Opinion
No. COA12–513.
2012-11-6
FIRST SOUTH BANK, Plaintiff, v. BILTMORE CORPORATION of Gainesville and John M. Pla, Defendants.
Rodman, Holscher, Peck & Edwards, P.A., by Charles C. Edwards, Jr ., for Plaintiff. Dixon and Dixon Law Offices, PLLC, by David R. Dixon, for Defendants.
Appeal by Defendants from order entered 30 November 2011 by Judge Wayland J. Sermons, Jr., in Beaufort County Superior Court. Heard in the Court of Appeals 25 September 2012. Rodman, Holscher, Peck & Edwards, P.A., by Charles C. Edwards, Jr ., for Plaintiff. Dixon and Dixon Law Offices, PLLC, by David R. Dixon, for Defendants.
THIGPEN, Judge.
Biltmore Corporation of Gainesville (“Biltmore”) and John M. Pla (collectively, “Defendants”) appeal from the trial court's order granting summary judgment in favor of First South Bank (“Plaintiff”). After careful review, we affirm.
I. Factual & Procedural Background
The evidence of record tends to show the following: On or about 18 January 2006, Biltmore, a Florida corporation with its principal place of business in Gainesville, Florida, executed a promissory note (“the Note”) in favor of Plaintiff, a Beaufort County-based banking institution, in the principal amount of $480,000.00. That same day, Mr. Pla, a Florida resident and President of Biltmore, executed a Commercial Guaranty “absolutely and unconditionally guarantee[ing] full and punctual payment and satisfaction of the Indebtedness of [Biltmore] to [Plaintiff], and the performance and discharge of all [Biltmore's] obligations under the Note.” Defendants intended to use the loan proceeds to develop a large tract of property (“the Property”) located in Hatteras, North Carolina. The Property, which has been subdivided into three separate lots, served as collateral for the loan by way of a deed of trust executed contemporaneously with the Note.
The parties executed a Change in Terms Agreement several times subsequent to execution of the Note, thereby increasing the interest rate and extending the maturity date of the loan. However, Defendants' plans to develop the Property ultimately “fell through,” and Defendants “defaulted on their obligations under the terms of [the Note], Change in Terms Agreements and Commercial Guaranty leaving unpaid principal, interest, late charges, and fees due and owing as of November 5, 2010 in the amount of [$493,223.98] plus” interest.
On 12 November 2010, Plaintiff filed a complaint in Beaufort County Superior Court, seeking collection of the aforementioned $493,223.98 debt plus attorneys' fees in the amount of $73,983.60. Defendants timely filed an answer on 14 January 2011, moving to dismiss Plaintiff's complaint pursuant to Rule 12(b)(6) of the North Carolina Rules of Civil Procedure and asserting as an affirmative defense—pursuant to N.C. Gen.Stat. § 45–21.36—the right to an offset of any deficiency remaining after foreclosure should Plaintiff purchase the Property at a subsequent foreclosure sale.
Plaintiff moved for summary judgment on its collections action against Defendants on 31 August 2011. Before the matter could be heard, however, on 8 November 2011, Plaintiff conducted a foreclosure sale and, being the sole bidder, purchased the Property for $435,000.00. Thus, when Plaintiff's motion for summary judgment came on for hearing in Beaufort County Superior Court on 28 November 2011, Plaintiff sought to collect from Defendants in the amount of $87,465.26, which, according to Plaintiff, represented the difference between the debt owed prior to the foreclosure sale and the purchase price of the Property at foreclosure. Defendants contended that it owed Plaintiff nothing, as the Property was valued at “over $1.3 million” and Plaintiff's purchase of the Property at its own foreclosure sale for $435,000.00—an amount substantially less than fair market value—entitled Defendants to an offset under North Carolina's anti-deficiency statute, N.C. Gen.Stat. § 45–21.36. In order to demonstrate the value of the Property, Defendants produced tax assessments of the Property conducted in 2006, at or about the time the parties executed the deed of trust on the Property. Plaintiff objected to introduction of these records, and the trial court sustained Plaintiff's objection “based on relevancy after the stipulation of the parties that they were values established in 2006 and today's date is November 28, 2011.” The court took judicial notice of “the economic conditions which have declined severely since [2006], including the price of real estate in resort areas such as Dare County and Hatteras.” Defendants did not offer any other evidence to establish the value of the Property.
