In re: FrucellaÂ

IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA18-212
Filed: 2 October 2018
Mecklenburg County, No. 15-SP-493
IN THE MATTER OF THE FORECLOSURE OF A DEED OF TRUST EXECUTED
BY DAVID L. FRUCELLA AND MARILYN L. FRUCELLA DATED JUNE 28, 1985
AND RECORDED IN BOOK 5044 AT PAGE 764 IN THE MECKLENBURG
COUNTY PUBLIC REGISTRY, NORTH CAROLINA
Appeal by respondents from order entered 3 October 2017 by Judge Carla N.
Archie in Mecklenburg County Superior Court. Heard in the Court of Appeals 5
September 2018.
Nelson Mullins Riley & Scarborough, L.L.P., by Donald R. Pocock, for
petitioner-appellee.
Thurman, Wilson, Boutwell & Galvin, P.A., by James P. Galvin, for
respondents-appellants.
ZACHARY, Judge.
David and Marilyn Frucella (“Respondents”) appeal from a trial court’s order
allowing CitiMortgage, Inc. to foreclose on their home under the power of sale
provision in their deed of trust, arguing that CitiMortgage was not the holder of the
Note, which was lost. We find that CitiMortgage satisfied the statutory provisions
for enforcement of a lost note, and was permitted by law to enforce the Note.
Therefore, we affirm the trial court’s order.
Background
IN RE: FRUCELLA
Opinion of the Court
On 28 June 1985, Respondents executed an Adjustable Rate Note (“Note”) in
the amount of $191,000 for their new home on Wharton Lane in Matthews, North
Carolina, naming The Lomas & Nettleton Company as lender. On that same day,
Respondents executed a deed of trust on the property to secure the loan evidenced by
the Note. The deed of trust contained a power of sale clause permitting the lender to
sell the residence in the event the Frucellas defaulted on their obligation to pay the
Note. On 5 November 1997, an instrument titled “Substitution of Trustee” was
recorded, providing in part that “Crestar Bank is now the owner and holder of said
Note and lien created by the foregoing Deed of Trust[.]” On 21 January 2003, another
document titled “Substitution of Trustee” was recorded, providing in part that
“SunTrust Bank, Inc. is now the owner and holder of said Note and lien created by
the foregoing Deed of Trust.”
Respondents made their last payment on the Note on 10 August 2010, bringing
the loan current through June 2010. Nine months later CitiMortgage, acting as the
attorney-in-fact for The Lomas & Nettleton Company, assigned the deed of trust at
issue to CitiMortgage. Respondents were then given notice of their default by letter
from CitiMortgage on 23 December 2010. A non-judicial foreclosure proceeding was
commenced on 20 June 2011, but was dismissed without prejudice by order of the
Clerk on 1 April 2013.
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IN RE: FRUCELLA
Opinion of the Court
Another non-judicial foreclosure proceeding was commenced on 28 January
2015 and was heard before the Clerk of Superior Court of Mecklenburg County on 5
April 2017, and the Clerk entered an Order allowing the foreclosure sale.
Respondents appealed to Superior Court, and this matter was heard by the Honorable
Carla N. Archie on 24 August 2017. At the hearing, the trial court was presented
with two lost note affidavits of April Daniels, employed by CitiMortgage as an
Assistant Vice President, Assistant Officer Legal Support. One of the Daniels
affidavits stated that subsequent to the execution of the Loan, the Note was
transferred to CitiMortgage and that after the Loan was transferred, the original
Note was lost. The other Daniels affidavit stated, inter alia, that: (1) “At the time
CitiMortgage, Inc. lost possession of the original Note, such party had the right to
enforce the Note and Deed of Trust[,]” (2) “The loss of possession of the Note is not
the result of the original Note being assigned, endorsed, or delivered to another party,
cancelled, pledged, hypothecated or otherwise transferred, nor was the loss of
possession the result of a lawful seizure of the Note[,]” and (3) “After a good faith,
thorough and diligent manual search, the hard copy collateral file pertaining to the
Loan (which pursuant to CitiMortgage, Inc.’s regular business practice would be
expected to contain the original note) was not located.”
On 3 October 2017, the trial court entered an order allowing the foreclosure
sale. The trial court found:
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IN RE: FRUCELLA
Opinion of the Court
12. After the Note and Deed of Trust were transferred to
CitiMortgage, the original Note was lost. CitiMortgage
offered testimony by affidavit that 1) CitiMortgage was in
possession at the time the original Note was lost or
destroyed; 2) after a good faith, thorough and diligent
manual search, CitiMortgage was not able to locate the
Note; 3) The loss of possession was not the result of the
Note being assigned, endorsed, delivered to another party,
cancelled, pledged, hypothecated [or] otherwise
transferred.
....
14. The right to enforce the lost note constitutes a valid
debt as described in [N.C. Gen. Stat.] § 45-21.16(d) of which
CitiMortgage is the holder. . . .
15. Respondents have presented no credible evidence
tending to show that any other entity is the holder of the
debt or there is an actual controversy regarding
CitiMortgage’s status as the holder. Namely, Respondents
have not shown there is another person or entity other than
CitiMortgage seeking to enforce the debt. At best,
Respondents presented documents tending to show there
are other entities who previously had some interest or may
have some interest in the outcome of these proceedings.
Respondents did not present any evidence tending to show
any entities are presently adverse to CitiMortgage or that
Respondents are in danger of making duplicate payments.
Respondents filed timely notice of appeal.
Analysis
Respondents maintain that the trial court erred in permitting the foreclosure
sale because CitiMortgage was not the holder of the Note as required by N.C. Gen.
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IN RE: FRUCELLA
Opinion of the Court
Stat § 45-21.16(d) (2017). As explained below, we reject this argument and affirm the
order of the trial court.
CitiMortgage’s Authority to Seek Non-Judicial Foreclosure
When this court reviews a trial court’s order permitting a foreclosure sale,
where the trial court sat 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). Unchallenged findings of fact are
presumed correct and binding on appeal. In re Schipof, 192 N.C. App. 696, 700, 666
S.E.2d 497, 500 (2008). On appeal, the trial court’s conclusions of law are reviewable
de novo. Bass, 366 N.C. at 467, 738 S.E.2d at 175.
Our General Assembly has established a procedure to avoid lengthy and costly
judicial foreclosures and instead has permitted parties to expeditiously resolve
mortgage defaults via a non-judicial power of sale if authorized in the parties’
mortgage or deed of trust. See N.C. Gen. Stat. § 45-21.16 (2017); 1 Patrick K. Hetrick
and James B. McLaughlin, Jr., Webster’s Real Estate Law in North Carolina §  13.31
(Matthew Bender, 6th Ed. 2011). This Court has explained a power of sale as follows:
A power of sale is a contractual arrangement in a mortgage
or a deed of trust which confers upon the trustee or
mortgagee the power to sell the real property mortgaged
without any order of court in the event of a default. A
power of sale provision in a deed of trust is a means of
avoiding lengthy and costly foreclosures by action, whereby
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IN RE: FRUCELLA
Opinion of the Court
the parties have agreed to abandon the traditional
foreclosure by judicial action in favor of a private
contractual remedy to foreclose.
In re Adams, 204 N.C. App. 318, 321, 693 S.E.2d 705, 708 (2010) (citations, internal
brackets, and quotation marks omitted). This procedure provides for a hearing before
the clerk of court in the county where the land is located. N.C. Gen. Stat. § 45-21.16(d)
(2017). The statute strictly details the evidence the clerk can receive and the findings
the clerk can make:
Upon such hearing, the clerk shall consider the evidence of
the parties and may consider, in addition to other forms of
evidence required or permitted by law, affidavits and
certified copies of documents. If the clerk finds the
existence of (i) valid debt of which the party seeking to
foreclose is the holder, (ii) default, (iii) right to foreclose
under the instrument, (iv) notice to those entitled to such
under subsection (b), (v) that the underlying mortgage debt
is not a home loan as defined in G.S. 45-101(1b), or if the
loan is a home loan under G.S. 45-101(1b), that the pre-
foreclosure notice under G.S. 45-102 was provided in all
material respects, and that the periods of time established
by Article 11 of this Chapter have elapsed, and (vi) that the
sale is not barred by G.S. 45-21.12A, then the clerk shall
authorize the mortgagee or trustee to proceed under the
instrument, and the mortgagee or trustee can give notice
of and conduct a sale pursuant to the provisions of this
Article.
Id. (emphasis added). The clerk’s ruling may be appealed de novo to a district or
superior court judge having jurisdiction within ten days of the clerk’s ruling. Id. §
45-21.16(d1).
