Wilmington Sav. Fund Soc'y, FSB v. Mortg. Elec. Registration Sys., Inc.

IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA18-1060
Filed: 21 May 2019
Mecklenburg County, No. 16 CVS 16352
WILMINGTON SAVINGS FUND SOCIETY, FSB, d/b/a CHRISTIANA TRUST AS
OWNER TRUSTEE OF THE RESIDENTIAL CREDIT OPPORTUNITIES TRUST
III, Plaintiff,
v.
MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., AS NOMINEE FOR
ACOPIA, LLC, SOUTHAMPTON COMMONS HOMEOWNERS ASSOCIATION,
INC., ROSSABI BLACK SLAUGHTER, PA, KEITH H. PROPERTY, LLC, KEITH
LAMANCE HARRELL, IH6 PROPERTY NORTH CAROLINA, LP and DOE
DEFENDANTS A-Z, Defendants.
Appeal by plaintiff from orders entered 4 December 2017 and 16 January 2018
by Judge Eric L. Levinson in Mecklenburg County Superior Court. Heard in the
Court of Appeals 26 March 2019.
Bradley Arant Boult Cummings LLP, by Brian M. Rowlson, Mark S. Wierman
and G. Benjamin Milam, for plaintiff-appellant.
Roberson Haworth & Reese, P.L.L.C., by Alan B. Powell and Christopher C.
Finan, for defendant-appellee IH6 Property North Carolina, LP.
TYSON, Judge.
Wilmington Savings Fund Society (“Plaintiff”) appeals from an order granting
IH6 Property North Carolina, LLC’s (“Defendant”) motion for judgment on the
pleadings pursuant to Rule 12(c) of the N.C. Rules of Civil Procedure and an order
denying Plaintiff’s motion for reconsideration. We reverse and remand.
WILMINGTON SAV. FUND V. IH6 PROP.
Opinion of the Court
I. Background
Keith Harrell purchased property located at 9007 Holland Park Lane in
Charlotte, North Carolina, in February 2009. Harrell borrowed $171,830 from
Acopia, LLC, as evidenced by a promissory note. To secure the note, Harrell executed
a deed of trust in favor of Mortgage Electronic Registration Systems (“MERS”), solely
as nominee for Acopia and its successors and assigns. Through a series of
assignments, LSF9 Master Participation Trust (“LSF9”) acquired the note and deed
of trust in July 2015. Harrell subsequently defaulted on payments due under the
terms of the note and deed of trust.
The Southampton Commons Homeowners Association, Inc. (“HOA”) filed a lien
against Harrell’s property at 9007 Holland Park Lane for unpaid assessments.
Following a hearing in August 2015, the property was sold at auction to Keith H.
Property, LLC (“Keith Property”). The HOA conveyed the property via a quitclaim
deed with title expressly “subject to any and all superior liens,” which was recorded
in the Mecklenburg County Public Registry on 18 December 2015.
Kondaur Capital Corporation (“Kondaur”) acquired the note and deed of trust
on 28 October 2015 through assignment from LSF9. This assignment was recorded
on 3 December 2015. A purported satisfaction of the deed of trust was executed by a
vice president of MERS, without any authority, and was recorded on 2 December 2015
in the Mecklenburg County Public Registry.
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Opinion of the Court
Keith Property conveyed its interest in the property to Defendant via general
warranty deed, recorded on 7 March 2016. Kondaur initiated action against
Defendant; MERS; the HOA; the substitute trustee that handled the HOA sale;
Harrell; and Keith Property on 15 September 2016. Kondaur’s complaint requested
the trial court to issue a judgment declaring, inter alia, the deed of trust remained a
valid, enforceable first priority lien on the property, and that Defendant had acquired
its interest in the property subject to Kondaur’s prior lien. A notice of lis pendens
was filed 26 September 2016. Defendant served its affirmative defenses, answer, and
counterclaim on 21 November 2016, seeking to quiet the title of the property pursuant
to N.C. Gen. Stat. §§ 41-10 and 1-253.
Plaintiff acquired the note and deed of trust from Kondaur in a pool of loans it
purchased on or about 25 November 2016. An assignment evidencing the transaction
was executed on 8 December 2016 and recorded on 21 July 2017. Plaintiff filed a
motion to substitute as a party and an answer to Defendant’s counterclaim on 10
January 2017.
The trial court entered a consent final judgment concerning MERS on 3 April
2017. The court’s consent judgment found and concluded MERS no longer held any
interest in the deed of trust at the time the purported satisfaction was executed and
recorded, it was without authority to execute the satisfaction, and the satisfaction
was void.
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Opinion of the Court
Following discovery, Plaintiff filed a motion for summary judgment in August
2017. In September 2017, Defendant filed a motion for judgment on the pleadings.
After a hearing, the trial court entered an order granting Defendant’s motion for
judgment on the pleadings on 4 December 2017. Plaintiff made a motion for
reconsideration, which was denied without a hearing on 16 January 2018. Plaintiff
timely appealed both orders.
II. Jurisdiction
The order granting judgment on the pleadings and the order denying
reconsideration were interlocutory, as they only disposed of the claim between
Plaintiff and Defendant. Subsequently, Plaintiff voluntarily dismissed all remaining
claims against the other defendants, and Defendant voluntarily dismissed its
counterclaim against Plaintiff. As all other parties and claims have been disposed of,
the orders concerning Plaintiff and Defendant are now final, and are appealable as a
final judgment pursuant to N.C. Gen. Stat. § 7A-27(b) (2017).
III. Issues
Plaintiff argues the trial court erred by granting Defendant’s Rule 12(c) motion
for judgment on the pleadings. It asserts the trial court disregarded the Rule 12(c)
standard of review and improperly drew all inferences in favor of Defendant. Plaintiff
also argues the trial court erred in balancing the equities in favor of Defendant.
IV. Standard of Review
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Opinion of the Court
“Judgment on the pleadings, pursuant to Rule 12(c), is appropriate when all
the material allegations of fact are admitted in the pleadings and only questions of
law remain.” Groves v. Community Hous. Corp., 144 N.C. App. 79, 87, 548 S.E.2d 535,
540 (2001) (internal citations and quotations omitted). All facts and inferences are
to be viewed in the light most favorable to the non-movant. Ragsdale v. Kennedy, 286
N.C. 130, 137, 209 S.E.2d 494, 499 (1974). “All well pleaded factual allegations in the
nonmoving party’s pleadings are taken as true and all contravening assertions in the
movant’s pleadings are taken as false.” Id.
This Court reviews a grant of a motion for judgment on the pleadings de novo.
Carpenter v. Carpenter, 189 N.C. App. 755, 757, 659 S.E.2d 762, 764 (2008).
V. Analysis
The order included in the record is limited, merely concluding, after review of
the pleadings, that Defendant was entitled to judgment as a matter of law and all
Plaintiff’s claims against Defendant are dismissed without prejudice. Prior to ruling
on Plaintiff’s motion for reconsideration, the trial court sent an e-mail, which
concluded with the following paragraph:
[P]lease prepare a summary order without any findings of
fact or anything along the lines of what I’ve described above
and send the same with a SASE to my office in the
Mecklenburg County Courthouse within ten (10) days.
This is a legal determination subject to de novo review, of
course, and nothing is required other than a summary
order. I do wish, however, for you to attach a copy of this
email to the order so that it will make it into the record. As
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WILMINGTON SAV. FUND V. IH6 PROP.
Opinion of the Court
opposed to sending you a one-line email with a decision, I
wanted to let counsel and the parties know the reasons I
have decided to grant the Rule 12(c) motion.
When asked at oral arguments how this Court should view the e-mail included
in the record, Defendant argued the e-mail should be disregarded, and this Court
should only review the orders. Defendant asserted the trial court had later recanted
and sent a subsequent e-mail directing the previous e-mail not to be included in the
record. If such an e-mail was sent, and either party felt the record would be
insufficient without it being included, the record should have supplemented. N.C. R.
App. P. 9(b)(5). Further, Defendant cites to this earlier e-mail contained in the record
in its brief.