Our review of the trial transcript indicates that the parties delayed both foreclosure of the Property and the summary judgment hearing while attempting to sell the Property to a third-party purchaser, which, purportedly, would have settled the debt and obviated the need for a hearing on the issue.
By order entered 30 November 2011, the trial court found as fact, inter alia, that “[n]o relevant evidence was presented by Defendants in furtherance of their defense under the anti-deficiency statute (N.C.Gen.Stat. § 45–21.36)” and concluded that Plaintiff was entitled to summary judgment as a matter of law. The court ordered Defendants to pay Plaintiff $87,465.26 plus interest from the date of judgment in addition to the costs of the action. Defendants timely filed notice of appeal with this Court on 28 December 2011.
II. Analysis
Defendants' sole contention on appeal is that the trial court erred in granting Plaintiff's motion for summary judgment. A motion for summary judgment is appropriately granted where “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that any party is entitled to a judgment as a matter of law.” N.C. Gen.Stat. § 1A–1, Rule 56(c) (2011).
In deciding a motion for summary judgment, a trial court must consider the evidence in the light most favorable to the non-moving party. If there is any evidence of a genuine issue of material fact, a motion for summary judgment should be denied. The moving party bears the burden of showing that no triable issue of fact exists. This burden can be met by proving: (1) that an essential element of the non-moving party's claim is nonexistent; (2) that discovery indicates the non-moving party cannot produce evidence to support an essential element of his claim; or (3) that the non-moving party cannot surmount an affirmative defense which would bar the claim. Once the moving party has met its burden, the non-moving party must forecast evidence that demonstrates the existence of a prima facie case.
Azar v. Presbyterian Hosp., 191 N.C.App. 367, 370, 663 S.E.2d 450, 452 (2008) (citations omitted).
“If the foreclosure sale of real property which secures a non-purchase money mortgage fails to yield the full amount of due debt, the mortgagee may sue for a deficiency judgment.” Carolina Bank v. Chatham Station, Inc., 186 N.C.App. 424, 428, 651 S.E.2d 386, 389 (2007) (footnote omitted). “A deficiency judgment is an ‘imposition of personal liability on mortgagor for unpaid balance of mortgage debt after foreclosure has failed to yield full amount of due debt.’ “ Hyde v. Taylor, 70 N.C.App. 523, 526, 320 S.E.2d 904, 906 (1984) (citation omitted).
In the instant case, Plaintiff moved for summary judgment in its collection action against Defendants, seeking a deficiency judgment in the amount of $87,465.26. Plaintiff carried its burden at the summary judgment hearing by establishing the following undisputed facts underlying the debt at issue: Defendants defaulted on their loan obligations to Plaintiff under the Note, which was secured by a deed of trust on the Property; the debt totaled $522,465.26 at the time of the 8 November 2011 foreclosure sale; and Plaintiff purchased the Property at the properly conducted foreclosure sale for $435,000.00, leaving a balance owed of $87,465.26. Thus, the burden shifted to Defendants to produce a forecast of evidence demonstrating the existence of a genuine issue of material fact such that Plaintiff was not entitled to a deficiency judgment in the amount of $87,465.26 as a matter of law. Defendants' defense at the hearing, and now on appeal, is that Plaintiff is precluded from collecting a deficiency judgment against Defendants under North Carolina's anti-deficiency statute, N.C. Gen.Stat. § 45–21.36, because the “true value” of the Property “was almost $1,000,000 more than the amount borrowed.”
Plaintiff indicated at the summary judgment hearing that it had withdrawn its request for attorneys' fees and interest accrued on the debt subsequent to the 8 November 2011 foreclosure sale.
“N.C. Gen.Stat. § 45–21.36 applies well-settled principles of equity to provide protection for debtors whose property has been sold and purchased by their creditors for a sum less than its fair value.” NCNB Nat. Bank of N.C. v. O'Neill, 102 N.C.App. 313, 316, 401 S.E.2d 858, 859 (1991). This provision provides, in pertinent part:
When any sale of real estate has been made by a mortgagee, trustee, or other person authorized to make the same, at which the mortgagee, payee or other holder of the obligation thereby secured becomes the purchaser and takes title either directly or indirectly, and thereafter such mortgagee, payee or other holder of the secured obligation, as aforesaid, shall sue for and undertake to recover a deficiency judgment against the mortgagor, trustor or other maker of any such obligation whose property has been so purchased, it shall be competent and lawful for the defendant against whom such deficiency judgment is sought to allege and show as matter of defense and offset, but not by way of counterclaim, that the property sold was fairly worth the amount of the debt secured by it at the time and place of sale or that the amount bid was substantially less than its true value, and, upon such showing, to defeat or offset any deficiency judgment against him, either in whole or in part[.]
