MidFirst Bank v. Brown

• Court: Supreme Court of North Carolina
• Decided: May 23, 2024
• Docket: 14PA23
• Status: Published

Opinion

IN THE SUPREME COURT OF NORTH CAROLINA

No. 14PA23

Filed 23 May 2024

MIDFIRST BANK

v. BETTY J. BROWN and MICHELLE ANDERSON

On discretionary review pursuant to N.C.G.S. § 7A-31 of a unanimous decision

of the Court of Appeals, 286 N.C. App. 664 (2022), reversing an order entered on 19

July 2021 by Judge Karen Eady-Williams in Superior Court, Mecklenburg County,

and remanding the case. Heard in the Supreme Court on 14 February 2024.

Alexander Ricks, PLLC, by Benjamin F. Leighton, Roy H. Michaux Jr., Ryan P. Hoffman, and David Q. McAdams, for plaintiff-appellant.

The Green Firm, PLLC, by Bonnie Keith Green; and Wesley L. Deaton for defendant-appellees.

BARRINGER, Justice.

This Court considers whether the Court of Appeals erred by reversing the trial

court’s order denying summary judgment for defendants, granting summary

judgment to plaintiff, and remanding the case to the trial court. Upon careful review,

we hold that the Court of Appeals erred. Therefore, we reverse the Court of Appeals’

decision and remand to that court to further remand to the trial court for proceedings

not inconsistent with this opinion. MIDFIRST BANK V. BROWN

Opinion of the Court

I. Factual Background

Defendant Betty J. Brown took title to her Charlotte, North Carolina, property

(the subject property) in 2000. In 2004, Brown obtained a loan in the amount of

$265,100.00 from First Horizon Home Loan Corporation (First Horizon) secured by a

deed of trust recorded with the Mecklenburg County Register of Deeds.

In 2010, a South Carolina judgment was entered against Brown. The judgment

was domesticated by United General Title Insurance Company (United) and recorded

in the public record of the Mecklenburg County Clerk of Superior Court’s office in

July 2014.

In 2016, Brown refinanced the First Horizon loan by mortgaging the subject

property with Nationstar Mortgage LLC (Nationstar). Pursuant to the express terms

of the refinance agreement, Nationstar paid off the remainder of Brown’s loan with

First Horizon in the amount of $219,873.01. Brown signed an Owner’s Affidavit

indicating there were no outstanding liens. The deed of trust for Brown’s loan with

Nationstar was recorded with the Mecklenburg County Register of Deeds in August

2016, after the 2010 South Carolina judgment. Plaintiff MidFirst Bank is

Nationstar’s successor in interest for the 2016 loan.

In 2019, United began enforcement proceedings against Brown in North

Carolina in order to collect the 2010 South Carolina judgment. The Mecklenburg

County Sheriff’s Office seized the subject property in July 2019, and an execution sale

was held pursuant to N.C.G.S. § 1-339.68. No bids were placed at the initial execution

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sale, held in August 2019. A second execution sale was held a week later. Brown’s

daughter, defendant Michelle Anderson, placed a successful upset bid of $102,900.00

at the second execution sale in August 2019 in satisfaction of the United judgment.

In September 2019, the Mecklenburg County Clerk of Superior Court filed a

confirmation of sale of the subject property to Anderson. Brown has continued to

reside in the subject property.1

II. Procedural Background

Plaintiff’s complaint, filed on 22 April 2020, sought to quiet title via

declaratory judgment. Plaintiff alleged that the Nationstar deed of trust still

encumbers the subject property even after the execution sale was conducted pursuant

to N.C.G.S. § 1-339.68, despite the Nationstar deed of trust being recorded after the

United lien.

In the alternative, plaintiff alleged that the doctrine of equitable subrogation

applies to subrogate Nationstar to the rights and priorities of the First Horizon deed

of trust. Specifically, plaintiff alleged that Brown mortgaged the subject property to

Nationstar for the purpose of paying off the First Horizon loan, and Nationstar did

so. Therefore, plaintiff alleged that as Nationstar’s successor in interest, it should be

equitably subrogated into First Horizon’s priority position, thus continuing to

1 At oral argument, plaintiff argued the equities of the circumstance, including the

fact that “Appellee Brown continues to reside at the property, she admits she never stopped living there.” Oral Argument at 26:30, MidFirst Bank v. Brown (No. 14PA23) (Feb. 14, 2024). This fact was not contested by defendants, and so is conceded. It is interesting to note that there are no innocent third-party purchasers for value involved in this case.

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encumber the property after the execution sale.

Defendants and plaintiff filed cross motions for summary judgment. The trial

court entered an order granting plaintiff’s motion for summary judgment and denying

defendants’ motion for the same. Defendants filed a notice of appeal from the trial

court’s order.

On appeal, the Court of Appeals held that because the Nationstar lien became

effective on 12 September 2016, after the United judgment was domesticated and

recorded in Mecklenburg County in 2014, the Nationstar lien was extinguished by

the execution sale in accordance with N.C.G.S. § 1-339.68(b). MidFirst Bank v.

