Real Property – Foreclosure – Deed of Trust – Admission of Affidavit

In Re: Foreclosure of Yopp. (Lawyers Weekly No. 11-07-1282, 20 pp.) (Donna S. Stroud, J.) Appealed from New Hanover County Superior Court. (Russell J. Lanier Jr., J.) N.C. App. Click here for the full-text opinion.

Holding: The trial court properly authorized the petitioner bank’s substitute trustee to proceed with a foreclosure sale of certain real property as permitted by the deed of trust since it was the “holder” of the note based on the merger between it and another bank.

Background

On Jan. 20, 2010, petitioner Capital One caused Frances S. White, substitute trustee, to file a “Notice of Hearing” with the Clerk of Superior Court asking to proceed with the foreclosure and sale on a real estate security interest described in a deed of trust originally executed by the respondents for the benefit of Chevy Chase Bank. The notice further stated in part that (1) the deed of trust was given to secure a promissory note made and executed by respondents in the amount of $2,415,000; (2) Chevy Chase Bank was the original holder of the deed of trust and note; (3) petitioner Capital One was the current holder of the deed of trust and note; and (4) respondents were in default on the note.

On the same date, respondents filed “objections to foreclosure affidavits and motion to dismiss” arguing that petitioner was not the “holder” of the promissory note and deed of trust and the affidavits filed in support of the notice did not comply with N.C. R. Civ. P. 56.

On Oct. 15, 2010, by written order, the clerk “found that the substitute trustee could proceed at foreclosure under the terms of the above-described Deed of Trust and give notice of and conduct a foreclosure sale as by statute provided”; the order further noted that respondents objected to the foreclosure affidavits; and the order denied respondents’ motion to dismiss. On the same date, the substitute trustee filed a “notice of foreclosure sale” setting the date of the sale as Nov. 5, 2010.

On Oct. 20, 2010, respondents filed notice of appeal to superior court from the clerk’s Oct. 15, 2010 order. On Feb. 22, 2011, the trial court, by written order, found “Capital One is the holder of the note sought to be foreclosed and said note evidences a valid debt owed by respondents” and ordered “that the substitute trustee can proceed to foreclose under the terms of the above-described deed of trust and give notice of and conduct a foreclosure sale as by statute provided.” On March 21, 2011, respondents filed notice of appeal from the trial court’s Feb. 22, 2011 order.

Discussion

Respondents argue that since the evidence does not support a conclusion that petitioner was the “holder” of the note and the trial court failed to make any findings supporting its conclusion that petitioner was the holder of the note, petitioner does not have standing to seek foreclose pursuant to the deed of trust.

Petitioner responds that the evidence presented to the trial court established that it is the “holder” of the promissory note because the note was indorsed by Chevy Chase Bank; petitioner merged with Chevy Chase, assuming all of its rights as to the note; and at the hearing, petitioner had physical possession of the original promissory note. Respondents do not challenge the existence of a “valid debt” but only whether petitioner is the “holder” of the note.

In In Re Simpson, __ N.C. App. At __, 711 S.E.2d at 169, this court held that there was no competent evidence to support the trial court’s conclusion that the trustee was the owner and holder of a mortgagor’s adjustable rate note and deed of trust. Here, the trial court’s order concludes that “Capital One is the holder of the note sought to be foreclosed” but like Simpson fails to make any findings as to who had actual physical possession of the note at the time of the hearing. Unlike Simpson, petitioner here does not argue that it is the holder of the note through indorsement or transfer but by virtue of its merger with the original holder of the note and indorser of the note in blank, Chevy Chase.

However, the trial court also failed to make any findings of fact as to merger and the transfer of rights to petitioner to support its conclusion that petition was the “holder” of the note. There is no dispute that petitioner had physical possession of the note at the hearing and submitted into evidence a copy of that note. Even though respondents challenge the internet printouts regarding the merger between Chevy Chase Bank and Capital One and we held they were inadmissible, respondents make no challenge to the content in exhibit P8, the “Non-‘Home Loan’ Certificate” which stated that “Capital One was “successor by merger to . . . Chevy Chase Bank.”

Therefore, the only inference that can be drawn from the evidence is that petitioner, Capital One, merged with Chevy Chase Bank and was in physical possession of the note at the time of the hearing. Because of the merger, petitioner was “substituted for” and had “all the rights and powers of the transferring institution,” Chevy Chase, had before the merger. As Chevy

Chase Bank was the indorser of the note in blank, petitioner received those rights in the merger. Thus, the trial court properly concluded that petitioner was the “holder” of the note. Accordingly, we affirm the trial court’s order authorizing the substitute trustee to proceed with the foreclosure sale.