Opinion
No. COA10-1348
Filed 16 August 2011 This case not for publication
Appeal by Plaintiffs from order entered 23 July 2010 by Judge W. Russell Duke, Jr. in Superior Court, Pitt County. Heard in the Court of Appeals 10 May 2011.
Roberson Haworth Reese, P.L.L.C., by Alan B. Powell and Christopher C. Finan, for Plaintiffs-Appellants. Ragsdale Liggett, PLLC, by Dorothy Bass Burch and Ashley H. Campbell, for Defendants-Appellees.
Pitt County No. 10 CVS 122.
Steven and Rebecca Krpata (the Krpatas) executed a promissory note in the principal amount of $333,600.00 payable to Countrywide Home Loans Servicing, LP (Countrywide) (together with Substitute Trustee Services, Inc., Plaintiffs) for the purchase of a home (the real property) in Pitt County. This loan was secured by a deed of trust (the original deed of trust) recorded in the Pitt County Registry on 7 June 2004. The Krpatas took out an equity line of credit on the real property with Countrywide in the amount of $43,000.00, secured by a deed of trust (the equity deed of trust) recorded in the Pitt County Registry on 6 December 2004.
On 19 January 2006, the Krpatas, using the real property as collateral, executed a promissory note in the principal amount of $250,000.00 payable to Wachovia Bank, National Association, predecessor in interest to States Resources Corp. (States) (together with Waslaw, LLC, Defendants), and secured by a deed of trust (the States deed of trust) recorded in the Pitt County Registry on 30 January 2006.
On 26 February 2007, the Krpatas refinanced the real property with Countrywide. Countrywide advanced $368,100.00 pursuant to the refinance, secured by a deed of trust (the Countrywide deed of trust) recorded in the Pitt County Registry on 19 March 2007. The funds from the refinance were used to pay off the original deed of trust, which was cancelled of record. Countrywide also recorded a subordination agreement on 19 March 2007, whereby the equity line deed of trust was subordinated in interest to the Countrywide deed of trust.
Countrywide was unaware of the States deed of trust when it recorded the Countrywide deed of trust and the subordination agreement on 19 March 2007, despite the uncontested fact that the States deed of trust was recorded in the Pitt County Registry. Because the States deed of trust was recorded prior to the Countrywide deed of trust, upon the cancellation of the original deed of trust, and the subordination of the equity deed of trust to the Countrywide deed of trust, the States deed of trust moved from third in priority to first in priority.
The Krpatas filed for Chapter 7 bankruptcy on 27 June 2008. The real property was sold at a foreclosure sale on 16 July 2009. States was the last and highest bidder at the foreclosure sale, and States became the owner of the real property free and clear of all other liens, including the original deed of trust, the Countrywide deed of trust, and the equity line deed of trust. Countrywide was not notified of the foreclosure sale.
Plaintiffs filed a complaint on 2 February 2010, including, inter alia, claims for: (1) "Equitable Assignment and Reinstatement of Deed of Trust," (2) "Equitable Subrogation," and (3) "Action to Quiet Title — Due Process." Defendants answered Plaintiffs' complaint on 12 April 2010, and pleaded multiple affirmative defenses. Defendants filed a "Motion for Judgment on the Pleadings" on 14 July 2010 pursuant to N.C. Gen. Stat. § 1A-1, Rule 12(c). By order filed 23 July 2010, the trial court granted Defendants' motion for judgment on the pleadings and dismissed Plaintiffs' claims against Defendants with prejudice. Plaintiffs appeal.
The trial court granted judgment in favor of Defendants pursuant to Defendants' motion on the pleadings.
Courts may properly grant a motion for judgment on the pleadings made pursuant to N.C.R. Civ. P. 12(c) "when all the material allegations of fact are admitted on the pleadings and only questions of law remain." The court must "view[] the facts and permissible inferences in the light most favorable to the nonmoving party" and determine that the movant "is clearly entitled to judgment as a matter of law."
Ingersoll v. Smith, 184 N.C. App. 753, 755, 647 S.E.2d 141, 142 (2007) (citations omitted). "On appeal, the trial court's grant of a motion for judgment on the pleadings pursuant to N.C.R. Civ. P. 12(c) is reviewed de novo." McCracken Amick, Inc. v. Perdue, 201 N.C. App. 480, 483-84, 687 S.E.2d 690, 692-93 (2009) (citation omitted).
I.
Plaintiffs bring forward two arguments on appeal. First, that their complaint stated valid claims for equitable subrogation or equitable assignment. Second, that portions of North Carolina's foreclosure statutes are unconstitutional, and served to deprive Countrywide of the notice required by due process.
In Plaintiffs' first argument, they contend the trial court erred in granting judgment on the pleadings in favor of Defendants because Plaintiffs' complaint contained valid claims for equitable subrogation and equitable assignment. We disagree.
We first note that Plaintiffs argue in their brief that "North Carolina has long recognized the separate remedies of equitable assignment and equitable subrogation." Plaintiffs cite to one case in support of this contention: Wallace v. Benner, 200 N.C. 124, 156 S.E. 795 (1931). Wallace is a case decided on the doctrine of equitable subrogation. Our Supreme Court in Wallace, in the middle of approximately three pages of law concerning equitable subrogation, included the following language:
In 25 R.C.L., pages 1339-40, under title "Subrogation," sec. 23, after stating that the rule of subrogation has no application to a stranger or volunteer who pays off a prior encumbrance, continues as follows: "And if money is advanced to a debtor to discharge an existing first mortgage upon his property and in pursuance of an agreement that the lender is to have a first lien upon the property for the repayment of the sum loaned, the lender is entitled, as against a junior encumbrancer, to be treated as the assignee of the first mortgage, which has been paid off and discharged with the money loaned, whenever it becomes necessary to do so to effectuate the agreement with the lender, and to prevent the junior encumbrance from being raised accidentally to the dignity of a first lien, contrary to the intention of the parties. (Emphasis added).
