The Deed of Trust held by BB&T against real property references a promissory note dated September 7, 2005. The actual promissory note, however, is dated September 8, 2005. Relying on Beaman v. Head (In re Head Grading Co.), 353 B.R.122, 123- 24 (Bankr. E.D.N.C. 2006), the Debtors attacked the validity of the lien.
BB&T first argued that because the Debtor had executed a Change in Terms Agreement, explicitly affirming the note, it should be estopped from now contesting the enforceability. The knowledge of the Debtor is not, however, imputed to the debtor-in-possession in a § 544(a)(3) action, who instead proceeds as a hypothetical judgment lien creditor. As the Change in Terms Agreement had not been recorded with the Register of Deeds (or otherwise made a public record) the debtor was not estopped.
In determining whether the Deed of Trust properly identified the promissory note, the bankruptcy court turned to the Beckhart line of cases, Beckhart v. Nationwide Trustee Serv. Inc. (In re Beckhart), 2011 Bankr. LEXIS 4622, at *6-21, 2011 WL 5902598, at *2-7 (Bankr. E.D.N.C. July 21, 2011), aff’d, Beckhart v. Nationwide Tr. Serv. Inc., 2012 U.S. Dist. LEXIS 120132, 2012 WL 3648105, at *3-9 (E.D.N.C. Aug. 21, 2012), which held that a failure to identify the date of the promissory note does not per se invalidate a Deed of Trust.
Instead, Citing to the North Carolina Supreme Court decision in Walston v. Twiford, 248 N.C. 691, 105 S.E.2d 62 (1958), the bankruptcy court held that to be valid “it is necessary for the mortgage to identify the obligation secured.” This rationale is based on a requirement that a mortgage must be “sufficient to put subsequent purchasers upon inquiry and to charge them with notice…” Harper v. Edwards,115 N.C. 246, 20 S.E. 392 (1894), and also must also be confined to the obligations intended to be secured by the parties to the mortgage agreement. See also, Belton v. Bank, 186 N.C. 614, 120 S.E. 220 (1923).
Because the Deed of Trust contained numerous references that identified the Note as the secured obligation, including the loan number, reference to the commitment letter, and accurate reference to the variable interest rate, the small discrepancy between the dates was likely simply an error.
The opinion did not completely close the door on using date discrepancies to attack the validity of a mortgage, stating that “a significantly larger discrepancy is more likely to suggest that the note produced may not have actually been the obligation intended to be secured.”
There is currently a case pending in the Middle District of North Carolina, Hutson v. BB&T, Case No. 12-9025, where the discrepancy is exactly one year, which may further illuminate this issue.
For a copy of the opinion, please see: