N.C. Court of Appeals: In re Ackah- Remedy for Statutorily Defective Notice of Foreclosure Does Not Include Overturning Sale


Reserve Homeowners Association commenced a foreclosure against residential rental property owned by Ms. Ackah for unpaid homeowner’s association dues. Notice of the sale was left at the property and notices sent (and returned unclaimed) to other family members. Ultimately, the property was purchased by the Jones Family Holdings a the sale. Finding that Ms. Ackah did not receive actual notice of the foreclosure , the superior court accordingly set aside the sale.

The majority of opinion of the Court of Appeals held that N.C.G.S. § 1A-1, Rule 4 did require the HOA to use “due diligence” in effectuating service. Since the HOA knew or had reason to know that Ms. Ackah was not residing at the property, the HOA was obliged to attempt to contact Ms. Ackah through all modes available, specifically in this case through the email address it had in its records for her.

This lack of due diligence, however, did not allow, pursuant to N.C.G.S. § 1-108, for the sale to a “good faith purchaser” to be set aside as the notice provided was constitutionally sufficient as “it was reasonably calculated to reach the intended recipient when sent[.]” Jones v. Flowers, 547 U.S. 220, 220 (2006). The majority held that it was a rational decision for the legislature to favor the interests of good faith purchasers ahead of property owners. Accordingly, Ms. Ackah is entitled to other remedies from the HOA for the improper sale, but not return of the property.

The dissent relied on Cary v. Stallings, 97 N.C. App. 484, 487, 389 S.E.2d 143, 145 (1990), which had been followed in unpublished opinions by  County of Jackson v. Moor, 236 N.C. App. 247, 765 S.E.2d 122 (2014) (unpublished) and Zheng v. Charlotte Prop., 226 N.C. App. 200, 739 S.E.2d 627 (2013) (unpublished), which held that “title to such property may in fact be affected if the court deems it necessary in the interest of justice.”


With a split opinion, where the majority seems to reject a long line of its own cases, this seems like an appropriate case for appeal to the Supreme Court and perhaps a legislative change that would protect against this.

It is also worth noting that the Jones Family Holdings are not naifs when it comes to purchasing property at foreclosure sales, particularly related to tax and homeowners’ associations. The Bennett case from the M.D.N.C. bankruptcy court, involved the Jones Family Holdings and also points towards how this case could have had a different result in a bankruptcy, as 11 U.S.C. § 548 can be used to avoid a transfer where there was a “material irregularity in the sale.”

For a copy of the opinion, please see:

Ackah- Remedy for Statutorily Defective Notice of Foreclosure Does Not Include Overturning Sale

Posted in NC Court of Appeals, NC Courts Tagged with: ,

Bankr.  W.D.N.C.: In re Leviner- Characterization of Claim as Domestic Support Obligation


After nearly 35 years of marriage,  Thomas Leviner and Kathy Leviner divorced and negotiated a Settlement where the parties prior marital residence was retained jointly for their children to inherit,  but with Mr.  Leviner to make the mortgage payments and Ms.  Leviner to retain the property during her lifetime (unless she remarried.)  Mr.  Leviner was also pay alimony of $300 a week until Ms.  Leviner turned 67 years old.  In 2015, after refinancing the house, Mr.  Leviner sought to offset the mortgage payments from the alimony being paid.  This was rejected by Ms.  Leviner, through her domestic attorney, and Mr.  Leviner filed Chapter 13, seeking to sell the house.  Ms.  Leviner objected arguing that the obligation to pay for the mortgage was a non-dischargeable domestic support obligation.

