Opinion ID: 1266312
Heading Depth: 3
Heading Rank: 3

Heading: Tangible Property

Text: N.C.G.S. § 1-75.4(6) concerns actions related to Local Property and permits our courts to hear cases which arise out of [a] claim to recover for any benefit derived by the defendant through the use, ownership, control or possession by the defendant of tangible property situated within this State either at the time of the first use, ownership, control or possession or at the time the action is commenced. N.C.G.S. § 1-75.4(6)(b) (2005). Plaintiffs' mortgage was in the form of a deed of trust. A deed of trust is a three-party arrangement in which the borrower conveys legal title to real property to a third party trustee to hold for the benefit of the lender until repayment of the loan. See 1 James A. Webster, Jr., Webster's Real Estate Law in North Carolina § 13-1, at 538 (Patrick K. Hetrick & James B. McLaughlin, Jr. eds., 5th ed. 1999). This three-party arrangement differs from a two-party mortgage in which the conveyance is directly to the lender; here, the conveyance is to a trustee for the lender's benefit. See id. § 13-3, at 540-41. When the loan is repaid, the trustee cancels the deed of trust, restoring legal title to the borrower, who at all times retains equitable title in the property. See id. § 13-1, at 538. In this case, as a result of the execution of a deed of trust for a second mortgage loan, equitable title in the property remained with plaintiffs; legal title was conveyed to nonparty trustee First Carolina Bank; and beneficial interest was ultimately held by the 1997-1 Trust. The beneficial interest held by the 1997-1 Trust does not constitute use, ownership, control or possession of the property. This Court has not specifically addressed the application of N.C.G.S. § 1-75.4(6)(b) to a case such as this. However, our Court of Appeals has considered a factually similar case and concluded that our courts lacked personal jurisdiction. In Whitener v. Whitener, 56 N.C.App. 599, 289 S.E.2d 887, disc. rev. denied, 306 N.C. 393, 294 S.E.2d 221 (1982), the plaintiff, a North Carolina resident, brought an action seeking an accounting of payments received by his ex-wife on a purchase money note. Id. at 599, 289 S.E.2d at 888. The plaintiff argued that personal jurisdiction existed under N.C.G.S. § 1-75.4(6)(b), contending that the defendant derived benefit through her ownership of real estate in North Carolina. Id. at 601, 289 S.E.2d at 889. The plaintiff and the defendant sold the North Carolina property in question more than fifteen years before the action was filed and, as part of the sale, took a purchase money note secured by a deed of trust. Id. at 599, 289 S.E.2d at 888. At the time of the sale and thereafter, the defendant was domiciled in Florida where she received payments on the note sent from North Carolina. Id. On these facts, our Court of Appeals concluded that there was no personal jurisdiction. 56 N.C.App. at 602, 289 S.E.2d at 890. Whitener is persuasive because it involved a deed of trust arrangement analogous to the one in this case with two important distinctions. In the instant case, the nonresident holding the beneficial interest under the deed of trust, the 1997-1 Trust, does not directly collect payments from North Carolina residents as the defendant in Whitener did. Further, the 1997-1 Trust did not participate in the transaction giving rise to the deed of trust as the Whitener defendant did by participating in the sale of her land. Thus, the 1997-1 Trust's connections to North Carolina are even more tenuous than those of the defendant in Whitener. As the Court of Appeals acknowledged in Whitener, exercising personal jurisdiction over a party who holds the beneficial interest in a deed of trust secured by North Carolina real property but has no other connections to this state would arguably violate due process requirements of the Fourteenth Amendment to the U.S. Constitution. Id. at 601-03, 289 S.E.2d at 889-90. Hence, the analysis under this provision of our long-arm statute blends to some extent with the next step in the personal jurisdiction inquiry: whether 1997-1 Trust has sufficient minimum contacts with North Carolina to comport with due process requirements.