Bank of New York v. Randolph

THIS OPINION HAS NO PRECEDENTIAL VALUE. IT SHOULD NOT BE CITED OR RELIED ON AS PRECEDENT IN ANY PROCEEDING EXCEPT AS PROVIDED BY RULE 268(d)(2), SCACR. THE STATE OF SOUTH CAROLINA In The Court of Appeals The Bank of New York, as successor to JP Morgan Chase, N.A., as Trustee on behalf of Certificate-holders and the Certificate Insurer of ABF's Mortgage Loan Trust 2002-1, Mortgage Pass-Through Certificates, Series 2002-1, as successor-in-interest to American Business Mortgage Services, Inc., Appellant, v. Robert Earl Salone and Mae B. Randolph, Defendants, Of Whom Mae B. Randolph is Respondent. Appeal From Orangeburg County James C. Williams, Jr., Circuit Court Judge Unpublished Opinion No. 2011-UP-219 Submitted March 1, 2011 – Filed May 17, 2011 AFFIRMED Louis H. Lang, of Columbia, for Appellant. Zack E. Townsend, of Orangeburg, for Respondent. PER CURIAM: The Bank of New York (hereinafter Bank) appeals the decision of the trial court granting respondent Mae B. Randolph's motion for voluntary non-suit in regard to Bank's foreclosure action on property held by Randolph as joint tenant with her brother, Robert Earl Salone. We affirm.[1] FACTUAL/PROCEDURAL BACKGROUND The facts of this case are largely undisputed. In September 1997, Randolph's mother deeded the property in question to Randolph and Salone. On December 31, 2001, Salone borrowed $25,000 from Bank's predecessor in interest[2] and executed a note in that amount, securing payment with a purported mortgage on the entire property. However, though Salone signed the mortgage, it is acknowledged that Randolph did not execute the mortgage and her signature on the document was forged by an unknown person at the closing. It is equally unquestionable that the closing attorney, although directed by the lending institution's closing instructions to procure two forms of identification from the mortgagors, obtained identification only from Salone. The attorney testified he asked Salone to attain the identification of the other party purporting to be Randolph, but the person did not have the identification at the time of closing. The closing attorney admitted he did not follow the lending institution's instructions in this regard, and his failure to obtain the proper identification allowed the forgery to occur. Following institution of this action against Salone and Randolph for foreclosure on the property, Randolph answered and counterclaimed, denying that she executed the mortgage in question, and asserting the lender negligently caused a false document purporting to be a first lien mortgage to be placed on record with a forged signature as a result of the failure to obtain the proper photo identification of the person executing the loan documents.[3] Randolph also asserted the actions of the lender caused a cloud to be placed upon title to this property. Randolph testified she never gave her brother permission to mortgage the property, and the first time she knew anything about the mortgage was when she received notice of foreclosure for failure to repay a mortgage. Randolph further testified that the foreclosure action had caused her to have a bad credit record, and because of this bad credit she was unable to obtain a loan, resulting in the repossession of her automobile. She also indicated the bad credit rating had resulted in a higher interest rate on her credit card. At the time of the trial, Bank sought a total of $49,531.82 as the amount owing on the loan. Randolph stated the value of the home was only about $45,000. Randolph testified that if Bank were allowed to foreclose on the property, she would not be in a position to outbid Bank. At the close of Bank's case, Randolph moved for a directed verdict on Bank's foreclosure cause of action, asserting the foreclosure action came about as the result of a "bad" mortgage that would not have occurred had it been known that the party executing the document was not Randolph.