Court Opinion

ID: 9603854
Source: CourtListenerOpinion
Date Created: 2023-08-22 02:10:22.501246+00
Date Added: 2024-06-11T18:02:14.603872
License: Public Domain

BRYANT, Judge
dissenting.
The majority holds the statute of limitations for plaintiffs’ claims under Chapter 24 (N.C. Gen. Stat. § 24-1 et seq.) had expired and therefore plaintiffs’ complaint was properly dismissed. For the reasons which follow, I respectfully dissent from the majority opinion.
Plaintiffs brought their action alleging the loan origination fee, charged by defendant and rolled back into plaintiff’s high-end second mortgage loan was usurious and illegal under Chapter 24. There are two statutory penalties for usury in N.C.G.S. § 24-2 and each penalty *483has a two-year statute of limitations. See N.C. Gen. Stat. § 1-53(2) (2003). However, the point at which the statute of limitations begins to run is different depending on whether the plaintiff seeks forfeiture or double recovery. “The statute runs from the date of payment for the double-recovery remedy, and from the date of the agreement for the forfeiture remedy.” Merritt v. Knox, 94 N.C. App. 340, 342, 380 S.E.2d 160, 162 (1989) (citing Haanebrink v. Meyer, 47 N.C. App. 646, 267 S.E.2d 598 (1980)). Here, plaintiffs seek only the double-recovery remedy, yet the majority holds the statute of limitations runs from the date of the loan closing. That holding is contrary to our statutory and common law. As our court has stated:
It is well settled that the statute of limitations on the recovery of twice the amount of interest paid begins to run upon payment of the usurious interest. The right of action to recover the penalty for usury paid accrues upon each payment of usurious interest giving rise to a separate cause of action to recover the penalty therefor, which action is barred by the statute of limitations at the expiration of two years from such payment.
Haanebrink v. Meyer, 47 N.C. App. 646, 648, 267 S.E.2d 598, 599 (1980) (citations omitted) (emphasis added).
The dispositive issue concerns when the two-year statute of limitations period begins to accrue. The majority cites a North Carolina federal district court case, which was upheld by the Fourth Circuit in support of its conclusion that the statute of limitations accrues on the loan closing date. Faircloth v. Nat’l Home Loan Corp., 313 F. Supp. 2d 544 (M.D.N.C. 2003), aff’d, 87 Fed. Appx. 314 (4th Cir. 2004) (unpublished) (holding the plaintiffs cause of action began at loan closing because no time had to pass before the plaintiff could discover a wrong had been committed against him, because the illegal fees were itemized on the face of the loan documents the day he signed them). It is well established in our jurisprudence that decisions from the Fourth Circuit and other federal appeals courts are not binding on North Carolina state courts as to issues involving North Carolina law. See, e.g. Harter v. Vernon, 101 F.3d 334, 342 (4th Cir. 1996); and State v. Guice, 141 N.C. App. 177, 187, 541 S.E.2d 474, 481 (2000). In fact, the Faircloth court ignored well-settled North Carolina law and used a peculiar analysis in attempting to distinguish “interest” and “fees”. Nevertheless, the majority, relying on Faircloth, states the limitations period in the instant case began to accrue on the loan closing date because the usurious origination fee *484was disclosed on the face of the loan, giving plaintiffs the opportunity to discover that a wrong had been committed against them.
The majority, incorrectly applies a “reasonable diligence” standard when stating plaintiffs’ lack of reasonable diligence can be established as a matter of law because plaintiffs had the opportunity on the loan closing date to discover a wrong had been committed against them. Our Supreme Court has made it clear that the purpose of the Interest Statutes in Chapter 24 is to protect North Carolina borrowers, and the burden of expertise to know the legality of rates is placed on the lender.
The purpose of chapter 24 is to further “the “paramount policy of North Carolina to protect North Carolina resident borrowers through the application of North Carolina interest laws”. N.C.G.S. § 24-2.1 (1986).... The statute relieves the borrower of the necessity for expertise and vigilance regarding the legality of rates he must pay. That onus is placed instead on the lender, whose business it is to lend money for profit and who is thus in a better position than the borrower to know the law.
