictions define “foreclosure” as “[a] legal proceeding to terminate a
mortgagor's interest in property, instituted by the lender (the mortgagee) either to
gain title or to force a sale in order to satisfy the unpaid debt secured by the property.”
Eastern Savings Bank, FSB v. Esteban, 129 Haw. 154, 155, 296 P.3d 1062, 1063
(2013) (citing Black’s Law Dictionary 719 (9th ed. 2009)); see also Ruiz v. 1st Fid. Loan
Servicing, LLC, 829 N.W.2d 53, 57 (Minn. 2013) (citation omitted); Wirth v.
Commonwealth of Pennsylvania, 626 Pa. 124, 160, 95 A.3d 822, 843 (2014) (citation
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BANKS V. HUNTER
Opinion of the Court
omitted), cert. denied sub nom. Houssels v. Pennsylvania, __ U.S. __, 135 S. Ct. 1405,
191 L. Ed. 2d 362 (2015). North Carolina statutes provide for two means by which a
foreclosure proceeding may be brought against real property: (1) foreclosure by
judicial sale pursuant to N.C. Gen. Stat. § 1-339.1 et seq., or, (2) if expressly provided
within the deed of trust or mortgage, by power of sale under N.C. Gen. Stat. § 45-21.1
et seq. Wolfe v. Wolfe, 64 N.C. App. 249, 255, 307 S.E.2d 400, 404 (1983) (citations
omitted), disc. review denied, 310 N.C. 156, 311 S.E.2d 297 (1984). These statutes
provide the exclusive means for foreclosure in North Carolina. Id.
North Carolina previously recognized the common law “strict foreclosure,”
under which, if a mortgagor failed to satisfy his debt by a fixed date, a court would
convey the mortgagor’s interest in the collateral to the mortgagee without the need
for a sale. Bunn v. Braswell, 139 N.C. at 142, 51 S.E. at 930. To avoid the harsh
result that a mortgagor would lose “any and all interest in [his] land[,]” courts began
to recognize the mortgagor’s equity of redemption, the ability to redeem a mortgage
debt within a reasonable time after default and before foreclosure. Id.
“[A] foreclosure by power of sale is a type of special proceeding, limited in scope
and jurisdiction, in which the clerk of court determines whether a foreclosure
pursuant to a power of sale should be granted.” Mingo, 235 N.C. App. at 579, 763
S.E.2d at 10. A foreclosure by judicial sale “requires formal judicial proceedings
initiated by summons and complaint in the county where the property is located and
culminating in a judicial sale of the foreclosed property if the mortgagee prevails.”
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Opinion of the Court
Phil Mech. Const. Co. v. Haywood, 72 N.C. App. 318, 321, 325 S.E.2d 1, 3 (1985)
(citation omitted).
Here, as indicated by the language in the Note stating “[f]or Collateral, the
property (house & land) at the address listed below which serves the purpose for this
loan will be titled to me upon receipt of funds,” and the subsequently executed deed
of trust containing a power of sale clause, Defendant’s legal title to real property was
conveyed to Plaintiff to hold as a trustee under the deed of trust, and not as an
absolute deed. Walston, 248 N.C. at 693, 105 S.E.2d at 64.
Plaintiff did not file to only seek a money judgment to enforce payment of the
promissory note, but instead also sought specific performance to have Defendant’s
Real Property judicially conveyed to him. Plaintiff’s pursuit of specific performance
in the district court to terminate Defendant’s (the mortgagor’s) interest in her
property in order to gain unencumbered title to satisfy Defendant’s unpaid debt on
the Note and extinguish Defendant’s interest therein, by definition, constitutes a
“foreclosure.” See Wirth, 626 Pa. at 160, 95 A.3d at 843; see also Black’s Law
Dictionary 719 (9th ed. 2009). Because Plaintiff petitioned the district court to
transfer Defendant’s interest in the Real Property to him, without a sale, after default
of repayment and the debt was not repaid by the time specified in the Note, Plaintiff
sought a “strict foreclosure.” See Bunn, 139 N.C. at 142, 51 S.E. at 930. This form of
foreclosure is no longer recognized in North Carolina. Id.
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BANKS V. HUNTER
Opinion of the Court
Based on his complaint, Plaintiff did not seek a foreclosure pursuant to either
N.C. Gen. Stat. § 1-339.1 et seq., or N.C. Gen. Stat. § 45-21.1 et seq. The terms of the
deed of trust grant Plaintiff the power to bring a power of sale foreclosure, which he
did not utilize. He did not ask the court to order a sale of Defendant’s Real Property.
