N.C. Court of Appeals: Miller v. Orcutt- Damages as Result of Preference

Miller v. Orcutt- Damages as Result of Preference.pdfSummary: The Plaintiffs purchased a home with Countrywide Home Loans providing first mortgage. In addition, the Plaintiffs borrowed the down payment of $56,000 from the Female Plaintiff’s father, Stephen Barnwell (“Barnwell”). Barnwell, a real estate attorney, drafted a deed of trust (“the Barnwell deed of trust”) which the Plaintiffs were instructed to execute but failed to execute and file the Barnwell deed of trust for six months, ultimately filing it with the Wake County Register of Deeds on May 30, 2007. Defendants failed to recognize that the Barnwell Deed of Trust, being tardily recorded and a transfer to an insider, was vulnerable to being set aside as a preferential transfer. The Plaintiffs filed Chapter 7 bankruptcy on September 21, 2007, at which time the Trustee objected to the Plaintiffs’ attempt to exempt the residence, as equity from potentially avoidable transfer was not subject to exemption. At the recommendation of the Defendants, the Plaintiffs and Barnwell cancelled the Deed of Trust, which could have had the affect of allowing the Plaintiffs to exempt the equity. This lead the Trustee to object to the Plaintiffs’ discharge and seeking to void the cancellation as a violation of the automatic stay. Defendants attempted to resolve the issue with the Trustee, who ultimately offered to settle all actions for $15,000, which the Plaintiffs agreed to pay. Defendants withdrew from representation of the Plaintiffs, following a demand by the Plaintiffs that the Defendants pay the $15,000. Plaintiffs retained new bankruptcy counsel at a cost of $1,000. Plaintiffs subsequently commenced a malpractice action. The trial court found that the discharge of the $56,000 Barnwell Deed of Trust less the $15,000 settlement to the Trustee, left the Plaintiffs $41,000 better off. The Plaintiffs appealed this finding, but the Court of Appeals upheld this finding as it was fully supported by testimony from the Plaintiffs. The award of only $1,000 in damages was not an abuse of discretion. For a copy of the opinion, please see: