HomeTrust Bank v. Tsiros

An unpublished opinion of the North Carolina Court of Appeals does not constitute
controlling legal authority. Citation is disfavored, but may be permitted in accordance
with the provisions of Rule 30(e)(3) of the North Carolina Rules of Appellate Procedure.

NO. COA14-267
NORTH CAROLINA COURT OF APPEALS

Filed: 19 August 2014

HOMETRUST BANK,
Plaintiff,

v. Buncombe County
No. 12 CVS 5768
GEORGE N. TSIROS and TAMMY TSIROS,
Defendants.

Appeal by plaintiff from judgment entered 1 October 2013 by

Judge Alan Z. Thornburg in Buncombe County Superior Court.

Heard in the Court of Appeals 21 May 2014.

Dungan, Kilbourne & Stahl, P.A., by James W. Kilbourne,
Jr., and Zephyr Jost, for the plaintiff-appellant.

Matney & Associates, P.A., by David E. Matney III and Amy
P. Mody, for the defendant-appellees.

McCULLOUGH, Judge.

HomeTrust Bank (“plaintiff”) appeals the judgment of the

trial court granting summary judgment in favor of George Tsiros

(“Mr. Tsiros”) and Tammy Tsiros (“Mrs. Tsiros”) (together

“defendants”). For the following reasons, we reverse the

summary judgment in favor of Mr. Tsiros and affirm the summary

judgment in favor of Mrs. Tsiros.
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I. Background

On 15 February 2008, Demelize Property Group, LLC

(“Demelize”) executed a Commercial Promissory Note for $635,000

secured by a Commercial Real Estate Deed of Trust for real

property located at 2975 Memorial Highway, Lake Lure, North

Carolina, payable to plaintiff. On the same day, defendants

individually executed a Commercial Loan Guaranty (“Guaranty”)

backing the Commercial Promissory Note. At the time of

executing the Guaranty, defendants lived at 24 Pine Meadow

Drive, Asheville, North Carolina. Prior to 24 June 2010,

defendants moved to 38 Edwin Place, Asheville, North Carolina,

maintaining the 24 Pine Meadow Drive property as a rental

property. On 26 May 2010, Demelize and defendants executed a

Loan Modification Agreement to reduce the fixed interest rate of

the Commercial Promissory Note and to temporarily allow an

interest only repayment period. In 2011, Demelize stopped

making payments on the loan.

On 11 October 2011, plaintiff appointed Matthew S. Roberson

as substitute trustee. On 20 October 2011, plaintiff, through

Matthew Roberson, filed a Special Proceeding Action with Notice

of Hearing as to Commencement of Foreclosure Proceeding. The

Notice of Hearing (“Notice”) was mailed to the mortgagee:
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Demelize Property Group, LLC c/o Registered Agent, George Tsiros

at 38 Edwin Place, Asheville, NC and PO Box 8517, Asheville, NC.

It was also sent to the guarantors: George Tsiros at 24 Pine

Meadow Drive, Asheville, NC and Tammy Tsiros at 24 Pine Meadow

Drive, Asheville, NC. The Notice sent to Mrs. Tsiros at 24 Pine

Meadow Drive was signed for by the tenant of the property, Erin

Hykin. On 4 November 2011, an Amended Notice of Hearing as to

Commencement of Foreclosure Proceeding was sent to: Demelize

Property Group, LLC c/o Registered Agent, George Tsiros, 38

Edwin Place, Asheville, NC; George Tsiros, 24 Pine Meadow Drive,

Asheville, NC; and Tammy Tsiros, 24 Pine Meadow Drive,

Asheville, NC. On 10 November 2011, George Tsiros, as the

registered agent, signed for and accepted service of the Notice

delivered by FedEx to Demelize at 38 Edwin Place, Asheville, NC.

Defendants did not take any action with regard to the

foreclosure.

On 15 December 2011, the Clerk of Superior Court of

Rutherford County issued an Order Allowing Foreclosure Sale.

Also on 15 December 2011, a Notice of Foreclosure sale was

posted at the Rutherford County Courthouse in the area

designated for posting. On 6 January 2012, plaintiff purchased

the property in question at the foreclosure sale for $222,000,
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resulting in a principal balance deficiency of $389,927.28. On

1 March 2012, plaintiff commenced an action against defendants,

as guarantors, to recover the deficiency. The Final Report and

Accounting of Foreclosure Sale was recorded on 27 March 2012.

In defendants’ answer to the complaint, defendants raised lack

of service of the Notice of Hearing and application of N.C. Gen.

Stat. § 45-21.16(b) as a bar to plaintiff pursuing the

deficiency action. Plaintiff then filed a voluntary dismissal

without prejudice.

On 4 June 2012, plaintiff, through Matthew Roberson, filed

a Motion for Relief from Order of Foreclosure and to Set Aside

the Foreclosure Sale (“Rule 60 Motion”). The motion was

delivered to all parties. On 13 June 2012, an Amended Notice of

Hearing was filed and served. Defendants’ attorney entered

Notice of Appearance on 15 June 2012 to argue against the Rule

60 Motion. The hearing was held on 26 June 2012 in Rutherford

County Superior Court. At the hearing, plaintiff argued to set

aside the foreclosure sale claiming there was not proper service

on defendants. Specifically, plaintiff argued to set aside the

foreclosure sale “in order to give [plaintiff] a new time to

notice everybody up for the hearing so that [defendants] can
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come argue their case.” The court denied the Rule 60 Motion

without issuing findings of fact.

On 5 December 2012, plaintiff filed this action against

defendants to recover the deficiency. Defendants filed an

answer to the complaint on 7 January 2013 raising the following

affirmative defenses: (1) they were not properly served with

the Notice of Hearing in the foreclosure action as required by

N.C. Gen. Stat. § 45-21.16(b), (2) the inadequacy of the bid

amount, and (3) estoppel. On 3 September 2013, plaintiff filed

a Motion for Summary Judgment and the court entered summary

judgment in favor of defendants on 1 October 2013. On 1

November 2013, plaintiff filed Notice of Appeal.

II. Standard of Review

“Our standard of review of an appeal from summary judgment

is de novo; such judgment is appropriate only when the record

shows that ‘there is no genuine issue as to any material fact

and that any party is entitled to a judgment as a matter of

law.’” In re Will of Jones, 362 N.C. 569, 573, 669 S.E.2d 572,

576 (2008) (quoting Forbis v. Neal, 361 N.C. 519, 523–24, 649

S.E.2d 382, 385 (2007)). “On appeal, this Court’s task is to

determine, on the basis of the materials presented to the trial

court, whether there is a genuine issue as to any material fact
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and whether the moving party is entitled to judgment as a matter

of law.” Coastal Plains Utils., Inc. v. New Hanover Cty., 166

N.C. App. 333, 340, 601 S.E.2d 915, 920 (2004).

III. Discussion

Plaintiff’s first argument on appeal is the trial court

erred when it granted summary judgment in favor of Mr. Tsiros

because he had actual notice of the foreclosure. We agree.

After North Carolina’s previous foreclosure statute was

declared unconstitutional, N.C. Gen. Stat. § 45-21.16 “was

enacted to meet the minimum due process requirements of personal

notice and a hearing.” HomeTrust Bank v. Green, ___ N.C. App.

___, ___, 752 S.E.2d 209, 211 (2013) (quotation marks and

citation omitted). Under N.C. Gen. Stat. § 45-21.16(b)(2), a

notice of hearing shall be served upon “[a]ny person obligated

to repay the indebtedness against whom the holder thereof

intends to assert liability therefor, and any such person not

notified shall not be liable for any deficiency remaining after

the sale.” N.C. Gen. Stat. § 45-21.16(b)(2) (2013). “The

notice shall be served and proof of service shall be made in any

manner provided by the Rules of Civil Procedure for service of

summons, including service by registered mail or certified mail,

return receipt requested.” N.C. Gen. Stat. § 45-21.16(a). “Due
 -7-
process demands that the trustee make diligent efforts to give

the mortgagor actual notice of the foreclosure hearing so that

the mortgagor may assert any available defenses to foreclosure

or take advantage of the equitable relief found in G.S. § 45–

21.34.” Fleet Nat. Bank v. Raleigh Oaks Joint Venture, 117 N.C.

App. 387, 390, 451 S.E.2d 325, 327 (1994) (emphasis added).

In Fleet Nat. Bank, after the defendants defaulted on their

loan, the plaintiff instituted foreclosure proceedings against

defendant Raleigh Oaks Joint Venture (“ROJV”) and its

principals, Raleigh Oaks Shopping Center Inc. (“ROSC”) and

Seymour Vogel (“Vogel”). Id. at 387-88, 451 S.E.2d at 326. The

plaintiff personally served ROJV and ROSC, but failed in

attempting to personally serve Vogel. Id. at 388, 451 S.E.2d at

326. Plaintiff posted notice of the foreclosure hearing at the

shopping center property. Id. After the foreclosure sale, the

plaintiff sought recovery of the deficiency. Vogel then moved

to dismiss the deficiency action because he was not personally

served. Id. Although Vogel was not personally served, Vogel

admitted he had actual knowledge of the foreclosure sale. Id.

at 389, 451 S.E.2d at 327. Despite his knowledge, Vogel did not

attend the hearing or raise an objection to proper service. Id.

This Court held that “Vogel may not assert the defense in G.S. §
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45–21.16(b)(2) since he had actual knowledge of the foreclosure

hearing.” Id. at 389–90, 451 S.E.2d at 327.

In Green, the defendants, Mr. and Mrs. Green, appealed from

summary judgment in favor of the plaintiff granting a deficiency

judgment against them. Green, ____ N.C. App. at ___, 752 S.E.2d

at 210. On appeal, the defendants argued that they were not

personally served notice of the foreclosure sale. Id. at ___,

752 S.E.2d at 211. However, the notice sent to the defendants’

company, Advantage Development Company, in care of Mr. Green was

accepted and signed for by Mr. Green. Id. This Court held that

because Mr. Green accepted service as President of Advantage

Development Company, he had actual notice of the hearing and the

plaintiff was entitled to summary judgment against Mr. Green for

any deficiency. Id. This Court also held that questions of

material fact still remained as to whether Mrs. Green had actual

notice and reversed and remanded for trial. Id. at __, 752

S.E.2d at 212.

In the present case, Mr. Tsiros was not personally served

with notice of the foreclosure hearing, but he accepted service

of the notice as the registered agent of Demelize. He also

admitted at his deposition that he had actual knowledge of the

foreclosure hearing. Yet, despite his knowledge, “he chose to
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sit on his rights and allow the foreclosure to proceed.” Fleet

Nat. Bank, 117 N.C. App at 390, 451 S.E.2d at 328. As in Fleet

Nat. Bank, Mr. Tsiros “may not argue now that service on him was

inadequate” as a defense to his liability for the deficiency.

Id. at 390, 451 S.E.2d at 327. Mr. Tsiros had actual notice of

the hearing “and it is of no material consequence that notice[]

of the hearing[] [was] not mailed to him individually.” Green,

___ N.C. App. at ___, 752 S.E.2d at 211.

Accordingly, pursuant to Fleet Nat. Bank and Green, because

Mr. Tsiros had actual notice of the foreclosure, the defense in

N.C. Gen. Stat. § 45-21.16 is unavailable to him and he is

liable for the deficiency. Therefore, we reverse the trial

court’s grant of summary judgment in favor of Mr. Tsiros.

Plaintiff’s second argument on appeal is the trial court

erred when it granted summary judgment in favor of Mrs. Tsiros

because questions of material fact remain unresolved. We

disagree.

Unlike Mr. Tsiros, there is no evidence that Mrs. Tsiros

had actual knowledge of the foreclosure. She stated during her

deposition that she did not know about the foreclosure and only

found out after plaintiff filed the deficiency action. Mr.

Tsiros also testified that although he had actual knowledge of
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the foreclosure proceedings, he did not share the information

with Mrs. Tsiros. Since Mrs. Tsiros did not have actual

knowledge of the hearing, the issue is whether plaintiff

properly served her with notice.

Plaintiff admitted the service on defendants was improper

at the Rule 60 motion hearing. “Due process demands that the

trustee make diligent efforts to give the mortgagor actual

notice[.]” Fleet Nat. Bank, 117 N.C. App. at 390, 451 S.E.2d at

327 (emphasis added). “Due diligence dictates that plaintiff

use all resources reasonably available to [him or] her in

attempting to locate defendants.” Fountain v. Patrick, 44 N.C.

App. 584, 587, 261 S.E.2d 514, 516 (1980).

When defendants executed the loan modification agreement

with plaintiff in May 2010, defendants’ current 38 Edwin Drive

address was recorded in the agreement. Plaintiff could have

obtained the current address to properly serve defendants had it

simply looked at the agreement on file. However, plaintiff

mailed the notices to defendants’ old address at 24 Pine Meadow

Drive. Plaintiff cannot argue that it did everything it could

to properly serve defendants when, had plaintiff been diligent

in mailing the notices, it could have properly served defendants

at their current address.
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Plaintiff also argues that Mrs. Tsiros is liable for the

deficiency, regardless of whether she had actual notice, because

she suffered no injury. In support of its argument, plaintiff

cites Boley v. Brown, 10 F.3d 218, 222 (4th Cir. 1993), which

states “[w]here the deprivation of a protected interest is

substantively justified but procedures are deficient in some

respect, there may well be those who suffer no distress over the

procedural irregularities . . . .”

