In re: George , 264 N.C. App. 38 ( 2019 )

IN THE COURT OF APPEALS OF NORTH CAROLINA
No. COA18-611
Filed: 19 February 2019
Mecklenburg County, No. 16-SP-3875
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.
Appeal by respondents from orders entered 17 July 2017, 9 August 2017, and
15 March 2018 by Judge Nathaniel J. Poovey in Mecklenburg County Superior Court.
Heard in the Court of Appeals 27 November 2018.
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
IN RE: GEORGE
Opinion of the Court
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
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Opinion of the Court
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.
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Opinion of the Court
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.
1 Generally, the filing of an appeal divests the trial court’s jurisdiction over a case; however,
“[t]he trial court retains limited jurisdiction to indicate how it is inclined to rule on a Rule 60(b)
motion.” Hall v. Cohen, 177 N.C. App. 456, 458, 628 S.E.2d 469, 471 (2006). When a party notifies
this Court that a Rule 60(b) motion has been filed in the trial court, “this Court will remand the matter
to the trial court so the trial court may hold an evidentiary hearing and indicate ‘how it [is] inclined
to rule on the motion were the appeal not pending.’ ” Id. (quoting Bell v. Martin, 43 N.C. App. 134,
142, 258 S.E.2d 403, 409 (1979), rev’d on other grounds, 299 N.C. 715, 264 S.E.2d 101 (1980)). If the
trial court indicates it would grant the motion, then the party could ask this Court to remand the case
for a final judgment on the motion. Bell, 43 N.C. App. at 142, 258 S.E.2d at 409. “An indication by
the trial court that it would deny the motion would be considered binding on that court and [the]
appellant could then request appellate court review of the lower court’s action.” Id.2 KPC Holdings noticed for appeal the 17 July 2017 order joining it as a necessary party;
however, KPC Holdings presents no argument in its brief concerning this alleged error. Thus, this
argument is abandoned and we will not review it. N.C.R. App. P. 28(a) (“Issues not presented and
discussed in a party’s brief are deemed abandoned.”).
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Opinion of the Court
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
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Opinion of the Court
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-
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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
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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).
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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 lien
other 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 trust, tax liens, and assessment liens.” Id. §
45-45.3(c)(6) (emphasis added).
Here, Jonathan Hankin is named as trustee on the deed of trust between KPC
Holdings and National Indemnity. The proceedings in this case did not endeavor to
foreclose upon the deed of trust for which Hankin is trustee, but rather concerned the
foreclosure of the homeowners’ association’s claim of lien on the property—“a lien
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other than the lien of the deed of trust.” Id. Thus, Hankin was not a necessary party
to either Rule 60 proceeding. Accordingly, the trial court did not err in declining to
join Hankin as a necessary party.
II. Notice of Foreclosure
Respondents next argue that the trial court erred by ruling that the foreclosure
trustee failed to give proper notice of the non-judicial foreclosure proceeding to
Calmore George. This argument lacks merit.
To foreclose upon a claim of lien, a homeowners’ association must do so “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.” N.C. Gen. Stat. § 47F-3-116(f)
(2017). Chapter 45 of the General Statutes provides that
[a]fter the notice of hearing is filed, the notice of hearing
shall be served upon each party entitled to notice under this
section. . . . The notice shall be served and proof of service
shall be made in any manner provided by the Rules of Civil
Procedure for service of summons, including service by
registered mail or certified mail, return receipt requested.
Id. § 45-21.16(a) (emphases added). The notice must be provided to “[e]very record
owner of the real estate whose interest is of record in the county where the real
property is located at the time the notice of hearing is filed in that county.” Id. § 45-
21.16(b)(3). “The purpose and aim of the service of the summons are to give notice to
the party against whom the proceeding or action is commenced, and any notification
which reasonably accomplishes that purpose answers the claims of law and justice.”
