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Issue  254  Article  406
Published:  5/1/2019

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May 2019 Case Law Update
Chris Burti, Vice President and Senior Legal Counsel

Jackson v. Don Johnson Forestry, Inc.
(COA 18-354-2) 4/16/2019

Timber Rights/Damages of Life Tenant under Will

This opinion addresses convoluted issues resulting from a summary judgment order finding liability by a life tenant's estate, her Attorney in Fact's estate and a timber buyer for the sale and cutting of timber during the lifetime of the life tenant pursuant to a devise authorizing the unlimited discretion to cut and sell timber 12 inches in diameter, or larger, during her lifetime.

The opinion is a "must read" for practitioners dealing with issues surrounding the sale of timber by life tenants and also with particular respect to liability for double damages as the statutory double damages for wrongful cutting do not ordinarily apply to life tenants because in such cases the third party is not liable for double damages under N.C.G.S. Section 1-539.1 if the third party was not trespassing on the land itself when the cutting occurred.

Wilmington Sav. Fund Soc'y, FSB v. MERS, (18-468) 4/21/2019

Equitable Priority of Void Satisfaction

Property owner purchased property in February 2009 with a loan from Acopia, LLC, secured by a deed of trust in favor of Mortgage Electronic Registration Systems ("MERS"), as nominee for Acopia. The owner subsequently defaulted on payments due under the terms of the note and deed of trust. The Homeowners Association, ("HOA") also filed a lien against the property for unpaid assessments. The property was sold at the HOA auction to an LLC that appears to be owned by the property owner ("LLC"). The HOA conveyed the property expressly "subject to any and all superior liens," by deed on 18 December 2015. Kondaur Capital Corporation ("Kondaur") acquired the note and deed of trust on 28 October 2015 through assignment recorded on 3 December 2015 from the holder. A purported satisfaction of the deed of trust was executed by a vice president of MERS, without any authority, and was recorded on 2 December 2015. LLC conveyed its interest in the property to the defendant by general warranty deed, recorded on 7 March 2016. The plaintiff acquired the note after litigation had commenced.

The trial court entered a consent judgment concerning MERS on 3 April 2017 holding that MERS no longer held any interest in the deed of trust at the time the purported satisfaction was executed, it was without authority to execute the satisfaction, and the satisfaction was void. The opinion does not tell us whether the defendant consented to the judgment.

The opinion addresses several issues of interest to litigation specialists but we will only treat the issue we believe to be of greatest importance to property practitioners. This opinion rests on

An equitable exception to the protection provided in a pure race priority recordation jurisdiction. In North Carolina, the defendant, if a bona fide purchaser for value (the opinion used innocent), would be able to rely upon an examination of the Public Registry, which included a satisfaction of the note, recorded on 2 December 2015. The equitable exception that exists to this general rule is stated in Union Cent. Life Ins. Co. v. Cates, 193 N.C. 456, (1927):

As between a mortgagee, whose mortgage has been discharged of record solely through  the act of a third person, whose act was unauthorized by the mortgagee, and for which he is in no way responsible, and a person who has been induced by such cancellation to  believe that he mortgage has been canceled in good faith, and has dealt with the property by purchasing the title, or accepting a mortgage thereon as security for a loan, the equities are balanced, and the lien of the prior mortgage, being first in order of time, is superior.

The defendant argued that this equitable exception only applies to true, innocent victims.  The opinion notes that the trial court appears to have concluded, that the plaintiff, by acquiring the note with notice of the pending litigation asserting priority, cannot claim to be an innocent victim of the void satisfaction. The Court of Appeals observed that: "Our Supreme Court long ago established "the assignee stands absolutely in the place of his assignor [.]" Smith v. Brittain, 38 N.C. 347, 354 (1844). Further, 'if an innocent purchaser conveys to one who has notice, the latter is protected by the former's want of notice and takes free of the equities.' Morehead v. Harris, 262 N.C. 330, 342, 137 S.E.2d 174, 185 (1964)."

Finding that the balancing of the equities favored the lender as a matter of law, the Court of Appeals reversed the trial court and remanded for summary judgment in favor of the Lender. Of course this raises the specter to title examiners of a supposed cancelled deed of trust being resurrected in a zombie apocalypse post closing. While not implying that any mortgage fraud existed in this case, one red flag is raised whenever a mortgage is prematurely paid off without refinance or sale. While it happens, it happens so rarely that the title examiner would be well advised to verify that the satisfaction was proper.

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