Deed of Trust and Foreclosure

N.C. Court of Appeals Addresses Powers of Attorney In Context of Commercial Development Loans

This week, the North Carolina Court of Appeals addressed the enforceability of personal guaranties of commercial loans executed pursuant to a durable power of attorney.  The opinion in Suntrust Bank v. C&D Custom Homes, LLC, et al. (November 6, 2012) can be found here.

The facts are relatively straightforward.  Appellant Sheila Ogle executed a durable power of attorney appointing her husband as her attorney-in-fact.  After that and pursuant to the execution of that “POA”, husband entered into a number of loan transactions with Suntrust Bank.  Those loan transactions included “six personal guaranties and one deed of trust in [Sheila’s] name.”

The notes defaulted and Suntrust Bank foreclosed on the deeds of trust.  Of course, the sales resulted in deficiencies.  Accordingly, the Bank pursued Sheila and her husband, among others, for the deficiency amounts.

The Court granted the Bank’s motion for summary judgment “as to all Defendants”, including Shelia.  Sheila appealed.

Court’s Analysis.
On appeal, the Court reversed as to Sheila and remanded “for entry of summary judgment in her favor”. 

So, what happened at the appellate level?  It turns out that the POA contained the following language:

“RESTRICTIONS ON EXERCISE OF POWERS BY ATTORNEY-IN[-]FACT … The rights, powers, duties and responsibilities herein conferred upon my Attorney-in-Fact shall not be exercised by my Attorney-in-Fact until a physician has certified to my Attorney-in-Fact that in his or her opinion I am no longer able (physically or mentally) to handle my personal and business affairs.”

After noting that the POA must be “strictly construe[d]” according to its terms, the Court concluded that there is “no evidence in the record or contention that Appellant was certified physically or mentally incompetent to handle her own affairs by a physician” and, “[a]s such, no power of attorney ever vested in [husband].”

As far as notice and the Bank’s claim of husband’s “apparent authority” to execute in Sheila’s behalf, the Court stressed that the Bank is “deemed to be on notice of any ‘limitation or restriction’ contained in the POA” in light of the POA’s recordation with the register of deeds. 

POAs are often employed in the commercial lending context, whether for the execution of spousal guaranties (as in this case) or, at times, the promissory note or deed of trust, itself.  Surely lenders and borrowers and guarantors will now turn back to their loan files.  Heck, we can even add purchasers for value at foreclosure sales to this mix.  I mean, though it appears from the Court’s opinion that the foreclosure sales have already taken place and been confirmed, is there not also an issue in this story as to the single deed of trust husband signed in Sheila’s name pursuant to the POA?  Is that sale valid?  

These kinds of loan matters tend to be document-intensive, where the devil truly resides in the details.  It may have been that the lenders, borrowers and guarantors had neither the time nor the resources nor, perhaps, the inclination, to always and everywhere scrutinize the countless documents passing hands in the midst of the “go-go” years.  Who knows?  But all litigants should take note that the Court does, in fact, have those things at its disposal.  

Antonin is our favorite strict constructionist, right?

Mike Thelen is a lawyer in Womble, Carlyle’s Real Estate and Land Use Litigation practice group. He regularly represents a wide variety of clients, from local governments to businesses, in land use and land development matters in both state and federal venues throughout North Carolina.   

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