[4] Randolph maintained, because this was a matter in equity, Bank was required to come into the court with clean hands, and Bank should not be allowed to profit from its own negligence and "mis-doings." Randolph argued she did not obtain any of the money from the loan, yet it affected her one-half interest in the entire property, and the foreclosure action had also ruined her credit. Bank countered that it had established the debt, the non-payment, and a lien on a one-half interest in the property. Bank asserted Randolph did not attack the mortgage directly in her answer, but simply asserted causes of action against Bank, and maintained that Bank had "made out a prima facie case for a mortgage foreclosure." Bank therefore argued the trial judge should order the foreclosure of Bank's lien on one-half interest in the property. The trial judge noted Randolph was basically asserting Bank's negligence should estop Bank from foreclosing on the property. After consideration of Randolph's motion for directed verdict, as well as Bank's motion for directed verdict as to Randolph's counterclaims, the trial judge concluded Bank should be denied the right to foreclose on the property, citing the equitable maxim that, where one of two innocent parties must suffer, the law looks with disfavor upon that party who, through due diligence, could have avoided the loss. In so doing, the trial judge noted Randolph was an innocent party who had no way to protect herself from losing her half interest in the property because she did not have the financial resources to buy out Bank if foreclosure were allowed. The trial judge further concluded, after reviewing case law on the matter, that the knowledge of the closing attorney was imputed to the lender and therefore knowledge of the closing attorney that closing procedures were not followed as far as obtaining proper identification would be imputed to Bank. Additionally, the trial judge stated, by the time the lender received the closing papers, it would have known the identification procedure had not been followed, and thus it was on notice of this fact. Upon hearing the trial judge's inclined ruling, Bank argued that such a finding would leave Randolph in the position of being a co-tenant with Salone, that at any point in time Salone could convey his one-half interest in the property to a third party, and Randolph would then find herself in the same position as she would if foreclosure were ordered and Bank became her co-tenant. Because a co-tenant can file an action for partition for which there is no defense, Bank argued it was simply a matter of choosing a co-tenant, and there was no "distinction between those co-tenants." For this reason, Bank argued the equitable doctrine cited by the trial judge was inapplicable. Randolph disagreed with Bank's assertion regarding the distinction between co-tenants arguing, without the foreclosure, Randolph could file a partition action against Salone without having to include Bank as a party, in which case Randolph would be in a better position "of taking care of herself and taking care of her situation." The trial judge acknowledged Bank's argument regarding Randolph still being in the position of being a co-tenant, but found the difference was that the Bank was looking to obtain around $52,000 out of a partition action for the one-half interest, and if Bank bid that amount, Randolph would be "out in the cold," but she would not have to face that risk if she filed a partition action without the lien of Bank. Thereafter, the trial judge issued his written order granting Randolph's motion for voluntary non-suit in regard to Bank's foreclosure action, again relying on the equitable maxim that the loss should fall on the party who, with due diligence, could have avoided the loss.[5] The trial judge further noted in his written order that he was granting Randolph's motion for involuntary non-suit in regard to the mortgage foreclosure relief sought by Bank "for the reasons I announced in court. . . ." Bank filed a Rule 59(e) SCRCP motion to alter or amend the judgment, asserting Bank should be allowed to enforce its mortgage against Salone's interest in the property, arguing Randolph was in no better position by virtue of the court's order because she remained a co-tenant of the property with Salone, who could bring an action to partition the property at any time. The trial judge dismissed Bank's 59(e) motion in a form order. This appeal follows. ISSUE Whether the trial judge erred in denying Bank its foreclosure remedy because there was no dispute that the co-tenant to the subject property who signed the mortgage was in default and the other co-tenant, who was a party to the action and who did not sign the mortgage, failed to plead or prove any defense, either legal or equitable, to Bank's foreclosure action. LAW/ANALYSIS Bank contends the trial judge erred in denying its foreclosure of the subject property because Randolph failed to plead or prove any defense to the foreclosure action. It argues the trial judge's reliance on the equitable maxim - that where one of two innocent parties must suffer, the