In re Foreclosure of Gibbs

An unpublished opinion of the North Carolina Court of Appeals does not constitute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. COA13-1396
NORTH CAROLINA COURT OF APPEALS
Filed: 2 September 2014
IN THE MATTER OF THE FORECLOSURE OF A
DEED OF TRUST EXECUTED BY CLARENCE L.
GIBBS AND DEBORAH B. GIBBS IN THE
ORIGINAL AMOUNT OF $1,280,000.00 DATED Dare County
MAY 16, 2006, RECORDED IN BOOK 1686, No. 09 SP 380
PAGE 322, DARE COUNTY REGISTRY
SUBSTITUTE TRUSTEE SERVICES, INC.,
SUBSTITUTE TRUSTEE
Appeal by respondents from order entered 15 July 2013 by
Judge John E. Nobles, Jr., in Dare County Superior Court. Heard
in the Court of Appeals 23 April 2014.
The Law Office of John T. Benjamin, Jr., P.A., by John T.
Benjamin, Jr., and James R. White, for Petitioner-Appellee.
Phillip H. Hayes for Respondents-Appellants.
ERVIN, Judge.
Respondents Clarence L. Gibbs and Deborah B. Gibbs appeal
from a 15 July 2013 order allowing a foreclosure sale to
proceed. On appeal, Respondents challenge several of the trial
court’s findings of fact and conclusions of law on the grounds
that Petitioner U.S. Bank National Association, as Trustee for
Citigroup Mortgage Loan Trust, Inc. 2006-AR7, Mortgage-Backed
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Notes, Series 2006-AR7, had failed to establish that it was the
holder of the note evidencing Respondents’ indebtedness and
could not, for that reason, foreclose upon their property.
After careful consideration of Respondents’ challenges to the
trial court’s order in light of the record and the applicable
law, we conclude that the trial court’s order should remain
undisturbed.
I. Factual Background
Respondents own a house and lots located at 130 Fort Hugar
Way in Manteo. On 16 May 2006, First Independent Mortgage
Company loaned Respondents $1,280,000.00, with the resulting
debt being evidenced by a note and secured by a deed of trust
recorded at Book 1686, Page 322, in the office of the Register
of Deeds of Dare County. According to the note and related deed
of trust, Respondents were required to make monthly payments of
principal and interest, with any failure to make these payments
sufficient to constitute an act of default.
As a result of Respondents’ failure to make the monthly
payments required under the terms of the note and deed of trust,
Substitute Trustee Services, Inc., acting in its capacity as
substitute trustee under the deed of trust, initiated
foreclosure proceedings on 8 June 2009. Although they entered
into a forbearance agreement with the lender on 20 October 2009,
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that agreement was terminated when Respondents failed to make
required payments. After entering into a second forbearance
agreement with the lender on 4 October 2010, Respondents failed
to comply with the terms of that agreement as well. According
to the language contained in these forbearance agreements,
efforts to foreclose under the deed of trust were authorized
following termination of the agreement.
On 7 June 2011, the substitute trustee filed an amended
notice of hearing prior to foreclosure sale.1 The foreclosure
proceeding came on for hearing on 4 May 2012 before Anita C.
Simpson, Assistant Clerk of Superior Court for Dare County. At
the conclusion of that hearing, the Assistant Clerk entered an
order allowing the substitute trustee to conduct a foreclosure
sale in accordance with the terms of the deed of trust. On 11
May 2012, Respondents noted an appeal to the Dare County
Superior Court from the Assistant Clerk’s order.
Respondents’ appeal came on for hearing at the 15 July 2013
civil session of the Dare County Superior Court. At the
hearing, Petitioner introduced the affidavit of Kimberly
Mueggenberg, the vice president of loan documentation for Wells
Fargo Bank, N.A., which established that Wells Fargo was the
1
In the initial notice of sale, the petitioner was named as
Citigroup Global Markets Realty Corp., care of Wells Fargo Bank,
N.A. The amended petition named Petitioner as the lender
instead of Citigroup.
