michael a. falk, as trustee of the trust dated, 2014 wl ... · michael a. falk, as trustee of the...

Michael A. FALK, as Trustee of the Trust Dated..., 2014 WL 2906138...

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2014 WL 2906138 (N.C.) (Appellate Brief)Supreme Court of North Carolina.

Michael A. FALK, as Trustee of the Trust Dated 10-26-1989 Having the Tax IDNumber 65-6043718 (AKa “the Charlotte Falk Irrevocable Trust”), Plaintiff,

v.FANNIE MAE (AKA FEDERAL NATIONAL MORTGAGE ASSOCIATION); Glassratner

Management & Realty Advisors, LLC; Idell Flourneyl; Sonya Petit; Liba Meiere;Shawnequa Dodson; Adolfo Zarate; Tishaun Whitehead; and John Does #1-160, Being the

Unidentified Lessees of the Property Known as “Ridgewood Apartments,”, Defendants.FANNIE MAE (AKA FEDERAL NATIONAL MORTGAGE ASSOCIATION), Third-Party Plaintiff,

v.Michael A. FALK, as Trustee of the Trust Dated 10-26-1989 Having the Tax ID Number 65-6043718

(AKa “the Charlotte Falk Irrevocable Trust”) and Quicksilver LLC, Third-Party Defendants.

No. 197PA-13.June 16, 2014.

From Guilford County

New Brief of Plaintiff-Appellee/third-Party Defendants-Appellees inResponse to Defendant/Third Party Plaintiff Fannie Mae's New Brief

*ii INDEXTABLE OF CASES AND AUTHORITIES ............................................................... viiISSUES PRESENTED ................................................................................................ 2SUMMARY OF THE ARGUMENT .......................................................................... 4OBJECTION TO FANNIE MAE'S STATEMENT OF THE FACTS ........................ 6STATEMENT OF THE FACTS AND STATEMENT OF THE CASE ..................... 8LEGISLATIVE HISTORY OF THE LIFE OF LIEN STATUTES, G.S. § 45-37 andG.S. § 45-36.24 ...........................................................................................................

26

ARGUMENT ............................................................................................................... 33I. THE COURT OF APPEALS PROPERLY REJECTED APPLICATION OFFORMER G.S. § 45-37(B) BECAUSE: (A) FANNIE MAE ABANDONED THEISSUE, (B) THE LEGISLATIVE INTENT IS CLEAR THAT THE STATUTEWAS NOT INTENDED TO BENEFIT INTERVENING LENDERS, AND (C)EXTENDING THE STATUTE'S BENEFITS TO INTERVENING LENDERSWOULD VIOLATE THE RULE OF STRICT CONSTRUCTION ...........................

33

A. The Court should not consider the applicability of G.S. § 45-37(b) becauseFannie Mae previously conceded that the statute was not applicable to the LendLease loan ....................................................................................................................

33

B. The legislative history of G.S. § 45-37(b) and G.S. § 45-36.24 (2011) indicatethat § 45-37(b), as in effect in 1991 and 1999, was not intended to extend to loansmade during the 15-year statutory period ...................................................................

40

*iii II. G.S. § 45-36.24 CANNOT CONSTITUTIONALLY BE APPLIED TOBAR THESE ACTIONS .............................................................................................

57

A. Fannie Mae's failure to address the actual standard shows that it is trying to throwup a smoke screen .......................................................................................................

58

B. The new statute would violate the Trust's due process rights because it failed toprovide a reasonable time for the filing of accrued but unfiled actions ......................

64

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C. The Court could deem the Trust Deed unexpired for the purpose of these actionswithout declaring the statute, or any part of it, unconstitutional .................................

86

III. AS A MATTER OF LAW, FANNIE MAE IS NOT ENTITLED TOEQUITABLE SUBROGATION .................................................................................

92

A. The Court of Appeals did not “effectively abolish” the doctrine of equitablesubrogation because its decision is consistent with Wallace v. Benner ......................

94

1. Despite Fannie Mae's hyperbole, the Court of Appeals' decision would not“effectively abolish” equitable subrogation in North Carolina ...................................

94

2. Fannie Mae has not made out a prima facie case for equitable subrogation ............ 993. Fannie Mae was culpably negligent through its inaction over more than ten years . 104a. The Trust did not cause Fannie Mae's loss ............................................................. 105*iv b. Lend Lease's and Fannie Mae's negligence caused Fannie Mae's position ..... 108

c. The Borrower's misrepresentations do not absolve Lend Lease of its failure to actas a prudent lender, nor Fannie Mae of its failure to act as a rudent investor .............

118

4. At this point, equitable subrogation would unfairly operate to the prejudice of thebeneficiaries of the Trust .............................................................................................

128

B. Fannie Mae cannot receive summary judgment on equitable estoppel, but remandis only necessary if its culpable negligence, or the prejudice to the beneficiaries, isnot established as matter of law ..................................................................................

134

C. Sound public policy supports denying Fannie Mae equitable subrogation ............. 140IV. FANNIE MAE IS NOT ENTITLED TO REMAND ON ISSUES THAT THEYABANDONED, AND WHICH, IN ANY EVENT, CAN BE DETERMINED AS AMATTER OF LAW ....................................................................................................

142

A. Fannie Mae abandoned all issues other than applicability of G.S. § 45-36.24 andeuitable subroation .......................................................................................................

142

B. Fannie Mae also abandoned any issue concerning rehearing of the foreclosure,and, in any event, their argument on that issue is untethered from the facts ...............

143

CONCLUSION ............................................................................................................ 148CERTIFICATE OF SERVICE .................................................................................... 150*v APPENDIX:

Application and Order Extending Time to File Complaint ......................................... App. 1N.C. Gen. Stat. § 45-37 (2014) (Annotated) ............................................................... App. 2N.C. Gen. Stat. § 45-36.24 (2014) (Annotated) .......................................................... App. 91870-71 N.C. Sess. Laws 217 ..................................................................................... App. 14N.C. Code § 1271 (1870-71) ....................................................................................... App. 151891 N.C. Sess. Laws 180 .......................................................................................... App. 171893 N.C. Sess. Laws 36 ............................................................................................ App. 181901 N.C. Sess. Laws 46 ............................................................................................ App. 19Revisal of 1905, § 1046 .............................................................................................. App. 201917 N.C. Sess. Laws 49 ............................................................................................ App. 22N.C. Consolidated Statutes, § 2594 (1920) ................................................................. App. 241923 N.C. Sess. Laws 192 .......................................................................................... App. 281923 N.C. Sess. Laws 195 .......................................................................................... App. 301935 N.C. Sess. Laws 47 ............................................................................................ App. 32N.C. Gen. Stat. § 45-37 (1943) (Annotated) ............................................................... App. 341945 N.C. Sess. Laws 988 .......................................................................................... App. 391947 N.C. Sess. Laws 880 .......................................................................................... App. 401951 N.C. Sess. Laws 292 .......................................................................................... App. 42N.C. Gen. Stat. § 45-37 (1965) (Annotated) ............................................................... App. 431967 N.C. Sess. Laws 765 .......................................................................................... App. 491969 N.C. Sess. Laws 746 .......................................................................................... App. 51*vi N.C. Gen. Stat. § 45-37 (1974) .......................................................................... App. 55

1975 N.C. Sess. Laws 305 .......................................................................................... App. 601985 N.C. Sess. Laws 219 .......................................................................................... App. 611987 N.C. Sess. Laws 405 .......................................................................................... App. 621987 N.C. Sess. Laws 620 .......................................................................................... App. 641991 N.C. ALS 114 ..................................................................................................... App. 65Legislative Daily Bulletin for S 679 (2011) ............................................................... App. 100









NCGA Senate Bill 679 (2011) Information/History ................................................... App. 103

*vii TABLE OF CASES AND AUTHORITIESCasesAdams & Freese Co. v. Kenoyer, 17 N.D. 302, 116 N.W. 98(1908) .....................................................................................

73-77, 84

Anderson v. Assimos, 356 N.C. 415, 572 S.E.2d 101 (2002) . 86Andrews v. Daw, 201 F.3d 521 (4th Cir. N.C. 2000) ............ 106Applewood Props., LLC v. New South Props., LLC, 366N.C. 518, 742 S.E.2d 776 (2013) ..........................................

41

Bankers Trust Co. v. United States, 29 Kan. App. 2d 215(2001) .....................................................................................

123, 127

Baysdon v. Nationwide Mut. Fire Ins. Co., 259 N.C. 181,130 S.E.2d 311 (1963) ..........................................................

125

Blevins v. Utilities, Inc., 209 N.C. 683, 184 S.E. 517 (1936) 69, 70, 83Charlotte-Mecklenburg Hosp. Auth. v. Talford, 366 NC 43727 SE2d 866 2012 ...............................................................

140

Chase Mortg. v. Jackson, 2007 Mich. App. LEXIS 48(2007) .....................................................................................

127

Childers v. Parker's, Inc., 274 N.C. 256, 162 S.E.2d 481(1968) .....................................................................................

48,49

Cooper v. First Bank (In re Cooper), 2013 Bankr. LEXIS2985 (Bankr. E.D.N.C. July 25, 2013)...................................

104, 125, 126

Culbreth v. Downing, 121 N.C. 205, 28 S.E. 294 (1897) ...... 89-90Cutsinger v. Cullinan, 72 Ill. App. 3d 527, 391 N.E. 2d 177(1979) .....................................................................................

71, 72, 85

*viii Dixieland Realty Co. v. Wysor, 272 N.C. 172, 158S.E.2d 7 (1967) .....................................................................

99, 101, 129

Dogwood Dev. & Mgmt. Co. v. White Oak Transp. Co., 362N.C. 191, 657 S.E.2d 361 (2008) ..........................................

34, 36

Falk Trust v. Mae, 738 S.E.2d 404, 2013 N.C. App. LEXIS232 (N.C. Ct. App. 2013) .....................................................

passim

Farm Bureau Mut. Ins. Co. v. Progressive Direct Ins. Co.,40 Kan. App. 2d 123 (2008) .................................................

125

Farmers Nat'l Bank & Trust Co. v. Berks County RealEstate Co., 333 Pa. 390 5 A.2d 94 (1939) ............................

74

Flippin v. Jarrell, 301 N.C. 108, 270 S.E.2d 482 (1980) ...... .passimFore v. Geary, 191 N.C. 90, 131 S.E. 387 (1926) ................. 98Gilbert v. Ackerman, 159 N.Y. 118, 53 N.E. 753 (1899) ...... 71, 83, 85Goodson v. P,H. Glatfelter Co., 171 N.C. App. 596, 615S.E.2d 350 (2005) .................................................................

35

Gore v. Myrtle/Mueller, 362 N.C. 27, 653 S.E.2d 400(2007) .....................................................................................

124

Graves v. Howard, 159 N.C. 594, 75 S.E. 998 (1912) .......... 57Gregg v. Williamson, 246 N.C. 356, 98 S.E.2d 481 (1957) ... 57, 61, 65-67amby v. Profile Prods., L.L.C., 361 N.C. 630, 652 S.E.2d231 (2007) .............................................................................

147

Harrison v. Guilford County, 218 N.C. 718, 12 S.E.2d 269(1940) .....................................................................................

43

Hicks v. Kearney, 189 N.C. 316, 127 S.E. 205 (1925) .......... 29, 46, 65, 66, 82Hill v. Atlantic & N. C. R. Co., 143 N.C. 539 (1906) ............ 133*ix Hill v. Mayall, 886 P.2d 1188, 1994 Wyo. LEXIS 161

(Wyo. 1994) ...........................................................................73-77, 84, 85

HSBC Mortg. Servs. v. Raschke, 2010 Ohio 2997, 2010Ohio App. LEXIS 2486 (Ohio Ct. App., 2010) ....................

122

In re Foreclosure of a Deed of Trust Executed by StonecrestPtnrs., LLC, 2011 N.C. App. LEXIS 2162, 8-9 (N.C. Ct.App. Oct. 4, 2011) ................................................................

124

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In re Foreclosure of Vogler Realty, Inc., 365 N.C. 389, 722S.E.2d 459 (2012) .................................................................

41

In re Watts, 38 N.C. App. 90, 247 S.E.2d 427 (1978) ........... 145James v. Bartlett, 359 N.C. 260, 607 S.E.2d 638 (2005) ....... 86Jefferson Standard Life Ins. Co. v. Guilford County, 225N.C. 293, 34 S.E.2d 430 (1945) ............................................

104, 125

Jones v. Statesville Ice & Fuel Co., 259 N.C. 206, 130S.E.2d 324 (1963) .................................................................

98

Kidd v. Early, 289 N.C. 343, 222 S.E.2d 392 (1976) ............ 134, 138, 139, 146Lamb v. Powder River Live Stock Co., 132 F. 434 (8th Cir.1904) ......................................................................................

71

Landmark Bank v. Ciaravino, 752 S.W.2d 923 (Mo. App.1988) ......................................................................................

141

Lipscomb v. Cheek, 61 N.C. 332 (1867) ............................... 126Malossi v. McElligott, 166 Misc. 513, 2 N.Y.S. 2d 712(1938) .....................................................................................

71,83

Marshall v. Hammock, 195 N.C. 498 (1928) ........................ 126Matthews v. Peterson, 150 N.C. 132, 63 S.E. 722 (1909) ..... passim*x North Carolina Bd. of Architecture v. Lee, 264 N.C.

602, 142 S.E.2d 643 (1965) ..................................................104, 126

Page v. Sloan, 281 N.C. 697, 190 S.E. 2d 189 (1972) .......... 89Parmenter v. State, 135 N.Y. 154, 31 N.E. 1035 (1892). ...... 71, 79Peek v. Wachovia Bank & Trust Co., 242 N.C. 1, 86 S.E.2d745 (1955) .............................................................................

96, 97

Polaroid Corp. v. Offerman, 349 N.C. 290, 507 S.E.2d 284(1998) .....................................................................................

44

Pruitt v. Wood, 199 N.C. 788, 156 S.E. 126 (1930) .............. 34Ray. N.C. DOT, 366 N.C. 1, 727 S.E.2d 675 (2012) ............. 48Relyea v. Tomahawk Paper & Pulp Co., 102 Wis. 301, 78N.W. 412 (1899) ...................................................................

71

Rice v. Garrison, 258 Kan. 142, 898 P.2d 631 (1995) .......... 140Rowan County Bd. of Educ. v. United States Gypsum Co.,332 N.C. 1, 418 S.E.2d 648 (1992) .......................................

107

Satterfield v. McLellan Stores Co., 215 N.C. 582, 2 S.E.2d709 (1939) .............................................................................

106

Schauble v. Schulz, 137 F. 389, 1905 U.S. App. LEXIS4551 (8th Cir. N.D. 1905) .....................................................

66

Smith v. Davis, 228 N.C. 172, 45 S.E.2d 51, 1947 N.C.LEXIS 590 (1947) .................................................................

passim

Smith v. Mercer, 276 N.C. 329, 172 S.E.2d 489, 495 (1970) 65State ex rel. Cobey v. Simpson, 333 N.C. 81, 423 S. E. 2d759 (1992) .............................................................................

51

State v. Benton, 276 N.C. 641, 174 S.E.2d 793 (1970) ......... 44State v. Fennell, 307 N.C. 258, 297 S.E.2d 393 (1982) ......... 34*xi State v. Hart, 361 N.C. 309, 644 S.E.2d 201 (2007) ..... 36

State v. Muse, 219 N.C. 226, 13 S.E.2d 229 (1941) .............. 86State v. Whittington, 367 N.C. 186, 753 S.E.2d 320 (2014) .. 35Staton v. Davenport, 95 N.C. 11 (1886) ............................... 104, 122Steingress v. Steingress, 350 N.C. 64, 511 S.E.2d 298(1999) .....................................................................................

36

Stokes v Millen Roofing Co, 466 Mich 660, 649 NW2d 371(2002) .....................................................................................

140

Stone v. N,C. Dep't of Labor, 347 N.C. 473, 495 S.E.2d 711(1998) .....................................................................................

42

Strickland v. Draughan, 91 N.C. 103, 1884 N.C. LEXIS 26(1884) .....................................................................................

57, 67

Terry v. Anderson, 95 U.S. 628, 24 L. Ed. 365 (1877) .......... 57Terry v. Terry, 302 N.C. 77, 273 S.E.2d 674 (1981) ............. 107







































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Texaco, Inc. v. Short, 454 U.S. 516, 102 S. Ct. 781 (1982) .. 67Thomas v. Myers, 229 N.C.234, 49 S.E.2d 478 (1948) ......... 32Turlington v. McLeod, 323 N.C. 591, 374 S.E.2d 394 (1988).................................................................................................

42

Turner v. New York, 168 U.S. 90, 18 S. Ct. 38 (1897) .......... 57, 61, 67Tyson v. North Carolina Nat'l Bank, 305 N.C. 136, 286S.E.2d 561 (1982) .................................................................

131

Universal Title Ins. Co. v. United States, 942 F.2d 1311 (8thCir. Minn. 1991) ....................................................................

127, 134

Vance v. Vance, 108 U.S. 514, 2 S. Ct. 854 (1883) .............. 57, 61, 65, 67*xii Viar v. N,C. Dep't of Transp., 359 N.C. 400, 610

S.E.2d 360 (2005) .................................................................35

Wallace v. Benner, 200 N.C. 124, 156 S.E.2d 795 (1931) .... passimWeil v. Herring, 207 N.C. 6, 175 S.E. 836 (1934) ................ 35, 147Wells v. Consol, Judicial Ret. Sys., 354 N.C. 313, 553S.E.2d 877 (2001) .................................................................

49

Williams v. Williams, 299 N.C. 174, 261 S.E.2d 849 (1980) . 49Wise v. Harrington Grove Cmty. Ass‘n, 357 N.C. 396, 584S.E.2d 731 (2003) .................................................................

42

Wooten v. Warren by Gilmer, 117 N.C. App. 350, 451S.E.2d 342 (1994) .................................................................

87

StatutesN.C. Gen. Stat. § 1-15 (1977) ............................................... 68N.C. Gen. Stat. § 1-52 .......................................................... 131N.C. Gen. Stat. § 1-56 .......................................................... 131N.C. Gen. Stat. § 45-21.16 .................................................... 23, 99, 145N.C. Gen. Stat. § 45-36.24 (2011) ........................................ passimN.C. Gen. Stat. § 45-37 ......................................................... passimN.C. Gen. Stat. § 45-37(5) .................................................... passim1923 N.C. Sess. Laws 192 .................................................... 7, 28, 461945 N.C. Sess. Laws 989 .................................................... 821951 N.C. Sess. Laws 292 .................................................... 29, 31, 49, 831969 N.C. Sess. Laws 746 .................................................... 29, 30*xiii 1989 N.C. Sess. Laws 434 ......................................... 31

1991 N.C. Sess. Laws 114 .................................................... 312005 N.C. Sess. Laws 123 .................................................... 312011 N.C. ALS 312 .............................................................. 55, 722014 N.C. Sess. Law 4 ......................................................... 82RulesN.C. R. App. Pro. 10 ............................................................. 142N.C. R. App. Pro. 28 ............................................................. 6, 25, 33, 108, 143N.C. R. Civ. Pro. 3 ................................................................ 84N.C. R. Civ. Pro. 56 .............................................................. passimN.C. R. Civ. Pro. 60 .............................................................. 98Other73 Am. Jur. 2d Statutes § 252 (2014) ................................... 7465 C.J.S. Negligence § 12 (2014) ......................................... 98, 119Legislative Daily Bulletin for SB.679 (2011) ....................... 81

*1 *2 ISSUES PRESENTED

I. CAN FANNIE MAE NOW ASSERT THAT FORMER G.S. § 45-37(B) IS APPLICABLE WHEN IT PREVIOUSLYBRIEFED THE COURT OF APPEALS THAT THE STATUTE WAS NOT APPLICABLE TO THE LEND LEASE LOAN?

II. CAN FORMER G.S. § 45-37(B) BE APPLIED FOR THE BENEFIT OF A LENDER WHO EXTENDED CREDITDURING THE 15-YEAR STATUTORY PERIOD WHEN THE LEGISLATURE PREVIOUSLY AMENDED THESTATUTE TO REMOVE LANGUAGE THAT WOULD HAVE PROVIDED FOR SUCH A RESULT?



























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III. IS APPLICATION OF G.S. § 45-36.24(B) TO EXTINGUISH THE TRUST DEED UNCONSTITUTIONAL AS APPLIEDTO THIS PLAINTIFF WHEN THE NEW STATUTE FAILED TO PROVIDE A REASONABLE TIME BEFORE IT TOOKEFFECT?

IV. IS APPLICATION OF G.S. § 45-36.24(B) UNCONSTITUTIONAL AS APPLIED TO THIS PLAINTIFF WHEN THENEW STATUTE PROVIDED ONLY 95 DAYS BETWEEN ENACTMENT AND EFFECTIVE DATE?

V. IS APPLICATION OF G.S. § 45-36.24(B) UNCONSTITUTIONAL AS APPLIED TO THIS PLAINTIFF WHEN THETRUST COMMENCED ITS SUPERIOR COURT ACTION BEFORE THE NEW STATUTE TOOK EFFECT AND ITSFORECLOSURE ACTION LESS THAN FOUR WEEKS AFTER IT TOOK EFFECT?

VI. WHERE THE TRUST COMMENCED ITS SUPERIOR COURT ACTION BEFORE THE NEW STATUTE TOOKEFFECT AND ITS FORECLOSURE ACTION LESS THAN FOUR WEEKS AFTER IT TOOK EFFECT, CAN THECONSITUTIONAL ISSUE BE PROPERLY AVOIDED BY APPLYING PRIOR LAW TO PLAINTIFF'S CLAIMS?

VII. CAN FANNIE MAE OBTAIN EQUITABLE SUBROGATION AFTER IT HAS COMPLETED A FORECLOSURE ONITS DEED OF TRUST?

*3 VIII. CAN FANNIE MAE INVOKE EQUITABLE SUBROGATION EVEN THOUGH IT NO LONGER HAS A LIENTO SUBROGATE?

IX. CAN FANNIE MAE INVOKE EQUITABLE SUBROGATION WHEN ITS ONLY INTEREST IN THE PROPERTY ISAS AN OWNER UNDER A NON-WARRANTY DEED?

X. COULD EQUITABLE SUBROGATION RETURN THE TRUST TO ITS ORIGINAL JUNIOR LIEN POSITION NOWTHAT FANNIE MAE HAS COMPLETED A FORECLOSURE ON ITS ALLEGEDLY SUPERIOR LIEN?

XI. CAN FANNIE MAE OBTAIN EQUITABLE SUBROGATION WHEN THE CLOSING ATTORNEY DISBURSED THEFUNDS EXACTLY AS APPROVED BY LEND LEASE IN A SETTLEMENT STATEMENT?

XII. CAN FANNIE MAE OBTAIN EQUITABLE SUBROGATION WHEN IT HAD ACTUAL KNOWLEDGE OF THETRUST DEED, BUT FAILED TO GIVE THE CLOSING ATTORNEY DIRECTIONS TO CANCEL THAT SPECIFIC LIEN?

XIII. CAN FANNIE MAE OBTAIN EQUITABLE SUBROGATION WHEN IT BOUGHT THE LEND LEASE LOAN WITHACTUAL KNOWLEDGE THAT THE TRUST DEED HAD NOT BEEN CANCELLED OR SUBORDINATED?

XIV. CAN FANNIE MAE OBTAIN EQUITABLE SUBROGATION WHEN IT CAUSED THE WACHOVIA LIENCANCELLATION TO BE FILED, DESPITE HAVING ACTUAL KNOWLEDGE THAT THE TRUST DEED WOULDTHEN BE RAISED TO THE SENIOR LIEN OF RECORD?

XV. CAN FANNIE MAE OBTAIN EQUITABLE SUBROGATION WHEN IT NEVER SOUGHT TO EXERCISE ITSCONTRACTUAL RIGHT TO HAVE QUICKSILVER OBTAIN CANCELLATION OR SUBORDINATION OF THETRUST DEED?

XVI. CAN FANNIE MAE OBTAIN EQUITABLE SUBROGATION WHEN, FOR OVER TEN YEARS, IT TOOK NOACTION TO ADDRESS THE ISSUE OF THE TRUST DEED?






*4 XVII. CAN FANNIE MAE OBTAIN EQUITABLE SUBROGATION WHEN IT WOULD PREJUDICE THE RIGHTSOF THE BENEFICIARIES OF THE TRUST, AND THE TRUST WAS NOT A PARTY TO THE LEND LEASE LOANTRANSACTIONS?

XVIII.CAN FANNIE MAE NOW RAISE ADDITIONAL ISSUES THAT IT ABANDONED AT THE COURT OFAPPEALS?

XIX. CAN FANNIE MAE OBTAIN A SECOND DE NOVO APPEAL AT THE TRIAL COURT WHEN IT ALREADYRECEIVED ONE?

SUMMARY OF THE ARGUMENT

This brief responds to the New Brief of appellants Fannie Mae (aka Federal National Mortgage Association) and GlasRatnerManagement and Realty Association. Except where otherwise noted herein, appellants are referred to collectively as “FannieMae.”

Fannie Mae's New Brief generally encompasses four major issues: (1) the applicability of G.S. § 45-37 (1991) and G.S. § 45-37(2011); (2) the applicability of G.S. 45-36.24(b); (3) the applicability of equitable subrogation; and (4) a request that certainmatters be remanded to the trial court for another hearing de novo.

In brief, neither G.S. § 45-37(b) (1991) nor G.S. § 45-37(b) (2011) are applicable in the present case. First, procedurally,Fannie Mae conceded at the Court of Appeals that G.S. § 45-37 was not applicable. Accordingly, it has abandoned the issue.Substantively, the legislative history of the statute shows that the legislature did not intend the presumption of satisfaction inG.S. § 45-37(b) *5 (1969)-(2011) to apply lenders who extended loans within the fifteen year period. This is shown becausein 1951, the legislature added language to the statute to make it applicable “irrespective of whether the credit was extended orthe purchase was made before or after the expiration of said 15 years,” but then removed that language in 1969.

The new life of lien statute (G.S. § 45-36.24) cannot be applied to Plaintiffs claims because, to pass constitutional muster,statutes that shorten the statute of limitation must provide a reasonable time before their bars go into effect to allow plaintiff tobring accrued but unfiled claims. Under this Court's prior precedence, the 95 days provided between enactment and effectivedate is not a “reasonable time.”

Equitable subrogation is inappropriate because, inter alia: (a) following foreclosure, Fannie Mae no longer has a lien tosubrogate; (b) Fannie Mae owns the Property pursuant to a non-warranty deed subject to senior liens; (c) Lend Lease's EscrowAgent followed her closing instructions by disbursing funds only in accordance with the settlement statement approved by LendLease, and that settlement statement did not call for payment of the Trust Deed; and (d) Fannie Mae's inaction for a period often years was culpable negligence.

At the Court of Appeals, Fannie Mae only raised the issues of applicability of G.S. § 45-36.24 and equitable subrogation.Accordingly, it has abandoned any *6 other issues. Furthermore, it has already had a de novo hearing on the issue offoreclosure, and has not right to another. All of the evidence from that hearing is presently before this Court, which can nowconsider the issue de novo as a matter of law.

OBJECTION TO APPELLANTS' STATEMENT OF THE FACTS

Fannie Mae's Statement of the Facts violates N.C. R. App. Pro. 28(b)(5), which provides that the Statement of the Facts shallbe a “non-argumentative summary” of all the facts. Notwithstanding that requirement, Fannie Mae has taken liberty with thefacts by adding its own suppositions and allegations as fact.













Although Fannie Mae's Statement is rife with their improper asides, three allegations are of most concern. First, Fannie Maeasserts, as fact, that “[a]s drafted, the Falk Trust contemplates that Michael A. Falk (“Michael Falk”) will likely be the beneficiaryof the majority of the trust income and potentially the sole beneficiary of the body of the trust.” FNMA's New Brief, p 7.Michael Falk's mother is the sole income beneficiary of the trust. The trust does not provide that Michael will become thebeneficiary of the “majority of the trust income.” And, while it's true that Michael Falk is “potentially” the sole beneficiaryof the corpus, that would only be if the rest of his mother's progeny died. Fannie Mae has replaced conjecture for fact in aneffort to cloud the waters.

*7 Second, Fannie Mae claims that the Trust agreed to Quicksilver's default on its loan to the Trust. FNMA's New Brief, P10. That assertion is a creature of Fannie Mae's imagination. The testimony was that the Trust demanded payment, Quicksilverdid not make those payments, and the default rate went into effect. If Fannie Mae wishes to later argue what it believes areinferences from the facts, it may do so, but it is not allowed to do so in a statement of facts. And it certainly isn't allowed todistort the evidence to do so.

Third, Fannie Mae alleges that “Judge Davis did not reach the merits of the appeal de novo of the clerk's order authorizingforeclosure.” That is a wishful misstatement of what actually transpired. The foreclosure appeal was specially set to be heldwith the parties' cross motions for summary judgment. Fannie Mae was given the opportunity to present all evidence it desiredto present. Before that hearing, it deposed Quicksilver, Michael Falk, and Harry Falk. Following that de novo hearing, JudgeDavis ruled for Fannie Mae on the foreclosure appeal on the grounds that the Trust had not established a valid debt. From thatruling, the Trust appealed.

Finally, and most objectionably, Fannie Mae states as “fact,” that: “In light of their express representations and the provisionsof the FNMA Deed of Trust, the inescapable conclusion is that either the Falks lied to obtain the Lend Lease Loan, or, are lyingnow about the existence or priority of the Falk Deed of Trust.” Fannie *8 Mae's obnoxious accusations have no place in astatement of fact, especially when they show such a lack of logical reasoning. In a loan closing with numerous documents andhundreds of pages, the Falks signed documents with incorrect statements. One conclusion may be that the Falks were negligentin not reading what they were signing, another may be that they “lied.” Either way, Fannie Mae's aspersions without proof haveno proper place in a statement of the facts.

For the above reasons, the Trust objects to Fannie Mae's statement of the facts, and asks the Court to recognize it for what it is.

STATEMENT OF THE FACTS AND STATEMENT OF THE CASE

The Original Loans and Deeds of Trust

Charlotte Falk created the Trust on 26 October 1989, naming herself as income beneficiary and her three children (includingMichael Falk) and numerous grandchildren as remainder beneficiaries. (R pp 195, 207-209, 249-250). Charles Falk (Charlotte'shusband), was the initial trustee of the Trust, but after his passing, Michael Falk and Robert Swartz (“Swartz”) (who was not abeneficiary of the Trust), were appointed as successor co-trustees. (R pp 5, 195, 224-225). Upon Swartz's death (following theloan from Lend Lease to Quicksilver), Michael Falk became sole trustee. (R pp 5, 195).

Michael Falk also served as a director and shareholder of Quicksilver Corporation (“QC”), which was created on 3 December1992, and existed until its *9 name changed to Hermes Corporation on 26 October 1994. (R pp 196). In 1992, QC, throughshareholder/director Harry Falk (Michael Falk's son), arranged to purchase the real property at issue in the present action(“the Property,” also known as Ridgewood or Ridgewood Apartments). (R pp 196, 250). The Property was purchased forapproximately $5,200,000, of which $4,600,000 was seller financed, and the remaining $600,000 was loaned to QC by theTrust. (R pp 196-197, 250). Both co-trustees of the Trust approved the loan of funds to QC with the understanding that such loanwould generate income for Charlotte Falk (the income beneficiary of the trust) and residual value for the other beneficiaries.(R pp 199, 206-212, 252).

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The same day that QC changed its name, Quicksilver LLC (i.e., Third-Party Defendant Quicksilver) was formed (with MichaelFalk and Harry Falk being all its member-managers). Quicksilver was formed not only to be a successor to QC, but also toensure that the company would be in the form of an entity that would eliminate the obligation to pay franchise taxes. (R pp196, 25-251). Hermes was eventually administratively dissolved in 1996, as it conducted no actual business, while all of QC'sdebts and property were transferred to Quicksilver, including the Property and the loan from the Trust. (R pp 196-197, 250).Harry Falk acted as the Chief Operating Officer of Quicksilver, exercising management over the company, until he steppedaside as such in early-2006. (R pp 201, 253).

*10 At the same time that QC was transforming into an LLC, Quicksilver also sought to refinance the Property throughWachovia in order to obtain better terms. (R pp 197, 250). With so many changes occurring within a short time period, the co-trustees required that Quicksilver execute a promissory note (the “Note”) on 28 October 1994 to ensure that there was properdocumentation of the $600,000 loan by the Trust. (R pp 6, 196-197, 250). The Note was a demand note that allowed the Trust todemand payments how and when it chose. (R pp 24-25, 199). Quicksilver executed a deed of trust against the Property in favorof the Trust to secure the Note (the “Trust Deed”). The Trust properly recorded the Trust Deed on 30 December 1994. (R pp 6).

The Trust demanded partial payments of interest from Quicksilver in late December 1994 in order to generate income for theTrust. (R pp 7, 199, 252). Specifically, the loan parties (i.e., Quicksilver and the Trust) agreed that Quicksilver was to pay theTrust $5,000 per month, which would cover 10% interest on the $600,000 loan. If Quicksilver failed to meet its obligation tomake payments, as a penalty, interest would then begin to accrue at a default rate of 14% as permitted by the Note. (R pp 6-7,199, 252). No payments were made by Quicksilver to the Trust until October 2006, so the default rate was instituted. (R pp7, 200, 253). Three payments were made by Quicksilver to the Trust towards the loan; specifically, on or about 10 October2006 a $25,000 payment was made, *11 on 6 October 2008 a payment of $15,000 was made, and on 12 November 2008 a$7,500 payment was made. (R pp 201, 253).

The 1999 Wachovia Refinance

In order to, among other things, complete improvements to the Property, Quicksilver obtained additional credit from Wachoviain 1999. (R pp 198, 252, 605-606). Deeds of Trust, Assignment of Rents, Security Agreements and Financing Statements wereexecuted and delivered, encumbering the Property to a trustee for the benefit of Wachovia. (R pp 103-123, 605-606). Wachoviaconsented to the new loan for $5,750,000 only upon an agreement by the Trust to subordinate its lien on the Property to thenew Wachovia loan. (R pp 198-199, 252, 608-609).

Wachovia later realized that it had failed to obtain a subordination of the Trust Deed at closing. It asked Quicksilver to obtainone. On 15 March 2000, Wachovia recorded a subordination agreement approved by Swartz and Falk as cotrustees on 28February, 2000. (R pp 124-127, 188-189, 252).

The Lend Lease/Fannie Mae Loan and Mortgage

In May 2001, Quicksilver obtained $28,000,000 in financing from Lend Lease Mortgage Capital, L.P. (“Lend Lease”).According to the Settlement Statement for the Lend Lease loan (the “Settlement Statement,” R pp 334-335), *12 $5,308,000of that $28,000.000 was being loaned against “Ridgewood” (i.e., the Property).

As part of the Lend Lease loan, Quicksilver (but not the Trust) promised Lend Lease that it would obtain a first priority lienin the Property. Fannie Mae admits that, prior to making the loan, Lend Lease obtained a title search of the Property, whichrevealed the Trust Deed. See FNMA's New Brief, p 11; see also R p 325, ¶ 9 (title insurance commitment letter). Therefore,Lend Lease had actual knowledge that, unless the Trust Deed was cancelled or subordinated, it would rise to first priorityposition upon satisfaction of the Wachovia lien.

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Despite that actual knowledge, Lend Lease did not require the involvement of the Trust or either of its co-trustees (Swartz wasstill alive and serving as a cotrustee), nor did it require any documents to be signed, or representations made, by, or on behalfof, the Trust. (R pp 202, 259-260, 279-280).

On 10 May 2011, Lend Lease sent “Closing Instructions,” to Ms. Deborah Crangle, as “Escrow Agent” chosen by Lend Lease.(R pp 279-289). Paragraph C of that letter listed “Conditions Precedent” to closing the loan and disbursing any funds. ParagraphC.1 required Ms. Crangle to have received signed copies of all the loan documents required by the agreement. (R pp 279-280).The agreement did not require any documents cancelling or subordinating the Trust Deed.

*13 Paragraph C.3 provided that, prior to closing the loan, the Escrow Agent was required to send a draft “SettlementStatement” to Lend Lease's “Loan Closer” for Lend Lease's review and approval. That draft Settlement Agreement was toprovide for “payment in full of all existing liens and security instruments, if any, affecting the Property,” as well as other costs.(R p 281).

Paragraph C.5 provided that the Escrow Agent was not allowed to proceed to close, or disburse funds, unless and untilLend Lease gave her “verbal confirmation” (emphasis in original) that Lend Lease had received and approved the necessarydocuments. (Id.).

The next paragraph provides that once the Escrow Agent was authorized to proceed to close, she was required “to disbursefunds in accordance with the Settlement Statement approved by [Lend Lease].” (Id.).

The Settlement Statement is located at R pp 334-335. It reflects that no provision was made for payment of the Trust's Note.Despite the fact that Lend Lease had actual knowledge of the Trust Deed, and notice through the draft Settlement Statementthat the lien of the Trust Deed would not be paid, Lend Lease approved the draft Settlement Statement.

On the day of closing, Lend Lease gave the Escrow Agent authority to close the loan and disburse funds. It did so despiteits authority to withhold its verbal approval until it had received all documents it deemed necessary. Its review of *14 thosedocument would again have shown that the Trust Deed was not being cancelled or subordinated. The closing documents showthat no subordination agreement was executed by the Trust in favor of Lend Lease/Fannie Mae, nor was one ever presentedto either Quicksilver or the Trust for review in connection with the Lend Lease loan. (R pp 254, 259-260). The Certificate ofBorrower does not list a subordination agreement under the “Review of Documents” section. (R pp 254 (¶ 21), 480 (§ 1)).There is also no cancellation of the lien or subordination agreement listed among the required documents within the ClosingInstructions from Lend Lease (R pp 279-289). However, Lend Lease did obtain a cancellation of Wachovia's liens. Therefore,the closing documents reviewed and approved by Lend Lease showed that, absent some other action that was not then providedfor, the Trust Deed would gain first priority upon filing of the cancellation of Wachovia's lien.

At the closing, Lend Lease's Escrow Agent disbursed the funds exactly as approved by Lend Lease. That is, she disbursedthe funds in accordance with the Settlement Statement that Lend Lease had approved, and that Settlement Statement made noprovision for payment of the Trust Deed. (R pp 334-335).

As the Settlement Statement also shows, at the time of the Lend Lease transaction, Wachovia's lien was in the amount of$3,794,413.53 and the Property was worth at least $5,308,000 (i.e., the amount Lend Lease was lending against the *15Property) (R p 334). Therefore, immediately before Lend Lease paid off the Wachovia loan, Quicksilver had more than$1,500,000 in equity above the amount needed to cover Wachovia's liens. That equity was available to secure and satisfy theTrust's lien. Following the closing, the Property was encumbered by an additional $1,500,000, without the involvement orconsent of the Trust.

The Settlement Statement further showed that $3,794,413.53 would be advanced to pay off the Wachovia loan and that noamounts would be used to pay off any other liens (such as the Trust‘s). The Settlement Statement made no provision for how



the additional $1,500,000 (i.e, the amount disbursed to Quicksilver beyond the amount of Wachovia's lien) would be used orapplied. (R pp 334-335).

As part of that financing, Quicksilver executed a Multifamily Note (the “Lend Lease Note”), secured by a Multifamily Deedof Trust, Assignment of Rents and Security Agreement in the Property (the “Lend Lease Deed of Trust”). (R pp 8, 128-180,202, 253). The Lend Lease Note and Deed of Trust were executed under seal for Quicksilver by Harry Falk and Michael Falk.(R p 167).

Quicksilver also executed an Agreement to Amend or Comply. That agreement was not executed under seal. (R pp 275-277).It provided, inter alia, that, upon request of Lend Lease or Fannie Mae (as “Investor”), Quicksilver was required to provideany further document, or to take any corrective actions, *16 required by Lend Lease or Fannie Mae before Fannie Mae wouldpurchase the loan from Lend Lease.

Of specific note to the present matter, the Agreement to Amend would have required Quicksilver-upon demand of Fannie Mae-to obtain either the cancellation or subordination of the Trust Deed or to be in breach. The Agreement to Amend also indicatedthat Fannie Mae had the right and ability to require such corrective action both before and after it purchased the Lend LeaseNote and Deed of Trust. (Id.).

The Lend Lease Deed of Trust was recorded in the Guilford County Registry of Deeds on 14 May 2001. (R p 8).

Lend Lease, and not Fannie Mae, loaned Quicksilver money. Fannie Mae made an investment by buying the loan. That is, onthe same day the Lend Lease loan closed, Fannie Mae purchased the Lend Lease Note and Deed of Trust from Lend Lease,

and the same were assigned to Fannie Mae. (R p 8). 1

*17 Fannie Mae purchased the Lend Lease loan despite the fact that the Loan Documents (including the title insurancecommitment letter and the Settlement Statement) gave it notice of the Trust Deed and that Wachovia's lien but not the Trust's-wasbeing paid off. That is, at the time it purchased the Lend Lease loan, it had every reason to know that if it filed the cancellationof Wachovia's lien (which it received when it bought the loan from Lend Lease), then the Trust Deed would become the seniorlien of record.

Despite that, and despite its rights under the Agreement to Amend, Fannie Mae did not then make any demand on Quicksilverto obtain cancellation or subordination of the Trust Deed. Furthermore, despite having a month to do something about thesituation, on 13 June 2001, it caused Wachovia's Deed of Trust cancellation to be recorded, thereby elevating the Trust Deedto the senior lien of record.

Fannie Mae then did nothing about the issue for over ten years. During the entire life of the Lend Lease/FNMA Deed of Trust,Fannie Mae never once made any demand (or request) on Quicksilver (or the Trust) to cancel or subordinate the Trust Deed.Nor did Fannie Mae commence any action to obtain equitable subrogation during that time.

*18 The Fannie Mae Foreclosure

Quicksilver defaulted on its obligations to Fannie Mae under the Lend Lease Note and, on 9 March 2011 (almost ten years afterthe Lend Lease loan), Fannie Mae initiated foreclosure proceedings against the Property. (R pp 8-9).

On 25 May 2011 (just over ten years after the Lend Lease loan), counsel for Fannie Mae, Sayera Qasim, appeared before theClerk of Superior Court in Guilford County at the hearing on Fannie Mae's foreclosure. (R pp 9, 255-256). At that hearing, Ms.Qasim was specifically asked by the Clerk whether the Trust had been notified of the hearing and if they were represented.

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Ms. Qasim, on behalf of Fannie Mae, indicated that no notification was provided - or required to the Trust because, as a seniorlienholder, the Trust was responsible to enforce its own rights. (R pp 255-256).

Fannie Mae was granted an Order of Sale on 25 May 2011 (R pp 9, 85) and purchased the Property at its own auction on 21July 2011 (R pp 10, 86).

Record ownership of the Property was then transferred to Fannie Mae, via a non-warranty deed, “[s]ubject to any and all matterssuperior to the lien of the [Lend Lease] Deed of Trust, including, without limitation [any] superior mortgages, deeds of trusts,liens, and assessments, if any.” (R pp 10, 86).

On 7 September 2011, and other times before that date, the Trust again notified Fannie Mae that the Property was encumberedby, and subject to the Trust *19 Deed. The Trust demanded payment and indicated that if full payment was not received,a foreclosure action would be brought. (R p 10). Fannie Mae responded through counsel by letter dated 9 September 2011,refusing to pay any amounts owed. (Rpp 10-11).

On 16 September 2011, the Trust applied for, and was granted, an Order Extending Time to File Complaint (the “FilingExtension” [App. 1]) and the issuance of summonses.

On 29 September 2011, the Trust caused Jennifer Fountain to be appointed as “Substitute Trustee” under the Trust Deed. (Rpp 48).

By notice to Quicksilver dated 4 October 2011, the Trust called the Trust's loan as of that date and demanded full payment ofall amounts owed under the Note within five (5) days. (R pp 58, 67-73). Quicksilver failed to make any payment.

The Present Actions

The appeal at issue involves two cases: Guilford County Superior Court action No. 11-CvS-9587 (the “Superior Court Action”)

and Guilford County Special Proceeding No. 11-SP-3631 2 (the “Foreclosure Proceeding”).

*20 This Superior Court Action was commenced by the Trust on 16 September 2011 by the filing of the Filing Extension[App. 1]) and the issuance of summonses.

On 6 October 2011, the Trust filed its Verified Complaint and obtained Delayed Services of Complaint in accordance with theOrder granting the Filing Extension. (R pp 2, 4).

On 27 October 2011, the Substitute Trustee commenced the Foreclosure Proceeding for the benefit of the Trust, the lienholderunder the Trust Deed. (R pp 42-47).

On 16 November 2011, the Trust and the Substitute Trustee filed affidavits in support of the Foreclosure Proceeding. (R pp48-73).

The Foreclosure Proceeding came on for hearing on 17 November 2011, following which hearing, the Assistant Clerk filedFindings of Fact and Order of Foreclosure (the “Foreclosure Order”) allowing the Trust to proceed with foreclosure on theproperty described in the Trust Deed (the “Property”). (R pp 76-78).

On 28 November 2011, Fannie Mae appealed the Foreclosure Order to the trial court. In its notice of appeal, Fannie Mae notifiedthe court that the Superior Court Action was then pending, and that the Superior Court Action sought *21 declaratory relief,and raised similar issues to those in Fannie Mae's appeal of the Foreclosure Order. (R pp 79-82).



On 30 November 2011, following its notice that it was appealing the Foreclosure Order, Fannie Mae conducted depositionsof Michael Falk and Harry Falk as 30(b)(6) deponents for Quicksilver. (R pp 489-690). Although the deposition of MichaelFalk was noticed as a 30(b)(6) deposition of Quicksilver in the Superior Court Action, in that deposition, counsel for FannieMae sought to ask, and was allowed to ask, Michael Falk questions in his capacity as the trustee of the Trust. (See generallyDeposition of Michael Falk of 30 November 2012, R pp 554-607).

On 9 December 2011, Fannie Mae filed an answer to the Trust's Verified Complaint, and, additionally, filed a counterclaimagainst the Trust and third-party complaint against the Trust and Quicksilver. (R pp 83-183). Concurrently therewith, FannieMae moved the court for a temporary restraining order and a preliminary injunction to enjoin the foreclosure sale of the Property.(R pp 184-186).

On 16 December 2011, Fannie Mae's motion for TRO came on for hearing before the Honorable Patrice A. Hinnant. As reflectedby Judge Hinnant's order filed on 22 December 2011, at the December 16th hearing, the parties agreed, and the court ordered,that (i) the appeal of the Foreclosure Order, (ii) Fannie Mae‘s *22 motion for preliminary injunction in the Superior CourtAction, and (iii) the parties' motions for summary judgment in the Superior Court Action (if any) would all be heard togetherduring the week of 16 January 2012. (R pp 189-190). In consideration and furtherance of the expedited consideration of allissues, the Trust agreed to refrain from taking any actions necessary to proceed with the foreclosure sale until the parties wereheard in the week of 16 January 2012 pursuant to that special setting. (R pp 189-190).

Fannie Mae filed a motion for summary judgment (not a motion for partial summary judgment) on 6 January 2012 (R pp486-488), and the Trust filed a motion for summary judgment on 9 January 2012 (R pp 191-193).

Fannie Mae's appeal from the Foreclosure Proceeding, Fannie Mae's motion for preliminary injunction, and Fannie Mae's andthe Trust's cross-motions for summary judgment came on for hearing before the Honorable Lindsay R. Davis, Jr. during the 17January 2012 session. Judge Davis accepted evidence and heard argument on multiple days within that session. (R pp 691-699).

On the appeal of an order of foreclosure under a power of sale, the trial court must determine four issues before entering orprohibiting a foreclosure sale: (1) the existence of a valid debt of which the party seeking foreclosure is the holder, (2) theexistence of default, (3) the trustee's right to foreclose under the instrument, *23 and (4) the sufficiency of notice of hearingto the record owners of the property. (G.S. § 45-21.16).

In the appeal of the Foreclosure Order, the Trust put on evidence of all four elements through (i) the court record, (ii) theaffidavits of Harry Falk and the substitute trustee from the Foreclosure Proceeding (R pp 48-73), (iii) its Verified Complaint inthe Superior Court Action (R pp 4-41), and (iv) new affidavits of Michael Falk and Harry Falk (R pp 194-485). That evidencealso supported its motion for summary judgment.

The only evidence Fannie Mae offered in support of its appeal of the Foreclosure Order and motions, was the 30(b)(6)depositions of Michael Falk and Harry Falk taken on 30 November 2011 (R pp 489-690).

At the 17-20 January 2012 hearing, Judge Davis explicitly stated that he was not going to limit the amount of time that theparties had to argue the issues. Rather, he expressed the importance and complexity of the issues and made clear that he wouldlisten to, and consider, all relevant and admissible evidence and argument. At no time did Fannie Mae ask for additional timeto develop or acquire additional evidence on any issue. Nor did it in any way allege or assert that it was unable to then presentall evidence necessary to a full consideration by the court of all issues, including Fannie Mae's appeal of the Foreclosure Order.

*24 At that hearing, Fannie Mae argued that the Trust Deed was extinguished by G.S. § 45-36.24 (2011). The Trust argued,in part, that retroactive application of that statute to the Trust's actions would be unconstitutional. (See R p 698).





On 9 March 2012, Judge Davis entered his order (the “Order,” R pp 691-700) jointly in the captioned cases. That Order explicitlystated that all matters had been heard, including Fannie Mae's appeal of the Foreclosure Order. Fannie Mae did not then, or atany later time, object to, or appeal, that characterization.

The Trust timely appealed the Order and the matter was designated as North Carolina Court of Appeals' Case No. 12-764.

In its Statement of the Case to that Court, Fannie Mae acknowledged that Judge Hinnant's order directed that Fannie Mae's appealof the Foreclosure Order be heard together in the 16 January 2012 session. Fannie Mae also acknowledged that through hisOrder, Judge Davis ruled that the Trust could not foreclose pursuant to the Foreclosure Order in its Appellee's brief (“FNMA's

COA Brief,” p 4). 3

In its Argument in its COA Brief, Fannie Mae conceded that G.S. § 45-37 was not applicable (FNMA's COA Brief, p 19, n 3).Rather, Fannie Mae argued two (and only two) alternative bases to support the Order pursuant to Rule of Appellate Procedure10(c). Specifically, Fannie Mae argued for: (i) statutory *25 expiration under G.S. § 45-36.24 (FNMA's COA Brief, pp 10-16),and (ii) equitable subrogation (Id. at pp 16-24). Fannie Mae did not properly raise or preserve any of the other issues.

N.C. Rule App. Pro. 28(f) requires a party to include in its brief a “short conclusion stating the precise relief sought.” In itsCOA Brief, Fannie Mae asked only for the following relief: “[That the Court of Appeals] affirm the trial court's (1) grant ofDefendant's motion for summary judgment and (2) reversal of the Clerk's authorization to foreclose.” (Appellees' Brief, pp 24-25). Fannie Mae did not ask the Court of Appeals for any other, or any alternative, relief, such as remand for trial.

On 5 March 2013, the Court of Appeals issued its opinion (the “Opinion”), which is published as Falk v. Mae, 738 S.E.2d404 (N.C. Ct. App. 2013)). In its Opinion, the COA held that: (i) G.S. § 45-37 could not be applied in favor of Fannie Maebecause Lend Lease's loan was made less than 15 years after 28 October 1994 (Falk, 738 S.E.2d at 408); (ii) application of G.S.§ 45-36.24(b) to the detriment of this Plaintiff Trust and for the benefit of Fannie Mae would be unconstitutional (Id. at 410),and (iii) Fannie Mae was not entitled to have the Trust's lien equitably subrogated to Fannie Mae's lien (Id. at 411).

*26 Additionally, the COA explicitly held that the trial court erred in reversing the Foreclosure Order and that “the Trust hasthe right under the Trust Deed to foreclose on the property.” (Id.).

As a result, on 5 March 2013, the COA reversed (i) the trial court's grant of summary judgment in favor of Fannie Mae and(ii) the trial court's order reversing the Foreclosure Order, and remanded the matters for entry by the trial court of an orderconsistent with the Opinion.

On 9 April 2013, Fannie Mae timely filed a Petition for Rehearing to the COA. (“FNMA's Petition for Rehearing,”located at www.ncappellatecourts.org/show-file.php?document_id=138273). That petition was denied by the COA on 16April 2013. See http://appellate.nccourts.org/dockets.php?court=2&docket=2-2012-0764-001&pdf=1&a=0&dev=1. FannieMae was thereafter granted further review of the COA decision by this Court.

LEGISLATIVE HISTORY OF THE LIFE OF LIEN STATUTES, GS. § 45-37 AND GS. § 45-36.24

The antecedent statutes to G.S. § 45-37 go back over 140 years. See 1870-71 N.C. Sess. Laws 338 [App. 14], N.C. Code Section

1271 (1871) [App. 15-16]. 4 *27 From its enactment and over the next 50 years, that act went through various amendments.In 1923, the legislature, for the first time, added a provision for the presumed satisfaction of the secured interest due to thepassage of years. Specifically, the legislature added a new subsection 5 to section 2594 of the Consolidated Statutes. That newsubsection provided, in pertinent part:


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http://www.westlaw.com/Link/Document/FullText?findType=L&pubNum=1006366&cite=NCRRAPAPPR10&originatingDoc=I64c99c00fea511e3b4bafa136b480ad2&refType=LQ&originationContext=document&vr=3.0&rs=cblt1.0&transitionType=DocumentItem&contextData=(sc.Search)















That the conditions of every mortgage, deed of trust, or other instrument securing the payment of money shall be conclusivelypresumed to have been complied with or the debt secured thereby paid as against creditors or purchasers for a valuableconsideration from the trustor, mortgagor, or grantor, from and after the expiration of fifteen years from the date when theconditions of such instrument by the terms thereof are due to have been complied with, or the maturity of the last installment ofdebt or interest secured thereby, unless [the secured interest was otherwise extended in the manner described by the remainderof the subsection].

See 1923 N.C. Sess. Laws 192 [App. 28-29]; compare N.C. Consolidated Statutes, § 2594 (1920) [App. 24-27].

*28 With the replacement of our Consolidated Statutes by our General Statutes, C.S. § 2594.5 was recodified without changeas G.S. § 45-37(5). Compare 1923 N.C. Sess. Laws 192 [App. 28-29] and G.S. § 45-37(5) (1943) [App. 34-38].

In 1947, this Court construed G.S. § 45-37(5) (1943) to hold that the conclusive presumption under the statute was not availableto a second lender-or to the second lender's purchaser-if the second lender's debt was contracted prior to the expiration of thefifteen year period. See Smith v. Davis, 228 N.C. 172, 178-81, 45 S.E.2d 51, 56-57, 1947 N.C. LEXIS 590, 15-22 (1947).

To arrive at that conclusion, the Court noted the “well established rule of construction in this State that when the meaning ofan act of the General Assembly is in doubt, reference may be had to the title and context of the act of legislative declarationsof the purpose of the act, - the intent and spirit of the act controlling in its construction.” Id., at 179-180, 45 S.E.2d at 57.

The act that created C.S. § 2594.5 (the direct predecessor to § 45-37(5)), was entitled:

An Act to Facilitate the Examination of Titles and to Create a Presumption of Payment of Instruments Securing the Paymentof Money After Fifteen Years from the Date of the Maturity of the Debts Secured Thereby

1923 N.C. Sess. Laws 192 [App 28-29].

From that, this Court determined that “the primary purpose” of the act was to facilitate the examination of titles in orderto “promote freer marketability in *29 cases where old and unsatisfied mortgages and deeds of trust, securing debts, werehampering real estate transaction.” Smith, 228 N.C. at 180, 45 S.E.2d at 57.

In light of that, the Court found that the “economic purpose [of the statute was] adequately accomplished by furnishing protectionto parties who extend[ed] credit or purchase for a valuable consideration ‘from and after’ the expiration of the fifteen yearperiod” because a lender during the fifteen year period could not have relied on the presumption at the time it extended credit tothe debtor. See id. at 178-81, 45 S.E.2d at 56-57 (“[T]he statute should apply only in favor of creditors who have a debt whichwas ‘contracted on the faith of the statutory presumption’; and [such] faith could not possibly arise prior to the expiration ofthe fifteen year period, - the presumption under the statute not arising until the termination of fifteen years.”) (citing Hicks v.Kearney, 189 N.C. 316, 319, 127 S.E. 205, 207 (1925)).

In 1951, the legislature amended G.S. § 45-37(5) to add language to make the automatic expiration “irrespective of whetherthe credit was extended or the purchase was made before or after the expiration of said 15 years.” See 1951 N.C. Sess. Laws292 [App. 42]; for the statute as amended, see G.S. § 45-37(5) (1965) [App. 43-48]. That amendment effectively abrogatedthe holding in Smith.

The legislature next amended G.S. § 45-37(5) in 1969. Pursuant to N.C. Sess. Laws 746 [App. 51-54], the legislature passed“An Act to Recodify and *30 Simplify the Law Concerning Discharge of Record of Mortgages, Deeds of Trust and OtherInstruments Intended to Secure the Payment of Money or the Performance of any Other Obligation.” That act made amendmentsto the entire statute. G.S. § 45-37(5) (1967) was recodified, as amended, as G.S. § 45-37(b) (1969) [see App. 55-59].


















That new codification was, in all material respects, the same as G.S. § 45-37(b) (1991) and G.S. § 45-37(b) (2011). Specifically,it provided, in pertinent part, that:

(b) It shall be conclusively presumed that the conditions of any deed of trust, mortgage or other instrument securing the paymentof money or securing the performance of any other obligation or obligations have been complied with or the debts securedthereby paid or obligations performed, as against creditors or purchasers for valuable consideration from the mortgagor orgrantor, from and after the expiration of 15 years from whichever of the following occurs last:

(1) The date when the conditions of the security instrument were required by its terms to have been performed, or

(2) The date of maturity of the last installment of debt or interest secured thereby;

Provided [that the secured interest could be extended in the manner described by the remainder of the subsection]

See 1969 N.C. Sess. Laws 746 [App 51-54].

The most significant change in the 1969 amendment was that it removed the language that the 1951 amendment added tomake the presumption irrespective of whether the second loan was before or after expiration of the 15 year period. By *31doing so, the 1969 recodification effectively returned the substance of the section to its pre-1951 amendment state. That is, thepresumption in both the 1945 act (in effect at the time of Smith) and the 1969 act applied “as against creditors or purchasersfor a valuable consideration from the mortgagor or grantor, from and after the expiration of fifteen years from” the date whenthe conditions of the security instrument were required by its terms to have been performed, or the date of maturity of the lastinstallment of debt or interest secured thereby.

A comparison of G.S. § 45-37(5) (1943) [App. 34-38] with G.S. § 45-37(b) (1974) [App 55-59] shows that, with the exceptionof the inclusion of “trustor” in the prior statute, the language quoted above is the same in both statutes. In contrast, the statutethat G.S. § 45-37(b) (1969) replaced expressly stated that its effect was “irrespective of whether the credit was extended or thepurchase was made before or after the expiration of said 15 years.” See 1951 N.C. Sess. Laws 292 [App. 42].

From 1969 until 2011, the legislature made only technical, non-substantive, changes to G.S. § 45-37(b) (“§37(b)”), or changesto how the fifteen year period could be extended. See 1989 N.C. Sess. Laws 434; 1991 N.C. Sess. Laws 114 [App. 65-70];2005 N.C. Sess. Laws 123.

On 27 June 2011, the Governor approved 2011 N.C. Sess. Laws 312. That bill created the new life of lien statute (G.S. §45-36.24 or “§36.24) and amended *32 G.S. § 45-37(b) to provide that it would not be applicable to any security instrumentsrecorded after 1 October 2011, with all changes to be effective as of 1 October 2011.

Upon the effective date of the new life of lien statute, “Automatic Lien Expiration” was pursuant to §36.24(b), with securityinstruments first recorded before 1 October 2011 being subject to subsection (b)(1).

Although §36.24(b) was, in large part, a recodification of §37(b), it had several significant changes. Most significantly (at leastto this case) was that the new statute did not include § 37(b)'s language that the conclusive presumption of satisfaction was “asagainst creditors or purchasers for valuable consideration from the mortgagor or grantor.” Compare G.S. § 45-37(b) with G.S.§ 45-36.24(b). That was the language in the prior statute that this Court had construed in Smith as limiting the benefits of thepresumption only to interests that arose after the 15 year period. See Thomas v. Myers, 229 N.C.234, 49 S.E.2d 478 (1948);Smith, 228 N.C. 172, 45 S.E.2d 51(1947); see also FNMA's COA Brief, pp 13-14.

*33 ARGUMENT

















I. THE COURT OF APPEALS PROPERLY REJECTED APPLICATION OF FORMER G.S. § 45-37(B)BECAUSE: (A) FANNIE MAE ABANDONED THE ISSUE, (B) THE LEGISLATIVE INTENT IS CLEAR THATTHE STATUTE WAS NOT INTENDED TO BENEFIT INTERVENING LENDERS, AND (C) EXTENDINGTHE STATUTE'S BENEFITS TO INTERVENING LENDERS WOULD VIOLATE THE RULE OF STRICTCONSTRUCTION

A. The Court should not consider the applicability of G.S. § 45-37(b) because Fannie Mae previously conceded thatthe statute was not applicable to the Lend Lease loan

In its Special Order, this Court directed the parties “to address the applicability, if any, of N.C.G.S. § 45-37(b) (1991) andN.C.G.S. § 45-37(b) (2011) to this case.” Fannie Mae now argues for the first time on appeal that the Trust Deed wasextinguished by operation of those statutes. However, Fannie Mae previously abandoned the issue of the applicability of G.S.§ 45-37(b). Accordingly, the Court should rule that discretionary review was improvidently granted on that issue and consideronly the issues that Fannie Mae properly raised and preserved in the court below.

N.C. R. App. Pro. 28 provides that a party must present an argument with respect to each issue presented by such party. “Issuesnot presented and discussed in a party's brief are deemed abandoned.” N.C. R. App. Pro. 28(a); see also N.C. R. App. Pro. 28(b)(6) (“Issues not presented in a party's brief, or in support of which no reason or argument is stated, will be taken as abandoned.”).In this case, not only did Fannie Mae fail to provide argument or support for the applicability of *34 §37(b), it affirmativelyadmitted that the statute should not be applied to the present case. Rather, Fannie Mae only argued the applicability of §36.24.

Specifically, Fannie Mae stated the following position:

Plaintiff argues in brief that the trial court incorrectly relied on N.C.G.S. §45-37(b) to support its decision.Defendant FNMA concedes that N.C.G.S. §45-37(b) was not the appropriate statute on which the trial courtshould have relied in reaching its ultimately correct conclusion.

FNMA's COA Brief p 10, n 3 (emphasis added). Fannie Mae went on to acknowledge that “[t]he appellate courts have interpretedthis older statute [to hold] that the presumption does not apply where the new interest arose within the 15 year period, as opposedto after it.” Id. at p 13. The remainder of Fannie Mae's discussion of that statute was to contrast it with §36.24. Id. at pp 13-14.

As this Court has held, “‘rules of procedure are necessary ... in order to enable the courts properly to discharge their dut[y]’ ofresolving disputes.” Dogwood Dev. & Mgmt. Co. v. White Oak Transp. Co., 362 N.C. 191, 193, 657 S.E.2d 361, 362 (2008)(quoting Pruitt v. Wood, 199 N.C. 788, 790, 156 S.E. 126, 127 (1930)).

Because the Rules of Appellate procedure are mandatory, they “should be enforced as uniformly as possible.” Dogwood, 362N.C. at 200, 657 S.E.2d at 366; see also State v. Fennell, 307 N.C. 258, 263, 297 S.E.2d 393, 396 (1982) (even this court is“bound by the Rules of Appellate Procedure, and will not review matters *35 not properly before [it]” in “the absence of errorso fundamental” as to support the court's use of its power to suspend the rules under Rule 2).

Uniform application of this Rule is especially important because “[i]t is not the role of the appellate courts ... to create an appealfor an appellant.” Viar v. N.C. Dep't of Transp., 359 N.C. 400, 402, 610 S.E.2d 360, 361 (2005) (per curiam). Accordingly,this court should not, in effect, supplement Fannie Mae's arguments by inviting it to now assert issues that it previously andunequivocally abandoned. See Goodson v. P.H. Glatfelter Co., 171 N.C. App. 596, 606, 615 S.E.2d 350, 358 (2005) (“It is notthe duty of this Court to supplement an appellant's brief with legal authority or arguments not contained therein.”).

Finally, consideration of the §37(b) issue would violate this Court's venerable rule that “the law does not permit parties to swaphorses between courts in order to get a better mount in the Supreme Court.” Weil v. Herring, 207 N.C. 6, 10 (1934); see alsoState v. Whittington, 367 N.C. 186, 192-193, 753 S.E.2d 320, 324 (2014). Nothing could be a clearer “abandonment” than a



















party actively “conced[ing]” an issue. In the present case, Fannie Mae did not argue the applicability of §37(b) in the trial courtand expressly disclaimed its applicability at the Court of Appeals. In doing so, Fannie Mae made a strategic decision as to howit wished to proceed. In choosing not to argue the applicability of §37(b), it chose *36 its mount. Uniform application of theRules prohibits Fannie Mae from now hopping onto a new horse as it rides into this Court.

Nor does this matter rise to the level of “rare occasion[]” or “exceptional circumstance[]” that would warrant review under Rule2. See Dogwood, 362 N.C. at 201, 657 S.E.2d at 367. As this Court has held, “Rule 2 must be applied cautiously.” State v. Hart,361 N.C. 309, 315, 644 S.E.2d 201, 205 (2007). The text of Rule 2 provides only two instances “in which an appellate court maywaive compliance with the appellate rules: (1) ‘[t]o prevent manifest injustice to a party’; and (2) ‘to expedite decision in thepublic interest.”’ Id. (quoting N.C. R. App. Pro. 2). “Rule 2 relates to the residual power of our appellate courts to consider, inexceptional circumstances, significant issues of importance in the public interest or to prevent injustice which appears manifestto the Court and only in such instances.” Id. (citing Steingress v. Steingress, 350 N.C. 64, 65, 511 S.E.2d 298, 299 (1999)).

Fannie Mae has not argued, let alone shown, how this is a rare or exceptional situation. Fannie Mae, a “mortgage-finance

giant” 5 massive and exceptionally sophisticated entity, made a conscious decision to not pursue an issue. The only exceptionalcircumstance would be if it were now allowed to raise *37 that issue after having knowingly and intentionally abandonedit at the Court of Appeals.

Furthermore, Fannie Mae has not shown that the applicability of §37(b) to this case is a “significant issues of importance inthe public interest.” Nor can it. That section was in effect from its enactment in 1969 until its replacement in 2011. During themore than 40 years of its existence, it was never once the subject of a single appellate case. It is impossible to see how it canhave become a significant issue of importance to the public interest only now after it has been superseded.

Nor has Fannie Mae shown that failure to consider the issue would lead to a “manifest injustice.” First, Fannie Mae's COAResponse Brief, and the absence of cases addressing the issue, demonstrate that the applicability of §37(b), if any (which the

Trust denies), is not “manifest.” Fannie Mae, a lender with over $3.2 trillion in assets, 6 believed that the inapplicability of thatstatute to loans made during the 15 year period was so well-established that there was no reason to contest the issue. FannieMae's interpretation was directly in line with a prior decision of this Court that had previously construed the same language tofind that it did not apply to loans (such as the Lend Lease loan) made within the 15 year period. Smith, 228 N.C. at 178-81,45 S.E.2d at 56-57. Ultimately, the legislature *38 enacted a new statute with language that clearly covers all loans. Underthose facts, any contrary construction of the statute could not be so “manifest” as to warrant the Court deviating from a uniformapplication of the Rules.

Nor would failure to consider the applicability of §37(b) work an “injustice” on Fannie Mae. Again, Fannie Mae-a highlysophisticated litigant-made a decision not to pursue an issue. That is a decision that appellants and appellees often make, andexcept under the most rare occasions and exceptional circumstances, they are held to that choice. In holding Fannie Mae toits choice, the Court would not be working an injustice. Rather, it would only be making Fannie Mae play by the same rulesas everyone else.

Finally, declining to consider the issue would not harm the public interest, however, granting Fannie Mae relief based on thatissue could. Fannie Mae's prior concession that §37(b) was inapplicable shows that the Court of Appeals' holding on that issuedid not change the law as it was understood by lenders within this State. For over forty years, lenders, borrowers, and titlecompanies have conducted their business with a belief that the statute did not apply to parties who advanced money or purchasedproperty within the fifteen year period.

On the other hand, adopting a contrary construction of §37(b) at this late date (following enactment of its replacement statute)could lead to additional litigation and the frustration of parties' legitimate expectations based on prior law. *39 It could affect

some untold number of mortgages made within the last 30 years. 7 By retroactively invalidating mortgages that all parties (i.e.,









the initial lender, the intervening lender, and the debtor) accepted were valid, it would give a windfall to the intervening lenders,and one which they never expected.

This is especially problematic because it would, in effect, invalidate liens that the new statute (§36.24) ostensibly allowedto be preserved. That is, pursuant to §37 (2011) and §36.24(b), any liens that were already deemed satisfied on 1 October2011 pursuant to prior law on G.S. 45-37 remain satisfied. For all other security instruments recorded before 1 October 2011,§36.24(b)(1)(c)(3) provided that such unexpired liens could be extended by recording a Lien Extension Agreement or a Noticeof Maturity Date before 1 October 1, 2011.

That clause was only necessary because the new statute was working a substantive change on the law applicable to pre-1 October2011 security instruments. Specifically, the new statute's automatic lien expiration is also applicable to subsequent loans madeduring the 15-year period. That distinction made it necessary to address loans that would be expired under the new statute butnot under the prior statute. However, if § 45-37(b) were interpreted to apply to intervening loans, there would be no distinction,and no need for that provision in *40 § 36.24. As a result, if this Court now adopted a contrary interpretation of § 45-37(b), itwould, in effect, invalidate security instruments that lenders properly attempted to extend pursuant to the new life of lien statute.

In any event, even if this Court were to consider the issue, prior §37(b) could not properly be interpreted to benefit interveninglenders because such a construction would be contrary to legislative intent and the rules of statutory construction.

B. The legislative history of G.S. § 45-37(b) and G.S. § 45-36.24 (2011) indicate that § 45-37(b), as in effect in 1991 and1999, was not intended to extend to loans made during the 15-year statutory period

Any question concerning the applicability of §37(b) requires this court to construe that statute pursuant to this Court's well-established rules of statutory construction. “The primary rule of construction of a statute is to ascertain the intent of the legislatureand to carry out such intention to the fullest extent.” Burgess v. Your House of Raleigh, Inc., 326 N.C. 205, 209, 388 S.E.2d134, 137 (1990).

“[W]hen the language of a statute is ambiguous, this Court will determine the purpose of the statute and the intent of thelegislature in its enactment. In these situations, the history of the legislation may be considered in connection with the object,purpose and language of the statute in order to arrive at its true meaning. However, [w]hen the language of a statute is clear andwithout ambiguity, it is the *41 duty of this Court to give effect to the plain meaning of the statute, and judicial constructionof legislative intent is not required.” Applewood Props., LLC v. New South Props., LLC, 366 N.C. 518, 522 (2013) (quoting Inre Foreclosure of Vogler Realty, Inc., 365 N.C. 389, 392, 722 S.E.2d 459, 462 (2012)) (alterations in original). In the presentcase, the statute at issue did not unambiguously state whether it did, or did not, apply to a lender who extended credit withinthe 15-year period. Accordingly, construction would be necessary.

In this case, Fannie Mae argues, in effect, that § 45-37(b) should be interpreted to mean that the conclusive presumption ofsatisfaction should apply irrespective of whether Lend Lease extended credit before or after the expiration of the 15 yearstatutory period. However, that interpretation ignores that, in response to the Smith case, the legislature added language thatwould have achieved Fannie Mae's desired result and then removed that language in a subsequent amendment.

Fannie Mae's argument also ignores that, in the new life of lien statute, the legislature has again revised the language tomake it irrelevant when the second loan was made (i.e., by removing the reference to “creditors or purchasers for a valuableconsideration”).

This legislative history shows that the legislature knew how the language had been/could be construed and knew how to enactlanguage to obtain a different result. Therefore, its affirmative action in 1969 to remove the 1951 language that *42 expendedthe presumption shows a clear legislative intent to restore the meaning the statute had in Smith.















This interpretation is consistent with (in fact, required by) every rule of statutory construction. First, as a fundamental matter,as a “statute[] in derogation of the common law,” §37(b) must be “strictly construed.” See Stone v. N.C. Dep't of Labor, 347N.C. 473, 479, 495 S.E.2d 711, 715, cert. denied, 525 U.S. 1016, 119 S. Ct. 540 (1998).

In the present case, the contractual rights between the Trust and Quicksilver arose under the common law. Additionally, theTrust's interest in the Note is the Trust's private property. Furthermore, through the Trust Deed, the Trust has a private propertyinterest in the Property itself. The trial court held that the statute “extinguished” those rights and interests. Clearly, there can benothing more “in derogation” of a right than the total elimination of it. Therefore, the statute at issue must be strictly construed.

Strict construction requires that the statute be construed “to encompass no more than is expressly provided.” Turlington v.McLeod, 323 N.C. 591, 594, 374 S.E.2d 394, 397 (1988); see also Wise v. Harrington Grove Cmty. Ass‘n, 357 N.C. 396,401, 584 S.E.2d 731, 736 (2003); Stone, 347 N.C. at 479, 495 S.E.2d at 715. Statutes in derogation of the common law must“be limited to their express terms, as those terms are naturally and ordinarily defined.” *43 Turlington, 323 N.C. at 594, 374S.E.2d at 397. Thus, “everything [should] be excluded from [the statute‘s] operation which does not clearly come within thescope of the language used.” Harrison v. Guilford County, 218 N.C. 718, 722, 12 S.E.2d 269, 272 (1940).

As a result of these rules, the unambiguous requirements of the statute should be enforced as written, but any ambiguousprovision(s) should be interpreted in the manner that would do the least harm to the Trust's common law contract withQuicksilver and its established common law property rights. If the statute does not clearly require that the Trust's common lawrights be limited or abridged, then the statute cannot be properly interpreted to mandate such a result.

In this case, it is not clear from the scope of the language used in §37(b) (1991) that the legislature intended to extend thepresumption to all creditors, irrespective of whether the credit was extended or the purchase was made before or after theexpiration of said 15 years.

There is (at best for Fannie Mae) an ambiguity on this point. This is shown most quickly in two ways. First, the languagewas so unclear that, in 1947, this Court had to construe it. Second, until called upon by this Court to brief the issue, FannieMae itself conceded that the statute did not require that result. Clearly, if Fannie Mae believed that the language of the statuteunambiguously required its desired result, it would have made some argument to that effect. Because the language of §37(b)does not clearly require that the Trust's common law rights be *44 extinguished in favor of a creditor who extended creditwithin the fifteen year period. Strict construction prohibits such an interpretation.

The rules of construction pertaining to statutory amendments also require that Fannie Mae's interpretation be rejected. First,“‘the legislature is always presumed to act with full knowledge of prior and existing law.”’ Polaroid Corp. v. Offerman, 349N.C. 290, 303, 507 S.E.2d 284, 294 (1998) (citing State v. Benton, 276 N.C. 641, 658 (1970) (other citation omitted)). Wherethe legislature “chooses not to amend a statutory provision that has been interpreted in a specific way, [this Court] may assumethat it is satisfied with that interpretation.” Id.

Application of this rule means that, when the legislature enacted §37(b) in 1969, it was presumed to act with full knowledge ofthe Smith v. Davis Court's interpretation of the pre-1951 language of G.S. § 45-37(5).

The basic facts in Smith were directly analogous to the present case. Specifically, in Smith:a. The plaintiff (“first lender”) loaned money to a property owner (“debtor”) subject to a promissory note secured by a deedof trust on the property;

b. Less than fifteen years after the maturity of the first lender's promissory note, the creditor defendant (“second lender”) alsoloaned money to the same debtor subject to a promissory note secured by a *45 deed of trust on the same property;


















c. The debtor failed to make payments as required on the first lender's loan for more than ten years, during which time, thefirst lender did not commence legal action;

d. The first lender did not file an affidavit extending its deed of trust as permitted by the statute;

e. The debtor defaulted on the second lender's loan;

f. The debtor subsequently made partial payments to the first lender, reviving the statute of limitations;

g. The second lender caused the debtor's interest in the property to be sold at sheriff's sale to a purchaser (the “second lender'spurchaser”);

h. The first lender then asserted its right to enforce its lien against the property under its deed of trust.

Smith, 228 N.C. at 178-81, 45 S.E.2d at 56-57, 1947 N.C. LEXIS 590 at 2-8, 15-22.

Under those facts, this Court held that the conclusive presumption under the statute was not available to the second lender-orto the second lender's purchaser because the second lender could not have relied on the presumption at the time it extendedcredit to the debtor. See id. at 178-81, 45 S.E.2d at 56-57 (“[T]he statute should apply only in favor of creditors who have adebt which was *46 ‘contracted on the faith of the statutory presumption’; and [such] faith could not possibly arise prior tothe expiration of the fifteen year period, - the presumption under the statute not arising until the termination of fifteen years.”)(citing Hicks, 189 N.C. at 319, 127 S.E. at 207).

To arrive at that conclusion, the Court noted the “well established rule of construction in this State that when the meaning of anact of the General Assembly is in doubt, reference may be had to the title and context of the act of legislative declarations of thepurpose of the act, - the intent and spirit of the act controlling in its construction.” Smith, 228 N.C. at 179-180, 45 S.E.2d at 57.

The act that created C.S. § 2594.5 (the direct predecessor to § 45-37(5)), was entitled:

An Act to Facilitate the Examination of Titles and to Create a Presumption of Payment of InstrumentsSecuring the Payment of Money After Fifteen Years from the Date of the Maturity of the Debts SecuredThereby

1923 N.C. Sess. Laws 192 [App. 28-29].

From that, this Court determined that “the primary purpose” of the act was to facilitate the examination of titles in order to“promote freer marketability in cases where old and unsatisfied mortgages and deeds of trust, securing debts, were hamperingreal estate transaction.” Id. at 180, 45 S.E.2d at 57. Extending the presumption to persons who extended credit before theexpiration of the fifteen year period did not further that purpose because it would have no effect at the *47 crucial moment i.e.,the time when the subsequent lender made its decision to advance credit. Therefore, the “economic purpose [of the statute was]adequately accomplished by furnishing protection to parties who extend[ed] credit or purchase for a valuable consideration‘from and after’ the expiration of the fifteen year period.” Id.

In addition to knowledge of the Smith case, the 1969 legislature is also presumed to have acted with full knowledge of thelanguage of the 1951 amendment, which (temporarily) made the presumption “irrespective of whether credit was extended orthe purchase was made before or after the expiration of said 15 years.”









As a result, the legislature knew: (a) how the Supreme Court had previously interpreted the phrase “as against creditors orpurchasers for a valuable consideration” and (b) how to draft the language in a way to avoid the Supreme Court's interpretation.Despite that (or, likely, because of that), in the 1969 amendment, the legislature removed the phrase “irrespective of whetherthe credit was extended or the purchase was made before or after the expiration of said 15 years,” and returned the substanceof the section to its pre-1951 state.

That is, in 1969, the legislature again enacted the same language that it knew the Supreme Court had previously construed toinvalidate claims such as Fannie Mae‘s. This Court should therefore assume that, by doing so, the legislature *48 indicatedthat it was satisfied with the Smith interpretation and was intentionally restoring that effect.

The 1969 legislature's intent to restore the pre-1951 status is further demonstrated by the rule that “[i]n construing a statute withreference to an amendment it is presumed that the legislature intended either (a) to change the substance of the original act, or(b) to clarify the meaning of it.” Childers v. Parker's, Inc., 274 N.C. 256, 260, 162 S.E.2d 481, 483 (1968) (citation omitted).Ray v. N.C. DOT, 366 N.C. 1, 8-9 (2012).

The Trust believes that the Smith Court properly interpreted § 37(5) and that the 1951 amendment therefore changed the meaningof the statute. However, whether it did, or didn‘t, is irrelevant to the present issue. It could be argued that the 1951 amendmentclarified the meaning of § 37(5). That is, prior to that amendment, there was an ambiguity as to whether the legislature meantto extend the presumption to creditors whose loans were contracted within the fifteen year period. That 1951 amendment mayhave “clarified” that the presumption extended to all creditors without regard to when they made their loans.

In contrast, the 1969 amendment cannot be considered a clarifying amendment. It did not add any explanatory phrases nor didit revise any confusing language. All it did was remove the language that was arguably “clarifying” from the 1951 amendmentand restore the statute to its pre-1951 ambiguity Since it *49 didn't clarify, it is inescapable that the legislature must haveintended the amendment to “to change the substance of the original act.” See Childers, 274 N.C. at 260, 162 S.E.2d at 483.

And there was only one possible substantive change! The purpose of the language added in 1951 was to extend the presumptionto creditors who made loans during the fifteen year period. This substantive purpose is clearly demonstrated by the title of theAct that made that amendment; specifically:

An Act to Amend G.S. 45-37 So As to Make the Provisions of Paragraph 5 Relating to Mortgages and Deedsof Trust Applicable to Cases Where Credit has been Extended or a Purchase Made During the Fifteen-YearPeriod Therein Described.

1951 N.C. Sess. Laws 292 [App. 42]. By removing the language added in 1951, the legislature substantively changed the 1951rule. As a result, the fifteen-year presumption (once again) only applies in favor of creditors who contract for their interestsafter the expiration of the fifteen year period.

Further support for that conclusion is provided by the legislature's 2011 enactment of §36.24. That is because “[l]ater statutoryamendments provide useful evidence of the legislative intent guiding the prior version of the statute.” Wells v. Consol. JudicialRet. Sys., 354 N.C. 313, 318, 553 S.E.2d 877, 880 (2001); see also Williams v. Williams, 299 N.C. 174, 180-81, 261 S.E.2d849, 854 (1980) (“Statutes dealing with the same subject matter must be construed in pari materia, *50 as together constitutingone law, and harmonized to give effect to each.”) (internal citations omitted).

As it did in 1951, the legislature has once again amended the life of lien statute to extend the conclusive presumption to allcreditors, without regard to when they contracted for their debt. Specifically, in the new Automatic Lien Expiration statute, thelegislature has removed the specific language that Smith construed. That is, the new statute no longer states that the presumptionis “as against creditors or purchasers for a valuable consideration.” Rather, the new statute simply provides, as an absolute,











that “the lien of a security instrument automatically expires, and the security instrument is conclusively deemed satisfied ofrecord....”

In its brief to the Court of Appeals, Fannie Mae accurately analyzed the effect of that change as follows:

The older statute on which the trial court relied in Part (Section 45-37(b)) provides [that the conclusivepresumption as] as against creditors or purchases for valuable consideration .... The appellate courts haveinterpreted this older statute, holding that the presumption does not apply where the new interest arosewithin the 15 year period, as opposed to after it.... However, the new statute on which Fannie Mae relies,N.C.G.S. § 45-36.24 (b), contains no such limiting language. That is, the old Section 45-37 (b) created apresumption of satisfaction for creditors and purchases for valuable consideration. The new statute Section45-36.24 (b) contains no such limiting language; rather, the new statute provides that the lien is extinguishedas to all, not a specified group, of creditors.... The new statute says nothing about presumptions which applyonly to a certain *51 class of creditors or purchases. Instead, the new statute provides extinguishment ofoperation by law....

FNMA's COA Brief, pp 13-14.

Like the 1951 amendment, the 2011 recodification demonstrates that the legislature understands how to draft the statute to getthe result desired by Fannie Mae. The fact that it chose not to do so at any time between 1969 and 2011 further indicates thatthe legislative intent behind §37(b) (1991) and §37(b) (1995) was to limit the presumption to debts contracted for after theexpiration of the fifteen year period.

In contrast to the proper application of the above rules of statutory construction, Fannie Mae's argument for application of§37(b) is predicated entirely on a misapplication of the rule that when statutory language is in doubt, the title of an act should beconsidered in ascertaining the intent of the legislature. See FNMA's New Brief, p 91; see also State ex rel. Cobey v. Simpson,333 N.C. 81, 90, 423 S.E.2d 759, 764 (1992); Smith, 228 N.C. at 179, 45 S.E.2d at 57.

In its new brief, Fannie Mae accurately notes that “N.C.G.S. §45-37(5), the statute at issue in the Davis case was originallyenacted in 1923 and contained language nearly identical to the language in 45-37(b)” at issue in this case. FNMA's New Brief, p18. However, Fannie Mae then goes on to argue that the nearly identical language has exactly opposite meaning in the two actsbecause “the title of the act passed in 1923 is not the title of the acts which enacted 45- *52 37(b) (2011) or 45-37(b) (1991).Id. Fannie Mae's analysis on that issue fails because it focuses only on the title of acts that made minor technical amendmentsto the statute, but those technical amendments did not change the purpose of underlying statute itself.

As noted above, the statutory automatic lien expiration provision began life as C.S. § 2594.5 (1923) and was subsequentlyrecodified in 1943 as G.S. § 45-37(5), in 1969 as G.S. § 45-37(b), and in 2011 as G.S. § 45-36.24. Throughout that time, thebasic structure, and much of the language, has remained the same.

The version of the statute in effect at time of the Smith case was G.S. § 45-37(5) (1947). And yet, in its analysis, the Smith Courtlooked back to the title of the 1923 amendment that had created the provision. The Court noted that the “statute as originallyenacted by the General Assembly [was] captioned ‘An Act to Facilitate the Examination of Titles and to Create a Presumptionof Payment of Instruments Securing the Payment of Money After Fifteen Years from the Date of Maturity of the Debts SecuredThereby.”’ See Smith, 228 N.C. at 178, 45 S.E.2d at 56; see also 1923 N.C. Sess. Laws 192 [App. 28-29]. It then noted thatthe first clause of that caption indicated “the primary purpose of the act, that is, to facilitate the examination of titles. ‘Tofacilitate’ according to Webster's Dictionary, means ‘to make easy or less difficult, to free from difficulty or impediment.’ Inthis light *53 the provisions of the statute in respect to the presumption of payment, are prospective.” Smith, 228 N.C. at180, 45 S.E.2d at 57.



















The Court's reference to that 1923 act is significant for at least two reasons. First, it is significant because, as in this case, thecourt was applying a newer act but looking to the title of a superseded act to determine the present act's purpose. That is becausethe 1923 act was the act that created the automatic expiration provision. Therefore, it was the best place to go to determine thelegislative purpose behind the provision itself.

Second, the Court did not look at the title of any of the amendments to that act, even though C.S. § 2594 (1923) was technicallya different statute than G.S. § 45-37(5) (1947). Nor would doing so have shed any light on the purpose of the provision itself.

For example, G.S. § 45-37(5) was amended twice prior to Smith. In 1945, the legislature passed:

An Act With Reference to the Cancellation of Mortgages, Deeds of Trust and Other Instruments Securingthe Payment of Money, Amending Section Forty-Five - Thirty-Seven, Subsection Five, of the GeneralStatutes, Making It Applicable to Instruments Executed Prior to the Enactment of Such Subsection

1945 N.C. Sess. Laws 988 [App. 39]. That amendment (as the title of the Act stated), made § 45-37(5) applicable to instrumentsexecuted prior to the enactment of that subsection. Obviously, the purpose of that amendment (and the title of the *54 actmaking that amendment) did not change the fundamental purpose of the provision.

In 1947, the legislature passed “An Act to Amend Section 45-37 of the General Statutes Relating to the Discharge and Releaseof Mortgages and Deeds of Trust.” 1947 N.C. Sess. Laws 880 [App. 40-41]. That amendment filled a “donut hole.” That is, itextended the application of subsection 37(5) to a ten month period that had inadvertently been left out of previous amendments.

As with the 1945 amendment, the 1947 amendment did not affect the basic effect of the subsection, nor did the title of theamending act suggest that the legislature had any intent to change the actual purpose of the subsection. In both cases, the titleof the amending act reflected only the purpose of the amendment.

Fannie Mae's present argument is based entirely on the 1991 and 2011 amendments to the automatic expiration provisionrecodified in 1969 as §37(b). Tellingly, Fannie Mae addresses the captions of those amendments but provides no substantiveanalysis of the actual amendments themselves. That omission is understandable, because even a cursory review of thoseamendments reveals that they had no impact on the provisions of § 37(b) that are relevant to this case.

The 1991 amendment made changes to seven different statutes. The purpose of those amendments-as stated by the captionof the amending act and as reflected by the text of the amendments themselves-was “To Require Registers *55 Of DeedsTo Record As Separate Instruments All Subsequent Entries Regarding Deeds Of Trust, Mortgages, And Other Instruments AsSeparate Instruments.”

The 1991 amendments to § 37(b) changed the manner to extend a lien. Specifically, they eliminated the option to extend the lienby making a notation on the margin of the lien. Instead, the only way to extend the lien was by recording a “separate instrument.”

The 1991 amendments did not in any way change the subsection's provisions regarding when the presumption would arise ifthe lien were not extended, nor did they alter the provision's language that the presumption only applied “as against creditorsor purchasers for valuable consideration.” Those are the provisions at issue in this case.

The 2011 amendments were captioned:

An Act To Modernize And Enact Certain Provisions Regarding Deeds Of Trust, Including Releases, ShortSales, Future Advance Provision Terminations And Satisfactions, Terminations And Satisfactions ForEquity Line Liens, Release Of Ancillary Documents, Eliminating Trustee Of Deed Of Trust As NecessaryParty For Certain Transactions And Litigation, And Indexing Of Subsequent Instruments Related Thereto.



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Those amendment made numerous changes to numerous statutes, all consistent with the title of that amending act. See 2011N.C. ALS 312 [App. 71-99].

Those 2011 amendments included the creation of the new life of lien statute, §36.24. G.S. § 45-37(b) was amended to make it“apply only to security *56 instruments securing the payment of money or securing the performance of any other obligationor obligations that were conclusively presumed pursuant to [that] subsection to have been fully paid and performed prior toOctober 1, 2011. All other security instruments shall be subject to the provisions of G.S. 45-36.24.” Like the 1991 amendments,the 2011 amendments to § 37(b) did not alter the provision's language that the presumption of satisfaction only applied “asagainst creditors or purchasers for valuable consideration.”

As is clear from the actual text of the amendments, the captions of the 1991 and 2011 acts referred only to the purpose of theamendments that were actually being made, and not to the purpose of the multiple acts that were being amended by each act.The Smith Court correctly looked to the title of the 1923 act because that was the act that created the subsection itself.

As Fannie Mae itself has acknowledged, the language of § 37(b) that is critical to this case is “nearly identical” to the languageof the 1923 act. See FNMA's New Brief, p 18. Because of that, the purpose given in the 1923 act remains the fundamentalpurpose of the statute, i.e., “to facilitate the examination of titles and to create a presumption of payment of instruments securingthe payment of money after fifteen years from the date of the maturity of the debts secured thereby.” Accordingly, the Smithcase continues to be controlling on the question of the meaning of that language. As such, the presumption provided for *57by § 37(b) does not apply in cases such as this where the second creditor contracted for its debt prior to the expiration of thefifteen year period.

II. G.S. § 45-36.24 CANNOT CONSTITUTIONALLY BE APPLIED TO BAR THESE ACTIONS

This case is controlled by this Court's holding in Flippin v. Jarrell and by a long line of United States and North CarolinaSupreme Court cases. Those cases hold that “the legislature may, without affecting vested interests, shorten or extend a pre-existing period of limitation. If the new statute shortens the period, however, it must, to comport with due process, provide areasonable time for filing actions which have accrued but which have not been filed when the new statute takes effect.” Flippinv. Jarrell, 301 N.C. 108, 113, 270 S.E.2d 482, 486 (1980) (citing Wilson v. Iseminger, 185 U.S. 55 (1902); Turner v. NewYork, 168 U.S. 90 (1897); Graves v. Howard, 159 N.C. 594, 75 S.E. 998 (1912) (other citations omitted); see also, e.g., Vancev. Vance, 108 U.S. 514, 2 S. Ct. 854 (1883); Terry v. Anderson, 95 U.S. 628 (1877) Gregg v. Williamson, 246 N.C. 356, 98S.E.2d 481 (1957); Strickland v. Draughan, 91 N.C. 103 (1884).

In Flippin, this Court suggested that any “grace period” of less than five months would be manifestly unreasonable. In thiscase, the grace period provided by the new statute (i.e., §36.24) was barely three months. Accordingly, the new statute cannotconstitutionally be applied to this case because the 95 days between *58 enactment and effective date was not a reasonabletime for filing actions that had accrued but which had not been filed when the statute took effect.

Notwithstanding the above, the procedural posture of this case, taken in light of the purpose and provisions of both the newstatute and the older statute, allow a means by which the constitutional issue can be avoided. That is, this Court could hold that,for purposes of these actions, the lien of the Trust Deed is not expired because: (a) the Trust's Filing Extension was granted priorto 1 October 2011 and (b) the Trust thereafter filed a verified complaint within the 20 days allowed, which verified complaintcontained the information required for an affidavit under §37(b) (2009).

A. Fannie Mae's failure to address the actual standard shows that it is trying to throw up a smoke screen


















Although Fannie Mae now alleges that the new statute is merely a statute of limitation, its new brief fails to address, or evenacknowledge, Flippin, or any of the other binding cases that set forth the standard of review for cases that shorten statutes oflimitation. This is especially telling because Fannie Mae has had multiple opportunities to do so. Instead, it has tried a varietyof tactics to avoid the issue.

Its first tactic has been a veiled implication that consideration of the issue is somehow illegitimate. In its New Brief, FannieMae states that the Trust argued *59 the constitutional issue “by way of reply brief to the Court of Appeals,” as if to suggestit is somehow being ambushed by the issue. The record says otherwise.

At trial, Fannie Mae argued for the applicability of the new statute. The Trust argued against the new statute on several differentbases, including that retroactive application of the new statute would be unconstitutional. Judge Davis avoided the constitutionalissue by ruling solely on the basis of the older statute, § 45-37(b).

The Trust appealed Judge Davis's ruling on § 45-37(b), which had no constitutional implications because § 37(b) did not requireretroactive application. The Trust had no obligation to argue against application of statutes (such as § 45-36.24) that the Judgehadn't applied.

In its COA Brief, Fannie Mae conceded that application of § 37(b) was inappropriate because of this Court's holding in Smith v.Davis. It then argued the applicability of the new statute and equitable subrogation as alternative bases to support the judgment.See FNMA's COA Brief.

In reply to Fannie Mae's new issues, the trust raised constitutional defenses that were applicable to the new statute proffered byFannie Mae's COA Brief but not applicable to the Judge's actual ruling. Those constitutional arguments included a discussionof Flippin's requirement that a statute shortening a period of *60 limitation must provide a reasonable time for filing accrued

but unfiled claims. See Trusts COA Reply pp 10-12. 8

Fannie Mae never sought leave to file a sur-reply to address the constitutional issues raised in the Trust's Reply. Nor did FannieMae submit additional authorities to support the constitutionality of retroactive application of the new statute. Rather, it movedto strike the Trust's Reply Brief because it had raised constitutional issues. Upon review, the Court of Appeals denied that

motion. 9 The Court then considered the arguments raised by the Trust, and found for the Trust on the constitutional issue.See Falk Trust, 738 S.E.2d at 410.

Thereafter, Fannie Mae timely filed its Petition for Rehearing with the Court of Appeals. Although that petition addressed theissue of constitutionality, Fannie Mae addressed none of the cases requiring that a new statute provide a reasonable time for

filing accrued claims. See FNMA's Petition for Rehearing. 10

Following denial of its Petition for Rehearing 11 Fannie Mae filed its Notice of Appeal and Petition for Discretionary Reviewwith this Court. Through that, *61 Fannie Mae once again addressed the issue of constitutionality-and once again ignored the

issues raised by Flippin. See FNMA's Notice and Petition, pp 12-16. 12

In its response to Fannie Mae's Notice and Petition, the Trust once again raised Flippin's application to this case. See Trust's

Response to FNMA's Notice and Petition, pp 31-35. 13 And yet, despite three opportunities to address the issue of the requiredgrace period (i.e., in its Petition for Rehearing, Notice of Appeal and Petition for Discretionary Review, and now its New Brief),Fannie Mae has assiduously avoided doing so.

Rather, Fannie Mae's second tactic for dealing with the Flippin/Turner/Vance/Gregg et al. standard is to simply deny that itexists. That is, Fannie Mae's entire discussion of the issue boils down to this:







[Prior to 1 October 2011], Plaintiff had a long standing, statutorily-mandated method to prevent expirationof its deed of trust at the fifteen year mark (i.e., the filing of an affidavit or separate instrument). Thesemethods would have protected Plaintiff under all versions of N.C.G.S. §45-37(b) and the new life of lienstatute, N.C.G.S. §45-36.24. Plaintiff, however, chose not to avail itself of either of these tools. Under thesecircumstances, where Plaintiff had many years, pursuant to N.C.G.S. §45-37(b) to postpone expiration ofthe Falk Deed of Trust, but failed to do so, no grace period is necessary.

FNMA's New Brief, p 31 (emphasis added).

*62 Fannie Mae offers no support for that proposition for one very simple reason-it cannot. The assertions in that paragraphare one part legally irrelevant and two parts legally false. First, it is irrelevant that the Trust could have, conceivably, takenactions prior to the enactment of the new statute that would have protected it from that new statute's effects. In virtually allof the cases that address the issue, the plaintiff could have earlier preserved its rights if it had known that the legislature wasgoing to change the rules at some point in the future. But plaintiffs are only required to comply with statutes that exist, notstatutes that might someday exist.

Second, contrary to Fannie Mae's assertion, the methods to extend a lien under §37(b) would not necessarily be effective toextend a lien under § 36.24(b) because the new statute requires more. Compare G.S. § 45-37(b) with §36.24. Section 37(b)allowed a secured party, without the signature of the debtor or property owner, to extend a lien simply by filing an affidavit that“specifically state [d]... [t]he amount of debt unpaid, which is secured by the security instrument.” Section 36.24(b), however,does not grandfather in § 37(b) affidavits. Rather, it provides that the lien of a security instrument may only be “extendedin the manner prescribed in subsection (c), (d), or (e).” Under those subsections, a lien can only be extended by a “LienMaturity Extension Agreement” (which, among other additional requirements, must be signed by the property owner, see §*63 36.24(d); see also § 36.24(b) and (c)) or a “Notice of Maturity Date” (which is required to state the maturity date of the

secured obligation and is limited to 15 years from the maturity date, see § 36-24(e)). Accordingly, a § 37(b) affidavit wouldnot have protected the Trust under the new statute.

Finally, Fannie Mae's assertion that “no grace period is necessary” is directly contrary to the binding precedent of this Courtand the U.S. Supreme Court. It is black letter law that, in order to be constitutional, an act that creates a new statute of limitationor shortens an existing statute of limitations must provide a reasonable grace period. See Flippin, 301 N.C. at 113, 270 S.E.2dat 486; see also cases cited supra, p 55.

Fannie Mae's final tactic has been to argue that the new statute is “a legitimate exercise of the state's police power, serves alegitimate public interest, is rationally related to that interest, and its enactment merely modified a remedy.” FNMA's NewBrief, pp 33-34, 39-40.

But that argument entirely misses the point and clouds the issue. None of the cases cited by this Court or the Supreme Court of theUnited States-that have looked at the issue of retroactive application have ever turned on whether the statute was “a legitimateexercise of the Legislature's police power,” “serve [d] a legitimate public interest,” or “was rationally related to serving thatinterest.” See, e.g., FNMA's New Brief, p 34. Although those issues are relevant to a statute's *64 basic constitutionality, theyare not exceptions to the rule that acts that shorten a statute of limitation must provide a reasonable time for the commencementof actions.

The Trust has never claimed, and the Court of Appeals did not find, that the statute was for any improper purpose or that it wasotherwise unconstitutional per se. Rather, the Trust argues only that, under the circumstances, the retroactive application of thisstatute to this plaintiff in this case would improperly impair the obligations of contract or violate the Trust's right to due processbecause it did not provide a reasonable grace period. See U.S. Const. art. I, § 10; U.S. Const. amend. XIV, § 1; N.C. Const. art.







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I, § 19; see also Flippin, 301 N.C. at 113, 270 S.E.2d at 486. Accordingly, the relevant question is whether the 95 days providedby the new statute was manifestly unreasonable. It was. Accordingly, the new statute cannot be applied to this plaintiff's actions.

B. The new statute would violate the Trust's due process rights because it failed to provide a reasonable time for thefiling of accrued but unfiled actions

“[T]he Legislature of North Carolina is restrained by Article I, section 10, of the Constitution of the United States, and Article I,sec. [19], of the Constitution of North Carolina, not only from passing any law that will divest title to land out of one person andvest it in another (except where it is taken for public purposes after giving just compensation to the owner), but from enforcingany statute which *65 would enable one person to evade or avoid the binding force of his contracts with another, whetherexecuted or executory.” Hicks, 189 N.C. at 319, 127 S.E. at 207 (citations omitted). By allowing the initial debtor to avoidhis obligations under the Trust Deed and, in effect, divesting the initial creditor of its equitable interest in the land, retroactiveapplication of recording statutes such as § 36.24(b) can have those proscribed effects.

Notwithstanding those constitutional limitations, “[t]he power of the Legislature to require recordation or rerecordation ofmortgages to protect the mortgagor's right against claim of purchasers for value has been consistently recognized.” Gregg,246 N.C. at 361, 98 S.E.2d at 486 (considering retroactive application of G.S. § 45-37(5) (1945), a predecessor statute to §45-36.24(b)); see also Vance, 108 U.S. at 521, 2 S. Ct. at 859 (1883 case construing a Louisiana recording statute).

Recording statutes, such as § 36.24(b), may be considered “remedial statutes” because they relate to remedies and (arguably)“do not create new or take away vested rights, but only operate in furtherance of the remedy or confirmation of rights alreadyexisting.” See Smith v. Mercer, 276 N.C. 329, 338, 172 S.E.2d 489, 495 (1970) (citation and internal quotation omitted). Statutesof limitation are remedial statutes because (unlike statutes of repose) they affect only the remedy directly and not the right torecover. Under this Court's prior reasoning in Gregg, *66 the new statute is likely a remedial statute of limitations. See Gregg,246 N.C. at 361, 98 S.E.2d at 486.

Retrospective operation of a remedial statute, while not categorically prohibited, is subject to two important limitations. First,“[t]here is always a presumption that statutes are intended to operate prospectively only.” Hicks, 189 N.C. at 319, 127 S.E. at207 (citation and internal quotations omitted). A statute should not be given retroactive effect unless the words of the statute“are so clear, strong and imperative that no other meaning can be annexed to them.” Id.

The new statute clearly states that, with limited exceptions, it “applies to all security instruments, whether recorded before, on,or after October 1, 2011.” §36.24(k). Therefore, the presumption against retroactive application does not apply in this case.Rather, application of the new statute to this case is prohibited by substantive due process concerns.

Under the Fourteenth Amendment to the national Constitution, no state may deprive any person of property without due processof law. “The important question arising upon the statute, as applied to a case like the present, is whether it extinguishes rightsarbitrarily, and therefore violates the fourteenth amendment.” Schauble v. Schulz, 137 F. 389, 391-392 (8th Cir. N.D. 1905). Thatis because “[i]t is an essential requisite of due process of law that full opportunity be afforded for the assertion and enforcementof the right after it comes within the present or *67 prospective operation of such a statute and before the extinguishmenttakes effect. A statute which does not afford this opportunity is arbitrary, and violates the constitutional prohibition, but, if theopportunity be afforded, it is no objection to the statute that it has some regard to the past acts and omissions of the partiesconcerned, or to conditions produced by past occurrences, and is therefore not wholly prospective.” Id. see also cases citedthereat.

Because of these concerns, North Carolina and federal courts have long held that, if a new statute of limitation shortens theperiod, “it must, to comport with due process, provide a reasonable time for filing actions which have accrued but which havenot been filed when the new statute takes effect.” Flippin, 301 N.C. at 113, 270 S.E.2d at 486; see also, e.g., Texaco, Inc. v.

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Short, 454 U.S. 516, 527 n.21, 102 S. Ct. 781, 791 n.21 (1982); Terry, 95 U.S. at 632; Vance, 108 U.S. at 521, 2 S. Ct. at 859;Turner, 168 U.S. at 94, 18 S. Ct. at 40; Gregg, 246 N.C. at 361, 98 S.E.2d at 486; Strickland v. Draughan, 91 N.C. 103 (1884).

The question of what constitutes a reasonable time for filing accrued actions that would be cut off by the new statute must bedetermined in the first instance by the judgment of the Legislature. “Courts ordinarily will not inquire into the wisdom of alegislative determination as to the grace period to be afforded unless the time allowed is so insufficient as to constitute a denialof justice.” Flippin, 301 N.C. at 115, 270 S.E.2d at 487; see also Terry, 95 U.S. at 633. A grace period *68 is unreasonable“if the time afforded for bringing suit on existing causes of action is so short that the right to sue is ‘practically denied.”’ Id.(citation omitted).

Flippin involved a statute that changed the time of accrual of malpractice actions and shortened the limitation period from tenyears to four years. Flippin, 301 N.C. at 112, 270 S.E.2d at 485. That law was enacted on 12 May 1976 to become effective 1January 1977 (approximately seven months later). Id.; see also G.S. §1-15(c) (1977).

Plaintiff was injured at birth on XX/XX/1972, but her injury was not “discovered” until 22 November 1976. Under the statutein effect at the time of that discovery, her cause of action accrued upon discovery (22 November 1976) and expired ten yearsthereafter. However, the revised statute provided that her action accrued on 11 March 1972 and expired four years thereafter(11 March 1976).

