Lead Opinion
The contractual right of foreclosure by power of sale under a deed of trust is a non-judicial proceeding. In the comprehensive statutory framework governing non-judicial foreclosure by power of sale set forth in Chapter 45 of our General Statutes, the General Assembly has prescribed certain minimal judicial procedures, including requiring notice and a hearing designed to protect the debtor’s interest. The hearing official then authorizes the foreclosure to proceed or refuses to do so. In this informal setting, a creditor must establish, among other things, the existence of a debt, default, and its right to foreclose, and a debtor may raise evidentiary challenges. The Rules of Civil Procedure applicable to formal judicial actions do not apply. The debtor has the option to file a separate judicial action to enjoin the foreclosure.
Here, because the creditor failed to establish the substitute trustee’s authority to foreclose under the deed of trust, the trial court properly refused to authorize the creditor to proceed with the foreclosure. Nonetheless, the trial court erroneously entered a “dismissal with prejudice.” The refusal to authorize the creditor to proceed is not a “dismissal”; it does not implicate res judicata or collateral estoppel in the traditional sense. While the creditor may not proceed with non-judicial foreclosure on the same default, it may proceed on the same default through foreclosure by judicial action. The creditor may also proceed non-judicially under power of sale based upon a different default. Because the Court of Appeals erred by finding that the creditor established the successor trustee’s authority to proceed under the deed of trust, we reverse the decision of that court, which reversed the trial court’s evidentiary ruling.
In July 2006, Gordon F. Lucks (borrower) executed a promissory note with IndyMac Bank, F.S.B. (the Note) in the principal amount of $225,000 to purchase real property situated in Buncombe County. The debt is repayable through monthly installments, with each payment due on the first of the month, and matures on 1 August 2036. The Note includes default and acceleration provisions.
At the same time, borrower executed a deed of trust on the property, naming Robert R Tucker II as trustee, which was recorded with the Buncombe County Register of Deeds. The deed of trust provides for non-judicial foreclosure by power of sale. Deutsche Bank National Trust Company (Deutsche Bank)
In September 2013, the Ford Firm, acting as substitute trustee under the deed of trust, initiated a hearing for non-judicial foreclosure under N.C.G.S. § 45-21.16 for borrower’s failure to make payments. The Assistant Clerk of Superior Court, Buncombe County “dismissed” the case for failure to present documentation appointing the Ford Firm as substitute trustee.
In June 2014, Cornish Law, PLLC, now acting as substitute trustee, initiated a new hearing for non-judicial foreclosure based on borrower’s failure to make payments.
At the de novo hearing in superior court, Deutsche Bank tendered a series of documents to establish the substitute trustee’s right to proceed with non-judicial foreclosure, which included various copies of powers of attorney. One such document, marked “Exhibit 4,” is the crucial document at issue in this appeal, without which the substitute trustee lacks authority to act under the deed of trust. The document is purported to be a limited power of attorney appointing a service company to act on Deutsche Bank’s behalf, which, in turn, was relied upon to appoint the substitute trustee.
Deutsche Bank called a witness who testified that she was “employed by” the service company, but Deutsche Bank did not establish her position, role, or duties in the handling of records. Regarding the document marked Exhibit 4, the employee stated that a different firm “prepared the power of attorney,” that “normally we record the power of attorneys,” and that, “[i]n this case we try to record it to the state ... where the headquarters would be,” which she “believe[d] . . . would be Charlotte.” The City of Charlotte is located in Mecklenburg County.
Deutsche Bank tendered Exhibit 4, which is a photocopy, fourteen pages in length, signed by a Bank officer on 21 November 2013 and notarized. The last page revealed a recording stamp from the Register of Deeds in Montgomery County, not Mecklenburg County, which states the document was recorded in 2010, three years before the purported execution, and that the document is eleven pages in length, not fourteen. Borrower objected to the Exhibit’s admission into evidence, noting the “recording information appears to precede the date of signatory on that instrument.” Counsel for Deutsche Bank stated that she “believe[d] that was an error in stapling the exhibit.” Nonetheless, no witness testified about the discrepancy. Deutsche Bank did not request the trial court take judicial notice of any recorded version of Exhibit 4 or make other arguments for the admission of Exhibit 4.
