Real Property - Title Search - Civil Practice - Judgments - Docketing - Misspelled Name - Substantial Compliance - Constructive Notice

Hinnant v. Philips. (Lawyers Weekly No. 07-07-0748, 14 pp.) (Eric L. Levinson, J.) (Sanford L. Steelman Jr., J., concurring in the result only) Appealed from Johnston County Superior Court. (Albert A. Corbett Jr., J.) N.C. App.

Even though the defendants' surname was misspelled (Philips instead of Phillips) when the plaintiffs renewed their judgment against them, the plaintiffs substantially complied with statutory indexing requirements, and the intervenors had constructive notice of the judgment against the defendants.

Judgment for the plaintiffs affirmed.

Background

The defendants defaulted on a promissory note to the plaintiffs. The plaintiffs filed suit in 1987 and obtained a default judgment in 1988, which was docketed and indexed with "Richard Barry Phillips and Sheila Ann Phillips" named as defendants.

In July 1988, after the judgment against them was docketed, the defendants bought a parcel of land in Johnston County.

In 1998, the plaintiffs filed a complaint to renew their judgment against the defendants. The complaint spelled the defendants' last name "Philips" with one "L" instead of "Phillips."

The judgment in favor of the plaintiffs was docketed under the spelling "Philips."

In 2005, the plaintiffs filed a motion in the cause seeking to collect on the judgment through sale of the subject property. By then, the property had changed hands several times. The defendants had defaulted on their mortgage, and their lender had foreclosed. The current owners, their mortgagee, and the mortgagee's trustee intervened in this action.

Paralegal Rhonda Moore testified as an expert in matters of title examination in eastern N.C. She testified that, when a title search involves a name with more than one common spelling, like "Phillips", she searches the Clerk of Court's database by typing in the first few letters of the name; in this case, she would type in "Phil" so as to pull up both common spellings of the name.

The trial court entered judgment for the plaintiffs, concluding that a proper search would have revealed the plaintiffs' judgment against the defendants.

Discussion

The issue presented is whether the judgment docketed under the name "Philips" instead of "Phillips" nonetheless provided sufficient notice, actual or constructive, to create a valid lien on the subject property. We conclude that on the facts of this case, the judgment was a lien on the property.

In Ely v. Norman, 175 N.C. 294, 95 S.E.543 (1918), our Supreme Court quoted with apparent approval from the Supreme Court of Iowa to the effect that an index will hold a subsequent purchaser to notice thereof if enough is disclosed by the index to put a careful or prudent examiner upon inquiry, and if, upon such inquiry, the instrument would have been found.

Thus, for a recordation to be effective as notice, there must be a substantial compliance with the indexing statutes. A lien may be valid despite minor docketing errors.

The relationship between the standard of care for title examination and the question of the efficacy of the judgment to create a lien is as follows: If a title examiner exercising the standard of care would have found the judgment at issue, then it sufficiently complies with G.S. 1-233 to create a lien on the property. The plaintiffs established by uncontradicted expert testimony that in this case the standard of care for a reasonably prudent title examiner would be to search under part of the last name, such as "P-H-I-L," which would have revealed the judgment at issue. Additionally, even a search under "Phillips" would indicate the defendants' involvement in several other proceedings, including a foreclosure; this should have spurred further inquiry. We conclude that the plaintiffs substantially complied with G.S. 1-233, and we agree with the trial court's findings and conclusions.

Affirmed.

Concurrence

(Steelman, J.) Where the trial court entered a narrow judgment based on the testimony of a single expert as to the standard of care in eastern N.C., our holding should be equally narrow.

By David C. Worth

Wilmington lawyer may be first in state with complete on-line practice

As we approach the fifth anniversary of the Mortgage Lending Act (MLA) (see N.C.G.S. Sect. 53-243.01 et seq.), our office wanted to share with you some reflections on the implementation of the law and common problems we see in our efforts to enforce the MLA.

The General Assembly adopted the MLA and required the Office of the Commissioner of Banks (NCCOB) to supervise the licensure, regulation and examination of mortgage lenders, mortgage brokers and loan officers who work for companies in the residential mortgage lending area.

Generally speaking, banks, thrifts, credit unions and their wholly-owned subsidiaries are exempt. During the first 12 months following its passage, the NCCOB processed and licensed about 15,000 loan officers and 3,000 companies. To date, we have issued 515 enforcement orders, 249 of which were after a hearing. Currently, we have 791 lenders, 879 brokers, and 16,974 loan officers licensed to do business in the state that are operating from a total of 3,565 licensed locations — both main and branch offices.

Over these five years, the MLA has been fine-tuned with four amendments to provide for the ability to do background checks expeditiously, to add additional prohibited activities and to fine-tune some of the licensing process. Additionally, the agency adopted rules under the Administrative Procedures Act to interpret and flesh out the statute and to give guidance to its licensees.

Despite these amendments, we still find that one of the most common violations of the MLA is the conducting of business as a mortgage broker or lender without proper licensing by NCCOB. Under the MLA, it is a felony offense for an unlicensed person, who is not exempt from licensure, to engage in the mortgage lending business (see N.C.G.S. Sect. 53-243.14.). Aside from the blatant disregard of North Carolina law, we not surprisingly find that many of these unlicensed actors do not bother to comply with other laws that apply to a residential mortgage loan transaction. In an effort to reduce problems for the public, we are trying to enhance and improve our enforcement of the MLA.

