Basmas v. Wells Fargo Bank National Association

NO. COA13-464

NORTH CAROLINA COURT OF APPEALS

Filed: 7 October 2014

HRISTOS BASMAS and MARIA BASMAS,

Plaintiffs,

v. Iredell County

No. 12 CVS 1684

WELLS FARGO BANK NATIONAL

ASSOCIATION, CARRINGTON MORTGAGE

SERVICES, LLC AND NATIONWIDE

TRUSTEE SERVICES, INC., as

Substitute Trustee,

Defendants.

Appeal by plaintiffs from order entered 5 December 2012 by

Judge Hugh B. Lewis in Iredell County Superior Court. Heard in

the Court of Appeals 11 August 2014.

Elliott Law Firm, PC, by Michael K. Elliott for plaintiff-

appellants.

RCO Legal, P.S., by Susan B. Shaw, for defendant-appellee.

STEELMAN, Judge.

The effect of plaintiffs’ discharge in bankruptcy on

foreclosure proceedings was not preserved for appellate review.

The trial court’s order allowing foreclosure is affirmed.

I. Factual and Procedural Background

On 29 September 2006 Hristos and Maria Basmas (plaintiffs)

borrowed $304,056.00 from New Century Mortgage Corporation for

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the purpose of purchasing residential property located in

Iredell County, North Carolina. The loan was secured by a deed

of trust on plaintiffs’ property, which was recorded in the

Iredell County Registry of Deeds. On 19 December 2006, the loan

was sold to Wells Fargo (defendant). In conjunction with the

sale of the loan, the original Note was “indorsed in blank by

New Century” and transferred to Wells Fargo, with Deutsche Bank

being the custodian of the original Note for Wells Fargo.

In 2009 plaintiffs became delinquent in their mortgage

payments; they failed to make the payment due on 1 March 2009,

and have made no payments towards their debt since that time. On

9 September 2010 the substitute trustee filed a petition in

Iredell County case No. 10 SP 1503, seeking to foreclose on the

note and deed of trust. On 6 September 2011 the Iredell County

Clerk of Court entered an order allowing defendant to proceed

with foreclosure. Plaintiffs appealed to the Superior Court of

Iredell County, and on 2 November 2011 Judge Theodore S.

Royster, Jr., entered an order stating in relevant part that:

1. On or about September 29, 2006, a

Promissory Note (‘the Note’) was executed in

favor of New Century Mortgage Corporation in

the principal sum of $304,056 which Note was

secured by a Deed of Trust on real estate

located in Iredell County, North Carolina,

and recorded in . . . the Iredell County

Registry.

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2. The Respondents did not produce an

original Indorsement of the Note, nor a copy

of the Indorsed Note.

3. The Respondent claims to be the holder of

the Note.

4. Since the Respondent failed to produce

sufficient competent evidence of Indorsement

of the Note, . . . at the time of this

hearing the Respondent does not qualify as

the ‘holder’ under the North Carolina

Uniform Commercial Code, and is thus not the

‘holder’ of the Promissory Note as the term

is used in N.C.G.S. § 45-21-16 for

foreclosures under power of sale.

Judge Royster concluded that “[t]he Respondent has failed

to prove that it is the owner and holder of a valid indebtedness

of [plaintiffs] as required pursuant to N.C.G.S. 45-21.16(d) and

therefore cannot foreclose on the subject property under the

current case (10-SP-1503).” The court ordered that the “Order of

Sale entered by the Iredell Clerk of Court on September 6, 2011

is hereby vacated” and that the substitute trustee “shall not

proceed under the current case (10-SP-1503) with any foreclosure

of the real estate described in that certain Deed of Trust

recorded in Book 1789, Page 2079 in the Iredell County Public

Registry.”

On 14 March 2012 defendant filed a new petition, in Iredell

County case No. 12 SP 292, seeking to foreclose on the note and

deed of trust. On 10 July 2012 plaintiffs filed a complaint in

the instant case, seeking a permanent injunction barring

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foreclosure, a declaratory judgment that foreclosure was barred

by the doctrine of res judicata on the basis of Judge Royster’s

order, and alleging claims for abuse of process, unfair and

deceptive trade practices, and misrepresentation. A hearing was

conducted on 5 November 2012 before the trial court and on 5

December 2012 the court denied plaintiffs’ claim for declaratory

judgment in an order that stated in relevant part:

[This matter] came on for hearing . . . on

Plaintiffs’ motion for declaratory judgment

that the doctrine of res judicata bars the

Defendants from pursuing foreclosure in . .

. Iredell County, N.C., 12-SP-0292 . . . or

any other subsequent foreclosure proceeding.

Having considered the briefs, supporting

affidavits, and case law submitted by the

parties . . . the Court hereby finds and

concludes as follows:

1. Since November 2011, no payment has been

made by the Plaintiffs under that certain

adjustable rate promissory note . . .

secured by the deed of trust . . . that is

the subject of the current foreclosure

[proceeding] and the loan . . . is,

accordingly, in default at this time;

2. Subsequent to the entry by Judge Theodore

S. Royster, Jr. on November 2, 2011 of the

order vacating the . . . order of

foreclosure entered by the Iredell County

Clerk of Court in [10-SP-1503] . . .

Defendant Wells Fargo obtained physical

possession of the original Note (with an

original blank indorsement by New Century

Mortgage Corporation, the original Lender,

affixed thereon), which Note was presented

to the Court at the November 5th hearing;

. . .

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4. New facts have occurred since Judge

Royster’s November 2, 2011 order in the

initial foreclosure [proceeding], by way of

subsequent default and Defendants’

presentation of the original Note (with an

original blank indorsement by New Century

Mortgage Corporation, the original Lender,

affixed thereon), creating a change in

circumstances that would preclude any res

judicata effect of said order upon the

current foreclosure [proceeding] and/or any

other subsequent foreclosure proceeding;

5. Issues as to the res judicata effect, if

any, upon past due moneys owed by the

Plaintiffs upon the Note shall remain

pending as the Court, by the entry of this

Order, is not determining such issues at

this point in time and such issues are

hereby reserved for a later date, if so

necessary.

The order denied plaintiffs’ claim for declaratory judgment

and ruled that plaintiffs’ “other prayers for relief are hereby

deemed to be moot[.]”

Plaintiffs appeal.

II. Standard of Review

“Our standard of review of a declaratory judgment is the

same as in other cases. N.C. Gen. Stat. § 1-258[.]” Calhoun v.

WHA Med. Clinic, PLLC, 178 N.C. App. 585, 596, 632 S.E.2d 563,

571 (2006). “‘The standard of review in declaratory judgment

actions where the trial court decides questions of fact is

whether the trial court’s findings are supported by any

competent evidence. Where the findings are supported by

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competent evidence, the trial court’s findings of fact are

conclusive on appeal.’” Cross v. Capital Transaction Grp., Inc.,

191 N.C. App. 115, 117, 661 S.E.2d 778, 780 (2008) (quoting

Lineberger v. N.C. Dep’t of Corr., 189 N.C. App. 1, 7, 657

S.E.2d 673, 678, affirmed in part, review improvidently granted

in part on other grounds, 362 N.C. 675, 669 S.E.2d 320 (2008)).

Findings of fact not challenged on appeal are binding on this

Court. Johnson v. Herbie’s Place, 157 N.C. App. 168, 180, 579

S.E.2d 110, 118 (2003). “‘However, the trial court’s conclusions

of law are reviewable de novo.’” Cross, 191 N.C. App. at 117,

661 S.E.2d at 780 (quoting Browning v. Helff, 136 N.C. App. 420,

423, 524 S.E.2d 95, 98 (2000)).

III. Doctrine of Res Judicata

Plaintiffs’ primary argument is that Judge Royster’s entry

of an order vacating defendant’s first foreclosure action barred

the subsequent foreclosure action under the doctrine of res

judicata. “‘Under the doctrine of res judicata, a final judgment

on the merits in a prior action in a court of competent

jurisdiction precludes a second suit involving the same claim

between the same parties or those in privity with them.’ The

essential elements of res judicata are: (1) a final judgment on

the merits in an earlier lawsuit; (2) an identity of the cause

of action in the prior suit and the later suit; and (3) an

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identity of parties or their privies in both suits. ‘When a

court of competent jurisdiction has reached a decision on facts

in issue, neither of the parties are allowed to call that

decision into question and have it tried again.’” Nicholson v.

Jackson Cty. School Bd., 170 N.C. App. 650, 654-55, 614 S.E.2d

319, 322 (2005) (quoting Bockweg v. Anderson, 333 N.C. 486, 491,

428 S.E.2d 157, 161 (1993), and Green v. Dixon, 137 N.C. App.

305, 308, 528 S.E.2d 51, 53 (2000) (other citations omitted).

However, “[i]t is well settled that the estoppel of a

judgment extends only to the facts in issue as they existed at

the time the judgment was rendered, and does not prevent a re-

examination of the same questions between the same parties when

in the interval the facts have changed or new facts have

occurred which may alter the legal rights or relations of the

litigants.” Flynt v. Flynt, 237 N.C. 754, 757, 75 S.E.2d 901,

903 (1953) (citation omitted). In this case, the trial court

found two separate instances of new or changed circumstances:

plaintiffs’ default on their loan after entry of Judge Royster’s

order, and defendant’s production of documentation of its status

as holder of the note.

IV. Effect of Discharge in Bankruptcy

Plaintiffs argue that the trial court erred by finding that

their default on the loan after entry of Judge Royster’s order

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constituted new facts or circumstances that rendered the

doctrine of res judicata inapplicable. Plaintiffs assert that

their mortgage debt was discharged in bankruptcy, eliminating

the possibility of any further default. We do not reach the

merits of this issue, because plaintiffs failed to preserve for

appellate review the effect of a discharge in bankruptcy on the

foreclosure action.

Rule 10(a)(1) of the North Carolina Rules of Appellate

Procedure states that “to preserve an issue for appellate

review, a party must have presented to the trial court a timely

request, objection, or motion, stating the specific grounds for

the ruling the party desired the court to make” and must “obtain

a ruling upon the party’s request, objection, or motion.” The

effect of the bankruptcy proceeding in which plaintiffs were

involved was not raised in plaintiffs’ complaint, their

memorandum of law, or at the hearing before the trial court.

Moreover, plaintiffs’ argument is premised in part on their

assertion that there was “no reaffirmation agreement entered”

during the bankruptcy case. Plaintiffs fail to support this

contention by citation to sworn testimony, affidavit,

documentary evidence, or any other record evidence. It “‘is

axiomatic that the arguments of counsel are not evidence.’”

State v. Roache, 358 N.C. 243, 289, 595 S.E.2d 381, 411 (2004)

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(quoting State v. Collins, 345 N.C. 170, 173, 478 S.E.2d 191,

193 (1996)).

Plaintiffs failed to preserve for appellate review any

issues pertaining to the effect of their bankruptcy proceeding

on the foreclosure action, and have not supported their argument

with citation to record evidence. Accordingly, we do not reach

the merits of this argument.

As discussed above, the trial court found and concluded in

relevant part that:

New facts have occurred since Judge

Royster’s November 2, 2011 order in the

initial foreclosure [special proceeding], by

way of subsequent default and Defendants’

presentation of the original Note (with an

original blank indorsement by New Century

Mortgage Corporation, the original Lender,

affixed thereon), creating a change in

circumstances that would preclude any res

judicata effect of said order upon the

current foreclosure [special proceeding]

and/or any other subsequent foreclosure

proceeding.

Plaintiffs’ appellate challenge is restricted to the trial

court’s finding that their continued default subsequent to entry

of Judge Royster’s order constituted new facts. Plaintiffs do

not challenge the trial court’s finding that defendant’s

production of proper documentation of its status as holder of

the note separately established that “[n]ew facts have occurred

. . . creating a change in circumstances” that precluded

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application of res judicata to defendant’s second foreclosure

proceeding. “It is not the role of the appellate courts . . . to

create an appeal for an appellant.” Viar v. N.C. Dep’t of

Transp., 359 N.C. 400, 402, 610 S.E.2d 360, 361 (2005) (per

curiam). Given that plaintiffs failed to preserve this challenge

to the trial court’s order, the order must be affirmed.

V. Public Policy Considerations

Plaintiffs also argue that we should reverse the trial

court’s order based upon various public policy concerns.

“Weighing . . . public policy considerations is the province of

our General Assembly, not this Court.” Shaw v. U.S. Airways,

Inc., 362 N.C. 457, 463, 665 S.E.2d 449, 453 (2008). This

argument lacks merit.

For the reasons discussed above, we conclude that the trial

court did not err and that its order should be

AFFIRMED.

Judges ERVIN and McCULLOUGH concur.