Davis v. Millenium Development Group et al

OCR transcription for search; preserved printed pages are authoritative

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UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA

RALEIGH DIVISION FILED
MAR 3 1 2006
IN RE: CASE NO. Us on ee RaANS. GhERK
EASTERN DISTRICT OF N.C,

HESTER ALICE DAVIS 04-03619-5-ATS

DEBTOR
HESTER ALICE DAVIS ADVERSARY PROCEEDING NO.

Plaintiff S-05-00076-5-AP

Vv.

MILLENNIUM DEVELOPMENT GROUP, LLC
and LEWIS A. THOMPSON, III

Defendants.

MEMORANDUM OPINION AND ORDER DENYING MOTION FOR RELIEF FROM STAY,
ORDER DENYING OBJECTION TO CONFIRMATION OF PLAN AND
ORDER ALLOWING OBJECTION TO CLAIM

The trial of this adversary proceeding brought by the
chapter 13 debtor, Hester Alice Davis, against defendant Millennium
Development Group, LLC for claims of breach of contract, breach of
express and implied warranties, violations of the North Carolina
Manufactured Home Warranties Act, unfair and deceptive trade
practices, misrepresentation, negligence, and violation of the
North Carolina Fair Debt Collection Practices Act, and against
defendant Lewis A. Thompson, III for breach of his fiduciary duty
as trustee under a deed of trust, was held in Raleigh, North

Carolina on February 9, 10, and 13, 2006. For the reasons that

AUTHENTICATED
U.S. GOVERNMENT
INFORMATION

GPO

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follow, judgment will be entered in favor of the plaintiff against
both defendants.

Hester Alice Davis filed a petition for relief under
Chapter 13 of the Bankruptcy Code on October 6, 2004, to Stop
foreclosure proceedings against her real property. She filed this
adversary proceeding on April 4, 2005, against Millennium, which
was seeking to foreclose, and on April 12, 2005, she added Mr.
Thompson as a defendant in his capacity as trustee under the deed
of trust. The court denied Mr. Thompson's motions to dismiss and
for summary judgment on August 25, 2005, and January 12, 2006,
respectively.

Millennium filed a proof of claim, and on February 8, 2005,

Ms. Davis filed an objection. On March 2, 2005, Millennium also

filed a motion for relief from the automatic stay and an objection
to confirmation of the debtor's chapter 13 plan. This memorandum
opinion addresses the issues raised in the complaint, the debtor's
objection to Millennium's claim, and Millennium's motion for relief
from the automatic stay and objection to confirmation.

JURISDICTION

This bankruptcy court has jurisdiction over the parties and
the subject matter of this proceeding pursuant to 28 U.S.C. §§ 151,
157, and 1334, and the General Order of Reference entered by the
United States District Court for the Eastern District of North
Carolina on August 3, 1984. This is a "core proceeding" within the

meaning of 28 U.S.C. §§ 157(b) (2) (B), (C), (G), (K) and (O), which

this court may hear and determine. To the extent that there are

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matters raised in this adversary proceeding that are not core
proceedings, those matters are related proceedings which the
parties have agreed may be heard and determined by this bankruptcy
court.

FACTS

Ms. Davis owns a parcel of land in Warren County, North

Carolina. In 2002, she spoke with several modular home
manufacturers about adding a house to her land, and in December
2002 or January 2003, she approached Millennium about buying such
a home. Ms. Davis met with Larry Davis, a part owner of
Millennium, and an agreement was reached for Millennium to procure
and install a custom modular home for Ms. Davis at a cash purchase
price of $125,912. On February 7, 2003, Ms. Davis and Millennium
executed a Contract to Purchase and Deposit Agreement ("purchase
contract"), Pl. Ex. 2, which set forth the terms of their
agreement. The specifications for the modular home and the
additional construction work to be performed by Millennium were set
forth in two other documents titled "Proposal," Pl. Ex. 4, and
"Construction Quote," Pl. Ex. 3.

Ms. Davis worked with Dick Hutchins of Premier Mortgage
Corporation to obtain financing for the home and she was approved
for an FHA refinancing loan. The exact terms of the loan,
including interest rate, amount of monthly payments, and the
duration of loan, have not been established. Sometime after the

purchase contract was signed, Mr. Hutchins notified Mr. Davis of

the loan commitment and explained that the FHA loan would be used

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to pay the construction loan. The agreement between Ms. Davis and
Millennium, however, did not contemplate or provide for a
construction loan. Not to be deterred, Mr. Davis was willing to
proceed with the transaction, but required Ms. Davis to sign a
promissory note in the amount of the $125,912 purchase price and to
secure the promissory note with a deed of trust on her real
property.

Mr. Davis, with the consent of Ms. Davis, hired defendant
Lewis A. Thompson, III to prepare a promissory note and a deed of
trust. The documents that were prepared by Mr. Thompson's office
in mid-March 2003 contain a number of inconsistencies and errors.
The promissory note is dated March 12, 2003, and states that it is
"secured by a deed of trust of even date herewith." Pl. Ex. 6.
However, the deed of trust is dated March 12, 2002, rather than
March 12, 2003. Pl. Ex. 7. The note states that it is due "In one
lump sum due September 12, 2004, or upon closing of construction
loan, which ever occurs first." Pl. Ex. 6. Mr. Davis testified
that there never was to be a construction loan and that the
reference to September 12, 2004, should have been to September 12,
2003.

More significant than these errors is the fact that the note
and deed of trust are inconsistent with the transaction agreed to
by Ms. Davis and Millennium as described in the Contract to
Purchase and Deposit Agreement. Pl. Ex. 2. The purchase contract,
in the sixth paragraph on page 2, refers to a deed of trust that

will secure the "cost of the Land Improvements and all costs

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incurred in connection with delivery and set-up of the Home," but
the first page of the contract indicates that there is no charge
for Land Improvements and there are no itemized delivery costs.
Paragraph 6 of page 2 of the purchase contract also provides that
a deed of trust shall secure a Deposit Note. The first page of the
purchase contract indicates that a Deposit Note is "N/A," which the
court finds to mean that a Deposit Note is "not applicable." There
is no other mention in the purchase contract of a note and deed of
trust.

The note and the deed of trust were apparently prepared
without a review of the purchase contract and without an
understanding of the basic sale transaction between Ms. Davis and
Millennium. Although Mr. Davis may have thought that the deed of
trust, which according to the notary's certification was executed
by Ms. Davis on March 17, 2003, secured the purchase price of the
home, that interpretation is inconsistent with the terms of the
purchase contract. Mr. Davis knew of the errors in the documents
and made no attempt to correct them. Clearly, nothing was owed by
Ms. Davis to Millennium when the promissory note was executed, and
there is no provision in the deed of trust that provides that the
deed of trust is to secure future advances. Mr. Davis testified
that nothing was owed by Ms. Davis until there was a closing.
There never was a closing because Ms. Davis never accepted the
home. Accordingly, the court finds that no amount was ever due
under the promissory note, and no amount was secured by the deed of

trust.

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Mr. Davis knew that the purchase price of the home was to be
financed by the FHA loan, and he worked with Mr. Hutchins to meet
FHA's requirements. He supplied the necessary documentation to Mr.
Hutchins and performed additional work that FHA required, including
landscaping, a water test, a land plat, driveway work, and a full
list of materials. These work items were outside the original
contract terms, and Mr. Davis testified that he spoke with both Ms.
Davis and Mr. Hutchins about the extra cost.

Mr. Davis ordered the modular home from the manufacturer in
July 2003, and the home was completed by the manufacturer in
August. Millennium hired Joe Lewis & Sons to pick up the home and
store it until Ms. Davis' lot was ready for the home to be
installed. After an existing mobile home was removed from the
property and the foundation was laid and inspected, the modular
home was delivered on September 16, 2003. Millennium's
subcontractors finished the "dry-in" (including the roof and gable-
end walls) of the home, but on September 18, high winds from
Tropical Storm Isabel blew out one of the home's gable ends.

On September 19, Ms. Davis informed Mr. Davis that one of the
gable ends had blown out. Mr. Davis went to the property and found
that the gable end panel on the north end of the house was on the
ground. The storm had passed, but because of downed trees blocking
the roads, no one could get to the house to cover or repair it.
Mx. Davis testified that the weather was sunny and dry through

Monday after the storm, and that Millennium's subcontractor went to

the house on Monday to inspect and to repair the damage. The

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subcontractor reported to Mr. Davis that a small amount of
insulation was wet, and Mr. Davis directed the subcontractor to
remove and replace the wet insulation, which the subcontractor did
that day.

Following the storm, the subcontractor continued to work on
the installation of the house, and Mr. Davis returned to the site
in mid-October while punch list and touch-up work was being
completed. Mr. Davis inspected the repaired gable and looked in
the attic where the insulation had gotten wet. He asked the
subcontractor about structural damage and crawled under the house.
According to Mr. Davis, he did not see anything out of the
ordinary, and he was satisfied that the house was in good condition
and would soon be completed and ready for occupancy.

Ms. Davis had an entirely different view of the construction
process and of the storm damage. On October 8, 2003, she wrote a
letter to Mr. Davis advising him that she did not believe the
damage from the storm had been properly repaired. Pl. Ex. 11. The
letter stated that the insulation in the attic was still wet and
was covered with debris such as leaves, sticks, and limbs.
Sheetrock was beginning to mildew, and Ms. Davis was concerned that
other walls would later mildew as well. Ms. Davis indicated that
she expected Millennium to make a claim on its insurance to cover
this damage. Ms. Davis also itemized a number of other complaints,

including cracks in the walls, a plant shelf that differed from

what Ms. Davis thought she ordered, a problem with the seams in the

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kitchen countertops, a change in porch railings, a missing frost-
free faucet, and incorrectly installed lights and shelves.