Yet, in the present case, Mrs. Tsiros testified that had

she known about the foreclosure sale she would have contacted

family and friends to ask for help. While plaintiff claims that

there is nothing in the record to show that a friend or family

member of Mrs. Tsiros had the requisite financial means to

assist her in paying the debt, defendants submitted an affidavit

of William Pfeiffer who asserted that “[i]f George had contacted

me in the fall of 2011 to borrow funds to pay off the

indebtedness to [plaintiff], I had sufficient assets available

to me such that I could have made such a loan.” It is

reasonable to believe, had Mrs. Tsiros received notice of the

sale, she could have spoken with her husband about possible ways

to avoid foreclosure and she could have asked Mr. Tsiros to

speak with William Pfeiffer about borrowing the money to pay off
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the debt. Thus, it is incorrect to say that Mrs. Tsiros has

suffered no injury.

Accordingly, because plaintiff failed to properly serve

defendants, despite having access to the correct mailing

address, and because Mrs. Tsiros did not have actual knowledge

of the foreclosure hearing, the defense in N.C. Gen. Stat. § 45-

21.16(b) is available to Mrs. Tsiros and she is not personally

liable for the deficiency. Summary judgment in favor of Mrs.

Tsiros was proper.

Defendants also argue the trial court properly granted

summary judgment in their favor because plaintiff cannot

collaterally attack the foreclosure judgment and is estopped

under the doctrine of judicial estoppel. Upon review, we find

these arguments misplaced.

“A collateral attack is one in which a plaintiff is not

entitled to the relief demanded in the complaint unless the

judgment in another action is adjudicated invalid.” Thrasher v.

Thrasher, 4 N.C. App. 534, 540, 167 S.E.2d 549, 553 (1969)

(quotation marks and citation omitted). “A collateral attack on

a judicial proceeding is an attempt to avoid, defeat, or evade

it, or deny its force and effect, in some incidental proceeding

not provided by law for the express purpose of attacking it.”
 -13-
Reg'l. Acceptance Corp. v. Old Republic Sur. Co., 156 N.C. App.

680, 682, 577 S.E.2d 391, 392 (2003)(internal quotation marks

omitted).

On the other hand,

[j]udicial estoppel, or preclusion against
inconsistent positions, is an equitable
doctrine designed to protect the integrity
of the courts and the judicial process. . .
. [It] is to prevent litigants from playing
‘fast and loose’ with the courts and
deliberately changing positions according to
the exigencies of the moment. Thus,
[j]udicial estoppel forbids a party from
asserting a legal position inconsistent with
one taken earlier in the same or related
litigation. The doctrine prevents the use
of intentional self-contradiction . . . as a
means of obtaining unfair advantage in a
forum provided for suitors seeking justice.

Price v. Price, 169 N.C. App. 187, 191, 609 S.E.2d 450, 452

(2005) (quotation marks and citations omitted) (alterations in

original).

We find neither collateral attack nor judicial estoppel

applicable in the present case. First, collateral attack does

not apply because plaintiff is not arguing to invalidate the

foreclosure judgment. Instead, plaintiff contends Mr. Tsiros’s

actual knowledge of the original hearing is sufficient under

N.C. Gen. Stat. § 45-21.16(b)(2) and he is, therefore, liable

for the deficiency regardless of whether or not the foreclosure

was set aside. Since plaintiff’s claim is not dependent on the
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outcome of the Rule 60 Motion, collateral attack does not apply.

Likewise, judicial estoppel does not apply in this case because

plaintiff is not arguing a position inconsistent with that

argued at the Rule 60 Motion hearing. During the Rule 60 Motion

hearing, plaintiff argued defendants were not properly served.

Specifically, plaintiff argued “[it] intended to notify

[defendants] and they didn’t perfect that notice . . .” and the

sale should be set aside so that it may go back and serve

defendants properly as it intended to do. In the current case,

plaintiff argues Mr. Tsiros is liable for the deficiency

regardless of whether or not service was proper because he had

actual notice. This current position is not inconsistent with

plaintiff’s position at the Rule 60 Motion hearing; thus,

judicial estoppel does not apply.

IV. Conclusion

For the reasons discussed, we hold the trial court erred in

granting summary judgment in favor of Mr. Tsiros because he had

actual knowledge of the foreclosure. However, we hold the trial

court did not err in granting summary judgment in favor of Mrs.

Tsiros because the evidence produced showed she did not have

actual knowledge of the foreclosure, plaintiff was unable to

provide any evidence that she had actual knowledge, and
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plaintiff was not diligent in providing proper service. As a

result, we reverse the trial court’s grant of summary judgment

in favor of Mr. Tsiros and affirm the trial court’s grant of

summary judgment in favor of Mrs. Tsiros.

Reversed in part; affirmed in part.

Judges STEPHENS and STROUD concur.

Report per Rule 30(e).