This matter concerns the validity of a deed of trust recorded in 2006 in favor Deutsche Bank National Trust (“Deutsche Bank”) encumbering certain real property located in Wake Forest (the “Property”), but which was canceled without Deutsche Bank’s knowledge or consent in 2015. CSH 2016-1 Borrower, LLC (“CSH”), who owned the Property at the commencement of this action, appeals from an order granting summary judgment in favor of Deutsche Bank declaring that its deed of trust still encumbers the Property.
In March 2006, Brian Ferguson granted a Deed of Trust in favor of Deutsche Bank, but subsequently fell delinquent on not only that mortgage, but also his homeowner’s dues. In 2015, the homeowner’s association conducted a foreclosure, with the property being sold to Xavier Earquhart, who has been convicted and sentenced to a 32-year prison term for more than a dozen counts related to bank fraud, identity theft and money laundering.
Earquhart then fraudulently recorded a satisfaction of the Deed of Trust and sold the Property to Colfin AH-North Carolina 2, LLC. Colfin transferred the property to CSH, which, in short order, transferred the property to SRPS. Deutsche Bank sought a declaratory judgment that its Deed of Trust continues to encumber the property.
Following Union Cent. Life Ins. Co. v. Cates, 193 N.C. 456, 462, 137 S.E. 324, 327 (1927), the Court of Appeals held that as the satisfaction was solely through the unauthorized act of a third party, the original lienholder was entitled to restoration of its Deed of Trust, even against an innocent third party. Had the lien been released through the negligence of the original lienholder, however, it would have lost its priority. Here there was no evidence of negligence by Deutsche Bank and its lien was restored.
It is unclear whether this would hold true in bankruptcy, but desperate as Mr. Earquhart and his potentially related purchasers were to “launder” this transaction, they did not take the further step of filing a bankruptcy.
This holding, with the restriction that a lien cancelled through the negligence of the lien holder, should apply in Chapter 13, where the Trustee and estate stand in the shoes of an innocent third party purchaser, including for car liens that are marked as satisfied.
For a copy of the opinion, please see: