Title: State v. Banks

State: north-carolina

Issuer: North Carolina Supreme Court

Document:

NO. COA12-764 
NORTH CAROLINA COURT OF APPEALS 
Filed: 5 March 2013 
 
 
MICHAEL A. FALK, As Trustee Of The 
Trust Dated 10-26-1989 Having The 
Tax ID Number 65-6043718 (AKA “The 
Charlotte Falk Irrevocable 
Trust”), 
 
         Plaintiff, 
 
 
 
 
v. 
 
         Guilford County 
         Nos. 11 CVS 9587,  
FANNIE MAE (AKA FEDERAL NATIONAL        
MORTGAGE ASSOCIATION); GLASSRATNER 
MANAGEMENT & REALTY ADVISORS LLC; 
IDELL FLOURNEY; SONYA PETIT; LIBA 
MEIERE; SHAWNEQUA DODSON; ADOLFO 
ZARATE; TISHAUN WHITEHEAD; and 
JOHN DOES #1 - #160 BEING THE 
UNIDENTIFIED LESSEES OF THE 
APARTMENT UNITS AT THE PROPERTY 
KNOWN AS “RIDGEWOOD APARTMENTS,” 
        Defendants. 
 
FANNIE MAE (AKA FEDERAL NATIONAL 
MORTGAGE ASSOCIATION), 
            Third Party Plaintiff, 
 
             v. 
 
MICHAEL A. FALK, As Trustee of the 
Trust Dated 10-26-1989 Having the 
Tax ID Number 65-6043718 (AKA “The 
Charlotte Falk Irrevocable Trust”) 
and QUICKSILVER, LLC, 
           Third Party Defendants.         
 
     
              11 SP 1202 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Appeal by plaintiff from order entered 9 March 2012 by 
Judge Lindsay R. Davis, Jr., in Guilford County Superior Court.  
Heard in the Court of Appeals 15 November 2012. 
-2- 
 
 
 
Forman Rossabi Black, P.A., by Gavin J. Reardon and Amiel 
J. Rossabi, for plaintiff appellant. 
 
Carruthers & Roth, P.A., by Rachel S. Decker and J. Patrick 
Haywood, for defendant appellees. 
 
 
McCULLOUGH, Judge. 
 
 
Michael A. Falk (“plaintiff”), as trustee of “The Charlotte 
Falk Irrevocable Trust,” a trust dated 26 October 1989 having 
the tax identification number 65-6043718 (the “Trust”), appeals 
from the trial court’s order granting summary judgment in favor 
of Fannie Mae, also known as the Federal National Mortgage 
Association (“FNMA”).  For the following reasons, we reverse the 
trial court’s grant of summary judgment and remand for entry of 
an order consistent with this opinion. 
I. Background 
In 1992, Quicksilver Corporation (the “corporation”), which 
sometime thereafter changed its name to Hermes Corporation, 
acquired Ridgewood Apartments (the “property”) for $5,150,000.1   
At the time of the acquisition, the corporation financed 
$4,600,000 through the seller and borrowed the remaining 
$550,000 from the Trust.   
                     
1 It is unclear from the record which name the corporation was 
using at the time of the acquisition. Yet, for purposes of this 
appeal, the corporate name is irrelevant. 
-3- 
 
