RICHARD HOWSE and MARY B. REED, Plaintiffs,
BANK OF AMERICA, N.A. and FEDERAL NATIONAL MORTGAGE ASSOCIATION, Defendants.
in the Court of Appeals 6 March 2017.
by Plaintiffs from order entered 5 May 2016 by Judge Gregory
R. Hayes in Superior Court, Catawba County No. 15 CVS 664.
Thurman, Wilson, Boutwell & Galvin, P.A., by James P.
Galvin, for Plaintiffs-Appellants.
McGuire Woods, LLP, by Nathan J. Taylor, for
Howse and Mary B. Reed ("Plaintiffs") appeal from
the trial court's 5 May 2016 order granting Bank of
America, N.A.'s ("Bank of America") and Federal
National Mortgage Association's ("Fannie Mae")
(collectively, "Defendants") motion for summary
judgment, and denying Plaintiffs' motion to compel. We
affirm in part, reverse and remand in part.
executed a promissory note ("the Note") in the
principal amount of $376, 000.00, made payable to Bank of
America, on 16 July 2008. The Note was secured by a deed of
trust (the "Deed of Trust") executed by Plaintiffs
on 16 July 2008 on real property located at 6965 Navahjo
[sic] Trail, Sherrills Ford, North Carolina 28673 ("the
Property"). Bank of America was named as the lender in
the Deed of Trust. The terms of the Deed of Trust allowed
"[t]he Note or a partial interest in the Note . . . [to]
be sold one or more times without prior notice to
[Plaintiffs]." The Deed of Trust also provided that
Plaintiffs would be given written notice of a change in loan
America sold the Note to Fannie Mae on 1 August 2008, but
Bank of America remained the loan servicer. Bank of America
remained the loan servicer throughout the life of the loan.
Bank of America "was authorized by Fannie Mae to make
determinations with respect [to] borrower eligibility for
loan modification programs offered by Fannie Mae."
defaulted on the Note in November 2009. After defaulting,
Plaintiffs contacted Bank of America on several occasions
regarding the Note. Plaintiffs delivered a letter of
hardship, along with certain financial statements, to Bank of
America on or about 8 April 2010. On or about 28 June 2010,
Plaintiffs told Bank of America that the Property was a
vacation rental property and, therefore, the Property was not
eligible for Fannie Mae's "Making Home
Affordable" Program. Plaintiffs again sent
correspondence to Bank of America inquiring about the Note
and Deed of Trust on 12 March 2012. Bank of America notified
Plaintiffs by letter on 4 June 2012 that "[t]he current
owner of the [N]ote is [Fannie Mae]."
August 2012, Bank of America commenced a foreclosure by power
of sale proceeding by filing a notice of hearing before the
Clerk of Superior Court for Catawba County ("the
Clerk"). The Clerk entered an order on 8 November 2012
finding that "the [Note] is now in default and the
instrument securing said debt gives the note holder the right
to foreclose under a power of sale." The order further
provided that a foreclosure sale could proceed on the Deed of
Trust (the "Order for Sale"). Plaintiffs appealed
the Order for Sale to the superior court on 11 November 2012.
Plaintiffs' appeal to the superior court was pending,
Bank of America repurchased the Note from Fannie Mae on 7
January 2013. After repurchasing the Note, Bank of America
sent Plaintiffs a letter on 22 March 2013 to determine
whether Plaintiffs qualified for a loan modification. Bank of
America did not receive a response from Plaintiffs.
superior court entered an order on 12 June 2013 affirming the
Order for Sale entered by the Clerk. In the orders of the
Clerk and the trial court, Bank of America was found to be
the holder of the Note. Plaintiffs appealed the trial
court's order affirming the Clerk's Order for Sale to
this Court, and we affirmed the trial court's order in an
opinion entered 15 April 2014. See In re Foreclosure of a
Deed of Trust Executed by Reed, 233 N.C.App.
