HomeTrust Bank v. Tsiros

An unpublished opinion of the North Carolina Court of Appeals does not constitute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. COA14-267
NORTH CAROLINA COURT OF APPEALS
Filed: 19 August 2014
HOMETRUST BANK,
Plaintiff,
v. Buncombe County
No. 12 CVS 5768
GEORGE N. TSIROS and TAMMY TSIROS,
Defendants.
Appeal by plaintiff from judgment entered 1 October 2013 by
Judge Alan Z. Thornburg in Buncombe County Superior Court.
Heard in the Court of Appeals 21 May 2014.
Dungan, Kilbourne & Stahl, P.A., by James W. Kilbourne,
Jr., and Zephyr Jost, for the plaintiff-appellant.
Matney & Associates, P.A., by David E. Matney III and Amy
P. Mody, for the defendant-appellees.
McCULLOUGH, Judge.
HomeTrust Bank (“plaintiff”) appeals the judgment of the
trial court granting summary judgment in favor of George Tsiros
(“Mr. Tsiros”) and Tammy Tsiros (“Mrs. Tsiros”) (together
“defendants”). For the following reasons, we reverse the
summary judgment in favor of Mr. Tsiros and affirm the summary
judgment in favor of Mrs. Tsiros.
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I. Background
On 15 February 2008, Demelize Property Group, LLC
(“Demelize”) executed a Commercial Promissory Note for $635,000
secured by a Commercial Real Estate Deed of Trust for real
property located at 2975 Memorial Highway, Lake Lure, North
Carolina, payable to plaintiff. On the same day, defendants
individually executed a Commercial Loan Guaranty (“Guaranty”)
backing the Commercial Promissory Note. At the time of
executing the Guaranty, defendants lived at 24 Pine Meadow
Drive, Asheville, North Carolina. Prior to 24 June 2010,
defendants moved to 38 Edwin Place, Asheville, North Carolina,
maintaining the 24 Pine Meadow Drive property as a rental
property. On 26 May 2010, Demelize and defendants executed a
Loan Modification Agreement to reduce the fixed interest rate of
the Commercial Promissory Note and to temporarily allow an
interest only repayment period. In 2011, Demelize stopped
making payments on the loan.
On 11 October 2011, plaintiff appointed Matthew S. Roberson
as substitute trustee. On 20 October 2011, plaintiff, through
Matthew Roberson, filed a Special Proceeding Action with Notice
of Hearing as to Commencement of Foreclosure Proceeding. The
Notice of Hearing (“Notice”) was mailed to the mortgagee:
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Demelize Property Group, LLC c/o Registered Agent, George Tsiros
at 38 Edwin Place, Asheville, NC and PO Box 8517, Asheville, NC.
It was also sent to the guarantors: George Tsiros at 24 Pine
Meadow Drive, Asheville, NC and Tammy Tsiros at 24 Pine Meadow
Drive, Asheville, NC. The Notice sent to Mrs. Tsiros at 24 Pine
Meadow Drive was signed for by the tenant of the property, Erin
Hykin. On 4 November 2011, an Amended Notice of Hearing as to
Commencement of Foreclosure Proceeding was sent to: Demelize
Property Group, LLC c/o Registered Agent, George Tsiros, 38
Edwin Place, Asheville, NC; George Tsiros, 24 Pine Meadow Drive,
Asheville, NC; and Tammy Tsiros, 24 Pine Meadow Drive,
Asheville, NC. On 10 November 2011, George Tsiros, as the
registered agent, signed for and accepted service of the Notice
delivered by FedEx to Demelize at 38 Edwin Place, Asheville, NC.
Defendants did not take any action with regard to the
foreclosure.
On 15 December 2011, the Clerk of Superior Court of
Rutherford County issued an Order Allowing Foreclosure Sale.
Also on 15 December 2011, a Notice of Foreclosure sale was
posted at the Rutherford County Courthouse in the area
designated for posting. On 6 January 2012, plaintiff purchased
the property in question at the foreclosure sale for $222,000,
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resulting in a principal balance deficiency of $389,927.28. On
1 March 2012, plaintiff commenced an action against defendants,
as guarantors, to recover the deficiency. The Final Report and
Accounting of Foreclosure Sale was recorded on 27 March 2012.
In defendants’ answer to the complaint, defendants raised lack
of service of the Notice of Hearing and application of N.C. Gen.
Stat. § 45-21.16(b) as a bar to plaintiff pursuing the
deficiency action. Plaintiff then filed a voluntary dismissal
without prejudice.
