Angell, Trustee v. First South Bank et al

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
RALEIGH DIVISION
IN RE:
RODNEY POLICARPO DESPAIGNE and
JAMAYE RENEE DESPAIGNE,
Debtors.
JAMES B. ANGELL, Trustee,
Plaintiff,
v.
FIRST SOUTH BANK, et al.,
Defendant.
CASE NO. 09-04255-8-JRL
Chapter 7
ADVERSARY PROCEEDING NO.
10-00045-8-JRL
ORDER
This matter is before the court on the parties’ respective motions for summary judgment.
On February 1, 2011, the court conducted a hearing on this matter in Raleigh, North Carolina.
MATERIAL UNDISPUTED FACTS
1. 	The debtors, Rodney Policarpo Despaigne and Jamaye Despaigne, filed for relief under
SO ORDERED.
SIGNED this 25 day of March, 2011.
________________________________________
J. Rich Leonard
United States Bankruptcy Judge
____________________________________________________________
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chapter 7 of the Bankruptcy Code on July 13, 2009. James B. Angell was appointed
trustee for the debtors.
2. 	At the time of the petition, the debtors were the record owners of real property located in
Wilmington, North Carolina. The real property is defined by the following metes and
bounds description:
Tract One: BEGINNING at a point in the Eastern line of Brown’s Alley, Thirty
(30) feet Southwardly as measured at right angles from the Southern line of Nixon
Street; running thence Eastwardly and parallel with Nixon Street, Seventy five
(75) feet; thence Southwardly and parallel with Brown’s Alley; Twenty one feet;
thence Westwardly and parallel with Nixon Street, Seventy five (75) feet to the
Eastern line of Brown’s Alley; thence Northwardly and with the Eastern line of
Brown’s Alley, Twenty one (21) feet to the point of beginning; the same being
part of Lot 1 in Block 324, according to the official plan of the City of
Wilmington and being part of the property conveyed to R.C. Sloan by deed
recorded in Book 520 at Page 139 in the Registry of New Hanover County. And
being the same property conveyed to Eliza Banks by R.C. Sloan recorded in Book
520 at Page 865 of the New Hanover County Registry. And the same property
conveyed to Johnnie Pompey in Book 809 at Page 865 of the New Hanover
County Registry. This conveyance is made subject to any easements of covenants
of record.
Tract Two: BEGINNING at a point in the southern line of Nixon Street one
hundred five (105) feet west from its intersection with the western line of Sixth
Street, and running thence westwardly along said southern line of Nixon Street,
forty-five (45) feet to the eastern line of Brown Street; thence southwardly along
said eastern line of Brown Street and parallel with Sixth Street, thirty (30) feet;
thence eastwardly and parallel with Nixon Street, forty-five (45) feet; and thence
northwardly and parallel with Sixty Street thirty (30) feet, to the southern line of
Nixon Street, the point of Beginning, the same being a part of Lot #1 Block 324,
according to the official plan of the city of Wilmington, North Carolina.
3. 	On November 30, 2007, tract one was acquired by general warranty deed (the
“first deed”). 	The first deed was properly recorded. The associated tax
identification number for tract one is R04809-020-001-000.
4. 	On December 4, 2007, the debtors executed a deed of trust for tract one in favor
of First South Bank (“First South”). The deed of trust describes the real property
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as 512 Nixon Street and attaches the metes and bounds description for tract one.
5. 	On December 17, 2007, tract two was acquired by a recorded deed of correction.
The associated tax identification number for tract two is R04809-020-002-000.
6. 	Tract two shares a common property line with tract one and is located between
tract one and Nixon Street.
7. 	On January 15, 2008, the debtors conveyed tract one and tract two to themselves
in order to merge the separate properties for tax purposes. This self-conveyance
was properly recorded on January 17, 2008 (the “second deed”). No correction to
the first deed of trust was recorded following the execution and recording of the
second deed. The resulting tax identification number for the combined tract is
R04809-020-001-000.
