Ms. Cain granted a Deed of Trust against her home securing a mortgage note to Household Realty Corporation (“HRC”), which was first specially endorsed to Household Bank, but HRC later specially endorsed the not to Beal Bank, which, following Cain’s default, appointed Rogers, Townsend & Thomas (“RTT”) as substitute trustee to commence foreclosure. After the Cumberland County Clerk of Court allowed the foreclosure sale to proceed, Cain appealed to Superior Court and sent a Request for Admissions to RTT. RTT then was relieved as substitute trustee and commenced representing Beal Bank in the foreclosure suit. At that hearing, Cain presented an unfiled motion to dismiss the foreclosure due to a purported failure by RTT to respond to the Request for Admissions. The trial judge orally denied this motion and ultimately allowed the foreclosure to proceed with Cain appealing.
As to the Motion to Dismiss for failing to respond to the Request for Admissions, the Court of Appeals held that pursuant to N.C. Gen. Stat. § 1A-1, Rule 58 “an order rendered in open court is not enforceable until it is ‘entered,’ i.e., until it is reduced to writing, signed by the judge, and filed with the clerk of court.” West v. Marko, 130 N.C. App. 751, 756, 504 S.E.2d 571, 574 (1998).
Cain also argued that the trial court should not have allowed RTT to represent Beal Bank and argue against her interests, asserting the RTT owed her a fiduciary duty. While recognizing that “in a typical foreclosure proceeding, trustees have a long-recognized fiduciary duty to both the debtor and the creditor”, the Court of Appeals followed the North Carolina State Bar in allowing that “former service as a trustee does not disqualify a lawyer from assuming a partisan role in regard to foreclosure under a deed of trust ”, N.C. RPC 82 (1990) , “as long as no prior conflict of interest existed because of some prior obligation to the opposing party.” N.C. CPR 220 (1979). This has been further defined to preclude a substitute trustee from later representation if the homeowner is an unrepresented and unsophisticated consumer of legal services that actually discloses material and confidential information. See N.C. Formal Opinion 5 (2013). As Cain was represented at all times during this foreclosure and did not disclose any material and confidential information, RTT was not precluded from representation, particularly as it had notified Cain of its intention to withdraw as substitute trustee and represent Beal Bank.
The apparent key to disqualifying a substitute trustee would be for a borrower to reveal “material and confidential information” to that law firm. As mortgage servicers and their trustees are often required, either by state laws such as N.C.G.S. § 45-100 et seq., or various consent judgments to offer and attempt pre-foreclosure resolutions, it would seem rather likely that there would be such disclosures. Foreclosure firms would be advised to screen for such conflicts, as a borrower could provide such information unilaterally, precluding future representation, including in bankruptcy.
Or foreclosure firms could just take their roles as disinterested substitute trustees serious and not represent the bank in later matters.
For a copy of the opinion, please see: