Wells Fargo Bank , 791 S.E.2d 906 ( 2016 )

IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA15-689
Filed: 1 November 2016
Alamance County, No. 14 CVS 404
WELLS FARGO BANK, N.A. a/k/a Wachovia Mortgage, a division of Wells Fargo
Bank, N.A., and f/k/a Wachovia Mortgage, FSB f/k/a World Savings Bank, FSB,
Plaintiff,
v.
AMERICAN NATIONAL BANK AND TRUST COMPANY, successor by merger to
MidCarolina Bank, Defendant.
Appeal by defendant from order entered 27 August 2014 by Judge Michael R.
Morgan in Alamance County Superior Court. Heard in the Court of Appeals 19
November 2015.
Roberson Haworth & Reese, P.L.L.C., by Alan B. Powell, Christopher C. Finan,
and Matthew A.L. Anderson, for plaintiff-appellee.
Clement Wheatley, by Darren W. Bentley, for defendant-appellant.
DIETZ, Judge.
This case presents an issue of first impression involving N.C. Gen. Stat. § 45–
36.6(b), a statute that permits rescission of a notice of satisfaction for a security
instrument if that instrument was “erroneously satisfied.”
The parties have two competing interpretations of the phrase “erroneously
satisfied.” Wells Fargo argues that “erroneously” means precisely what it says—any
WELLS FARGO BANK, N.A. V. AM. NAT’L BANK AND TRUST CO.
Opinion of the Court
error or mistake of any kind. American National argues that the statute applies only
if the error was believing that the underlying secured obligation had been paid off
when in fact it had not.
The legislature may have intended for American National’s interpretation to
apply but, as explained below, the plain language of the statute and long-standing
canons of statutory construction compel us to accept Wells Fargo’s interpretation. Of
particular importance, this statute originally was taken directly from a model
uniform law and formerly said precisely what American National claims it ought to
mean here. But several years after adopting that uniform law, the legislature
amended the statute and removed the language supporting the interpretation urged
by American National. Under well-settled canons of statutory construction, we must
conclude that this change had meaning. Childers v. Parker’s, Inc., 274 N.C. 256, 260,
162 S.E.2d 481, 484 (1968).
Accordingly, we are constrained to hold that an instrument “erroneously
satisfied of record” under N.C. Gen. Stat. § 45–36.6(b) is one for which the certificate
of satisfaction was erroneously or mistakenly filed for any reason, even a unilateral
mistake having nothing to do with whether the underlying obligation actually was
fully paid off.
Although we agree with Wells Fargo’s interpretation of the statute, we do not
agree that the record therefore supports entry of summary judgment in Wells Fargo’s
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favor. Wells Fargo forecast evidence proving that its filing of the satisfaction was a
mistake, including testimony from its Rule 30(b)(6) deponent. But American
National forecast other, conflicting testimony and evidence which suggests Wells
Fargo intended to file the satisfaction because it believed the underlying loan had
been paid off. A jury must resolve this fact dispute. We thus reverse the entry of
summary judgment and remand for further proceedings.
Facts and Procedural History
On 6 July 1999, homeowners Theodore and Chryssoula Bakatsias obtained
financing and bought a home in Burlington. On 17 March 2004, the homeowners
obtained an $88,000 home equity line of credit from American National Bank1
secured by a deed of trust on the property.
On 30 August 2004, the homeowners refinanced their original loan on the
property with a $350,000 loan from Wells Fargo secured by a deed of trust. Shortly
after recording that 2004 deed of trust, the homeowners and Wells Fargo entered into
a subordination agreement with American National providing that the 2004 loan
would have priority over the home equity loan.
On 20 November 2006, the homeowners again refinanced their home loan
through Wells Fargo. The parties prepared and executed a new deed of trust that
secured this new loan. Neither the note nor the new deed of trust referenced the
1For ease of reading, this opinion will refer exclusively to American National and Wells Fargo,
although some of the financing was done by their respective predecessors-in-interest.
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existing 2004 deed of trust. The homeowners used a portion of the 2006 loan sum to
immediately pay off the remaining balance of the 2004 loan. Wells Fargo did not
obtain a subordination agreement with American National with respect to the 2006
refinancing, as it did in 2004.
On 27 December 2006, Wells Fargo recorded a certificate of satisfaction, which
certified that the debt secured by the 2004 deed of trust was fully satisfied and that
the 2004 deed of trust was accordingly cancelled. Because Wells Fargo never obtained
a subordination agreement with American National concerning the 2006 loan, the
effect of cancelling the 2004 deed of trust was to elevate the home equity line of credit
from American National to first priority, ahead of Wells Fargo’s 2006 home loan.
Wells Fargo contends that it erroneously filed its certificate of satisfaction and that
it never intended to elevate American National’s home equity line of credit to first
priority position. Thus, roughly six years later, on 27 August 2013, when Wells Fargo
discovered the certificate of satisfaction and recognized its unintended effect, it
recorded a document of rescission under N.C. Gen. Stat. § 45–36.6 to rescind the
certificate of satisfaction and reinstate Wells Fargo’s 2004 deed of trust to first
priority.
Wells Fargo later sought a declaratory judgment that its rescission was
effective and that it therefore “holds a valid and enforceable, first-priority lien” on the
property. American National counterclaimed, alleging that “but for the wrongfully
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filed Rescission, American National holds a valid enforceable first-priority lien” on
the property, and sought a declaration that the rescission was ineffective.
Wells Fargo moved for judgment on the pleadings and American National
moved for summary judgment. On 27 August 2014, following a hearing, the trial
court filed an order granting summary judgment for Wells Fargo, declaring that it
held “a valid and enforceable, first-priority lien upon the entire fee simple interest”
in the subject property, and dismissing American National’s counterclaim. American
National timely appealed.2
Analysis
I. The meaning of “erroneously satisfied”
The crux of this case is the meaning of the phrase “[i]f . . . a security instrument
is erroneously satisfied of record” in Section 45–36.6(b) of the General Statutes. That
statutory provision, originally taken from a portion of the Uniform Residential
Mortgage Satisfaction Act, allows a lender to undo the filing of a satisfaction for a
security instrument and reinstate the cancelled security instrument with its original
priority intact.
The parties assert two competing interpretations of the statute. Wells Fargo
argues that “[t]he statute makes it clear that when a secured creditor determines that
a unilateral mistake (of any kind) has resulted in the erroneous cancellation of a
2 The trial court substituted DR Acquisitions, LLC—the successor-in-interest to American
National Bank—as the defendant in this action on 18 December 2014.
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security instrument (for any reason and at any time), that secured creditor may file
a verified document of rescission to remedy that mistake.” Under this interpretation,
Wells Fargo need only establish that it filed the certificate of satisfaction and that
the filing was, for any reason, a mistake. If so, then it may rescind the filing under
the statute’s plain language.
American National, by contrast, argues that the statute does not permit
rescission for any mistake, but only the erroneous recording of satisfaction for an
obligation that was not actually satisfied. Under this interpretation, Wells Fargo
properly could rescind its certificate of satisfaction only if it could show that, after the
homeowners paid off the 2004 loan with the 2006 refinancing, there was still some
outstanding debt secured by the 2004 deed of trust.
The legislature may have intended for American National’s interpretation to
apply, but the plain language of the statute and long-standing canons of statutory
construction compel us to accept Wells Fargo’s interpretation.
As with all questions of statutory construction, we begin with the statute’s
plain language. The relevant statutory language is as follows:
If a release is recorded in error or a security instrument is
erroneously satisfied of record, then the secured creditor or the
person who caused the release to be recorded in error or the
security instrument to be erroneously satisfied of record may
execute and record a document of rescission. The document of
rescission must be duly acknowledged before an officer authorized
to make acknowledgments. Upon recording, the document of
rescission either (i) rescinds a release that was recorded in error
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and deprives the release of any effect or (ii) rescinds the erroneous
satisfaction of record of the security instrument and reinstates
the security instrument.
N.C. Gen. Stat. § 45–36.6(b).
The disputed language is the phrase “if . . . a security instrument is erroneously
satisfied of record” and, in particular, the meaning of the word “erroneously.” That
term is not defined anywhere in the statute and thus is interpreted according to its
ordinary meaning. Morris Commc’ns Corp. v. City of Bessemer City, 365 N.C. 152,
158, 712 S.E.2d 868, 872 (2011). The ordinary meaning of “erroneous” is “not correct”
or “mistaken.” Merriam-Webster (new ed. 2016). Thus, an instrument “erroneously
satisfied of record” is one that is incorrectly or mistakenly satisfied. This supports
Wells Fargo’s interpretation, because there is no textual limit on what type of mistake
is necessary.
