Matter of Aal-Anubiaimhotepokorohamz

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472 S.E.2d 369 (1996)

In the Matter of the FORECLOSURE OF LAND COVERED BY A CERTAIN DEED OF TRUST GIVEN BY Odechi Boaz M. AAL-ANUBIAIMHOTEPOKOROHAMZ and wife Ngozi Aal-Anubiaimhotepokorohamz wherein Ronald K. Campbell was named as Trustee as recorded in Book 4735, page 18, Wake County Registry.

No. COA95-329.

Court of Appeals of North Carolina.

July 2, 1996.

*370 Smith Debnam Hibbert & Pahl, L.L.P. by John W. Narron and Michael D. Zetts, III, Raleigh, for plaintiff appellees.

The Law Offices of Thomas H. Stark by A. Lee Hill, Durham, for defendant appellants.

ARNOLD, Chief Judge.

"We note at the outset that the applicable standard of review on appeal where, as here, the trial court sits without a jury, is whether competent evidence exists to support its findings of fact and whether the conclusions reached were proper in light of the findings." Walker v. First Federal Savings and Loan, 93 N.C.App. 528, 532, 378 S.E.2d 583, 585 (1989).

Defendants first argue that a valid debt does not exist because of a failure of consideration in the contractual transaction which gave rise to the execution of the deed of trust and the underlying promissory note. We agree and reverse the order of the trial court.

There are only four issues to be determined by the clerk at a foreclosure hearing: the existence of a valid debt of which the party seeking to foreclose is the holder; the existence of default; the trustee's right to foreclose, and the sufficiency of notice to the record owners of the hearing. N.C. Gen. Stat. § 45-21.16(d) (1991). "The clerk's findings are appealable to the Superior Court within ten days for a hearing de novo, but the court's authority is likewise limited." In re Foreclosure of Deed of Trust, 55 N.C.App. 68, 71, 284 S.E.2d 553, 555 (1981), disc. review denied, 305 N.C. 300, 291 S.E.2d 149 (1982).

This Court, in In re Foreclosure of Deed of Trust Executed by Kitchens, 113 N.C.App. 175, 177, 437 S.E.2d 511, 512 (1993), terminated a Trustee's right to foreclose under G.S. § 45-21.16(d) because no valid debt existed due to a failure of consideration in the transaction underlying the execution of a promissory note and deed of trust. Ms. Kitchens, the mortgagor, had embezzled money from the mortgagee and she agreed to execute certain promissory notes and securing deeds of trust based on the understanding that she would not be prosecuted for embezzlement. Id. at 176-177, 437 S.E.2d at 512. Subsequently, criminal proceedings were instituted against Ms. Kitchens. Id. at 177, 437 S.E.2d at 512. "That by virtue of the fact criminal proceedings subsequently were instituted against Alyce B. Kitchens, the [notes and deed of trust] were *371 without consideration." Id. This Court agreed with the lower court's finding that these circumstances amounted to a failure of consideration and therefore no valid debt had been created. Id., at 177-178, 437 S.E.2d at 512. "The mortgage's existence is based on the validity of the debt. If the debt terminates or is invalid, the mortgage is also invalid." Patrick K. Hetrick and James B. McLaughlin, Jr., Webster's Real Estate Law In North Carolina, § 13-4 (4th ed.1994).

In the instant case, the defendants executed a promissory note and a deed of trust with the understanding that the photo processing equipment would be rightfully assigned to them. The defendants bargained for and contracted for the rights to the photo processing equipment, but authorization for the assignment was never obtained, nor do the defendants presently have possession of the equipment. Competent evidence does not exist in the record to support the conclusion that a valid debt exists between the parties. We find that there was a failure of consideration and that no valid debt was created between the parties. The plaintiffs, therefore, do not have the right to proceed with foreclosure under the power of sale provision contained in the deed of trust.

Because we find that plaintiffs do not have the right to foreclose on the deed of trust, we need not address defendants' other assignments of error. We reverse.


LEWIS and WALKER, JJ., concur.