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servicing agent associated with the underlying loan and
maintained custody of the business records associated with
Respondents’ account. According to those records, which were
made in the regular course of Wells Fargo’s business at or near
the time of the events recorded in those records and which were
based upon the personal knowledge of the person making the
entries reflected in those records, First Independent Mortgage
Company indorsed Respondents’ note to American Home Mortgage
Corporation prior to 11 September 2006, while American Home
Mortgage Corporation indorsed the note “in blank” prior to 24
April 2009. Subsequently, Respondents’ note was specifically
indorsed to Petitioner,2 who currently possessed the original
note and had indorsed it “in blank.” A number of exhibits were
attached to Ms. Mueggenberg’s affidavit, including a copy of the
note and deed of trust. In addition to Ms. Mueggenberg’s
affidavit, Petitioner introduced the original note into evidence
at the hearing. Although Respondents conceded the existence of
a valid debt, that they had received notice of the proceeding,
and that they were in default, they objected to the legal
conclusions contained in Ms. Mueggenberg’s affidavit concerning
2
The conversion of an indorsement in blank to a specific
endorsement is specifically authorized by N.C. Gen. Stat. § 25-
3-205(c).
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Petitioner’s status as the holder of the note and as to the
legal effectiveness of the indorsements reflected on the note.
On 15 July 2013, the trial court entered an order allowing
the substitute trustee to proceed with the foreclosure sale. In
its order, the trial court found as fact that the note had been
indorsed by First Independent Mortgage to American Home Mortgage
prior to 11 September 2006, had been indorsed “in blank” by
American Home Mortgage prior to 24 April 2009, had been
specifically indorsed by American Home Mortgage to Petitioner,
and had then been indorsed by Petitioner “in blank.” Based on
these findings and the other evidence contained in the record,
the trial court concluded that the note evidenced a valid debt
owed by Respondents, that Petitioner was the holder of the note,
that Respondents were in default under the note and deed of
trust, that the deed of trust contained a power of sale
provision authorizing Petitioner to foreclose in the event of a
default, and that the proposed foreclosure sale was not barred
by N.C. Gen. Stat. § 45–21.12A. As a result, the trial court
authorized the substitute trustee to proceed with the
foreclosure sale in accordance with the terms set out in the
deed of trust. Respondents noted an appeal to this Court from
the trial court’s order.
II. Substantive Legal Analysis
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On appeal, Respondents argue that the trial court erred in
the course of determining that Petitioner was the holder of the
note that evidenced their indebtedness. More specifically,
Respondents challenged the sufficiency of the evidence to
support the trial court’s findings of fact relating to the
validity of the indorsements on the note and the trial court’s
conclusion of law that Petitioner held Respondents’ note and was
entitled to proceed with a foreclosure sale pursuant to N.C.
Gen. Stat. § 45-21.16. Respondents’ arguments lack merit.
A. Standard of Review
“When an appellate court reviews the decision of a trial
court sitting without a jury, ‘findings of fact have the force
and effect of a verdict by a jury and are conclusive on appeal
if there is evidence to support them, even though the evidence
might sustain a finding to the contrary.’” In re Bass, 366 N.C.
464, 467, 738 S.E.2d 173, 175 (2013) (quoting Knutton v.
Cofield, 273 N.C. 355, 359, 160 S.E.2d 29, 33 (1968)).
“‘Conclusions of law drawn by the trial court from its findings
of fact are reviewable de novo on appeal.’” Id. (quoting
Carolina Power & Light Co. v. City of Asheville, 358 N.C. 512,
517, 597 S.E.2d 717, 721 (2004)). We will now utilize the
applicable standard of review to evaluate the validity of
Respondents’ challenges to the trial court’s order.
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B. Analysis of the Trial Court’s Order
1. Challenges to the Trial Court’s Findings
As an initial matter, Respondents argue that the trial
court made several findings of fact concerning the indorsements
that had been made with respect to the note on the grounds that
the record was devoid of sufficient competent evidence to
establish that the various indorsements had been made by
individuals with the authority to act in that manner and at the
time specified in the trial court’s findings. More
specifically, Respondents contend that the record did not
contain sufficient evidence to establish that the note had been
indorsed by First Independent Mortgage to American Home
Mortgage, that American Home Mortgage indorsed the note in
blank, that the note was subsequently indorsed to Petitioner,
that Petitioner indorsed the note in blank, and that any of
these indorsements had been made at any particular point in
time. Respondents’ arguments lack merit.
“An indorsement is ‘a signature . . . that alone or
accompanied by other words is made on an instrument for the
purpose of . . . negotiating the instrument.’” Bass, 366 N.C.
at 468, 738 S.E.2d at 176 (quoting N.C. Gen. Stat. § 25–3–
204(a)). “If an indorsement is made by the holder of an
instrument, whether payable to an identified person or payable
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to bearer, and the indorsement identifies a person to whom it
makes the instrument payable, it is a ‘special indorsement’.”
N.C. Gen. Stat. § 25–3–205(a). “If an indorsement is made by
the holder of an instrument and it is not a special indorsement,
it is a ‘blank indorsement.’ When indorsed in blank, an
instrument becomes payable to bearer and may be negotiated by
transfer of possession alone until specially indorsed.” N.C.
Gen. Stat. § 25–3–205(b). According to well-established North
Carolina law, there is a strong presumption in favor of the
legitimacy of indorsements in order to protect the transfer of
negotiable instruments “by giving force to the information
presented on the face of the instrument.” Bass, 366 N.C. at
468, 738 S.E.2d at 176.
In its order, the trial court found as a fact that the note
had been indorsed by First Independent Mortgage to American Home
Mortgage prior to 11 September 2006; that the note had been
indorsed “in blank” by American Home Mortgage Corporation prior
to 24 April 2009; that the note had subsequently been
specifically indorsed to Petitioner; and that Petitioner had
indorsed the note “in blank.” Respondents challenge the
sufficiency of the evidentiary support for these findings on the
grounds that Ms. Mueggenberg’s affidavit did not contain any
information explaining the specific basis for the assertion that
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the indorsements were authentic, that they had been made by
individuals who were properly authorized to act in that manner,
and that they were made at the time indicated in the affidavit
concerning the authenticity of the indorsements. In support of
this series of assertions, Respondents rely upon this Court’s
decision in In re Bass, 217 N.C. App. 244, 253-55, 720 S.E.2d
18, 25-27 (2011), in which we stated that “an indorsement does
not prove itself, but must be established . . . by proper
testimony[,]” and that, when a party challenges a signature, the
burden of proving the validity of the signature, and in this
case, the indorsement is on the Petitioner, and held that “the
burden properly remained upon Petitioner to prove [the] validity
[of the indorsements].”
Unfortunately for Respondents, however, the Supreme Court
overruled our decision in Bass, expressly rejecting the
contention that the petitioner bore the burden of proving the
validity of the indorsement and stating, instead, that “[a]
signature[, or indorsement, on a Note] is presumed to be
authentic and authorized . . . until some evidence is introduced
which would support a finding that the signature is forged or
unauthorized.” Bass, 366 N.C. at 470, 738 S.E.2d at 177
(citations omitted). Based upon that logic, the Supreme Court
held that, “[u]ntil the defendant produces such evidence, the
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plaintiff is not required to prove that [the signature] is
valid,” with the defendant being “required to make some
sufficient showing of the grounds for the denial before the
plaintiff is required to introduce evidence.” Id. (citation
omitted). In support of this determination, the Supreme Court
noted that “[t]he UCC drafters’ strong presumption in favor of
the legitimacy of indorsements protects the transfer of
negotiable instruments by giving force to the information
presented on the face of the instrument.” Id. at 468, 738
S.E.2d at 176. As a result, Respondents were required to elicit
evidence calling the validity of the indorsements into question
before Petitioner had any obligation to establish their
authenticity and validity.
The original note presented by Petitioner at the hearing
evidenced the following indorsements: First Independent
Mortgage to American Home Mortgage; American Home Mortgage
Corporation to Petitioner; and Petitioner “in blank.” A careful
examination of the record reveals the presence of no evidence
that casts any doubt upon the authenticity or validity of the
indorsements shown on the original note or indicates that the
indorsements were not made at the time specified in Ms.
Mueggenberg’s affidavit. In light of the Supreme Court’s
holding in Bass that an indorsement on a note is “presumed to be
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authentic and authorized . . . until some evidence is introduced
which would support a finding that the signature is forged or
unauthorized” and the fact that Respondents have not introduced
any evidence tending to show that the indorsements were neither
authentic nor authorized, we conclude that Respondents’
challenges to the trial court’s order based on the absence of
evidence tending to show the validity and authenticity of the
indorsements lack merit. Bass, 366 N.C. at 470, 738 S.E.2d at
177 (stating that the respondent’s “bare assertions, with no
supporting evidence, did not amount to a sufficient showing of
the grounds for the denial”) (citation omitted).
In addition, Respondents contend that the trial court
erroneously concluded that Petitioner had proved that it, as
Trustee, was authorized to hold the note. In support of this
argument, Respondents argue that Ms. Mueggenberg’s affidavit
does not contain any assertion that she had reviewed the
relevant pooling agreement to determine whether Petitioner was,
in fact, entitled to proceed with the foreclosure process. N.C.
Gen. Stat. § 25-3-110(c)(2) provides, however, that, “[i]f an
instrument is payable to . . . a trust, an estate, or a person
described as trustee or representative of a trust or estate, the
instrument is payable to the trustee, the representative, or a
successor of either, whether or not the beneficiary or estate is
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also named[.]” As we have already noted, the note at issue here
was specifically indorsed to Petitioner U.S. Bank National
Association, as Trustee for Citigroup Mortgage Loan Trust, Inc.
2006-AR7, Mortgage-Backed Notes, Series 2006-AR7, before being
indorsed “in blank.” As a result, contrary to Respondents’
contention, trustees like Petitioner are authorized to hold the
note in a foreclosure proceeding without any necessity for the
affidavit to address the pooling agreement.
Finally, Respondents argue that the fact that Petitioner
had indorsed the note in blank suggested that Petitioner
intended to transfer the note to a third party, a fact that
effectively precluded the trial court from concluding that
Petitioner held the note. However, N.C. Gen. Stat. § 25-3-
205(b) provides that, “[w]hen indorsed in blank, an instrument
becomes payable to bearer and may be negotiated by transfer of
possession alone until specially indorsed.” Thus, given that
the existence of an indorsement in blank does not establish that
a note has been transferred and that Petitioner was in
possession of the note at the time of the hearing, Respondents’
argument is devoid of legal or factual support. As a result,
none of Respondents’ challenges to the trial court’s findings
relating to Petitioner’s status as the holder of Respondents’
note have merit.
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2. Challenges to the Trial Court’s Conclusions
In addition to challenging the trial court’s findings of
fact relating to the issue of whether Petitioner held
Respondents’ note, Respondents argue that the trial court
erroneously concluded that Petitioner was the holder of
Respondents’ note. Once again, we conclude that Respondents’
contention has no merit.
A trustee under a deed of trust is entitled to foreclose
upon a tract of real property in the event that there is “(i)
[a] valid debt of which the party seeking to foreclose is the
holder, (ii) default, (iii) [a] right to foreclose under the
instrument, [and] (iv) notice to those entitled to such . . . .”
Bass, 366 N.C. at 467, 738 S.E.2d at 175; N.C. Gen. Stat. § 45-
21.16(d). “In order to find that there is sufficient evidence
that the party seeking to foreclose is the holder of a valid
debt, we must find (1) competent evidence of a valid debt, and
(2) that the party seeking to foreclose is the current holder of
the Note.” In re Manning, __ N.C. App. __, __, 747 S.E.2d 286,
291 (2013). The extent to which a particular party is the
holder of a note is a question of law controlled by the Uniform
Commercial Code, as adopted and codified in Chapter 25 of the
North Carolina General Statutes. Bass, 366 N.C. at 467, 738
S.E.2d at 175-76.
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The holder of a negotiable instrument is “the person in
possession of a negotiable instrument that is payable either to
bearer or to an identified person that is the person in
possession[.]”3 N.C. Gen. Stat. § 25-1-201(b)(21)(a). “[I]n
determining whether a person is a holder[,] [i]t is the fact of
possession which is significant . . . and the absence of
possession defeats that status.” Connolly v. Potts, 63 N.C.
App. 547, 550, 306 S.E.2d 123, 125 (1983). “‘[M]ere possession’
of a note by a party to whom the note has neither been indorsed
nor made payable ‘does not suffice to prove ownership or holder
status.’” In re Adams, 204 N.C. App. 318, 323, 693 S.E.2d 705,
710 (2010) (quoting Econo-Travel Motor Hotel Corp. v. Taylor,
301 N.C. 200, 203, 271 S.E.2d 54, 57 (1980)). However, “[w]hen
indorsed in blank, an instrument becomes payable to bearer and
may be negotiated by transfer of possession alone until
specially indorsed.” N.C. Gen. Stat. § 25–3–205(b).
According to the undisputed record evidence, Petitioner was
in possession of the original note at the time of the hearing.
As a general proposition, the instances in which this Court has
3
The term “‘[p]erson’ means an individual, corporation, . .
. or any other legal or commercial entity,” N.C. Gen. Stat. §
25–1–201(b)(27), while the term “bearer” is “a person in control
of a negotiable electronic document of title or a person in
possession of a negotiable instrument, negotiable tangible
document of title, or certificated security that is payable to
bearer or indorsed in blank.” N.C. Gen. Stat. § 25–1–201(b)(5).
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held that possession of the original note did not suffice to
show that the person in possession is the “holder” involved
situations in which the note was either “(1) not drawn, issued,
or indorsed to the party, to bearer, or in blank, or (2) the
trial court neglected to make a finding in its order as to which
party had possession of the note at the hearing.” Manning, __
N.C. App. at __, 747 S.E.2d at 292; see e.g., In re David A.