598, 758 S.E.2d 902, 2014 N.C.App. LEXIS 381 (2014)
(unpublished) (hereinafter "Foreclosure of
Reed"). This Court held that
the [Deed of Trust] contains a description of the land
sufficient to identify the subject property. Further, the
record contains competent evidence for us to conclude that
[Bank of America] was the current holder of a valid debt.
Accordingly, the trial court did not err in ordering [Bank of
America] to proceed with the foreclosure pursuant to N.C.
Gen. Stat. § 45-21.16[.]
Id. at *10.
to this Court's decision in Foreclosure of Reed,
Plaintiffs initiated the present lawsuit by filing a
complaint for declaratory judgment and other relief on 16
March 2015. In their complaint, Plaintiffs alleged, inter
alia, that Defendants breached the covenants of good
faith and fair dealing by their "conduct of concealment
and misrepresentation[, ]" and by their negligent
misrepresentation of material facts that Plaintiffs relied
upon to their detriment. Plaintiffs requested a declaratory
judgment that North Carolina's foreclosure by power of
sale statute, N.C. Gen. Stat. § 45-21.16(d), was
unconstitutional as applied to them. Plaintiffs requested an
accounting "of all funds to be applied to the
Note;" and requested "declaratory relief . . .
pursuant to . . . the Uniform Declaratory Judgments Act[,
N.C. Gen. Stat. § 1-253 et seq, ] for the
declaration that none of the Defendants have any legal or
equitable rights in the Note or Deed of Trust, including for
purposes of foreclosure[.]" The complaint requested the
court, "[p]ursuant to N.C. G.S. § 45-21.34 and
§ 1-485, " issue "a preliminary injunction
barring any sale, conveyance, or foreclosure of the Property
pending the full disposition of" Plaintiffs'
filed a motion to dismiss Plaintiffs' complaint pursuant
to N.C. Gen. Stat. § 1A-1, Rule 12(b)(6) on 12 June
2015. The trial court denied Defendants' motion by order
entered 11 August 2015. Defendants served their answer and
affirmative defenses to Plaintiffs' complaint on 28
August 2015. While the discovery process was ongoing,
Defendants filed a motion for summary judgment pursuant to
N.C. Gen. Stat. § 1A-1, Rule 56 on 1 April 2016.
Plaintiffs filed a motion to compel on 18 April 2016, arguing
that Defendants had failed to answer interrogatories and
produce documents requested in the discovery process.
hearing was held on 2 May 2016 on Defendants' motion for
summary judgment and Plaintiffs' motion to compel.
Plaintiffs argued they were unable to procure evidence in
support of their claims due to Defendants' failure to
answer their discovery requests. Following the hearing, the
trial court held that Plaintiffs' complaint
"contain[ed] a collateral attack on a valid judgment;
that there [was] no genuine issue of material fact and that
Defendants [were] entitled to judgment as a matter of
law." Accordingly, the trial court granted
Defendants' motion for summary judgment and denied
Plaintiffs' motion to compel. Plaintiffs appeal.
central question on appeal concerns whether the present
lawsuit is, as the trial court found, a "collateral
attack" on the foreclosure by power of sale proceeding
this Court upheld as valid in Foreclosure of Reed.
In addition to arguing that the present lawsuit is not a
collateral attack and the trial court erred in so finding,
Plaintiffs also argue the trial court erred in granting
Defendants' motion for summary judgment while
Plaintiffs' motion to compel discovery was still pending.
Collateral Attack on a Valid Judgment; N.C. Gen. Stat.
argue the trial court erred in granting summary judgment to
Defendants on the grounds that their lawsuit was an
impermissible collateral attack on an otherwise valid
judgment. Summary judgment has been described by this Court
as a "drastic remedy, " the purpose of which is to
"save time and money for litigants in those instances
where there is no dispute as to any material fact."
