Court Opinion

ID: 2726726
Source: CourtListenerOpinion
Date Created: 2014-09-08 21:08:23.360429+00
Date Added: 2024-06-11T15:46:50.497265
License: Public Domain

An unpublished opinion of the North Carolina Court of Appeals does not constitute
controlling legal authority. Citation is disfavored, but may be permitted in accordance
with the provisions of Rule 30(e)(3) of the North Carolina Rules of Appellate Procedure.

                               NO. COA13-1396
                       NORTH CAROLINA COURT OF APPEALS
                            Filed:     2 September 2014

IN THE MATTER OF THE FORECLOSURE OF A
DEED OF TRUST EXECUTED BY CLARENCE L.
GIBBS AND DEBORAH B. GIBBS IN THE
ORIGINAL AMOUNT OF $1,280,000.00 DATED                       Dare County
MAY 16, 2006, RECORDED IN BOOK 1686,                         No. 09 SP 380
PAGE 322, DARE COUNTY REGISTRY
SUBSTITUTE TRUSTEE SERVICES, INC.,
SUBSTITUTE TRUSTEE

       Appeal by respondents from order entered 15 July 2013 by

Judge John E. Nobles, Jr., in Dare County Superior Court.                     Heard

in the Court of Appeals 23 April 2014.

       The Law Office of John T. Benjamin, Jr., P.A., by John T.
       Benjamin, Jr., and James R. White, for Petitioner-Appellee.

       Phillip H. Hayes for Respondents-Appellants.

       ERVIN, Judge.

       Respondents Clarence L. Gibbs and Deborah B. Gibbs appeal

from   a   15   July    2013   order    allowing     a   foreclosure      sale    to

proceed.     On appeal, Respondents challenge several of the trial

court’s findings of fact and conclusions of law on the grounds

that Petitioner U.S. Bank National Association, as Trustee for

Citigroup Mortgage Loan Trust, Inc. 2006-AR7, Mortgage-Backed
                                              -2-
Notes, Series 2006-AR7, had failed to establish that it was the

holder     of     the    note    evidencing         Respondents’      indebtedness   and

could      not,    for    that    reason,      foreclose       upon    their   property.

After careful consideration of Respondents’ challenges to the

trial court’s order in light of the record and the applicable

law, we conclude that                 the trial court’s order should              remain

undisturbed.

                                 I. Factual Background

      Respondents own a house and lots located at 130 Fort Hugar

Way   in    Manteo.        On    16    May    2006,    First    Independent     Mortgage

Company     loaned       Respondents         $1,280,000.00,      with    the   resulting

debt being evidenced by a note and secured by a deed of trust

recorded at Book 1686, Page 322, in the office of the Register

of Deeds of Dare County.               According to the note and related deed

of trust, Respondents were required to make monthly payments of

principal and interest, with any failure to make these payments

sufficient to constitute an act of default.

      As a result of Respondents’ failure to make the monthly

payments required under the terms of the note and deed of trust,

Substitute Trustee Services, Inc., acting in its capacity as

substitute         trustee       under       the     deed   of        trust,   initiated

foreclosure proceedings on 8 June 2009.                        Although they entered

into a forbearance agreement with the lender on 20 October 2009,
                                         -3-
that agreement was terminated when Respondents failed to make

required payments.          After entering into a second forbearance

agreement with the lender on 4 October 2010, Respondents failed

to comply with the terms of that agreement as well.                          According

to    the    language     contained     in        these   forbearance    agreements,

efforts to foreclose under the deed of trust were authorized

following termination of the agreement.

       On 7 June 2011, the substitute trustee filed an amended

notice of hearing prior to foreclosure sale.1                      The foreclosure

proceeding came on for hearing on 4 May 2012 before Anita C.

Simpson, Assistant Clerk of Superior Court for Dare County.                         At

the conclusion of that hearing, the Assistant Clerk entered an

order allowing the substitute trustee to conduct a foreclosure

sale in accordance with the terms of the deed of trust.                         On 11

May   2012,     Respondents      noted       an    appeal    to   the   Dare    County

Superior Court from the Assistant Clerk’s order.