law looks with disfavor upon that party who, through due diligence, could have avoided the loss - was improper because Randolph's one-half undivided interest in the property would remain free and clear of the mortgage lien, and therefore Randolph would suffer no loss, as only Salone's interest in the property was encumbered by the mortgage and subject to Bank's foreclosure remedy. Bank contends, by disallowing the foreclosure, Randolph remained a co-tenant with Salone, and Salone could bring an action for partition. Thus, Randolph was in no better position than being a co-tenant with Bank, and the decision only precluded Bank from obtaining its rightful foreclosure on Salone's mortgage. Additionally, Bank contends the trial judge "ruled as [he] did without any issue in the case being raised in the pleading or proof to the effect that the Bank's mortgage encumbering Salone's interest in the property should not be enforced." Randolph argues that she presented evidence that the mortgage was procured through fraud, she was an innocent victim of the fraud, the loan would not have been consummated without the fraud, and she suffered harm as a result of the fraudulent mortgage. Randolph counters Bank's argument that she would suffer no loss if Bank were allowed to foreclose on Salone's interest is without merit because, as noted by the trial judge, Randolph would be placed in the untenable position of being forced to outbid Bank or purchase Bank's interest, neither of which she had the financial resources to do. Accordingly, she argues the trial judge correctly determined she would suffer the greater harm if the foreclosure were allowed. First, Bank's assertion that the trial judge erred in denying its foreclosure remedy because Randolph failed to plead any equitable or legal defense is not properly before the court. At no time did Bank argue to the trial judge that the equitable maxim he applied to deny the Bank foreclosure was unavailable because Randolph failed to plead the matter.[6] Because this matter was not raised to or ruled upon by the trial judge, it is not preserved for review. See S.C. Dep't of Transp. v. First Carolina Corp. of S.C., 372 S.C. 295, 301-02, 641 S.E.2d 903, 907 (2007) (holding, to be preserved for appellate review, an issue must have been: (1) raised to and ruled upon by the trial court, (2) raised by the appellant, (3) raised in a timely manner, and (4) raised to the trial court with sufficient specificity); see also I'On, L.L.C. v. Town of Mt. Pleasant, 338 S.C. 406, 422, 526 S.E.2d 716, 724 (2000) (stating imposing preservation requirements on the appellant is meant to enable the lower court to rule properly after it has considered all relevant facts, law, and arguments, and noting that the purpose of an appeal is to determine whether the trial court erroneously acted or failed to act, and when appellant's contentions are not presented or passed upon by the trial court, such contentions will not be considered on appeal). See also Wachovia Bank, N.A. v. Coffey, 389 S.C. 68, 74 n. 1, 698 S.E.2d 244, 247 n. 1 (Ct. App. 2010) (finding appellant's argument on appeal, that respondent was barred from raising affirmative defense of unclean hands, was not preserved where master did not address the procedural issue when he ruled appellant had unclean hands, and appellant failed to raise the matter in a Rule 59(e) motion). Further, the sole argument contained in Bank's brief regarding the lack of pleading by Randolph, other than stated in the issue on appeal, is the single sentence that "the Circuit Court ruled as it did without any issue in the case being raised in the pleading or proof to the effect that the Bank's mortgage encumbering Salone's interest in the property should not be enforced." (emphasis added). Bank summarily argues this point and cites no law to support the proposition that Randolph was required to specifically plead this equitable relief. Therefore, this argument can be deemed abandoned. See First Sav. Bank v. McLean, 314 S.C. 361, 363, 444 S.E.2d 513, 514 (1994) (noting that when a party fails to cite supporting authority or when the argument is simply a conclusory statement, the party is deemed to have abandoned the issue on appeal). In arguing Randolph failed to prove any defense to the foreclosure action, Bank asserts that it had a right to foreclose on Salone's interest, and the trial judge erred in applying the equitable maxim because Randolph would suffer no loss since she would continue to hold a one-half undivided interest in the property. Bank argues the trial judge's concern that Bank could outbid Randolph if the foreclosure were allowed is misplaced because nothing in the law would preclude Salone from pursuing a partition action as co-tenant. It is true that, by law, Bank would hold a lien on Salone's one-half undivided interest in the property. See 20 Am. Jur. 2d Cotenancy and Joint Ownership § 102 (2005) ("[A] mortgage . . . executed by less than all of the cotenants and purporting to bind the entire estate is a mere nullity insofar as the nonassenting cotenants are concerned, unless they authorized such action or thereafter ratified it. An encumbrance purportedly placed on the whole property is valid as to the cotenant who executed it, and will be held good as to the part allotted to that cotenant in any subsequent partition."); 6 S.C. Juris. Cotenancies§ 6 (1991) ("The interest of a tenant in common is freely alienable by either inter vivos conveyance, devise, or descent and is subject to the claims of creditors."); 6 S.C. Juris. Cotenancies§ 41 (1991) ("[O]ne cotenant cannot mortgage the entire common property without the consent of the other cotenants. The effect of a mortgage that purports to convey the entire interest and which is executed by fewer than all the cotenants results in a lien on the interest of the mortgaging cotenants only.") However, the question is not whether Bank had a legal right to seek foreclosure on Salone's one-half interest, but whether the trial judge erred in applying the equitable maxim to bar Bank's remedy of foreclosure. Here, the only basis Bank argued to the trial judge as to why the equitable maxim should not apply was that Randolph would be in no different position if the Bank were her co-tenant as opposed to Salone, who could convey his one-half interest to a third party at any time in the future. The trial judge agreed with Randolph's attorney that Randolph would be in a worse position if the foreclosure were allowed, because Randolph would be in a better position to hold onto the property if she brought a partition action against Salone, as opposed to trying to outbid the Bank with its financial resources and motive to recoup a sum of money greater than the value of the property. Right or wrong, Bank did not argue against this finding of harm to Randolph by the trial judge. Further, while Bank acknowledges in its brief that the trial judge expressed legitimate concern that Bank would be the successful bidder at a foreclosure action, it does not argue against the trial judge's determination that this would amount to harm to Randolph, leaving her "out in the cold" in regard to the family property. Thus, the only argument Bank raised below as to why the equitable maxim should not apply was that Randolph was in the same position whether her co-tenant was Salone or Bank. When the trial judge disagreed and found Randolph would face more risk in losing the family property if he allowed the foreclosure, Bank did not argue against this determination to the trial judge. Further, although Bank acknowledges on appeal the trial court was concerned that Bank would be the successful bidder at a foreclosure of the property, it does not address on appeal the trial judge's finding that Bank's argument before him failed because there was a distinction between Bank and Salone as co-tenants, and that Randolph would be in a worse position with Bank as a co-tenant. Because Bank does not challenge the trial judge's finding that Randolph would be in a worse position by having Bank as her co-tenant, the trial judge's ruling that Randolph would be harmed more if Bank were allowed to foreclose is the law of the case. See Lucas v. Rawl Family Ltd. P'ship, 359 S.C. 505, 511, 598 S.E.2d 712, 715 (2004) (finding an unappealed ruling, right or wrong, is the law of the case). Additionally, we note our courts have found it appropriate to bar a bank from seeking foreclosure on a mortgage where a party successfully asserts an equitable doctrine to preclude the foreclosure. See Wachovia Bank, N.A. v. Coffey, 389 S.C. 68, 74-76, 698 S.E.2d 244, 247-48 (Ct. App. 2010) (holding the master properly granted Mrs. Coffey's motion for summary judgment in Wachovia's foreclosure action based on her assertion that the equitable doctrine of unclean hands barred Wachovia from seeking equitable relief where Wachovia's employees processed the home equity loan to Mrs. Coffey's husband without the supervision of an attorney and therefore committed the unauthorized practice of law). Further, our courts have long