Summary:
Sea Horse Realty, which is wholly owned by Richard Mercer, is the owner of a parcel of real property located in Nags Head. In 2005, Mercer executed a promissory note, currently held by Citimortgage (to whom reference will be made, regardless of whether the party was Citimortgage or its predecessors), for $1.5 million, pledging the property as collateral. The Deed of Trust was originally to list Sea Horse Realty as the grantor, but this was changed at the request of the mortgage broker to list Mercer as the grantor.
Mercer filed Chapter 11 in 2009. Citimortgage filed a Proof of Claim, but following an uncontested objection by Mercer, this claim was allowed as a general unsecured claim. Citimortgage then brought suit for reformation of the Deed of Trust and Sea Horse Realty filed its own Chapter 11 bankruptcy and filed an Adversary Proceeding seeking a determination that the deed of trust was invalid and, as a result, Citimortgage does not have a claim against Sea Horse Realty.
In a prior opinion, the bankruptcy court precluded Sea Horse Realty , as the debtor in possession, from exercising its strong-arm powers to invalidate the defendant’s deed of trust, pursuant to § 544(a)(1), as the lis pendens filed by Citimortgage gave Sea Horse Realty constructive notice of the
pending litigation over the property and instead it took the property subject to the outcome of the
pending litigation as to title.
Sea Horse then sought summary judgment, asserting that a 3-year statute of limitations applied rather than the 10-year statute of limitations proscribed by N.C.G.S. § 1–47(2), because the latter only applies in actions against the principal executing an instrument under seal. As Mercer, and not Sea Horse Realty, signed the promissory note and Deed of Trust the ten–year statute of limitations would only apply in an action against Mercer. As the closing attorney, absent express representation to the contrary, represented both Mercer and the lender, her knowledge that Sea Horse Realty was the property owner should, be imputed to Citimortgage.
Citimortgage disputed that it was represented by the closing attorney or mortgage broker. It first discovered the error after Mercer filed bankruptcy in 2009. Further, Citimortgage contended that the doctrine of equitable estoppel should precludes Sea Horse Realty from asserting the statute of limitations as a defense. Friedland v. Gales, 131 N.C. App. 802, 806, 509 S.E.2d 793, 796 (1998).
The bankruptcy court held that the statute of limitations governing the counterclaims in this action is three years, not the ten–year period advanced by the Citimortgage, because the latter is only applicable to an action against the principal executing an instrument under seal. Further, the statute of limitations for claims based on mutual mistake “begins to run from the discovery of the mistake, or when it should have been discovered in the exercise of reasonable diligence.” Lee v. Rhodes, 231 N.C. 602, 602, 58 S.E.2d 363, 363 (1950). Pursuant to N.C. St. B. CPR 100 (April 15, 1977), the closing attorney represented both Mercer and Citimortgage and her knowledge of the owner of the property was imputed to all parties. Despite any misleading statement made by Mercer in connection with the transaction, all of which occurred prior to the execution of the Deed of Trust, Citimortgage failed to take any measures necessary to ascertain the veracity of his statements or confirm the identity of the property’s record owner, including the simple examination of the index at the Register of Deeds. This conclusion was “strengthened by the fact that [Citimortgage] and its predecessor–in–interest are national banking institutions who apparently paid very little attention or concern to the details of this transaction. See, e.g., Moore v. Fidelity and Cas. Co. of N.Y., 207 N.C. at 437, 177 S.E. at 408.
For a copy of the opinion, please see:
Sea Horse Realty v. Citimortgage- Statute of Limitations for Incorrectly Deed of Trust.pdf
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