The legislative history of section 45–36.6 supports this conclusion. The statute
is part of the Uniform Residential Mortgage Satisfaction Act that was adopted in
North Carolina and a number of other states. The original version of the statute,
enacted by our General Assembly in 2005, unquestionably limited rescission to
circumstances in which the underlying obligation was not actually satisfied—or, put
another way, unquestionably adopted American National’s interpretation:
In this section, “document of rescission” means a document
stating that an identified satisfaction or affidavit of satisfaction
of a security instrument was recorded erroneously or that a
security instrument was satisfied of record erroneously, the
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secured obligation remains unsatisfied, and the security
instrument remains in force.
N.C. Gen. Stat. § 45–36.6(a) (2005) (now repealed); see also Unif. Residential Mortg.
Satis. Act § 104(a) (Nat’l Conf. Comm’rs Unif. State Laws 2015).
In 2011, in a bill intended to “modernize” many provisions concerning deeds of
trust and other instruments, the General Assembly deleted subsection (a), quoted
above, and replaced it with the current version of the statute, which no longer
requires that “the secured obligation remain unsatisfied” in order to file a document
of rescission. 2011 N.C. Sess. Laws 312, § 4 (S.B. 679).
It is a longstanding principle of statutory construction that “an amendment to
an unambiguous statute indicates the intent to change the law.” Childers v. Parker’s,
Inc., 274 N.C. 256, 260, 162 S.E.2d 481, 484 (1968). Here, the original statute was
taken directly from a carefully vetted uniform law developed under the auspices of
the National Conference of Commissioners on Uniform State Laws. That provision
was not ambiguous. Then, several years later, the General Assembly amended the
statute and departed from the language in the model uniform law. We must presume
that by changing the law—and in particular by departing from the language of a
Uniform Act—the General Assembly intended for the new law to have a different
meaning. See id.
Simply put, when we examine both the plain language and legislative history
of this statute, it used to say what American National claims the statute means now.
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But then the legislature changed the law and it now says, and means, what Wells
Fargo claims. See id.
American National argues that this interpretation of “erroneously satisfied”
renders another section of the statute meaningless and thus should be rejected under
a separate, longstanding principle of statutory construction. See generally Lunsford
v. Mills, 367 N.C. 618, 628, 766 S.E.2d 297, 304 (2014). Specifically, American
National points to the provision permitting damages against a person who
“wrongfully” files a document of rescission. American National contends that if any
unilateral mistake allows a party to rescind a certificate of satisfaction, a party could
never “wrongfully” record a document of rescission under N.C. Gen. Stat. § 45–
36.6(d), thus rendering that section meaningless.
We disagree. Even under Wells Fargo’s interpretation of the statute, there are
countless ways in which a person could wrongfully file a document of rescission. For
example, someone with no connection to the underlying obligation, and thus without
statutory standing to file the rescission document, might do so, which is plainly
“wrongful.” See N.C. Gen. Stat. § 45–36.6(b), (e)(5). Or a person with authority to
file the document of rescission might do so not because they made some mistake but
for some other, “wrongful” reason, such as to harass the debtor or secure leverage in
negotiations with other parties who have issued secured loans to the same debtor.
Thus, our interpretation of subsection (b) of the statute does not render subsection
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(d) superfluous.
The dissent also raises several points not raised by American National. First,
the dissent expresses concern that “the briefs in this case did not really address
legislative history or statutory construction” and therefore “the Court does not have
the benefit of full briefing and argument of this rationale.”
To be sure, the parties could have more fully addressed the proper construction
of this statute. But there is no question that the meaning of the statute is an issue
preserved for appellate review—indeed, it is the primary issue in this case both at
the trial level and on appeal. When this Court is called upon to interpret a statute,
we must examine the text, consult the canons of statutory construction, and consider
any relevant legislative history, regardless of whether the parties adequately
referenced these sources of statutory construction in their briefs. To do otherwise
would permit the parties, through omission in their briefs, to steer our interpretation
of the law in violation of the axiomatic rule that while litigants can stipulate to the
facts in a case, no party can stipulate to what the law is. That is for the court to
decide.
