Banks & Banking – Deeds of Trust – Loan Modification

Pursuant to N.C.G.S. § 47-20, a senior deed of trust does not lose its priority to a junior deed of trust when the senior deed of trust is modified via a loan modification to extend the maturity date and filed at a date later than the junior deed of trust’s initial filing date.

We reversed the trial court’s order and remanded.

Defendants appealed the order granting plaintiff’s motion for summary judgment and denying defendants’ motion for judgment on the pleadings. The issue before this Court was whether pursuant to N.C.G.S. § 47-20, a senior deed of trust loses its priority to a junior deed of trust when the senior deed of trust is modified via a loan modification to extend the maturity date and filed at a date later than the junior deed of trust’s initial filing date. We held it does not.

In 1999, debtor Linda M. Anderson granted a first deed of trust for the subject property as security for repayment of a loan in the amount of $52,850.00 (the Senior Deed of Trust). The Senior Deed of Trust was registered in the Forsyth County Register of Deeds. On the same day, debtor also granted a second deed of trust as security for repayment of a second loan in the amount of $22,650.00 (the Junior Deed of Trust). The Junior Deed of Trust was also registered in the Forsyth County Register of Deeds. At the time of registration, the Junior Deed of Trust was in a second lien position to the Senior Deed of Trust in the chain of title to the property. Both deeds of trust reached their maturity dates on January 22, 2014. On October 1, 2014, the holder of the note and the Senior Deed of Trust entered into a loan modification with debtor to modify the maturity date of the loan from 2014 to 2033, and to recapitalize the unpaid principal balance of $46,620.96. On May 17, 2021, the Junior Deed of Trust was foreclosed. The Notice of Foreclosure of a Deed of Trust was registered in the Forsyth County Register of Deeds. Plaintiff purchased the property in 2021, and a Special Warranty Deed titled to plaintiff was registered. In 2022, the holder of the Senior Deed of Trust and Loan Modification initiated foreclosure proceedings after debtor defaulted on the loan as modified.

Plaintiff filed a declaratory action (the present case) against defendants pursuant to N.C.G.S. § 47-20, seeking declaratory judgment that the Senior Deed of Trust was extinguished upon recording of the Loan Modification and that plaintiff had superior title in the chain of title to the property. The trial court entered an order denying defendants’ motion for judgment on the pleadings and granting plaintiff’s motion for summary judgment.

On appeal, Defendants sought review of one issue: whether defendants’ Senior Deed of Trust lost its priority lien position to the Junior Deed of Trust upon its filing of a Loan Modification that extended the Senior Deed of Trust’s maturity date and recapitalized the remaining principal balance. Defendants argued the trial court erred by granting plaintiff’s motion for summary judgment that enjoined the foreclosure of the Senior Deed of Trust and quieted title to plaintiff, free and clear of the Senior Deed of Trust. We agreed with Defendants that the plain language of the statute creates an exception to account for parties that enter into a subordination agreement or any agreement contrary to the general race statute framework. See N.C.G.S. § 45-21.16C(b) (2023); N.C.G.S. §§ 45-100 et. seq. (2023). Beyond this, adoption of plaintiff’s interpretation would require us to insert words not used and would contravene the previously stated statutory interpretation precedence. We will not go against precedence to support an interpretation that requires word surplusage and clashes with the underlying reason and purpose of the statute.

Next, we addressed plaintiff’s argument regarding the effect the Loan Modification had on the Senior Deed of Trust. There is currently no North Carolina case law that directly addresses the present issue. However, our Courts have discussed loan modifications within the realm of contract law. Additionally, the Restatement (Third) of Property section 7.3 on loan modifications conforms with the existing North Carolina statutory law and case law that does discuss deeds of trust. Because the Loan Modification did not create a new deed of trust nor extinguish the Senior Deed of Trust, and because the Senior Deed of Trust had not expired at the time of the foreclosure proceedings, the trial court erred in its entry of an order that enjoined the foreclosure proceedings and extinguished the Senior Deed of Trust.

Reversed and remanded.

CL Howard Investments I LLC v. Wilmington Savings Fund Society FSB (Lawyers’ Weekly No. 011-345-25, 18 pp.) (Fred Gore, J.) Appealed from Forsyth County Superior Court (Eric C. Morgan, J.) Pendergrass Law Firm, PLLC, by James K. Pendergrass, Jr., for plaintiff-appellee; The Hutchens Law Firm & The Law Office of John T. Benjamin, Jr. PA, by Claire Collins Dickerhoff and John T. Benjamin, Jr., for defendants-appellants. North Carolina Court of Appeals