The trial court sustained borrower’s objection to the admission of Exhibit 4 for “failure to provide a proper foundation and hearsay,” noting that “the document is internally inconsistent” and “has inconsistent dates.” Because Exhibit 4 is essential in establishing the substitute trustee’s authority to proceed with the foreclosure, the trial court “dismissed with prejudice” the case for insufficient evidence. Deutsche Bank timely appealed the matter to the Court of Appeals.
In a divided opinion, the Court of Appeals reversed the trial court’s dismissal. In re Foreclosure of Lucks, _ N.C. App. _,
Non-judicial foreclosure by power of sale arises under contract and is not a judicial proceeding. See In re Foreclosure of Michael Weinman Assocs. Gen. P’ship,
The General Assembly has crafted Chapter 45 to be the comprehensive and exclusive statutoiy framework governing non-judicial foreclosures by power of sale. E.g., N.C.G.S. §§ 45-21.16 (2015) (notice and hearing requirements), -21.26 (2015) (reporting of sale), -21.27 (2015) (upset bid), -21.29 (2015) (orders for possession); see also Durant M. Glover, Comment, Real Property—Changes in North Carolina’s Foreclosure Law, 54 N.C. L. Rev. 903, 913-15 (1976) (discussing the evolution of non-judicial foreclosure statutes). The Rules of Civil Procedure do not apply unless explicitly engrafted into the statute. E.g., N.C.G.S. § 45-21.16(a) (requiring service as “provided by the Rules”); see also In re Ernst & Young, LLP,
Section 45-21.16 requires a creditor to give the debtor adequate notice of a hearing, which initially occurs before the clerk of court. See id. § 45-21.16(a), (d); see also In re Foreclosure of Goforth Props., Inc.,
If the clerk or trial court does not find the evidence presented to be adequate to “authorize” the foreclosure sale, this finding does not implicate res judicata or collateral estoppel in the traditional sense. See Note, The Model Power of Sale Mortgage Foreclosure Act—An Appraisal, 27 Va. L. Rev. 926, 929 (1941) (“[T]he principle of res adjudicata is therefore not applicable to” the “extra-judicial method of foreclosure.”). While the creditor is prohibited from proceeding again with a nonjudicial foreclosure on the same default, the creditor can proceed with a judicial foreclosure. See N.C.G.S. § 45-21.2 (2015) (“This Article does not affect any right to foreclosure by action in court_”). Likewise, the creditor may proceed non-judicially on another default.
. “The competency, admissibility, and sufficiency of the evidence is a matter for the [trial] court to determine.” Queen City Coach Co. v. Lee,
The precise question before this Court is whether the trial court abused its discretion by finding Deutsche Bank failed to establish the appointment of the substitute trustee, a prerequisite to its right to proceed with non-judicial foreclosure, and if so, what is the effect of that decision. Exhibit 4 is essential to the substitute trustee’s appointment. Though the Court of Appeals majority was correct in noting that the evi-dentiary rules are more relaxed in the non-judicial foreclosure setting, given the significant internal inconsistencies in the power of attorney at issue and Deutsche Bank’s failure to present alternative grounds for admissibility, we conclude that the trial court did not abuse its discretion in refusing to admit Exhibit 4 into evidence.
Exhibit 4 is plainly internally inconsistent. See 5 John Henry Wigmore, Evidence in Trials at Common Law §§ 1421, 1422, at 253-54 (James H. Chaboum ed., 1974) (Trustworthiness and necessity are the hallmarks of admissibility.) Deutsche Bank tendered the Exhibit as a photocopy, fourteen pages in length, executed in 2013. The last page, which contains a recording stamp from the “Montgomery County, NC” Register of Deeds, indicates the Exhibit is only eleven pages in length and was recorded in 2010. Cf. id. § 1557, at 481 (explaining that “specific errors” undermine a record’s trustworthiness (emphasis omitted)). While there were ways to overcome the inconsistency, none were effectuated here. See, e.g., N.C.G.S. § 45-10(a) (2015) (allowing noteholder to appoint substitute trustee directly); id. § 45-21.16(d) (allowing “affidavits and certified copies”); see also id. § 8C-1, Rule 201(d) (2015) (judicial notice); id., Rule 803(6) (2015) (business records). Deutsche Bank could have provided a photocopy of the recorded document from the proper county register of deeds, but did not do so. See id. § 47-28(a) (2015) (“[P]owers of attorney affecting real property . . . shall be registered in the office of the register of deeds of the county in which the principal is domiciled or where the real property lies.”).
Though the superior court correctly refused to authorize the substitute trustee to proceed, the court erroneously entered a
Though the evidentiary requirements under non-judicial foreclosure proceedings are relaxed and there were ways to overcome the Exhibit’s inconsistencies, we cannot conclude the trial court had no reasonable basis to exclude Exhibit 4. Accordingly, we reverse the decision of the Court of Appeals, which reversed the evidentiary ruling of the trial court.
REVERSED.
Notes
. Deutsche Bank National Trust Company acts as Trustee of the Home Equity Mortgage Loan Asset-Backed Trust Series INABS 2006-D, Home Equity Mortgage Loan Asset-Backed Certificates, Series INABS 2006-D, under the Pooling and Servicing Agreement dated September 1, 2006, the purported beneficiary under the deed of trust.
. It is unclear from the record if the new substitute trustee was proceeding under a different default.
. Deutsche Bank tendered, inter alia, an exhibit appointing Cornish Law, PLLC, as substitute trustee, which was executed by a representative of the service company, acting on the Bank’s behalf. See N.C.G.S. § 45-10(a) (2016) (allowing the noteholder to appoint a successor trustee). Because a break in any one link in the chain leading to the appointment of the substitute trustee deprives the creditor of the authority to foreclose under the deed of trust, we need not analyze the other alleged deficiencies. See Smith v. Allen,
. See 1 Grant S. Nelson et al., Real Estate Finance Law § 7:20, at 944 & nn.1, 2 (6th ed. 2014) (noting that thirty-five jurisdictions allow non-judicial foreclosure by power of sale, of which North Carolina and Colorado are the only states requiring an “opportunity for a hearing before the foreclosure sale”); compare, e.g., Ex parte GMAC Mortg., LLC,
. “Any notice, order, or other papers required by this Article to be filed in the office of the cleric of superior court shall be filed in the same manner as a special proceeding.” N.C.G.S. § 45-21.16(g).
.See, e.g., Single Family Mortgage Foreclosure Act, 12 U.S.C. §§ 3751-3768 (2012) (governing non-judicial power of sale foreclosure of mortgages held by the Department of Housing and Urban Development on single-family homes, thereby preempting state law); see also 12 C.F.R. § 1024.41(g) (2016) (prohibiting foreclosure sale under certain circumstances “[i]f a borrower submits a complete loss mitigation application”).
. “The act of the clerk in so finding or refusing to so find is a judicial act and may be appealed to” the appropriate trial court. N.C.G.S. § 45-21.16(dl).
. The Note indicates payments are due in monthly installments on the first day of the month, maturing on 1 August 2036.
Concurrence Opinion
concurring in result.
I agree that this Court should reverse the decision of the Court of Appeals and affirm the trial court’s dismissal of this attempt to foreclose by power of sale. I would focus, however, on the primary argument of the parties, which addresses whether the trial court properly excluded exhibits that were necessary to establish the right to foreclose. I agree with the majority that Exhibit 4 “is the crucial document at issue in this appeal.” Thus, we should review the trial court’s decision to exclude Exhibit 4 “based upon a failure to provide a proper foundation and hearsay.” I conclude that the trial court acted appropriately in excluding Exhibit 4.
In addition, I would explain more fully and precisely the statutory basis for the proper scope of thé applicability of the Rules of Evidence and Rules of Civil Procedure in power-of-sale foreclosures. First, the majority agrees with the Court of Appeals majority’s broad statement that the evidentiary rules are more relaxed in the non-judicial foreclosure setting. I would clarify that the Rules of Evidence are relaxed only in the hearing before the clerk and only to the extent specifically provided for in N.C.G.S. § 45-21.16(d). In the de novo hearing in the trial court, however, the statute does not specifically provide for any relaxation of the rules, so the Rules of Evidence apply fully, as in any court proceeding, per Rules of Evidence 101 and 1101. N.C. R. Evid. 101 (These rules govern proceedings in the courts of this State to the extent and with the exceptions stated in Rule 1101.”); id. R. 1101 (“Except as otherwise provided in subdivision (b) or by statute, these rules apply to all actions and proceedings in the courts of this State.”).
Second, the majority announces that the “Rules of Civil Procedure do not apply unless explicitly engrafted into the statute.” I do not agree. The very first sentence of the Rules of Civil Procedure, which are themselves a statutory enactment, provides: “These rules shall govern the procedure in the superior and district courts of the State of North Carolina in all actions and proceedings of a civil nature except when a differing procedure is prescribed by statute.” N.C. R. Civ. P. 1 (emphasis added) (titled “Scope of Rules”). I do not agree with the majority’s assertion that the Rules of Civil Procedure do not apply “unless they are engrafted into the statute”; the Rules themselves presume they apply in all proceedings in the courts unless a different procedure is prescribed. I conclude this creates a presumption that these rules apply; the majority has turned this presumption around, citing no authority.
Additionally, the statute distinguishes between the proceeding before the clerk and the de novo hearing in the trial court, although the majority does not. I would clarify that since N.C.G.S. § 45-21.16 prescribes a different procedure for the hearing before the clerk, see N.C.G.S. § 45-21.16(c)-(dl) (2015), the Rules of Civil Procedure do not apply; however, because the statute does not prescribe any such alternate procedure for
“When an appellate court reviews the decision of a trial court sitting without a jury, ‘findings of fact have the force and effect of a verdict by a jury and are conclusive on appeal if there is evidence to support them In re Foreclosure of Bass,
It does not appear that this Court has addressed the standard of review of a trial court’s evidentiary determination in this particular context. The cases from the Court of Appeals are in conflict regarding whether an abuse of discretion or de novo standard of review is appropriate in the context of authentication of documentary evidence. Compare State v. Watlington,
Here the trial court concluded that Deutsche Bank (the Bank) “failed to offer sufficient evidence ... to proceed with the foreclosure.” The trial court found that the Bank “failed to prove [it] possessed the Right to Foreclose” after excluding several exhibits including Exhibit 4, which was essential to establishing the substitute trustee’s appointment.
Subsection 45-21.16(d) specifically explains that in the hearing before the clerk, “the clerk shall consider the evidence of the parties and may consider, in addition to other forms of evidence required or permitted by law, affidavits and certified copies of documents.” N.C.G.S. § 45-21.16(d) (emphasis added). This provision allows affidavits to be used in place of live testimony when “the ‘necessity for expeditious procedure’ substantially outweighs any concerns about the efficacy of allowing [the witness] to testify by affidavit.” In re Foreclosure of Brown,
I further conclude that in a de novo hearing before the trial court, the Rules of Evidence apply fully, as in any court proceeding, per Rules of Evidence 101 and 1101. N.C. R. Evid. 101 (These rules govern proceedings in the courts of this State to the extent and with the exceptions stated in Rule 1101.”); id. R. 1101 (“Except as otherwise provided in subdivision (b) or by statute, these rules apply to all actions and proceedings in the courts of this State.”). Subsection 45-21.16(e) does not specifically provide for any relaxation of the rules of evidence for the court proceeding, as it does in subsection 45-21.16(d), for the hearing before the clerk.
The Bank sought to introduce Exhibit 4, which is a photocopy “of a document purporting to be a Limited Power of Attorney granting certain powers to Ocwen Loan Servicing, LLC.” There is no stamp on Exhibit 4 certifying the exhibit as a true and accurate copy; thus, it is an uncerti-fied copy.
The trial court specifically noted that the document has internal inconsistencies, particularly with dates and numbers of pages. The trial court also noted the lack of a “proper foundation.” I conclude that the trial court acted appropriately in excluding the document on this basis,
As noted above, I conclude that once this matter reached the superior court, the Rules of Evidence applied. Under the North Carolina Rules of Evidence, “[e]veiy writing sought to be admitted must be properly authenticated” in order to establish the foundation for the document’s admissibility. Inv’rs Title Ins. Co. v. Herzig,
The Bank’s attorney here did question a five witness (Ms. Lyew) but in so doing, failed to lay enough of a foundation to establish the authenticity of Exhibit 4. Counsel did not elicit testimony regarding the witness’s job responsibilities, work experience, time of employment with Ocwen, or any other details showing her personal knowledge of the documents and loan in question. This testimony failed to satisfy minimal authentication requirements. Additionally, while evidence that a public record or report “is from the public office where items of this nature are kept” could serve to authenticate this document to the extent this document may qualify as a public record or report, id. R. 901(b)(7), the recording stamp included with Exhibit 4 contradicts the document itself and indicates that it was recorded in “Montgomery County, NC,” and not “Charlotte” (Mecklenburg County), as the witness testified should be the case here. As such, there is no indication that this document was in fact recorded or, if so, where. Thus, Exhibit 4 does not satisfy the requirements of Rule 901. Finally, any argument under Rule 902 fails because the parties did not present that argument before the trial court.
In addition to not being authenticated, Exhibit 4 is internally inconsistent. As the majority notes, the recording stamp on Exhibit 4 indicates that the document is eleven pages in length and was recorded in 2010 in Montgomery County, North Carolina. In fact, the actual Exhibit 4 document is fourteen pages in length, was executed in 2013, and should have been recorded in Mecklenburg County, according to the witness.
Because Exhibit 4 is not a certified copy and it contained internal inconsistencies, and because no witness testified to personal knowledge about it, the trial court acted appropriately in excluding Exhibit 4, regardless of the applicable standard of review. Without Exhibit 4, the Bank failed to offer sufficient evidence of the right to proceed with a power-of-sale foreclosure. The trial court’s conclusion is supported by the findings of fact and by the evidence. Accordingly, the trial court’s dismissal on this basis was entirely appropriate.
In addition, I agree with the majority that the Bank “is barred from proceeding again with non-judicial foreclosure based on the same default, [and that] the Bank may nonetheless proceed with foreclosure by judicial action.” To reach that conclusion, however, I do not think it necessary or consistent with applicable statutory authority to deem the Rules of Civil Procedure inapplicable.
Turning to the foreclosure procedure at issue here, it is clear to me that in N.C.G.S.
Upon appeal from the clerk’s determination, the trial court excluded Exhibit 4 and properly concluded that the Bank failed to establish its right to foreclose by power of sale. Dismissal of the matter, under the Rules of Civil Procedure, was the proper ruling at that point. Nonetheless, as to the claim based on this default, the Bank may still proceed with foreclosure by judicial action. See N.C.G.S. § 45-21.2 (2015) (“This Article [“Article 2A. Sales Under Power of Sale”] does not affect any right to foreclosure by action in court, and is not applicable to any such action.”).
For the reasons set forth herein, I concur in the result.
. The minority opinion announces an abuse of discretion standard for reviewing “the trial court’s exclusion of documentary evidence under the hearsay rule” and cites this Court’s decision in State v. Blake,
Additionally, there are several cases from the Court of Appeals that explicitly utilize a de novo standard for reviewing trial court determinations regarding hearsay. See, e.g., State v. Hicks, _ N.C. App. _, _,
Second, it is not clear why the majority announces a specific, possibly new standard of review relating to hearsay when it does not analyze whether Exhibit 4 is hearsay or fits within a hearsay exception here. The majority simply concludes that because Exhibit 4 is “plainly internally inconsistent,” the majority “cannot conclude the trial court had no reasonable basis to exclude” it.
. Because this matter can be resolved based upon the trial court’s exclusion of Exhibit 4 for failure to provide a proper foundation, in my view this Court need not reach the alternate ground for inadmissibility noted by the trial court, i.e., hearsay.
. Rule 901 reads in pertinent part:
(b) Illustrations.- By way of illustration only, and not by way of limitation, the following are examples of authentication or identification conforming with the requirements of this rule:
(1) Testimony of Witness with Knowledge.- Testimony that a matter is what it is claimed to be.
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(7) Public Records or Reports.- Evidence that a writing authorized by law to be recorded or filed and in fact recorded or filed in a public office, or a purported public record, report, statement, or data compilation, in any form, is from the public office where items of this nature are kept.
N.C. R. Evid. 901(b)(1), (7).
. Rule 902 reads in pertinent part:
Extrinsic evidence of authenticity as a condition precedent to admissibility is not required with respect to the following:
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(4) Certified Copies of Public Records.- A copy of an official record or report or entry therein, or of a document authorized by law to be recorded or filed and actually recorded or filed in a public office, including data compilations in any form, certified as correct by the custodian or other person authorized to make the certification, by certificate complying with paragraph (1), (2), or (3) or complying with any law of the United States or of this State.
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(8) Acknowledged Documents.- Documents accompanied by . a certificate of acknowledgment executed in the manner provided by law by a notary public or other officer authorized by law to take acknowledgments.
Id. R. 902.