Court Opinion

ID: 4398743
Source: CourtListenerOpinion
Date Created: 2019-05-21 12:05:46.297192+00
Date Added: 2024-06-11T12:19:43.392809
License: Public Domain

IN THE COURT OF APPEALS OF NORTH CAROLINA

                                  No. COA18-1060

                               Filed: 21 May 2019

Mecklenburg County, No. 16 CVS 16352

WILMINGTON SAVINGS FUND SOCIETY, FSB, d/b/a CHRISTIANA TRUST AS
OWNER TRUSTEE OF THE RESIDENTIAL CREDIT OPPORTUNITIES TRUST
III, Plaintiff,

            v.

MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC., AS NOMINEE FOR
ACOPIA, LLC, SOUTHAMPTON COMMONS HOMEOWNERS ASSOCIATION,
INC., ROSSABI BLACK SLAUGHTER, PA, KEITH H. PROPERTY, LLC, KEITH
LAMANCE HARRELL, IH6 PROPERTY NORTH CAROLINA, LP and DOE
DEFENDANTS A-Z, Defendants.

      Appeal by plaintiff from orders entered 4 December 2017 and 16 January 2018

by Judge Eric L. Levinson in Mecklenburg County Superior Court. Heard in the

Court of Appeals 26 March 2019.

      Bradley Arant Boult Cummings LLP, by Brian M. Rowlson, Mark S. Wierman
      and G. Benjamin Milam, for plaintiff-appellant.

      Roberson Haworth & Reese, P.L.L.C., by Alan B. Powell and Christopher C.
      Finan, for defendant-appellee IH6 Property North Carolina, LP.

      TYSON, Judge.

      Wilmington Savings Fund Society (“Plaintiff”) appeals from an order granting

IH6 Property North Carolina, LLC’s (“Defendant”) motion for judgment on the

pleadings pursuant to Rule 12(c) of the N.C. Rules of Civil Procedure and an order

denying Plaintiff’s motion for reconsideration. We reverse and remand.
                        WILMINGTON SAV. FUND V. IH6 PROP.

                                  Opinion of the Court

                                   I. Background

      Keith Harrell purchased property located at 9007 Holland Park Lane in

Charlotte, North Carolina, in February 2009.         Harrell borrowed $171,830 from

Acopia, LLC, as evidenced by a promissory note. To secure the note, Harrell executed

a deed of trust in favor of Mortgage Electronic Registration Systems (“MERS”), solely

as nominee for Acopia and its successors and assigns.          Through a series of

assignments, LSF9 Master Participation Trust (“LSF9”) acquired the note and deed

of trust in July 2015. Harrell subsequently defaulted on payments due under the

terms of the note and deed of trust.

      The Southampton Commons Homeowners Association, Inc. (“HOA”) filed a lien

against Harrell’s property at 9007 Holland Park Lane for unpaid assessments.

Following a hearing in August 2015, the property was sold at auction to Keith H.

Property, LLC (“Keith Property”). The HOA conveyed the property via a quitclaim

deed with title expressly “subject to any and all superior liens,” which was recorded

in the Mecklenburg County Public Registry on 18 December 2015.

      Kondaur Capital Corporation (“Kondaur”) acquired the note and deed of trust

on 28 October 2015 through assignment from LSF9. This assignment was recorded

on 3 December 2015. A purported satisfaction of the deed of trust was executed by a

vice president of MERS, without any authority, and was recorded on 2 December 2015

in the Mecklenburg County Public Registry.

                                         -2-
                        WILMINGTON SAV. FUND V. IH6 PROP.

                                  Opinion of the Court

      Keith Property conveyed its interest in the property to Defendant via general

warranty deed, recorded on 7 March 2016.            Kondaur initiated action against

Defendant; MERS; the HOA; the substitute trustee that handled the HOA sale;

Harrell; and Keith Property on 15 September 2016. Kondaur’s complaint requested

the trial court to issue a judgment declaring, inter alia, the deed of trust remained a

valid, enforceable first priority lien on the property, and that Defendant had acquired

its interest in the property subject to Kondaur’s prior lien. A notice of lis pendens

was filed 26 September 2016. Defendant served its affirmative defenses, answer, and

counterclaim on 21 November 2016, seeking to quiet the title of the property pursuant

to N.C. Gen. Stat. §§ 41-10 and 1-253.

      Plaintiff acquired the note and deed of trust from Kondaur in a pool of loans it

purchased on or about 25 November 2016. An assignment evidencing the transaction

was executed on 8 December 2016 and recorded on 21 July 2017. Plaintiff filed a

motion to substitute as a party and an answer to Defendant’s counterclaim on 10

January 2017.

      The trial court entered a consent final judgment concerning MERS on 3 April

2017. The court’s consent judgment found and concluded MERS no longer held any

interest in the deed of trust at the time the purported satisfaction was executed and

recorded, it was without authority to execute the satisfaction, and the satisfaction

was void.

                                         -3-
                        WILMINGTON SAV. FUND V. IH6 PROP.

                                  Opinion of the Court

      Following discovery, Plaintiff filed a motion for summary judgment in August

2017. In September 2017, Defendant filed a motion for judgment on the pleadings.

After a hearing, the trial court entered an order granting Defendant’s motion for

judgment on the pleadings on 4 December 2017.            Plaintiff made a motion for

reconsideration, which was denied without a hearing on 16 January 2018. Plaintiff

timely appealed both orders.

                                   II. Jurisdiction

      The order granting judgment on the pleadings and the order denying

reconsideration were interlocutory, as they only disposed of the claim between

Plaintiff and Defendant. Subsequently, Plaintiff voluntarily dismissed all remaining

claims against the other defendants, and Defendant voluntarily dismissed its

counterclaim against Plaintiff. As all other parties and claims have been disposed of,

the orders concerning Plaintiff and Defendant are now final, and are appealable as a

final judgment pursuant to N.C. Gen. Stat. § 7A-27(b) (2017).

                                      III. Issues

      Plaintiff argues the trial court erred by granting Defendant’s Rule 12(c) motion

for judgment on the pleadings. It asserts the trial court disregarded the Rule 12(c)

standard of review and improperly drew all inferences in favor of Defendant. Plaintiff

also argues the trial court erred in balancing the equities in favor of Defendant.

                               IV. Standard of Review

                                         -4-
                        WILMINGTON SAV. FUND V. IH6 PROP.

                                  Opinion of the Court

      “Judgment on the pleadings, pursuant to Rule 12(c), is appropriate when all

the material allegations of fact are admitted in the pleadings and only questions of

law remain.” Groves v. Community Hous. Corp., 144 N.C. App. 79, 87, 548 S.E.2d 535,

540 (2001) (internal citations and quotations omitted). All facts and inferences are

to be viewed in the light most favorable to the non-movant. Ragsdale v. Kennedy, 286
N.C. 130, 137, 209 S.E.2d 494, 499 (1974). “All well pleaded factual allegations in the

nonmoving party’s pleadings are taken as true and all contravening assertions in the

movant’s pleadings are taken as false.” Id.

      This Court reviews a grant of a motion for judgment on the pleadings de novo.

Carpenter v. Carpenter, 189 N.C. App. 755, 757, 659 S.E.2d 762, 764 (2008).

                                     V. Analysis

      The order included in the record is limited, merely concluding, after review of

the pleadings, that Defendant was entitled to judgment as a matter of law and all

Plaintiff’s claims against Defendant are dismissed without prejudice. Prior to ruling

on Plaintiff’s motion for reconsideration, the trial court sent an e-mail, which

concluded with the following paragraph:

             [P]lease prepare a summary order without any findings of
             fact or anything along the lines of what I’ve described above
             and send the same with a SASE to my office in the
             Mecklenburg County Courthouse within ten (10) days.
             This is a legal determination subject to de novo review, of
             course, and nothing is required other than a summary
             order. I do wish, however, for you to attach a copy of this
             email to the order so that it will make it into the record. As

                                          -5-
                          WILMINGTON SAV. FUND V. IH6 PROP.

                                    Opinion of the Court

                opposed to sending you a one-line email with a decision, I
                wanted to let counsel and the parties know the reasons I
                have decided to grant the Rule 12(c) motion.

       When asked at oral arguments how this Court should view the e-mail included

in the record, Defendant argued the e-mail should be disregarded, and this Court

should only review the orders. Defendant asserted the trial court had later recanted

and sent a subsequent e-mail directing the previous e-mail not to be included in the

record.   If such an e-mail was sent, and either party felt the record would be

insufficient without it being included, the record should have supplemented. N.C. R.

App. P. 9(b)(5). Further, Defendant cites to this earlier e-mail contained in the record

in its brief.

       This Court’s scope of review is limited by what is included in the record, the

transcripts, and any other items filed pursuant to Rule 9, all of which can be used to

support the parties’ briefs and oral arguments. N.C. R. App. P. 9(a). As part of the

record on appeal, the trial court’s e-mail is included in our de novo review. See id.