Plaintiff filed her action on 19 December 1977, approximately 19 months after the new statute was enacted and almost 12months after it became effective. Id. at 110, 270 S.E.2d at 484.

The Court particularly noted that, “the new statute, if properly applicable, effectively barred plaintiff's action immediately uponthe statute's taking effect.” Id. at 114, 270 S.E.2d at 487. That is, although (like this case) there was a grace period betweenthe statute's date of enactment and its effective date, there was no *69 grace period following the effective date. As a result,plaintiff had only 39 days after discovery of her injury in which to bring her action under the older law. If she failed to do so,the new statute would immediately have barred her cause of action retroactively to 11 March 1976.

On those facts, this Court determined that the grace period at issue was manifestly unreasonable as applied to that plaintiff. Id.at 116-117, 270 S.E.2d at 488. Accordingly, the shortened limitation could not be applied in that case.

The Flippin decision suggests that, in North Carolina, any grace period less than five months is unreasonable. The Court notedthat it could not find a North Carolina case that had ever approved a grace period shorter than five months. Id. at 115, 270S.E.2d at 487 (citing Matthews v. Peterson, 150 N.C. 132, 63 S.E. 722 (1909) (where the plaintiff waited “more than a year”after the new statute's enactment and “nearly eight months after” the future date set for it to go into effect before filing hisaction). It also noted that it had previously deemed a six-month grace period unreasonable. Id. (citing Blevins v. Utilities, Inc.,209 N.C. 683, 184 S.E. 517 (1936)).

In Matthews, a 1905 statute shortened a limitation with regard to when certain estate actions had to be brought. That act wasenacted on 6 March 1905 to go into effect 1 August 1905. Plaintiff initiated his action on 23 March 1906. In addition to lookingat the grace period itself (approximately five months), the *70 Court also considered plaintiff's delay in filing the action afterthe effective date. The Court noted that plaintiff waited “more than a year” after the new statute's enactment and “nearly eightmonths after the future day set for its going into effect” before filing his action. “Not having moved ‘in a reasonable time’after the passage of the act,” plaintiff was justly bound by the amended statute of limitation. Matthews, 150 N.C. at 132-134,63 S.E. at 722-723.

In Blevins, the defendant electric utility caused injury to plaintiff's land by its construction and maintenance of a substationand power lines. The previously-existing statute had given land owners 20 years within which to bring their action for damagesto their land. A 1923 act reduced that period to six months and barred any accrued actions that were not commenced within
























six months after the passage of the act. Blevins, 209 N.C. at 685-686, 184 S.E. at 519. On those facts, the Court held that thesix-month grace period “must be held to be unreasonable, violative of the rights guaranteed by the Constitution of the UnitedStates, and therefore void.” Id. at 686, 184 S.E. at 520.

After noting this Court's Matthews and Blevins decisions, the Flippin Court looked to cases from other jurisdictions. In doingso, it restricted its analysis to cases wherein the grace period at issue was five months or less. It favorably noted seven caseswhere grace periods of five months or less were held to be “unreasonably short and, therefore, constitutionally insufficient.”See *71 Flippin, 301 N.C. at 115, 270 S.E.2d at 487. Specifically, the Court favorably noted the following cases:

Lamb v. Powder River Live Stock Co., 132 [F.] 434 (8th Cir. 1904) (three month period within which suiton certain judgments rendered outside the state had to be commenced within the state found unreasonable);Cutsinger v. Cullinan, 72 Ill. App. [3d] 527, 391 N.E. 2d 177 (1979) (fifteen days inadequate grace periodwithin which to bring a medical malpractice claim); Gilbert v. Ackerman, 159 N.Y. 118, 53 N.E. 753 (1899)(four and one-half month grace period regarding actions against a corporate director found unreasonable);Parmenter v. State, 135 N.Y. 154, 31 N.E. 1035 (1892) (eight-week grace period found to be unreasonable);Malossi v. McElligott, 166 Misc. 513, 2 N.Y.S. 2d 712 (1938) (four-month grace period within which tofile an action seeking review of an officer's determination deemed unreasonable); Adams & Freese Co. v.Kenoyer, supra, 17 N.D. 302, 116 N.W. 98 (1908) (three months and twenty-one days unreasonable graceperiod for institution of proceedings on mortgages): Relyea v. Tomahawk Paper & Pulp Co., 102 Wis. 301,78 N.W. 412 (1899) (sixty-one day grace period in regard to a personal injury claim found insufficient).

Id., at n.8.

The Illinois Supreme Court's Cutsinger decision, which the Court looked at favorably, involved a medical malpractice actionbrought under a statute similar to the one at issue in Flippin. Plaintiff was injured in October 1969, but did not discover theinjury until 4 September 1976. Under the statute in effect at the time she discovered her injury, plaintiff had the lesser of twoyears from discovery or ten years from defendant's last negligent act to file her claim. However, prior to her discovery of herinjury, the Illinois statute was amended so that the ten-year period was reduced to four years effective 19 September 1976 (i.e.,15 days after *72 discovery). Plaintiff “did not file her action until 13 January 1977, some seven years after the operation andapproximately five months after the amendment.” The Illinois Count found (and this Court agreed), that application of the newstatute would have denied plaintiff a constitutionally reasonable time. “[T]he new statute could not, therefore, bar her claim.”Id. at 116, 270 S.E.2d at 487-488; see also Cutsinger, 72 Ill. App. 3d 527, 528-530 391 N.E. 2d 177, 178-180 (1979).

The Flippin Court also noted four cases that “seem[ed] to approve shorter periods of limitation.” However, it found those cases“either distinguishable, in that they [did] not deal with statutes which shorten pre-existing periods, or simply unpersuasive.”Id. at 116, 117 n.9, 270 S.E.2d at 488, 488 n.9.

Based on Flippin, the grace period provided by § 36-24(b) is manifestly unreasonable as applied to this plaintiff. In the presentcase, the new Act provided only 95 days between its enactment date (27 June 2011) and its effective date (1 October 2011).See 2011 N.C. ALS 312 [App. 82-86]. As Flippin noted, no North Carolina case has ever found such a short period to be areasonable time.

Like the statute at issue in Flippin, the new life of lien statute, provided a grace period between its date of enactment and itseffective date. However, it provided no grace period (and certainly not any “reasonable period”) after the effective date for theTrust to file an action to enforce its rights. As a result, “if properly applicable, [the new statute] effectively barred plaintiff'saction *73 immediately upon the statute's taking effect.” See Flippin, 301 N.C. at 114, 270 S.E.2d at 487 (emphasis added);see also G.S. § 45-36.24(k).



















Under the law in effect on 30 September 2011, the Trust had rights under the deed of trust that, in the absence of the new Act,it could have enforced for several years following such date. If the new statute was applicable, when it took effect at midnighton 1 October 2011 (a Saturday), it would have immediately invalidated the Trust Deed because it was executed more than 15years prior to the date the new Act took effect.

The fact that the legislature provided for a 95-day period before the effective date does not change the “immediate” effect thatFlippin noted. Again, the statute in Flippin actually provided an eight month period between enactment and effective date.Numerous other cases that have found grace periods of less than five months to be unreasonable also involved statute withgrace periods from enactment to effectiveness.

That lack of a post-effective date grace period is always problematic. “Predictability is an important component of our commonlaw system.” Hill v. Mayall, 886 P.2d 1188, 1191 (Wyo. 1994) (citing Oliver Wendell Holmes, The Path of The Law, 10 Harv.L. Rev. 457 (1897). “People rely on the stability of the law when ordering their affairs.” Id. While it may be fair to expectplaintiffs to have knowledge of statutes that are actually in effect, the obvious reality is that *74 citizens do not generally checkthe daily bulletin to find out what new statutes are going to become effective at some point in the future. That is why, “[a]s ageneral rule a statute speaks as of the time when it takes effect and not as of the time it was passed.” Farmers Nat'l Bank & TrustCo. v. Berks County Real Estate Co., 333 Pa. 390, 395, 5 A.2d 94, 96 (1939); see also 73 Am. Jur. 2d Statutes § 252 (2014).

In Farmers, the Pennsylvania Supreme Court noted the “opinion of Judge COOLEY, in Price v. Hopkin (13 Mich. 318), insupport of the proposition that [a] statute begins to speak the moment it takes effect and not before, and, therefore, that theperiod intervening between its passage and its taking effect is not to be counted.” Farmers, 333 Pa. at 395, 5 A.2d at 96.In his work on Constitutional Limitations (*p. 366), that eminent jurist says that, ‘it is essential that such statutes allow areasonable time after they take effect for the commencement of suits upon existing causes of action.’... He takes this positionthat a statute has not, ex proprio vigore, any force until it becomes the law of the land, and that is when, by its terms, it takeseffect, and as up to that moment the party is allowed by the existing law a period for the commencement of his action, if at theinstant that the new statute takes effect the period is cut off, and the remedy forever barred, then the act is unconstitutional.

Id.

This Court has rejected Judge Cooley's holding that the period between the enactment of the statute and the date it becomesoperative is immaterial. See Matthews, 150 N.C. at 133-134, 63 S.E. at 722. However, his concerns show why a court shouldbe less deferential where no post-effective date grace period is *75 provided. The Flippin Court's comment on the immediateeffect of that statute strongly suggests that the Court considered that factor in finding the grace period unreasonable.

G.S. § 45-36.24(b)(1)c.3 (which provided a means to avoid the new statute's effects) does not alter this analysis. In fact, itillustrates the problem. That subsection provided that a lien could be extended by recording an affidavit or separate instrument“before October 1, 2011, and before the lien of the security instrument expired.” Id. (emphasis added). First, this requirementdid not exist until the new Act took effect, and, when the new Act did take effect, it was impossible for the Trust to then goback in time (to a date before 1 October 2011) to make such a recording. Second, it's not clear that even going to 30 September2011 (or any time after the new Act was enacted on 27 July 2011) would have sufficed because, if the new Act is applied asargued by Fannie Mae, the Trust's lien expired on 28 October 2009-almost two years before the new Act was even enacted.

Of the cases favorably cited by Flippin, this case is most similar to the North Dakota case of Adams & Freese Co. v. Kenoyer,17 N.D. 302, 116 N.W. 98, (1908).

In Kenoyer, the defendant's mortgage would have been deemed void under an amended statute, but would have survived underthe statute of limitation as *76 suspended by the prior statute. The amended statute was enacted on 10 March 1905 and tookeffect 1 July 1905. Kenoyer, 17 N.D. at 304, 116 N.W. at 98.


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The time between enactment and effective date of the Kenoyer statute “was but 3 months and 21 days”- days longer than the95-day grace period in Falk. See id. at 309, 115 N.W. at 100. In holding that grace period unreasonable as a matter of law,the Court opined that:

In that short space of time it would be almost an utter impossibility, even if they, in fact, acquired knowledgeof such law on the day it was enacted, for all persons, including residents and nonresidents, owning realestate mortgages on property in this state under which causes of action had accrued, to cause foreclosureproceedings to be instituted on all such mortgages. In considering the validity of such statute when appliedto existing causes of action, it is both just and reasonable to assume, what we all know to be true as a matterof common knowledge, that a large percent of such persons, especially nonresidents of the state, would not,in that short period of time, acquire knowledge that such a vitally important statute to them had been enacted.

Id., 115 N.W. at 100-101. What was true about mortgage actions in North Dakota in 1905 is equally true of mortgage actionsin North Carolina today. It is simply unrealistic to expect all persons affected by an entirely new law affecting mortgages tolearn about the law, analyze it, and take any newly-required actions all within 95 days.

Since Flippin, at least one other case has looked at similar facts and again found that a grace period of less than five months isunreasonable in regard to foreclosure actions. See Mayall, 886 P.2d at 1188.

*77 Mayall concerned defendant Mayall's action to foreclose on two commercial promissory notes. Prior to 1 July 1991,Mayall's claim on the notes was controlled by a ten year statute of limitations. However, on 7 February 1991, the legislatureenacted a new statute to go into effect on 1 July 1991 (i.e., “four months and three days later”-approximately one month longerthan the grace period in this case). That statute shortened the statute of limitations governing actions to enforce commercial notesto six years. The notes became due and payable on April 17, 1985. Id. at 1190-1191. Mayall filed suit on 23 March 1992 (almostfourteen months after the statute was enacted and nine months after the new bar went into effect on 1 July 1991). Id. at 1190.

On review, the Wyoming Supreme Court cited favorably to Kenoyer. The Court noted that “[p]redictability is an importantcomponent of our common law system.” Id. at 1191. “A contract is governed by the laws in effect at the time the agreement isexecuted. People rely on the stability of the law when ordering their affairs.” Id. (citations omitted). The Court therefore foundthat “four months and three days is, as a matter of law, an unreasonable time in which to expect all holders of commercialnotes to file claims.” Id. Accordingly, the new statute could not properly be applied, and the case was controlled by the tenyear statute previously in effect.

*78 In addition to length of the pre-bar grace period, the court may also consider the delay from the effective date untilplaintiff's filing of the case (in our case, only 27 days). See Matthews, 150 N.C. at 132-134, 63 S.E. at 722-723 (where plaintiffwaited nearly eight months after the effective date of the new statute to file his action, he did not move “in a reasonable time”and was “justly barred”); Flippin, 301 N.C. at 114-115, 270 S.E.2d at 487 (“The question, then, before us is whether the statuteas applied to plaintiff afforded to her a reasonable time within which to bring her action.”) (emphasis in the original).

Consideration of that factor makes sense because the analysis is not intended to render the retroactive application of the statuteinoperable as to all persons. Nor is it to give the plaintiff a total free pass from the retroactive effects of the statute. The legislaturemust provide a reasonable grace period before the bar takes effect. If the legislature doesn‘t, then the plaintiff must bring itsaction within a reasonable time after the bar takes effect. If it fails to do so, its action will be subject to the new statute.

When these factors are applied to this case, it becomes clear that § 36.24 did not provide this plaintiff reasonable time tocommence its actions.










An initial factor in the Trust's favor is the nature of the actions. The Trust has brought actions based on common law rights (ratherthan statutory rights) in real property. The special concerns relating to real property are often reflected in *79 comparativelylong statutes of limitation. That is also true of the new statute, which sets the shortest limitation at 15 years. Those concernsalso militate against abruptly imposing an exceedingly short grace period to react to a new statute of limitation.

For example, unlike other actions, the true party in interest (the mortgagee) cannot bring the action itself. Rather, as beneficiaryunder the deed of trust, it must bring the action through the trustee. As a result, any period less than five months denies a partya reasonable period to (1) discover that a new law of significant importance has been enacted, (2) evaluate the new law, withits substantial changes from previous law, and determine its implications, (3) locate and notify the trustee and, in many cases(including this one) appoint a substitute trustee, (4) allow the substitute trustee to fulfill his or her fiduciary duty of verifyingthe debt, and then (5) actually commence the foreclosure proceeding.

A second factor is that, like the statute at issue in Flippin, “the new statute, if properly applicable, effectively barred plaintiff'saction immediately upon the statute's taking effect.” Flippin, 301 N.C. at 114, 270 S.E.2d at 487; see also Parmenter v. State,135 N.Y. 154, 167-168 (1892) ( “the question as to when knowledge of the passage of the act effecting the alteration shouldbe imputed to the citizen is one of the factors in deciding the general question”).

*80 As discussed above, citizens do not have some automatic, general awareness of bills that are pending or statutes that havenot even taken effect. In this case, the evidence strongly suggests that the Trust was not aware of the new law, but that it wouldhave attempted to avoid its effects if it had been.

In the middle of September 2011, prior to the new statute's effective date, the Trust was taking steps to commence the presentactions. On 7 September 2011, it sent a demand letter to Fannie Mae threatening to commence an action after 3 October 2011if the lien was not sooner paid. (R pp 31-40). On 16 September 2011, it filed its Filing Extension [App. 1]. On 29 September2011, it filed a substitution of trustee on the Trust Deed. (See R p 48). And on 6 October 2011, it filed its verified complaint(which, presumably, was not drafted that day). (R p 4). Those steps all indicate an immediate intent to avail itself of its rightsunder the Trust Deed.

Those actions are strong circumstantial evidence that if the Trust had gained awareness of the new statute, it would haveattempted to extend the lien as provided for by §36.24(b)(1). It did not do so because, prior to the new statute, (a) pursuant toSmith, an extending affidavit was not necessary as against Fannie Mae and (b) it was unaware of the new limitation createdby §36.24.

It is simply unreasonable to expect that every person affected by a brand new statute creating a new statute of limitation forforeclosures would learn about *81 the new statute within 95 days, let alone be able to act on it. Charging all persons withsuch knowledge would ignore reality.

For example, the new statute was introduced and passed as Senate Bill 679 (2011). That bill started its life in April 2011 as abill to “Strengthen Prohibition on Cockfighting.” On 7 June 2011, it became a bill relating to “Castle Doctrine/Amend FirearmLaws.” Then, on 15 June 2011, it became the bill that was actually enacted on 27 June 2011. (See Legislative Daily Bulletinfor SB.679 (2011) [App100-102].

The time from when it first saw the light of day in the Senate Bill until it was enacted was only 12 days. And then, despitethe fact that it made numerous changes to numerous statutes, and created an entirely new statute at issue here, it allowed only95 days to take effect.

Based on that short history, how would the average citizen (or, for that matter, the resident of another state who held a NorthCarolina mortgage) been made aware of the new statute in a timely manner? If the mortgagee had done its research as late as14 June 2011, there would not have been any way to know that there was any new legislation on the horizon.






Furthermore, new acts do not immediately become widely available to the public. For example, on 4 June 2014, the Governorapproved 2014 N.C. Sess. Laws 4. That act (which is not related to the present matter) made revisions to *82 multiple statutes,including creating a new statute (G.S. § 113-391.1) to protect fracking chemicals as trade secrets. That Act went into effect on

4 June 2014 when it became law. See 2014 N.C. Sess. Law 4. However, it cannot presently be located on Lexis 14 or at the

North Carolina General Assembly's N.C.G.S. website 15 . Considering how difficult it is to find a newly enacted-and presentlyeffective-statute when the statute number is known, how hard would it be to stumble upon a statute that you didn't even knowexisted?

Because of this lag between enactment and public awareness, it would be better practice for the legislature to provide post-effective date grace periods. In fact, it took exactly that approach in earlier versions of the life of lien statute. For example,in Hicks v. Kearney, the Court found C.S. § 2594 to be prospective only. In 1945, the legislature made the recodified statute(i.e., G.S. §45-37(5)) effective retroactively to 2 January 1924. 1945 N.C. Sess. Laws 989 [App. 39-40]. That act went intoeffect when ratified. However, by its express terms, the amended provisions did not become applicable until one year fromthe date of ratification.

In 1951, when the statute was amended to make the presumption of satisfaction “irrespective of whether the credit was extended”before or after the *83 fifteen year period, the legislature again provided a post-effective date grace period. Specifically, thelegislature provided a period of more than 13 months (from 20 March 1951 until 1 July 1952). 1951 N.C. Sess. Laws 292[App. 42].

Although the legislature is not required to allow for a post-effective date grace period, it is a factor that the Court may, andshould, consider in determining whether the time provided plaintiff was reasonable. In this case, it supports finding that thegrace period was not.

The third, and most objective factor, is the actual length of the grace period. As this Court held in Flippin, no North Carolinacase has ever found a grace period of less than five months to be reasonable. Nor did this court find convincing any case thathad previously approved a shorter period.

In this case, the grace period was barely three months; specifically, 95 days from 27 June 2011 to 1 October 2011. Not onlyis that period shorter than any previously approved in North Carolina, it is also shorter than similar cases where courts foundthe grace period to be unreasonable. See, e.g., Blevins, 209 N.C. at 685, 184 S.E. at 520 (six months unreasonable); Flippin,301 N.C. at 115 n.8, 270 S.E.2d at 487 n.8 (citing Gilbert v. Ackerman, 159 N.Y. 118, 53 N.E. 753 (1899) (four and one-halfmonth grace period regarding actions against a corporate director found unreasonable); Malossi v. McElligott, 166 Misc. 513, 2N.Y.S. 2d 712 (1938) (four-month grace period within which to file an action seeking review *84 of an officer's determinationdeemed unreasonable); Adams & Freese Co. v. Kenoyer, supra, 17 N.D. 302, 116 N.W. 98 (1908) (three months and twenty-onedays unreasonable grace period for institution of proceedings on mortgages); see also Mayall, 886 P.2d at 1190 (four monthsand three days grace period unreasonable on foreclosure action)).

Again, North Carolina case law suggests that any period less than five months is unreasonable. After diligent search, Counsel isnot aware of a single case in any jurisdiction where a court has held that a grace period of less than four months is reasonable inan action relating to real property. Accordingly, this factor, by itself should be dispositive, and the court should find § 36-24's95-day grace period unreasonable as applied to the Trust.

The fourth factor that this Court, and others, have considered is the length of plaintiff's delay in commencing his action followingthe effective date. See, e.g., Matthews, 150 N.C. at 132-134, 63 S.E. at 722-723. In this case, the Trust commenced its SuperiorCourt action, at the latest, on 6 October 2011 (the fourth business days after §36.24 took effect) and on his foreclosure action

on 27 October 2011 (27 days after it took effect). 16













*85 The Trus's total “delay” from enactment of the statute to commencing its foreclosure action was exactly four months-onemonth shorter than the five months that Flippin implied is a minimum. Furthermore, the Trust's post-effective date delay of 27days is substantially shorter than any of the delays in any of the cases favorably cited by Flippin. See Cutsinger, 72 Ill. App.3d at 528-530 391 N.E. 2d at 178-180 (grace period unreasonable where claim filed four months after enactment of statute);Gilbert, 159 N.Y. at 121-122, 53 N.E. at 753 (same, where claim filed eleven months after statute enacted and six months afterit became effective); see also Matthews, 150 N.C. at 132-134, 63 S.E. at 722-723 (where plaintiff waited nearly eight monthsafter the effective date of the new statute to file his action, he did not move “in a reasonable time” and was “justly barred”);Flippin, 301 N.C. at 114-115, 270 S.E.2d at 487 (the statute denied plaintiff a reasonable time to file her complaint even thoughshe filed her action approximately nineteen months after the new statute was enacted and almost twelve months after it becameeffective); Mayall, 886 P.2d at 1190 (new statute not applicable where claim filed almost fourteen months after the statute wasenacted and nine months after the new bar went into effect).

This case also contains a unique factor that weighs against applying the new statute in this case to this plaintiff. That is, unlikethe plaintiffs in any of the other cases known to counsel, the Trust was actively taking steps and filing *86 documents infurtherance of its actions before the new bar went into effect. As discussed above, prior to the effective date, the Trust filed aMotion to Extend Time to File Complaint and an appointment of a substitute trustee. It then timely filed its verified complaint,which, pursuant to N.C. R. Civ. P. 3(a), related back to 16 September 2011. This substantially differentiates this matter fromcases such as Matthews where the plaintiff's continued inaction supported holding him “justly barred” by the new statute.

For the above reasons, the 95 day grace period provided for by §36.24 was unreasonable as to this plaintiff.

C. The Court could deem the Trust Deed unexpired for the purpose of these actions without declaring the statute, orany part of it, unconstitutional

“[A]ppellate courts must ‘avoid constitutional questions, even if properly presented, where a case may be resolved on othergrounds.”’ James v. Bartlett, 359 N.C. 260, 266, 607 S.E.2d 638, 642 (2005) (quoting Anderson v. Assimos, 356 N.C. 415,416, 572 S.E.2d 101, 102 (2002)); see also State v. Muse, 219 N.C. 226, 227, 13 S.E.2d 229, 229 (1941) (an appellate courtwill not decide a constitutional question “unless it is properly presented, and will not decide such a question even then whenthe appeal may be properly determined on a question of less moment”).

*87 In this case, the question of constitutionality may be avoided by finding that the Trust's lien is unexpired for purposes ofthis litigation because the Trust initiated action prior to 1 October 2011.

There are two approaches that get to that result. First, the Court could hold that the Trust had 15 years from 16 September 2011in which to file its action because of the unexpired limitation period from §37(b). In the alternative, the Court could find that thelien created by the Trust Deed shall continue until final disposition of the proceedings because the Trust substantially compliedwith the provisions of §36.24(g). Both of those possibilities arise because the Filing Extension was filed prior to 1 October2011 and the Trust timely filed its verified complaint within twenty days thereafter.

G.S. § 1A-1, Rule 3 (1990) provides that “[a] civil action may ... be commenced by the issuance of a summons when (1) a personmakes application to the court stating the nature and purpose of his action and requesting permission to file his complaint within20 days and (2) the court makes an order stating the nature and purpose of the action and granting the requested permission.” Theaction is commenced on the day of the application. If the Complaint is filed within the 20 days, it relates back to that date. Seegenerally Wooten v. Warren by Gilmer, 117 N.C. App. 350, 353, 451 S.E.2d 342, 344 (1994). If it is not, then the action abates.

*88 The Trust Filing Extension, which was filed on 16 September 2011, stated that the nature and purpose of the action was,in part, to declare the Trust Deed valid and enforceable, to enforce the assignment of rents provision, and to allow the Trustto foreclose. The court granted that application the same day.
















On 6 October 2011 (i.e., 20 days from the application date), the Trust filed its verified complaint. In that complaint, the Trustalleged, in part, that Quicksilver had an unpaid debt to the Trust in the amount of $4,096,575.44, which amount was secured bythe Trust Deed. (R p 11). The Trust's requests for relief included requests for a declaration that the Trust Deed was valid andenforceable and enforcement of the assignment of rents provision. Because the complaint was filed within 20 days, it relatedback to the 16 September 2011 filing of the application

On 27 October 2011, the Substitute Trustee under the Trust Deed commenced a foreclosure action for the Trust's benefit.

The Superior Court complaint should be considered a lien-extending affidavit under §37(b). That subsection allowed a partyto postpone the effective date of the conclusive presumption of satisfaction by filing an affidavit with the registrar of deedsprior to 1 October 2011 and before the lien expired. The substantive requirement of the affidavit was that it “specifically state...[t]he amount of debt unpaid, which is secured by the security instrument.” Filing the *89 affidavit postponed the conclusivepresumption of satisfaction to a date 15 years from the filing of the affidavit. See G.S. § 45-37(b).

Based on the above, the requirements to extend the Trust's lien as against Fannie Mae were: (1) an affidavit, (2) stating theamount of debt unpaid, (3) filed on or before 1 October 2011. Each of those three elements is met

First, the Trust's complaint may be treated as an affidavit because it was verified by Michael Falk, as trustee of the Trust, (Rp 41) and (1) was made on Michael Falk's personal knowledge, (2) set forth such facts as would be admissible in evidence,and (3) showed affirmatively that Michael Falk, the affiant, was competent to testify to the matters stated therein. See Page v.Sloan, 281 N.C. 697, 705, 190 S.E. 2d 189, 194 (1972).

Second, in Paragraphs 18 and 40 of the complaint, the Trust stated the amount of debt unpaid; specifically, $4,096,575.44.(R pp 7, 11).

Finally, because the complaint was filed within 20 days of the application to extend filing, it related back to 16 September 2011.

Based on those transactions, the Court could hold that the Trust had 15 years from 16 September 2011 in which to file its actionbecause the filing of the complaint/affidavit commenced a 15 year period of limitation based on Culbreth v. Downing, 121N.C. 205, 205, 28 S.E. 294, 295 (1897).

*90 In Culbreth, this Court set out a means to determine the minimum “reasonable time” for when a statute shortens an existingstatute of limitation. Specifically, the Court held that:

[A] reasonable time shall be the balance of the time unexpired, according to the law as it stood when theamending act is passed, provided it shall never exceed the time allowed by the new statute. For example, ifthe action would have been barred in six years, and four years have elapsed before the amending act, thentwo years more would be a reasonable time. If three years' time would bar the action, and the three yearshave elapsed, as in the present case, before the amending act is passed, then three years thereafter wouldbe the limit, and no more; and this rule will apply to all other periods of limitation on actions.

Culbreth, 121 N.C. at 205, 28 S.E. at 295.

As of 1 October 2011, the balance of time unexpired under the prior law was fifteen years minus fourteen days. The statute oflimitations created by the new statute (G.S. 45-36.24) was fifteen years. Since a reasonable time under Culbreth was the lesserof those two periods, a “reasonable time” for filing accrued actions was until 16 September 2026. Since the Trust's actions werefiled before that date, they were timely.










In the alternative, the Court could find that the Trust's lien continues until final disposition of the proceedings because the Trustsubstantially complied with the provisions of G.S. § 45-36.24(g). That subsection provides, in part, that “if a proceeding toforeclose the lien of a security instrument is commenced before the *91 lien of the security instrument expires, the lien createdby the security instrument shall continue until final disposition of the proceeding.”

For the reasons discussed above, the Trust's lien was not expired as against Fannie Mae prior to 1 October 2011. Prior tothat date (specifically, 16 September 2011), the Trust commenced an action through the filing of its Rule 3 application. Thatapplication specifically noted that the Trust was seeking a declaration of the validity and enforceability of the Trust Deed. Italso specifically noted that the Trust was seeking to foreclose. On 29 September 2011, the Trust then took a necessary step toforeclose by causing a substitute trustee to be appointed. The Trust timely filed its complaint, which sought a determination ofthe validity of the lien (a required element for foreclosure). The Trust did not, and could not, request foreclosure in that SuperiorCourt Action. Within three weeks, the Substitute Trustee filed her Notice of Foreclosure.

Through the Superior Court Action, the Trust commenced an action, the clear purpose of which was to enable a foreclosure.Through the Rule 3 application and the complaint, it was clearly notified that the Trust was seeking to foreclose. The Trustbrought its foreclosure action soon after filing its civil action. Finally, the Trust's actions, both brought less than one monthafter the effective date of the new statute, were consistent with the statute's purpose of clearing up old questions of title. Onthose facts, the Court could find that the Trust *92 substantially complied with the requirements of § 36.24(g). Accordingly,the Trust's lien should be deemed to continue until final disposition of the proceedings.

III. AS A MATTER OF LAW, FANNIE MAE IS NOT ENTITLED TO EQUITABLE SUBROGATION

This Court's 1931 decision in Wallace v. Benner has set the law on the issue of equitable subrogation of mortgages for over80 years. See Wallace v. Benner, 200 N.C. 124, 156 S.E.2d 795 (1931). Wallace confirmed that equitable subrogation maybe available to certain lenders under appropriate circumstances. However, the Court explicitly noted three exceptions to thegeneral rule of equitable subrogation: “(1) The relief is not granted to a volunteer; (2) nor where the party claiming relief isguilty of culpable negligence; (3) nor where to grant relief will operate to the prejudice of the junior lien holder.” Id., at 132,156 S.E.2d at 799.

In this case, Fannie Mae cannot even make out a prima facie case for equitable subrogation. Fannie Mae doesn't have a lien tosubrogate. It has no interest to protect as a lender because it already foreclosed. Its only present interest is as an owner under anon-warranty deed. The Trust has found no case in any jurisdiction where equitable subrogation was ever granted under thosecircumstances.

*93 Beyond that, as the Court of Appeals held, Fannie Mae could not receive equitable subrogation because of its culpablenegligence and the prejudice to the Trust beneficiaries. See Falk Trust, 738 S.E.2d at 411.

To arrive at its holding, the Court of Appeals applied Wallace to the specific facts of this case. Those facts included: (1) thatthe Trust was not involved in the transaction and made no representations to Lend Lease or Fannie Mae whatsoever, (2) LendLease's and Fannie Mae's actual knowledge of the Trust Deed, (3) Lend Lease's approval of the Settlement Statement thatshowed the Trust's lien would not be paid, (4) the Escrow Agent's paying the proceeds in accordance with the SettlementStatement approved by Lend Lease, (5) Fannie Mae's purchase of the Lend Lease loan and cancellation of the Wachovia lienwith knowledge of the defect, (6) Fannie Mae's failure to make any attempt to enforce Quicksilver's Agreement to Amendand Comply in order to obtain a subordination or cancellation of the Trust Deed, (7) Fannie Mae's failure to take any actionwhatsoever to address the defect for more than ten years, and (8) Fannie Mae's only raising the issue of equitable subrogationafter it had purchased the Property at its own completed foreclosure sale and after the Trust obtained a foreclosure order of sale.

*94 On those facts, and others, it is clear that Fannie Mae's total inaction for over ten years (both before and after it cancelledWachovia's lien) was culpable negligence.








It is also clear that granting Fannie Mae equitable subrogation now-after Fannie Mae has foreclosed-would prejudice thebeneficiaries of the Trust. As a matter of law, equitable subrogation could not put the Trust in the position it would have beenbecause foreclosure wipes out junior liens. Therefore, the Trust either has a lien on the property (if equitable subrogation isdenied), or it doesn't (if equitable subrogation is granted). There is no possible scenario where the Trust will end up with a“junior” lien.

In Wallace, this Court established what it takes to receive equitable subrogation as a matter of law. Lend Lease and FannieMae's egregious negligence in this matter now give the Court the opportunity to establish the limits of equitable subrogation.

A. The Court of Appeals did not “effectively abolish” the doctrine of equitable subrogation because its decision isconsistent with Wallace v. Benner 1. Despite Fannie Mae's hyperbole, the Court of Appeals' decision would not“effectively abolish” equitable subrogation in North Carolina

In the present case, the Court of Appeals correctly held that equitable subrogation was not appropriate under two Wallaceexceptions: i.e., culpable *95 negligence and the possibility of prejudice to the junior lien holder. Falk Trust, 738 S.E.2d at411 (“[W]here FNMA had notice of the Trust's lien, FNMA could have taken steps to guarantee itself first priority. FNMA,however, failed to successfully do so.... Lastly, we see the potential for prejudice to the third-party beneficiaries of the trust ifFNMA was subrogated to the status of Wachovia. As a result, we hold that subrogation would be inequitable in this instance.”)(emphasis added).

Despite that limited holding based on two separate Wallace exceptions, Fannie Mae repeatedly makes the overblown claim thatthe Court of Appeals' decision “abolishes” or “eliminates” the doctrine of equitable subrogation as it relates to real property or“overrules” Wallace. See, e.g., FNMA's New Brief pp 40, 45, 46, 49, 57). However, they do not, and cannot, show how theruling below would “effectively eliminate[]” the doctrine in cases where the refinancing lender is not culpably negligent.

Rather, without clearly setting out their argument, Fannie Mae seems to rely on its own false construct that: (1) the Court ofAppeals ruled that equitable subrogation is only available to those who are excusably ignorant (the court did not so rule), (2)it is impossible for any lender to ever be excusably ignorant of a properly filed lien (it's not impossible), and, therefore, (3)under the Court of Appeals' decision, equitable subrogation is now impossible (it's not). Such an *96 argument fails becauseFannie Mae is fundamentally mischaracterizing the Court of Appeals' holding and is ignoring the significant instances in whichequitable subrogation has always been-and continues to be-available.

First, The Court of Appeals did not rule that equitable subrogation is only available to those who are excusably ignorant of theintervening lien. Rather, it only correctly observed that in Peek, the Supreme Court had inferred “that equitable subrogationwas only entitled to those ‘excusably ignorant’ of an intervening lien” and that Fannie Mae cannot claim excusable ignorance.Falk Trust, 738 S.E.2d at 411 (citing Peek v. Wachovia Bank & Trust Co., 242 N.C. 1, 15, 86 S.E.2d 745, 755 (1955)).

By Fannie Mae's own admissions the original lender (Lend Lease) and Fannie Mae (the purchaser of the loan from Lend Lease)had actual knowledge of the Trust's lien. See, e.g., FNMA's New Brief, p 11 (“Lend Lease obtained a title search of the GuilfordCounty Public Registry and the Falk Deed of Trust was identified in a title insurance commitment as a matter which had tobe addressed, through cancellation or release of the Property”); p 46 (“The Falk Deed of Trust was in fact identified.”); p 53(“Lend Lease obtained a title search which identified the junior Falk Deed of Trust”).

The Court of Appeals did not rule that actual knowledge of the pre-existing lien is an absolute bar to equitable subrogation.Rather, after noting that the issue *97 of “excusable ignorance” “was not determinative in Peek,” it held that Fannie Mae failedto take available steps to obtain its desired first priority [i.e., culpable negligence] and subrogation would be unfairly prejudicialto the beneficiaries of the Trust. Falk Trust, 738 S.E.2d at 411. In effect, the Court of Appeals merely noted that Fannie Mae'sactual knowledge was a factor in culpable negligence, and that Fannie Mae could not prevail on a theory of excusable ignorance.








Second, contrary to Fannie Mae's protestations, it remains possible for a lender to be “excusably ignorant” of an interveninglien; specifically, in instances where such ignorance is due to the negligence of others on whom such lender is entitled to rely.For example, a lender would be excusably ignorant of a properly recorded intervening lien that could not be found by a diligentsearch, e.g., where it was lost prior to indexing, or misindexed, by the Clerk's office. A lender would also be excusably ignorantwhere it reasonably relied upon a North Carolina licensed attorney to carry out a title search but the attorney negligently orwrongfully failed to carry out a proper search.

Focusing on excusable “ignorance,” however, adds confusion to the issue, because the real question should be whether there was“excusable neglect.” “Excusable neglect” and “culpable negligence” are the two sides of the same coin. That is, when a partyhas committed some form of neglect, it will either be excused for that neglect or it will be held accountable and responsiblefor it. Compare *98 Jones v. Statesville Ice & Fuel Co., 259 N.C. 206, 209, 130 S.E.2d 324, 326 (1963) (holding that aparty's failure to give a matter “that attention which a man of ordinary prudence usually gives his important business... is notexcusable”) with Fore v. Geary, 191 N.C. 90, 95, 131 S.E. 387, 390 (1926) (employer must use reasonable care and prudence,failure to do so is culpable negligence); see also 65 C.J.S. Negligence § 12 (2014) ( “Culpable negligence”' may be defined asthe want of such care as a person of ordinary prudence would use under similar circumstances”).

This is one of the approaches that has long been used in determining whether to set aside default judgments, and it is thelogical method to use when determining whether negligence was culpable. See N.C. R. Civ. Pro. 60; see also Jones, 259 at 209,130 S.E.2d at 326. Fannie Mae's negligence is manifest-it had knowledge of the Trust Deed and failed to have it cancelled orsubordinated. As it would in attempting to set aside a default, Fannie Mae must now come forward and show why that neglectshould be excused.

What unusual circumstances beyond Fannie Mae's control prevented it from taking any of the numerous steps that would havemade resort to equitable subrogation unnecessary? Excusable ignorance of a lien would be one form of excusable neglect, butit would not be the only one. In any event, Fannie Mae has *99 never shown that it was prevented from taking any of themeasures reasonably available to it. Accordingly, its neglect was not excusable, rather, it was culpable.

2. Fannie Mae has not made out a prima facie case for equitable subrogation

At its most basic, following its foreclosure of the Property, Fannie Mae should be equitably or judicially estopped from evenasking for equitable subrogation.

As Fannie Mae well knows (from having foreclosed on thousands of homes), a foreclosing lienholder is required to give noticeto all junior lienholders of record. On the other hand, a foreclosing lienholder is not required to give notice to senior lienholders.Conceptually, and practically, that makes total sense because a foreclosure extinguishes all junior deeds of trust but has noeffect on senior deeds of trust. See G.S. § 45-21.16(b)(3); see also generally Dixieland, 272 N.C. at 175, 158 S.E.2d at 10.

In Fannie Mae's foreclosure action, Fannie Mae was aware of the Trust's lien of record but did not give notice of foreclosure tothe Trust. When explicitly asked by the Clerk about the Trust Deed, Fannie Mae acknowledged awareness of it and (correctly)asserted that Fannie Mae was not required to give notice to the Trust because the Trust Deed was senior to Fannie Mae‘s. (Rp 255 (¶ 25)). Having taken a position in one case that the Trust's Deed of Trust was senior to Fannie Mae‘s, Fannie Mae isnow judicially estopped from taking the opposite *100 position in another case. Whitacre P‘ship v. Biosignia, Inc., 358 N.C.1, 28-29, 591 S.E.2d 870, 888-89 (2004).

In any event, Equitable subrogation is only available to the lender (or his assignee) who advances money to pay off a priormortgage. Wallace, 200 N.C. at 131, 156 S.E.2d at 799. The purpose is to ensure that the refinancing lender gets priority, or,put another way, first shot at the money. If equitable subrogation is granted, it moves the refinancing lender above the junior













lien that wasn't paid off, and returns the junior lien to its original position. See id. That is, with regard to the junior lien, itrestores the status quo ante.

Because Fannie Mae already completed its foreclosure on the property, the purposes of equitable subrogation cannot be servedin this case. Fannie Mae does not come to this Court as a lender facing a loss. It comes as an owner of property under a non-warranty deed who is seeking to use equitable subrogation to avoid a lien that was of record when it bought the property. SeeR pp 10, 86.

Equitable subrogation allows the refinancing lender to subrogate its lien to the senior lien that it is paying off. However, atthis point, Fannie Mae doesn't have a lien to subrogate! Its foreclosure cut off its rights as a lender under its deed of trust.Although it may still have a deficiency action on the note, it no longer has recourse under the deed of trust. Without a lien,there is nothing to subrogate.

*101 Furthermore, Fannie Mae's foreclosure makes it impossible to restore the Trust to its original “junior” position. FannieMae repeatedly claims that if equitable subrogation is granted, the Trust will be restored to its “original bargained for position.”FNMA's New Brief, p 48; see also, e.g., id. at p 48 (“the Falk Trust has always been and will remain a junior lien holder”); p49 (equitable subrogation “leaves the Falk Deed of Trust in the same position it held immediately prior to the payoff of theWachovia Deed of Trust”). Those claims are patently false.

Equitable Subrogation would not restore the Trust to its position at the time of the Lend Lease loan. Fannie Mae has foreclosed,and foreclosure wipes out all junior liens. See Dixieland, 272 N.C. at 175, 158 S.E.2d at 10. This is not a question of how todivvy up foreclosure proceeds; it is a question of whether or not the Trust can enforce its lien at all. The Trust either has anenforceable lien or it has nothing. Fannie Mae, of course, knows this-that's why they are asserting equitable subrogation. FannieMae's argument, therefore, is not only false, it's disingenuous.

Fannie Mae would suffer no harm as a lender if equitable subrogation were denied. Again, Fannie Mae has already foreclosed.It received 100% of the proceeds of that foreclosure. Regardless how this matter is decided, Fannie Mae will be able to retainthose proceeds.

*102 Put another way, if an unrelated third party had purchased the Property at the foreclosure sale, what standing wouldFannie Mae have in this case? The case doesn't challenge the validity of Fannie Mae's foreclosure or its right to the proceeds ofsale. Because it sold the property subject to a non-warranty deed, it couldn't have any liability to the purchaser of the property.Therefore, the outcome of the case would have no effect on Fannie Mae's rights as prior lender. With no interest at stake, itwould have no standing.

Which raises the final issue, i.e., Fannie Mae in its capacity as owner of the Property may not claim equitable subrogation.Fannie Mae obtained the Property “without any representation or warranty related to the title” and “subject to any and all...superior deeds of trust. (R pp 10, 86). Notwithstanding that express disclaimer of warranties, Fannie Mae-as owner-now claimsthat the Property should not be subject to a lien of record.

Again, what if an unrelated third party had purchased the Property at the public foreclosure sale? On what basis could that third-party assert equitable subrogation? It wasn't harmed by any alleged irregularities in the prior transactions. More importantly,through the foreclosure sale, it received exactly what it paid for, i.e., the property subject to any senior liens of record.

Fannie Mae should not be given any additional rights as owner merely because it was also the prior lender. Nothing forcedFannie Mae to wait more than *103 ten years to bring up the issue of equitable subrogation, nor did anything force FannieMae to begin and complete a foreclosure sale before the issue of lien priority was resolved. Simply put, foreclosure cut off anyclaims Fannie Mae had based on its lien.




Finally, Fannie Mae cannot properly claim that it was somehow prejudiced as buyer of the Property by being denied equitablesubrogation. The Property was sold at a public sale. The Substitute Trustee had an obligation to sell the Property for the highestamount possible. Doing so is not only necessary to protect the interests of the foreclosing lienholder, but also the rights andinterests of the foreclosed debtor and any junior lienholders.

The purpose of a public sale is to ensure that there are no sweetheart deals. If one bidder (i.e., the foreclosing lienholder) hadthe ability to obtain the property free and clear of liens, but all other bidders had to take it subject to liens, the property wouldbe worth more to the foreclosing lienholder than to any other bidder. That would significantly, and unfairly, depress the publicpurchase price. At a public sale, the foreclosing lienholder is just another bidder. If it wins the auction, it takes the propertyin the same state as any other buyer would have.

In any event, the transfer of the property pursuant to a non-warranty deed cuts off any claims for equitable subrogation.

*104 3. Fannie Mae was culpably negligent through its inaction over more than ten years

The Court of Appeals' decision is consistent with Wallace because: (a) Wallace expressly held that equitable subrogation willnot be granted to subsequent lenders who are culpably negligent and (b) Lend Lease and Fannie Mae were culpably negligent.See Wallace, 200 N.C. at 131, 156 S.E.2d at 799.

As an equitable remedy, basic rules of equity should be considered in determining whether Lend Lease and Fannie Mae werenegligent. Three of those rules are most pertinent to this case. First, the burden of loss “should fall on him whose own negligencehas caused it, and whose reasonable vigilance would have prevented it.” Staton v. Davenport, 95 N.C. 11, 19 (1886). Second,“equitable relief is not usually available when there is a legal remedy.” Cooper v. First Bank (In re Cooper), 2013 Bankr. LEXIS2985, 16 (Bankr. E.D.N.C. July 25, 2013) (citing Jefferson Standard Life Ins. Co. v. Guilford County, 225 N.C. 293, 300, 34S.E.2d 430, 434 (1945)). And, finally, “equity protects the vigilant, and not those who sleep on their rights.” North CarolinaBd. of Architecture v. Lee, 264 N.C. 602, 612, 142 S.E.2d 643, 650 (1965).

In this case, the burden of loss should fall on Fannie Mae, and not the trust, because it was Fannie Mae's “negligence [that]caused it, and whose reasonable vigilance would have prevented it.” See Staton, 95 N.C. at 19.

*105 a. The Trust did not cause Fannie Mae's loss.

Fannie Mae's junior lien status is its own fault. The Trust wasn't a party to the loan and had no role in the transactions thatcaused Fannie Mae to obtain a junior lien. Neither Lend Lease nor Fannie Mae ever involved the Trust in the matter. The Trustwas never asked to certify knowledge or approval of the transactions and made no representations to Lend Lease/Fannie Maewhatsoever. The Trust's only action was to file its Trust Deed five years prior to the Lend Lease loan, which was a matter ofpublic record readily available to (and known by) Lend Lease and Fannie Mae.

Fannie Mae's first response to this inescapable fact is to try to wish away the legal distinction between Michael Falk in hiscapacities as an officer and “key principal” of Quicksilver (i.e., the only capacities in which he was involved in the loantransaction) and Michael Falk in his capacity as one of the two trustees of the Trust at the time of the loan. See, e.g., FNMA'sNew Brief, pp 47-49. It's second is to now raise specious, irresponsible, and improper claims of fraud by the Trust. See Id, atpp 49 (denying equitable subrogation would “reward[] their [i.e., the Falk Trust'] deception and self dealing”); see also id. at52. The record gives the lie to both of those tactics.

First, Fannie Mae consistently attempts to argue, erroneously, that equitable subrogation is appropriate because, in additionto being an officer of Quicksilver, *106 Michael Falk was/is also the trustee of the Trust. In essence, their argument is thatMichael Falk (as an individual) is Michael Falk (as an officer of Quicksilver) is Michael Falk (as Plaintiff Trustee of the Trust).









Our courts have long recognized the distinction between different legal capacities. See, e.g., Satterfield v. McLellan Stores Co.,215 N.C. 582, 2 S.E.2d 709 (1939) (where wrongful act of an agent was committed solely in his representative capacity and notin his individual capacity, the agent may not be held personally liable); see also Andrews v. Daw, 201 F.3d 521, 525 (4th Cir.N.C. 2000) (government employee sued for civil rights violations not privy with himself in his official and individual capacities).

As this court is well aware, Quicksilver was an entity legally distinct from the Trust, and the Trust is legally distinct fromits trustee and individual beneficiaries. See Falk Trust, 738 S.E.2d at 411 (“Despite common management, the Trust andQuicksilver are separate entities; thus, an agreement by Quicksilver to grant FNMA first priority is not binding on the Trust”).While it is true that one of the trustees of the Trust (i.e., Michael Falk) must have had knowledge of the Lend Lease loanproceedings, it is also irrelevant. The Trust, as an uninvolved third party, had no legal obligation to Lend Lease/Fannie Maewhatsoever. It was Fannie Mae's responsibility to look after its own interests, not the Trust's responsibility to do it for FannieMae.

*107 Michael Falk is not the plaintiff in this action. The Trust, through its trustee, Michael Falk, is the plaintiff. Michael Falkis not the Trust; he is the trustee of the Trust. In the Lend Lease loan, Lend Lease and Fannie Mae chose to deal with MichaelFalk only in his capacities as an officer and key principal of Quicksilver. Michael Falk, in his capacity as Trustee, was notinvolved and never made any representations or promises to Lend Lease. (And Swartz-the co-trustee, who had no interest inQuicksilver or the Lend Lease loan-was not involved at all.) Nor is there is any evidence that Lend Lease ever even asked eithertrustee to sign any documents, make any representations, or take any actions. Furthermore, there is no evidence whatsoever thatCharlotte Falk, the lifetime income beneficiary of the Trust (or other persons as beneficiaries), knew about, consented to, orprofited by the Lend Lease loan. Fannie Mae's repeated attempts to obscure the inescapable fact that the Trust was not involvedin the transactions do not change reality.

To prove actual fraud, a party must show (1) a false representation or concealment, (2) reasonably calculated to deceive, and(3) made with the intent to deceive. Additionally, the party must show that it (4) reasonably relied upon that misrepresentationor concealment, and (5) was damaged as a result of that reliance. See Rowan County Bd. of Educ. v. United States GypsumCo., 332 N.C. 1, 17, 418 S.E.2d 648, 658 (1992) (citing Terry v. Terry, 302 N.C. 77, 83, 273 S.E.2d 674, 677 (1981)).

*108 Fannie Mae cannot make out an actionable claim of “deception” or “fraud” against the Trust because there is no evidencethat the Trust made any representations to Lend Lease/Fannie Mae, false or otherwise. It also couldn't make out a claim offraud against Quicksilver or the Falks despite those parties' false representations. With actual knowledge of the Trust Deed,Lend Lease/Fannie Mae knew those representations were false when made, therefore, they could not have “reasonably relied”on them.

Those allegations (as well as Fannie Mae's imprecations of “laches, waiver, estoppel, unclean hands, [and] collusion”) are alsoimproper and should not be considered by this Court. See FNMA's New Brief, pp 52, 52. First, Fannie Mae has not cited recordevidence to support such allegations. More importantly, Fannie Mae did not provide argument or support for those issues in its

brief to the Court of Appeals. See generally FNMA's COA Brief. 17 Accordingly, they may not be raised or considered in thisCourt. N.C. R. App. Pro. 28(a), 28(b)(6) (issues not properly raised and briefed are deemed abandoned).

b. Lend Lease's and Fannie Mae's negligence caused Fannie Mae's position.

In Wallace, the refinancing lender (“Land Bank”) was entitled to equitable subrogation because “it took every precaution, thatdue care required, to see that it had a first lien” before it advanced funds. See *109 Wallace, 200 N.C. at 133, 156 S.E. at799. Furthermore, Land Bank “had no actual knowledge of the fact that its instructions had been disobeyed and prior liens notremoved, until a short time before commencement of th[e] action.” Wallace 200 N.C. 124, 156 S.E. 795, 1931 N.C. LEXIS270, at *4 (1931) (LEXIS prior history of case)














Prior to closing, Land Bank identified three existing encumbrances. The first and second liens were to Page and Company andPage Trust Company (“Page”). The third was to Wallace Brothers. The closing attorney represented Page, the holder of thefirst and second liens. Id. at *3.

Land Bank provided a check to the closing attorney made jointly payable to the landowner (Benner) and the closing attorney'slawfirm (Johnson and Johnson). Land Bank also gave “specific instructions” to the closing attorney that each of the three “priorencumbrances be removed before delivery of check, or money refunded.” Id. at *4.

The closing attorney handled the transaction “[i]n disobedience of said instructions, without procuring cancellation of priorencumbrances, and without the knowledge or consent” of the lender. Id. (emphasis added). Specifically, contrary to hisinstructions, the closing attorney had Ms. Benner endorse the check. The closing attorney then disbursed some of the funds tohimself, some to pay taxes, and the remainder to Page. None were disbursed to Wallace Brothers and none of the liens werecancelled. Id. At trial, Page waived any rights of priority it had in *110 favor of Land Bank. Id. at *5. The issue, then, waswhether Land Bank's lien could be equitably subrogated to Page's liens, thereby elevating it over Wallace Brothers'.

Under those particular circumstances, equitable subrogation was appropriate because Land Bank did everything it reasonablycould have done to cause the junior liens to be paid off. After specifically identifying the prior liens, it advanced funds to theclosing attorney with specific instructions to cancel each of those three prior liens.

There was nothing else Land Bank reasonably could have done to avoid acquiring a junior priority. Land Bank had no controlof the process once it forwarded the funds to the closing attorney. It had to rely on the integrity of that closing attorney. If theclosing attorney had followed his specific instructions to cancel those three liens, they would have been cancelled and Land bankwould have received a first priority lien. There was no way for it to know that the closing attorney, who actually representedthe senior lenders, would engage in malfeasance to benefit those senior lenders. There were no other ordinary precautions thatLand Bank would have been expected to take.

Once Land Bank discovered that the prior liens had not been discharged, its only option was to seek equitable subrogation fromthe courts. That is, it had no *iii contractual remedy to attempt to obtain a subrogation. It therefore brought an action a “shorttime” after that discovery. Id. at 4.

After reviewing Wallace, Fannie Mae opines that “[t]he facts in this case are so closely analogous to those in Wallace that it isdifficult to understand how the Court of Appeals reached a conclusion so directly in conflict with the Supreme Court decision.”FNMA's New Brief, p 46 (emphasis added).

Fannie Mae either has a very liberal definition of the word “analogous” or an unwillingness to honestly address the actual factsof this case. The simple side-by-side comparison represented on the next two pages shows the significant differences betweenthis case and Wallace.

Wallace

Falk Trust

Land Bank was the refinancing lender

Fannie Mae was an investor, who purchased an existingloan from a lender

Land Bank was only paying funds to pay off the seniorliens, it was not providing the borrower with additional cash

Lend Lease was giving Quicksilver approximately $1.5million more than the amount of liens listed on theSettlement Statement

The closing attorney represented the senior lenders

The escrow agent was chosen by Lend Lease



Closing attorney disobeyed his specific instructions

Escrow agent disbursed funds in accordance withSettlement Statement approved by Lend Lease

Land Bank did not approve the manner in which the fundswere disbursed

Lend Lease did approve the manner in which the funds weredisbursed

If the closing attorney had obeyed his instructions, thesenior liens would have been cancelled

The escrow agent disbursed funds in accordance with theSettlement Statement approved by Lend Lease. Thoseinstructions did not require payment or cancellation of theFalk Trust lien

Land Bank had no contractual remedies

Fannie Mae had a contractual right under the Agreementto Amend and Comply to compel Quicksilver to cause theTrust Deed to be cancelled or subordinated

Land Bank did not immediately know the senior liens hadnot been cancelled

Fannie Mae knew or should have known that the Trust Deedhad not been cancelled because it had actual knowledgeof the Trust Deed and the loan documents showed that theTrust Deed had not been paid, cancelled, or subordinated aspart of the Lend Lease loan transaction

Land Bank sued for equitable subrogation within a “shorttime” after it discovered that the senior liens had not beencancelled

Fannie Mae took no action for over ten years

Land Bank sought equitable subrogation as a lender with alien

Fannie Mae Seeks equitable subrogation as an ownerpursuant to a non-warranty deed

Land Bank brought suit before its lien was foreclosed

Fannie Mae only alleged equitable subrogation after it hadcompleted the foreclosure of its lien

Land Bank “took every precaution, that due care required”

Lend Lease and Fannie Mae failed to take numerousprecautions that due care required: Although Lend Lease had actual knowledge of the TrustDeed, Lend Lease issued Closing Instructions to the escrowagent that required the escrow agent to obtain a release ofWachovia's liens, but did not identify or call for cancellationor subordination of the Trust Deed Lend Lease directed the escrow agent to disburse funds onlyin accordance with a Settlement Statement approved byLend Lease, and that Settlement Statement did not providefor payment of the Trust Deed Lend Lease did not require the Trust cancel or subordinatethe Trust Deed as part of closing Lend Lease did not require the Trust to agree to, or evenacknowledge, the Lend Lease loan transaction despite thefact that it had actual knowledge of the Trust Deed andMichael Falk's capacity as one of the trustees of the Trust Lend Lease did not require the other trustee's involvementin the Lend Lease loan transaction despite the fact thatit should have known that Michael Falk had a potentialconflict of interest



Fannie Mae purchased the Lend Lease loan even thoughit had actual knowledge of the Trust Deed and the loandocuments showed that the Trust Deed had not beencancelled, or subordinated as part of the Lend Lease loantransaction Fannie Mae allowed the Wachovia lien cancellation to befiled one month after the Lend Lease loan closing eventhough it had reason to know that, by doing so, the TrustDeed would become the senior lien of record During thelife of Fannie Mae's lien, Fannie Mae never demanded, oreven requested, that Quicksilver cause the Trust Deed to becancelled or subordinated even though the Agreement toAmend and Comply gave it that contractual right

*112 STATEBRIEF 113As *114 shown above, and as the record reflects, this case has numerous material factual distinctionsfrom Wallace. First, unlike Land Bank, Lend Lease was on notice that the Trust's lien would not be paid at closing, nor would itbe subordinated. Paragraph A of Lend Lease's closing instructions specifically directed the closing attorney to obtain “Releases”of Wachovia's (the first priority lienholder‘s) liens. However, that paragraph did not identify, or specifically direct her to obtaina release of the Trust's lien. (R p 280, ¶ A.1).

Furthermore, Paragraph C of the Closing Instructions provided that, as a condition precedent to the loan, the closing attorneywould forward Lend Lease a proposed settlement statement setting forth, in part, “the manner in which the Escrow Agent[would] disburse the Funds.” The draft settlement statement was also to set forth all existing liens that were going to be paidoff. (R p 281, ¶ C.3). Following that, the closing attorney was not allowed to close the loan until she received Lend Lease'sverbal confirmation to proceed. (Id., ¶ C.5). At that time, the closing attorney was specifically directed to “disburse funds inaccordance with the Settlement Statement approved by Lender.” (Id., ¶C).

And that is exactly what happened here. The closing attorney submitted a proposed settlement statement (R pp 334-335), LendLease verbally approved it, *115 and then the closing attorney disbursed funds in accordance with that settlement statement.

Unlike Land Bank, Lend Lease knew that the junior lien wouldn't be paid and allowed closing to proceed anyway. The settlementstatement (that was approved by Lend Lease prior to closing) is reproduced at R pp 334-335. It shows clearly that Wachovia'sfirst priority loan(s) would be paid. However, it makes no mention or provision of the Trust's lien. Lend Lease approved thatsettlement statement as drafted, even though it had actual notice: (1) of the Trust's lien and (2) that the Trust's lien wouldnot be paid at closing. The closing attorney then paid exactly as Lend Lease had approved. Therefore, unlike in Wallace, thedisbursement of the funds without procuring cancellation of prior encumbrances was not done without the knowledge or consentof the lender.

Those simple facts entirely repudiate Fannie Mae's claims that “Lend Lease took the usual precautions to protect itself.” FNMA'sNew Brief, p 54; see also Wallace, 200 N.C. at 133, 156 S.E. at 799 (equitable subrogation appropriate where lender “tookevery precaution, that due care required”). That is simply not so. Fannie Mae would not now have to seek equitable subrogationif Lend Lease had taken the expected, reasonable, and simple steps of: (a) reviewing the settlement statement to ensure that itprovided for release of all liens of which Lend Lease had actual notice, and (b) having seen that the Trust's lien was not *116being paid, refusing to close the loan until provisions were made for satisfying or subordinating the Trust's lien. At a minimum,the “usual precautions taken by a lender” would include obtaining something anything directly from the Trust, even if it wassimply having Michael Falk acknowledge the loan documents in his capacity as trustee of the Trust.

Lend Lease's culpable negligence is, as a matter of law, enough to defeat equitable subrogation. However, Fannie Mae itselfthen added several more layers of culpable negligence to the mix. Again, unlike Land Bank, Fannie Mae did not advance anymoneys to the borrower for the purpose of extinguishing prior encumbrances, Wallace, 200 N.C. at 131, (that was done by Lend





Lease). Rather, Fannie Mae came along after the transaction had occurred and obtained the loan (and the deed of trust) fromLend Lease. At the time that it did so, it had: (1) actual and/or record notice of the Trust's lien and (2) absolutely nothing toindicate that the Trust's lien had actually been satisfied or subordinated.

Despite that knowledge, Fannie Mae, of its own accord, chose to close on its purchase of the loan from Lend Lease withoutaddressing the issue of the Trust's lien. Instead, it could have taken the commercially reasonable step of refusing to take theLend Lease loan until the issue of the Trust's lien was addressed.

And there could have been no better time to do so, because Lend Lease transferred its loan to Fannie Mae the same day. At thattime, Quicksilver still had *117 the approximately one and a half million dollars that was left from the loan after payment ofthe Wachovia lien. However, despite its ability to either (a) force Quicksilver and/or Lend Lease to fix the issue or (b) to refuseto buy the loan, Fannie Mae did neither, and allowed the issue to go unaddressed.

Fannie Mae then took no steps to remedy the problem for over ten years. That was especially unreasonable because, as FannieMae points out, as part of the Lend Lease loan, Quicksilver executed an Agreement to Amend or Comply. See, e.g., FNMA'sNew Brief, p 13 (citing R p 275). That Agreement provided, inter alia, that Quicksilver was required to provide any furtherdocument, or to take any corrective actions, required by Fannie Mae before it would purchase the loan. See R p 275, ¶ 1. Thatsigned written Agreement was not under seal. Therefore, Fannie Mae had three years to enforce it. And yet, never once duringthat time did it ever demand that Quicksilver have the Trust Deed cancelled or subordinated. (Nor did it ever ask the Trustto do so.)

Despite knowing that the record reflected the Trust's lien as being the senior lien on the property, Fannie Mae did nothing formore than ten years, and even then, only after it had foreclosed on the property and after the Trust commenced the presentaction. In contrast, in Wallace, the issue of priority was resolved prior to any foreclosure sale soon after Land Bank discoveredthe senior liens had not been cancelled. See Wallace, 200 N.C. 131, 156 S.E. 795, 1931 N.C. LEXIS 270 *118 at *9. Suchinaction can hardly be described as taking “every precaution, that due care required.” Wallace, 200 N.C. at 133, 156 S.E. at 799.

The purpose of equitable remedies is to put the loss where, in most fairness, it belongs. In this case, Fannie Mae's loss of prioritywas caused by Fannie Mae, Lend Lease, and, arguably, Quicksilver, but, it certainly wasn't caused by the Trust, which was notinvolved in the transaction in any way. And yet, there is no evidence that Fannie Mae ever sought redress from Lend Lease.Furthermore, it is undisputed that Fannie Mae never demanded that Quicksilver obtain the Trust's subordination of its lien(as Quicksilver would have been required to do under the Agreement to Amend and Comply) nor did it ever sue Quicksilverfor breach of its promises under the Lend Lease loan. Having failed to seek any remedy from those who actually caused itsloss (i.e., Lend Lease and/or Quicksilver), it would be inequitable to foist such loss upon the Trust that did not cause FannieMae's inferior position and had no obligation to Fannie Mae. In any event, Fannie Mae's inaction over a long period of time isadditional culpable negligence that bars equitable subrogation.

c. The Borrower's misrepresentations do not absolve Lend Lease of its failure to act as a prudent lender, nor FannieMae of its failure to act as a prudent investor.

Equitable subrogation will not be granted where the party seeking it has been culpably negligent. Wallace, 200 N.C. at 131,156 S.E.2d at 799. The impact *119 of that rule is clear, i.e., culpable negligence focuses on the activity of the party assertingequitable subrogation. Despite that, Fannie Mae has tried to shift the focus to Quicksilver-or the Trust-or the Escrow Agentchosen by Lend Lease; anyone but itself. But Fannie Mae's junior position was due to its own culpable neglect.

“‘Culpable negligence”’ may be defined as the want of such care as a person of ordinary prudence would use under similarcircumstances; the want of that usual and ordinary care and caution in the performance of an act usually and ordinarily exercisedby a person under similar circumstances and conditions; or the omission to do something which a reasonable, prudent, orcautious person would do, or the doing of something which such a person would not do, under the circumstances surrounding






the particular case.” 65 C.J.S. Negligence § 12 (2014); see also Wallace 200 N.C. at 133, 156 S.E. at 799 (subrogation grantedwhere lender “took every precaution, that due care required”).

Fannie Mae claims that a fact finder could determine that “Lend Lease took the usual precautions to protect itself.” FNMA'sNew Brief, p 54 (emphasis added). One has to wonder if Fannie Mae means “the precautions Lend Lease and Fannie Maeusually took,” because it certainly didn't take the precautions that “a reasonable, prudent, or cautious person” would have taken.

*120 What precautions did Lend Lease and Fannie Mae take? Lend Lease: (1) obtained a title search that identified theWachovia lien and the Trust Deed; (2) had Quicksilver and Harry and Michael Falk certify that Lend Lease would be obtaininga first lien; (3) gave the Escrow Agent a general instruction to pay off all liens at closing; and (4) had Quicksilver execute anAgreement to Amend and Comply whereby Quicksilver agreed to take any actions necessary for Lend Lease and Fanny Maeto obtain a first lien.

And what did Lend Lease and Fannie Mae do based on those precautions? Lend Lease and Fannie Mae: (1) apparently ignoredthe title search and instead relied solely on the Quicksilver Parties' representations that Lend Lease and Fannie Mae wouldreceive a first lien, despite the fact that the Quicksilver Parties had a vested interest in the loan being made, (2) listed theWachovia lien on the Closing Instructions as a lien that needed to be cancelled, but didn't list the Trust Deed, (3) directed theEscrow Agent to disburse the funds pursuant to a Settlement Statement that provided for payment of about $1.5 million toQuicksilver but didn't provide for payment of the Trust Deed, and (4) never demanded that Quicksilver perform its contractualobligations under the Agreement to Amend and Comply until more than ten years later (seven years after the statute of limitationon that agreement had expired).

*121 “Precautions”? It's as if some boat owner went and bought personal flotation devices for everyone who was going to be

on his boat, but then left them in the garage when they headed out to sea. 18

What reasonable precautions didn't Lend Lease/Fannie Mae take (besides following up on their other “precautions”)? LendLease (1) didn't require that Co-Trustee Swartz join in the loan transaction in any way, even though Michael Falk had a anobvious possible conflict of interest, (2) didn't require the Trust to take any action, or to even acknowledge the loan transaction,before closing the loan, (3) didn't refuse to close the loan until the Trust Deed was cancelled or subordinated, (4) didn't requirea subordination agreement from the Trust, (5) didn't obtain an assignment from Wachovia of its lien, and (6) didn't require theEscrow Agent to hold the $1.5 million of the loan above the Wachovia lien in escrow until the Trust Deed was cancelled.

Fannie Mae (a) didn't refuse to purchase the Lend Lease loan until the Trust Deed was cancelled or subordinated, (b) didn't tellthe Escrow Agent to hold the Wachovia lien cancellation in escrow until the Trust Deed was cancelled (instead, had the EscrowAgent record the Wachovia cancellation about one month after the *122 closing), and (c) didn't hold off on completing theFannie Mae foreclosure until after the lien priority issue was resolved.

Equitable subrogation should not be granted “where the party requesting such relief was in the best position to protect its owninterests.” HSBC Mortg. Servs. v. Raschke, 2010 Ohio 2997, 2010 Ohio App. LEXIS 2486 (Ohio Ct. App., 2010); see alsoStaton, 95 N.C. at 19 (the loss “should fall on him whose own negligence has caused it, and whose reasonable vigilance wouldhave prevented it”).

What prevented Lend Lease and Fannie Mae from protecting their own interests? Nothing. Lend Lease/Fannie Mae had actualknowledge about the Trust Deed, and still approved a settlement statement that showed the Trust's lien would not be paid.Fannie Mae wants to excuse that culpable negligence on the basis that the Quicksilver Parties represented that Fannie Maewould be getting a first lien. No reasonably prudent investor could rely on a representation it knew to be false.

Furthermore, especially in a “pure race” state such as North Carolina, no prudent lender or investor could rely solely on theword of the borrower, even if they didn't have actual knowledge the borrower's representations were false. See Staton, 95 N.C.








at 18 (holding that a party “shows culpable negligence” by relying solely on a vendor who “by a full disclosure, might defeathis proposed sale, and is interested in withholding the information”).

*123 Lend Lease was loaning Quicksilver about $5.3 million, of which, only about $3.8 million was going to be disbursedto pay off the Wachovia lien. The remaining $1.5 million was going to be paid directly to Quicksilver without restrictions.Despite that, Lend Lease/Fannie Mae relied solely on the representations made by Quicksilver's “key principals,” i.e., it'sonly two owners. It is difficult to believe that any person of ordinary prudence would have done such a thing under the samecircumstances. It is impossible to believe that when you add in the Lend Lease/Fannie Mae had actual knowledge of the TrustDeed.

As the Kansas Court of Appeals noted in a case denying equitable subrogation:

It is also important that in this case, Bankers Trust was a sophisticated institutional lender. We concludeit should be held to a high standard of knowledge and action. It is difficult to understand why any bankwould take a lien on property knowing that it was encumbered by a prior judgment lien which had been ofrecord for approximately 5 years. There are any number of things Bankers Trust could have done to protectitself. It could have approached the United States and attempted to work out a subordination agreement. Itcould have taken an assignment of the other mortgages and stepped into the shoes of the holders of thosemortgages. Instead, it did nothing and paid out substantial sums of money on a property encumbered bya prior judgment lien.

Bankers Trust Co. v. United States, 29 Kan. App. 2d 215, 221 (2001).

Fannie Mae also attempts to excuse its negligence by claiming that “the escrow agent was directed to obtain a release of theFalk Deed of Trust.” FNMA's New Brief, p 48. Fannie Mae doesn't cite to the record to support that assertion for *124 onesimple reason-the Closing Instructions don't actually say that. (See Closing Instructions, R pp 279-289).

In Part A (“Required Closing Documents”) of the Closing Instructions, the Escrow Agent was instructed that, as a conditionprecedent, she was required to obtain a release of the liens of Wachovia (“the ‘Existing Mortgagee,”’ singular) “shown as Item 5to the Requirements of Schedule B, Section 1“ of the Title commitment. (R p 280). Part A made no reference to the Trust Deed.

The only provision in the Closing Instructions that could possibly be interpreted as having any relation to the Trust Deed iscontained in Part C. That section states that, as a “condition precedent” to the closing and disbursement of funds, the EscrowAgent was required to fax to Lend Lease's “Loan Closer” a draft settlement statement that provided for “payment in full of allexisting liens and security interests, if any.” (R p 281). While it's true that “all existing liens” would have included the TrustDeed, it is also irrelevant, because Lend Lease waived that condition precedent.

It is well-established that, in North Carolina, “a condition precedent may be waived by the party to whom the obligation wasdue.” In re Foreclosure of a Deed of Trust Executed by Stonecrest Ptnrs., LLC, 2011 N.C. App. LEXIS 2162, 8-9 (N.C. Ct.App. Oct. 4, 2011) (citing *125 Gore v. Myrtle/Mueller, 362 N.C. 27, 38, 653 S.E.2d 400, 408 (2007)); see also Baysdon v.Nationwide Mut. Fire Ins. Co., 259 N.C. 181, 188, 130 S.E.2d 311, 317 (1963).

In this case, Lend Lease expressly withheld the right to approve the settlement statement. (R p 281). It further gave the expressinstructions that the Escrow Agent was to disburse the funds only in accordance with the settlement statement as approved bythe lender. (Id.). By approving the settlement statement as submitted, Lend Lease waived the condition that it be amended toinclude payment of the Trust Deed. Its last instruction to the Escrow Agent was to pay off only the Wachovia lien.

Two other factors each, independently, are enough to establish why Fannie Mae is not entitled to equitable subrogation. First,Fannie Mae negligently failed to exhaust (or even attempt to use) the legal remedies it had available to it. See In re Cooper,








2013 Bankr. LEXIS 2985 at 15-17 (“equitable relief is not usually available when there is a legal remedy”) (citing JeffersonStd., 225 N.C. at 300, 34 S.E.2d 430; see also Farm Bureau Mut. Ins. Co. v. Progressive Direct Ins. Co., 40 Kan. App. 2d123, 131 (2008) (equitable subrogation will not be granted because the requestor failed to timely take advantage of anotheropportunity that was available to it).

Under the Agreement to Amend and Comply, the Quicksilver Parties had a contractual obligation, upon request of Fannie Mae,to take any steps necessary to *126 have the Trust Deed cancelled or subordinated. That agreement was not under seal, andwas therefore subject to three year statute of limitation. During that time (and for seven years thereafter), Fannie Mae neversought to enforce that agreement. Had it done so, the present action would not be necessary.

Finally, Fannie Mae's most egregious form of culpable negligence was its inexcusable delay. As this Court said almost 100years ago:

Equity aids the vigilant, not those who sleep on their rights. This is one of the several maxims of equity whichform a component part of its jurisprudence. It is designed to promote diligence and to punish remissness orunreasonable delay in asserting a claim or moving for the enforcement of a right.... [It] does not encouragestale claims or antiquated demands. The reason is obvious. The redress of a wrong or the enforcement of aright should not be delayed until the facts are involved in doubt and uncertainty.... [R]easonable diligenceis the best evidence of good faith and a just cause, and [we] are obliged to distrust him who prefers hisclaim at a great interval after its origin.

Marshall v. Hammock, 195 N.C. 498, 500 (1928); see also Bd. of Architecture v. Lee, 264 N.C. 602, 612, 142 S.E.2d 643, 650(1965) (“equity protects the vigilant, and not those who sleep on their rights”).

In this case, Fannie Mae took no action for over ten years. “A party cannot sit on its rights for that long and seek equitable relief.”In re Cooper, 2013 Bankr. LEXIS 2985 at 15 (denying equitable subrogation under North Carolina law to lender who waited“six and one half years after it funded debtors' loan”); see also Lipscomb v. Cheek, 61 N.C. 332, 333-334 (1867) (holding that“total inaction for nearly two months is culpable negligence” where “[n]o man of ordinary prudence *127 in the managementof his own affairs would wait so long” (constable's failure to timely take out and execute a warrant)).

Fannie Mae's failures are especially troublesome because Fannie Mae is not some unsophisticated relative (or an irrevocabletrust for an elderly widow) making a one time loan. It is the largest institutional mortgage investor in the country. Several stateshave held that large, institutional lenders should be held to a higher standard of care in commercial loan transactions. See, e.g.,Bankers Trust, 29 Kan. App. 2d at 221; Universal Title Ins. Co. v. United States, 942 F.2d 1311, 1316-1318 (8th Cir. Minn.1991) (unlike the unsophisticated individual, the bank is a professional lender that should be held to a higher standard).

In fact, in at least one case, Fannie Mae was denied equitable subrogation expressly because it is a “sophisticated financialinstitution[].” Chase Mortg. v. Jackson, 2007 Mich. App. LEXIS 48 (2007) (“[T]he doctrine of equitable subrogation was neverintended for the protection of sophisticated financial institutions that can cho[o]se the terms of their credit agreements... Suchlenders are ‘mere volunteers”’) (citations and internal quotations omitted).

It is an open question whether, in North Carolina, sophisticated lender in commercial loan transactions may rely on equitablesubrogation to bail them out from their own negligence. In any event, in determining whether they have acted *128 prudently,they should be held to a higher standard. However, under any standard, Fannie Mae has been culpably negligent.

4. At this point, equitable subrogation would unfairly operate to the prejudice of the beneficiaries of the Trust














The holding below is required under Wallace because equitable subrogation would operate to the prejudice of the juniorlienholder, i.e., the Trust. Fannie Mae's argument on this point is based on two fundamental distortions of the truth.

Fannie Mae's first argument seems to be that the Trust and its beneficiaries are not a “junior lienholder” within the meaning of the

third Wallace exception 19 because, in addition to being an officer and owner of Quicksilver, Michael Falk was/is also the trusteeof the Trust. However, as discussed above (see Section III.A.3.a, supra, pp 103-105), and as this court is well aware, Quicksilverwas an entity legally distinct from the Trust, and the Trust is legally distinct from its trustee and individual beneficiaries.

Fannie Mae's second argument is its claim that equitable subrogation would “inflict[] no injury” on the beneficiaries becausethe Trust would be left “in its original position.” See FNMA's New Brief, p 46; see also id. at p 48 (“the Falk Trust has alwaysbeen and will remain a junior lienholder”); id. (equitable subrogation leaves the Trust “in its original bargained for position”).

*129 As discussed above in Section II.A.2, supra, pp 99-100), the claim that equitable subrogation would return the Trustto its original position as a junior lienholder is false as a matter of law. Fannie Mae's foreclosure extinguishes all junior liens.See generally Dixieland, 272 N.C. at 175, 158 S.E.2d at 10. Therefore, if the Trust Deed is retroactively made junior to FannieMae's lien, then the Trust Deed will have been wiped out. The Trust either has a lien, or it has nothing. Because Fannie Maehas waited until after it completed its foreclosure to seek equitable subrogation, it is now impossible for the Trust to be placedinto a “junior” lien position.

Most significantly, in multiple ways, the Trust would be, and has been, prejudiced by Fannie Mae's delay. At the time of theLend Lease loan, there were two trustees, Michael Falk and Mr. Swartz. Lend Lease/Fannie Mae should have known of theiridentities as trustees because they had both signed the subordination to the Wachovia lien. Fannie Mae had every reason toknown that Michael Falk had a potential conflict of interest because in addition to being a trustee of the Trust, he also stood togain $1.5 million in cash out of the Lend Lease loan. On the other hand, Mr. Swartz, was a totally disinterested third party. Hewas not a beneficiary of the trust nor was he an owner, officer, employee or agent of Quicksilver.

*130 If Lend Lease had required that Mr. Swartz be involved in the transaction, even by merely signing an acknowledgementthat he was aware of the transaction, the Trust could have taken steps in 1999 to better protect its interest. At a minimum,Swartz could have notified Lend Lease that he would not consent to subrogation of the Trust Deed. More directly, he couldhave demanded that the Trust's lien be paid out of the excess proceeds. Instead, Lend Lease/Fannie Mae did nothing, and bydoing nothing, they allowed Quicksilver to burn through the excess proceeds without paying the Trust's lien.

The Trust's active involvement in the loan was especially necessary because Lend Lease loaned Quicksilver approximately $1.5million more than was necessary to pay off the Wachovia loan. In effect, Lend Lease allowed Quicksilver to suck all the equityout of the property. Excess equity which had previously been there to support the Trust Deed.

The Trust was also prejudiced because Fannie Mae never exercised its rights under the Agreement to Amend and Comply priorto the expiration of the statute of limitation on that agreement. If it had done so, several things could have happened. If it wassoon after the loan, Mr. Swartz still would have been alive to act as an uninterested trustee. Also, Quicksilver may still hadcash to pay the Trust's lien. If it was after Mr. Swartz died, Michael Falk either would have executed a subordination or hewouldn't have. If he didn‘t, Fannie Mae could have *131 brought action at that time (at least seven years prior to this action)and the Trust could have sought to enforce its lien.

If Michael had subordinated the Trust Deed, the beneficiaries of the Trust could have demanded that the Trust receive somecompensation for that subordination, and, if it didn‘t, they could have then brought an action against Michael for breach offiduciary duty. That breach likely would have occurred at the time of the Lend Lease loan when Michael made the commitmentto subordinate or cancel the loan. Accordingly, by the time Fannie Mae finally got around to claiming equitable subrogation,even the ten year statute of limitation had run on any actions by the Trust against Michael Falk. See G.S. §§ 1-52(1), (9); G.S.§ 1-56; see also, generally, Tyson v. North Carolina Nat'l Bank, 305 N.C. 136, 286 S.E.2d 561 (1982).








By loaning Quicksilver substantially more than necessary to pay off the Wachovia lien, Lend Lease/Fannie Mae also increasedthe debt burden on Quicksilver. That made it more likely that Quicksilver would prefer Fannie Mae over the Trust, and thatit would ultimately default on all loan, which it did.

That is, Lend Lease loaned Quicksilver almost 50% more than it owed Wachovia at the time. Lend Lease did not break that loandown into a “first” loan (that was supposedly being subrogated to Wachovia's) and a “third” loan (that would be inferior to theTrust Deed). Lend Lease made only one loan to *132 Quicksilver, and a default on any part of it was a default on the wholething. Therefore, each month, Quicksilver had to pay Fannie Mae substantially more than what would have been necessary topay off the supposedly subrogated loan. Since Fannie Mae was being paid for a larger debt than the one supposedly subrogated,this, in effect, created a preference of payments.

Furthermore, if Fannie Mae were now granted equitable subrogation, the Trust will have been unfairly deprived of itsopportunity to take action to enforce its lien. Fannie Mae argues that it is entitled to equitable subrogation because “the FalkTrust made no efforts to enforce its rights ... until 2011” after Quicksilver “had defaulted on the FNMA and after [FNMA‘s]foreclosure on it had been completed.” FNMA's New Brief, p 56.

That claim turns the world on its head. The Trust isn't asking for an equitable remedy, Fannie Mae is. The Trust has only askedto enforce its rights at law. Fannie Mae's argument that FNMA's inaction, while it knew that it had a junior lien of record, isimmaterial, but the Trust's taking no action while it had the senior lien of record somehow invalidates the Trust's lien. TheTrust took no action before Fannie Mae did because the Trust didn't need to. The Trust had the senior lien of record. Its seniorlien would not be affected by any other lienholder's foreclosure action. It could choose the best moment to enforce it. That'sa benefit of having priority.

*133 The Lend Lease loan was in place for ten years before Fannie Mae foreclosed. Presumably, during most of that time,it was not in default. However, the Trust's loan to Quicksilver was. Quicksilver lacked the funds to pay the Trust's loan, inpart because it was paying so much each month to Fannie Mae. The Trust could wait to enforce its lien because the 14% ratewas an excellent investment, the Trust believed that the Property was sufficiently valuable to cover the loan, and because theTrust had a first lien. If it had ever been adjudged otherwise, that would have changed the Trust's calculation and it may haveforeclosed on its “junior” lien. However, Fannie Mae's failure to take action to change priority prior to its foreclosure deprivedthe Trust of that option.

As discussed above, Fannie Mae's foreclosure makes it impossible to return the Trust to a junior lienholder position. As thisCourt stated over 100 years ago, equitable relief should not be available to a party that has “for so long a time slept upon theirrights,” especially when “it is well-nigh impossible to place the parties in statu quo.” Hill v. Atlantic & N. C. R. Co., 143 N.C.539, 560-561 (1906). “The laws assist those who are vigilant, and not those who sleep over their rights.” Id.

Fannie Mae also claims that denying equitable subrogation will “create[] a windfall for the Falk Trust.” First of all, no casesuggests that the culpable negligence exception goes away of the other party would gain a windfall. On the *134 other hand,as the Eighth Circuit held, “[t]he doctrine of legal subrogation requires more than a showing that a junior lienholder will beplaced in a better position than the lienholder would be in if legal subrogation applied.” Universal Title, 942 F.2d at 1319.In situations such as this, the part party opposing subrogation does not obtain a “windfall.” “On the contrary, [it] will simplyreceive that which it is entitled full payment of [its] lien.” Id.

B. Fannie Mae cannot receive summary judgment on equitable estoppel, but remand is only necessary if its culpablenegligence, or the prejudice to the beneficiaries, is not established as matter of law

The Trust believes that, for the reasons shown above, Fannie Mae's lack of standing to seek equitable subrogation, its culpablenegligence, and the potential for harm to the beneficiaries, is established as a matter of law. If, however, this court does not






agree, it is at least clear that the Trust has offered evidence that creates a genuine issue as to Fannie Mae's culpable negligenceand the potential for harm to the beneficiaries.

In contrast, Fannie Mae has not met its burden in order demonstrate a genuine question of material fact. See Kidd v. Early,289 N.C. 343, 370, 222 S.E.2d 392, 410 (1976) (“[S]ummary judgment may be granted for a party with the burden of proofon the basis of his own affidavits (1) when there are only latent doubts as to the affiant's credibility; (2) when the opposingparty has failed to introduce any materials supporting his opposition, failed to point to specific areas *135 of impeachmentand contradiction, and failed to utilize Rule 56(f); and (3) when summary judgment is otherwise appropriate.”).

In its argument against summary judgment, Fannie Mae consistently fails to cite to record evidence for its propositions.Accordingly, their argument should be summarily rejected.

In any event, each of the bases Fannie Mae asserts to oppose summary judgment lacks merit. The material facts of this case arenot in dispute, and this matter does not turn on properly contested questions of credibility. For example, on page 53 of FannieMae's New Brief, it proffers seven items of “evidence,” lettered (a) through (g). See FNMA's New Brief, p 53.

With the exception of (a) and (c), there is no dispute; both sides agree that those are the facts. Nor should there be any disputeover letters (a) and (c), because Fannie Mae is mischaracterizing the evidence.

With regard to (a), the Trust Deed has not “from its inception in 1994, been a junior deed of trust.” Id. At its inception, anduntil the Lend Lease loan, the Trust Deed was a junior deed of trust. However, once Fannie Mae caused the cancellation of theWachovia lien, the Trust Deed became the senior deed of record. That's a matter of record, and of law. Fannie Mae would liketo be granted equitable subrogation, but that wouldn't change the fact that since 1999, the Trust Deed has not been a junior lien.)

*136 Assertion (c) is true to an extent, but, by leaving out information, is framed in a way to mislead. As discussed above inSection III.A.3, supra, (pp 121-123), the Closing Instructions made no specific mention of the Trust Deed. Furthermore, althoughthe Closing Instructions required the Escrow Agent to submit a draft settlement agreement that provided for the payment of allliens (which would, generally include the Trust Deed), Lend Lease approved the Settlement Statement that did not provide forpayment of the Trust Deed. Since the Escrow Agent was required to disburse funds only in accordance with that SettlementStatement, it actual instructions at closing were to not pay off the Trust Deed.

In any event, dispute is not about what the facts are, but what legal significance those facts have, individually and collectively.That is a question that this Court can determine as a matter of law.

Fannie Mae identifies two areas that supposedly create a factual conflict. Neither have merit. First, Fannie Mae asserts that theFalks' misrepresentations at the time of the Lend Lease loan “create perhaps the most striking evidentiary inconsistency.”

First, there is no inconsistency. In 1999, the Falks represented that there were no prior liens and Fannie Mae would receivea first lien. As demonstrated by the Lend Lease loan documents themselves, and by the public record then available to LendLease and Fannie Mae, those representations were false made. When the *137 Falks were deposed in 2011, they testified thatthose representations were, in fact, false. (And “false” means inaccurate, or incorrect. The Falks have never testified that thosemisrepresentations were made intentionally.) On that point, there is no inconsistency.

The Falks' 1999 misrepresentations could be explained by the fact that they were signing numerous documents of hundreds ofpages. It is highly likely that they, like many people, simply did not read everything that they were signing. Considering thatLend Lease's Loan Closer didn't seem to read the Settlement Statement he was approving, that would seem to be a defensibleposition.






Granted, the question of the Falk's knowledge and intent would raise a question of fact. But, that would raise a genuineissue because that isn't a material question. The Falk's intentions in 1999 are irrelevant to the issue of equitable subrogation.For purposes of this appeal, this Court could consider that each of the Quicksilver parties was knowingly making falserepresentations, and that would still have no bearing on the outcome. That is for two reasons.

First, as discussed, Michael Falk, as an officer and key principal of Quicksilver, was a different legal person than Michael Falkas Trustee of the Trust. But that misrepresentation isn't attributed to the Trust, and it doesn't have any effect on the exceptionsto equitable subrogation.

*138 Second, the Quicksilver Parties' misrepresentations are not material because Lend Lease and Fannie Mae knew them tobe false! Fannie Mae has never asserted that it relied on those false representation, nor could any prudent lender have. There issimply no way a commercial lender could ignore an unfavorable title search in favor of a contrary representation by a borrowerprior to advancing millions of dollars.

Fannie Mae's second area of alleged dispute is that the Trust hasn't shown enough evidence of the underlying debt and defaultto convince Fannie Mae. Well, obviously, that's not the required standard.

It is not enough for a party opposing summary judgment to simply say, that's not enough, show me more. At summary judgment,the moving party must offer evidence to support each element of its claim or defense. Once it has done so, the party opposingsummary judgment must introduce, or point to, specific “materials supporting his opposition” and must “point to specific areasof impeachment and contradiction.” See Kidd v. Early, 289 N.C. at 370, 222 S.E.2d at 410.

The Trust has met its burden. It has offered the Trust's Note (R pp 24-25) and the Trust Deed (R pp 27-29), which are competentevidence of the debt and the Trust's lien. It has also offered affidavit testimony of Michael Falk, Harry Falk, and the SubstituteTrustee attesting to (a) the Quicksilver loans, (b) the initial *139 default and rate increase, (c) the payments that have beenmade, and (d) that Quicksilver has not made all required payments and is in default.

Fannie Mae moved for summary judgment. Nothing forced Fannie Mae to do so, and it could have requested additional timeto do discovery. Prior to moving for summary judgment Fannie Mae deposed Harry Falk, Michael Falk, and Quicksilver

At the hearing on summary judgment, Fannie Mae did not request additional time under Rule 56(f). Instead, it offered all of theevidence it had that it believed supported its position. Fannie Mae did not identify Fannie Mae did not identify any evidencethat contradicted the Trust's evidence that there was a loan, there was a deed of trust, and Quicksilver is in default.

Rather, all that Fannie Mae has ever done is argue that it, Fannie Mae, doesn't believe the Trust's evidence. Fannie Mae's disbelief(or unwillingness to believe) is not competent evidence. All Fannie Mae has to offer is its “latent doubts” as to the credibility ofthe Trust's evidence. Those latent doubts, in the absence of actual, competent, contradictory evidence, is insufficient to preventsummary judgment. See Kidd, 289 N.C. at 370, 222 S.E.2d at 410 (“summary judgment may be granted for a party with theburden of proof on the basis of his own affidavits... when there are only latent doubts as to the affiant's credibility”); *140 seealso Charlotte-Mecklenburg Hosp. Auth. v. Talford, 366 N.C. 43, 47-51, 727 S.E.2d 866, 869-871 (2012).

C. Sound public policy supports denying Fannie Mae equitable subrogation

First, as a fundamental matter, this case should not be decided on “public policy” grounds. “Unlike Zorro or the ScarletPimpernel, a court under the guise of exercising its equitable powers may not right what it perceives as a wrong or unfairnessabsent an adequate equitable basis therefor.” Rice v. Garrison, 258 Kan. 142, 151, 898 P.2d 631, 637 (1995). It is the legislature'srole to determine public policy and to enact the laws that they believe best achieve that policy.








“Courts must be careful not to usurp [that] Legislative role under the guise of equity.” Stokes v Millen Roofing Co, 466Mich 660, 671-672, 649 NW2d 371, 377 (2002). This is especially true in this North Carolina case. In our state, we have theharshest possible recording system (i.e., “pure race”) and the harshest standard for a plaintiff's negligence (i.e., “contributorynegligence”). It would be anachronistic, to say the least, if we should have a low bar for major financial institutions, who sit ontheir claims for ten years, to avoid the foreseeable and necessary consequences of their own negligence.

Such a standard would be inconsistent with North Carolina's general policy that individuals should be able to rely on the publicrecord. Furthermore, it would not promote the things that should be promoted, such as diligence and timeliness. *141 Rather, itwould encourage sloppiness in lending practices because it would shield lazy lenders from the consequences of those practices.

Instead, equitable subrogation should remain an exceptional remedy. “For courts to allow equitable subrogation where noextreme circumstances are present would be nothing less than a judicial repeal of [the recording statutes] and would place thelending of money secured by real estate at great risk and insecurity.” Landmark Bank v. Ciaravino, 752 S.W.2d 923, 928 (Mo.App. 1988).

Fannie Mae's culpable negligence was too egregious for the Court to expand the scope of equitable subrogation to cover it.What Fannie Mae wants, in effect, is to make equitable subrogation automatic to any lender that advances funds enough fundsto pay off a first lien with the intention that it gain first position, despite the fact that such intention will appear nowhere in thepublic record. That would be a bad policy, but, in any event, it is a matter for the legislature, not the Court.

No lender lends money in reliance on equitable subrogation-they lend money in reliance on diligent title searches and validlyexecuted documents that accomplish the parties' intentions. Lend Lease/Fannie Mae did the former, but, in this case, theyculpably neglected the latter. And that is why this case also does not raise legal principles of major significance to thejurisprudence of the State. This case does not raise any new issues that have not been anticipated by this *142 State's priorjurisprudence of equitable subrogation. That jurisprudence already protects lenders who, through no culpable negligence of theirown, inadvertently obtain junior liens. However, it denies, and should continue to deny, relief to lenders like Fannie Mae whosesubordinate position is due to their own culpable negligence, or the culpable negligence of those from whom they acquiredtheir interests.

IV. FANNIE MAE IS NOT ENTITLED TO REMAND ON ISSUES THAT THEY ABANDONED, AND WHICH, INANY EVENT, CAN BE DETERMINED AS A MATTER OF LAW

Fannie Mae argues that the matter should be remanded for reconsideration of the foreclosure issue and consideration of issuesthat it did not raise at the Court of Appeals. That request must be rejected.

A. Fannie Mae abandoned all issues other than applicability of G.S. §45-36.24 and equitable subrogation

Fannie Mae now requests remand on its alleged issues of whether there was a valid debt, whether there was a default, and allegedaffirmative defenses of “estoppel, waiver, laches, unclean hands,” and fraud. See FNMA's New Brief, pp 55-56. However,Fannie Mae abandoned any such issues and they should not be considered by this Court.

N.C. R. App. Pro. 10(c) allows an appellee to raise any issues on appeal that were “properly preserved for appellate reviewand that deprived the appellee of an alternative basis in law for supporting the judgment.” The only two issues that *143Fannie Mae raised at the Court of Appeals were the applicability of G.S. § 45-36.24(b) and equitable subrogation. See generallyFNMA's COA Brief. And yet, they are now, before this Court, attempting to rely on those abandoned issues. However, as ourrules explicitly provide, “[t]he scope of review on appeal is limited to issues [presented in a party's brief]. Issues not presentedand discussed in a party's brief are deemed abandoned.” N.C. R. App. Pro. 28(a); see also N.C. R. App. Pro. 28(b)(6) (“Issues not









presented in a party's brief, or in support of which no reason or argument is stated, will be taken as abandoned.”). Accordingly,Fannie Mae may not now raise such issues.

B. Fannie Mae also abandoned any issue concerning rehearing of the foreclosure, and, in any event, their argument onthat issue is untethered from the facts

Fannie Mae now claims that it “has been denied the de novo hearing before the Superior Court to which it was entitled” despitethe fact that it had that hearing and had the opportunity at that time to offer all the evidence it had to contest that foreclosure.

N.C. R. App. Pro. 28(b)(7) requires a party to include in its brief “[a] short conclusion stating the precise relief sought” (emphasisadded). In the present case, Fannie Mae asked only for the following relief: “[That the Court of Appeals] affirm the trial court's(1) grant of Defendant's motion for summary judgment and (2) reversal of the Clerk's authorization to foreclose.” (FNMA'sCOA Brief, p *144 25). Now, in contrast, Fannie Mae asks this Court to remand for trial and to remand for (another) de novoappeal of the foreclosure order. Because such remedies were neither briefed, nor even requested, in the court below, they aredeemed abandoned and should not be considered by this Court.

Furthermore, such request by Fannie Mae is based on a fundamentally false characterization of the proceedings in the trialcourt. Fannie Mae's argument seems to be (1) that they haven't had an opportunity to have an evidentiary hearing on the issues,and (2) that they need an opportunity to explore factual issues that couldn't have been already explored. Fannie Mae is fullyaware that both prongs of that argument are false.

As set forth at length above in the Statement of the Facts and Statement of the Case, Fannie Mae already had a de novo hearingof its appeal of the foreclosure order. Fannie Mae knew that its appeal would be heard at that time and, in fact, consented tohaving its appeal heard concurrently with the parties' summary judgment motions. At that hearing, the trial judge allowed, andencouraged, the parties to offer all their evidence and arguments on all issues, including the appeal of the foreclosure order.At no point did Fannie Mae ask the trial court to keep open the issue of its appeal of the foreclosure order, nor did the trialcourt indicate any intention to do so.

*145 Second, as shown by the Record, the case was heard on the parties' cross-motions for summary judgment, not partialsummary judgment. (See R pp 191-193, 486-488, 692). As a result, at that time, Fannie Mae was required to put on all theevidence that it had that it felt was necessary to (a) prove all the elements of its claims and/or (b) defeat, or create a questionof material fact, on the Trust's claims.

In addition to documentary evidence and the court record, the Trust offered its verified complaint (R pp 4-41, which wasconsidered as an affidavit), as well as affidavits of Michael Falk (R pp 56-73 and R pp 194-248), Harry Falk (R pp 249-485),and the Substitute Trustee (R pp 48-55). That evidence presented competent evidence of every element of Plaintiff's claims,including, but not limited to, (1) the existence of a valid debt (R pp 6-8, 56-58), (2) the existence of default (R pp 6-8, 56-58),(3) the trustee's right to foreclose under the Trust Deed (R pp 28, 40, 64), and (4) the sufficiency of the notice for the foreclosurehearing (R pp 42-55). Those are the only four things that need to be determined, or that can even be considered, at a foreclosurehearing. N.C. Gen. Stat. § 45-21.16(d); see also In re Watts, 38 N.C. App. 90, 94, 247 S.E.2d 427, 429 (1978) (superior courtjudge not authorized to invoke equity jurisdiction in a hearing de novo on appeal of foreclosure order).

Fannie Mae, in contrast, offered only the depositions of Michael and Harry Falk, which they had taken specifically for use inthe present litigation (R pp 489- *146 625; R pp 626-690). As discussed above, they have not, and cannot, point to areas inthose depositions that materially contradict the Trust's evidence or that create a material issue of fact. Furthermore, they neverasked the court for “a continuance to permit affidavits to be obtained or depositions to be taken or discovery to be had” asprovided for in N.C. R. Civ. Pro. 56(f). Instead, they now attempt to feign that additional fact-finding is necessary.






The simple truth is that Fannie Mae already had their opportunity to develop, and offer, that evidence. They cannot now defeatsummary judgment simply by claiming that they don't believe the Trust's evidence. See Kidd, 289 N.C. at 370, 222 S.E.2d at 410.

This Court can, and should, determine the foreclosure issue without remand to the trial court. The Clerk initially ruled in theTrust's favor and issued a foreclosure order. Fannie Mae appealed to the Superior Court, where it put on all evidence it had.That review was pursuant to a de novo standard, which, as this Court is well-aware, meant that the reviewing court gave noweight to the Clerk's findings of fact.

On review, the Superior Court reversed the foreclosure because it found that the Trust did not have a valid debt. (That is, FannieMae won the hearing it supposedly did not get.) The Trust appealed that ruling of the Superior Court.

*147 Since the Superior Court found that the trust failed to prove one element (i.e., valid debt), it did not need to make findingson any other elements. In any event, even if it had, they would have been disregarded because the Court of Appeals was requiredto apply a de novo review to the evidence of record. That appeal reversed the trial court and affirmed the Clerk's order.

Fannie Mae has now appealed that reversal to this Court, which also applies a de novo review to the record evidence. SinceFannie Mae has already had the opportunity to offer all evidence it possessed and believed was relevant at the time of itsSuperior Court appeal, further remand is inappropriate.

Judge Davis's reversal of the Clerk's order is properly before this court for a decision as a matter of law, and this Court hasall the evidence that the trial court had before it, or should have before it on remand. Accordingly, the matter can, and shouldbe, decided by this Court without further delay.

Fannie Mae made tactical decisions on how to try its case at the trial court and Court of Appeals. Now, in the face of an adverseruling, it's reconsidering those choices. However, Fannie Mae cannot now use Supreme Court review in an attempt to get a“do over.” See, e.g., Hamby v. Profile Prods., L.L.C., 361 N.C. 630, 642-642, 652 S.E.2d 231, 239 (2007) (“‘the law does notpermit parties to swap horses between courts in order to get a better mount”’ before an appellate court”) (quoting Weil, 207N.C. at 10, 175 S.E. at 838)).

*148 Finally, if the matter is not decided at this time, it will most likely lead to fragmentary appeals. The interests of speedyjustice would, therefore, be best served if the matter was resolved once and for all by this Court.

CONCLUSION

For the reasons given above, Plaintiff asks this Court to affirm the judgment of the Court of Appeals, or, in the alternative, toremand the matter for trial on any issues of fact.

Appendix not available.

Footnotes1 Undersigned counsel notes that Paragraph 20 of Harry Falk's Affidavit (R pp 249-485) stated that a true and accurate copy of the

Transcript of Closing of the loan by Lend Lease to Quicksilver (the “Closing Transcript”) was to be attached to such affidavit as

Exhibit 1. However, that transcript was actually attached as “Exhibit A,” and is the Exhibit A thereafter referred to in Harry Falk's

Affidavit.

Counsel further notes that, in the Record on Appeal, the Exhibits to the Closing Transcript have been reproduced out of order.

Specifically, Exhibits 8-18 (R pp 261-374) are out of place. Those exhibits should have followed Exhibits 1-7 (which are located at

R pp 375-483) and come before Exhibit 19 (which is located







at R pp 484-485). Furthermore, the document reproduced at R p 258 was not part of the Closing Transcript and should not have

been included.

2 Counsel notes that, in some court filings and briefings, this case has erroneously been identified as “11-SP-1202.” That case has no

connection to the present matter.

3 Located at www.ncappellatecourts.org/show-file.php?document_id=128777.

4 Annotated copies of G.S. § 45-37 (2014) and G.S. § 45-36.24 (2014) are located in the Appendix beginning at pages 2 and 9,

respectively. G.S. § 45-37 (Annotated) provides the following history for that statute:

1870-1, c. 217; Code, s. 1271; 1891, c. 180; 1893, c. 36; 1901, c. 46; Rev., s. 1046; 1917, c. 49, s. 1; c. 50, s. 1; C.S., s. 2594; 1923,

c. 192, s. 1; c. 195; 1935, c. 47; 1945, c. 988; 1947, c. 880; 1951, c. 292, s. 1; 1967, c. 765, ss. 1-5; 1969, c. 746; 1975, c. 305; 1985,

c. 219; 1987, c. 405, s. 1; c. 620, s. 1; 1989, c. 434, s. 1; 1991, c. 114, s. 4; 1995, c. 292, ss. 1, 2, 5; 1995 (Reg. Sess., 1996), c. 604,

s. 1; 2005-123, s. 1; 2006-226, s. 12; 2006-259, s. 2; 2006-264, s. 40(b); 2011-246, s. 4; 2011-312, s. 12.

A copy of each of the pre-1989 acts is included in the Appendix, as well as copies of the relevant post-1989 acts (i.e., 1991, c. 114

and 2011-312). The remaining post-1989 acts are available electronically through Lexis.

5 http://www.washingtontimes.com/news/2014/apr/12/fannie-mae-cuts-ties-with-2-foreclosure-law-firms/

6 See http://en.wikipedia.org/wiki/Fannie_Mae (citing “Federal National Mortgage Association Form 10-K (Annual Report) for fiscal

year ended December 31, 2012,” Federal National Mortgage Association, Retrieved 12 April 2013).

7 G.S. § 45-37(b) previously provided for a 15 year statutory period that could be renewed once.

8 Located at www.ncappellatecourts.org/show-file.php?document_id=131033.

9 See appellate.nccourts. org/dockets.php?court=2&docket=2-2012-0764-001

10 www.ncappellatecourts.org/show-file.php?document_id=138273.

11 appellate.nccourts.org/dockets.php?court=2&docket=2-2012-0764-001&pdf=1&a=0&dev=1.

12 http://www.ncappellatecourts.org/show-file.php?document_id=139281.

13 http://www.ncappellatecourts.org/show-file.php?document_id=139973.

14 A “Get by Citation” search for the statute produces the following response: “The publication abbreviation you entered is recognized;

however, the citation (ncgs @ 113-391.1) is not available through the Get by Citation feature.”

15 See www.ncga.state.nc.us/gascripts/statutes/StatutesTOC.pl? Chapter=0113.

16 As discussed below, Plaintiff commenced its Superior Court action on 16 September 2011 with the filing of its Filing Extension and

its filing of its verified complaint within 20 days thereof as permitted by N.C. R. Civ. Pro. 3(a). Plaintiff believes that should also

constitute initiation of the foreclosure action in a timely manner.

17 www.ncappellatecourts.org/show-file.php?document_id=128777 128777.

18 Lend Lease and Fannie Mae's failure to follow up on their “precautions” is reminiscent of the Seinfeld scene where the rental car

company has taken his “reservation” but then not actually held on to a car for him. The biggest difference is that it's funny when it's

just a sitcom episode. See http://www.youtube.com/watch?v=A-brgkkjnHc.

19 Relief under equitable subrogation will not be granted where such “relief will operate to the prejudice of the junior lien holder.”

Wallace, 200 N.C. at 132, 156 S.E.2d at 799.

End of Document © 2016 Thomson Reuters. No claim to original U.S. Government Works.






