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Howse v. Bank of America, N.A.

Court of Appeals of North Carolina

August 15, 2017

RICHARD HOWSE and MARY B. REED, Plaintiffs,
v.
BANK OF AMERICA, N.A. and FEDERAL NATIONAL MORTGAGE ASSOCIATION, Defendants.

          Heard in the Court of Appeals 6 March 2017.

         Appeal 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 Defendants-Appellees.

          MCGEE, CHIEF JUDGE.

         Richard 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.

         I. Background

         Plaintiffs 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 servicer.

         Bank of 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."

         Plaintiffs 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]."[1]

         On 8 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.

         While 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.

         The 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.

         Subsequent 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' lawsuit.

         Defendants 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.

         A 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.

         II. Analysis

         The 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.

         A. Collateral Attack on a Valid Judgment; N.C. Gen. Stat. § 45-21.34

         Plaintiffs 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).

         A 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)).

         We find 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.

         The 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.

         "There 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. § 45-21.16(d):

(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. ยง 45-102] and the lapse of the periods of time established by Article 11, if the debt is a home loan as defined under ...

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