On October 22, 2003, Ms. Davis wrote another letter to
Millennium, reiterating her concerns with the storm damage and her
belief that the home had not been repaired. Pl. Ex. 12. Ms. Davis

requested that the insulation that had gotten wet be removed and

that the ceilings and walls that had gotten wet be replaced. She
again requested that Millennium make an insurance claim to repair
the damages, and requested that the county building inspector
inspect the home to verify there is no health risk and that the
house meets all building codes. Ms. Davis again listed other items
needing to be corrected, including the same items listed in the
letter of October 8, 2003, dissatisfaction with the landscaping, a
request that Millennium move a large storage building to the back
of the lot and a claim for reimbursement for moving a small storage
building.

Mr. Davis responded to both letters on October 29, 2003. Pl.
Ex. 13. With respect to the storm damage, Mr. Davis wrote that the
wet insulation had been replaced, the gable panel was reinstalled,
and the damaged framing was repaired on the Monday after the storm.
There was also some water damage to the ceiling drywall and under
the window in the master bedroom, which had been replaced and/or
repaired. Because the damage was less than $150, he maintained
that there was no need to make an insurance claim. Mr. Davis also

indicated that all inspections were completed and a certificate of

occupancy had been issued.

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Mr. Davis then addressed the listed items in both letters,
indicating that several of the items were constructed as provided
in the contract (plant ledge, countertops), several were not
required by the contract (landscaping, more than one frost-free
faucet, moving buildings), and others were the subject of change
orders that Ms. Davis had never signed. Mr. Davis noted, with
respect to another of Ms. Davis' contentions relating to electric
lines, that it would have been very expensive to bury the power
lines, and that the cost would have been borne by Ms. Davis.
Further, Mr. Davis said that Millennium has no control over the
electrical service. With respect to the porch rails, Millennium
tried to accommodate Ms. Davis's request for wood rails during
installation, even though the contract provided for the rails to be
iron.

Finally, Mr. Davis indicated that he made several attempts to
work with Ms. Davis to accommodate changes required by the FHA to
close the loan, but he had great difficulty reaching Ms. Davis.
Some of the work was done without signed work orders to facilitate
closing. According to Mr. Davis, Millennium was ready to do a walk
through of the house.

Mr. Davis testified that Ms. Davis did not contact Millennium
in response to the letter of October 29, 2003. Millennium
continued construction and hired an additional inspector, Tim
Wiggins, on October 27, 2003. Mr. Wiggins advised Millennium that

there were no problems with the house to prevent closing. Mil. Ex.

1.

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Meanwhile, Mr. Hutchins tried to reach Ms. Davis to learn the
name of her closing attorney. Based on his discussions with Mr.
Davis, Mr. Hutchins anticipated a November 2003 closing. FHA
requires an appraisal, and Mr. Hutchins requested a final appraisal
from C, Kirk Reilly. Mr. Reilly appraised the property on
September 30, 2003, Mil. Ex. 5, and issued his final report on
January 9, 2004. Mr. Hutchins testified that the FHA requirements
had been met and he was ready to close the loan in November 2003.

Mr. Davis was frustrated by his inability to reach Ms. Davis,
and he was concerned that Ms. Davis was not planning to close the
purchase of the home. At this point Millennium, which was a small
company that had most of its limited capital tied up in the
purchase of the modular home, was eager for the sale to close, and
Mr. Davis contacted Merle Hendricks, another Millennium
shareholder, to review Millennium's options.

In November 2003, Millennium decided that it would pursue
foreclosure of the deed of trust. Mr. Davis contacted Mr.
Thompson, the trustee under the deed of trust, to advise him that
Ms. Davis was not acting in good faith to close the loan, and that
Mr. Davis considered her failure to close to be a default. Mr.
Thompson informed Mr. Davis that Millennium needed to notify Ms.
Davis in writing of the default, and once he had evidence that it
had been done, he would proceed with foreclosure.

Mr. Davis, who had never been involved in a transaction as a
lender, had never been involved with a foreclosure, and who had no

legal training, sent Ms. Davis a letter dated November 14, 2003.

10

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The letter, which appears to be a standard default letter, stated
"In that you are in default in your note payments and we have had
no contact from you, please be advised that the undersigned holder
of the note elects to accelerate the maturity of your loan." Pl.
Ex. 14, The letter further states that "Pursuant to North Carolina
General Statute 45-21.16(c) as amended, we are notifying you that
we propose to commence a foreclosure proceeding before the Clerk of
Superior Court of Warren County." Mr. Davis testified that Mr.
Thompson did not represent him with respect to the foreclosure, but
he did not explain where he obtained the standard default form
language, where he obtained the information regarding "North
Carolina General Statute § 45-21.16(c) as amended" or how he came
to understand that the foreclosure would be held by the Clerk of
Superior Court of Warren County.

In addition, the default letter of November 14, 2003, advises
Ms. Davis that the principal amount due was $125,912, together with
expenses of $4,443. The testimony established that the expenses
related to items completed by Millennium that would have been the
subject of change orders, had Ms. Davis signed them. The letter
then says that Ms. Davis can avoid foreclosure by paying the
principal, expenses, and per diem interest. The letter does not
give Ms. Davis a time by which those amounts had to be paid, and
the reference to per diem is a mistake (as is the reference to a
loan) since no interest is provided in the note.

The same day as the default letter, Mr. Thompson sent Ms.

Davis a letter enclosing Millennium's letter and advising her that

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as the trustee under the note and deed of trust, he had been
requested to proceed with foreclosure and would commence
foreclosure on December 15, 2003. Pl. Ex. 14,

On January 9, 2004, Ms. Davis wrote a letter to the North
Carolina Attorney General asking whether a contractor can sell a
flooded house as new, and advising of her concerns about the
threatened foreclosure. Pl. Ex. 17. (This letter will be
discussed later in this opinion with respect to the response to the
letter filed by Mr. Thompson).

On January 12, 2004, Ms. Davis again wrote to Mr. Davis and
advised that the house had been flooded and was "not NEW," and that
when he provided her with a new house as agreed, she would he glad
to close. Pl. Ex. 15. Ms. Davis also consulted an attorney, Nick
Long, about closing the loan. When she determined that Millennium
was not going to repair the house as she requested, Ms. Davis asked
Mr. Long to represent her with respect to the damages caused by

Millennium. Mr. Davis, Ms. Davis and Mr. Long made a walk-through

inspection of the house and Mr. Long proposed that there could be
a closing by January 27, 2004. Ms. Davis, however, did not believe
the mildew issue had been addressed sufficiently and was unwilling
to close until that problem was corrected to her satisfaction. She
was not satisfied with Mr. Long's representation, and she
terminated his employment.

At this point Ms. Davis and Millennium appeared to be at an
impasse. From Ms. Davis' perspective, the house had been damaged

by water during the storm and mold and mildew had already formed.

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Photographs taken on October 8, 2003, showed that there was
significant mildew in the master bedroom.’ Pl. Ex. 27. Ms. Davis,
who suffers from Crohn's Disease and has other medical conditions,
previously had a problem with mildew at another residence, and she
was insistent that the mold problem be corrected. She was not at
all unreasonable in her demand.

From Millennium's perspective, it believed that it had done
all that was required under the purchase contract. Millennium
acknowledges that there had been some water damage, but its
position is that any damage had been repaired. Mr. Davis was told
by Millennium's subcontractor that the wet insulation had been
replaced and Mr. Davis inspected the home and could find no damage.
Additionally, the house had been appraised by Mr. Reilly, Mr.
Wiggins (Millennium's inspector) found no problems, and the Warren
County Housing Inspector had inspected the property and issued a
Certificate of Occupancy. Additionally, Millennium believed that
Ms. Davis was making other demands, such as landscaping, different
countertops, and a second frost-free faucet, that were not called
for under the contract.

The court finds that with respect to the numbered items listed
in Ms. Davis' letters of October 3 and October 22, 2003, those
items were not required by the contract. However, the court also
finds that Millennium had not corrected the serious mold and mildew

problem. It is true that the house had been appraised, and

‘Ms. Davis, her son Alton Davis and her friend Iris Richardson
also testified regarding the presence of mold and mildew.

13

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inspected by Mr. Wiggins and by the Warren County Housing
Inspector, but those inspections did not include an inspection of
the insulation within the home's walls. Given the level of the
mold and mildew reflected in the photographs of October 8, 2003,
Ms. Davis was entitled to insist that a more complete inspection be
made, and she was not required to purchase the modular home until
the mold and mildew problem was resolved to her satisfaction.

There were several ways in which the disagreement between Ms.
Davis and Millennium could have been solved. The matter could have
been mediated, submitted to arbitration or resolved through
litigation. Millennium chose not to resolve the dispute by any of
those means. Instead, it chose to foreclose under the deed of
trust. The problem, of course, is that no amount was owing under
the deed of trust and Millennium was not entitled to foreclose.
Even assuming that a debt was owed, under the terms of the note,
the note was not due and payable. Clearly, Millennium had no right
to foreclose. Once the foreclosure was commenced, Ms. Davis lost
her loan commitment, lost a $5,000 grant that she had been given by
Haliwa-Saponi Indian Tribe, Inc. and lost her ability to purchase
the modular home.

Millennium contracted to provide a new modular home to Ms.
Davis, not one that had a mold and mildew problem. Ms. Davis was
reasonable in insisting that the mold and mildew problem be

addressed to her satisfaction, and when Millennium refused to do

so, it breached the contract to sell her a new modular home. The

problem could have been resolved, but by initiating the unwarranted

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foreclosure, Millennium prevented Ms. Davis from closing. The
letter threatening foreclosure and the foreclosure itself violated
North Carolina's Fair Debt Collection Practices Act and
consequently was an unfair and deceptive trade practice under the
North Carolina Unfair and Deceptive Trade Practices Act.

Mr. Thompson filed a foreclosure action in Warren County, Case
No. 04 SP 015, in February 2004.* The first foreclosure hearing
took place on May 12, 2004, and was continued to June 25, 2004.
The clerk of court, Richard Hunter, testified that Ms. Davis
indicated at the hearing that she owned the land, was unable to get
insurance on the house, and that she had paid taxes on the real
property but not for the house because she felt she did not own the
house. Mr. Hunter was prepared to rule at the hearing in June
2004, but he did not reduce his findings to writing before going on
vacation the following week. When he returned, Mr. Thompson had
filed a voluntary dismissal of the foreclosure proceeding. Mr.
Hunter testified that although under the terms of the note, the
note was not yet due, his order would have allowed the foreclosure
based on the failure to maintain insurance and to pay taxes. At
the trial he conceded that such a ruling would have been incorrect
because the notice of default was for failure to make payments and

not for the insurance and tax problems.