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Jester v. Steam Packet Co., 131 N.C. 54, 55, 42 S.E. 447, 447 (1902). “It is well
established that a court may obtain personal jurisdiction over a defendant only by
the issuance of summons and service of process by one of the statutorily specified
methods.” Glover v. Farmer, 127 N.C. App. 488, 490, 490 S.E.2d 576, 577 (1997), disc.
review denied, 347 N.C. 575, 502 S.E.2d 590 (1998). “Absent valid service of process,
a court does not acquire personal jurisdiction over the defendant and the action must
be dismissed.” Id.Rule 4 of our Rules of Civil Procedure provides the acceptable methods of
service of process required in order to properly exercise personal jurisdiction upon a
natural person in this State. N.C. Gen. Stat. § 1A-1, Rule 4(j)(1) (2017). Relevant to
this case, a party may accomplish service upon a natural person not under disability
in one of the following ways:
a. By delivering a copy of the summons and of the
complaint to the natural person or by leaving copies thereof
at the defendant’s dwelling house or usual place of abode
with some person of suitable age and discretion then
residing therein.
....
c. By mailing a copy of the summons and of the complaint,
registered or certified mail, return receipt requested,
addressed to the party to be served, and delivering to the
addressee.
Id. § 1A-1, Rule 4(j)(1)(a), (c).
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Opinion of the Court
Service by personal delivery is accomplished by either: (1) delivering the
complaint and summons to “the natural person” named therein, or (2) leaving a copy
of those documents “at the defendant’s dwelling house or usual place of abode” with
someone “of suitable age and discretion” who resides at the residence. Id. § 1A-1,
Rule 4(j)(1)(a). “[N]o hard-and-fast definition can be laid down” for what constitutes
an individual’s dwelling house or usual place of abode, but it “is a question to be
determined on the facts of the particular case.” Van Buren v. Glasco, 27 N.C. App. 1,
5, 217 S.E.2d 579, 582 (1975), overruled on other grounds by Love v. Moore, 305 N.C.
575, 291 S.E.2d 141 (1982). “[I]t is unrealistic to interpret Rule 4[ ] so that the person
to be served only has one dwelling house or usual place of abode at which process may
be left.” Id. at 6, 217 S.E.2d at 582.
When attempting to effectuate service by certified mail, return receipt
requested, “the serving party shall file an affidavit with the court showing proof of
such service in accordance with the requirements of G.S. 1-75.10(a)(4).” N.C. Gen.
Stat. § 1A-1, Rule 4(j2)(2) (2017). The affidavit must aver:
a. That a copy of the summons and complaint was
deposited in the post office for mailing by registered or
certified mail, return receipt requested;
b. That it was in fact received as evidenced by the attached
registry receipt or other evidence satisfactory to the court
of delivery to the addressee; and
c. That the genuine receipt or other evidence of delivery is
attached.
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Opinion of the Court
Id. § 1-75.10(a)(4). The requirement that an affidavit contain information showing
the circumstances warranting the use of service by registered mail under Rule 4(j2)(2)
in order to constitute proof of service is mandatory. See Dawkins v. Dawkins, 32 N.C.
App. 497, 499, 232 S.E.2d 456, 457 (1977) (applying a former version of Rule 4).
“[F]ailure to serve process in the manner prescribed by statute makes the service
invalid, even though a defendant has actual notice of the lawsuit.” Hunter v. Hunter,
69 N.C. App. 659, 662, 317 S.E.2d 910, 911 (1984).
Here, while the Georges owned the Mecklenburg County property at issue,
they did not reside there; they lived in the Virgin Islands. The Georges’ three
daughters lived at the Mecklenburg County residence in order to attend college.
Hygiena Jennifer George testified that she visited the Mecklenburg County property
when she was on vacation. Calmore George testified that he usually visited the
Mecklenburg County property once per year around the Christmas holiday or once
every few years if there was a significant maintenance issue that required his
presence. Whenever the Georges did visit the Mecklenburg County property, they
“stay[ed] in the study area with [an] inflatable bed.”
Deputy Shakita Barnes of the Mecklenburg County Sheriff’s Office attempted
personal service of the notice of foreclosure upon the Georges. According to the
Foreclosure Notice of Return, Deputy Barnes personally served Hygiena Jennifer
George and served Calmore George by leaving copies of the notice with his wife
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Opinion of the Court
Jennifer, “who is a person of suitable age and discretion and who resides in the
respondent’s dwelling house or usual place of abode.” However, Deputy Barnes
actually served one of the Georges’ daughters, Janine, a younger female who “said
that she was . . . Ms. Jennifer George.”