                                 A. Plaintiff as Assignee

       The trial court’s e-mail purports to distinguish between an “assignment” and

an “acquisition.” The trial court reasoned Plaintiff was not a successor-in-interest of

Kondaur because it “acquired” the note and deed of trust, and is thus unable to stand

in the shoes of Kondaur and its predecessors-in-interest to maintain the original

priority of its interest. The trial court appears convinced by Defendant’s argument,

asserting only the original victim, in this case Kondaur, is eligible to seek the

                                           -6-
                        WILMINGTON SAV. FUND V. IH6 PROP.

                                   Opinion of the Court

equitable remedy to maintain its priority under Union Cent. Life Ins. Co. v. Cates,

193 N.C. 456, 137 S.E. 324 (1927), and its progeny. We disagree.

      In the priority of deed recordation, North Carolina is classified as a “pure race”

state. N.C. Gen. Stat. § 47-18(a) (2017); Bourne v. Lay & Co., 264 N.C. 33, 35, 140
S.E.2d 769, 770 (1965). As a pure race state, the first person to record the conveyance

of an interest in property takes priority, whether or not there is notice of other

conveyances. Schuman v. Roger Baker & Assocs., Inc., 70 N.C. App. 313, 316, 319
S.E.2d 308, 310 (1984) (citing Bourne 264 N.C. at 35, 140 S.E. 2d at 771) (“Our

Supreme Court has repeatedly held that no notice, however full or formal, will supply

the want of registration of a deed.”). “The General Assembly, by enacting these laws,

clearly intended that prospective purchasers should be able to safely rely on the

public records.” Schuman, 70 N.C. App. at 316-17, 319 S.E.2d at 311.

      Under pure race priority recordation, Defendant, if found to be an innocent

purchaser for value, would be able to rely upon an examination of the Mecklenburg

County Public Registry, which included a satisfaction of the note, recorded on 2

December 2015. An equitable exception exists to this general rule:

             As between a mortgagee, whose mortgage has been
             discharged of record solely through the act of a third
             person, whose act was unauthorized by the mortgagee, and
             for which he is in no way responsible, and a person who has
             been induced by such cancellation to believe that the
             mortgage has been canceled in good faith, and has dealt
             with the property by purchasing the title, or accepting a
             mortgage thereon as security for a loan, the equities are

                                          -7-
                        WILMINGTON SAV. FUND V. IH6 PROP.

                                  Opinion of the Court

             balanced, and the lien of the prior mortgage, being first in
             order of time, is superior.

Union Cent. Life Ins. Co., 193 N.C. at 462, 137 S.E. at 327.

      Defendant argues this equitable exception can only apply to parties who are

true, innocent victims. The trial court appears to have concluded, as a matter of law

on the pleadings, that Plaintiff, by acquiring the note with notice of the pending

litigation asserting priority, cannot claim to be an innocent victim of the void

satisfaction. Defendant argues this notice deprives Plaintiff of the exception in Union

Central:

             If, however, the owner of the mortgage is responsible for
             the mortgage being released of record, as when the entry of
             satisfaction is made possible by his own neglect, or
             misplaced confidence, or his own mistake, or where he is
             shown to have received actual satisfaction, or to have
             accepted the benefit of the transaction which resulted in
             the release, he will not be permitted to establish his lien to
             the detriment of one who has innocently dealt with the
             property in the belief that the mortgage was satisfied.

Id.

      No evidence supports a finding that Plaintiff or Kondaur was responsible for

the release of the mortgage; was neglectful; misplaced confidence; received actual

satisfaction; or benefitted from the transaction, which resulted in the purported

release. In fact, the consent judgment on MERS’ purported action shows otherwise.

Additionally, Defendant has failed to show that North Carolina common law and

statutes do not allow Plaintiff to step into the shoes of Kondaur and its predecessors-

                                         -8-
                         WILMINGTON SAV. FUND V. IH6 PROP.

                                   Opinion of the Court

in-interest and avail itself of the pure race exception set out in Union Central. Id. (“a

mortgagee, whose mortgage has been discharged of record solely through the act of a

third person, whose act was unauthorized by the mortgagee, and for which he is in

no way responsible. . . the lien of the prior mortgage, being first in order of time, is

superior”).

      North Carolina law concerning the assignments of contracts is well

established.