followed the equitable doctrine relied upon by the trial judge here that where one of two innocent parties must suffer, the law looks with disfavor upon that party who, through due diligence, could have avoided the loss. See Myrtle Beach Lumber Co. v. Willoughby, 276 S.C. 3, 6, 274 S.E.2d 423, 425 (1981) (holding, when one of two innocent parties must suffer, the brunt should fall upon the one most responsible for the problem which developed); Ex parte Dort, 238 S.C. 506, 511, 121 S.E.2d 1, 3 (1961) (noting the rule long followed in this State that if one of two innocent persons must suffer by the fraud of another, the one whose negligence makes the fraud possible must bear the loss); City Lumber Co. v. Nat'l Sur. Corp., 229 S.C. 115, 121, 92 S.E.2d 128, 131 (1956) (finding applicable to the facts of that case the "well established principle that where one of two innocent parties must suffer a loss, it must be borne by that one of them, who, by his conduct, has rendered the injury possible"); Russell Willis, Inc. v. Page, 213 S.C. 156, 169, 48 S.E.2d 627, 633 (1948) (giving recognition to the doctrine long followed in this State that if one of two innocent persons must suffer by the fraud of another, the one whose negligence makes the fraud possible must bear the loss); Horry County v. Ray, 382 S.C. 76, 84, 674 S.E.2d 519, 524 (Ct. App. 2009) (noting application of the well-recognized equitable principle that "when one of two innocent parties must suffer loss, it must fall on the party who, by incautious and misplaced confidence, has occasioned it or placed it in the power of a third party to perpetrate the fraud by which the loss has happened"); MI Co. v. McLean, 325 S.C. 616, 624, 482 S.E.2d 597, 601 (Ct. App. 1997) (recognizing application of this well settled principle of equity - that where one of two innocent parties must suffer loss, it must fall on the party who, by incautious and misplaced confidence, has occasioned it or placed it in the power of a third party to perpetrate the fraud by which the loss has happened - in the 1884 case of City Council of Charleston v. Ryan, 22 S.C. 339 (1884), wherein the court held, where the mortgagee endorsed his name in blank on the back of the mortgage and a satisfaction was thereafter written above his signature, the mortgagee must bear the consequences of the act made possible through his negligence, and an innocent subsequent purchaser would be protected); Guardian Fid. Corp. v. First South Sav. Bank, 297 S.C. 63, 68, 374 S.E.2d 690, 692 (Ct. App. 1988) (applying the equitable maxim that, where one of two innocent parties must suffer, the law looks with disfavor upon that party who, through due diligence, could have avoided the loss). In the case at hand, it is undisputed that Randolph was a completely innocent party who found herself ensnarled in a mortgage foreclosure action through no fault of her own, but due to a forgery committed as a result of the Bank's failure to use due diligence in ensuring the party signing the mortgage documents was, in fact, Randolph. Further, the trial judge's ruling that Randolph would be harmed more if Bank were allowed to foreclose is the law of the case. CONCLUSION For the foregoing reasons, the order of the trial judge is AFFIRMED. HUFF, SHORT, and PIEPER, JJ., concur. [1] We decide this case without oral argument pursuant to Rule 215, SCACR. [2] Bank of New York acquired the note and mortgage from American Business Mortgage Services, Inc. following that company's filing of bankruptcy. [3] It appears that Salone failed to answer or otherwise respond to the action. [4] In making this argument, Randolph asserted Bank admitted it would not have closed the loan had it known the person signing the mortgage was not Randolph. Bank did not contest this assertion. [5] The trial judge also granted Bank's motion for directed verdict on Randolph's counterclaims, but Randolph did not appeal this ruling. [6] Bank seems to take the position that its assertion before the trial judge that Randolph did not attack the mortgage directly in her answer, but simply asserted counterclaims, was sufficient to raise the issue. However, Bank clearly never asserted that Randolph was prohibited from raising the estoppel argument because she failed to plead the equitable defense. See S.C. Dep't of Transp. 372 S C. 295, 302-03, 641 S.E.2d 903, 907 (2007) (noting that a party need not use the exact name of a legal doctrine in order to preserve an argument, but it must be clear that the argument has been presented on that ground).