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An unpublished opinion of the North Carolina Court of Appeals does not constitute controlling legal authority. Citation is disfavored, but may be permitted in accordance with the provisions of Rule 30(e)(3) of the North Carolina Rules of Appellate Procedure.

NO. COA06-1243 NORTH CAROLINA COURT OF APPEALS Filed: 7 August 2007 In the Matter of Foreclosure of a Deed of Trust Executed by Charles D. Woodard and Phyllis G. Woodard In the amount of $460,000.00 dated August 7, 1987, recorded in Book 1337, Page 668, Wilson County Registry; James R. Cummings, Sub. Tr.

Wilson County No. 05 Sp 422

Court of Appeals Slip Opinion
by Wesley A. Collins, for

Appeal by petitioners from judgment and order entered 5 June 2006 by Judge Clifton W. Everett, Jr. in Wilson County Superior Court. Heard in the Court of Appeals 25 April 2007.

Harvell and Collins, P.A., petitioners-appellants.

Hinson & Rhyne, P.A., by John G. Rhyne and Walter L. Hinson, for respondents-appellees. GEER, Judge. Petitioners Anne P. Worthington and Dean W. Worthington appeal from a judgment of the superior court dismissing their foreclosure action. Petitioners had attempted to exercise a power of sale

contained in a deed of trust executed by respondents Charles D. Woodard and Phyllis G. Woodard in favor of petitioners. On appeal, petitioners primarily argue that the trial court erred by

concluding that respondents had not defaulted on a note secured by the deed of trust. Because the trial court's findings of fact are

-2supported by competent evidence and those findings, in turn, support the trial court's conclusion, we affirm. Facts Sometime before August 1987, W. Roy Poole agreed to build a building for respondents. In exchange, respondents executed a The P. The

promissory note in August 1987 in the amount of $460,000.00. note was payable to Poole's daughter, petitioner Anne

Worthington, and grandson, petitioner Dean W. Worthington.

note was left with Poole at the law offices of his attorney, Thomas B. Griffin. Petitioners assert that they were unaware of the

note's existence at the time of its execution. Under the terms of the note, respondents were required to repay the principal, along with 12% annual interest, in 180 monthly installments of $5,525.00. The note was secured by a deed of trust

on a parcel of real property in Wilson County owned by respondents. The deed of trust included a power of sale in the event of a default and, as with the note, the parties to the deed of trust were respondents and petitioners. Griffin was named as trustee.

In accordance with Poole's instructions, respondents made payments on the note from March 1988 until September 1998 by delivering personal checks, payable to Poole, to Poole's office where they were accepted and deposited. During this time, annual

IRS Form 1096s were prepared for each petitioner reflecting receipt of interest also from respondents' the payments, as and petitioners' tax

returns

reported

interest

income.

Petitioners

testified they signed these returns without examining them.

-3Petitioners assert they first became aware of the note in 1998, during the course of a family "buyout," in which petitioners sold stock they owned in various family corporations to Poole and his son, Anne Worthington's brother, in exchange for various assets. A release signed by petitioners as part of the buyout

indicated that Poole and his son were conveying to petitioners "[o]ne account receivable . . . secured by note and deed of trust from Charles D. Woodard in the amount of $139,454.64." The actual

note and deed of trust, along with other materials, were delivered to Ms. Worthington in a large box following the buyout.

Petitioners did not, however, examine either the note or deed of trust at that time. In October 1998, Poole instructed respondents to make future monthly payments on the note by sending two checks to Poole's office -- one payable to Anne Worthington and one payable to Dean Worthington, with each for half of the monthly amount. Later,

respondents were told to send the checks directly to petitioners. In March 2003, respondents made the 180th payment on the note and, accordingly, the checks to petitioners ceased. Anne Worthington took the box of documents she At that time, had received

following the buyout to the office of her attorney, Wesley A. Collins. In the box, Collins discovered the original note, naming In September 2005, petitioners removed

petitioners as the payees.

Poole's attorney as trustee on the deed of trust and appointed a substitute trustee, attorney James R. Cummings.

-4Petitioners sent respondents a demand letter dated 12 October 2005, contending that the first payment on the note was actually made when respondents began paying petitioners in October 1998 rather than when respondents first paid Poole. The letter claimed

that respondents were, therefore, "in default for failure to make proper payments pursuant to the terms of the Promissory Note." Petitioners stated that they were exercising their "rights of acceleration" under the note and that the payoff of principal and interest totaled $3,307,158.20 plus an average accrual of daily interest in the amount of $1,082.00. On 3 November 2005, the substitute trustee filed a Notice of Hearing Prior to Foreclosure of Deed of Trust, notifying the Woodards that a foreclosure sale of the real property secured by the deed of trust was scheduled for 10 January 2006 and that they had a right to appear at a hearing on the foreclosure on 14 December 2005. On 16 December 2005, the Worthingtons also each

filed a petition before the Clerk of Wilson County Superior Court seeking foreclosure. The clerk entered an order the same day,

concluding that the "evidence of default did not meet the burden" and dismissing the petitions. Petitioners appealed to the superior court from the clerk's order. The matter was heard de novo by the superior court on 27 March 2006. After conducting an evidentiary hearing, the trial court

entered an order on 5 June 2006, finding that "[a]ll payments hav[e] been made pursuant to the . . . Promissory Note" and that "there now exists no amount payable under its terms." The trial

-5court concluded that, as a result, there was neither a valid debt nor a default under the terms of the note and dismissed

petitioners' foreclosure proceeding. Petitioners have now appealed to this Court. Discussion "A deed of trust gives the note holder a contractual remedy for default, namely a right to foreclose under the instrument." In re Foreclosure of Azalea Garden Bd. & Care, Inc., 140 N.C. App. 45, 51, 535 S.E.2d 388, 393 (2000). In a foreclosure action, the clerk

of superior court holds a hearing to determine four issues: (1) the existence of a valid debt of which the party seeking foreclosure is the holder, (2) the existence of default, (3) the trustee's right to foreclose under the instrument, and (4) the sufficiency of notice of hearing to the record owners of the property. N.C. Gen.

Stat.

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