               IN THE COURT OF APPEALS OF NORTH CAROLINA

                                  No. COA15-248

                                Filed: 6 October 2015

Caldwell County, No. 13 SP 164

IN THE MATTER OF THE FORECLOSURE OF A DEED OF TRUST EXECUTED
BY CAROL A. RAWLS AND DEWEY GEORGE RAWLS DATED JANUARY 24, 2005
AND RECORDED IN BOOK 1538 AT PAGE 1243 IN THE CALDWELL COUNTY
PUBLIC REGISTRY, NORTH CAROLINA



      Appeal by Respondent from order entered 12 June 2014 by Judge C. Thomas

Edwards in Caldwell County Superior Court. Heard in the Court of Appeals 26

August 2015.


      Shapiro & Ingle, LLP, by Jason K. Purser, for petitioner-appellee.

      Lindley Law, PLLC, by Trey Lindley, and Clontz & Clontz, PLLC, by Ralph C.
      Clontz III, for respondent-appellant.


      ZACHARY, Judge.


      Turnip Investments, LLC (respondent) appeals from an order authorizing the

substitute trustee to proceed with a foreclosure sale to recover money owed on a debt

secured by a note and deed of trust on property located in Hickory, North Carolina

(the property). On appeal, respondent argues that the trial court erred by allowing

the foreclosure to proceed, on the grounds that E*Trade (petitioner) failed to prove

that it was the holder of the note evidencing the debt, and that respondent had not

personally defaulted on the loan. We conclude that the trial court did not err by
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                                   Opinion of the Court



concluding that petitioner was the holder of the note, and that respondent failed to

preserve the issue of default for appellate review.

                       I. Factual and Procedural Background

      On 24 January 2005 Carol Rawls executed a Home Equity Credit Line

Agreement in favor of Capital One F.S.B. (Capital One) in exchange for an $85,500.00

credit line loan. On the same date, Ms. Rawls and her husband, Dewey Rawls,

executed a Deed of Trust for the property to secure the loan. The note and deed of

trust were later indorsed in blank and possession was transferred to petitioner. The

last payment towards the loan was made on 25 June 2012. On 12 April 2013 the

substitute trustees, Grady I. Ingle or Elizabeth B. Ells, filed a notice of a hearing on

foreclosure of the deed of trust. At some point prior to the filing of the foreclosure

notice, respondent had purchased the property at an execution sale, subject to the

deed of trust; however, the record does not indicate the date of respondent’s purchase.

The notice, which was directed both to Dewey and Carol Rawls and to respondent,

alleged that respondent was the present owner of the property and that the loan was

in default. On 22 July 2013 the Ford Firm, PLLC, was appointed substitute trustee.

On 30 July 2013 the Assistant Clerk of Superior Court of Caldwell County entered

an order permitting the foreclosure to proceed.

      Respondent appealed the order to the Superior Court, where a hearing was

conducted on 2 June 2014. At the hearing, petitioner “tender[ed the] court file and



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the documents therein” to the trial court.        In addition, petitioner proffered the

“original promissory note indorsed in blank” for the trial court to review and compare

to the copy in the court file. Petitioner also informed respondent and the trial court

that it had been unable to secure service on the Rawls, who are not parties to this

appeal. On 12 June 2014 the trial court entered an order allowing foreclosure.

      Respondent appeals.

                                II. Standard of Review

      Respondent appeals from the trial court’s order entered following a bench trial

on petitioner’s right to proceed with foreclosure. “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, even though the evidence might sustain a finding to the contrary.’ ” In re

Foreclosure of Bass, 366 N.C. 464, 467, 738 S.E.2d 173, 175 (2013) (quoting Knutton

v. Cofield, 273 N.C. 355, 359, 160 S.E.2d 29, 33 (1968)). “ ‘Conclusions of law drawn

by the trial court from its findings of fact are reviewable de novo on appeal.’ ” Id.

(quoting Carolina Power & Light Co. v. City of Asheville, 358 N.C. 512, 517, 597

S.E.2d 717, 721 (2004)). “When this Court determines that findings of fact and

conclusions of law have been mislabeled by the trial court, we may reclassify them,

where necessary, before applying our standard of review.” In re Simpson, 211 N.C.