Both of the exclusive and statutory means of foreclosure require a sale of mortgaged
property. See, e.g., N.C. Gen. Stat. § 1-339.1 (“A judicial sale is a sale of property made
pursuant to an order of a judge or clerk in an action or proceeding in the superior or
district court, including a sale pursuant to an order made in an action in court to
foreclose a mortgage or deed of trust[.]” (emphasis supplied); N.C. Gen. Stat. § 45-
21.1(a)(2) (“‘Sale’ means a sale of real property or a sale of any leasehold interest
created by a lease of real property pursuant to (i) an express power of sale contained
in a mortgage, deed of trust, leasehold mortgage, or leasehold deed of trust or (ii) a
‘power of sale’, under this Article, authorized by other statutory provisions.”). By not
pursuing a foreclosure sale, Plaintiff was not seeking a foreclosure procedure allowed
under either of our foreclosure statutes.
Additionally, in a foreclosure sale, the mortgagor-debtor is entitled to any
excess proceeds, the amount obtained from the sale in surplus of the amount owed on
the debt, less the costs of sale. Smith v. Clerk of Superior Court, 5 N.C. App. 67, 73-
74, 168 S.E.2d 1, 5-6 (1969). Plaintiff’s seeking of a judicial conveyance rather than
a sale of the Real Property has the effect of depriving Defendant of any potential
excess proceeds she is entitled to.
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Opinion of the Court
In analyzing the jurisdiction of the district court to grant relief that is not one
of the exclusive means of relief provided by statute, our Supreme Court’s analysis in
Boseman v. Jarrell is instructive. In Boseman, the plaintiff had petitioned for and
obtained from the adoption court a type of adoption that was not one of the three
exclusive means of adoption provided by Chapter 48 of our General Statutes.
Boseman, 364 N.C. at 546, 704 S.E.2d at 501. The Court held, inter alia, that because
the plaintiff had petitioned for a type of adoption, not recognized in our exclusively
statutory adoption laws, the plaintiff’s petition did not invoke the adoption court’s
subject matter jurisdiction. Id. at 547, 704 S.E.2d at 501.
The Court determined that because plaintiff failed to seek a type of adoption
expressly allowed by the adoption statute, plaintiff’s petition for adoption did not
invoke the adoption court’s subject matter jurisdiction and all actions in the
proceeding before the adoption court, including the entry of the decree, were taken
and entered without subject matter jurisdiction. Id. The Court held that because the
General Assembly did not vest our courts with subject matter jurisdiction to create
the type of adoption attempted, the adoption decree was void ab initio. Id. at 539, 704
S.E.2d at 496.
Here, as in Boseman, Plaintiff petitioned for a strict foreclosure of encumbered
property under a deed of trust, a type of relief not afforded under our General
Statutes. Plaintiff’s petition for specific performance to transfer Defendant’s Real
Property to him, amounted to a strict foreclosure, which is unrecognized by our
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Opinion of the Court
statutes providing for the exclusive means of foreclosure. Wolfe, 64 N.C. App. at 255,
307 S.E.2d at 404. Because a court’s subject matter jurisdiction is invoked by the
pleadings, Plaintiff failed to invoke the trial court’s subject matter jurisdiction over
the relief sought by seeking a type of foreclosure which is not allowed for by our
foreclosure statutes. See Boseman at 546, 704 S.E.2d at 501. The actions taken before
the district court, including the Default Judgment Order against Defendant, as it
affects the conveyance of tile of Real Property secured by the deed of trust, were done
without subject matter jurisdiction. The Default Judgment Order, to the extent it
orders the conveyance of Defendant’s Real Property, and the subsequent Order of
Divestiture to enforce the Default Judgment, are void for lack of jurisdiction and are
vacated.
VI. Conclusion
The district court is without subject matter jurisdiction to enter the Default
Judgment Order and Order of Divestiture as they pertain to ordering conveyance of
title of Defendant’s Real Property secured under the deed of trust. The Default
Judgment Order, to the extent it requires Defendant to convey her Real Property
secured under the deed of trust to Plaintiff, is vacated. The Order of Divestiture,
which terminates Defendant’s right, title, and interest in the Real Property and
purports to vest it with Plaintiff, is also vacated. It is so ordered.
VACATED.
Judges McCULLOUGH and DILLON concur.
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