NC Appeals Court: Lender's Failure To Provide Sufficient Evidence That It Was "Holder" Of Promissory Note Precludes Foreclosure

Another trial court screw-up in a foreclosure action was recently reversed - this time by the North Carolina Court of Appeals, which ruled that a lender seeking to foreclose on a mortgage had failed to properly provide sufficient competent evidence that it was the holder of the promissory note secured by the mortgage. Accordingly, it ruled that the lender was not entitled to go forward with a foreclosure sale.(1)

For the ruling, see In re Foreclosure of Adams, No. COA09-1455 (N.C. App. June 1, 2010).

(1) An excerpt from the ruling (bold text is my emphasis, not in the original text):

• [S]ince the photocopies of the Note and Deed of Trust presented to the trial court indicate that the original holder of both instruments was Novastar, not Deutsche Bank for Soundview, and since these photocopies do not indicate that Novastar negotiated, indorsed or transferred the Note to Deutsche Bank for Soundview, respondents contend the photocopied instruments alone were not sufficient to establish that Deutsche Bank for Soundview is the current holder of the Note.

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• We recognize that, in the present case, the testimony by affidavit from Ms. Smith, the assistant secretary of Deutsche Bank for Soundview——an out-of-state entity——as well as the in-person testimony offered by Ms. Cole indicated that Deutsche Bank for Soundview is the current holder of the Note and Deed of Trust. However, neither the in-person testimony from Ms. Cole nor the testimony by affidavit from Ms. Smith expressly showed that Novastar transferred or assigned its interest in the Note and Deed of Trust to Deutsche Bank for Soundview.

• Moreover, as we discussed above, the photocopied Note and Deed of Trust, which were described in Ms. Smith's affidavit as "exact reproductions" of the original instruments, do not show that the Note was indorsed, transferred, or otherwise made payable by Novastar, the original holder of the instrument, to Deutsche Bank for Soundview.

• Thus, whereas the record in In re Foreclosure of Brown, 156 N.C. App. 477, 577 S.E.2d 398 (2003), also included an Assignment of Deed of Trust as evidence showing that the original holder of the note and deed of trust had assigned its interest in said instruments to the party seeking to foreclose on the respondent—borrowers, the record before the trial court in the present case contained no such additional evidence.

• Accordingly, because a foreclosure under a power of sale is not favored in the law and must be "watched with jealousy," see In re Foreclosure of Goforth Props., 334 N.C. at 375, 432 S.E.2d at 859 (internal quotation marks omitted), we must conclude that the evidence presented to the trial court was not sufficient to establish that the Note was payable to Deutsche Bank for Soundview, and so was not sufficient to support the trial court's finding of fact that "Novastar Mortgage, Inc., . . . transferred and assigned its interest in the Note and Deed of Trust to Deutsche Bank National Trust Company, as Trustee for Soundview Home Loan Trust 2005-4 (`Lender')."