The bankruptcy court held that Ms.  Leviner had the burden of showing that the obligation is in the nature of support based on the following a non-exhaustive factors: (1) The actual substance and language of the agreement, not merely the labels attached, with indicia of support including: (a) Long-term obligation to make regular monthly payments; or (b) Termination on the death or remarriage of the obligee.
(2) The financial situation of the parties at the time of the agreement, including:
(a) The inability of the obligee to provide for basic needs, such as food, housing, or medical care; or (b) Explicit requirement of support amounts and additional the payment of a necessary vehicle or mortgage loan.
(3) The function served by the obligation at the time of the agreement, i.e. daily necessities; and
(4) Whether there is any evidence of overbearing at the time of the agreement, including whether: (a) The parties were represented by attorneys; (b) The terms grossly favor one spouse over the other;  (c) The terms leave one spouse with no or minimal income; or (d) There were misrepresentations.
Applying these factors and reviewing similar cases, the bankruptcy court found that Ms.  Leviner was the financially dependent spouse who would be unable to pay for necessities, specifically the house,  without the support of Mr.  Leviner.  Nor were the Leviners  simply splitting up the equity and debt related to their marital residence, but Ms.  Leviner was meant to supported in the retention of her residence until her death or remarriage.

For a copy of the opinion, please see:

Leviner- Characterization of Claim as Domestic Support Obligation

Posted in North Carolina Bankruptcy Cases, Western District Tagged with: ,

Bankr. E.D.N.C.: In re Alomia – Denial of Motion to Incur Debt


The bankruptcy court denied Mr. Alomia’s motion to incur student loan debt to attend the Texas Southern University in Houston, Texas as he was delinquent on his plan, which was not yet confirmed.


While delinquency on plan payments would indicate that a debtor would be unable to presently carry a greater debt burden, federal student loans as sought here would not become repayable for 6 months following the borrower’s completion of school, so it is not clear how these loans would impair his ability to perform under the plan.

Further, Mr. Alomia appears to have relocated to Houston and one might suspect that the recent Hurricane Harvey may have impeded is ability to both make his most recent plan payment and also participate in the confirmation of his plan.

For a copy of the opinion, please see:

Alomia – Denial of Motion to Incur Debt

Posted in Eastern District, North Carolina Bankruptcy Cases Tagged with: , ,

Bankr.  W.D.N.C.: In re Grand Dakota Partners, L.L.C.- Transfer of VenueBankr.  W.D.N.C.: In re Grand Dakota Partners, L.L.C.- Transfer of Venue

Grand Dakota Partners (“GDP”) and Grand Dakota Hospitality (“GDH”) filed a Chapter 11 bankruptcy in the Western District of North Carolina, largely because its owners and management were located in Charlotte.  The hotel, bar and restaurant operated by GDP and GDH are located in Dickinson, North Dakota.
Venue in North Carolina was proper under 28 U.S.C. § 1408, as Charlotte was the “principal palce of business” for the corporations, since that is where the “decision makers are located”.  See The Hertz Corp. v. Friend, 559 U.S. 77, 80 (2010).  That notwithstanding, the bankruptcy court then determined whether transfer of venue under 28 U.S.C. § 1412 would be appropriate, applying the following factors:
(1) The proximity of creditors of every kind to the court; (2) the proximity of the Debtor to the court; (3) the proximity of the witnesses necessary to the administration of the estate; (4) the location of the assets; (5) the economic administration of the estate; and (6) the necessity for ancillary administration if a liquidation should occur. See In re Lakota Canyon Ranch Dev., LLC, Case  No. 11-03739-8, 2011 Bankr. LEXIS 4652, at *7 (Bankr. E.D.N.C. June 21, 2011).

Even applying the presumption in favor of the choice of venue made by the debtor, See In re Rehoboth Hospitality, LP, Case No. 11-12798 (KG), 2011 Bankr. LEXIS 3992 (U.S. Bankr. D. Del. Oct. 19, 2011), the factors weighed in favor of transfer of the case to North Dakota.

For a copy of the opinion, please see:

Grand Dakota Partners, L.L.C.- Transfer of Venue

Posted in North Carolina Bankruptcy Cases, Western District Tagged with:

Bankr. W.D.N.C.: In re Mergentime- Transferred Social Security Benefits


Ms. Mergentime received $62,417.80 as a lump sum payment for retroactive Social Security benefits, approximately 4 months after filing her Chapter 7 bankruptcy. She had not disclosed those potential funds in her petition. Pursuant to her equitable distribution agreement, she paid half of those funds to her ex-husband. The Trustee sought to recovery those transferred funds and to deny Ms. Mergentime’s discharge, arguing that even though those funds would have been fully protected, the transfer to her ex-husband changed the nature of those funds such that they were no longer protected.

The bankruptcy court rejected this argument as the Social Security benefits were not, pursuant to 42 U.S.C. § 407, even an asset of the estate and, while it scolded Ms. Mergentime for not disclosing the asset “so that other parties can make their own evaluations”, claiming the funds as exempt was not necessary. As to the transfer to the ex-husband, the bankruptcy court opined that while the Trustee could bring an action under 11 U.S.C. § 549, to be successful the Trustee would “have to show that by some form of legal alchemy the funds transferred to debtor’s ex-husband created estate property.” This would be similar to showing that the use of Social Security benefits for paying for food or medicine allowed recovery from groceries and pharmacies.


Harris Teeter and CVS should be worried that this opinion will be used by Trustees as an encouragement to bring avoidance actions against them also.

For a copy of the opinion, please see:

Bronikowski- Employment Bonus is an Expectation of Payment not Contingent Interest

Posted in North Carolina Bankruptcy Cases, Western District Tagged with: , , ,

4th Circuit: Jones v. College of Southern Maryland- Only Chapter 7 Trustee Has Standing in Non-exempt Personal Injury Case


Ms. Jones brought suit against the College of Southern Maryland under the Family and Medical Leave Act and subsequently filed a Chapter 7 bankruptcy petition, eventually listing the lawsuit as an asset in her schedules. The Trustee then settled the lawsuit with the College of Southern Maryland for $75,000, with $25,000 to the attorney, as she was the only party having standing to pursue the claim. Ms. Jones objected to this settlement.

The Court of Appeal affirmed that the Trustee was the sole party with standing to prosecute and settle the claim.


This would not be an issue in North Carolina, unlike Maryland, where personal injury claims, even for non-bodily injuries, also unlike the federal exemption, such as the FMLA, would be fully exempt.

The Chapter 7 Trustee also settled a malpractice claim against Ms. Jones’ original bankruptcy attorney for failing to advise Ms. Jones that the filing of her Chapter 7 would likely cost her control of her FMLA claim.

As the only claims filed in Ms. Jones’ case are $137,155.34 in student loans and $2,523.00 in priority taxes (there were only $7,286.18 in other scheduled claims), most of the assets in this case, other than the Trustee commission, will go to her non-dischargeable debts. This again begs the question of why Ms. Jones filed a Chapter 7 (paying her attorney $1,495) in the first place.

It is not clear why this case was not immediately converted to a Chapter 13, since even if the proceeds may ultimately been used to pay creditors, Ms. Jones would have retained control of the lawsuit and been able to fight for a greater amount.

For a copy of the opinion, please see:

Jones v. College of Southern Maryland- Only Chapter 7 Trustee Has Standing in Non-exempt Personal Injury Case

Posted in 4th Circuit Court of Appeals Tagged with: , ,

Bankr. E.D.N.C.: In re Hutton- Perfection of Judgment Lien against Motor Vehicle Following Levy


Mr. Hutton’s vehicles were seized in a levy by the Onslow County Sheriff’s Department in executing on a judgment obtained by Principis. After filing bankruptcy, Mr. Hutton sought turnover of the vehicle and asserted that the possessory lien held by Principii had not been perfected by recordation with the North Carolina DMV.

In narrowly construing and distinguishing several decisions from the North Carolina Supreme Court and Court of Appeals, the bankruptcy court rejected the argument by Principis that recordation is required to perfect a lien under N.C.G.S. § 20-58 only if there is a “security interest” as defined in N.C.G.S. § 20-4.01(41) to have been created by agreement (which a judgment lien is not.) The bankruptcy court relied on the narrow exceptions in N.C.G.S. § 20-58.8, which did not include liens created through judicial proceedings, to find that the failure to record a lien meant that it was unperfected.


As Rule 7001(1) requires turnover be sought by adversary proceeding and Rule 7001(2) requires the same to determine the validity of a lien, it is unclear why Principis even tacitly consented to this matter being heard by motion. The speedier nature of motion practice does make sense when it is just a question of turnover, both as storage costs continued to mount and so too would potential damages from violating the stay by retaining property, but here the secured status was lost without the full due process protections of an adversary proceeding.

That aside, as the possessory lien was a transfer, whether perfected or not, within 90 days of the filing of bankruptcy (actually only 8 days), that lien could have been avoided as an involuntary preference by Mr. Hutton pursuant to 11 U.S.C. § 522(h). This would seem to have been a more modest means to the same end.

For a copy of the opinion, please see:

Hutton- Perfection of Judgment Lien against Motor Vehicle Following Levy

Posted in Eastern District, North Carolina Bankruptcy Cases Tagged with: , ,

N.C. Court of Appeals: In re Clayton- Surviving Spouse not a Borrower under Reverse Mortgage Note


After the death of her Melvin Clayton, Wells Fargo accelerated the reverse mortgage note and sought to foreclose on the residence still owned by Mrs. Clayton. The Court of Appeals held that even though Mrs. Clayton was identified as a “borrower” on the Deed of Trust, Melvin Clayton was “the only contemplated borrower to the reverse-mortgage agreement, as he alone executed [those] documents and was obligated under them.” Mrs. Clayton was, due to her age, ineligible to be a borrower under the reverse mortgage, which, pursuant to N.C.G.S. § 53-257(2), must be 62 years of age or older.


The successor in interest rules under the Dodd-Frank Act would not apply here, as this is a reverse mortgage.

Also worth noting the kindness of Wells Fargo in foreclosing on a widow.

For a copy of the opinion, please see:

Clayton- Surviving Spouse not a Borrower under Reverse Mortgage Note

Posted in NC Court of Appeals, NC Courts Tagged with: , , ,

Bankr. E.D.N.C.: In re Green – Determination of Noncontingent and Liquidated Debts for Eligibility under 11 U.S.C. § 109(e)


In determining whether Mr. Green was eligible, under 11 U.S.C. § 109(e), to be a Chapter 13 debtor due to debt limitations, the bankruptcy court reviewed several types of claims to determine whether each was “noncontingent” or “liquidated”.

While determination of whether a debt is “noncontingent” or “liquidated” is a question of law, See In re Goralnick, 81 B.R. 570, 571 (9th Cir. BAP 1987) the amount of a debt is a question of fact. “[A] debt is noncontingent if all of the events necessary to give rise to liability for it take place prior to the filing of the petition.” In re Sappah, No. 11-03129-8-SWH, 2012 WL 6139644 (Bankr. E.D.N.C. Dec. 11, 2012) (quoting In re Knowles, Case No. 05-06402-8-ATS (Bankr. E.D.N.C. Oct. 31, 2005)). That Mr. Green disputes a debt or has potential defenses or counterclaims that might reduce the claim does not render a debt contingent. A liquidated debt is certain as to the amount and can be “readily and precisely” determined. Simply scheduling a a debt as disputed, however, is insufficient to have that claim excluded from the debt limitations, but must be subject to a bona fide dispute.

Applying these standards, the bankruptcy court first held that there was an objective basis to find that the amounts of the Equitable Distribution Award to Mr. Green’s ex-wife were, due to the pending appeal, unliquidated.

Next, as to a mortgage claim held by Wells Fargo, such claim was unsecured as to Mr. Green’s estate, as he no longer had any interest in the property securing that note. As Mr. Green is joint primarily liable on that debt with his ex-wife, Wells Fargo could proceed against either without seeking to sell the collateral. Accordingly, its claim was noncontingent and liquidated.

Rewardingly a guaranty by Mr. Green of a debt to First Bank, for which his law firm was primarily liable, the bankruptcy court held that it was an obligation to pay a debt only if it is not paid by the principal obligor. In O’Grady v. First Union Nat’l Bank, 296 N.C. 212, 220 (1978). As the bankruptcy court found that this claim was not in default, it was accordingly contingent and excluded from the debt limitation calculation.