 
On 27 October 1994, the corporation transferred the 
property 
to 
Quicksilver, 
LLC 
(“Quicksilver”), 
a 
limited 
liability company formed 26 October 1994 for the single purpose 
of owning the property. Plaintiff and his son, Harry S. Falk, 
were the member managers of Quicksilver.   
Following the transfer, on 28 October 1994, Quicksilver 
executed a promissory note payable on demand to the Trust in the 
amount of $600,000 (the “Trust Note”). The promissory note 
further indicated that it was “executed to evidence [the] debt 
incurred for the purchase of [the property], and [was] secured 
by a grant of a Deed of Trust on the Property dated October 28, 
1994.” The 28 October 1994 deed of trust (the “Trust Deed”) 
encumbering the property for the benefit of the Trust was 
recorded in Guilford County on 30 December 1994.  
Plaintiff, on behalf of the Trust, made a demand for 
payment on the promissory note in December 1994. Quicksilver 
defaulted; and despite making several payments to the Trust over 
the years, Quicksilver failed to remedy the default and remains 
in default to this day.  Quicksilver’s last payment to the Trust 
was received 12 November 2008.  
Years after the Trust loaned funds to the corporation for 
the 
acquisition 
of 
the 
property, 
Wachovia 
Bank, 
N.A. 
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(“Wachovia”) loaned additional funds to Quicksilver.  In order 
to secure the repayment of the Wachovia loans, on 2 July 1999, 
Quicksilver executed a Deed of Trust, Assignments of Rents, 
Security Agreement, and Financing Statement (the “Wachovia 
Deed”) encumbering the property for the benefit of Wachovia.   
The Wachovia Deed was recorded in Guilford County on 7 July 
1999. In connection with the Wachovia Deed, the Trust also 
executed a subordination agreement on 28 February 2000, agreeing 
to subordinate its interest in the property to Wachovia’s 
interest. The subordination agreement was recorded in Guilford 
County on 15 March 2000. 
Thereafter, on 14 May 2001, Quicksilver refinanced its debt 
to Wachovia by borrowing funds from Lend Lease Mortgage Capital, 
L.P. (“Lend Lease”).  The funds borrowed from Lend Lease were 
sufficient to satisfy the Wachovia debt. In order to obtain the 
Lend Lease loan, Quicksilver executed a Multifamily Note (the 
“FNMA Note”) and secured the note by executing a Multifamily 
Deed of Trust, Assignment of Rents, and Security Agreement (the 
“FNMA Deed”) encumbering the property for the benefit of Lend 
Lease. The FNMA Note and FNMA Deed were executed, delivered, and 
recorded in Guilford County on 14 May 2001.     
-5- 
 
 
Following recordation, Lend Lease assigned its interest in 
the FNMA Note and FNMA Deed to FNMA.  
When Quicksilver subsequently defaulted on the FNMA Note, 
FNMA demanded that Quicksilver pay all amounts due. After 
Quicksilver failed to remedy the default, FNMA proceeded to 
foreclose on the property.  FNMA was the highest bidder at the 
21 July 2011 public sale, and the property was transferred to 
FNMA pursuant to a substitute trustee’s deed dated 2 August 
2011.   
Following acquisition of the property by FNMA, the Trust 
demanded by letter dated 7 September 2011 that FNMA pay off the 
amount owed on the Trust Note.  The demand letter claimed that 
the 
Trust 
was 
owed 
principal 
and 
interest 
totaling 
$3,525,977.05.     
On 6 October 2011, plaintiff filed a verified complaint 
against FNMA and other defendants seeking a declaratory judgment 
affirming that the Trust Deed was a valid and enforceable lien 
on the property and that individual provisions in the Trust 
Deed, specifically the assignment of rents provision, were valid 
and enforceable. Plaintiff’s verified complaint additionally 
sought an injunction to enjoin FNMA and the other defendants 
from collecting rents from residents of the property and 
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interfering with plaintiff’s attempts to manage and supervise 
the property.     
In a separate action, plaintiff also sought to foreclose on 
the property pursuant to the Trust Deed (the “foreclosure 
action”).  A Notice of Hearing Prior to Foreclosure of Deed of 
Trust was filed on 27 October 2011.  The foreclosure action came 
on for hearing on 17 November 2011 before an Assistant Clerk of 
Guilford County Superior Court. Following the hearing, the 
Assistant Clerk filed Findings of Fact and Order of Foreclosure 
allowing the Trust to proceed with the foreclosure.    
On 28 November 2011, FNMA appealed the Findings of Fact and 
Order of Foreclosure to the superior court.    
On 9 December 2011, FNMA filed an answer to plaintiff’s 
verified complaint and additionally filed a counterclaim and 
third-party complaint. Furthermore, FNMA moved the court for a 
temporary restraining order and a preliminary injunction to 
enjoin the foreclosure action.  
FNMA’s motion for a temporary restraining order came on for 
hearing at the 16 December 2011 Civil Session of Guilford County 
Superior Court, the Honorable Patrice A. Hinnant presiding. On 
22 December 2011, an order was filed granting FNMA’s motion for 
a temporary restraining order and further ordering that FNMA’s 
-7- 
 
 
appeal from the foreclosure action, FNMA’s motion for a 
preliminary injunction, and any summary judgment motions in 
plaintiff’s declaratory judgment action filed in the interim be 
scheduled jointly for hearing the week of 16 January 2012.  
Before the scheduled hearing, FNMA filed a motion for 
summary judgment on 6 January 2012, and plaintiff filed a motion 
for summary judgment on 9 January 2012.  
During the 17 January 2012 Civil Session of Guilford County 
Superior Court, FNMA’s appeal from the foreclosure action, 
FNMA’s motion for a preliminary injunction, and FNMA’s and 
plaintiff’s motions for summary judgment came on for hearing 
before the Honorable Lindsay R. Davis, Jr.  
On 9 March 2012, the trial court filed an order granting 
summary judgment in favor of FNMA and reversing the order in the 
foreclosure action entered by the Assistant Clerk of Superior 
Court.  Plaintiff appealed.  
II. Analysis 
Plaintiff raises the following issues on appeal: whether 
the trial court erred by (1) granting summary judgment in favor 
of FNMA; and (2) reversing the order of foreclosure entered by 
the Assistant Clerk of Superior Court. 
 
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(1) Summary Judgment 
The primary issue on appeal is whether the trial court 
erred in entering summary judgment in favor of FNMA.2  In order 
to resolve this issue, the determinative inquiry that we must 
decide is whether the Trust’s lien on the property remains 
valid, enforceable, and superior to FNMA’s lien.  Upon review of 
the record and applicable law, we hold that it does. 
 “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, 524, 649 
S.E.2d 382, 385 (2007)).  Particularly pertinent in this case, 
“[i]f the granting of summary judgment can be sustained on any 
grounds, it should be affirmed on appeal.  If the correct result 
has been reached, the judgment will not be disturbed even though 
the trial court may not have assigned the correct reason for the 
                     
2 The issues plaintiff presents in his brief are really arguments 
in support of his contention that the trial court erred by 
entering summary judgment in favor of FNMA. Therefore, we 
address plaintiff’s arguments under the general heading “Summary 
Judgment.” 
-9- 
 
 
judgment entered.”  Shore v. Brown, 324 N.C. 427, 428, 378 
S.E.2d 778, 779 (1989). 
At the outset of our analysis, we note that “North Carolina 
is a ‘pure race’ jurisdiction, in which the first to record an 
interest in land holds an interest superior to all other[s]  
. . . .”  Rowe v. Walker, 114 N.C. App. 36, 39, 441 S.E.2d 156, 
158 (1994); see also N.C. Gen. Stat. §§ 47-18 and -20 (2011).  
Thus, considering only recordation, the Trust, which recorded 
the Trust Deed on 30 December 1994, has an interest in the 
property superior to that of FNMA, whose predecessor in 
interest, Lend Lease, first recorded the FNMA Deed on 14 May 
2001. However, FNMA does not contend that their interest was 
recorded prior to the Trust’s interest.  Instead, FNMA argues 
that the Trust’s interest in the property either expired 
pursuant to the new life of lien statute or that equitable 
subrogation places them in the priority of Wachovia’s past 
interest.  We address these arguments in order. 
Expiration of Lien 
In granting summary judgment in favor of FNMA below, the 
trial court relied on N.C. Gen. Stat. § 45-37(b) to conclude 
that the Trust’s lien on the property had expired.  As argued by 
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plaintiff and conceded by FNMA, the trial court’s reliance on 
N.C. Gen. Stat. § 45-37(b) was improper. 
In general, N.C. Gen. Stat. § 45-37(b)(1)(2) (2011) 
establishes a conclusive presumption that the terms of a 
security instrument recorded before 1 October 2011 have been 
satisfied from and after the expiration of fifteen years from 
the latter of “(1) [t]he date when the conditions of the 
security instrument were required by its terms to have been 
performed, or (2) [t]he date of maturity of the last installment 
of debt or interest secured thereby[.]”  Moreover, the life of 
lien provision in the statute provides: 
 