In voiding the foreclosure sale of the property, the trial court found that the
property was “not the dwelling or usual place of abode for Calmore George” and that
“proper service upon Calmore George did not occur and the court did not have
personal jurisdiction to enter an order adverse to him.” The trial court further
determined “that no findings are necessary regarding the determination of whether
[the Mecklenburg County property] is the dwelling or usual place of abode for
[Hygiena] Jennifer George.” As a result, the trial court set aside the foreclosure of
the Georges’ property, canceled the foreclosure deed to KPC Holdings, and canceled
the subsequent conveyance of the property from KPC Holdings to National
Indemnity.
The trial court correctly determined that the foreclosure trustee failed to serve
all record owners of the property as required by N.C. Gen. Stat. § 45-21.16. The
attempted service of the notice of foreclosure upon Calmore George by leaving a copy
at the Mecklenburg County property was inadequate because the property was not
his dwelling house or usual place of abode.
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Opinion of the Court
A place of residence to which the owners only return once or twice each year
over the holidays or for maintenance issues does not qualify as a dwelling house or
usual place of abode for purposes of Rule 4 service. In Van Buren, service was
accomplished by delivering copies of the summons to the appellant’s fifteen-year-old
son. 27 N.C. App. at 5, 217 S.E.2d at 582. The appellant owned the home with his
wife as tenants by the entirety, and his wife and children resided there. Id. Although
the appellant spent most of his time working in South Carolina, he “regularly
returned [to the home] on a frequently recurring basis.” Id. The appellant stated in
an affidavit that he would normally be present at the home “at least twice during any
30-day period.” Id. This Court held that the appellant’s “relationship and connection
with the North Carolina dwelling were such that there was a reasonable probability
that substitute service of process at that dwelling would, as it in fact here did, inform
him of the proceedings against him.” Id. at 6, 217 S.E.2d at 582.
By contrast, in this case, the Georges were present at the property far less than
“twice during any 30-day period.” Id. at 5, 217 S.E.2d at 582. The evidence presented
to the trial court demonstrated that, at most, the Georges were present on the
property a few times each year, mostly around the holiday season, as well as when
maintenance issues arose requiring Calmore George’s attention. Such an infrequent
and temporary presence is not enough to qualify the residence as the dwelling house
or place of abode for Calmore George, rendering the attempted substitute service
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Opinion of the Court
improper. Accordingly, the trial court correctly determined that the foreclosure sale
was void due to lack of personal jurisdiction over Calmore George.
III. Purchaser in Good Faith
Respondents next argue that the trial court erred in determining that neither
KPC Holdings nor National Indemnity were good faith purchasers for value, and by
thereafter voiding KPC Holdings’ title to the property as well as its subsequent deed
to National Indemnity. We agree.
Our General Statutes provide that title to property sold under a judgment to a
good faith purchaser for value cannot be set aside:
If a judgment is set aside pursuant to Rule 60(b) or (c) of
the Rules of Civil Procedure and the judgment or any part
thereof has been collected or otherwise enforced, such
restitution may be compelled as the court directs. Title to
property sold under such judgment to a purchaser in good
faith is not thereby affected.
N.C. Gen. Stat. § 1-108 (2017). “A person is an innocent purchaser when he purchases
without notice, actual or constructive, of any infirmity, and pays valuable
consideration and acts in good faith.” Morehead v. Harris, 262 N.C. 330, 338, 137
S.E.2d 174, 182 (1964). A buyer purchases without notice of defects when “(a) he has
no actual knowledge of the defects; (b) he is not on reasonable notice from recorded
instruments; and (c) the defects are not such that a person attending the sale
exercising reasonable care would have been aware of the defect.” Swindell v. Overton,
310 N.C. 707, 714-15, 314 S.E.2d 512, 517 (1984).
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Absent actual notice of any defect, a purchaser may rely on the record’s facial
validity in determining that title to the land in question is devoid of defects. See
Goodson v. Goodson, 145 N.C. App. 356, 363, 551 S.E.2d 200, 206 (2001) (“[T]he
deficiencies in the conveyance must be expressly or by reference set out in the
muniments of record title, or brought to the notice of the purchaser so as to put him
on inquiry.” (citing Morehead, 262 N.C. at 340-41, 137 S.E.2d at 184)). There is a
presumption of effective service “[w]hen the return shows legal service by an
authorized officer, nothing else appearing.” Harrington v. Rice, 245 N.C. 640, 642, 97
S.E.2d 239, 241 (1957). “Allegations of inadequacy of the purchase price realized at
a foreclosure sale which has in all other respects been duly and properly conducted
in strict conformity with the power of sale will not be sufficient to upset a sale.”
Swindell, 310 N.C. at 713, 314 S.E.2d at 516.
An individual purchases something when they acquire an “interest in real or
personal property by sale, discount, negotiation, mortgage, pledge, lien, issue,
reissue, gift, or any other voluntary transaction.” Purchase, Black’s Law Dictionary
(10th ed. 2014). Consideration is “[s]omething such as an act, a forbearance, or a
return promise bargained for and received by a promisor from a promisee.”
Consideration, Black’s Law Dictionary (10th ed. 2014) (parentheses omitted). “What
constitutes valuable consideration depends upon the context of a particular case.”
Estate of Graham v. Morrison, 168 N.C. App. 63, 68, 607 S.E.2d 295, 299 (2005). A
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Opinion of the Court
deed of trust is a conveyance for valuable consideration. Edwards v. Bank, 39 N.C.
App. 261, 271, 250 S.E.2d 651, 659 (1979). A purchaser acts in good faith when
possessing “[a] state of mind consisting in (1) honesty in belief or purpose, (2)
faithfulness to one’s duty or obligation, (3) observance of reasonable commercial
standards of fair dealing in a given trade or business, or (4) absence of intent to
defraud or to seek unconscionable advantage.” Good Faith, Black’s Law Dictionary
(10th ed. 2014).
A bedrock principle of both our federal and state constitutions is that a person’s
property cannot be taken without due process of law. U.S. Const. amends. V, XIV;
N.C. Const. art. I, § 19. “The fundamental premise of procedural due process
protection is notice and the opportunity to be heard.” Peace v. Employment Sec.
Comm’n, 349 N.C. 315, 322, 507 S.E.2d 272, 278 (1998) (citing Cleveland Bd. of Educ.
v. Loudermill, 470 U.S. 532, 542, 84 L. Ed. 2d 494, 503 (1985)). N.C. Gen. Stat. § 1-
108, which provides that title to property sold under a judgment to a good faith
purchaser for value cannot be set aside, “may be unconstitutional as applied if the
property owner being divested of her property has not received notice which is at least
constitutionally sufficient.” In re Ackah, ___ N.C. App. ___, ___, 804 S.E.2d 794, 797
(2017), aff’d per curiam, 370 N.C. 594, 811 S.E.2d 143 (2018). Notice is
“constitutionally sufficient if it was reasonably calculated to reach the intended
recipient when sent.” Id. at ___, 804 S.E.2d at 797 (quoting Jones v. Flowers, 547
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IN RE: GEORGE
Opinion of the Court
U.S. 220, 226, 164 L. Ed. 2d 415, 426 (2006)). This Court in Ackah, citing Jones,
stated that “constitutional due process does not require that the property owner
receive actual notice,” id. at ___, 804 S.E.2d at 797 (quotation marks omitted), and
“where notice sent by certified mail is returned ‘unclaimed,’ due process requires only
that the sender must take some reasonable follow-up measure to provide other notice
where it is practicable to do so.” Id. at ___, 804 S.E.2d at 797.
In the instant case, the trial court concluded in its Indicative Denial of Joint
Motion for Relief Under Rule 60(b)(6) that “[n]either KPC Holdings nor National
Indemnity Group qualifies under N.C. Gen. Stat. § 1-108 as a purchaser in good
faith.” The trial court found that “[t]he respective principals of [Respondents] are
colleagues that have known each other for several years and have had transactions
in the past.” The trial court also made findings regarding, inter alia, KPC Holdings’
$2,650.22 purchase of the property at the non-judicial foreclosure sale; the
$150,000.00 promissory note, secured by a deed of trust, between KPC Holdings and
National Indemnity; and National Indemnity’s intention to refurbish and eventually
sell the property for $240,000.00. At the hearing to set aside the foreclosure, the trial
court stated that the credibility of Laura Schoening, principal of National Indemnity,
was negatively affected by her inability to remember the details concerning the deed
of trust or whether Respondents had done business in the past.