Simpson, P.C., 211 N.C. App. 483, 492, 711 S.E.2d 165, 172
(2011). Neither of these factual patterns is present in this
case. Instead, consistent with the trial court’s findings, the
record reflects that Petitioner presented the original note to
the trial court for inspection at the hearing. In addition, as
Respondents concede, the note contained an indorsement in blank
executed by Petitioner. As a result, given that Petitioner was
in possession of the original note and that the note in question
had been indorsed in blank, the record sufficed to support the
trial court’s conclusion that Petitioner was the holder of the
note. Manning, __ N.C. App. at __, 747 S.E.2d at 292 (holding
that the petitioner’s presentation of the original note, which
had been properly indorsed in blank, to the trial court
sufficiently supported the trial court’s finding that the
petitioner was the present note holder).
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In addition, Ms. Mueggenberg’s affidavit contained
additional evidence tending to show that Petitioner held
Respondents’ note. In her affidavit, Ms. Mueggenberg stated
that, based upon her review of the mortgage loan account’s
business records, she had personal knowledge that “[Petitioner]
has indorsed the subject note ‘in blank,’” and that
“[Petitioner] currently has possession of the subject note.”
After carefully reviewing the record, we see no basis for
determining that the trial court abused its discretion by
admitting the Mueggenberg affidavit into evidence. Simpson at
488, 711 S.E.2d at 170 (holding that the trial court is entitled
to exercise its sound discretion in receiving documents into
evidence at a foreclosure proceeding, with appellate review of
such decisions being limited to determining whether there was a
clear abuse of discretion). As a result, for all of these
reasons, we are satisfied that the record adequately supports
the trial court’s conclusion that Petitioner was the current
holder of Respondents’ note.4
4
In a recent case addressing a similar issue, this Court
stated that, “[w]here petitioner, at a foreclosure hearing
before the trial court, produced the original mortgage loan note
reflecting a blank indorsement and an affidavit stating that the
lienholder was in possession of the Note, such was sufficient to
establish the lienholder as the holder of the Note.” In re
Cornish, __ N.C. App. __, __, 757 S.E.2d 526, 526 (2014)
(unpublished). Although we are not bound by our prior
unpublished decisions, see United Services Automobile Assn. v.
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Finally, Respondents argue that the trial court erred by
finding as a fact that the original note had continuously been
in Petitioner’s physical possession since prior to 15 April 2009
on the grounds that Petitioner introduced evidence that another
entity held the note after that date. In support of this
contention, Respondents point out that the record contained
information tending to show that, on 4 May 2009, Citigroup
Global Markets Realty Corporation held Respondents’ note.
Although the information upon which Respondents rely in
advancing this assertion does appear in the record, the
Mueggenberg affidavit stated, and the trial court found, that
Petitioner had maintained physical possession of the note since
prior to 15 April 2009. As a result, given that the trial
court’s findings “are conclusive on appeal if there is evidence
to support them, even though the evidence might sustain a
finding to the contrary,” Bass, 366 N.C. at 467, 738 S.E.2d at
175, and the fact that the challenged finding has adequate
evidentiary support, the existence of the inconsistency in the
record upon which Respondents’ argument rests is of no
Simpson, 126 N.C. App. 393, 396, 485 S.E.2d 337, 339, disc.
review denied, 347 N.C. 141, 492 S.E.2d 37 (1997) (holding that
this Court is not bound by a prior unpublished decision made by
another panel of this Court), we believe that Cornish sheds
additional light on our decision that the record contains
sufficient evidence to establish that Petitioner held
Respondents’ note.
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consequence. Moreover, even if the trial court erred in the
course of making this finding, any such error would clearly be
harmless given the trial court’s finding that Petitioner
possessed the original note, which had been indorsed in blank,
at the time of the hearing. Manning, __ N.C. App. at __, 747
S.E.2d at 292; In re T.M., 180 N.C. App. 539, 547, 638 S.E.2d
236, 240-41 (2006) (stating that, in the event that other
findings support the trial court’s decision, the presence of one
or more unsupported or erroneous findings constitutes harmless
error). As a result, Respondents are not entitled to relief
from the trial court’s judgment on the basis of their challenge
to the trial court’s conclusion that Petitioner held
Respondents’ note.
III. Conclusion
Thus, for the reasons set forth above, we conclude that
none of Respondents’ challenges to the trial court’s order have
merit. As a result, the trial court’s order should be, and
hereby is, affirmed.
AFFIRMED.
Judges GEER and STEPHENS concur.
Report per Rule 30(e).