Swindell v. Federal Nat’l Mortg. Ass’n, 330 N.C. 153, 160, 409 S.E.2d 892, 896 (1991). Because the Interest Statutes as interpreted by our Supreme Court clearly avoid placing the burden on borrowers to know a wrong has been committed against them when it relates to usurious interest rates, the absence of reasonable diligence cannot be established as a matter of law. In addition, any attempt to impose such an onus on the borrower to discover illegal fees is not only against the plain reading of the statute, but would set a dangerous precedent. The General Assembly could not have intended to leave borrowers unprotected from lenders who circumvent usury penalties by charging illegal fees, then claim the borrower had the opportunity to discover the wrong on the closing date, and therefore the borrower’s failure to discover precludes any action brought more than two years after the closing date. Such a result is exactly what the statutes were designed to prevent.
The majority seems to conclude the wrong is complete because the fees are “fully earned”, referring to a portion of the statute which sentence reads, “The fees . . . are fully earned when the loan is made and are not a prepayment penalty under this Chapter or any other law of this State.” N.C. Gen. Stat. § 24-10(g) (2003). Here, however, the usurious loan origination fee is in the nature of a prepayment penalty because the borrower has to pay a loan origination fee based on a *485usurious interest rate, which fee is then wrapped back into the mortgage loan, all of which has an interest component required to be paid each month. Therefore, I would hold the “fully earned” language in N.C.G.S. § 2440(g) does not apply to the consideration of whether an alleged wrong is complete when the fees are fully earned.
The majority also attempts to distinguish Hollowell and Swindell in determining why the loan origination fee in the instant case should not be considered interest, stating a borrower has an option to pay a loan origination fee whereas a late fee payment is required. Neither Hollowell nor Swindell was based on such a distinction. In fact, both cases clearly stated “[a]ny charges made against a borrower in excess of the lawful rate of interest, whether called fines, charges, dues or interest, are, in fact, interest and usurious.” Swindell at 158, 409 S.E.2d at 895 (quoting Hollowell v. Southern Bldg. & Loan Ass’n, 120 N.C. 286, 287, 26 S.E. 781, 781 (1897)).
Finally, the majority attempts to distinguish Haanebrink and Merritt to establish that the two-year statute of limitations does not accrue on the date of each payment. However, as earlier stated, “the statute of limitations on the [double recovery penalty] begins to run upon payment of the usurious interest. The right of action ... accrues upon each payment of usurious interest giving rise to a separate cause of action to recover the penalty[.]” Haanebrink, 47 N.C. App. at 648, 267 S.E.2d at 599 (emphasis added). The majority’s claim that those two cases are distinguishable because they related to actual promissory notes, as opposed to an origination fee, relies on the premise that the fee was paid on the loan closing date. To adopt the majority’s line of reasoning is to ignore several decades of legal precedent which establishes the statute of limitations for the double recovery remedy begins to run on the date of payment. See, e.g. Id. Such a perspective as put forth by the majority does not apply the Interest Statutes in the manner intended by the General Assembly so as to protect borrowers. As mandated by the legislature, “It is the paramount public policy of North Carolina to protect North Carolina resident borrowers through the application of North Carolina interest laws.” N.C. Gen. Stat. § 24-2.1 (2003). “ ‘The entire subject of the rate of interest and penalties for usury rests in legislative discretion, and the courts have no power other than to interpret and execute the legislative will.’ ” Swindell at 156, 409 S.E.2d 892, 894 (quotation omitted).
For all the reasons stated herein, I believe the trial court erred in dismissing claims under N.C.G.S. § 24-1 et seq. based on the statute of *486limitations as plaintiffs’ right to recover accrued upon each payment. Therefore, the trial court’s order granting defendants’ motion to dismiss should be reversed. Because plaintiffs’ unfair and deceptive trade practices (UDTP) claim under N.C. Gen. Stat. § 75-1.1 derives from the usury claim the UDTP claim should remain viable.