               The general rule is that contracts may be assigned. The
               principle is firmly established in this jurisdiction that,
               unless expressly prohibited by statute or in contravention
               of some principle of public policy, all ordinary business
               contracts are assignable, and that a contract for money to
               become due in the future may be assigned.

Hurst v. West, 49 N.C. App. 598, 604, 272 S.E.2d 378, 382 (1980) (citation and

quotation marks omitted).

      “Transfer of an instrument, whether or not the transfer is a negotiation, vests

in the transferee any right of the transferor to enforce the instrument, including any

right as a holder in due course.” N.C. Gen. Stat. § 25-3-203(b) (2017). Our Supreme

Court long ago established “the assignee stands absolutely in the place of his

assignor[.]” Smith v. Brittain, 38 N.C. 347, 354 (1844).

      Further, “if an innocent purchaser conveys to one who has notice, the latter is

protected by the former’s want of notice and takes free of the equities.” Morehead v.

Harris, 262 N.C. 330, 342, 137 S.E.2d 174, 185 (1964).

                                          -9-
                         WILMINGTON SAV. FUND V. IH6 PROP.

                                   Opinion of the Court

      The fact Plaintiff purchased the note and deed of trust from Kondaur while

litigation concerning priority was pending does not foreclose Plaintiff’s ability to avail

itself of the protections of Union Central. Kondaur’s assignment of the deed of trust

to Plaintiff allowed Plaintiff to step into the shoes of Kondaur and its predecessors-

in-interest.    Defendant’s argument that subsequent purchasers of negotiable

instruments cannot assert all the rights and defenses of the original holder, in the

absence of fraud or other nefarious conduct, prejudices holders of negotiable

instruments, and would chill or prevent the free and unfettered transferability of

interests in property. Restraints or limitations on the free alienability, assignability,

and transferability of property interests are disfavored in law. Defendant’s argument

is overruled.

                            B. Applicability of Union Central

      Plaintiff argues the trial court improperly balanced the equities in favor of

Defendant.      We agree.    Plaintiff stepped into the shoes of Kondaur and its

predecessors-in-title and can avail itself of the exception to the pure race notice

addressed in Union Central and its nearly 100 years of progeny.

      The rule in Union Central was applied in First Financial Savings Bank v.

Sledge: “The discharge of a perfected mortgage upon public record by the act of an

unauthorized third party entitles the mortgagee to restoration of its status as a

priority lienholder over an innocent purchaser for value.” First Fin. Sav. Bank v.

                                          - 10 -
                        WILMINGTON SAV. FUND V. IH6 PROP.

                                  Opinion of the Court

Sledge, 106 N.C. App. 87, 88, 415 S.E.2d 206, 207 (1992) (citing Union Central, 193

N.C. at 462, 137 S.E. at 327).

       Plaintiff argues Defendant cannot claim it is an innocent purchaser for value.

Whether Defendant was an innocent purchaser for value or not, Plaintiff, the

mortgagee, is entitled to have its priority status restored, if the mortgage was

discharged by an unauthorized act of a third party.

       The trial court entered a consent final judgment concerning MERS’ purported

satisfaction of the note and cancellation of the deed of trust on 3 April 2017. The

consent judgment found and concluded MERS no longer held any interest in the deed

of trust at the time the purported satisfaction was executed and cancellation

recorded, had no authority to execute the satisfaction and record the cancellation,

and its action was void. That consent judgment is not challenged, and is now the law

of the case.

                                    VI. Conclusion

       An assignee is able to step into the shoes of the assignor and its predecessors-

in-title. The equitable exception to pure race notice in Union Central is available to

restore priority to purchasers of negotiable instruments, whether or not they have

notice of pending litigation. The trial court erred in concluding Plaintiff had no

standing to enforce priority.

                                         - 11 -
                        WILMINGTON SAV. FUND V. IH6 PROP.

                                  Opinion of the Court

      The purported satisfaction of the note and cancellation of the deed of trust is

acknowledged and agreed in the consent judgment to be an unauthorized act of a

third party. A balancing of the equities under Union Central restores Plaintiff’s

priority status over Defendant.

      The trial court’s order concluding Defendant was entitled to judgment on the

pleadings as a matter of law is reversed. In light of our ruling and the 3 April 2017

consent order, we remand this matter for the trial court to enter summary judgment

for Plaintiff on Plaintiff’s pending summary judgment motion. It is so ordered.

      REVERSED AND REMANDED.

      Judges DIETZ and HAMPSON concur.

                                         - 12 -