App. 483, 487-88, 711 S.E.2d 165, 169 (2011) (citing In re Helms, 127 N.C. App. 505,



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510, 491 S.E.2d 672, 675 (1997), and N.C. State Bar v. Key, 189 N.C. App. 80, 88, 658

S.E.2d 493, 499 (2008)).

                                     III. Analysis

      On appeal, respondent challenges the trial court’s determination that

petitioner was entitled to proceed with foreclosure. Respondent argues that the trial

court erred by finding that petitioner was the holder of a valid debt and that it was

error to find the existence of default on the debt. The elements of a valid foreclosure

proceeding are well established:

             [C]ertain elements must be established by the clerk of
             superior court before a mortgagee or trustee may proceed
             with a foreclosure by power of sale, including findings of a
             “(i) valid debt of which the party seeking to foreclose is the
             holder, (ii) default, (iii) right to foreclose under the
             instrument, and (iv) notice to those entitled to such under
             subsection (b)[.]”. . . When a foreclosure action is appealed
             to the superior court, the trial court is limited to a de novo
             review of those same elements. N.C. Gen. Stat. § 45-
             21.16(d) (2011).

In re Manning, __ N.C. App. __, __, 747 S.E.2d 286, 290 (2013) (quoting N.C. Gen.

Stat. § 45-21.16(d)).

                        A. Petitioner as Holder of Valid Debt

      Respondent argues first that in its order the trial court made no specific

findings of facts as to who had possession of the promissory note, instead grouping

the paragraphs of the court’s order into one “findings of fact and conclusions of law.”

It is clear that this Court may categorize the findings of fact and conclusions of law.


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Id. Respondent also asserts that there was no competent evidence that at the time

of the hearing petitioner was the holder of the promissory note securing the debt.

Specifically, respondent contends that petitioner’s production of the original note

indorsed in blank did not establish that petitioner possessed the note, and that

affidavits submitted by petitioner contained hearsay which should not have been

considered by the trial court. We find petitioner’s production of the original note

indorsed in blank to be dispositive.

      Under North Carolina law, “[i]n order to find that there is sufficient evidence

that the party seeking to foreclose is the holder of a valid debt, we must find (1)

competent evidence of a valid debt, and (2) that the party seeking to foreclose is the

current holder of the Note.” Manning, __ N.C. App. at __, 747 S.E.2d at 291 (citing In

re Foreclosure of Adams, 204 N.C. App. 318, 321, 693 S.E.2d 705, 709 (2010)). “This

Court has determined that the definition of ‘holder’ in North Carolina’s adoption of

the Uniform Commercial Code (‘UCC’) is applicable to the term as it is used in

N.C.G.S. § 45-21.16 for foreclosures under powers of sale.” Adams, 204 N.C. App. at

322, 693 S.E.2d at 709 (2010) (citing Connolly v. Potts, 63 N.C. App. 547, 551, 306

S.E.2d 123, 125 (1983)). We next review the applicable definitions under the UCC.

      A “promissory note is a ‘negotiable instrument’ under N.C. Gen. Stat. [§] 25-3-

104(a).” Franklin Credit Recovery Fund v. Huber, 127 N.C. App. 187, 189, 487 S.E.2d

825, 826 (1997). N.C. Gen. Stat. § 25-1-201(b)(21) defines a “holder” in relevant part



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as the “person in possession of a negotiable instrument that is payable either to

bearer or to an identified person that is the person in possession” and thereafter at

N.C. Gen. Stat. § 25-1-201(b)(27) defines “person” to include “an individual,

corporation, business trust, estate, trust, partnership, limited liability company,

association, joint venture . . . public corporation, or any other legal or commercial

entity[.] “Bearer” is defined by the same statute in part as “a person in possession of

a negotiable instrument, negotiable tangible document of title, or certificated security

that is payable to bearer or indorsed in blank.” An “indorsement is ‘a signature . . .

that alone or accompanied by other words is made on an instrument for the purpose

of . . . negotiating the instrument.’ ” Bass, 366 N.C. at 468, 738 S.E.2d at 176 (quoting

N.C. Gen. Stat. § 25-3-204(a)).