The dissent next points to the title of the bill enacting the 2011 amendments,
which indicates that it is an act to “modernize” various aspects of secured
transactions, including “equity line liens.” The dissent speculates that the removal
of the phrase “the secured obligation remains unsatisfied” may have been meant only
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to address an issue in which “a home equity line of credit with a zero balance
outstanding” is mistakenly canceled because it reached a zero balance, despite the
parties intending for the credit line to remain open.
It is certainly possible that this legislative change was intended solely for the
purpose the dissent identifies. But there are several reasons for doubt. First, the bill
also separately amended several statutes dealing exclusively with equity line security
instruments—statutes that have nothing to do with rescission. See, e.g., 2011 Sess.
Laws 312, §§ 21, 23 (S.B. 679), amending N.C. Gen. Stat. §§ 45–82, 45-82.2. The
reference to “equity lien lines” in the title of the bill might be a reference to these
provisions, not to the changes in the rescission statute. Second, Chapter 45 of the
General Statutes already contains a section addressing the additional steps that
must be taken to cancel an instrument securing a home equity line of credit or similar
loan that can have a zero balance yet not be subject to cancelation. See N.C. Gen.
Stat. § 45–36.9. In other words, by law, a home equity line of credit does not become
“satisfied” simply by reaching a zero balance. This, in turn, means there was no
pressing need to amend the uniform act to ensure that it applied to home equity lines
of credit.
All of this means (as the dissent observes) that this “equity line liens”
interpretation is but one of several “equally possible” legislative intents about which
we can only speculate. And, more fundamentally, this speculation about the intent
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of the 2011 amendment has no effect on our initial observation that the plain
language of “erroneously satisfied of record” supports Wells Fargo’s interpretation.
In sum, this Court has two choices: (1) we can apply the plain language and
settled canons of statutory construction, which results in a statutory interpretation
that the legislature may not have intended; or (2) we can interpret the statute in the
way we, as judges, think the legislature intended, which may also result in a statutory
interpretation that the legislature may not have intended. The choice is obvious. We
will not speculate about what we think the legislature intended; we will apply the
plain language and applicable statutory canons and, if the result is unintended, the
legislature will clarify the statute.
Accordingly, we hold that an instrument “erroneously satisfied of record”
under N.C. Gen. Stat. § 45–36.6 is one for which the certificate of satisfaction was
erroneously or mistakenly filed for any reason, even a unilateral mistake not
apparent to anyone except the party who mistakenly filed it.
II. Material dispute of fact concerning the erroneous filing
Although we accept Wells Fargo’s interpretation of the statute, that is not the
end of this appeal. The trial court entered summary judgment in favor of Wells Fargo.
Summary judgment is appropriate only if “there is no genuine issue as to any
material fact” in the case. N.C. R. Civ. P. 56(c). Under the statutory construction of
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N.C. Gen. Stat. § 45–36.6 described above, there are genuine issues of material fact
that preclude summary judgment.
To be sure, Wells Fargo forecast evidence showing that its filing of the
certificate of satisfaction was a mistake. For example, Wells Fargo’s Rule 30(b)(6)
deponent stated that the company’s records indicated that the 2004 loan “was never
paid off” and that he knew this to be true because the 2004 loan “still exists within
our systems of records. The—the mortgager is still due and owing on the note for this
property.” According to Wells Fargo, this evidence shows that the company believed
the 2004 deed of trust still secured some outstanding obligation and thus it was a
mistake to file the certificate of satisfaction.3
But there is at least some evidence that discredits this testimony and creates
a genuine issue of material fact. For example, American National points to the 2006
deed of trust, which was prepared at the same time as the 2006 note. That deed of
trust secured the 2006 note and described itself as the “first deed of trust” with
3 Wells Fargo also argues that, regardless of its subjective intent, rescission was appropriate
because the 2004 deed of trust automatically secured the 2006 loan because the deed of trust contained
“future advances/obligations” language. We disagree. The deed of trust unquestionably secured
“future advances,” as indicated by a section in the deed of trust titled “Future Advances.” Future
advances are additional disbursements of funds that increase the “outstanding principal balance owing
on an obligation.” N.C. Gen. Stat. § 45–67(1). The 2006 loan did not increase the “outstanding
principal balance” owed under the 2004 loan. It was an entirely new loan, with its own deed of trust
(which described itself as the “first deed of trust” with respect to the 2006 loan), and which never
referenced the 2004 loan or the 2004 deed of trust. At best, the 2006 loan was a “future obligation”
under N.C. Gen. Stat. § 45–67(2), not a future advance, and the 2004 deed of trust does not contain
sufficient language to automatically secure “future obligations” having no connection to the original
2004 loan. See N.C. Gen. Stat. § 45–68(1b).
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respect to the 2006 loan. None of the paperwork concerning the 2006 refinancing
mentions the 2004 deed of trust. American National also points to testimony from
Wells Fargo’s 30(b)(6) deponent acknowledging that, as a matter of company practice,
if a loan is paid off in full, the company would prepare and file a certificate of
satisfaction for the corresponding deed of trust. Thus, there is at least some evidence
indicating that Wells Fargo’s filing of the certificate of satisfaction was not a mistake;
rather, this evidence suggests that, for whatever reason, Wells Fargo chose not to
have the 2006 loan secured by the 2004 deed of trust. This, in turn, would mean that
Wells Fargo filed the certificate of satisfaction on purpose, not by mistake.
Simply put, under the statutory analysis of N.C. Gen. Stat. § 45–36.6 discussed
above, this case cannot be resolved on summary judgment. Genuine issues of
material fact exist concerning whether Wells Fargo filed the certificate of satisfaction
by mistake or on purpose. We therefore reverse the trial court’s entry of summary
judgment and remand for further proceedings.
Conclusion
We reverse the trial court’s entry of summary judgment and remand for further
proceedings.
REVERSED AND REMANDED.
Judge TYSON concurs.
Judge STROUD dissents with separate opinion.
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No. COA15-689 – Wells Fargo Bank, N.A. v. American Nat’l Bank and Trust Co.
STROUD, Judge, dissenting.
Because I do not believe that the 2011 amendments to N.C. Gen. Stat. § 45-
36.6 (2015)4 would allow the type of mistake that Wells Fargo made in this case to be
corrected by rescinding the cancellation of the deed of trust, I dissent from the
majority. While I would also reverse the trial court’s order, I would hold -- unlike the
majority -- that the trial court should have granted summary judgment in favor of
defendant and declared American National, not Wells Fargo, as the first priority
lienholder.
The majority correctly states that the “crux of this case” is the meaning of the
phrase “[i]f . . . a security instrument is erroneously satisfied of record” contained in
N.C. Gen. Stat. § 45-36.6. However, I disagree with the majority’s contention that
Wells Fargo’s error was its act of cancelling the 2004 deed of trust of record. Wells
Fargo was required by law to cancel the 2004 deed of trust. Indeed, the undisputed
evidence shows that the loan secured by the 2004 deed of trust was, in fact, satisfied
and terminated with the proceeds from the subsequent 2006 note secured by the 2006
deed of trust. Rather, Wells Fargo’s “error” was failing to obtain an agreement from
American National to subordinate American National’s lien to Wells Fargo’s 2006
deed of trust. When the 2004 note was satisfied and terminated, the 2004 deed of
4 As the statute has not been amended since 2011, we refer to the 2015 version, which
accurately reflects the statute as it stood at the time the document of rescission was recorded in this
case, on 27 August 2013.
WELLS FARGO BANK, N.A. V. AMERICAN NAT’L BANK AND TRUST CO.
STROUD, J., dissenting
trust was no longer of any effect. See Walston v. Twiford, 248 N.C. 691, 693, 105
S.E.2d 62, 64 (1958) (“ ‘A mortgage which purports to secure the payment of a debt
has no validity if the debt has no existence.’ ” (quoting Bradham v. Robinson, 236
N.C. 589, 594, 73 S.E.2d 555, 558 (1952)). At that point, it was Wells Fargo’s
obligation to cancel the 2004 deed of trust. See N.C. Gen. Stat. § 45-36.9(a) (2015) (“A
secured creditor shall submit for recording a satisfaction of a security instrument
within 30 days after the creditor receives full payment or performance of the secured
obligation.”).
