              IN THE COURT OF APPEALS OF NORTH CAROLINA

                                   No. COA18-212

                                Filed: 2 October 2018

Mecklenburg County, No. 15-SP-493

IN THE MATTER OF THE FORECLOSURE OF A DEED OF TRUST EXECUTED
BY DAVID L. FRUCELLA AND MARILYN L. FRUCELLA DATED JUNE 28, 1985
AND RECORDED IN BOOK 5044 AT PAGE 764 IN THE MECKLENBURG
COUNTY PUBLIC REGISTRY, NORTH CAROLINA

      Appeal by respondents from order entered 3 October 2017 by Judge Carla N.

Archie in Mecklenburg County Superior Court. Heard in the Court of Appeals 5

September 2018.


      Nelson Mullins Riley & Scarborough, L.L.P., by Donald R. Pocock, for
      petitioner-appellee.

      Thurman, Wilson, Boutwell & Galvin, P.A., by James P. Galvin, for
      respondents-appellants.


      ZACHARY, Judge.


      David and Marilyn Frucella (“Respondents”) appeal from a trial court’s order

allowing CitiMortgage, Inc. to foreclose on their home under the power of sale

provision in their deed of trust, arguing that CitiMortgage was not the holder of the

Note, which was lost. We find that CitiMortgage satisfied the statutory provisions

for enforcement of a lost note, and was permitted by law to enforce the Note.

Therefore, we affirm the trial court’s order.

                                    Background
                                  IN RE: FRUCELLA

                                  Opinion of the Court



      On 28 June 1985, Respondents executed an Adjustable Rate Note (“Note”) in

the amount of $191,000 for their new home on Wharton Lane in Matthews, North

Carolina, naming The Lomas & Nettleton Company as lender. On that same day,

Respondents executed a deed of trust on the property to secure the loan evidenced by

the Note. The deed of trust contained a power of sale clause permitting the lender to

sell the residence in the event the Frucellas defaulted on their obligation to pay the

Note. On 5 November 1997, an instrument titled “Substitution of Trustee” was

recorded, providing in part that “Crestar Bank is now the owner and holder of said

Note and lien created by the foregoing Deed of Trust[.]” On 21 January 2003, another

document titled “Substitution of Trustee” was recorded, providing in part that

“SunTrust Bank, Inc. is now the owner and holder of said Note and lien created by

the foregoing Deed of Trust.”

      Respondents made their last payment on the Note on 10 August 2010, bringing

the loan current through June 2010. Nine months later CitiMortgage, acting as the

attorney-in-fact for The Lomas & Nettleton Company, assigned the deed of trust at

issue to CitiMortgage. Respondents were then given notice of their default by letter

from CitiMortgage on 23 December 2010. A non-judicial foreclosure proceeding was

commenced on 20 June 2011, but was dismissed without prejudice by order of the

Clerk on 1 April 2013.




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                                   IN RE: FRUCELLA

                                   Opinion of the Court



      Another non-judicial foreclosure proceeding was commenced on 28 January

2015 and was heard before the Clerk of Superior Court of Mecklenburg County on 5

April 2017, and the Clerk entered an Order allowing the foreclosure sale.

Respondents appealed to Superior Court, and this matter was heard by the Honorable

Carla N. Archie on 24 August 2017. At the hearing, the trial court was presented

with two lost note affidavits of April Daniels, employed by CitiMortgage as an

Assistant Vice President, Assistant Officer Legal Support.        One of the Daniels

affidavits stated that subsequent to the execution of the Loan, the Note was

transferred to CitiMortgage and that after the Loan was transferred, the original

Note was lost. The other Daniels affidavit stated, inter alia, that: (1) “At the time

CitiMortgage, Inc. lost possession of the original Note, such party had the right to

enforce the Note and Deed of Trust[,]” (2) “The loss of possession of the Note is not

the result of the original Note being assigned, endorsed, or delivered to another party,

cancelled, pledged, hypothecated or otherwise transferred, nor was the loss of

possession the result of a lawful seizure of the Note[,]” and (3) “After a good faith,

thorough and diligent manual search, the hard copy collateral file pertaining to the

Loan (which pursuant to CitiMortgage, Inc.’s regular business practice would be

expected to contain the original note) was not located.”

