Golf Vistas, Inc. v. Mortgage Investors

ERWIN, Judge. Plaintiffs assign error to the refusal of the trial court to grant the preliminary injunction. They contend that there are issues which should be passed upon by a jury before the Clerk determines whether defendants are entitled to proceed with foreclosure. Defendants argue that G.S. 45-21.16 gives plaintiffs the right to raise their alleged defenses in the special proceeding before the Clerk and, upon appeal, before a judge of the Superior Court. Thus, defendants maintain that plaintiffs have an adequate remedy at law, and the trial court properly refused to grant the preliminary injunction. G.S. 45-21.16(d) provides in pertinent part: “The hearing provided by this section shall be held before the clerk of court in the county where the land, or any portion thereof, is situated. ... If the clerk finds the existence of (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 under subsection (b), then the clerk shall authorize the mortgagee or trustee to proceed under the instrument . . . The act of the clerk in so finding or refusing to so find is a judicial act and may be appealed to the judge of the district or superior court having jurisdiction at any time within 10 days after said act. Appeals from said act of the clerk shall be heard de novo.” [232] In the recent case of In re Watts, 38 N.C. App. 90, 247 S.E. 2d 427 (1978), the issue before this Court was whether a Superior Court Judge is authorized to invoke equity jurisdiction in a hearing de novo on appeal pursuant to the above statute or is limited to hearing the same matters which were before the Clerk of Superior Court. We noted therein that the injunctive relief provided for in G.S. 45-21.34 is available prior to the confirmation of the foreclosure sale. Construing the intent of the Legislature and considering Turner v. Blackburn, 389 F. Supp. 1250 (W.D.N.C. 1975), we held, with Judge Clark speaking for this Court: “The notice and hearing required by G.S. 45-21.16 were designed to enable the mortgagor to utilize the injunctive relief already available in G.S. 45-21.34. The hearing [before the Clerk or de novo in Superior Court] was not intended to settle all matters in controversy between mortgagor and mortgagee, nor was it designed to provide a second procedure for invoking equitable relief. * * * . . . The proper method for invoking equitable jurisdiction to enjoin a foreclosure sale is by bringing an action in the Superior Court pursuant to G.S. 45-21.34.” (Citations omitted.) 38 N.C. App. at 94, 247 S.E. 2d at 429. We hold, therefore, that the trial court erred in concluding that the matters raised herein could only be raised at the hearing before the Clerk. It does not inevitably follow, however, that plaintiffs herein will prevail. We hold, simply, as we did in In re Watts, supra, that the hearing provided for in G.S. 45-21.16 was not intended to settle all matters in controversy between the parties and that the appropriate means for invoking equity jurisdiction is an action pursuant to G.S. 45-21.34. In part, plaintiffs base this action on the contention that they are not in default. The trustor in a deed of trust is entitled to restrain foreclosure if the note secured by the instrument is not in default. Realty Corp. v. Kalman, 272 N.C. 201, 159 S.E. 2d 193 (1967). Likewise, we believe that plaintiffs’ contention that certain portions of the property have been released from the deed of trust, if shown to be true, would entitle them to restrain a foreclosure proceeding which purports to seek foreclosure of all of the property under the original deed of trust. [233] We conclude, therefore, that the temporary restraining order should be continued to the hearing, see Realty Corp. v. Kalman, supra, and that plaintiffs may raise the issues herein under the provisions of G.S. 45-21.34. The orders of the trial court are vacated, except insofar as they continue the temporary restraining order, and the cause is remanded for a rehearing consistent with our ruling herein. Judges Clark and Arnold concur.