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IN RE: FRUCELLA
Opinion of the Court
Under the Uniform Commercial Code (“UCC”), as adopted in North Carolina,
the “[h]older” of a note is defined as: “[t]he person in possession of a negotiable
instrument that is payable either to bearer or to an identified person that is the
person in possession[.]” Id. § 25-1-201(d)(21)(a). When an entity no longer possesses
the note or has lost the note, it may nevertheless prove the existence of a valid debt.
See id. §§ 25-3-301, -309(a). Section 25-3-309 of the UCC provides a three-part test
of the entitlement to enforce a lost instrument:
A person not in possession of an instrument is entitled to
enforce the instrument if (i) the person was in possession
of the instrument and entitled to enforce it when loss of
possession occurred, (ii) the loss of possession was not the
result of a transfer by the person or a lawful seizure, and
(iii) the person cannot reasonably obtain possession of the
instrument because the instrument was destroyed, its
whereabouts cannot be determined, or it is in the wrongful
possession of an unknown person or a person that cannot
be found or is not amenable to service of process.
Id. § 25-3-309(a). Both statute and case law sanction the use of affidavits as
competent evidence to establish the required statutory elements in a de novo
foreclosure hearing. Id. § 45-21.16(d) (“[T]he clerk shall consider the evidence of the
parties and may consider . . . affidavits[.]); In re Goddard and Petersen, PLLC, ___
N.C. App. ___, ___, 789 S.E.2d 835, 844 (2016). See also Emerald Portfolio, LLC v.
Outer Banks/Kinnakeet Assocs., LLC, __ N.C. App. ___, ___, 790 S.E.2d 721, 723
(2016) (party seeking to enforce lost note used an affidavit setting out § 25-3-309
elements to enforce a lost note).
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IN RE: FRUCELLA
Opinion of the Court
Respondents argue that CitiMortgage cannot seek a non-judicial power of sale
foreclosure because it is not the holder of the Note due to loss of the Note. This
argument is without merit.
Here, applying the lost note statute, the trial court found:
12. After the Note and Deed of Trust were transferred to
CitiMortgage, the original Note was lost. CitiMortgage
offered testimony by affidavit that 1) CitiMortgage was in
possession at the time the original Note was lost or
destroyed; 2) after a good faith, thorough and diligent
manual search, CitiMortgage was not able to locate the
Note; 3) The loss of possession was not the result of the
Note being assigned, endorsed, delivered to another party,
cancelled, pledged, hypothecated [or] otherwise
transferred.
This finding of fact tracks the required elements to establish that a party not in
possession of an instrument is nonetheless entitled to enforce the instrument as set
out in N.C. Gen. Stat. § 25-3-309(a) (2017). This finding is supported by the record
evidence, including numerous affidavits of representatives of CitiMortgage
addressing the three factors set forth in § 25-3-309(a).
Respondents further maintain that CitiMortgage “failed to present sufficient
evidence that it was the holder of the Note.” The attacks on the affidavits presented
are tantamount to attacks on the credibility of the evidence, which we will not review.
See Sellers v. Morton, 191 N.C. App. 75, 79, 661 S.E.2d 915, 920 (2008) (“When the
trial court sits as a finder of fact, questions concerning the weight and credibility of
the evidence are the province of the trial court.”).
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IN RE: FRUCELLA
Opinion of the Court
We hold that this evidence was sufficient to support the trial court’s findings
of fact, and that those findings of fact support the trial court’s conclusion of law that
the Note was enforceable by CitiMortgage under N.C. Gen. Stat. § 25-3-309. We make
this holding recognizing that the Respondents presented evidence showing that other
parties previously had or may have an interest in this proceeding; however, we agree
with the trial court’s finding that “Respondents have presented no credible evidence
tending to show that any other entity is the holder of the debt or there is an actual
controversy regarding CitiMortgage’s status as the holder.” The trial court’s findings
are supported by competent evidence and are therefore conclusive “even though the
evidence might sustain a finding to the contrary.” Bass, 366 N.C. at 467, 738 S.E.2d
at 175.
The trial court properly concluded that CitiMortgage was the holder in due
course of a valid debt and was entitled to proceed with the power of sale foreclosure
under the terms of the parties’ deed of trust. Accordingly, we affirm the trial court.
AFFIRMED.
Judges STROUD and MURPHY concur.
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