      On 3 October 2017, the trial court entered an order allowing the foreclosure

sale. The trial court found:



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                                  IN RE: FRUCELLA

                                  Opinion of the Court



             12. After the Note and Deed of Trust were transferred to
             CitiMortgage, the original Note was lost. CitiMortgage
             offered testimony by affidavit that 1) CitiMortgage was in
             possession at the time the original Note was lost or
             destroyed; 2) after a good faith, thorough and diligent
             manual search, CitiMortgage was not able to locate the
             Note; 3) The loss of possession was not the result of the
             Note being assigned, endorsed, delivered to another party,
             cancelled,    pledged,   hypothecated      [or]  otherwise
             transferred.

                   ....

             14. The right to enforce the lost note constitutes a valid
             debt as described in [N.C. Gen. Stat.] § 45-21.16(d) of which
             CitiMortgage is the holder. . . .

             15. Respondents have presented no credible evidence
             tending to show that any other entity is the holder of the
             debt or there is an actual controversy regarding
             CitiMortgage’s status as the holder. Namely, Respondents
             have not shown there is another person or entity other than
             CitiMortgage seeking to enforce the debt.          At best,
             Respondents presented documents tending to show there
             are other entities who previously had some interest or may
             have some interest in the outcome of these proceedings.
             Respondents did not present any evidence tending to show
             any entities are presently adverse to CitiMortgage or that
             Respondents are in danger of making duplicate payments.

Respondents filed timely notice of appeal.

                                      Analysis

      Respondents maintain that the trial court erred in permitting the foreclosure

sale because CitiMortgage was not the holder of the Note as required by N.C. Gen.




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                                   IN RE: FRUCELLA

                                   Opinion of the Court



Stat § 45-21.16(d) (2017). As explained below, we reject this argument and affirm the

order of the trial court.

         CitiMortgage’s Authority to Seek Non-Judicial Foreclosure

       When this court reviews a trial court’s order permitting a foreclosure sale,

where the trial court sat 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 Bass, 366

N.C. 464, 467, 738 S.E.2d 173, 175 (2013).          Unchallenged findings of fact are

presumed correct and binding on appeal. In re Schipof, 192 N.C. App. 696, 700, 666

S.E.2d 497, 500 (2008). On appeal, the trial court’s conclusions of law are reviewable

de novo. Bass, 366 N.C. at 467, 738 S.E.2d at 175.

       Our General Assembly has established a procedure to avoid lengthy and costly

judicial foreclosures and instead has permitted parties to expeditiously resolve

mortgage defaults via a non-judicial power of sale if authorized in the parties’

mortgage or deed of trust. See N.C. Gen. Stat. § 45-21.16 (2017); 1 Patrick K. Hetrick

and James B. McLaughlin, Jr., Webster’s Real Estate Law in North Carolina §  13.31

(Matthew Bender, 6th Ed. 2011). This Court has explained a power of sale as follows:

              A power of sale is a contractual arrangement in a mortgage
              or a deed of trust which confers upon the trustee or
              mortgagee the power to sell the real property mortgaged
              without any order of court in the event of a default. A
              power of sale provision in a deed of trust is a means of
              avoiding lengthy and costly foreclosures by action, whereby


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                                   IN RE: FRUCELLA

                                   Opinion of the Court



             the parties have agreed to abandon the traditional
             foreclosure by judicial action in favor of a private
             contractual remedy to foreclose.

In re Adams, 204 N.C. App. 318, 321, 693 S.E.2d 705, 708 (2010) (citations, internal

brackets, and quotation marks omitted). This procedure provides for a hearing before

the clerk of court in the county where the land is located. N.C. Gen. Stat. § 45-21.16(d)

(2017). The statute strictly details the evidence the clerk can receive and the findings

the clerk can make:

             Upon such hearing, the clerk shall consider the evidence of
             the parties and may consider, in addition to other forms of
             evidence required or permitted by law, affidavits and
             certified copies of documents. If the clerk finds the
             existence of (i) valid debt of which the party seeking to
             foreclose is the holder, (ii) default, (iii) right to foreclose
             under the instrument, (iv) notice to those entitled to such
             under subsection (b), (v) that the underlying mortgage debt
             is not a home loan as defined in G.S. 45-101(1b), or if the
             loan is a home loan under G.S. 45-101(1b), that the pre-
             foreclosure notice under G.S. 45-102 was provided in all
             material respects, and that the periods of time established
             by Article 11 of this Chapter have elapsed, and (vi) that the
             sale is not barred by G.S. 45-21.12A, then the clerk shall
             authorize the mortgagee or trustee to proceed under the
             instrument, and the mortgagee or trustee can give notice
             of and conduct a sale pursuant to the provisions of this
             Article.

Id. (emphasis added). The clerk’s ruling may be appealed de novo to a district or

superior court judge having jurisdiction within ten days of the clerk’s ruling. Id. §

45-21.16(d1).