       Respondents’ appeal came on for hearing at the 15 July 2013

civil      session   of   the    Dare    County       Superior    Court.       At   the

hearing,      Petitioner        introduced         the    affidavit     of   Kimberly

Mueggenberg, the vice president of loan documentation for Wells

Fargo Bank, N.A., which established that Wells Fargo was the
       1
      In the initial notice of sale, the petitioner was named as
Citigroup Global Markets Realty Corp., care of Wells Fargo Bank,
N.A.    The amended petition named Petitioner as the lender
instead of Citigroup.
                                                -4-
servicing         agent       associated        with       the     underlying          loan    and

maintained        custody       of       the   business         records    associated         with

Respondents’ account.                    According to those records, which were

made in the regular course of Wells Fargo’s business at or near

the time of the events recorded in those records and which were

based      upon    the    personal         knowledge       of    the    person       making    the

entries reflected in those records, First Independent Mortgage

Company      indorsed         Respondents’          note   to    American       Home    Mortgage

Corporation        prior       to    11    September       2006,    while       American      Home

Mortgage Corporation indorsed the note “in blank” prior to 24

April 2009.             Subsequently, Respondents’ note was specifically

indorsed to Petitioner,2 who currently possessed the original

note and had indorsed it “in blank.”                        A number of exhibits were

attached to Ms. Mueggenberg’s affidavit, including a copy of the

note       and   deed    of    trust.          In    addition      to     Ms.   Mueggenberg’s

affidavit, Petitioner introduced the original note into evidence

at the hearing.            Although Respondents conceded the existence of

a valid debt, that they had received notice of the proceeding,

and    that      they    were       in    default,     they      objected       to   the      legal

conclusions contained in Ms. Mueggenberg’s affidavit concerning

       2
      The conversion of an indorsement in blank to a specific
endorsement is specifically authorized by N.C. Gen. Stat. § 25-
3-205(c).
                                        -5-
Petitioner’s status as the holder of the note and as to the

legal effectiveness of the indorsements reflected on the note.

    On 15 July 2013, the trial court entered an order allowing

the substitute trustee to proceed with the foreclosure sale.                       In

its order, the trial court found as fact that the note had been

indorsed by First Independent Mortgage to American Home Mortgage

prior to 11 September 2006, had been indorsed “in blank” by

American     Home     Mortgage    prior   to    24   April       2009,    had    been

specifically indorsed by American Home Mortgage to Petitioner,

and had then been indorsed by Petitioner “in blank.”                       Based on

these findings and the other evidence contained in the record,

the trial court concluded that the note evidenced a valid debt

owed by Respondents, that Petitioner was the holder of the note,

that Respondents were in default under the note and deed of

trust,   that    the    deed     of   trust    contained     a    power    of    sale

provision authorizing Petitioner to foreclose in the event of a

default, and that the proposed foreclosure sale was not barred

by N.C. Gen. Stat. § 45–21.12A.               As a result, the trial court

authorized      the     substitute      trustee      to    proceed        with    the

foreclosure sale in accordance with the terms set out in the

deed of trust.         Respondents noted an appeal to this Court from

the trial court’s order.

                       II. Substantive Legal Analysis
                                             -6-
       On appeal, Respondents argue that the trial court erred in

the course of determining that Petitioner was the holder of the

note   that    evidenced         their      indebtedness.           More   specifically,

Respondents        challenged         the    sufficiency      of     the   evidence    to

support     the     trial      court’s      findings     of   fact    relating    to   the

validity of the indorsements on the note and the trial court’s

conclusion of law that Petitioner held Respondents’ note and was

entitled to proceed with a foreclosure sale pursuant to N.C.

Gen. Stat. § 45-21.16.               Respondents’ arguments lack merit.

                                A. Standard of Review

       “When an appellate court reviews the decision of a trial

court sitting 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)     (quoting      Knutton   v.

Cofield,      273 N.C. 355,     359,      160 S.E.2d 29,   33    (1968)).