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IN RE: GEORGE
Opinion of the Court
Nonetheless, KPC Holdings was a good faith purchaser for value at the
foreclosure sale. No record evidence exists that either KPC Holdings or National
Indemnity had actual knowledge or constructive notice of the improper service of the
foreclosure notice. No infirmities or irregularities existed in the foreclosure record
that would reasonably put KPC Holdings or any other prospective purchaser on notice
that service was improper. The sheriff’s return of service indicated that personal
service was made upon Hygiena Jennifer George and that substitute service was
accomplished for Calmore George by leaving copies with Hygiena Jennifer George.
KPC Holdings was entitled to rely upon that record in purchasing the property at the
foreclosure sale. Further, as our Supreme Court has held, the low price of the
foreclosure sale alone, absent actual or constructive notice of any infirmities, is not
sufficient grounds to set aside a purchase by an otherwise good faith purchaser.
Swindell, 310 N.C. at 713, 314 S.E.2d at 516. It is also clear that KPC Holdings paid
value for the property. Accordingly, the trial court’s findings of fact do not support
the conclusion that KPC Holdings was not a good faith purchaser. In that KPC
Holdings was a good faith purchaser for value, we need not consider whether National
Indemnity was as well.
Our dissenting colleague on this issue contends that Respondents are not good
faith purchasers within the meaning of N.C. Gen. Stat. § 1-108. Our colleague argues
that the inadequate sale price at the foreclosure coupled with the failure to obtain
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IN RE: GEORGE
Opinion of the Court
proper service upon the Georges prevents Respondents from retaining title to the land
as good faith purchasers. Dissent at 2 (“[G]ross inadequacy of consideration, when
coupled with any other inequitable element, even though neither, standing alone,
may be sufficient for the purpose, will induce a court of equity to interpose and do
justice between the parties.” (quoting Foust v. Gate City Sav. & Loan Ass’n, 233 N.C.
35, 37, 62 S.E.2d 521, 523 (1950))). However, Swindell instructs that
Foust stands for the proposition that it is the materiality of
the irregularity in such a sale, not mere inadequacy of the
purchase price, which is determinative of a decision in
equity to set the sale aside. Where an irregularity is first
alleged, gross inadequacy of purchase price may then be
considered on the question of the materiality of the
irregularity.
Swindell, 310 N.C. at 713, 314 S.E.2d at 516 (emphasis added). We think the failure
to effectuate service is not a material irregularity where, as here, the Georges have
experienced at least two previous foreclosures on this same Mecklenburg County
property, and are familiar with the procedure. Accordingly, we do not agree with our
dissenting colleague that the equities weigh in the Georges’ favor.
While Calmore George did not receive proper Rule 4 notice of the foreclosure
sale of the property, as explained above, the Georges did receive constitutionally
sufficient notice. Thus, pursuant to N.C. Gen. Stat. § 1-108, the deed to the property
sold under the foreclosure judgment to KPC Holdings, a purchaser in good faith,
should not have been canceled by the trial court. After a manner of service fails, some
follow-up measure reasonably calculated to reach the intended recipient suffices as
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IN RE: GEORGE
Opinion of the Court
constitutionally sufficient service. Ackah, ___ N.C. App. at ___, 804 S.E.2d at 797. In
Ackah, the homeowners’ association attempted service by certified mail, but the
notice letter came back unclaimed. Id. at ___, 804 S.E.2d at 796. The homeowners’
association then posted notice of the hearing on the front door of the property. Id. at
___, 804 S.E.2d at 796. This Court held that the further measure of posting notice on
the front door was constitutionally sufficient. Id. at ___, 804 S.E.2d at 797. We noted
that the homeowners’ association did even more than post notice—they also sent
several letters by regular mail. Id. at ___, 804 S.E.2d at 797.
Here, the trustee for the homeowners’ association attempted to inform the
Georges of the foreclosure sale by: (1) attempted personal service on Hygiena Jennifer
George; (2) attempted personal service on Calmore George; (3) attempted certified
mail to the Georges at the Mecklenburg County property address; (4) attempted
certified mail to the Georges at the Virgin Islands address; (5) regular mail to the
Georges at the Mecklenburg County property address; (6) regular mail to the Georges
at the Virgin Islands address; and (7) an email exchange between “Jennifer George”
and the foreclosure trustee on 17 January 2017, before the upset-bid period expired,
in which Jennifer George requested the reinstatement quote.3 These attempts are
more than enough to establish constitutionally sufficient notice under Ackah and
Jones.