This Court’s scope of review is limited by what is included in the record, the
transcripts, and any other items filed pursuant to Rule 9, all of which can be used to
support the parties’ briefs and oral arguments. N.C. R. App. P. 9(a). As part of the
record on appeal, the trial court’s e-mail is included in our de novo review. See id.
A. Plaintiff as Assignee
The trial court’s e-mail purports to distinguish between an “assignment” and
an “acquisition.” The trial court reasoned Plaintiff was not a successor-in-interest of
Kondaur because it “acquired” the note and deed of trust, and is thus unable to stand
in the shoes of Kondaur and its predecessors-in-interest to maintain the original
priority of its interest. The trial court appears convinced by Defendant’s argument,
asserting only the original victim, in this case Kondaur, is eligible to seek the
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Opinion of the Court
equitable remedy to maintain its priority under Union Cent. Life Ins. Co. v. Cates,
193 N.C. 456, 137 S.E. 324 (1927), and its progeny. We disagree.
In the priority of deed recordation, North Carolina is classified as a “pure race”
state. N.C. Gen. Stat. § 47-18(a) (2017); Bourne v. Lay & Co., 264 N.C. 33, 35, 140
S.E.2d 769, 770 (1965). As a pure race state, the first person to record the conveyance
of an interest in property takes priority, whether or not there is notice of other
conveyances. Schuman v. Roger Baker & Assocs., Inc., 70 N.C. App. 313, 316, 319
S.E.2d 308, 310 (1984) (citing Bourne 264 N.C. at 35, 140 S.E. 2d at 771) (“Our
Supreme Court has repeatedly held that no notice, however full or formal, will supply
the want of registration of a deed.”). “The General Assembly, by enacting these laws,
clearly intended that prospective purchasers should be able to safely rely on the
public records.” Schuman, 70 N.C. App. at 316-17, 319 S.E.2d at 311.
Under pure race priority recordation, Defendant, if found to be an innocent
purchaser for value, would be able to rely upon an examination of the Mecklenburg
County Public Registry, which included a satisfaction of the note, recorded on 2
December 2015. An equitable exception exists to this general rule:
As between a mortgagee, whose mortgage has been
discharged of record solely through the act of a third
person, whose act was unauthorized by the mortgagee, and
for which he is in no way responsible, and a person who has
been induced by such cancellation to believe that the
mortgage has been canceled in good faith, and has dealt
with the property by purchasing the title, or accepting a
mortgage thereon as security for a loan, the equities are
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Opinion of the Court
balanced, and the lien of the prior mortgage, being first in
order of time, is superior.
Union Cent. Life Ins. Co., 193 N.C. at 462, 137 S.E. at 327.
Defendant argues this equitable exception can only apply to parties who are
true, innocent victims. The trial court appears to have concluded, as a matter of law
on the pleadings, that Plaintiff, by acquiring the note with notice of the pending
litigation asserting priority, cannot claim to be an innocent victim of the void
satisfaction. Defendant argues this notice deprives Plaintiff of the exception in Union
Central:
If, however, the owner of the mortgage is responsible for
the mortgage being released of record, as when the entry of
satisfaction is made possible by his own neglect, or
misplaced confidence, or his own mistake, or where he is
shown to have received actual satisfaction, or to have
accepted the benefit of the transaction which resulted in
the release, he will not be permitted to establish his lien to
the detriment of one who has innocently dealt with the
property in the belief that the mortgage was satisfied.
Id.
No evidence supports a finding that Plaintiff or Kondaur was responsible for
the release of the mortgage; was neglectful; misplaced confidence; received actual
satisfaction; or benefitted from the transaction, which resulted in the purported
release. In fact, the consent judgment on MERS’ purported action shows otherwise.
Additionally, Defendant has failed to show that North Carolina common law and
statutes do not allow Plaintiff to step into the shoes of Kondaur and its predecessors-
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Opinion of the Court
in-interest and avail itself of the pure race exception set out in Union Central. Id. (“a
mortgagee, whose mortgage has been discharged of record solely through the act of a
third person, whose act was unauthorized by the mortgagee, and for which he is in
no way responsible. . . the lien of the prior mortgage, being first in order of time, is
superior”).
North Carolina law concerning the assignments of contracts is well
established.