° The parties did not provide the court with copies of the

foreclosure documents, and the witnesses were uncertain of the
dates. Mr. Thompson testified that he filed the first foreclosure
proceeding in February 2004, and the court assumes this date is
correct.

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While the foreclosure was pending, Ms. Davis, through her
attorney, hired Robert B. Rowley to inspect the home. Mr. Rowley
inspected the home on May 8, 2004, and issued a letter to Ms. Davis
on May 10, 2004. Mil. Ex. 2. The letter indicated that
"lo]bserving the structure components in the crawl space does not
indicate water infiltration or damage. Interior section of walls
could not be observed." Mr. Rowley concluded that the observed
areas showed "NO structural damage." Apparently Ms. Davis did not
receive the letter of May 10, 2004, because on July 16, 2004, Ms.
Davis wrote to Mr. Rowley to request a written inspection report.
Pl. Ex. 19. Ms. Davis noted in the letter that Mr. Rowley found
that the "marriage wall had separated from the Hurricane water
damage," which Ms. Davis considered to be major structural damage.
Ms. Davis received the report a couple of weeks later. Ms. Davis
was not satisfied with the report because the inspection, like the
other prior inspections, did not include inspection of the
insulation behind the walls.

Also while the first foreclosure proceeding was pending, Mr.
Hutchins and Premier Mortgage ended the loan process.* Though Ms.
Davis' file indicates that it was closed at Ms. Davis' request, Mr.
Hutchins testified that in fact the process ended because the
property had gone into foreclosure, and that the FHA will not take

a loan out of foreclosure. He testified that he made the notation

3 There was no testimony as to the exact date that the loan
approval was withdrawn, but Ms. Davis' letter to the North Carolina
Fair Housing and Community Reinvestment dated May 18, 2004, refers
to the fact that her file at Premier had been closed without her
consent.

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on the file indicating the application was withdrawn because he did
not want the file to show that the credit was denied after the loan
Was approved. Mr. Hutchins also testified that after the file was
closed, Ms. Davis asked whether Premier could still broker
financing for her, but, according to Mr. Hutchins, after the
foreclosure was filed his hands were tied.

On August 23, 2004, a second foreclosure proceeding was filed
in Warren County, Case No. 04 SP 085. Presumably a notice was

given to Ms. Davis, but it was not presented to the court. Mr.

Hunter testified that his notes from the foreclosure hearing on
September 9, 2004, reflect that Mr. Davis testified at the hearing
that he sent Ms. Davis a letter advising of her delinquency and of
his intent to proceed with foreclosure.‘ Further, Ms. Davis
testified at the foreclosure hearing that the taxes were not yet
due and that she was unable to obtain insurance on the house due to
preexisting damage and the fact that she did not own the home. Mr.
Hunter entered an order on September 14, 2004, finding that Ms.
Davis failed to keep the premises insured, which constituted a
default under the terms of the note and deed of trust, and that Ms.
Davis did not have a loan commitment and would be unable to pay the
debt on its due date of September 12, 2004. Thompson Ex. 1.
Accordingly, Mr. Hunter authorized the trustee to notice and

conduct a sale of the property.

“Again, since the letter was not provided to the court, there
is no way for the court to know whether this notice advised that
the basis for the foreclosure would be the failure to obtain
insurance and failure to pay taxes, or a default in payments that
were not yet due.

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Ms. Davis appealed the Clerk's order, but she did not proceed
with the appeal because she could not procure the required appeal
bond to stay the sale. To stop the foreclosure sale, Ms. Davis
filed her chapter 13 petition on October 6, 2004. As noted above,
on March 2, 2005, Millennium filed a motion for relief from the
automatic stay and objection to confirmation, and on April 4, 2005,
Ms. Davis filed this adversary proceeding. On June 7, 2005,
Tarraspec Home Inspections conducted an inspection of the property
and found a gap at the ends of vinyl siding where moisture damage
could occur, broken roof shingles, exposed roof nails and lifted
flashing that could lead to roof leaks. Pl. Ex. 21.

On May 31 and June 7, 2005, Envirostat conducted a mold
inspection of the property at 946 Hwy. 43, Macon, North Carolina
and concluded that there was a continuing moisture problem, and
"[clonsidering these conditions and the high spore content the
house is not safe for habitation until repair and clean up occur."
Pl. Ex. 22. The primary source of the problem appeared to be the
master bedroom and bathroom, which is the area in which Ms. Davis
complained of mildew in October 2003. In fact, the report
indicates that "the wall cavity in the master bedroom gable wall

was found to have excessive moisture content . . . [and] is
more than likely the source for the excessive mold spore counts
found in the air sampling." Pl. Ex. 22. The Envirostat report,
which was very thorough and convincing, validates Ms. Davis'
legitimate concern that the mold and mildew had never been

corrected.