The lien of any security instrument 
that secured the payment of money or the 
performance 
of 
any 
other 
obligation 
or 
obligations 
and 
that 
was 
conclusively 
presumed 
to 
have 
been 
fully 
paid 
and 
performed prior to October 1, 2011, pursuant 
to the provisions of this subsection is 
conclusively deemed to have expired and 
shall be of no further force or effect. No 
release, satisfaction, or other instrument 
is necessary to discharge the lien of a 
security 
instrument 
that 
has 
expired; 
however, nothing in this section shall be 
construed as affecting or preventing the 
execution 
and 
recordation 
of 
any 
such 
release, satisfaction, or other document.  
Id.   
-11- 
 
 
As decided by our Supreme Court in Smith v. Davis, 228 N.C. 
172, 45 S.E.2d 51 (1947),3 the conclusive presumption established 
in N.C. Gen. Stat. § 45-37(b) does not arise until after the 
expiration of the fifteen-year period and does not benefit those 
who gain an interest in the property before the presumption 
arises.  Smith, 228 N.C. at 178, 45 S.E.2d at 56.  In light of 
the 
primary 
purpose 
of 
the 
statute, 
“to 
promote 
freer 
marketability in cases where old and unsatisfied mortgages and 
deeds of trust, securing debts, were hampering real estate 
transaction,” the Court held that the conclusive presumption 
arises only in favor of creditors and purchasers for valuable 
consideration who rely on the presumption when contracting.  Id. 
at 180, 45 S.E.2d at 57. 
In the present case, the FNMA Deed was recorded and 
assigned to FNMA on 14 May 2001, approximately six and a half 
years after the Trust Deed was recorded on 30 December 1994.  
Accordingly, the statutory presumption had not arisen at the 
time FNMA acquired a lien on the property and FNMA could not 
have relied on the presumption.  For this reason alone, the 
trial court erred in entering summary judgment in favor of FNMA 
on the basis of N.C. Gen. Stat. § 45-37(b).   
                     
3 Smith v. Davis interpreted N.C. Gen. Stat. § 45-37(5), the 
precursor statute to N.C. Gen. Stat. § 45-37(b). 
-12- 
 
 
 
This, however, is only the beginning of our analysis where, 
on appeal, summary judgment should be affirmed if it can be 
sustained on any ground.  See Brown, 324 N.C. at 428, 378 S.E.2d 
at 779. 
 
Despite conceding that the trial court erred in granting 
summary judgment on the basis of N.C. Gen. Stat. § 45-37(b), 
FNMA contends that the trial court’s grant of summary judgment 
is appropriate because the Trust Deed expired pursuant to the 
new life of lien statute, N.C. Gen. Stat. § 45-36.24, 
specifically subsections (b)(1)(a) and (b)(1)(c)(1).  Assuming 
arguendo 
that 
N.C. 
Gen. 
Stat. 
§ 
45-36.24(b)(1)(a) 
is 
constitutionally 
applicable 
to 
this 
case, 
we 
agree 
that 
subsection (b)(1)(a) is controlling.  
The pertinent portion of N.C. Gen. Stat. § 45-36.24(b) 
provides: 
Except as provided in subsection (g) of this 
section, unless the lien of a security 
instrument has been extended in the manner 
prescribed in subsection (c), (d), or (e) of 
this section, the security instrument has 
been foreclosed, or the security instrument 
has been satisfied of record pursuant to 
G.S. 
45-37, 
the 
lien 
of 
a 
security 
instrument automatically expires, and the 
security instrument is conclusively deemed 
satisfied of record pursuant to G.S. 45-37, 
at the earliest of the following times: 
 
(1) If the security instrument was first 
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recorded before October 1, 2011: 
 
a. If the maturity date of the secured 
obligation 
is 
stated 
in 
the 
security 
instrument, 
15 
years 
after the maturity date. 
 
N.C. Gen. Stat. § 45-36.24(b) (2011).4  Moreover, “[t]he maturity 
date of the secured obligation is ‘stated’ in a security 
instrument if . . . (iii) the maturity date of the secured 
obligation . . . can be ascertained or determined from 
information contained in the security instrument . . . .”  N.C. 
Gen. Stat. § 45-36.24(a)(1)(c). “If all sums owing on the 
secured obligation are due and payable in full on demand and no 
alternative date is specified in the secured obligation for 
payment in full, the maturity date of the secured obligation is 
the date of the secured obligation.”  N.C. Gen. Stat. § 45-
36.24(a)(1)(b). 
 
Here, the Trust Note indicates that it is a demand note 
executed on 28 October 1994.  Furthermore, no alternative date 
is specified for payment in full.  Applying the above-quoted 
provisions of N.C. Gen. Stat. § 45-36.24 to these facts, we 
conclude that the maturity date of the Trust Note is the 
                     
4 The exceptions in subsections (c), (d), (e), and (g) are 
irrelevant in the present case as plaintiff took no steps to 
extend the Trust’s lien or to foreclose on the property prior to 
the expiration of the lien under the statute. 
-14- 
 
 
execution date and that the maturity date is stated in the 
security instrument for purposes of the statute.  Thus, it 
necessarily follows that the Trust Note was conclusively deemed 
satisfied and the lien in the Trust Deed automatically expired 
on 28 October 2009, fifteen years after the maturity date. 
 
Despite the unambiguous language in the statute, plaintiff 
contends that N.C. Gen. Stat. § 45-36.24 is not controlling in 
this case because our Supreme Court’s reasoning in Smith v. 
Davis concerning N.C. Gen. Stat. § 45-37(b), discussed supra, 
applies with “equal vigor” to N.C. Gen. Stat. § 45-36.24. We 
disagree. 
Whereas N.C. Gen. Stat. § 45-37(b) contains the limiting 
language, 
“[i]t 
shall 
be 
conclusively 
presumed 
that 
the 
conditions are . . . complied with or the debts secured thereby 
paid . . . as against creditors or purchasers for valuable 
consideration   . . . from and after the expiration of 15 years 
from whichever  . . . occurs last[]”, N.C. Gen. Stat. § 45-37(b) 
(emphasis added), N.C. Gen. Stat. § 45-36.24(b) contains no such 
limiting language.  Besides the stated exceptions, N.C. Gen. 
Stat. § 45-36.24(b) is absolute in providing that “the lien of a 
security instrument automatically expires, and the security 
instrument is conclusively deemed satisfied of record . . . at 
-15- 
 
 
the earliest of the [listed] times[.]”  N.C. Gen. Stat. § 45-
36.24(b) (emphasis added).  There is no language in N.C. Gen. 
Stat. § 45-36.24(b) that would prevent a lien from expiring as 
to a party acquiring an interest in the collateral before the 
expiration of the fifteen-year period.   
Plaintiff also contends that N.C. Gen. Stat. § 45-36.24(b) 
is not controlling because the statute is unconstitutional as 
applied to this case.5  Specifically, plaintiff contends that 
retroactive application of N.C. Gen. Stat. § 45-36.24(b) to this 
case violates N.C. Const. art. I, § 19, U.S. Const. art. I, § 
10, and/or U.S. Const. amend. XIV, § 1, because it retroactively 
impairs the Trust’s vested rights.  We agree.   
In general, there is no constitutional limitation that 
prohibits the passage of retroactive laws.  Bateman v. Sterrett, 
201 N.C. 59, 63, 159 S.E. 14, 17 (1931).  However, the General 
Assembly may not enact retroactive laws that impair the 
obligation of contracts or disturb vested rights.  Id.  “When a 
statute would have the effect of destroying a vested right if it 
were applied retroactively, it will be viewed as operating 
                     