On 4 June 2012, plaintiff, through Matthew Roberson, filed
a Motion for Relief from Order of Foreclosure and to Set Aside
the Foreclosure Sale (“Rule 60 Motion”). The motion was
delivered to all parties. On 13 June 2012, an Amended Notice of
Hearing was filed and served. Defendants’ attorney entered
Notice of Appearance on 15 June 2012 to argue against the Rule
60 Motion. The hearing was held on 26 June 2012 in Rutherford
County Superior Court. At the hearing, plaintiff argued to set
aside the foreclosure sale claiming there was not proper service
on defendants. Specifically, plaintiff argued to set aside the
foreclosure sale “in order to give [plaintiff] a new time to
notice everybody up for the hearing so that [defendants] can
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come argue their case.” The court denied the Rule 60 Motion
without issuing findings of fact.
On 5 December 2012, plaintiff filed this action against
defendants to recover the deficiency. Defendants filed an
answer to the complaint on 7 January 2013 raising the following
affirmative defenses: (1) they were not properly served with
the Notice of Hearing in the foreclosure action as required by
N.C. Gen. Stat. § 45-21.16(b), (2) the inadequacy of the bid
amount, and (3) estoppel. On 3 September 2013, plaintiff filed
a Motion for Summary Judgment and the court entered summary
judgment in favor of defendants on 1 October 2013. On 1
November 2013, plaintiff filed Notice of Appeal.
II. Standard of Review
“Our standard of review of an appeal from summary judgment
is de novo; such judgment is appropriate only when the record
shows that ‘there is no genuine issue as to any material fact
and that any party is entitled to a judgment as a matter of
law.’” In re Will of Jones, 362 N.C. 569, 573, 669 S.E.2d 572,
576 (2008) (quoting Forbis v. Neal, 361 N.C. 519, 523–24, 649
S.E.2d 382, 385 (2007)). “On appeal, this Court’s task is to
determine, on the basis of the materials presented to the trial
court, whether there is a genuine issue as to any material fact
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and whether the moving party is entitled to judgment as a matter
of law.” Coastal Plains Utils., Inc. v. New Hanover Cty., 166
N.C. App. 333, 340, 601 S.E.2d 915, 920 (2004).
III. Discussion
Plaintiff’s first argument on appeal is the trial court
erred when it granted summary judgment in favor of Mr. Tsiros
because he had actual notice of the foreclosure. We agree.
After North Carolina’s previous foreclosure statute was
declared unconstitutional, N.C. Gen. Stat. § 45-21.16 “was
enacted to meet the minimum due process requirements of personal
notice and a hearing.” HomeTrust Bank v. Green, ___ N.C. App.
___, ___, 752 S.E.2d 209, 211 (2013) (quotation marks and
citation omitted). Under N.C. Gen. Stat. § 45-21.16(b)(2), a
notice of hearing shall be served upon “[a]ny person obligated
to repay the indebtedness against whom the holder thereof
intends to assert liability therefor, and any such person not
notified shall not be liable for any deficiency remaining after
the sale.” N.C. Gen. Stat. § 45-21.16(b)(2) (2013). “The
notice shall be served and proof of service shall be made in any
manner provided by the Rules of Civil Procedure for service of
summons, including service by registered mail or certified mail,
return receipt requested.” N.C. Gen. Stat. § 45-21.16(a). “Due
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process demands that the trustee make diligent efforts to give
the mortgagor actual notice of the foreclosure hearing so that
the mortgagor may assert any available defenses to foreclosure
or take advantage of the equitable relief found in G.S. § 45–
21.34.” Fleet Nat. Bank v. Raleigh Oaks Joint Venture, 117 N.C.
App. 387, 390, 451 S.E.2d 325, 327 (1994) (emphasis added).
In Fleet Nat. Bank, after the defendants defaulted on their
loan, the plaintiff instituted foreclosure proceedings against
defendant Raleigh Oaks Joint Venture (“ROJV”) and its
principals, Raleigh Oaks Shopping Center Inc. (“ROSC”) and
Seymour Vogel (“Vogel”). Id. at 387-88, 451 S.E.2d at 326. The
plaintiff personally served ROJV and ROSC, but failed in
attempting to personally serve Vogel. Id. at 388, 451 S.E.2d at
326. Plaintiff posted notice of the foreclosure hearing at the
shopping center property. Id. After the foreclosure sale, the
plaintiff sought recovery of the deficiency. Vogel then moved
to dismiss the deficiency action because he was not personally
served. Id. Although Vogel was not personally served, Vogel
admitted he had actual knowledge of the foreclosure sale. Id.
at 389, 451 S.E.2d at 327. Despite his knowledge, Vogel did not
attend the hearing or raise an objection to proper service. Id.This Court held that “Vogel may not assert the defense in G.S. §
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45–21.16(b)(2) since he had actual knowledge of the foreclosure
hearing.” Id. at 389–90, 451 S.E.2d at 327.
In Green, the defendants, Mr. and Mrs. Green, appealed from
summary judgment in favor of the plaintiff granting a deficiency
judgment against them. Green, ____ N.C. App. at ___, 752 S.E.2d
at 210. On appeal, the defendants argued that they were not
personally served notice of the foreclosure sale. Id. at ___,
752 S.E.2d at 211. However, the notice sent to the defendants’
company, Advantage Development Company, in care of Mr. Green was
accepted and signed for by Mr. Green. Id. This Court held that
because Mr. Green accepted service as President of Advantage
Development Company, he had actual notice of the hearing and the
plaintiff was entitled to summary judgment against Mr. Green for
any deficiency. Id. This Court also held that questions of
material fact still remained as to whether Mrs. Green had actual
notice and reversed and remanded for trial. Id. at __, 752
S.E.2d at 212.
In the present case, Mr. Tsiros was not personally served
with notice of the foreclosure hearing, but he accepted service
of the notice as the registered agent of Demelize. He also
admitted at his deposition that he had actual knowledge of the
foreclosure hearing. Yet, despite his knowledge, “he chose to
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sit on his rights and allow the foreclosure to proceed.” Fleet
Nat. Bank, 117 N.C. App at 390, 451 S.E.2d at 328. As in Fleet
Nat. Bank, Mr. Tsiros “may not argue now that service on him was
inadequate” as a defense to his liability for the deficiency.
Id. at 390, 451 S.E.2d at 327. Mr. Tsiros had actual notice of
the hearing “and it is of no material consequence that notice[]
of the hearing[] [was] not mailed to him individually.” Green,
___ N.C. App. at ___, 752 S.E.2d at 211.
Accordingly, pursuant to Fleet Nat. Bank and Green, because
Mr. Tsiros had actual notice of the foreclosure, the defense in
N.C. Gen. Stat. § 45-21.16 is unavailable to him and he is
liable for the deficiency. Therefore, we reverse the trial
court’s grant of summary judgment in favor of Mr. Tsiros.
Plaintiff’s second argument on appeal is the trial court
erred when it granted summary judgment in favor of Mrs. Tsiros
because questions of material fact remain unresolved. We
disagree.
Unlike Mr. Tsiros, there is no evidence that Mrs. Tsiros
had actual knowledge of the foreclosure. She stated during her
deposition that she did not know about the foreclosure and only
found out after plaintiff filed the deficiency action. Mr.
Tsiros also testified that although he had actual knowledge of
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the foreclosure proceedings, he did not share the information
with Mrs. Tsiros. Since Mrs. Tsiros did not have actual
knowledge of the hearing, the issue is whether plaintiff
properly served her with notice.
Plaintiff admitted the service on defendants was improper
at the Rule 60 motion hearing. “Due process demands that the
trustee make diligent efforts to give the mortgagor actual
notice[.]” Fleet Nat. Bank, 117 N.C. App. at 390, 451 S.E.2d at
327 (emphasis added). “Due diligence dictates that plaintiff
use all resources reasonably available to [him or] her in
attempting to locate defendants.” Fountain v. Patrick, 44 N.C.
App. 584, 587, 261 S.E.2d 514, 516 (1980).
When defendants executed the loan modification agreement
with plaintiff in May 2010, defendants’ current 38 Edwin Drive
address was recorded in the agreement. Plaintiff could have
obtained the current address to properly serve defendants had it
simply looked at the agreement on file. However, plaintiff
mailed the notices to defendants’ old address at 24 Pine Meadow
Drive. Plaintiff cannot argue that it did everything it could
to properly serve defendants when, had plaintiff been diligent
in mailing the notices, it could have properly served defendants
at their current address.
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Plaintiff also argues that Mrs. Tsiros is liable for the
deficiency, regardless of whether she had actual notice, because
she suffered no injury. In support of its argument, plaintiff
cites Boley v. Brown, 10 F.3d 218, 222 (4th Cir. 1993), which
states “[w]here the deprivation of a protected interest is
substantively justified but procedures are deficient in some
respect, there may well be those who suffer no distress over the
procedural irregularities . . . .”
Yet, in the present case, Mrs. Tsiros testified that had
she known about the foreclosure sale she would have contacted
family and friends to ask for help. While plaintiff claims that
there is nothing in the record to show that a friend or family
member of Mrs. Tsiros had the requisite financial means to
assist her in paying the debt, defendants submitted an affidavit
of William Pfeiffer who asserted that “[i]f George had contacted
me in the fall of 2011 to borrow funds to pay off the
indebtedness to [plaintiff], I had sufficient assets available
to me such that I could have made such a loan.” It is
reasonable to believe, had Mrs. Tsiros received notice of the
sale, she could have spoken with her husband about possible ways
to avoid foreclosure and she could have asked Mr. Tsiros to
speak with William Pfeiffer about borrowing the money to pay off
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the debt. Thus, it is incorrect to say that Mrs. Tsiros has
suffered no injury.
Accordingly, because plaintiff failed to properly serve
defendants, despite having access to the correct mailing
address, and because Mrs. Tsiros did not have actual knowledge
of the foreclosure hearing, the defense in N.C. Gen. Stat. § 45-
21.16(b) is available to Mrs. Tsiros and she is not personally
liable for the deficiency. Summary judgment in favor of Mrs.
Tsiros was proper.
Defendants also argue the trial court properly granted
summary judgment in their favor because plaintiff cannot
collaterally attack the foreclosure judgment and is estopped
under the doctrine of judicial estoppel. Upon review, we find
these arguments misplaced.
“A collateral attack is one in which a plaintiff is not
entitled to the relief demanded in the complaint unless the
judgment in another action is adjudicated invalid.” Thrasher v.
Thrasher, 4 N.C. App. 534, 540, 167 S.E.2d 549, 553 (1969)
(quotation marks and citation omitted). “A collateral attack on
a judicial proceeding is an attempt to avoid, defeat, or evade
it, or deny its force and effect, in some incidental proceeding
not provided by law for the express purpose of attacking it.”
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Reg'l. Acceptance Corp. v. Old Republic Sur. Co., 156 N.C. App.
680, 682, 577 S.E.2d 391, 392 (2003)(internal quotation marks
omitted).
On the other hand,
[j]udicial estoppel, or preclusion against
inconsistent positions, is an equitable
doctrine designed to protect the integrity
of the courts and the judicial process. . .
. [It] is to prevent litigants from playing
‘fast and loose’ with the courts and
deliberately changing positions according to
the exigencies of the moment. Thus,
[j]udicial estoppel forbids a party from
asserting a legal position inconsistent with
one taken earlier in the same or related
litigation. The doctrine prevents the use
of intentional self-contradiction . . . as a
means of obtaining unfair advantage in a
forum provided for suitors seeking justice.
Price v. Price, 169 N.C. App. 187, 191, 609 S.E.2d 450, 452
(2005) (quotation marks and citations omitted) (alterations in
original).
We find neither collateral attack nor judicial estoppel
applicable in the present case. First, collateral attack does
not apply because plaintiff is not arguing to invalidate the
foreclosure judgment. Instead, plaintiff contends Mr. Tsiros’s
actual knowledge of the original hearing is sufficient under
N.C. Gen. Stat. § 45-21.16(b)(2) and he is, therefore, liable
for the deficiency regardless of whether or not the foreclosure
was set aside. Since plaintiff’s claim is not dependent on the
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outcome of the Rule 60 Motion, collateral attack does not apply.
Likewise, judicial estoppel does not apply in this case because
plaintiff is not arguing a position inconsistent with that
argued at the Rule 60 Motion hearing. During the Rule 60 Motion
hearing, plaintiff argued defendants were not properly served.
Specifically, plaintiff argued “[it] intended to notify
[defendants] and they didn’t perfect that notice . . .” and the
sale should be set aside so that it may go back and serve
defendants properly as it intended to do. In the current case,
plaintiff argues Mr. Tsiros is liable for the deficiency
regardless of whether or not service was proper because he had
actual notice. This current position is not inconsistent with
plaintiff’s position at the Rule 60 Motion hearing; thus,
judicial estoppel does not apply.
IV. Conclusion
For the reasons discussed, we hold the trial court erred in
granting summary judgment in favor of Mr. Tsiros because he had
actual knowledge of the foreclosure. However, we hold the trial
court did not err in granting summary judgment in favor of Mrs.
Tsiros because the evidence produced showed she did not have
actual knowledge of the foreclosure, plaintiff was unable to
provide any evidence that she had actual knowledge, and
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plaintiff was not diligent in providing proper service. As a
result, we reverse the trial court’s grant of summary judgment
in favor of Mr. Tsiros and affirm the trial court’s grant of
summary judgment in favor of Mrs. Tsiros.
Reversed in part; affirmed in part.
Judges STEPHENS and STROUD concur.
Report per Rule 30(e).