Id. at 131-32, 156 S.E. at 799 (citation omitted). This dicta in Wallace is clearly part of our Supreme Court's recitation of the law of subrogation. The Wallace Court held: "It would be inequitable and unconscionable if the [defendant] was not, under facts disclosed on this record, entitled to subrogation." Id. at 133, 156 S.E. at 799. Plaintiffs cite to no other law, and we can find none, demonstrating that North Carolina recognizes any remedy for equitable assignment separate from the remedy of equitable subrogation. We therefore proceed to the merits of Plaintiffs' argument based upon the doctrine of equitable subrogation.
[A]s a general rule one who furnishes money for the purpose of paying off an encumbrance on real or personal property, at the instance either of the owner of the property or of the holder of the encumbrance, either upon the express understanding or under circumstances from which an understanding will be implied, that the advance made is to be secured by a first lien on the property, will be subrogated to the rights of the prior lienholder as against the holder of an intervening lien, of which the lender was excusably ignorant. Wilkins v. Gibson, 113 Ga. 31, 38 S.E. 374, 84 Am. St. Rep. 204; Bankers' Loan Investment Co. v. Hornish, 94 Va. 608, 27 S.E. 459; Huggins v. Fitzpatrick, 102 W. Va. 224, 135 S.E. 19; Pomeroy's Equity Jurisprudence, Fifth Edition, Volume 4, section 1212; Annotation, 70 A.L.R. 1396. See also Boney v. Insurance Co., 213 N.C. 563, 567, 197 S.E. 122; 50 Am. Jur., Subrogation, sections 107, 108, and 109.
Peek v. Trust Co., 242 N.C. 1, 15, 86 S.E.2d 745, 755-56 (1955); see also Trust Co. v. Finance Co., 262 N.C. 711, 715, 138 S.E.2d 481, 484 (1964) ("The priority here declared results from defendant's negligence. Estoppel is not available to protect one against his own negligence.") (citations omitted); American Gen. Fin. Servs., Inc. v. Barnes, 175 N.C. App. 406, 408-09, 623 S.E.2d 617, 619-20 (2006).
In the present case, Plaintiffs acknowledged in their complaint that the States deed of trust was recorded in the Pitt County Registry on 30 January 2006. Plaintiffs further acknowledge that the Countrywide deed of trust was recorded in the Pitt County Registry on 19 March 2007. Plaintiffs then contend pursuant to the equitable subrogation claim in their complaint that: "Countrywide took every precaution that due care required in order to obtain a first priority lien upon the Subject Real Property . . . but Countrywide was not adequately advised nor informed of the STATES Deed of Trust[.]" Plaintiffs mistakenly believe it was the duty of some other party to protect Countrywide's interests. Countrywide would have discovered the States deed of trust had it conducted a title search, but Countrywide cancelled the original deed of trust without conducting a title search. Then, due to Countrywide's neglect, the States deed of trust was elevated above the Countrywide deed of trust. Countrywide was not "excusably ignorant" of the States deed of trust in this case, and equitable subrogation does not apply. As our Court stated in Barnes when affirming summary judgment in favor of defendant Penn National:
The doctrine of equitable subrogation does not apply in this case because Penn National has no liability for plaintiff's inferior lien position. When Penn National docketed its judgment on 17 January 2002, its lien was subordinate to two prior deeds of trust. Plaintiffs failed to properly search the public records and caused Penn National's $430,230.00 judgment to move from third priority to first priority by cancelling the two prior deeds of trust.
Barnes, 175 N.C. App. at 409, 623 S.E.2d at 619. We hold that the trial court in this case did not err in granting Defendants' motion on the pleadings on this issue.
II.
Plaintiffs contend in their second argument that North Carolina's statutory scheme for providing notice of foreclosure to those holding an interest in real property to be foreclosed is unconstitutional. Plaintiffs argue that Countrywide held a protected property interest in the real property; that N.C. Gen. Stat. §§ 45-21.16 and 45-21.17A impermissibly and unconstitutionally allowed Defendants to foreclose on the real property without notifying Countrywide; and therefore, this Court should hold "that Countrywide's Due Process rights have been violated, that North Carolina's statutory foreclosure scheme is unconstitutional and that, as a result, the [Countrywide] Deed of Trust was not extinguished by the Foreclosure Sale."
This matter was decided on the pleadings by the trial court. Plaintiffs' complaint contains only one claim involving due process and that is Plaintiffs' fifth claim: "Action to Quiet Title — Due Process." However, Plaintiffs' complaint fails to include any claim regarding the alleged unconstitutionality of North Carolina's statutory scheme for notice of foreclosure. As this claim was not included in the pleadings, it was not before the trial court on Defendants' motion on the pleadings. The trial court could not err by failing to rule on a claim that was not before it. We therefore dismiss this argument. N.C. Gen. Stat. § 1A-1, Rule 8 (2009); Hoisington v. ZT-Winston-Salem Assocs., 133 N.C. App. 485, 490, 516 S.E.2d 176, 180 (1999); see also N.C. R. App. P. 10(a)(1) (2011).
Affirmed.
Judges ELMORE and BEASLEY concur.
Report per Rule 30(e).