5 The trial court avoided this argument by relying on N.C. Gen. 
Stat. § 45-37(b), which was in effect when the Trust Deed was 
executed on 28 October 1994. 
-16- 
 
 
prospectively only.”  Bolick v. American Barmag Corp., 306 N.C. 
364, 371, 293 S.E.2d 415, 420 (1982). 
In this case, the Trust’s interest in the property vested 
on 28 October 1994 upon Quicksilver’s execution of the Trust 
Note and the Trust Deed.  At that time, N.C. Gen. Stat. § 45-
36.24 had not been enacted by the General Assembly.  N.C. Gen. 
Stat. § 45-36.24 did not take effect until 1 October 2011.  In 
regard to the Trust’s vested rights, as previously discussed, 
the effect of retroactive application of N.C. Gen. Stat. § 45-
36.24 to this case is to cause the Trust’s lien on the property 
to automatically expire to the benefit of all subsequently 
acquired interests in the property on 28 October 2009, fifteen 
years after the maturity date of the security instrument.  Thus, 
the retroactive application of N.C. Gen. Stat. § 45-36.24 
destroys the Trust’s vested rights to the benefit of FNMA. 
Furthermore, “[i]t is well settled that the general laws of 
the State in force at the time of the execution of a contract 
enter into and become a part thereof.”  Bank v. Derby, 218 N.C. 
653, 658, 12 S.E.2d 260, 263 (1940).  At the time the Trust 
gained a security interest in the property pursuant to the Trust 
Deed, N.C. Gen. Stat. § 45-37 governed the expiration of the 
Trust’s lien.  Yet, as previously discussed, the Trust’s lien 
-17- 
 
 
has not expired to the benefit of FNMA pursuant to N.C. Gen. 
Stat. § 45-37(b), because FNMA acquired their interest in the 
property prior to the time the statutory presumption took 
effect.  
As a result, the Trust’s lien has not expired to the 
benefit of FNMA.  Although we agree that the Trust’s lien 
expired pursuant to the terms of N.C. Gen. Stat. § 45-
36.24(b)(1), we find that the statute is unconstitutional as 
applied to this case. 
Subrogation 
 
In a final effort to uphold the trial court’s grant of 
summary judgment in its favor, FNMA contends that principles of 
equitable subrogation entitle it to the lien priority of 
Wachovia, superior to that of the Trust.  Consequently, FNMA 
asserts that foreclosure of the FNMA Deed extinguished any 
interest the Trust had under the Trust Deed.  We disagree. 
“‘Subrogation is a consequence which equity attaches to 
certain conditions. It is not an absolute right, but one which 
depends on the equities and attending facts and circumstances of 
each case.’”  First Union Nat. Bank of North Carolina v. Lindley 
Laboratories, Inc., 132 N.C. App. 129, 130, 510 S.E.2d 187, 188 
(1999) (quoting 73 Am. Jur. 2d Subrogation § 11 (1974)). 
-18- 
 
 
In Wallace v. Brenner, 200 N.C. 124, 156 S.E. 795 (1931), 
our Supreme Court explained that equitable subrogation does not 
arise in favor of a “mere volunteer” who advances funds that are 
used to discharge a prior encumbrance.  Id. at 131, 156 S.E. at 
798.  But,  
where money is expressly advanced in order 
to extinguish a prior encumbrance, and is 
used 
for 
this 
purpose, 
with 
the 
just 
expectation on the part of the lender of 
obtaining a valid security, . . . the lender 
. . . may be subrogated to the rights of the 
prior 
encumbrancer 
whose 
claim 
he 
has 
satisfied, there being no intervening equity 
to prevent. It is of the essence of this 
doctrine that equity does not allow the 
encumbrance to become satisfied as to the 
advancer of the money for such purposes, but 
as to him keeps it alive, and as though it 
had been assigned to him as security for the 
money.  
Id. at 131, 156 S.E. at 798-99 (internal quotation marks and 
citations omitted).  Applying this rule to the facts in Wallace, 
the Court found that where the lender seeking subrogation was 
not a mere volunteer and was not guilty of culpable negligence, 
and where the intervening lienor was not prejudiced, it would be 
inequitable not to grant the lender subrogation.6  Id. at 133, 
156 S.E. at 799. 
                     
