NC Ct. of App.: In re Godfrey- Ratification of Forged Mortgage

Summary:

The North Carolina Court of Appeals reversed the trial court’s decision denying judicial foreclosure  which involved a home equity line of credit (HELOC) secured by a deed of trust executed in 2003 by Virginia Lee Godfrey and Harry Craig Dees II. The Trustee Services of Carolina, LLC sought foreclosure after Ms. Godfrey defaulted on the HELOC, but the trial court denied the foreclosure based on her claim that her signatures on the HELOC documents were forged.  The NC Court of Appeals  held that Ms. Godfrey's conduct conclusively ratified the HELOC, making her legally bound to the debt even if she did not sign it.

Under the Ratification Doctrine a  person may become bound by a contract they did not sign if they later affirm or benefit from it knowingly. The court cited Goodwin v. Webb, which held that accepting benefits from an agreement with full knowledge amounts to ratification and found the following  actions by Ms.  Godfrey showed her ratification:

• Acknowledgement that the HELOC was a marital debt in a verified complaint during her 2018 divorce proceedings.
• Acceptance of sole responsibility for the HELOC as part of the equitable distribution judgment.
• Payments on the HELOC.
• Request that  subordination of the HELOC to refinance term mortgage loans in 2007 and 2013.
• Benefit from a previous HELOC payoff through the 2003 HELOC funds.

Dissenting Opinion Summary:

Judge Hampson dissented from the majority opinion, arguing that the trial court correctly found insufficient evidence to support ratification of the HELOC debt and deed of trust by Ms. Godfrey. He emphasized that the standard of review requires appellate courts to defer to the trial court’s findings if supported by competent evidence.

Commentary:

This is again why bankruptcy debtors are well advised to either list all debts in their bankruptcy petition as disputed or at least include some prophylactic language in the description of that debt that it is "Not Admitted",  since otherwise a creditor could assert that the mere scheduling of the debt was a ratification.  Similar language in  proposed plans,  such as  in the EDNC and MDNC  which state that "Confirmation of the plan shall not prejudice the right of the Debtor or Trustee to object to any claim." ,  should also be standard.

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