“‘Conclusions of law drawn by the trial court from its findings

of   fact   are     reviewable         de   novo    on    appeal.’”        Id.   (quoting

Carolina Power & Light Co. v. City of Asheville, 358 N.C. 512,

517, 597 S.E.2d 717, 721 (2004)).                         We will now utilize the

applicable        standard      of     review      to    evaluate    the   validity    of

Respondents’ challenges to the trial court’s order.
                                                  -7-
                     B. Analysis of the Trial Court’s Order

                  1. Challenges to the Trial Court’s Findings

       As    an     initial         matter,      Respondents         argue      that     the    trial

court made several findings of fact concerning the indorsements

that had been made with respect to the note on the grounds that

the    record       was    devoid         of     sufficient      competent          evidence        to

establish         that     the       various      indorsements            had     been    made      by

individuals with the authority to act in that manner and at the

time    specified              in    the        trial     court’s         findings.              More

specifically,            Respondents           contend    that       the        record    did       not

contain sufficient evidence to establish that the note had been

indorsed       by       First        Independent         Mortgage         to     American        Home

Mortgage,         that    American         Home    Mortgage      indorsed          the    note      in

blank, that the note was subsequently indorsed to Petitioner,

that Petitioner indorsed the note in blank, and that any of

these indorsements had been made at any particular point in

time.       Respondents’ arguments lack merit.

       “An    indorsement            is    ‘a    signature       .    .    .     that    alone      or

accompanied by other words is made on an instrument for the

purpose of . . . negotiating the instrument.’”                                   Bass, 366 N.C.

at 468, 738 S.E.2d at 176 (quoting N.C. Gen. Stat. § 25–3–

204(a)).          “If     an     indorsement        is    made       by   the     holder       of   an

instrument, whether payable to an identified person or payable
                                            -8-
to bearer, and the indorsement identifies a person to whom it

makes the instrument payable, it is a ‘special indorsement’.”

N.C. Gen. Stat. § 25–3–205(a).                    “If an indorsement is made by

the holder of an instrument and it is not a special indorsement,

it   is   a   ‘blank    indorsement.’              When    indorsed       in    blank,    an

instrument becomes payable to bearer and may be negotiated by

transfer of possession alone until specially indorsed.”                               N.C.

Gen. Stat. § 25–3–205(b).                 According to well-established North

Carolina law, there is a strong presumption in favor of the

legitimacy of indorsements in order to protect the transfer of

negotiable     instruments          “by    giving    force       to     the    information

presented on the face of the instrument.”                          Bass, 366 N.C. at

468, 738 S.E.2d at 176.

      In its order, the trial court found as a fact that the note

had been indorsed by First Independent Mortgage to American Home

Mortgage prior to 11 September 2006; that the note had been

indorsed “in blank” by American Home Mortgage Corporation prior

to   24    April      2009;    that       the     note     had     subsequently       been

specifically        indorsed    to    Petitioner;         and    that    Petitioner      had

indorsed      the    note     “in    blank.”         Respondents         challenge       the

sufficiency of the evidentiary support for these findings on the

grounds that Ms. Mueggenberg’s affidavit did not contain any

information explaining the specific basis for the assertion that
                                            -9-
the indorsements were authentic, that they had been made by

individuals who were properly authorized to act in that manner,

and that they were made at the time indicated in the affidavit

concerning the authenticity of the indorsements.                             In support of

this series of assertions, Respondents rely upon this Court’s

decision in In re Bass, 217 N.C. App. 244, 253-55, 720 S.E.2d
18, 25-27 (2011), in which we stated that “an indorsement does

not   prove    itself,      but     must    be    established        .   .   .   by   proper

testimony[,]” and that, when a party challenges a signature, the

burden of proving the validity of the signature, and in this

case, the indorsement is on the Petitioner, and held that “the

burden properly remained upon Petitioner to prove [the] validity

[of the indorsements].”

      Unfortunately for Respondents, however, the Supreme Court

overruled      our       decision     in     Bass,       expressly        rejecting        the

contention that the petitioner bore the burden of proving the

validity      of   the    indorsement       and    stating,     instead,         that      “[a]

signature[,        or    indorsement,       on    a     Note]   is       presumed     to    be

authentic and authorized . . . until some evidence is introduced

which would support a finding that the signature is forged or

unauthorized.”           Bass, 366 N.C.    at    470,   738       S.E.2d      at   177

(citations omitted).             Based upon that logic, the Supreme Court

held that, “[u]ntil the defendant produces such evidence, the
                                              -10-
plaintiff    is     not    required         to    prove     that    [the       signature]        is

valid,”     with    the        defendant         being      “required          to     make     some

sufficient showing of the grounds for the denial before the

plaintiff is required to introduce evidence.”                                  Id. (citation

omitted).     In support of this determination, the Supreme Court

noted that “[t]he UCC drafters’ strong presumption in favor of

the   legitimacy          of     indorsements          protects          the        transfer    of

negotiable       instruments          by     giving      force      to     the       information

presented on the face of the instrument.”                                 Id. at 468, 738
S.E.2d at 176.       As a result, Respondents were required to elicit

evidence calling the validity of the indorsements into question

before     Petitioner          had     any       obligation        to     establish           their

authenticity and validity.

      The original note presented by Petitioner at the hearing

evidenced     the     following             indorsements:               First        Independent

Mortgage    to     American          Home    Mortgage;       American          Home     Mortgage

Corporation to Petitioner; and Petitioner “in blank.”                                  A careful

examination of the record reveals the presence of no evidence

that casts any doubt upon the authenticity or validity of the

indorsements shown on the original note or indicates that the

indorsements       were        not    made       at   the    time        specified       in     Ms.

Mueggenberg’s       affidavit.              In    light     of     the     Supreme       Court’s

holding in Bass that an indorsement on a note is “presumed to be
                                      -11-
authentic and authorized . . . until some evidence is introduced

which would support a finding that the signature is forged or

unauthorized” and the fact that Respondents have not introduced

any evidence tending to show that the indorsements were neither

authentic     nor   authorized,       we     conclude       that    Respondents’

challenges to the trial court’s order based on the absence of

evidence tending to show the validity and authenticity of the

indorsements lack merit.         Bass, 366 N.C. at 470, 738 S.E.2d at

177 (stating that the respondent’s “bare assertions, with no

supporting evidence, did not amount to a sufficient showing of

the grounds for the denial”) (citation omitted).

       In   addition,   Respondents        contend   that    the    trial     court

erroneously concluded that Petitioner had proved that it, as

Trustee, was authorized to hold the note.                  In support of this

argument,    Respondents      argue   that    Ms.    Mueggenberg’s     affidavit

does   not   contain    any    assertion     that    she    had    reviewed    the

relevant pooling agreement to determine whether Petitioner was,

in fact, entitled to proceed with the foreclosure process.                     N.C.

Gen. Stat. § 25-3-110(c)(2) provides, however, that, “[i]f an

instrument is payable to . . . a trust, an estate, or a person

described as trustee or representative of a trust or estate, the

instrument is payable to the trustee, the representative, or a

successor of either, whether or not the beneficiary or estate is
                                          -12-
also named[.]”        As we have already noted, the note at issue here

was    specifically        indorsed      to   Petitioner       U.S.   Bank   National

Association, as Trustee for Citigroup Mortgage Loan Trust, Inc.

2006-AR7, Mortgage-Backed Notes, Series 2006-AR7, before being

indorsed “in blank.”               As a result, contrary to Respondents’

contention, trustees like Petitioner are authorized to hold the

note in a foreclosure proceeding without any necessity for the

affidavit to address the pooling agreement.

       Finally, Respondents argue that the fact that Petitioner

had    indorsed      the    note    in    blank        suggested   that   Petitioner

intended to transfer the note to a third party, a fact that

effectively        precluded    the      trial    court     from   concluding      that

Petitioner held the note.                 However, N.C. Gen. Stat. § 25-3-

205(b) provides that, “[w]hen indorsed in blank, an instrument

becomes payable to bearer and may be negotiated by transfer of

possession alone until specially indorsed.”                        Thus, given that

the existence of an indorsement in blank does not establish that

a     note   has    been    transferred          and    that   Petitioner    was    in

possession of the note at the time of the hearing, Respondents’

argument is devoid of legal or factual support.                        As a result,

none of Respondents’ challenges to the trial court’s findings

relating to Petitioner’s status as the holder of Respondents’

note have merit.
                                      -13-
            2. Challenges to the Trial Court’s Conclusions

       In addition to challenging the trial court’s findings of

fact    relating    to   the     issue   of     whether    Petitioner       held

Respondents’    note,    Respondents     argue     that    the    trial   court

erroneously    concluded       that   Petitioner     was    the    holder     of

Respondents’ note.       Once again, we conclude that Respondents’

contention has no merit.