Leake, 93 N.C.App. at 201, 377 S.E.2d at 286 (citing
Dendy v. Watkins, 288 N.C. 447, 219 S.E.2d 214
(1975)). On appeal, "we review summary judgments to
determine if there was a genuine issue as to any material
fact and whether the movant is entitled to judgment as a
matter of law." MacFadden v. Louf, 182 N.C.App.
745, 746, 643 S.E.2d 432, 433 (2007). The standard of review
for summary judgment is de novo. Builders Mut.
Ins. Co. v. North Main Constr., Ltd., 361 N.C. 85, 88,
637 S.E.2d 528, 530 (2006).
collateral attack "is one in which a plaintiff is not
entitled to the relief demanded in the complaint unless the
judgment in another action is adjudicated invalid."
Thrasher v. Thrasher, 4 N.C.App. 534, 540, 167
S.E.2d 549, 553 (1969) (quotation marks and citation
omitted); see also Regional Acceptance Corp. v. Old
Republic Surety Co., 156 N.C.App. 680, 682, 577 S.E.2d
391, 392 (2003) ("A collateral attack on a judicial
proceeding is an attempt to avoid, defeat, or evade it, or
deny its force and effect, in some incidental proceeding not
provided by law for the express purpose of attacking
it." (internal quotation marks omitted)).
the present lawsuit, to the extent that Plaintiffs seek
relief pursuant to the North Carolina Uniform Declaratory
Judgments Act, N.C. Gen. Stat. § 1-253 et seq
("UDJA"), to be an impermissible collateral attack.
In the foreclosure by power of sale proceeding, the Clerk
"entered an order authorizing [Bank of America] to
foreclose on [the Property] pursuant to N.C. Gen. Stat.
§ 45-21.16." Foreclosure of Reed, 2014
N.C.App. LEXIS 381, at *2. Plaintiffs appealed to the trial
court and, after the trial court denied Plaintiffs'
appeal, this Court held "the trial court did not err in
ordering [Bank of America] to proceed with the foreclosure
pursuant to N.C. Gen. Stat. § 45-21.16[.]"
Id. at *10.
UDJA is a statutory scheme wholly separate from the statutory
procedure for foreclosure by power of sale provided by N.C.
G.S. § 45-21.16 et seq, and any relief
potentially available under the UDJA would require the
"judgment in another action" - the foreclosure by
power of sale action in this matter in which this Court held
that the trial court did not err in ordering Bank of America
to proceed with the foreclosure - to be "adjudicated
invalid." Thrasher, 4 N.C.App. at 540, 167
S.E.2d at 553. Therefore, any relief pursuant to the UDJA
would constitute an impermissible collateral attack. This
conclusion, however, does not end our analysis. While
Plaintiffs' complaint in the present case primarily
sought relief under the UDJA, Plaintiffs also sought relief
pursuant to N.C. G.S. § 45-21.34. As explained below, we
find that the trial court erred in granting Defendants'
motion for summary judgment on Plaintiffs' equitable
claims made pursuant to N.C. G.S. § 45-21.34.
are two methods of foreclosure possible in North Carolina:
foreclosure by action and foreclosure by power of sale."
Phil Mechanic Construction Co. v. Haywood,
72 N.C.App. 318, 321, 325 S.E.2d 1, 3 (1985) (citation
omitted). In foreclosure by power of sale proceedings, such
as the one undertaken by Defendants on the Property which was
the subject of our decision in Foreclosure of Reed,
the clerk of superior court "is limited to making the
six findings of fact specified" in N.C. G.S. §
(1) the existence of a valid debt of which the party seeking
to foreclose is the holder; (2) the existence of default; (3)
the trustee's right to foreclose under the instrument;
(4) the sufficiency of notice of hearing to the record owners
of the property; (5) the sufficiency of pre-foreclosure
notice under [ N.C. Gen. Stat. § 45-102] and the lapse
of the periods of time established by Article 11, if the debt
is a home loan as defined under ...