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Breach of Contract

Ms. Davis' first cause of action is for breach of contract.
As previously mentioned, the court finds that Millennium breached
its contract to sell the modular home by failing to provide a mold-
and mildew-free home to Ms. Davis. Additionally, Millennium
wrongfully commenced a foreclosure proceeding, which prevented Ms.
Davis from obtaining the funding she needed to close on the house.
The purchase contract did not provide for the note and deed of
trust that were executed. Furthermore, the express terms of the
deed of trust did not authorize Millennium to foreclose in the
circumstances in which the foreclosure was commenced.

Ms. Davis demanded a number of items that were not provided in
the contract, but her primary demand that she receive assurance
that the mold and mildew problem had been solved was a legitimate
demand that was never addressed. Mr. Davis relied on his
subcontractor and his inspectors, who told him that the hurricane
damage had been repaired. The parties believed their positions
were warranted. These differences should have been resolved, but
Millennium's choice to proceed directly to foreclosure precluded
any resolution and made performance by Ms. Davis impossible.

Breach of Warranty

Ms. Davis' second cause of action is for breach of express and
implied warranties. Because the closing on the modular home never

took place, no warranty transferred, and the plaintiff may not

prevail on her breach of warranty claims.

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North Carolina Manufactured Home Warranties Act

The third claim for relief is for violations of the North
Carolina Manufactured Home Warranties Act. As noted above, because
no closing occurred, no warranties ever transferred. Accordingly,
Ms. Davis may not prevail on her statutory warranty claims.

Misrepresentation

The plaintiff's fifth claim for relief alleges that Millennium
engaged in misrepresentations to induce Ms. Davis to purchase the
modular home. There was no evidence that Mr. Davis or any other
representative of Millennium made any misrepresentations to Ms.
Davis to induce her to enter into the purchase contract.
Millennium did misrepresent its right to foreclose the deed of
trust, but that misrepresentation is included in Ms. Davis' claim
under the North Carolina Fair Debt Collection Practices Act and the
North Carolina Unfair and Deceptive Trade Practices Act.
Accordingly, Ms. Davis may mot prevail on her claim of

misrepresentation.

Negligence

Ms. Davis' sixth claim for relief is for negligence. Ms.
Davis' complaint alleges that Millennium failed to exercise due
care in the transportation, delivery and setup of the home. No
evidence of negligence was presented at trial, and the court finds
that Millennium was not negligent with respect to the

transportation, delivery and setup of the home.

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North Carolina Unfair Debt Collection Act

North Carolina General Statute § 75-54 prohibits a debt
collector from collecting or attempting to collect a debt by any
fraudulent, deceptive or misleading representation. According to
the statute, such representations include

(4) Falsely representing the character, extent or amount

of a debt against a consumer or of its status in any

legal proceeding; . . . or falsely representing the

creditor's rights or intentions.
N.C. Gen. Stat. § 75-54(4).

On November 14, 2003, Mr. Davis sent Ms. Davis a letter
indicating that she was "in default in [her] note payments," that
the amount of principal due was $125,912, that Millennium intended
to commence a foreclosure, and that to avoid the foreclosure, Ms.
Davis was required to pay $125,912 plus expenses of $4,443. Pl.
Ex. 14. At that time, there was no debt due, and the letter was a

false representation of the character, extent or amount of a debt.

In fact, based on the documents actually executed and the fact that
there never was a closing, there was no amount ever due under the
note and no amount secured by the deed of trust. See supra at 4-5.
Furthermore, even if an amount was owed under the note and deed of
trust, there was no right to foreclose, as there was no default,
and the letter falsely represented Millennium's rights.
Similarly, if the second notice of intent to foreclose was
sent to Ms. Davis, it too would have violated the statute because
there was no amount due under the note and deed of trust. The

court finds that the demand letter of November 14, 2003, was a

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violation of the § 75-54(4) of the North Carolina Fair Debt
Collection Practices Act.

Unfair and Deceptive Trade Practices

Ms. Davis' fourth cause of action is for violations of North
Carolina's Unfair and Deceptive Trade Practices Act. The court

finds that Millennium committed unfair and deceptive trade

practices in two respects.

The Unfair Debt Collection Act, § 75-56, provides that "[t]he
specific and general provisions of this Article shall exclusively
constitute the unfair or deceptive acts or practices proscribed by
G.S. 75-1.1 in the area of commerce regulated by this Article."
Accordingly, the finding that Millennium violated § 75-54(4) is
necessarily followed by a finding that Millennium violated § 75-
1.1. Additionally, Millennium's breach of contract together with
its wrongful foreclosure form the basis of a separate unfair and
deceptive trade practice.

Section 75-1.1 provides that "unfair or deceptive acts or
practices in or affecting commerce[] are declared unlawful." N.c.
Gen. Stat. § 75-1.1.

[I]t was the clear intention of the 1969 General Assembly

in enacting Ch. 833, among other things, to declare

deceptive acts or practices in the conduct of any trade

or commerce in North Carolina unlawful, to provide civil
means to maintain ethical standards of dealings between
persons engaged in business and the consuming public
within this State, and to enable a person injured by
deceptive acts or practices to recover treble damages
from a wrongdoer.