The general rule is that contracts may be assigned. The
principle is firmly established in this jurisdiction that,
unless expressly prohibited by statute or in contravention
of some principle of public policy, all ordinary business
contracts are assignable, and that a contract for money to
become due in the future may be assigned.
Hurst v. West, 49 N.C. App. 598, 604, 272 S.E.2d 378, 382 (1980) (citation and
quotation marks omitted).
“Transfer of an instrument, whether or not the transfer is a negotiation, vests
in the transferee any right of the transferor to enforce the instrument, including any
right as a holder in due course.” N.C. Gen. Stat. § 25-3-203(b) (2017). Our Supreme
Court long ago established “the assignee stands absolutely in the place of his
assignor[.]” Smith v. Brittain, 38 N.C. 347, 354 (1844).
Further, “if an innocent purchaser conveys to one who has notice, the latter is
protected by the former’s want of notice and takes free of the equities.” Morehead v.
Harris, 262 N.C. 330, 342, 137 S.E.2d 174, 185 (1964).
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Opinion of the Court
The fact Plaintiff purchased the note and deed of trust from Kondaur while
litigation concerning priority was pending does not foreclose Plaintiff’s ability to avail
itself of the protections of Union Central. Kondaur’s assignment of the deed of trust
to Plaintiff allowed Plaintiff to step into the shoes of Kondaur and its predecessors-
in-interest. Defendant’s argument that subsequent purchasers of negotiable
instruments cannot assert all the rights and defenses of the original holder, in the
absence of fraud or other nefarious conduct, prejudices holders of negotiable
instruments, and would chill or prevent the free and unfettered transferability of
interests in property. Restraints or limitations on the free alienability, assignability,
and transferability of property interests are disfavored in law. Defendant’s argument
is overruled.
B. Applicability of Union Central
Plaintiff argues the trial court improperly balanced the equities in favor of
Defendant. We agree. Plaintiff stepped into the shoes of Kondaur and its
predecessors-in-title and can avail itself of the exception to the pure race notice
addressed in Union Central and its nearly 100 years of progeny.
The rule in Union Central was applied in First Financial Savings Bank v.
Sledge: “The discharge of a perfected mortgage upon public record by the act of an
unauthorized third party entitles the mortgagee to restoration of its status as a
priority lienholder over an innocent purchaser for value.” First Fin. Sav. Bank v.
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Opinion of the Court
Sledge, 106 N.C. App. 87, 88, 415 S.E.2d 206, 207 (1992) (citing Union Central, 193
N.C. at 462, 137 S.E. at 327).
Plaintiff argues Defendant cannot claim it is an innocent purchaser for value.
Whether Defendant was an innocent purchaser for value or not, Plaintiff, the
mortgagee, is entitled to have its priority status restored, if the mortgage was
discharged by an unauthorized act of a third party.
The trial court entered a consent final judgment concerning MERS’ purported
satisfaction of the note and cancellation of the deed of trust on 3 April 2017. The
consent judgment found and concluded MERS no longer held any interest in the deed
of trust at the time the purported satisfaction was executed and cancellation
recorded, had no authority to execute the satisfaction and record the cancellation,
and its action was void. That consent judgment is not challenged, and is now the law
of the case.
VI. Conclusion
An assignee is able to step into the shoes of the assignor and its predecessors-
in-title. The equitable exception to pure race notice in Union Central is available to
restore priority to purchasers of negotiable instruments, whether or not they have
notice of pending litigation. The trial court erred in concluding Plaintiff had no
standing to enforce priority.
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Opinion of the Court
The purported satisfaction of the note and cancellation of the deed of trust is
acknowledged and agreed in the consent judgment to be an unauthorized act of a
third party. A balancing of the equities under Union Central restores Plaintiff’s
priority status over Defendant.
The trial court’s order concluding Defendant was entitled to judgment on the
pleadings as a matter of law is reversed. In light of our ruling and the 3 April 2017
consent order, we remand this matter for the trial court to enter summary judgment
for Plaintiff on Plaintiff’s pending summary judgment motion. It is so ordered.
REVERSED AND REMANDED.
Judges DIETZ and HAMPSON concur.
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