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In re Proposed Foreclosure of Claim of Lien Filed on George

Court of Appeals of North Carolina

February 19, 2019

IN THE MATTER OF PROPOSED FORECLOSURE OF CLAIM OF LIEN FILED ON CALMORE GEORGE AND HYGIENA JENNIFER GEORGE BY THE CROSSINGS COMMUNITY ASSOCIATION, INC. DATED AUGUST 22, 2016, RECORDED IN DOCKET NO. 16-M-6465 IN THE OFFICE OF THE CLERK OF COURT OF SUPERIOR COURT FOR MECKLENBURG COUNTY REGISTRY BY SELLERS, AYRES, DORTCH & LYONS, P.A.

          Heard in the Court of Appeals 27 November 2018.

          Appeal by respondents from orders entered 17 July 2017, 9 August 2017, and 15 March 2018 by Judge Nathaniel J. Poovey in Mecklenburg County No. 16-SP-3875 Superior Court.

          James, McElroy & Diehl, P.A., by Preston O. Odom, III, and DeVore Acton & Stafford, PA, by Derek P. Adler, for respondents-appellants.

          Thurman, Wilson, Boutwell & Galvin, P.A., by James P. Galvin, for petitioners-appellees.

          ZACHARY, Judge.

         KPC Holdings and National Indemnity Group ("National Indemnity" and collectively "Respondents") appeal orders adding them as parties to this action, setting aside an order for foreclosure, canceling a deed, and denying an indicative joint motion for relief under Rule 60(b)(6). After careful review, we conclude that the trial court correctly determined that the foreclosure sale in this case was invalid due to lack of proper service of the notice of foreclosure, and that the trustee on a deed of trust other than that on which foreclosure was instituted was not a necessary party to the proceedings; however, KPC Holdings was a good faith purchaser for value. Therefore, the trial court should not have voided the deed conveying the property to KPC Holdings or the subsequent deed to National Indemnity.

         Background

         Calmore George and his wife, Hygiena Jennifer George, owned a home in Mecklenburg County, North Carolina. On 22 August 2016, The Crossings Community Association, Inc., the Georges' homeowners' association, filed a planned community claim of lien against the Georges' property for unpaid association fees totaling $204.75. The homeowners' association appointed a trustee to represent the association on its claim of lien, and the trustee commenced a non-judicial foreclosure proceeding on the property. Included in the documents filed in the foreclosure proceeding were two sheriff's returns of service indicating personal service of the notice of foreclosure upon Hygiena Jennifer George and substitute service upon Calmore George by leaving the notice with his wife at their residence. The foreclosure trustee also filed an affidavit of attempted service of process by certified mail, return receipt requested, and by first class mail sent to both the Mecklenburg County property and to the Georges' other known address in the Virgin Islands.

         On 9 December 2016, an Assistant Clerk of Mecklenburg County Superior Court filed an order permitting foreclosure with a notice of sale indicating that the property would be sold at auction on 12 January 2017. KPC Holdings purchased the property on 12 January 2017 for $2, 650.22. No party filed an upset bid by the deadline and on 3 February 2017, the foreclosure trustee deeded the land to KPC Holdings. On 21 March 2017, KPC Holdings conveyed the property to National Indemnity in consideration for National Indemnity's promise to pay KPC Holdings $150, 000.00, evidenced by a promissory note and deed of trust naming Jonathan Hankin as trustee.

         On 18 April 2017, the Georges filed a motion to set aside the foreclosure sale under Rule 60(c) of the North Carolina Rules of Civil Procedure alleging that "[n]o type of personal service was effectuated [upon] the Georges." National Indemnity moved to intervene on 10 May 2017. On 17 July 2017, the Honorable Nathaniel J. Poovey heard the Rule 60 motion and subsequently entered an order joining National Indemnity and KPC Holdings as necessary parties to the proceeding. After a hearing, on 9 August 2017, Judge Poovey entered an order setting aside the order for foreclosure, canceling the trustee's foreclosure deed to KPC Holdings, and canceling KPC Holdings' deed to National Indemnity.

         National Indemnity appealed the 9 August 2017 order setting aside the foreclosure on 1 September 2017. That same day, KPC Holdings appealed both the 17 July 2017 order joining KPC Holdings as a necessary party and the 9 August 2017 order setting aside the foreclosure and canceling the deeds.

         Thereafter, Respondents filed a Joint Motion for Relief under Rule 60(b)(6) with the trial court, and requested that this Court temporarily remand the case for the trial court to hear the motion and enter an indicative ruling. This Court granted Respondent's Motion to Remand.[1] On 15 March 2018, the trial court entered an Indicative Denial of Joint Motion for Relief under Rule 60(b)(6). Respondents timely filed notices of appeal from the Indicative Denial.

         Discussion

         Respondents argue on appeal that the trial court erred in: (1) failing to join the trustee on the deed of trust between KPC Holdings and National Indemnity as a necessary party to the Rule 60 proceeding; (2) ruling that the foreclosure trustee failed to give sufficient notice of the non-judicial foreclosure proceeding to Calmore George; and (3) determining that Respondents were not good faith purchasers for value.[2] We address each argument in turn.

         Rule 60(b) Motions

         Rule 60 of the North Carolina Rules of Civil Procedure allows the trial court to relieve a party from a final judgment or order for several reasons, including that "[t]he judgment is void" and "[a]ny other reason justifying relief from the operation of the judgment." N.C. Gen. Stat. § 1A-1, Rule 60(b)(4), (6) (2017). "A judgment will not be deemed void merely for an error in law, fact, or procedure. A judgment is void only when the issuing court has no jurisdiction over the parties or subject matter in question or has no authority to render the judgment entered." Burton v. Blanton, 107 N.C.App. 615, 616, 421 S.E.2d 381, 382 (1992). A trial court cannot set aside a judgment or order pursuant to Rule 60(b)(6) without showing that: (1) extraordinary circumstances exist, and (2) justice demands relief. Howell v. Howell, 321 N.C. 87, 91, 361 S.E.2d 585, 588 (1987). Additionally, to obtain relief under Rule 60(b)(6), the moving party must show that it has a meritorious defense. In re Oxford Plastics v. Goodson, 74 N.C.App. 256, 258, 328 S.E.2d 7, 9 (1985).

         The determination of whether to grant relief under Rule 60(b)(6) is equitable in nature and within the trial court's discretion. Kennedy v. Starr, 62 N.C.App. 182, 186, 302 S.E.2d 497, 499-500, disc. review denied, 309 N.C. 321, 307 S.E.2d 164 (1983). As such, this Court reviews Rule 60(b) motions for an abuse of discretion. Davis v. Davis, 360 N.C. 518, 523, 631 S.E.2d 114, 118 (2006). "A trial court abuses its discretion when its decision is manifestly unsupported by reason or so arbitrary that it could not have been the result of a reasoned decision." Ehrenhaus v. Baker, 216 N.C.App. 59, 71, 717 S.E.2d 9, 18 (2011) (quotation marks omitted), appeal dismissed and disc. review denied, 366 N.C. 420, 735 S.E.2d 332 (2012).

         North Carolina Planned Community Act

         The General Assembly enacted the North Carolina Planned Community Act to regulate "the creation, alteration, termination, and management of planned subdivision communities." Wise v. Harrington Grove Cmty. Ass'n, 357 N.C. 396, 399, 584 S.E.2d 731, 734, reh'g denied, 357 N.C. 582, 588 S.E.2d 891 (2003); see also generally "An Act to Establish the North Carolina Planned Community Act," 1998 N.C. Sess. Laws 674, ch. 199 (codified as amended at N.C. Gen. Stat. §§ 47F-1-101 to -3-122). A "planned community" is "real estate with respect to which any person, by virtue of that person's ownership of a lot, is expressly obligated by a declaration to pay real property taxes, insurance premiums, or other expenses to maintain, improve, or benefit other lots or other real estate described in the declaration." N.C. Gen. Stat. § 47F-1-103(23) (2017). A planned community's owners' association is empowered to, among other things, "[i]mpose and receive any payments, fees, or charges for the use, rental, or operation of the common elements . . . and for services provided to lot owners." Id. § 47F-3-102(10). Any assessment levied upon a lot owner that is unpaid for thirty days or more constitutes a lien on the property when a claim of lien is filed with the clerk of superior court in the county in which the land is situated. Id. § 47F-3-116(a). The owners' association "may foreclose a claim of lien in like manner as a mortgage or deed of trust on real estate under power of sale, as provided in Article 2A of Chapter 45 of the General Statutes, if the assessment remains unpaid for 90 days or more." Id. § 47F-3-116(f). Thus, a foreclosure of an owners' association claim of lien proceeds as a power of sale foreclosure.

         I. Failure to Join a Necessary Party

         Respondents argue that the trial court erred by failing to join Jonathan Hankin, the trustee named on the deed of trust between KPC Holdings and National Indemnity, as a necessary party to the Rule 60(b) proceedings. We disagree.

         Parties "who are united in interest must be joined as plaintiffs or defendants." Id. § 1A-1, Rule 19(a). "A person is 'united in interest' with another party when that person's presence is necessary in order for the court to determine the claim before it without prejudicing the rights of a party before it or the rights of others not before the court." Ludwig v. Hart, 40 N.C.App. 188, 190, 252 S.E.2d 270, 272, disc. review denied, 297 N.C. 454, 256 S.E.2d 807 (1979). "A 'necessary' party is one whose presence is required for a complete determination of the claim, and is one whose interest is such that no decree can be rendered without affecting the party." In re Foreclosure of Barbot, 200 N.C.App. 316, 319, 683 S.E.2d 450, 453 (2009). "A judgment which is determinative of a claim arising in an action to which one who is 'united in interest' with one of the parties has not been joined is void." Ludwig, 40 N.C.App. at 190, 252 S.E.2d at 272. When the absence of a necessary party is brought to the attention of the trial court, it should not address the merits of the case until the necessary party is joined to the action, and the trial court should bring in the necessary party ex mero motu if no other party moves to do so. Booker v. Everhart, 294 N.C. 146, 158, 240 S.E.2d 360, 367 (1978).

         Generally, when a party seeks "to have [a] deed declared null and void[, ] . . . . the court would have to have jurisdiction over the parties necessary to convey good title." Brown v. Miller, 63 N.C.App. 694, 699, 306 S.E.2d 502, 505 (1983), appeal dismissed and disc. review denied, 310 N.C. 476, 312 S.E.2d 882 (1984). A trustee is one of three parties involved in a deed of trust,

[wherein] the borrower conveys legal title to real property to a third party trustee to hold for the benefit of the lender until repayment of the loan . . . . When the loan is repaid, the trustee cancels the deed of trust, restoring legal title to the borrower, who at all times retains equitable title in the property.

Skinner v. Preferred Credit, 361 N.C. 114, 120-21, 638 S.E.2d 203, 209 (2006) (citations omitted), reh'g denied, 361 N.C. 371, 643 S.E.2d 519 (2007). Accordingly, in foreclosure proceedings, "[t]rustees are necessary parties . . . because the trustee is the party tasked with facilitating the [foreclosure] process." Greene v. Tr. Servs. of Carolina, LLC, 244 N.C.App. 583, 596, 781 S.E.2d 664, 673, disc. review denied, 368 N.C. 911, 786 S.E.2d 268 (2016).

         The trustee on a deed of trust is not, however, inevitably a necessary party to all litigation involving property for which the trustee holds the deed of trust. In 2011, the General Assembly enacted a statute titled, "An Act to Modernize and Enact Certain Provisions Regarding Deeds of Trust . . . Eliminating Trustee of Deed of Trust as Necessary Party for Certain Transactions and Litigation . . . ." 2011 N.C. Sess. Laws 1212, 1231-32, ch. 312, § 15 (codified as amended at N.C. Gen. Stat. § 45-45.3). This Act provides that

[e]xcept in matters relating to the foreclosure of the deed of trust or the exercise of a power of sale under the terms of the deed of trust, the trustee is neither a necessary nor a proper party to any civil action or proceeding involving (i) title to the real property encumbered by the lien of the deed of trust or (ii) the priority of the lien of the deed of trust.

N.C. Gen. Stat. § 45-45.3(c) (2017) (emphasis added). Proceedings in which the trustee on the deed of trust is not a necessary party include "[t]he foreclosure of a lienother than the lien of the deed of trust, regardless of whether the lien is superior or subordinate to the lien of the deed of trust, including, but not limited to, the foreclosure of mortgages, other deeds of ...


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