      The Uniform Commercial Code differentiates between two types of

indorsements: special and blank. If an indorsement is “made by the holder of an

instrument, whether payable to an identified person or payable to bearer, and the

indorsement identifies a person to whom it makes the instrument payable, it is a

‘special indorsement.’ ” N.C. Gen. Stat. § 25-3-205(a). “If an indorsement is made by

the holder of an instrument and it is not a special indorsement, it is a ‘blank

indorsement’. When indorsed in blank, an instrument becomes payable to bearer and

may be negotiated by transfer of possession alone until specially indorsed.” N.C. Gen.

Stat. § 25-3-205(b).    The distinction between a “special indorsement” and an



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indorsement “in blank” may be significant in determining whether a petitioner has

shown possession of the note. As stated in the Official Comments to N.C. Gen. Stat.

§ 25-3-205:

              If the indorsement is made by a holder and is not a special
              indorsement, it is a blank indorsement. For example, the
              holder of an instrument, intending to make a special
              indorsement, writes the words ‘Pay to the order of’ without
              completing the indorsement by writing the name of the
              indorsee. The holder’s signature appears under the quoted
              words. The indorsement is not a special indorsement
              because it does not identify a person to whom it makes the
              instrument payable. Since it is not a special indorsement it
              is a blank indorsement and the instrument is payable to
              bearer. The result is analogous to that of a check in which
              the name of the payee is left blank by the drawer.

Thus, as noted by the Fourth Circuit, “[n]egotiable instruments like mortgage notes

that are endorsed in blank may be freely transferred. And once transferred, the old

adage about possession being nine-tenths of the law is, if anything, an

understatement. Whoever possesses an instrument endorsed in blank has full power

to enforce it.” Horvath v. Bank of New York, N.A., 641 F.3d 617, 621 (4th Cir. 2011).

      Applying the above definitions, this Court concludes that the “holder” of a

promissory note may be a bank or other lending institution that is in possession of a

note that has been indorsed in blank:

              Under the Code, the party in possession of a negotiable
              instrument indorsed in blank is presumptively the holder.
              N.C. Gen. Stat. § 25-1-201(b)(21) (2013); N.C. Gen. Stat. §
              25-3-109 (2013). See also, In re Manning, __ N.C. App. __,
              __, 747 S.E.2d 286, 291-92 (2013) (presentation of the
              original note to the court, indorsed in blank, “serves as

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             competent evidence to support the trial court’s finding that
             [the party] was the present holder.”).

In re Dispute over the Sum of $375,757.47, __ N.C. App. __, __, 771 S.E.2d 800, 806

(2015). Our conclusion in this regard finds support in several unpublished opinions

of this Court, in addition to opinions from federal bankruptcy court which, although

not binding on this Court, we find persuasive. See, e.g., In re Gibbs, 765 S.E.2d 122,

2014 N.C. App. LEXIS 948 (unpublished):

             In a recent case addressing a similar issue, this Court
             stated that, “[w]here petitioner, at a foreclosure hearing
             before the trial court, produced the original mortgage loan
             note reflecting a blank indorsement and an affidavit
             stating that the lienholder was in possession of the Note,
             such was sufficient to establish the lienholder as the holder
             of the Note.” Although we are not bound by our prior
             unpublished decisions, we believe that Cornish sheds
             additional light on our decision that the record contains
             sufficient evidence to establish that Petitioner held
             Respondents’ note.

Gibbs, 765 S.E.2d at *17 n.4 (quoting In re Cornish, 757 S.E.2d 526 at *1, 2014 N.C.

App. LEXIS 216 (unpublished), and citing United Services Automobile Assn. v.

Simpson, 126 N.C. App. 393, 396, 485 S.E.2d 337, 339 (1997)). See also, e.g., In re

Hernandez, 2014 Bankr. LEXIS 5146 (Bankr. E.D.N.C. Dec. 24, 2014) (“At the hearing

. . . counsel for [petitioner] presented the original Note with a blank endorsement.

While [petitioner’s counsel] was in actual possession of the Note, he was acting as

attorney, agent and proxy for [petitioner] and it is clear from the court’s examination

of the Note that it was the original document clearly in the possession of


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[petitioner].”), and In re Robinson, No. 07-02146-8-JRL, 2011 Bankr. LEXIS 4504

(Bankr. E.D.N.C. Nov. 22, 2011) (“At the hearing, [petitioner] entered the original

promissory note with the blank indorsement into evidence. Thus [petitioner] is clearly

the holder of the note because it is in possession of the original note indorsed in

blank.”).