3
It is unclear whether this “Jennifer George” was Hygiena Jennifer George or one of the
Georges’ daughters.
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IN RE: GEORGE
Opinion of the Court
Accordingly, because KPC Holdings was a good faith purchaser for value and
because the Georges received constitutionally sufficient notice of the foreclosure sale,
the trial court abused its discretion in voiding the order of foreclosure and in canceling
both the deed to KPC Holdings and its subsequent deed to National Indemnity. While
a harsh result for the Georges, they are not without a remedy. N.C. Gen. Stat. § 1-
108 permits the Georges to seek restitution. Id. at ___, 804 S.E.2d at 797.
In any event, our General Assembly has made the policy decision to favor the
good faith purchaser at a foreclosure over the debtor where there is a deficiency in
the procedure. As this Court has explained,
it is our duty to follow the policy decision made by our
General Assembly, as set forth in N.C. Gen. Stat. § 1-108,
which would favor the interests of [KPC Holdings], as a
good faith purchaser at a judicial sale, ahead of the
interests of [the Georges] in the Property. We note that the
General Assembly’s policy decision favoring [KPC
Holdings] is rational because it encourages higher bids at
judicial sales . . . .
Id. at ___, 804 S.E.2d at 798. “This Court is an error-correcting body, not a policy-
making or law-making one. We lack the authority to change the law on the ground
that it might make good policy sense to do so.” Fagundes v. Ammons Dev. Grp., ___
N.C. App. ___, ___, 796 S.E.2d 529, 533 (citation and quotation marks omitted), disc.
review denied, 370 N.C. 66, 803 S.E.2d 626 (2017).
In addition to encouraging higher bids at foreclosure sales, our Supreme Court
has long recognized that this policy fosters reliance on the integrity of record title to
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IN RE: GEORGE
Opinion of the Court
property and judicial proceedings concerning property. See, e.g., Sutton v.
Schonwald, 86 N.C. 198, 202-04 (1882); see also Bolton v. Harrison, 250 N.C. 290,
298, 108 S.E.2d 666, 671 (1959) (“Necessarily, purchasers of property, especially land,
must have faith in and place reliance on the validity of judicial proceedings.”).
Conclusion
KPC Holdings abandoned its appeal of the 17 July 2017 order joining it as a
necessary party; thus, that appeal is dismissed. Jonathan Hankin, trustee on the
deed of trust between KPC Holdings and National Indemnity, was not a necessary
party to either Rule 60 proceeding. The trial court correctly determined that Calmore
George was not properly served with notice of the foreclosure sale and that the clerk
of court therefore lacked personal jurisdiction to enter a foreclosure against him.
However, KPC Holdings was a good faith purchaser for value, and the Georges
received constitutionally sufficient notice of the foreclosure sale.
Accordingly, we affirm the portion of the 9 August 2017 order voiding the
foreclosure. The portion of that order canceling and setting aside the trustee’s
foreclosure deed to KPC Holdings, canceling and setting aside the deed between KPC
Holdings and National Indemnity, and canceling and voiding the deed of trust
between KPC Holdings and National Indemnity is reversed and remanded. On
remand, the trial court may enter an order not inconsistent with this opinion, which
may include, for example, relief to the Georges in the form of restitution, as
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IN RE: GEORGE
Opinion of the Court
authorized by N.C. Gen. Stat. § 1-108. Ackah, ___ N.C. App. at ___, 804 S.E.2d at
800.
DISMISSED IN PART; AFFIRMED IN PART; REVERSED IN PART AND
REMANDED.
Judge DILLON concurs by separate opinion.
Judge BRYANT concurs in part and dissents in part by separate opinion.
- 25 -
No. COA18-611 – IN RE: GEORGE
DILLON, Judge, concurring.
The facts of this case produce a harsh result. The Georges have lost much
wealth due to the low purchase price paid at the foreclosure sale of their property.
However, we are compelled to follow the law. And the law does not require that the
party who purchased their property at the foreclosure sale to have paid a “valuable
consideration,” as that term is understood in cases cited by the dissent, to be entitled
to protection.
