Adams v. Cooper

MARTIN, Judge.

The sole issue presented by this appeal is whether North Carolina’s anti-deficiency statute, G.S. § 45-21.38, bars an in per-sonam action against a non-mortgagor guarantor of a purchase money promissory note. For the reasons set forth herein, we hold that such a action is not statutorily barred and reverse the order of the trial court dismissing plaintiff’s claim.

*461Our decision in this case requires us to interpret G.S. § 45-21.38 which provides in pertinent part:

In all sales of real property by mortgagees and/or trustees under powers of sale contained in any mortgage or deed of trust ... to secure to the seller the payment of the balance of the purchase price of real property, the mortgagee or trustee or holder of the notes secured by such mortgage or deed of trust shall not be entitled to a deficiency judgment on account of such mortgage, deed of trust, or obligation secured by the same ....

When interpreting a statute, the intent of the Legislature is the controlling factor. Electric Supply Co. v. Swain Electrical Co., 328 N.C. 651, 403 S.E.2d 291 (1991). It is well settled that the intent of the Legislature in enacting G.S. § 45-21.38 was “to protect vendees from the oppression by vendors and mortgagors from oppression by mortgagees.” (Emphasis added.) Realty Co. v. Trust Co., 296 N.C. 366, 371, 250 S.E.2d 271, 274 (1979). “The protection it offers is afforded to all purchasers of realty who secure any part of the purchase price with a deed of trust on the realty they are purchasing.” (Emphasis added.) Bank v. Belk, 41 N.C. App. 356, 365, 255 S.E.2d 421, 427, disc. review denied, 298 N.C. 293, 259 S.E.2d 911 (1979). The Legislature feared that without the statute real property would be overpriced at sale and underpriced at foreclosure. Sink v. Egerton, 76 N.C. App. 526, 333 S.E.2d 520 (1985). The statute was intended to prevent the possibility of wholesale foreclosures followed by executions on deficiency judgments which would leave a potentially large number of purchasers without their land and without the assets necessary for subsistence. Bank, at 366, 255 S.E.2d at 427-28. To effect this end, the Legislature took away from creditors the option of suing upon the note in a purchase money mortgage transaction. Realty Co., supra.

As the foregoing authorities plainly illustrate, the enactment of G.S. § 45-21.38 was intended to benefit and protect purchasers of real property. In the present case, defendants were not the purchasers of the realty conveyed by plaintiff and nothing in the language of the statute indicates a legislative intent to extend the statute’s protection to persons other than purchase money mortgagors. As non-owners of the property conveyed, defendants are not faced with the possibility of losing both their land and the assets *462necessary for subsistence. Thus, extending the statute’s protection to defendants would not effectuate the intent of the Legislature.

Moreover, defendants signed the purchase money note in question as “guarantors.” The liability of a guarantor is unlike the liability of the principal debtor.

A guarantor’s liability arises at the time of the default of the principal debtor on the obligation or obligations which the guaranty covers. A guaranty of payment is an absolute promise by the guarantor to pay a debt at maturity if it is not paid by the principal debtor. This obligation is independent of the obligation of the principal debtor, and the creditor’s cause of action against the guarantor ripens immediately upon the failure of the principal debtor to pay the debt at maturity. (Citations omitted.)

Gillespie v. DeWitt, 53 N.C. App. 252, 258, 280 S.E.2d 736, 741, disc. review denied, 304 N.C. 390, 285 S.E.2d 832 (1981).

As guarantors, defendants are being sued on a promise independent of the promise of the principal debtor. A judgment against defendants on this separate contract cannot be construed as a judgment for a deficiency. By definition, a deficiency judgment is a judgment against the principal debtor for the debt remaining unsatisfied following the foreclosure sale of the mortgaged property. Defendants’ obligation, unlike the obligation of the principal debtor, is unsecured. Thus, a judgment against defendants based on their independent promise to pay the debt upon maturity if not paid by One December would not be a deficiency judgment.

We hold that G.S. § 45-21.38 does not bar an action against a guarantor of a purchase money note secured by a mortgage or deed of trust to recover the debt represented by the note. The order of the trial court dismissing plaintiff’s claim is reversed.

Reversed.

Judge EAGLES concurs. Judge McCRODDEN dissents.