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Lawhead v. PNC Bank, N.A.

United States District Court, W.D. North Carolina, Asheville Division

March 10, 2014

KAREN LEE LAWHEAD, Plaintiff,
v.
PNC BANK, N.A., Defendant.

MEMORANDUM AND RECOMMENDATION

DENNIS L. HOWELL, Magistrate Judge.

Pending before the Court is Defendant's Motion to Dismiss [# 5]. Plaintiff brought this action in state court asserting various claims related to the foreclosure of her property. Defendant PNC Bank, N.A. ("PNC Bank") removed the action to this Court on the basis of diversity jurisdiction. After removing the action to this Court, Defendant moved to dismiss the Complaint in its entirety pursuant to Rule 12(b)(6). The Court RECOMMENDS that the District Court GRANT the motion [# 5].

I. Background

Plaintiff is a resident of North Carolina who purchased a tract of property in Haywood County, North Carolina in 2007. (Pl.'s Compl. at ¶¶ 1, 11.) In order to purchase the property, Plaintiff entered into a loan with National City Mortgage in the amount of $50, 000.00. (Id. ¶ 13.) Plaintiff executed a promissory note (the "Note") and a deed of trust ("Deed of Trust") in favor of National City Mortgage. (Id. ¶¶ 13-14.) The Deed of Trust provided National City Mortgage with a security interest in property located in Waynesville, NC, which Plaintiff occupied as her primary residence. (Id. ¶ 15.) At some point, Defendant PNC Bank became the holder of the Note and Deed of Trust, as well as the servicer of the loan. (Id. ¶ 16.)

The Deed of Trust required Plaintiff to maintain insurance on the property. (Ex. 1 to Pl.'s Compl. at § 5.) In addition, the Deed of Trust specified how insurance proceeds would be allocated in the event of a loss. (Id.) Section 5 of the Deed of Trust provides:

In the event of loss, Borrower shall give prompt notice to the insurance carrier and Lender. Lender may make proof of loss if not made promptly by Borrower. Unless Lender and Borrower otherwise agree in writing, any insurance proceeds, whether or not the underlying insurance was required by Lender, shall be applied to restoration or repair of the Property, if the restoration or repair is economically feasible and Lender's security is not lessened. During such repair and restoration period, Lender shall have the right to hold such insurance proceeds until Lender has had an opportunity to inspect such Property to ensure the work has been completed to Lender's satisfaction, provided that such inspection shall be undertaken promptly. Lender may disburse proceeds from the repairs and restoration in a single payment or in a series of progress payment as the work is completed. Unless an agreement is made in writing or Applicable Law requires interest to be paid on such insurance proceeds, Lender shall not be required to pay Borrower any interest or earnings on such proceeds. Fees for public adjusters, or other third parties, retained by Borrower shall not be paid out of the insurance proceeds and shall be the sole obligation of Borrower. If the restoration or repair is not economically feasible or Lender's security would be lessened, the insurance proceeds shall be applied to the sums secured by this Security Instrument, whether or not then due, with the excess, if any, paid to Borrower. Such insurance proceeds shall be applied in the order provided for in Section 2.

(Id.)

In early 2011, water pipes in the home froze and burst, causing substantial damage to the property. (Pl.'s Compl. ¶ 18.) Plaintiff reported the loss to her insurance company and also informed Defendant PNC Bank of the damage to the property. (Id. ¶¶ 19-20.) Defendant PNC Bank then sent Plaintiff a letter providing instructions for how to move forward with the repairs of the property and instructing Plaintiff to endorse any loss claim checks and send the checks to the Loss Claims Department of Defendant PNC Bank. (Ex. 2 to Pl.'s Compl.) Subsequently, Plaintiff received three checks from her insurer totaling approximately $52, 000.00. (Pl.'s Compl. ¶ 21.) Plaintiff endorsed the checks and forwarded them to Defendant PNC Bank. (Id.)

Meanwhile, Plaintiff fell behind on her mortgage payments to Defendant PNC Bank. (Id. ¶ 17.) On March 11, 2011, Defendant PNC Bank issued a notice of default to Plaintiff. (Id. ¶ 22; Ex. 3 to Pl.'s Compl.) The letter indicated that the total amount of principal and interest due under the Note as of March 11, 2011, was $49, 736.11. (Ex. 3 to Pl.'s Compl.)

Several months later, Defendant PNC Bank initiated foreclosure proceedings on the property. (Pl.'s Compl. ¶ 23.) On July 11, 2011, the Clerk of Superior Court for Haywood County, North Carolina entered an order finding that Defendant PNC Bank was the holder of the Note, that the Note was in default, that Plaintiff has not shown any valid legal reason why foreclosure should not commence, and that the Substitute Trustee could proceed to foreclose on the property through a foreclosure sale. (Ex. A to Def.'s Mot. Dismiss.)

Plaintiff contends that she contacted Defendant PNC Bank multiple times during 2011 in order to inquire why Defendant PNC Bank was not applying the $52, 000.00 she forwarded from her insurer to reduce or satisfy the amount due on the Note. (Pl.'s Compl. ¶ 24.) Plaintiff also told Defendant PNC Bank to stop the foreclosure proceedings because the amount from the insurer was sufficient to satisfy her obligation under the Note. (Id.) Plaintiff contends that by sending the insurance proceeds to Defendant PNC Bank, Plaintiff was exercising her right of redemption and the foreclosure proceedings should have ceased at that time. (Id. ¶ 25.)

Despite Plaintiff's objections, the property was sold at a foreclosure sale on November 2, 2011, to a third party for $60, 000.00. (Id. ¶ 26; Ex. 4 to Pl.'s Compl.) After making a number of disbursements, the Substitute Trustee deposited a surplus of $35, 270.94 with the Clerk of Court. (Ex. B. to Def.'s Mot. Dismiss.)

Plaintiff then brought this action on February 20, 2013, in the Superior Court of Haywood County. The Complaint asserts claims for unjust enrichment, unfair and deceptive trade practices, wrongful foreclosure, and fraud against Defendant PNC Bank. (Pl.'s Compl. ¶¶29-55.) Approximately a month after initiating these legal proceedings, Plaintiff also filed a Petition for Surplus Proceeds of Foreclosure pursuant to N.C. Gen. Stat. 45-21.32 in the Superior Court of Haywood County to recover the surplus funds paid by the Substitute Trustee to the Clerk of Court. (Ex. C to Def.'s Mot. Dismiss.) On June 27, 2013, Judge June Ray entered an Order finding that Plaintiff was entitled to the distribution of the surplus foreclosure proceeds and ordered that the Clerk distribute the proceeds as specified in the Order. (Ex. D to Def.'s Mot. Dismiss).

After the non-diverse defendants were dismissed from the action, Defendant PNC Bank removed the action to this Court. Defendant PNC Bank then moved to dismiss the Complaint in its entirety pursuant to Rule 12(b)(6) of the Federal Rules of Federal Procedure. Defendant PNC Bank's motion is now ...


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