Our General Assembly protects the title of anyone who purchases property at
a judicial sale so long as the purchaser is “a purchaser in good faith[.]” N.C. Gen.
Stat. § 1-108 (2017). There is nothing in Section 1-108 which requires that the
consideration that was paid be substantial, unlike in other contexts. Indeed, the
language in Section 1-108 is a little different than other statutes which provide
protection to purchasers of real estate. For instance, under the Connor Act, any
“purchaser[] for a valuable consideration” who records first is protected against any
prior, unrecorded conveyance. N.C. Gen. Stat. § 47-18 (2017) (emphasis added).
Accordingly, under the Connor Act, a purchaser is not protected unless (s)he has paid
a “valuable consideration.” Id. Our Supreme Court has held that a purchaser must
have paid “substantial consideration” in order to fall within the protections of the
Connor Act. See, e.g., King v. McRackan, 168 N.C. 621, 624, 84 S.E. 1027, 1029 (1915)
(“The party assuming to be a purchaser for valuable consideration must prove a fair
IN RE: GEORGE
DILLON, J., concurring
consideration, not up to the full price, but a price paid which would not cause surprise
or make any one exclaim, ‘He got the land for nothing! There must have been some
fraud or contrivance about it.’ ”).
But Section 1-108 does not require that the purchaser at a judicial sale have
paid “a valuable consideration” in order to be protected, so long as purchaser believed
in good faith that the sale was properly conducted. Indeed, as long as the purchaser
at a judicial sale believed in good faith that the sale was proper, the “inadequacy of
the purchase price realized [from the sale] . . . will not be sufficient to upset a sale.”
Swindell v. Overton, 310 N.C. 707, 713, 314 S.E.2d 512, 516 (1984). Therefore, any
cases cited by the dissent which concern the application of the Connor Act or similar
laws are not relevant here.
In the present case, KPC Holdings purchased the Georges’ property at the
foreclosure sale. Though the consideration it paid would probably not be adequate
enough to qualify them for protection under the Connor Act against a prior,
unrecorded conveyance, the amount it paid is not relevant to determine whether it is
entitled to protection under Section 1-108. There is nothing in the record to indicate
that KPC Holdings was not a purchaser in good faith. There is nothing in the record
to indicate that the sale was not duly advertised, etc., or that KPC Holdings thwarted
the ability of anyone else from bidding at the judicial sale. KPC Holdings was simply
the high bidder. KPC Holdings then sold the property to the current owner, National
2
IN RE: GEORGE
DILLON, J., concurring
Indemnity, who seeks protection based on its title from KPC Holdings. There is some
allegation that KPC Holdings and National Indemnity may have been self-dealing.
However, the nature of the relationship between KPC Holdings and National
Indemnity or the consideration paid by National Indemnity to KPC Holdings is
irrelevant in this case. The only relevant issue is whether KPC Holdings was a good
faith purchaser and, therefore, possessed good title. If it was and it did, then the
nature of KPC Holdings’ relationship with National Indemnity is irrelevant.
This result is, indeed, a harsh one. “Be that as it may, we must remember that
hard cases are the quicksands of the law and [we must] confine ourselves to our
appointed task of declaring the legal rights of the parties.” Fulghum v. Selma, 238
N.C. 100, 103, 76 S.E.2d 368, 370 (1953). I, therefore, concur in the majority opinion.
3
No. COA18-611– In re: George
BRYANT, Judge, concurring in part, dissenting in part.
While I agree with the majority’s holding that the trustee with legal title was
not a necessary party and the Georges were not properly served with notice of the
foreclosure sale, I disagree with the majority’s holding that Respondents KPC
Holdings and National Indemnity qualify as purchasers in good faith within the
meaning of N.C. Gen. Stat. § 1-108. Section 1-108 allows restitution as a remedy, as
opposed to setting aside a deed, only if a purchaser satisfies the burden of proving
good faith purchaser status. The premise behind the good faith purchaser doctrine is
to protect “an innocent purchaser when he purchases without notice, actual or
constructive, of any infirmity, and pays valuable consideration and acts in good faith.”
Morehead v. Harris, 262 N.C. 330, 338, 137 S.E.2d. 174, 182 (1964) (emphasis added).