As to a claim asserted by a contractor for renovations, the bankruptcy court held that unknown value of the contractor’s use of Mr. Green’s boat should be credited against as such claim, left the claim unliquidated.

Following In re Hanson, 275 B.R. 593, 597-98 (Bankr. D. Colo. 2002), the bankruptcy court held that a preferential payment to a creditor resulted in such claim being unsecured in the bankruptcy case as of the petition date. That such creditor did not file a Proof of Claim determine whether the creditor receives disbursements under a plan, but is not determinative as to eligibility.

At the end, the bankruptcy court found that Mr. Green had $437,225.77 in noncontingent, liquidated debt and was ineligible under § 109(e) for Chapter 13.

For a copy of the opinion, please see:

Green – Determination of Noncontingent and Liquidated Debts for Eligibility under 11 U.S.C. § 109(e)

Posted in Eastern District, North Carolina Bankruptcy Cases Tagged with: , , , ,

4th Circuit: Rusnack v. Cardinal Bank, N.A.- Recoupment and Statutes of Limitation


Mr. Rusnack and his then-wife, opened a home equity line of credit (HELOC) with Cardinal Bank in August 2003. Between 2003 and 2006, the Rusnacks periodically drew on the HELOC using checks issued by Cardinal Bank. On June 22, 2006, shortly after the Rusnacks separated, Mr. Rusnack directed Cardinal Bank in writing to freeze further advances from the HELOC and Cardinal Bank acknowledge such freeze. Despite this, Cardinal Bank honored two checks each in the amount of $10,000 from Ms. Rusnack on July 26, 2006, and September 12, 2006. Cardinal Bank sought repayment from Ms. Rusnack, but she did not comply. After the HELOC came due in August of 2014, Cardinal Bank began foreclosure proceedings and Mr. Rusnack filed a Chapter 13 bankruptcy, wherein Cardinal Bank filed a Proof of Claim for $70,804, which included the $20,000 illegally advanced by Cardinal Bank. Mr. Rusnack objected to $20,000 of the Proof of Claim, which the bankruptcy court ultimately did disallow, after finding Mr. Rusnack had provided “specific and credible” testimony that he had obtained no benefits from the funds obtained by Ms. Rusnack.

Cardinal Bank appealled and the district court reversed, holding both that the determination by bankruptcy court that Mr. Rusnack had not benefitted from the funds was clearly erroneous and also, in a argument that had not previously been raised, that the 5-year Virginia Statute of Limitations barred Mr. Rusnack’s breach of contract argument.

The Court of Appeals reversed the district court on both counts, finding that under the clearly erroneous standard there was “no ground for disturbing the bankruptcy court’s ‘plausible’ finding.” As to the Statute of Limitations, the Court of Appeals questioned why the district court even entertained such argument, as it had not been raised previously in the bankruptcy court. That aside, the Court of Appeals held that, as the HELOC was the only contract between Cardinal Bank and the Rusnacks, Mr. Rusnack’s right of recoupment, wherein he could seek to have Cardinal Bank’s “ monetary claim reduced by reason of some claim the defendant has against the plaintiff arising out of the very contract giving rise to the plaintiff’s claim.” First Nat’l Bank of Louisville v. Master Auto Serv. Corp., 693 F.2d 308, 310 n.1 (4th Cir. 1982), was not time-barred.


The right of a recoupment is not limited to breach of contract claims, but would also apply to nearly all defenses and counterclaims arising out of a single contract or transaction, including FDCPA violations, TILA recision actions, failure to provide mortgage notices, etc. This allows the claims objection process in Chapter 13 to take a particularly long view of any billing errors or violations of consumer protections, through the reduction of the allowed claim.

Cardinal Bank still has some time under the Statute of Limitations to proceed against Ms. Rusnack.

For a copy of the opinion, please see:

Rusnack v. Cardinal Bank, N.A.- Recoupment and Statutes of Limitation

Posted in 4th Circuit Court of Appeals Tagged with: ,