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Hardy v. Toler, 24 N.C. App. 625, 630-631, 211 S.E.2d 809, modified

on other grounds, 288 N.C. 303, 218 S.E.2d 342 (1975) (emphasis

added).

Ms. Davis and Millennium had a dispute about the habitability
of the modular home. To force Ms. Davis to accept and to pay for
the house without resolving the dispute, Millennium instituted a
wrongful foreclosure action, which threatened not only the modular
home but Ms. Davis' otherwise unencumbered real property.
Millennium made this decision despite having no right to foreclose,
and it pursued this course of action to force Ms. Davis to accept
a home that does not meet the standards required by the purchase
contract. This violates the ethical standards between businesses
and the consuming public that the legislature intended to preserve
with its enactment of the statute.

Generally speaking, a mere breach of contract, even if
intentional, is not sufficiently unfair or deceptive to sustain an

action under the statute. Broussard v. Meineke Discount Muffler

Shops, Inc., 155 F.3d 331 (4th Cir. 1998). North Carolina courts

relegate "claims regarding the existence of an agreement, the terms
contained in an agreement, and the interpretation of an agreement
to the arena of contract law." Broussard at 347 (citation
omitted). However, a breach of contract with substantial

aggravating circumstances can violate the statute. Baldine v.

Furniture Comfort Corp., 956 F. Supp. 580 (M.D.N.C. 1996). Here

the aggravating circumstance, wrongful foreclosure of a deed of

trust not contemplated by or consistent with the purchase

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agreement, together with the breach of contract, constitutes a
violation of the North Carolina Unfair Deceptive Trade Practices
Act.

Breach of Fiduciary Duty by Defendant Thompson

Ms. Davis' final cause of action is for breach of fiduciary
duty by Mr. Thompson, who was the trustee under the deed of trust.

A trustee under a deed of trust "is charged with the duty of

fidelity as well as impartiality, of good faith and every requisite
degree of diligence ... ." and is bound "to attend equally to the
interest of the debtor and the creditor alike ...." Mills v.

Mutual Building & Loan Ass'n, 216 N.C. 664, 6 S.E.2d 549, 552

(1940) (internal citations omitted); see also N.C. Gen. Stat.
§§ 45-4 et seq. (outlining procedure to be followed for trustee's

execution of power of sale). The trustee's position is "predicated
upon the theory that the trustee is a disinterested third party
acting as agent both of the debtor and of the creditor, thus
removing any opportunity for oppression by the creditor and
assuring fair treatment to the debtor." Mills, 6 S.E.2d at 552,

quoted in Matter of McDuffie, 114 N.C. App. 86, 88, 440 S.B.2d 865,

866 (1994). The "measure of the trustee's duty" is, as an agent of
the debtor and the creditor, the "duty of fidelity, as well as
impartiality; of good faith and every requisite degree of diligence

-" Davenport v. Vaughn, 193 N.C. 646, 137 S.E.2d 714, 715-16

(1927) (trustee's foreclosure of deed of trust was marked by

"haste, imprudence, or want of diligence" and advanced interest of

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one person to the injury of another, rendering him personally
liable to injured party).

The trustee is required to act in good faith and, according to
"the rule stated in Mills," to "exercise the judgment of a
reasonable and prudent person in determining [whether] there had

been default under the deed of trust." Furst v. Loftin, 29 N.C.

App. 248, 224 S.E.2d 641, 646 (1976), overruled on other grounds,

Connolly v. Potts, 62 N.C. App. 300, 302 S.E.2d 481 (1983). There

is a fundamental duty to inquire into the relevant facts. See

Smith v. Martin, 124 N.C. App. 592, 478 S.E.2d 228 (1996)

(affirming grant of summary judgment against trustee for breach of
duty because trustee was "bound to inquire" whether a debt was
satisfied before cancelling the corresponding deed of trust, but
did not, to plaintiffs' detriment).

In this case, Mr. Thompson failed to undertake the most basic
of inquiries to establish whether there was a legitimate basis upon
which to initiate a foreclosure. Had he made even a cursory
investigation, Mr. Thompson would have discovered that no basis
existed as of November 14, 2003, to foreclose. Mr. Thompson knew
that Mr. Davis wanted to foreclose because Mr. Davis believed Ms.
Davis was not going to consummate the purchase of the home. A
simple reading of the note and deed of trust, which Mr. Thompson
himself had prepared, would have revealed that there was no right
to foreclose, because no debt was due. The court finds that Mr.

Thompson breached his duty as trustee by proceeding with

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foreclosure when it was apparent that no grounds for foreclosure
existed.

Mr. Thompson also failed to act as an impartial and
disinterested third party. The cases uniformly recite that the
"the trustee in a deed of trust owes a duty to the debtor as well

as to the creditor." Furst, 224 S.E.2d at 646; see also, e.g.,

Swindell v. Overton, 310 N.C. 707, 712, 314 S.E.2d 512, 516 (1984)

(trustee to use "every requisite degree of diligence in conducting
the sale and to attend equally to the interest of the debtor and
creditor alike"). It is "especially important" that the trustee
"resist the temptation to become a legal advocate," because "a
trustee/attorney cannot ethically represent either the lender or
the borrower as an advocate at any state of the foreclosure by sale

process." 1 Webster's Real Estate Law in North Carolina, James A.

