NC Appeals Court: Insufficient Proof Of Promissory Note Ownership Sinks Foreclosure; "Stephan" Affidavit At Center Of Crappy Paperwork

In Raleigh, North Carolina, The Charlotte Observer reports:

• Lenders statewide may have to work harder to get their paperwork right in foreclosure cases after an N.C. Court of Appeals decision. The court has ruled against a lender in a 2009 Hyde County foreclosure, saying the documents presented did not prove the lender was the legal holder of the homeowners' promissory note to repay. The court's decision stopped the foreclosure, at least for now.
• The $525,000 home loan to Rex and Daniela Gilbert - like many mortgages in the nation in recent years - was passed among several lenders. N.C. law requires "that the party seeking to foreclose on a promissory note is the holder of said note....and the debtor is entitled to demand strict proof," according to the 3-0 opinion written by Judge Robert Hunter.
• The court found that two affidavits by GMAC Mortgage employees did not explain how the signers had knowledge of some testimony. One affidavit was signed by Jeffrey Stephan. The appeals court opinion noted GMAC "recently was found to have submitted a false affidavit ... by signing officer Stephan" in U.S. District Court in Maine. His name also has been cited in reports about lenders whose workers robo-signed hundreds of documents without knowing what they contained.

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• Katherine Parker-Lowe of Ocracoke, the Gilberts' attorney, said of the court opinion filed last week: "I think it's a great day for homeowners." [...] Jerry Hartzell, a Raleigh lawyer who consulted with the Gilberts' attorney, applauded the appeals court "about how picky they're getting with affidavits. That seems to be a consequence of the robo-signing stuff - about how mortgage servicers are swearing to things they don't really know about. Who knows how many foreclosures that could affect?"

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• [Mecklenburg Clerk of Superior Court Martha Curran] sees the ruling as a strict application of existing law, a message from the courts to "get it right, get it right." The N.C. attorney general's office "is carefully reviewing" the Gilbert case, said a spokesman. "It's a significant issue."

For more, see Homeowners favored in court ruling (N.C. appeals court: Lenders must have solid foreclosure documents).

For the court ruling, see In re Foreclosure of Gilbert, NO. COA10-361 (NC App. May 3, 2011).

(1) The appeals court made this observation on the importance of establishing, by sufficient evidence, the ownership of the promissory note before proceeding with a foreclosure (except where noted, bold text is my emphasis):

• Respondents also argue the trial court erred in ordering the foreclosure to proceed, as Petitioner did not prove that it was the holder of the Note with the right to foreclose under the instrument as required by section 45-21.16(d)(i) and (iii). We agree.
  
  A “foreclosure under a power of sale is not favored in the law and its exercise will be watched with jealousy.” In re Foreclosure of Goforth Props., Inc., 334 N.C. 369, 375, 432 S.E.2d 855, 859 (1993) (citations and internal quotation marks omitted). That the party seeking to foreclose on a promissory note is the holder of said note is an essential element of the action and the debtor is “entitled to demand strict proof of this element.” Liles v. Myers, 38 N.C. App. 525, 528, 248 S.E.2d 385, 388 (1978).
  
  For the trial court to find sufficient evidence that Petitioner is the holder of a valid debt in accordance with section 45-21.16(d), “this Court has determined that the following two questions must be answered in the affirmative: (1) ―is there sufficient competent evidence of a valid debt?'; and (2) ―is there sufficient competent evidence that [the party seeking to foreclose is] the holder[ ] of the notes [that evidence that debt]?'” Adams, __ N.C. App. at __, 693 S.E.2d at 709 (quoting In re Cooke, 37 N.C. App. 575, 579, 246 S.E.2d 801, 804–05 (1978)); see N.C. Gen. Stat. § 45-21.16(d) (2009) (in order for the foreclosure to proceed, the clerk of court must find, inter alia, the existence of a “valid debt of which the party seeking to foreclose is the holder,” and a “right to foreclose under the instrument” securing the debt) (emphasis added).
  
  Establishing that a party is the holder of the note is essential to protect the debtor from the threat of multiple judgments on the same note.
  
  If such proof were not required, the plaintiff could negotiate the instrument to a third party who would become a holder in due course, bring a suit upon the note in her own name and obtain a judgment in her favor. . . . Requiring proof that the plaintiff is the holder of the note at the time of her suit reduces the possibility of such an inequitable occurrence. Liles, 38 N.C. App. at 527, 248 S.E.2d at 387.