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Real Property – Foreclosure – Substitute Trustee – Notice – Subprime Loans

Real Property – Foreclosure – Substitute Trustee – Notice – Subprime Loans

In re Foreclosure of Gilmore.  (Lawyers Weekly No. 10-16-0824, 8 pp.) (Robert N. Hunter Jr., J.) Appealed from Forsyth County Superior Court. (William Z. Wood, J.) N.C. App. Unpub.

Holding: The trial court erred when it allowed the substitute trustee to proceed with foreclosure where a person signed a notice in her individual capacity and not on behalf of the substitute trustee, and therefore was not authorized to give notice to the borrowers, and where the trial court failed to make a required finding of whether the underlying loan was a subprime loan as defined in the applicable statute.


The mortgagors executed a promissory note and deed of trust promising to repay about $200,000 to a lender, identified as the beneficiary under the deed of trust.

The property was conveyed by the mortgagors to a trustee, who was subsequently removed with the appointment of a substitute trustee named Monica Walker, Matressa Morris, or Nationwide Trustee Services, Inc.

Under a foreclosure proceeding brought against the mortgagors, Cecelia Stemple filed an amended notice of hearing and notice of foreclosure sale. The clerk allowed the foreclosure to proceed.

The mortgagors appealed the clerk’s order.

After a de novo hearing, the trial court allowed Stemple as substitute trustee to proceed with foreclosure. The mortgagors appealed.


The mortgagors argued that the amended notice was not filed in accordance with G.S. § 45-21.16 because Stemple lacked authority to act as a substitute trustee in her individual capacity.

Secondly, they argued that the superior court’s order did not contain the required finding under G.S. § 45-21.16(d).

In a foreclosure action under a deed of trust, the trial court should authorize the trustee to exercise the power of sale under the deed of trust if it finds the existence of a (1) valid debt of which the party seeking to foreclose is the holder, (2) default, (3) the right to foreclose under the instrument, and (4) notice to those entitled.

The general assembly added a fifth requirement, applicable until Oct. 31, 2010, that the court determine whether the underlying mortgage debt is not a subprime loan as defined in G.S. § 45-101(4), or if the loan is a subprime loan under G.S. § 45-101(4), that the pre-foreclosure notice under G.S. § 45-102 was provided in all material respects, and that the periods of time established by law have elapsed.

Stemple, in her individual capacity, was not listed as a trustee in the deed of trust and was not appointed as a substitute trustee. We hold that, because under G.S. § 45-21.16(d) only a trustee can give notice of a foreclosure hearing, any amended notice issued under this statute must also be executed by a trustee to be legally sufficient.

Since Stemple did not identify herself in the amended notice as an authorized agent acting on behalf of a properly named corporate substitute trustee, we hold that the amended notice did not conform with G.S. § 45-21.16(d).

In addition, the superior court’s order lacks the requisite fifth finding required by revised G.S. § 45-21.16(d).

This omission is troubling because the clerk’s order, which the trial court’s order superceded, does contain a finding on this issue. In an appeal of a foreclosure order, a de novo hearing occurs, not just a de novo review of the clerk’s order.



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