      Based on the plain language of N.C. Gen. Stat. § 25-3-205(b) (“When indorsed

in blank, an instrument becomes payable to bearer and may be negotiated by transfer

of possession alone until specially indorsed.”), and the reasoning of cases such as

those cited above, we hold that a petitioner’s production of an original note indorsed

in blank establishes that the petitioner is the holder of the note. In this case it is

undisputed that petitioner produced the original note indorsed in blank, and we hold

that this was sufficient to support the trial court’s conclusion that petitioner was the

holder of the note.

      Respondent concedes on appeal that petitioner produced the original note at

the hearing, but contends that this was insufficient to establish that petitioner was

the holder of the note. Respondent’s position is based upon a quote from Simpson, in

which we stated that “[p]roduction of an original note at trial does not, in itself,

establish that the note was transferred to the party presenting the note with the

purpose of giving that party the right to enforce the instrument[.]” Simpson, 211 N.C.

App. at 491, 711 S.E.2d at 171. Simpson, however, which did not hold that production



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of an original note could never be adequate to establish a petitioner’s right to enforce

a note, is factually distinguishable from the instant case. Simpson did not involve a

note indorsed in blank, but instead concerned a note that had been indorsed to a

specific entity which was “not the party asserting a security interest in Respondent’s

property.” Id. at 493, 711 S.E.2d at 172. Significantly, Simpson specified that it was

“[b]ecause the indorsement does not identify Petitioner and is not indorsed in blank

or to bearer, [that] it cannot be competent evidence that Petitioner is the holder of

the Note.” Id. at 493, 711 S.E.2d at 173 (emphasis added).

      Given that we have concluded that petitioner’s production of the original note

indorsed in blank was sufficient to allow the trial court to conclude that petitioner

was the holder of the note, we find it unnecessary to reach respondent’s arguments

concerning the admissibility of the affidavits proffered at the hearing. Respondent

also argues that the trial court erred by holding that petitioner was the holder of the

note without making a specific finding that petitioner was in physical possession of

the note. In this case, there was no dispute that petitioner was in possession of the

note. Moreover, we have held that:

             “[W]hen a court fails to make appropriate findings or
             conclusions, this Court is not required to remand the
             matter if the facts are not in dispute and only one inference
             can be drawn from them.” There is no dispute that
             petitioner had physical possession of the note at the
             hearing . . . Therefore, the only inference that can be drawn
             from the evidence is that petitioner . . . was in physical
             possession of the note at the time of the hearing.


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In re Foreclosure of Yopp, 217 N.C. App. 488, 499, 720 S.E.2d 769, 775 (2011) (quoting

Green Tree Financial Servicing Corp. v. Young, 133 N.C. App. 339, 341, 515 S.E.2d

223, 224 (1999)). We conclude that respondent’s argument lacks merit.

                                     B. Default

      In its second argument, respondent asserts that because it was not the original

borrower, it could not personally be in default under the terms of the loan.

Respondent does not dispute, however, that it purchased the property subject to the

note and deed of trust. Moreover, respondent did not raise any argument challenging

the issue of default at the hearing before the trial court. Rule 10(a)(1) of the North

Carolina Rules of Appellate Procedure states that in order “to preserve an issue for

appellate review, a party must have presented to the trial court a timely request,

objection, or motion, stating the specific grounds for the ruling the party desired the

court to make” and must “obtain a ruling upon the party's request, objection, or

motion.” By failing to raise the issue of default at trial, respondent has failed to

preserve it for appellate review. See, e.g., Basmas v. Wells Fargo Bank N.A., __ N.C.

App. __, __, 763 S.E.2d 536, 539 (2014), which held:

             Plaintiffs argue that the trial court erred by finding that
             their default on the loan after entry of [an earlier order]
             constituted new facts or circumstances[, and] . . . assert
             that their mortgage debt was discharged in bankruptcy[.] .
             . . We do not reach the merits of this issue, because
             plaintiffs failed to preserve for appellate review the effect
             of a discharge in bankruptcy on the foreclosure action.



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      For the reasons discussed above, we conclude that the trial court did not err

and that its order must be

      AFFIRMED.

      Judges STEPHENS and McCULLOUGH concur.




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