N.C. Gen.Stat. § 45–21.36 (2011).
Defendants essentially contend that this statutory provision provides a defense to Plaintiff's request for a deficiency judgment because the amount Plaintiff bid for the Property at Plaintiff's foreclosure sale was “substantially less than its true value.” See id. Defendants insist that “true value” as described in N.C. Gen.Stat. § 45–21.36 refers to the tax appraised value of the subject property, and, according to Defendant's contention at the summary judgment hearing, “the tax assessed value [of the Property] as of [the date of the foreclosure sale] was over $1.3 million.” However, the only evidence introduced by Defendants as to the value of the Property consisted of three printouts reflecting tax appraisals of the Property conducted in 2006, approximately five years prior to the foreclosure sale at which the Property was sold. The trial court ruled that these documents were not relevant in determining the true value of the Property as of the 8 November 2011 foreclosure sale, and, therefore, that they could not serve as competent evidence in support of Defendants' defense under N.C. Gen.Stat. § 45–21.36.
Defendants dedicate a substantial portion of their brief to a discussion of the legislature's intent in drafting N.C. Gen.Stat. § 45–21.36 in an effort to demonstrate the relevance of tax assessments in valuing property for the purpose of a deficiency action. Defendants contend that N.C. Gen.Stat. § 45–21.36 provides for two methods of property valuation, “market value” and “true value,” and that a property's “true value” is equivalent to its tax assessed value. While we agree that tax appraisals may be relevant to value determinations in this context, see, e.g., First Citizens Bank & Trust v. Cannon, 138 N.C.App. 153, 156, 530 S.E.2d 581, 583 (2000), we find Defendant's historical discussion and attempt to distinguish “market value” from “true value” to be misplaced, as the trial court did not rule that tax assessments are never relevant in determining property values in a deficiency action. On the contrary, the trial court concluded that the tax documents introduced by Defendants in this case were not relevant because they were five years old and therefore could not be competent evidence of the Property's value as of the 8 November 2011 foreclosure sale. Specifically, the trial court stated:
Well, if it were a relevant tax year, I would certainly do it. It's not because it's a tax document. It's because it is five years old, and the Court can take judicial notice of the economic conditions which have declined severely since then, including the price of real estate in resort areas such as Dare County and Hatteras.
We discern from these comments and from our review of the transcript of the 28 November 2011 hearing that the trial court excluded Defendants' proffered tax documents not because it believed all tax assessments are irrelevant to property valuations per se, but rather because it believed that these particular tax assessments were outdated. We agree with the trial court that a tax appraisal conducted five years prior to foreclosure is not competent evidence of the subject property's true value on the date of foreclosure. Indeed, Defendants' primary reliance on First Citizens Bank & Trust Co. v. Cannon, 138 N.C.App. 153, 530 S.E.2d 581, in asserting the relevance of the tax assessments in the instant case is misplaced, as the Cannon tax appraisal, which this Court found to be competent evidence of value, was dated only one month after the date of the foreclosure sale in that case. Id. at 156, 530 S.E.2d at 583. We decline to address Defendant's proposition that a tax assessment reflects a property's “true value” in reaching our holding, as resolution of that question would have no bearing on the outcome of this appeal.
In sum, Plaintiff introduced evidence that it had purchased the Property for $435,000.00 at the foreclosure sale. Contrary to Defendants' contention, this was competent evidence of the Property's true value as of that date. See Blue Ridge Savings Bank, Inc. v. Mitchell, ––– N.C.App. ––––, ––––, 721 S.E.2d 322, 324 (2012) (stating that the foreclosure sale price of the subject property was competent evidence of the property's true value). Defendants offered no contradicting, competent evidence as to the value of the Property. Thus, Defendants failed to produce a forecast of evidence to support their claim for setoff under N.C. Gen.Stat. § 45–21.36, and the trial court appropriately granted summary judgment in Plaintiff's favor.
III. Conclusion
For the foregoing reasons, the trial court's 30 November 2011 order granting summary judgment in Plaintiff's favor is hereby affirmed.
AFFIRMED. Judges McGEE and BEASLEY concur.
Report per Rule 30(e).