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                                    IN RE: FRUCELLA

                                    Opinion of the Court



      Under the Uniform Commercial Code (“UCC”), as adopted in North Carolina,

the “[h]older” of a note is defined as: “[t]he person in possession of a negotiable

instrument that is payable either to bearer or to an identified person that is the

person in possession[.]” Id. § 25-1-201(d)(21)(a). When an entity no longer possesses

the note or has lost the note, it may nevertheless prove the existence of a valid debt.

See id. §§ 25-3-301, -309(a). Section 25-3-309 of the UCC provides a three-part test

of the entitlement to enforce a lost instrument:

             A person not in possession of an instrument is entitled to
             enforce the instrument if (i) the person was in possession
             of the instrument and entitled to enforce it when loss of
             possession occurred, (ii) the loss of possession was not the
             result of a transfer by the person or a lawful seizure, and
             (iii) the person cannot reasonably obtain possession of the
             instrument because the instrument was destroyed, its
             whereabouts cannot be determined, or it is in the wrongful
             possession of an unknown person or a person that cannot
             be found or is not amenable to service of process.

Id. § 25-3-309(a).   Both statute and case law sanction the use of affidavits as

competent evidence to establish the required statutory elements in a de novo

foreclosure hearing. Id. § 45-21.16(d) (“[T]he clerk shall consider the evidence of the

parties and may consider . . . affidavits[.]); In re Goddard and Petersen, PLLC, ___

N.C. App. ___, ___, 789 S.E.2d 835, 844 (2016). See also Emerald Portfolio, LLC v.

Outer Banks/Kinnakeet Assocs., LLC, __ N.C. App. ___, ___, 790 S.E.2d 721, 723

(2016) (party seeking to enforce lost note used an affidavit setting out § 25-3-309

elements to enforce a lost note).


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                                    IN RE: FRUCELLA

                                   Opinion of the Court



      Respondents argue that CitiMortgage cannot seek a non-judicial power of sale

foreclosure because it is not the holder of the Note due to loss of the Note. This

argument is without merit.

      Here, applying the lost note statute, the trial court found:

             12. After the Note and Deed of Trust were transferred to
             CitiMortgage, the original Note was lost. CitiMortgage
             offered testimony by affidavit that 1) CitiMortgage was in
             possession at the time the original Note was lost or
             destroyed; 2) after a good faith, thorough and diligent
             manual search, CitiMortgage was not able to locate the
             Note; 3) The loss of possession was not the result of the
             Note being assigned, endorsed, delivered to another party,
             cancelled,    pledged,   hypothecated      [or]  otherwise
             transferred.

This finding of fact tracks the required elements to establish that a party not in

possession of an instrument is nonetheless entitled to enforce the instrument as set

out in N.C. Gen. Stat. § 25-3-309(a) (2017). This finding is supported by the record

evidence, including numerous affidavits of representatives of CitiMortgage

addressing the three factors set forth in § 25-3-309(a).

      Respondents further maintain that CitiMortgage “failed to present sufficient

evidence that it was the holder of the Note.” The attacks on the affidavits presented

are tantamount to attacks on the credibility of the evidence, which we will not review.

See Sellers v. Morton, 191 N.C. App. 75, 79, 661 S.E.2d 915, 920 (2008) (“When the

trial court sits as a finder of fact, questions concerning the weight and credibility of

the evidence are the province of the trial court.”).


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                                   IN RE: FRUCELLA

                                   Opinion of the Court



      We hold that this evidence was sufficient to support the trial court’s findings

of fact, and that those findings of fact support the trial court’s conclusion of law that

the Note was enforceable by CitiMortgage under N.C. Gen. Stat. § 25-3-309. We make

this holding recognizing that the Respondents presented evidence showing that other

parties previously had or may have an interest in this proceeding; however, we agree

with the trial court’s finding that “Respondents have presented no credible evidence

tending to show that any other entity is the holder of the debt or there is an actual

controversy regarding CitiMortgage’s status as the holder.” The trial court’s findings

are supported by competent evidence and are therefore conclusive “even though the

evidence might sustain a finding to the contrary.” Bass, 366 N.C. at 467, 738 S.E.2d

at 175.

      The trial court properly concluded that CitiMortgage was the holder in due

course of a valid debt and was entitled to proceed with the power of sale foreclosure

under the terms of the parties’ deed of trust. Accordingly, we affirm the trial court.

      AFFIRMED.

      Judges STROUD and MURPHY concur.




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