Know When You Swear: Lender’s Affidavits Again Upheld in North Carolina

In a published decision from the North Carolina Court of Appeals, the Court again rejected a debtor’s challenge to a foreclosing lender’s affidavit in In re Foreclosure of Collins, No. COA16-655 (N.C. Ct. App. February 7, 2017).  This opinion offers guidance on the best practices of affidavit preparation and execution for North Carolina foreclosures under power of sale.

In this case, the debtors’ sole challenge to the lender’s foreclosure action rested on a critique of the evidence offered at hearing.  The facts are simple.  In 2006, the debtors executed a Note in favor of Beneficial Mortgage Company of North Carolina and secured repayment of the Note with a Deed of Trust.  Beneficial Mortgage Company of North Carolina merged with Beneficial Mortgage Company of Virginia in 2009, and that successor company ultimately merged into Beneficial Financial I, Inc.  The debtors defaulted in 2013, and the penultimate Beneficial initiated foreclosure.  The Clerk of Superior Court entered an order authorizing foreclosure on October 17, 2013, from which the debtors exercised their right to a hearing de novo before a Superior Court Judge.

At that hearing in early 2016, the debtors offered no evidence regarding payment or that another entity sought to foreclose.  Instead, the debtors rested their laurels on a three-pronged challenge of the lender’s affidavit.  First, the debtors complained that the affidavit before the Court was executed in 2013 and that “the possibility exists that the Note had been negotiated at some point” between 2013 and the 2016 hearing. Second, the debtors argued that the affiant had no personal knowledge of the facts contained in the affidavit and that the affidavit failed to meet the “business record exception” to the hearsay Rule of Evidence.  Finally, the debtors suggested that since lender’s counsel did not present the original note for inspection to the Court, the foreclosure must fail. 

The Court rejected all three arguments.  In dismissing the debtors' first argument, the Court chastised the debtors’ “speculation” that the note had been negotiated and found that the trial judge properly admitted the 2013 affidavit given there was no evidence to support the debtors’ theory.  The Court then addressed the debtors’ critique regarding the business record exception to the hearsay rule and found that the trial judge did not abuse his discretion in admitting the affidavit.  The Court noted that the lender’s affidavit aptly set forth facts to establish that the affiant had knowledge of Beneficial’s servicing of the loan as the affiant testified that she was well-versed in Beneficial’s servicing practices.  The Court further noted that it was irrelevant whether the affiant had personal knowledge of the various mergers leading up to the final Beneficial entity because the Court had independent evidence of these various mergers stemming from the public record.  

The Court then dispensed with the debtors’ final argument and opined that, although the lender’s attorney did not present the original note, a copy of said instrument was attached to the lender’s affidavit and stated that Beneficial possessed the note.  Given that the debtors offered no evidence to contravene Beneficial’s status as holder of the note, the Court could only infer that Beneficial is the holder and allowed the foreclosure to proceed.

This opinion is instructive for servicers, and their counsel, on how to tailor an affidavit that will pass muster even in the face of speculative opposition from debtors.  The Court’s opinion ratifies the mortgage servicing industry’s best practices regarding affidavit preparation and execution and rejects the speculation often offered by borrowers in defense.  The opinion also demonstrates a Court’s willingness to authorize foreclosure without the original Note’s presentation at trial.  While the original Note’s presentation remains helpful for lender’s counsel (and, in fact, often serves as a spectacle to deflate a borrower’s defense), mortgage holders may rest easier on the fact that so long as they are in possession of the Note, North Carolina courts should authorize foreclosure.