Brown, 286 N.C. App. 664, 668–69 (2022). Under the statute, “[a]ny real property sold

under execution remains subject to all liens which became effective prior to the lien

of the judgment pursuant to which the sale is held, in the same manner and to the

same extent as if no such sale had been held.” N.C.G.S. § 1-339.68(b) (2023).

Applying the principles of expressio unius est exclusio alterius, the Court of

Appeals held that under subsection 1-339.68(b), a property sold at an execution sale

is not subject to liens that have come into effect after the lien of the executed

judgment pursuant to which the sale is held. MidFirst Bank, 286 N.C. App. at 668.

The plaintiff disagrees. This issue was not addressed in plaintiff’s petition for

discretionary review and is not before this Court. Accordingly, unless the doctrine of

equitable subrogation applies, the subject property is no longer encumbered by the

Nationstar lien after Anderson purchased it at the execution sale to help her mother.

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The Court of Appeals further held that the doctrine of equitable subrogation

was not available to plaintiff, because plaintiff was not “excusably ignorant” of the

publicly recorded United lien, relying on Peek v. Wachovia Bank & Trust Co., 242

N.C. 1, 15 (1955). Id. at 670–71, 673.

Plaintiff filed a petition for discretionary review with this Court seeking review

of the issue of equitable subrogation. This Court allowed the petition pursuant to

N.C.G.S. § 7A-31.

III. Standard of Review

We review an appeal from summary judgment de novo. In re Will of Jones, 362

N.C. 569, 573 (2008). Summary judgment is appropriate when the record shows that

there is no genuine issue of material fact. Id. Evidence presented on a motion for

summary judgment is to be viewed in the light most favorable to the nonmovant. Id.

IV. Analysis

This Court considers whether the Court of Appeals erred by reversing the trial

court’s order granting summary judgment in favor of plaintiff. We hold that the Court

of Appeals erred by applying the incorrect standard regarding equitable subrogation,

committing an error of law. Therefore, we reverse the decision of the Court of Appeals

and remand the case to the Court of Appeals to be remanded to the trial court.

The Court of Appeals appears to correctly note that the State’s “equitable

subrogation precedent has [not] produced a bright-line rule” for when equitable

subrogation is appropriate. MidFirst Bank, 286 N.C. App. at 672. The Court of

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Appeals further explained that equitable subrogation is “a fact-intensive inquiry that

depends on the specific circumstances of each case.” Id.

The Court of Appeals erred, however, when it cited Peek as “[t]he earliest case

in North Carolina to discuss the doctrine of equitable subrogation.” Id. at 670 (citing

Peek, 242 N.C. at 15). The Court of Appeals cited to dicta within Peek as the general

rule regarding equitable subrogation in North Carolina: that when one

furnishes money for the purpose of paying off an encumbrance on real or personal property, at the instance either of the owner of the property or of the holder of the encumbrance, either upon the express understanding or under circumstances from which an understanding will be implied, that the advance made is to be secured by a first lien on the property, will be subrogated to the rights of the prior lienholder as against the holder of an intervening lien, of which the lender was excusably ignorant.

Id. at 671 (emphasis added) (quoting Peek, 242 N.C. at 15). The Court of Appeals held

that plaintiff “cannot claim excusable ignorance of [the] existence” of the publicly

recorded United judgment. Id. at 673. Accordingly, the Court of Appeals reversed the

trial court’s order, holding that defendants were entitled to summary judgment.

Reliance on Peek was error because it failed to recognize Wallace v. Benner,

200 N.C. 124 (1931), which provides the general rule for the application of equitable

subrogation in this State. This Court has made it clear that “the rule [of equitable

subrogation] is settled”:

[W]here money is expressly advanced in order to extinguish a prior encumbrance, and is used for this purpose, . . . the lender or mortgagee may be subrogated to the rights of the prior encumbrancer whose claim he has

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satisfied . . . . Also, if the money is advanced to a debtor to discharge an existing first mortgage upon his property, and in pursuance of an agreement that the lender is to have a first lien upon the property for the repayment of the sum loaned, the lender is entitled, as against a junior encumbrancer, to be treated as the assignee of the first mortgage which has been paid off and discharged with the money loaned, whenever it becomes necessary to do so to effectuate the agreement with the lender, and to prevent the junior encumbrance from being raised accidentally to the dignity of a first lien, contrary to the intention of the parties.

....

The exceptions to the general rule to the doctrine of [equitable] subrogation: (1) [t]he relief is not granted to a volunteer; (2) nor where the party claiming relief is guilty of culpable negligence; (3) nor where to grant relief will operate to the prejudice of the junior lien holder.

Wallace, 200 N.C. at 131–32 (extraneity omitted) (emphases added).

