N.C. Court of Appeals: In re Clouse- Requirement for De Novo Foreclosure Hearing

Summary: On October 21, 1998, the Clouses granted a Deed of Trust against their home originally to Homecomings Financial, later assigned to Deutsche Bank and serviced by GMAC. On June 22, 2012, Turnip Investments, following its suit against the Clouses, purchased the property at a judgment execution sale for $1,000. Subsequently, Deutsche Bank commenced foreclosure against the property and Turnip Investments appealed the foreclosure authorization by the Clerk first to the Superior Court, where Turnip Investments raised no objections to any evidence, and then a further appeal to the Court of Appeals. There Turnip Investment argued that the Superior Court failed to conduct a proper de novo hearing and had insufficient evidence to show that Deutsche Bank was the holder of the Note. The Court of Appeals rejected the assertion that the hearing by Superior Court was merely a “review”, it had reviewed the full file, accepted new evidence (including a blue-ink original allonge) and heard arguments from both sides. Regarding whether Deutsche Bank was the holder of the note, the Court of Appeals held that “[b]earing in mind the strong presumption in favor of the legitimacy of indorsements” and with a complete chain of indorsements, found that evidence clearly supported that conclusion. Commentary: Turnip Investments (which has to have been named because “You can’t get blood from a Turnip”) appears to be owned by Ralph Clontz, a prominent North Carolina Debt Collection Attorney, which is a somewhat surprising source for an argument questioning the legitimacy of Deutsche Bank as the holder of the note. Hopefully, however, this case was not a false flag designed to let a bank knock down a weak objections to holder of notes in order to establish case law against such defenses. This would be particularly concerning as this defense is not unrelated to the objection that debt buyers, such as Turnip Investments, are unable to document their ownership of claims upon which suit are brought. At the very least, this case could be used to discredit any assertion made by Turnip Investment or similar debt buyers that the production of a full chain of documents attesting to the ownership of a debt is unduly burdensome. For a copy of the opinion, please see: Clouse- Requirement for De Novo Foreclosure Hearing