We'd like to ask your help in this area. While closing attorneys certainly have plenty to do in the course of a loan closing, we would appreciate any help you can give us in identifying unlicensed brokers or lenders. Our Web site (www.nccob.org) has an up-to-date list of all licensed mortgage lenders, brokers, and loan officers. By coming to this Web site and clicking on "mortgage," you will reach a search engine, where you or members of your staff may determine if the company and loan officer with whom you are dealing is properly licensed or exempt just by entering the company's or individual's name in the correct area and hitting the appropriate search button. You will also be able to determine if the individual is in fact working for the employer he or she claims to work for.

Loan officers must be employed by a licensed company in order to engage in the business, and all funds should go to the company — not an individual — unless the individual is a licensed sole proprietor.

On the mortgage page you may also view MLA enforcement actions of the NCCOB. Click on enforcement actions and the binoculars at the top of the page and enter the individual's or company's name to see if any actions have been taken by the NCCOB in connection with that company and its operations.

Should you discover unlicensed activity or other questionable practices, the NCCOB would appreciate notification so that it can take appropriate steps to protect the borrowing public of North Carolina.You may notify the NCCOB by going to the consumer assistance button on the home page or by calling (919) 733-3016 and asking for the mortgage licensing division or complaint area.

While this step may take you or your paralegal another two or three minutes, we hope you will take the time to do it. Not only will you benefit our enforcement efforts, but doing so may help you protect your client from an abusive loan. Again, if they don't bother to get a license, will they bother to treat your client fairly in the loan process?

Editor’s note: David C. Worth is an attorney at the N.C. Office of the Commissioner of Banks in Raleigh. This article originally appeared in the March 2007 issue of Real Property, the newsletter published by the North Carolina Bar Association’s Real Property Section. It is reprinted with permission.

Bankruptcy - Plan Confirmation - IRS Claim - Partial Surrender - Chapter 13

Debtors have not "surrendered" to the IRS household property that they have retained and will continue to use, and the district court did not err in reversing a bankruptcy court's confirmation of debtors' Chapter 13 reorganization, which attempted to both surrender and retain property secured by an IRS claim.

Debtors appeal from the district court's reversal of the bankruptcy court order granting their bankruptcy petition and confirming their Chapter 13 plan of reorganization. As part of their plan of reorganization, debtors propose to satisfy a secured claim held by the IRS by surrendering part of the personal property securing the claim to the IRS and by paying the remaining secured value through the plan. The district court agreed with the bankruptcy court that 11 U.S.C. 1325— the Code provision governing the confirmation of a payment plan under Chapter 13—in some circumstances permits a Chapter 13 debtor to partially surrender the property securing a claim.

Nevertheless, the district court reversed the bankruptcy court's order and denied confirmation of the plan, concluding that debtors' proposal to surrender property exempted from administrative levy by the IRS did not constitute a "surrender" under Sec. 1325(a)(5)(C) because debtors would retain the "surrendered" property.

Debtors' proposal to surrender personal property that the IRS cannot levy on and cannot otherwise collect without resort to litigation does not constitute a "surrender" under 11 U.S.C. 1325(a)(5)(C). We leave for another day the question whether Sec. 1325(a)(5) permits a plan to be confirmed when a Chapter 13 debtor surrenders only part of the property securing a claim.

For debtors to prevail in this appeal, we must conclude both that their proposal constitutes a "surrender" under Sec. 1325(a) and that Sec. 1325(a)(5)'s cram down and surrender options are not mutually exclusive. The IRS maintains that we do not need to reach the subsidiary question of whether Sec. 1325(a)(5) permits debtors to pursue a hybrid option, consisting of both cram down and surrender components, because debtors' proposal does not amount to a "surrender" as that term is used in Sec. 1325(a)(5)(C). We agree with the IRS that debtors' proposed "surrender" is no surrender at all under Sec. 1325(a)(5)(C), and there is therefore no need for us to consider whether the statute permits debtors to invoke both the cram down and surrender options to satisfy the IRS's secured claim.

Despite the clear signals throughout the course of this litigation that physical relinquishment of the property was the only potential way to effect a surrender, debtors never turned the property over to the IRS. Debtors' brief makes clear that such relinquishment of possession was not their aim. We therefore hold that debtors' proposal, which entails their retention of the property that they purport to surrender to the IRS, does not constitute a "surrender" as that term is used in Sec. 1325(a)(5)(C) given the significant legal hurdles that the IRS faces in collecting the property. If a secured creditor is legally foreclosed from immediately obtaining the property that a debtor proposes to surrender and debtor does not in fact voluntarily relinquish all rights in the property, including the right to possession, to the secured creditor, then debtor can in no way be said to have "surrendered" any of his rights in the property. It would be an odd thing indeed for us to hold that debtors' proposal amounted to a "surrender" when, under their proposal, debtors could have returned home after their confirmation hearing and cooked their evening dinner in the stove, stored their leftovers in the refrigerator, and worn the clothes they had "surrendered" to the IRS.

District court order affirmed.

IRS v. White. (Lawyers Weekly No. 07-01-0529, 12 pp.) (Williams, J.) No. 06-1462, April 23, 2007; USDC at Raleigh, N.C. (Boyle, J.) 4th Cir.