8. 	The real property contains a two story structure resting across the dividing line
between the two tracts. Approximately one-third of the structure is on tract one
and two-thirds of the structure is on tract two. The structure has been in existence
as described since the 1960s.
STANDARD OF REVIEW
Pursuant to Federal Rule of Civil Procedure 56(c), made applicable in bankruptcy by
Bankruptcy Rule 7056, summary judgment is proper “if the pleadings, depositions, answers to
interrogatories and admissions on file, together with the affidavits, if any, show that there is no
genuine issue as to any material fact and that the moving party is entitled to a judgment as a
matter of law.” The “plain language of Rule 56(c) mandates the entry of summary judgment,
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after adequate time for discovery and upon motion, against a party who fails to make a showing
sufficient to establish the existence of an element essential to that party’s case, and on which that
party will bear the burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).
In making this determination, conflicts are resolved by viewing all facts and all reasonable
inferences in the light most favorable to the nonmoving party. United States v. Diebold, Inc.,
369 U.S. 654, 655 (1962).
DISCUSSION
The appropriate portion of property encumbered under the deed of trust in favor of First
South is in dispute. The defendant contends that the deed of trust encumbers both tracts,
whereas the plaintiff contends only the first tract is encumbered. Arguments for the existence of
a patent or latent ambiguity and constructive notice are considered, but ultimately are irrelevant
due to basic principles of property law derived from the recording statutes.
Much is made regarding the distinction between a latent ambiguity and patent ambiguity
regarding the property described in the deeds. North Carolina law instructs that a patent
ambiguity exists when, after examining a deed of trust, it is unclear which property is
encumbered and the uncertainty cannot be reduced to a certainty by referring to something
referenced within the deed. Duckett v. Lyda, 223 N.C. 356, 358 (1943). Parole evidence is
inadmissible to cure a patent ambiguity. Overton v. Boyce, 289 N.C. 291, 293 (1976). On the
other hand, if the property can be identified by that which is referenced within the deed of trust,
the ambiguity is latent. Lane v. Coe, 262 N.C. 8, 13 (1964). Where the ambiguity is latent,
parole evidence is admissible. A description is sufficient if the deed of trust, or something
extrinsic referenced therein, enables the land to be identified with certainty. Overton, 289 N.C. at
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1In re Walker, 03-13204C-7G, 2007 WL 1575062 (Bankr. M.D.N.C. Apr. 27, 2007)
holds that reliance upon a street address as a legally sufficient form of identification in a deed.
The case at hand is distinguishable from Walker and other law in that a street address is an
acceptable identifier if it serves as the only description in the conveying document and where the
local ordinances permit its use as such.
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293. In the facts of this case, the only ambiguous description – the reference to the street address
of 512 Nixon Street in the deed of trust – is not sufficient to cast any doubt on the legal
description of the property conveyed.1 Furthermore, the court does not reach a determination as
to which form of ambiguity, if any, exists because the recording statutes dictate the outcome.
N.C. Gen. Stat. §47-20 codifies North Carolina’s standing as a pure race jurisdiction.
This holds that “[n]o deed of trust or mortgage of real or personal property … shall be valid to
pass any property as against lien creditors or purchasers for a valuable consideration from the
grantor, mortgagor or conditional sales vendee, but from the time of registration thereof.” N.C.
Gen Stat. §47-20(a) (2007). The purpose of North Carolina’s recording statute is to enable
purchasers or encumbrancers to rely with safety on the public record concerning the status of
land titles. See Chandler v. Cameron, 229 N.C. 62, 47 S.E.2d 528 (1948). Out of necessity,
recording statutes limit the amount of searching required of purchasers and encumbrancers to
gain protected status – “[t]he law contemplates that a purchaser of land will examine each
recorded deed and other instrument in his chain of title and charges him with notice of every fact
affecting his title which an accurate examination of the title would disclose.” Chrysler Credit
Corp. v. Burton, 599 F. Supp. 1313, 1318 (M.D.N.C. 1984) (citing Hensley v. Ramsey, 283 N.C.
714, 715, 199 S.E.2d 1, 2 (1973)). A purchaser is put on notice of any fact or circumstance
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affecting his title which is reasonably disclosed by the instruments in his line of title. Id., (citing
Turner v. Glenn, 220 N.C. 620, 18 S.E.2d 197 (1942)).
The public record in this case reflects that the debtors did not own tract two at the time
the deed of trust was executed. On November 30, 2007, the debtors acquired tract one by
general warranty deed. On December 4, 2007, the debtors executed a deed of trust in favor of
First South. The deed of trust describes the real property as Pt Lot 1 Block 324 of 512 Nixon
Street and attaches the metes and bounds description for tract one. 	Tract two was not acquired
by the debtors until the subsequent deed of correction, which was recorded on December 17,
2007. Subsequently, on January 15, 2008, the debtors conveyed tract one and tract two to
themselves. This self-conveyance was properly recorded on January 17, 2008. At the time of
the execution of the deed of trust to First South, a title search would show nothing beyond the
debtor’s acquisition and ownership of the first deed for tract one. 	Therefore, as the trustee
argues, the conveyance of the deed of trust to First South cannot operate as a lien on property
subsequently conveyed to the debtors, i.e., tract two.
Based on a review of the chain of title at the time the deed of trust was executed, First
South could only obtain an interest in tract one as described in the recorded first deed. 	Exhibit
A attached to the deed of trust contains the legal description of the property, and serves to
identify the exact property securing First South’s interest. Exhibit A’s provided description
mirrors the legal description of tract one. The ability for First South to encumber tract two
would not have been available until December 17, 2008, when the debtors acquired it. Exhibit A
does not include the description for tract two, and likewise does not serve to encumber tract two
in favor of First South. Although the same attorney drafted both deeds and the deed of trust, the
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2The court does not quarrel with expert Dan Martin’s opinion that a title search
performed on the date of the bankruptcy petition would demonstrate a confusing and ambiguous
transaction suggesting that the parties may have intended to encumber both tracts. However, the
court’s decision is not based upon the results that a careful title examiner would report in his
opinion on title, but rather the legal conclusion as to the property actually transferred by law at
the time of the conveyance.
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court is not in the position to attempt the baffling reconciliation as to why the closing attorney
thought a corrective deed was necessary but not a corrective deed of trust.
The defendant alternatively argued that the trustee is charged with constructive notice of
the encumbrance. Despite this contention, the recording statute prevails. “[R]egistration is the
one and only means of giving notice of an instrument affecting title to real estate.”
Massachusetts Bonding & Insurance Co. v. Knox., 220 N.C. 725, 729, 18 S.E.2d. 436, 440
(1942). This result is supported by the recent decision of the North Carolina Court of Appeals in
Fifth Third Mortg. Co. v. Miller, 690 S.E.2d 7 (N.C. App. 2010). Fifth Third soundly reiterated
that a faulty legal description imparts no notice under our recordation statutes. Id. (citing Lowery
v. Wilson, 214 N.C. 800, 805, 200 S.E. 861, 864 (1939)). Therefore, the only constructive notice
imparted to the trustee at the time of petition was failure to correct the deed of trust.
Ultimately, the long-standing principle of property law remains that you cannot convey
that which you do not own. In upholding this principle, the recording statutes serve to assist
parties with certainty of title. It is clear from the record that the property encumbered by the
deed of trust is limited to tract one – the property owned by the debtors upon execution. A
subsequent deed of correction concerning property does not automatically correct a mortgagee’s
interest.2
Based on the foregoing, plaintiff’s motion for summary judgment is GRANTED. The
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defendant’s motion for summary judgment is DENIED. First South’s deed of trust encumbers
only the property described as tract one in Finding of Fact #2.
END OF DOCUMENT
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