In re Foreclosure of Deed of Trust of Michael Weinman Associates

LEWIS, Judge. On 7 April 1988 petitioner, North Mecklenburg Associates (North Mecklenburg), conveyed to respondent, Michael Weinman Associates General Partnership (Weinman), a parcel of land in Mecklenburg County of approximately 400 acres. At the time of the conveyance Weinman executed a promissory note in favor of North Mecklen-burg which was secured by a deed of trust upon the 400 acres. The terms of the deed of trust and note essentially required that Weinman pay off the note in four equal payments. One-fourth of the purchase price of $1,400,566.50 was to be paid immediately upon closing on 7 April 1988. The remaining three-fourths of the purchase price was to be paid in equal amounts on 7 April 1989, 7 April 1990, and 7 April 1991, along with accrued interest. At the closing on 7 April 1988, Weinman paid $350,139.13 and received a release of a 100-acre tract of land from North Mecklen-burg. The deed of trust contained a provision for further releases of land upon payments by Weinman, specifically: The Beneficiary agrees to release additional tracts of land from the Deed of Trust in direct proportion to principal payments made by the Grantor to the Beneficiary under the Promissory Note which is secured by this Deed of Trust. As to such Releases, [758] the Grantor and the Beneficiary have agreed as follows: Approximately 100 acres of land shall be released on each of the principal payment dates, to wit, April 7, 1989, April 7, 1990 and April 7, 1991. The deed of trust provided, however: Notwithstanding anything herein contained, Grantor shall not be entitled to any release of property unless Grantor is not in default and is in full compliance with all of the terms and provisions of the Note, this Deed of Trust, and any other instrument that may be securing said Note. The deed of trust also required that “[Weinman] shall pay all taxes . . . lawfully levied against said Premises within thirty (30) days after the same shall become due.” On 7 April 1989 Weinman made a payment of $444,676.68 representing $350,139.12 of principal plus accrued interest. North Mecklenburg did not, nor has it ever, released a second 100-acre tract. On 7 April 1990 Weinman failed to make the third payment of principal and interest which was then due and has never made this payment. Weinman also failed to pay part of the 1988 ad valorem property taxes on the property when due and these taxes remained outstanding as of 10 August 1990. After Weinman failed to make the 7 April 1990 principal payment, North Mecklenburg initiated foreclosure proceedings under the deed of trust. On 28 June 1990 a hearing was held before the assistant clerk of the Superior Court of Mecklenburg County who denied North Mecklenburg authorization to foreclose. North Mecklenburg appealed to Superior Court for a de novo hearing which was held 20 August 1990. At the conclusion of that hearing, the trial judge held that North Mecklenburg’s right to foreclose was barred by its failure to release the second 100-acre tract of land upon payment by Weinman on 7 April 1989. The judge denied North Mecklenburg’s petition to foreclose. North Mecklenburg appeals. The issues are (I) whether Weinman’s claim that it was entitled to the release of a 100-acre tract of land from the deed of trust could be raised as a defense to North Mecklenburg’s right to foreclose at a hearing under N.C.G.S. § 45-21.16 (1984); and (II) whether Weinman’s failure to pay a portion of the property taxes defeats its right to a release of the second 100-acre tract. [759] I A foreclosure sale pursuant to a power of sale contained in a deed of trust will be authorized only if the existence of the following four elements is found: (i) valid debt of which the party seeking to foreclose is the holder, (ii) default, (iii) right to foreclose under the instrument, and (iv) notice to those entitled to such. . . . N.C.G.S. § 45-21.16(d) (1984). In this case, the parties do not dispute that three of the four elements of § 45-21.16(d) are present. The only element in dispute is § 45-21.16(d)(iii), North Mecklenburg’s “right to foreclose under the instrument.” The right to foreclose exists “if there is competent evidence that the terms of the deed of trust permit the exercise of the power of sale under the circumstances of the particular case.” In re Foreclosure of Burgess, 47 N.C. App. 599, 603, 267 S.E.2d 915, 918, appeal dismissed, 301 N.C. 90, 273 S.E.2d 296 (1980). Weinman argues that North Mecklenburg has a contractual obligation to release the second 100-acre tract prior to foreclosure because that tract was paid for, and that North Mecklenburg’s failure to do so is a defense to the petition for foreclosure. Specifically, Weinman argues that the third element of § 45-21.16(d) is not present because North Mecklenburg has no right to foreclose the second 100-acre tract. If Weinman is entitled to have the second tract released, the trustee would exceed his authority under the instrument by foreclosing on the remainder of the property including the second tract. The issue of the release of the second tract is therefore directly related to whether there is a “right to foreclose” under the instrument. The petitioner argues that the issue of the release may not be considered because such is not expressly provided in the statute. This Court has clearly stated that “[l]egal defenses which negate any of the requisite findings [necessary for foreclosure] are properly considered,” because “to preclude presentation of legal defenses to the four requisites to authorization of sale would render the hearing provided by this statute a largely purposeless formality.” In re Foreclosure of Deed of Trust, 55 N.C. App. 373, 375-76, 285 S.E.2d 615, 616 (1982), aff'd, 306 N.C. 451, 293 S.E.2d 798 (1982). [760] II Weinman covenanted in the deed of trust to pay all taxes which would be levied against the property. The trial court found as fact, which is not disputed on appeal, that Weinman failed to timely pay a portion of the 1988 ad valorem property taxes. However, the trial court was correct in finding that the petitioner’s refusal to release the second tract was not justified by Weinman’s failure to pay 1988 ad valorem taxes. The Deed of Trust provides that any failure to comply with the covenants contained therein will empower the trustee to sell where “such default is not cured within fifteen days after written notice.” The record shows that North Mecklenburg never notified Weinman that taxes were owed and that neither petitioner nor Weinman knew that taxes were owed until more than a year after Weinman had paid for the second tract. The trustee is not empowered to foreclose on the second tract until demand or notice of nonpayment of taxes is given and Weinman fails to comply within fifteen days. See Oliver v. Piner, 224 N.C. 215, 29 S.E.2d 690 (1944). The trial court was therefore correct in finding that petitioner’s failure to release the second tract bars its right to foreclose. Affirmed. Judge Eagles concurs. Judge Greene dissents.