“As to this, the true rule is that a bona fide purchaser for value without notice of
outstanding equities takes title absolute” and, therefore, is subject to the greatest
protection against adverse claims of title. Perkins v. Langdon, 237 N.C. 159, 165, 74
S.E.2d 634, 640 (1953). Courts must carefully examine conveyances when applying
good faith purchaser status to a purchaser of title. Because I do not believe the record
establishes Respondents as innocent purchasers acting in good faith, I do not believe
Respondents are entitled to the protections of a purchaser in good faith. Accordingly,
I respectfully dissent.
IN RE: GEORGE
Bryant, J., concurring in part, dissenting in part
The uncontroverted evidence before the trial court reflected that, at the time
of the foreclosure sale, KPC Holdings was made aware of the property value at
approximately $150,000, no pending mortgage, and the outstanding debt of $204.75
in homeowners’ dues. As the majority details, KPC Holdings purchased the property
for $2,650.22, an amount that is grossly disproportionate to the value of the property.
Such actions call into question “notice” and “acting in good faith” which are necessary
to justify the applicability of a purchaser in good faith under N.C.G.S. § 1-108.
The protection accorded to a purchaser in good faith will not be given to a
purchaser for a grossly inadequate consideration. He must have paid a fair
consideration, though not necessarily the full value. See Worthy v. Caddell, 76 N.C.
82, __ S.E.2d __ (1877). Our Supreme Court has recognized that “when the purchase
price is so grossly inadequate [it is] to be prima facie evidence of fraud.” Thompson
v. Watkins, 285 N.C. 616, 626, 207 S.E.2d 740, 747 (1974). In Foust v. Gate City Sav.
& Loan Ass’n, where the North Carolina Supreme Court addressed a property valued
around $5,500 but was actually sold for $825 at a foreclosure sale, the Court stated
that “gross inadequacy of consideration, when coupled with any other inequitable
element, even though neither, standing alone, may be sufficient for the purpose, will
induce a court of equity to interpose and do justice between the parties.” Foust v.
Gate City Sav. & Loan Ass’n, 233 N.C. 35, 37, 62 S.E.2d 521, 523 (1950). The
inequitable element in this case is the foreclosure trustee’s failure to effectuate
2
IN RE: GEORGE
Bryant, J., concurring in part, dissenting in part
service for all record owners of the property––the Georges––as required by N.C. Gen.
Stat. § 45-21.16. This inequity is material based on the circumstances, and as such,
in the interest of justice, this Court must look at the adequacy of the consideration.
Moreover, the burden rests on Respondents to further establish that they are
purchasers in good faith, which I believe was not done.
KPC Holdings took the property with notice––actual and constructive––of the
estimated value of the property and outstanding debt: both appeared on the face of
the record. While KPC Holdings may not have possessed actual knowledge of the
defective service to the Georges, there was a public record of the HOA’s Claim of Lien
and KPC Holdings was on reasonable notice that there were no other liens when it
placed a bid of $2,650.22 notwithstanding the property value.4 This conveyance
refutes the legitimacy of the sale where it creates a strong inference of an inequitable
element and a reasonable person would find the purchase price appears shockingly
unfair. Also, it challenges the notion that Respondents acted in good faith when there
was questionable evidence of wrongdoing––Respondents were colleagues, dealt with
each other in the past, and both made a substantial profit with their respective
conveyances of the property. Worthy, 76 N.C. at 86, __ S.E.2d at __ (“[T]he party
assuming to be a purchaser for valuable consideration, must prove a fair
consideration, not up to the full value, but a price paid which would not cause
4 The Georges owned the property free and clear of any mortgage or other liens.
3
IN RE: GEORGE
Bryant, J., concurring in part, dissenting in part
surprise, or make any one exclaim, ‘he got the land for nothing, there must have been
some fraud or contrivance about it.’ ”).
As I believe KPC Holdings is unable to establish good faith purchaser status,
National Indemnity, as the subsequent purchaser, cannot attain such status from
KPC Holdings: KPC Holdings cannot convey what it does not have.
Given the insufficiency of notice of the foreclosure sale combined with the gross
inadequacy of the ultimate sales price, I would affirm the trial court’s ruling that
Respondents were not purchasers in good faith and thus it was proper to void the sale
and cancel the deed.
4