       A trustee under a deed of trust is entitled to foreclose

upon a tract of real property in the event that there is “(i)

[a] valid debt of which the party seeking to foreclose is the

holder, (ii) default, (iii) [a] right to foreclose under the

instrument, [and] (iv) notice to those entitled to such . . . .”

Bass, 366 N.C. at 467, 738 S.E.2d at 175; N.C. Gen. Stat. § 45-

21.16(d).     “In order to find that there is sufficient evidence

that the party seeking to foreclose is the holder of a valid

debt, we must find (1) competent evidence of a valid debt, and

(2) that the party seeking to foreclose is the current holder of

the Note.”     In re Manning, __ N.C. App. __, __, 747 S.E.2d 286,

291 (2013).        The extent to which a particular party is the

holder of a note is a question of law controlled by the Uniform

Commercial Code, as adopted and codified in Chapter 25 of the

North Carolina General Statutes.              Bass, 366 N.C. at 467, 738

S.E.2d at 175-76.
                                        -14-
      The holder of a negotiable instrument is “the person in

possession of a negotiable instrument that is payable either to

bearer     or   to   an    identified    person         that    is    the    person   in

possession[.]”3         N.C. Gen. Stat. § 25-1-201(b)(21)(a).                      “[I]n

determining whether a person is a holder[,] [i]t is the fact of

possession      which     is   significant     .    .    .     and   the    absence   of

possession defeats that status.”                   Connolly v. Potts, 63 N.C.

App. 547, 550, 306 S.E.2d 123, 125 (1983).                     “‘[M]ere possession’

of a note by a party to whom the note has neither been indorsed

nor made payable ‘does not suffice to prove ownership or holder

status.’”       In re Adams, 204 N.C. App. 318, 323, 693 S.E.2d 705,

710 (2010) (quoting Econo-Travel Motor Hotel Corp. v. Taylor,

301 N.C. 200, 203, 271 S.E.2d 54, 57 (1980)).                        However, “[w]hen

indorsed in blank, an instrument becomes payable to bearer and

may   be    negotiated         by   transfer   of       possession         alone   until

specially indorsed.”           N.C. Gen. Stat. § 25–3–205(b).

      According to the undisputed record evidence, Petitioner was

in possession of the original note at the time of the hearing.

As a general proposition, the instances in which this Court has

      3
      The term “‘[p]erson’ means an individual, corporation, . .
. or any other legal or commercial entity,” N.C. Gen. Stat. §
25–1–201(b)(27), while the term “bearer” is “a person in control
of a negotiable electronic document of title or a person in
possession of a negotiable instrument, negotiable tangible
document of title, or certificated security that is payable to
bearer or indorsed in blank.” N.C. Gen. Stat. § 25–1–201(b)(5).
                                          -15-
held that possession of the original note did not suffice to

show that the person in possession is the “holder”                           involved

situations in which the note was either “(1) not drawn, issued,

or indorsed to the party, to bearer, or in blank, or (2) the

trial court neglected to make a finding in its order as to which

party had possession of the note at the hearing.”                         Manning, __

N.C. App. at __, 747 S.E.2d at 292; see e.g., In re David A.

Simpson,       P.C.,   211   N.C.    App.    483,   492,   711 S.E.2d 165,    172

(2011).        Neither of these factual patterns is present in this

case.     Instead, consistent with the trial court’s findings, the

record reflects that Petitioner presented the original note to

the trial court for inspection at the hearing.                    In addition, as

Respondents concede, the note contained an indorsement in blank

executed by Petitioner.             As a result, given that Petitioner was

in possession of the original note and that the note in question

had been indorsed in blank, the record sufficed to support the

trial court’s conclusion that Petitioner was the holder of the

note.     Manning, __ N.C. App. at __, 747 S.E.2d at 292 (holding

that the petitioner’s presentation of the original note, which

had     been    properly     indorsed       in    blank,   to    the   trial       court

sufficiently       supported        the   trial     court’s     finding     that     the

petitioner was the present note holder).
                                               -16-
      In      addition,           Ms.     Mueggenberg’s                   affidavit       contained

additional         evidence       tending           to     show      that        Petitioner      held

Respondents’ note.             In her affidavit, Ms. Mueggenberg stated

that,      based    upon    her     review          of   the      mortgage        loan    account’s

business records, she had personal knowledge that “[Petitioner]

has       indorsed     the        subject           note       ‘in        blank,’”       and     that

“[Petitioner]        currently          has    possession            of    the    subject      note.”

