Opinion
No. COA12–1322.
2013-07-16
MOUNTAIN 1st BANK & TRUST, Plaintiff v. GALDENA, LLC and James S. Armour, Defendants.
Van Winkle, Buck, Wall, Starnes and Davis, P.A., by Esther E. Manheimer and Lynn D. Moffa, for plaintiff-appellee. Hogan & Brewer, PLLC, by James W. Lee, for defendant-appellants.
Appeal by defendants from judgment entered 12 July 2012 by Judge Mark E. Powell in Henderson County Superior Court. Heard in the Court of Appeals 27 March 2013. Van Winkle, Buck, Wall, Starnes and Davis, P.A., by Esther E. Manheimer and Lynn D. Moffa, for plaintiff-appellee. Hogan & Brewer, PLLC, by James W. Lee, for defendant-appellants.
CALABRIA, Judge.
Galdena, LLC (“Galdena”) and James S. Armour (“Armour”) (collectively “defendants”) appeal from the trial court's order granting summary judgment in favor of Mountain 1st Bank & Trust (“plaintiff”). We affirm.
I. Background
On 27 December 2006, Galdena executed a promissory note and commercial loan agreement secured by a deed of trust in favor of plaintiff in the amount of $2,200,000.00 (“the First Note”). The property included in the deed of trust was: “79.18 + 1 acres and improvements located on SR 1891, Hill Drive, Henderson County, NC 27616” (“the Property”). Armour, a member and manager of Galdena, also executed an unlimited personal guaranty securing the First Note. The First Note was subsequently renewed on 27 December 2008 and 22 June 2010.
On 5 December 2008, Galdena executed another promissory note and commercial loan agreement secured by a deed of trust in favor of plaintiff (“the Second Note”). The amount of the Second Note, $215,000.00, was secured by the same real property as the First Note. Armour again executed an unlimited personal guaranty securing the Second Note.
Galdena failed to make its required payments under both the First and Second Notes. Plaintiff proceeded to foreclose on the First Note. On 6 May 2011, the trustee held a public foreclosure sale. Plaintiff was the high bidder and purchased the Property for $850,000.00. Subsequently, plaintiff sold the Property to a third party for a total of $162,400.00. Defendants, however, were credited with the amount of the bid price at the foreclosure sale, $850,000.00, not the lower amount, $162,400.00, that plaintiff received from the subsequent third-party sale. After the foreclosure sale, defendants still owed plaintiff a balance of $1,289,381.08 on the First Note.
On 26 September 2011, plaintiff initiated an action against defendants in Henderson County Superior Court, seeking to recover the balance due under both the First and Second Notes. On 12 December 2011, defendants filed an answer asserting as an affirmative defense that, pursuant to N.C. Gen.Stat. § 45–21.36, plaintiff's winning foreclosure bid was substantially less than the true value of the Property. On 4 June 2012, plaintiff filed a motion for summary judgment alleging that there was no genuine issue of material fact and that it was entitled to judgment as a matter of law. In the alternative, plaintiff requested the entry of a judgment on the pleadings.
On 12 July 2012, the trial court entered an order granting summary judgment in favor of plaintiff. Defendants were ordered to pay the remaining balance on the First and Second Notes, together with interest, attorneys' fees, and costs. Defendants appeal.
II. Standard of Review
“Our standard of review of an appeal from summary judgment is de novo; such judgment is appropriate only when the record shows that ‘there is no genuine issue as to any material fact and that any party is entitled to a judgment as a matter of law.’ “ In re Will of Jones, 362 N.C. 569, 573, 669 S.E.2d 572, 576 (2008)(quoting Forbis v. Neal, 361 N.C. 519, 524, 649 S.E.2d 382, 385 (2007)).
III. Adequacy of Foreclosure Sale
Defendants argue that the trial court erred by granting summary judgment in favor of plaintiff because there was a genuine issue of material fact as to whether plaintiff's winning foreclosure bid was substantially less than the true value of the property. We disagree.
“If the foreclosure sale of real property which secures a non-purchase money mortgage fails to yield the full amount of due debt, the mortgagee may sue for a deficiency judgment.” Carolina Bank v. Chatham Station, Inc., 186 N.C.App. 424, 428, 651 S.E.2d 386, 389 (2007)(footnote omitted). “A deficiency judgment is an imposition of personal liability on mortgagor for unpaid balance of mortgage debt after foreclosure has failed to yield full amount of due debt.” Hyde v. Taylor, 70 N.C.App. 523, 526, 320 S.E.2d 904, 906 (1984)(internal quotations and citation omitted). However,
G.S. 45–21.36 allows a debtor to claim a setoff against a deficiency judgment to the extent that the bid at the foreclosure is substantially less than the true value of the realty, where (1) the creditor forecloses pursuant to a power of sale clause, (2) there is a deficiency, and (3) the creditor who forecloses is the party seeking a deficiency judgment.
Id. at 526, 320 S.E.2d at 906–07. “N.C. Gen.Stat. § 45–21.36 applies well-settled principles of equity to provide protection for debtors whose property has been sold and purchased by their creditors for a sum less than its fair value.” NCNB v. O'Neill, 102 N.C.App. 313, 316, 401 S.E.2d 858, 859 (1991).
In the instant case, defendants contend that there was a genuine issue of material fact as to whether plaintiff was entitled to a deficiency judgment against defendants under N.C. Gen.Stat. § 45–21 .36, because the “true value” of the Property at the time of the foreclosure sale was “no less than the amount of indebtedness secured by the property.” However, the evidence submitted by defendants at the summary judgment hearing fails to create a genuine issue of material fact as to whether plaintiff's winning foreclosure bid was substantially less than the Property's value.
Initially, we note that although plaintiff did not attempt to collect on the Second Note via foreclosure, defendants may still rely on the protection of N.C. Gen.Stat. § 45–21.36 to defend against the trial court's judgment as to that note. See id. (holding that “when a mortgagee purchases at its own foreclosure sale, its ability to successfully maintain a deficiency action is governed by N.C. Gen.Stat. § 4[5]–21.36 regardless of whether it brings the deficiency action to collect on its second mortgage.”).
At the summary judgment hearing, defendants submitted only a single affidavit, from Armour, to oppose plaintiff's motion. In the affidavit, Armour stated that he “believe[d] Mountain 1st Bank & Trust sold the collateral securing the indebtedness ... for substantially less than the collateral's value.” Armour's affidavit also included the purchase information for three lots sold on the Property prior to plaintiff's foreclosure. Armour averred that the three lots were sold on or about the following dates for the following prices: 20 August 2010 for $26,000.00; 23 December 2010 for $31,750.00; and 24 January 2011 for $25,000.00. Armour's affidavit also averred that “David Armour offered to purchase 7 lots in The Preserve at Summitt Springs ... for $115,500.”
Defendants' affidavit is insufficient to create a genuine issue of material fact precluding summary judgment. First, as to Armour's statement that he believed that plaintiff sold the Property for substantially less than its value, this Court has previously held that a defendant's affidavit stating that property “had a fair market value and was worth substantially more than the amount which was bid and paid by [the plaintiff],” without setting forth any other specific facts or relevant information, was “insufficient to create an issue of fact as to this point.” Lexington State Bank v. Miller, 137 N.C.App. 748, 753–54, 529 S.E.2d 454, 457 (2000).
Moreover, none of the three third-party sales referenced in Armour's affidavit provided evidence of the price of the Property as a whole. Individual lot sales cannot be extrapolated to determine the price of a much larger piece of land, as substantial differences in the amount of land sold necessarily will lead to substantial differences in the total price. The only competent evidence regarding the value of the Property as a whole was the affidavit of plaintiff's Senior Vice President, who averred that plaintiff subsequently sold the Property for a price well below the price paid by plaintiff at the foreclosure sale. See Investments v. Housing, Inc., 292 N.C. 93, 113, 232 S.E.2d 667, 679 (1977)(A subsequent sale is a “circumstance indicating the fair value of the property at the time of the foreclosure.”).
Finally, the alleged offer by David Armour to purchase seven lots for $115,500.00 did not create a genuine issue of material fact because this Court has previously held that an “unaccepted oral offer” is not competent evidence of market value. Blue Ridge Savs. Bank, Inc. v. Mitchell, –––N.C.App. ––––, ––––, 721 S.E.2d 322, 324 (2012). The Blue Ridge Court explained that “[a] mere offer to buy or sell property is incompetent to prove its market value. The figure named is only the opinion of one who is not bound by his statement and it is too unreliable to be accepted as a correct test of value.” Id. (quoting North Carolina State Highway Com. v. Helderman, 285 N.C. 645, 654–55, 207 S.E.2d 720, 727 (1974)).
Ultimately, defendants failed to present any evidence which would create a genuine issue of material fact concerning the value of the Property at the time of the foreclosure sale. As a result, defendants could not rely upon N.C. Gen.Stat. § 45–21.36 as an affirmative defense, and the trial court correctly granted summary judgment in favor of plaintiff. This argument is overruled.
IV. Liability of Armour as Guarantor
Finally, defendants argue that Armour should be permitted to “assert the defense of satisfaction of the underlying debt ...” However, as defendants acknowledge in their brief, even under defendants' own theory, Armour could only assert this defense if Galdena were able to successfully assert an affirmative defense pursuant to N.C. Gen.Stat. § 45–21.36. Since we have ruled against defendants on that argument, this argument is necessarily overruled as well.
As it is unnecessary to our disposition of the case, we offer no opinion on the validity of this theory.
V. Conclusion
We hold that the trial court properly granted plaintiff's motion for summary judgment because defendants failed to forecast evidence demonstrating the existence of a genuine issue of material fact regarding their affirmative defense pursuant to N.C. Gen.Stat. § 45–21.36. The trial court's order is affirmed.
Affirmed. Judges ERVIN and DILLON concur.
Report per Rule 30(e).