Much of the majority’s analysis is based upon legislative history and canons of
statutory construction, although the briefs in this case did not really address
legislative history or statutory construction. So my first concern is that the Court
does not have the benefit of full briefing and argument of this rationale, although this
is the first published opinion interpreting the 2011 amendments to Article 45.
It is true that the amendments were apparently intended to “modernize” the
law regarding deeds of trust, as indicated by the bill’s subtitle, which in full is “AN
ACT TO MODERNIZE AND ENACT CERTAIN PROVISIONS REGARDING
DEEDS OF TRUST, INCLUDING RELEASES, SHORT SALES, FUTURE
ADVANCE PROVISION TERMINATIONS AND SATISFACTIONS,
TERMINATIONS AND SATISFACTIONS FOR EQUITY LINE LIENS, RELEASE
OF ANCILLARY DOCUMENTS, ELIMINATING TRUSTEE OF DEED OF TRUST
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AS NECESSARY PARTY FOR CERTAIN TRANSACTIONS AND LITIGATION,
AND INDEXING OF SUBSEQUENT INSTRUMENTS RELATED THERETO.”
2011 N.C. Sess. Laws 2011-312. On the other hand, as an act to “MODERNIZE . . .
TERMINATIONS AND SATISFACTIONS FOR EQUITY LINE LIENS,” id., the bill
could also be understood as intending to address mistakes where a home equity line
of credit has been mistakenly cancelled when the balance was paid off, although the
line of credit remains open, or a bank cancels the wrong deed of trust when a loan is
paid off.
Under the original version of N.C. Gen. Stat. § 45-36.6 (2005), the erroneous
cancellation of an equity line could only be rescinded if there was a balance owing on
the line of credit when the erroneous cancellation occurred. That is, under the former
statute, a “ ‘document of rescission’ ” could only be used to correct an error where “the
secured obligation remains unsatisfied.” N.C. Gen. Stat. § 45-36.6(a) (2005). But it
is a modern reality that equity lines at times have balances owing and then are paid
to zero, yet remain open and available to be drawn upon again. I believe that the
deletion of the phrase “the secured obligation remains unsatisfied” was merely
intended to “modernize” the statute to allow the erroneous cancellation of an equity
line to be rescinded, even if the line had a zero balance at the time of the error.
I do not believe that the deletion was intended to apply in the situation in the
present case where a deed of trust was cancelled because the loan it secured was paid
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STROUD, J., dissenting
off by a new loan secured by a different deed of trust. Wells Fargo intended to cancel
the deed of trust in this case. The “error” was not based upon the homeowner’s ability
to borrow again on the note that had been paid off. Instead, that note had been
satisfied, never to be drawn upon again, and replaced by a new note secured by a new
deed of trust. The “error” was Wells Fargo’s failure to do a title search when first
filing the new deed of trust and then failing to obtain a subordination agreement.
Wells Fargo did not “erroneously” cancel the 2004 deed of trust; it failed to get a
subordination agreement from American National. This type of error was not
correctable under the original version of N.C. Gen. Stat. § 45-36.6, and I do not believe
that the 2011 amendment changes this outcome.
An equally possible legislative intent for this amendment was to address a
situation where a home equity line of credit is mistakenly cancelled when no balance
is owing although the credit line remains open. Under the law before the 2011
amendment, a wrongly cancelled deed of trust securing a home equity line of credit
with no balance owing could not be revived, because at the time of the cancellation,
the secured obligation was in fact satisfied. With the 2011 amendment, a home equity
line of credit with a zero balance outstanding but which remains open and available
to draw upon which is wrongfully cancelled can be revived simply by rescission of the
cancellation.
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STROUD, J., dissenting
Even accepting Wells Fargo’s evidence as true and construing it in the light
most favorable to Wells Fargo, under my interpretation of the statute, Wells Fargo
cannot demonstrate any genuine issue of material fact, since the “error” it alleges is
not the type of “error” which allows rescission under N.C. Gen. Stat. § 45-36.6(b). I
would therefore reverse the trial court’s order and remand for entry of an order
granting summary judgment in favor of defendant and declaring that Wells Fargo’s
attempted rescission was ineffective and thus defendant holds a valid, enforceable
first priority lien upon the real property.
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