6 “The exceptions to the general rule to the doctrine of 
subrogation [are]: (1) The relief is not granted to a volunteer; 
(2) nor where the party claiming relief is guilty of culpable 
negligence; (3) nor where to grant relief will operate to the 
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It is this reasoning from Wallace on which FNMA now relies 
to argue for equitable subrogation in this case, where Lend 
Lease loaned Quicksilver money for the express purpose of paying 
off Quicksilver's debt to Wachovia and Quicksilver agreed to 
give the FNMA Deed first priority. 
 
However, in Peek v. Wachovia Bank & Trust Co., our Supreme 
Court inferred that equitable subrogation was only entitled to 
those “excusably ignorant” of an intervening lien.  242 N.C. 1, 
15, 86 S.E.2d 745, 755 (1955) (“[A]s a general rule one who 
furnishes money for the purpose of paying off an encumbrance on 
real or personal property, at the instance either of the owner 
of the property or of the holder of the encumbrance, either upon 
the express understanding or under circumstances from which an 
understanding will be implied, that the advance made is to be 
secured by a first lien on the property, will be subrogated to 
the rights of the prior lienholder as against the holder of an 
intervening lien, of which the lender was excusably ignorant.”). 
(emphasis 
added). 
Although 
excusable 
ignorance 
was 
not 
determinative in Peek, in First Union Nat. Bank of North 
Carolina v. Lindley Laboratories, Inc., this Court relied on the 
language in Peek and determined the lender was not entitled to 
                                                                  
prejudice of the junior lienholder.”  Wallace, 200 N.C. at 132, 
156 S.E. at 799. 
-20- 
 
 
equitable subrogation, because it was not excusably ignorant of 
an intervening lien.  132 N.C. App. at 130-31, 510 S.E.2d at 
188-89. 
 
In this case, the Trust, having subordinated its lien to 
that of Wachovia, is in the position of an intervening lienor.  
Thus, where the Trust’s lien was recorded, FNMA cannot claim 
excusable ignorance.  Furthermore, where FNMA had notice of the 
Trust’s lien, FNMA could have taken steps to guarantee itself 
first priority.  FNMA, however, failed to successfully do so.  
Despite common management, the Trust and Quicksilver are 
separate entities; thus, an agreement by Quicksilver to grant 
FNMA first priority is not binding on the Trust.  Lastly, we see 
the potential for prejudice to the third-party beneficiaries of 
the trust if FNMA was subrogated to the status of Wachovia.  As 
a result, we hold that subrogation would be inequitable in this 
instance. 
(2) Foreclosure 
Plaintiff also contends that the trial court erred in 
reversing the order filed in the foreclosure action allowing the 
Trust to proceed with foreclosure on the property.  We agree. 
For the reasons discussed above, the Trust’s lien on the 
property was valid and superior to FNMA’s lien.  Therefore, the 
-21- 
 
 
Trust’s lien was not extinguished by the foreclosure of the FNMA 
Deed and the Trust has the right under the Trust Deed to 
foreclose on the property. 
III. Conclusion 
For the reasons discussed above, we reverse the trial 
court’s grant of summary judgment in favor of FNMA and remand 
for 
entry 
of 
an 
order 
consistent 
with 
this 
opinion.  
Additionally, we reverse the trial court’s order reversing the 
order of foreclosure entered by the Assistant Clerk of Superior 
Court. 
Reversed and remanded. 
Judges GEER and STEPHENS concur.