Here, it is undisputed that the 2016 Nationstar loan was provided to Brown on

the express condition that it be used to pay off the 2004 First Horizon loan and that

Nationstar did so. When the judgment was recorded in North Carolina in 2014,

United’s judgment took its place as an encumbrance junior to First Horizon. See

N.C.G.S. § 47-18(a) (2023) (North Carolina’s pure race recording statute); Jones v.

Currie, 190 N.C. 260, 263 (1925) (docketing is “necessary to create and prolong the

lien thus acquired, for the benefit of the creditor against subsequent liens,

encumbrances and conveyances of the same property” (quoting Lytle v. Lytle, 94 N.C.

683, 686 (1886))).

Without application of equitable subrogation, United, as a junior lienholder,

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would be “raised . . . to the dignity of a first lien, contrary to the intention of the

parties.” Wallace, 200 N.C. at 131 (quoting R.C.L. § 24, 1340–41). As an initial matter,

as the payoff of the First Horizon loan was an express condition of the refinancing

loan, Nationstar is not a volunteer.2 See id. In analyzing the third exception, the trial

court should consider that application of equitable subrogation “leaves the inferior

lienor[, United,] in his former position.” Id. at 132 (quoting 25 R.C.L. § 24, 1340–41).

In fact, here, United’s lien has been satisfied. Generally, a trial court should consider

and take into account facts regarding potential prejudices to the junior lienholder,

such as the principal amount of the loan to be subrogated as compared to the

previously prioritized loan, any longer or shorter maturity date or amortization

schedule of the loan, and any material differences in interest rates, among other

relevant considerations. 3

The second exception to the general rule requires a determination as to

whether plaintiff was “culpably negligent” in its failure to be aware of the publicly

recorded United lien and the resulting displacement of their intended and understood

first-place lien priority. When the Wallace Court published its opinion, Black’s Law

Dictionary defined culpable as “[b]lamable; censurable; . . . connotes fault.” Culpable,

2 A volunteer is one who “pays off or loans money to pay off an incumbrance without

taking an assignment thereof, and without an agreement for substitution.” 25 R.C.L. § 22, 1337. 3 Here, plaintiff has conceded that it only seeks equitable subrogation for the amount

paid by Nationstar to satisfy the First Horizon loan. Oral Argument at 23:21, MidFirst Bank v. Brown (No. 14PA23) (Feb. 14, 2024).

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Black’s Law Dictionary (2d ed. 1910). Further, Black’s Law Dictionary defined

culpable negligence as a “[f]ailure to exercise that degree of care rendered appropriate

by the particular circumstances, and which a man of ordinary prudence in the same

situation and with equal experience would not have omitted.” Culpable negligence,

Black’s Law Dictionary (2d ed. 1910).

Through its fact-intensive inquiry, a fact-finder should seek to determine who

is “[b]lamable; censurable; . . . [at] fault.” See Culpable, Black’s Law Dictionary (2d

ed. 1910). Thus, the inquiry becomes: throughout the process of agreeing to refinance

and then, in fact, satisfying Brown’s first mortgage with First Horizon, did Nationstar

act with the degree of care of a lender of ordinary prudence in that circumstance?

“The observance of [docketing] is regarded as so important to subsequent

purchasers and mortgagees that, wherever the system of docketing [is at issue], a

very strict compliance with its provisions in every respect is required.” Jones, 190

N.C. at 263–64 (quoting Holman v. Miller, 103 N.C. 119, 120 (1889)). It is extremely

concerning that plaintiff has not produced evidence that either a title examination

was conducted or that a credit report was obtained. However, the record reveals that

Brown signed an Owners Affidavit attesting, inter alia, that “there is no person, firm,

corporation or governmental authority entitled to any claim or lien against said

property.” It is undisputed that the United lien was publicly recorded. Additionally,

the record reveals the extremely unique facts that Anderson, Brown’s daughter,

purchased the subject property at the execution sale for $102,900.00, an amount far

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less than the Nationstar lien owed by Brown, $282,865.00. Moreover, but for the

application of equitable subrogation, Brown continues to occupy the property—only

now without any enforceable mortgage lien. Considering all the facts at hand, the

trial court’s task is to balance the equities.

V. Conclusion

Whether Nationstar was culpably negligent is a fact-intensive inquiry that

depends on the specific circumstances at hand. Considering the extremely unique

facts of this case, it is for the fact-finder to determine which party is most “blamable.”

See Culpable, Black’s Law Dictionary (2d ed. 1910). Given that this Court is not a

fact-finding Court, we cannot properly answer this question. Under the extremely

unique circumstances of this case, the trial court should utilize broad discretion to

obtain the necessary information to determine whether there is a genuine issue of

material fact. For the reasons stated above, we reverse the decision of the Court of

Appeals and remand to the trial court for reassessment under the Wallace standard

of culpable negligence.

We reverse the decision of the Court of Appeals and remand to the Court of

Appeals for further remand to the trial court for application of the correct legal

standard.

REVERSED AND REMANDED.

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