After      carefully       reviewing          the    record,         we     see    no    basis   for

determining        that     the    trial        court       abused         its     discretion      by

admitting the Mueggenberg affidavit into evidence.                                       Simpson at

488, 711 S.E.2d at 170 (holding that the trial court is entitled

to exercise its sound discretion in receiving documents into

evidence at a foreclosure proceeding, with appellate review of

such decisions being limited to determining whether there was a

clear abuse of discretion).                         As a result, for all of these

reasons, we are satisfied that the record adequately supports

the trial court’s conclusion that Petitioner was the current

holder of Respondents’ note.4

      4
      In a recent case addressing a similar issue, this Court
stated that, “[w]here petitioner, at a foreclosure hearing
before the trial court, produced the original mortgage loan note
reflecting a blank indorsement and an affidavit stating that the
lienholder was in possession of the Note, such was sufficient to
establish the lienholder as the holder of the Note.”       In re
Cornish, __ N.C. App. __, __, 757 S.E.2d 526, 526 (2014)
(unpublished).    Although we are not bound by our prior
unpublished decisions, see United Services Automobile Assn. v.
                                             -17-
       Finally, Respondents argue that the trial court erred by

finding as a fact that the original note had continuously been

in Petitioner’s physical possession since prior to 15 April 2009

on the grounds that Petitioner introduced evidence that another

entity   held      the    note      after    that    date.           In     support      of     this

contention,       Respondents        point     out       that       the    record       contained

information       tending     to     show    that,        on    4    May    2009,       Citigroup

Global     Markets       Realty       Corporation          held          Respondents’         note.

Although     the      information           upon     which          Respondents          rely    in

advancing      this      assertion      does        appear          in     the    record,       the

Mueggenberg affidavit stated, and the trial court found, that

Petitioner had maintained physical possession of the note since

prior to 15 April 2009.                 As a result, given that the trial

court’s findings “are conclusive on appeal if there is evidence

to   support      them,      even    though        the    evidence         might    sustain       a

finding to the contrary,” Bass, 366 N.C. at 467, 738 S.E.2d at

175,   and   the      fact    that    the     challenged            finding       has    adequate

evidentiary support, the existence of the inconsistency in the

record     upon     which      Respondents’              argument         rests     is     of    no

Simpson, 126 N.C. App. 393, 396, 485 S.E.2d 337, 339, disc.
review denied, 347 N.C. 141, 492 S.E.2d 37 (1997) (holding that
this Court is not bound by a prior unpublished decision made by
another panel of this Court), we believe that Cornish sheds
additional light on our decision that the record contains
sufficient   evidence  to   establish   that  Petitioner   held
Respondents’ note.
                                       -18-
consequence.       Moreover, even if the trial court erred in the

course of making this finding, any such error would clearly be

harmless      given   the    trial     court’s    finding      that   Petitioner

possessed the original note, which had been indorsed in blank,

at the time of the hearing.             Manning, __ N.C. App. at __, 747

S.E.2d at 292; In re T.M., 180 N.C. App. 539, 547, 638 S.E.2d
236,    240-41   (2006)     (stating    that,     in    the   event   that   other

findings support the trial court’s decision, the presence of one

or more unsupported or erroneous findings constitutes harmless

error).      As a result, Respondents are not entitled to relief

from the trial court’s judgment on the basis of their challenge

to     the    trial   court’s        conclusion        that   Petitioner     held

Respondents’ note.

                               III. Conclusion

       Thus, for the reasons set forth above, we conclude that

none of Respondents’ challenges to the trial court’s order have

merit.       As a result, the trial court’s order should be, and

hereby is, affirmed.

       AFFIRMED.

       Judges GEER and STEPHENS concur.

       Report per Rule 30(e).