August 14, 2018

by Devin Chidester
Brock & Scott, PLLC – USFN Member (North Carolina)

Recently, the North Carolina Court of Appeals handed down an opinion addressing application of the Rules of Civil Procedure (NCRCP), primarily Rule 52, in the context of a power of sale foreclosure. [In the Matter of the Foreclosure … Worsham, 2018 WL 3233086 (N.C. Ct. App. July 3, 2018).]

Background
The facts presented in Worsham are as follows: In June 2012, HSBC Bank USA, N.A. (HSBC) commenced a power of sale proceeding on property owned by the Worshams. The clerk of court denied the foreclosure because of lack of evidence that HSBC was the holder of the underlying debt (a requirement of North Carolina’s foreclosure statute N.C.G.S. § 45-21.16(d)).

Four years later, another foreclosure was attempted based on a recorded assignment of the deed of trust into HSBC. At the second foreclosure hearing, the clerk cited “insufficient evidence was presented to sustain the substitute trustee’s authority to proceed with the foreclosure” and again denied HSBC the right to foreclose. HSBC appealed the clerk’s denial and after a de novo review, the superior court allowed the foreclosure to proceed.

The Worshams appealed the order allowing foreclosure, contending that the foreclosure should not proceed because, as a matter of law, the superior court order findings were “unsupported by competent evidence,” and the order itself lacked required fact findings and conclusions of law.

Appellate Analysis
The Court of Appeals reversed and remanded the foreclosure based on the lack of findings of fact and conclusions of law within the superior court order allowing foreclosure. The court hinged its opinion on whether Rule 52 of the NCRCP applied in a nonjudicial foreclosure. Following the case of In re Lucks, a power of sale foreclosure is contractual and not a judicial proceeding, and the rules of civil procedure do not apply “unless explicitly engrafted into the statute.” [In re Foreclosure of Lucks, 369 N.C. 222, 225, 794 S.E.2d 501, 504 (2016).]

The appellate court reasoned that Rule 52 is applicable because, under N.C.G.S. § 45-21.16(d), “[t]he act of the clerk [or trial court] in … finding or refusing to so find is a judicial act[.]” As such, pursuant to Rule 52, an order allowing foreclosure must: make fact findings on issues; declare the conclusions of law arising on the facts found; and enter judgment accordingly with specific findings of the ultimate facts established by the evidence, admissions, and stipulations.

The superior court order lacked findings as to HSBC’s status as holder and only “summarily concluded” that HSBC had a right to foreclose.¹ The status of holder is a requirement to foreclose under N.C.G.S. § 45-21.16(d) and was a main point of contention by the Worshams at the clerk and trial court level. Further, the appellate court found that the lack of evidence of a valid debt was absent from the superior court order. That order contained a reference to neither party disputing the default. The actuality of default was also a main issue of contention by the Worshams. As a result, the Court of Appeals reversed and remanded the matter in order for the lower court to make the requisite findings required per applicable NCRCP.

Take Note
The Worsham case serves as a reminder that success at trial is predicated on findings of fact and proper conclusions of law by the court, and an order is only as good as it is written.

¹ See page 7 of the opinion outlining the order provided by the superior court. Traditionally, orders are provided to the judge by the prevailing party of a foreclosure matter.

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