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U.S. Bank National Association v. Pinkney

Supreme Court of North Carolina

June 9, 2017


          Heard in the Supreme Court on 11 April 2017.

         On discretionary review pursuant to N.C. G.S. § 7A-31 of a unanimous, unpublished decision of the Court of Appeals, __ N.C.App. __, 787 S.E.2d 464 (2016), affirming an order entered on 5 March 2015 by Judge Patrice A. Hinnant in Superior Court, Forsyth County.

          Bradley Arant Boult Cummings LLP, by Brian M. Rowlson, for plaintiff-appellant.

          Law Office of Benjamin D. Busch, PLLC, by Benjamin D. Busch, for defendant-appellees Willie Lee Pinkney and Clara Pinkney.

          NEWBY, Justice.

         Foreclosure by action or "judicial foreclosure, " unlike non-judicial foreclosure by power of sale, is an ordinary civil action governed by the liberal standard of notice pleading. As such, a complaint is sufficient if it alleges a debt secured by a deed of trust, a default, and the plaintiff's right to enforce the deed of trust. Here plaintiff's complaint adequately states a cause of action for judicial foreclosure. The Court of Appeals erred by applying the requirements applicable in non-judicial foreclosure by power of sale to the plaintiff's judicial foreclosure action and, accordingly, we reverse the decision of that court.

         In December 1997, defendants Willie Lee Pinkney and Clara Pinkney (collectively borrower) executed a promissory note with Ford Consumer Finance Company, Inc. (the Note) in the principal amount of $257, 256.89 to purchase real property situated in Forsyth County. The debt is repayable through monthly installments due on the seventeenth of the month and matures on 17 December 2027. The Note includes default and acceleration provisions. The debt is secured by a deed of trust on the underlying real property, identified "as Lot No. 2, . . . SHERWOOD FOREST, . . . recorded in Plat Book 29, Page 22, in the Office of the Register of Deeds of Forsyth County." U.S. Bank National Association (the Bank)[1] alleges that it "is the present holder of the Note and Subject Deed of Trust and is the party entitled to enforce the same."

         In September 2014, the Bank filed its complaint against borrower and the substitute trustee under the deed of trust in Superior Court, Forsyth County, seeking judicial foreclosure and judgment on the Note.[2] The Bank alleges, inter alia, that "the Note evidences a valid debt owned [sic] by [borrower] to [the Bank], " that borrower "defaulted under the terms of the Note for failure to make payments, " and that the Bank "has given [borrower] written notice of default, " but that borrower has "refused . . . to make the payments required." The Bank claims that the outstanding balance on the Note is $268, 171.13 plus "past due interest" of $118, 055.05.

         In regard to the Bank's authority to enforce the terms of the deed of trust, the complaint states that the Note was "transferred" several times, ultimately to the Bank. Ford Consumer Finance "endorsed" the Note to Credit Based Asset Servicing and Securitization, LLC (Credit Asset), which "assigned" the Note to the "Salomon Mortgage Loan Trust" Indenture, which "specifically endorsed" the Note to the Bank.[3]

         The Bank also attached exhibits to its complaint, including Exhibit E (the Note), which includes allonges evidencing the two endorsements, and Exhibit G ("Assignment of Mortgage/Deed of Trust") evidencing the assignment, which states that Credit Asset "for value received, does by these presents grant, bargain, sell, assign, transfer and set over unto: [the Salomon Mortgage Loan Trust Indenture] . . . all of [its] right, title and beneficial interest in and to that certain Deed of Trust."

         Borrower moved to dismiss for failure to state a claim upon which relief can be granted under Rule 12(b)(6) of the North Carolina Rules of Civil Procedure. Because the Bank "is not the original payee" under the Note, borrower argued that the Exhibits reveal a "lack of indorsement from the predecessor in the chain of title[, which] is fatal to the Plaintiff's claim of being holder entitled to enforce the instrument."[4] The trial court dismissed the action with prejudice, and the Bank appealed.

         The Court of Appeals affirmed the trial court's dismissal order. U.S. Bank v. Pinkney, __ N.C.App. __, 787 S.E.2d 464, 2016 WL 2647709 (2016) (unpublished). Applying the requirements of N.C. G.S. § 45-21.16(d) applicable to non-judicial foreclosures by power of sale, the Court of Appeals found that the Bank failed to establish its status as a holder of the Note and therefore did not have the right to foreclose. Pinkney, 2016 WL 2647709, at *3-5 (citing and quoting In re Foreclosure of Gilbert, 211 N.C.App. 483, 490, 711 S.E.2d 165, 170 (2011) (requiring holdership status to foreclose under subsection 45-21.16(d))). Because the Bank "was not the original holder of the Note, " id. at *4, the court reasoned that "each transfer required indorsement of the Note from one holder to the next, " id. (quoting In re Foreclosure of Bass, 366 N.C. 464, 469, 738 S.E.2d 173, 176 (2013)). Though "plaintiff alleged . . . that it was the present holder of the Note and Subject Deed of Trust, " id. at *6, the court nonetheless concluded that the Exhibits lacked an essential "indorsement from Credit Asset"-in other words, that the assignment was an inadequate indorsement, id. at *5. Therefore, the court found that "plaintiff cannot establish that it is the holder of the Note." Id.[5] We allowed the Bank's petition for discretionary review.

         We review dismissals under Rule 12(b)(6) de novo, Bridges v. Parrish, 366 N.C. 539, 541, 742 S.E.2d 794, 796 (2013), "view[ing] the allegations as true and . . . in the light most favorable to the non-moving party, " Kirby v. NCDOT, 368 N.C. 847, 852, 786 S.E.2d 919, 923 (2016) (citing Mangum v. Raleigh Bd. of Adjust., 362 N.C. 640, 644, 669 S.E.2d 279, 283 (2008)). The complaint is construed liberally, and dismissal is appropriate "if it appears certain that plaintiffs could prove no set of facts which would entitle them to relief under some legal theory, " Fussell v. N.C. Farm Bureau Mut. Ins. Co., 364 N.C. 222, 225, 695 S.E.2d 437, 440 (2010) (citations omitted), or "no law exists to support the claim made, " id. at 225, 695 S.E.2d at 440 (quoting Burgess v. Your House of Raleigh, Inc., 326 N.C. 205, 209, 388 S.E.2d 134, 136 (1990)).

         The precise question presented is whether the complaint reveals sufficient allegations to survive borrower's motion to dismiss the Bank's judicial foreclosure claim. Here the complaint provides adequate notice of the claim. Because the Court of Appeals applied the requirements applicable to non-judicial foreclosure by power of sale, not ...

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