Webster, Jr. § 13-31(a) (5th ed. 1999) (citing CPR 166 (July 14,
1978)).
Although there was testimony from Mr. Thompson, Mr. Davis, Mr.

Hunter (the Clerk of Court) and Marvin Rooker (Millennium's

attorney in the second foreclosure proceeding) that Mr. Thompson
was not representing the interests of Millennium in connection with
the foreclosure, there is also convincing evidence to the contrary.

For example, in response to Ms. Davis' letter to Millennium on
January 12, 2004, Pl. Ex. 15, Mr. Davis wrote Ms. Davis asking her

to send all future correspondence "directly to our attorney, Mr.

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Lewis A. Thompson."° The letter was copied to Mr. Thompson, and
there is no evidence that Mr. Thompson attempted to advise either
Mr. Davis or Ms. Davis that he did not represent Millennium and
that any correspondence related to this dispute should not be
directed to him.

Also, on January 9, 2004, before the foreclosure action was
actually filed but well after Mr. Thompson sent the notice of his
intent to begin foreclosure proceedings, Ms. Davis wrote to the
North Carolina Attorney General regarding her experience with
Millennium. Curiously, the response to the letter came not from
Millennium, but from Mr. Thompson. According to Mr. Thompson, the
Attorney General's office contacted him to inquire about the
situation, and Mr. Thompson responded in writing on February 23,
2004.° Though Ms. Davis's complaint addressed the damages to the
home, Mr. Thompson wrote, "From my perspective, this is a rather
straightforward foreclosure procedure. Millennium Development has
afforded Ms. Davis every opportunity to resolve this obligation and
she has failed to do so." Mr. Thompson then provided that he could
be contacted with respect to any questions. This letter was copied

to Millennium, but not to Ms. Davis. It was sent to Ms. Davis by

"Mr. Davis' letter was not admitted into evidence at trial,
but was attached to the Affidavit of Hester Alice Davis in
Opposition to Thompson's Motion for Summary Judgment, Exhibit 2,
and Mr. Davis testified about the letter at trial.

®* Though the letter from Mr. Thompson to the Department of
Justice was not admitted into evidence at the trial, it was
attached to the Affidavit of Hester Alice Davis in Opposition to
Thompson's Motion for Summary Judgment, Exhibit 4, and Mr. Thompson
did testify about the contents of the letter at trial.

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the Department of Justice as Millennium's response to her
complaint.

Furthermore, when the first foreclosure action was dismissed,
Mr. Thompson signed the stipulation of dismissal as "Attorney for
Millennium." Mr. Thompson contends that this was merely a
scrivener's error and that may be so. Nevertheless, it is one more
indication of Mr. Thompson's inattention to his role as impartial
trustee. At a minimum, Mr. Thompson's actions demonstrated an
indifference to the rights of Ms. Davis, and the court finds that
indifference is a breach of his fiduciary duty as trustee.

Damages for Breach of Contract

Ms. Davis maintains that Millennium's breach of contract and
the wrongful foreclosure caused her great stress, emotional
distress, and sleeplessness that led to medical complications.

There is no doubt that this entire episode has been upsetting to

Ms. Davis, but it is difficult to put a monetary value on those
effects. Ms. Davis suffers from Crohn's disease, which is a
condition aggravated by stress. However, there is no evidence

before the court that substantiates the extent or cost of Ms.

Davis' medical problems.

Ms. Davis contends that her credit rating suffered as a result
of the foreclosure and because of her chapter 13 bankruptcy
petition. While there can be no doubt that a foreclosure has the
effect of lowering a person's credit rating, there is no evidence
before the court as to the specific monetary damages Ms. Davis

suffered as a result of her diminished credit standing. There is

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also no doubt that a bankruptcy petition can be detrimental to
one's credit rating, but in this case Ms. Davis' petition was a
voluntary petition that she chose to file, and Millennium should
not be held responsible for the consequences that flow from that
voluntary decision. Ms. Davis could have pursued an appeal of the
foreclosure order, and although she may not have been able to stop
the sale without posting a bond, she would have been compensated
for her loss if she ultimately prevailed. Hopefully, this
memorandum opinion, which makes it clear that the foreclosure was
wrongfully commenced by Millennium and the trustee, will remove the
foreclosure from Ms. Davis' record and improve her credit standing.
The court will not award damages based on the cost of her voluntary
bankruptcy or for the consequences that flow from her voluntary
bankruptcy petition.

Ms. Davis argues that Millennium should compensate her for the
additional living expenses she incurred by not being able to move
into the home that was the subject of the purchase contract with
Millennium. According to Ms. Davis, by not moving into the new
home, her family was separated, she had to live temporarily with

her sister and later incurred rent of $350 per month. The sums she

paid for rent and utilities, food and other living expenses are not
the responsibility of Millennium. It may very well be that her
expenses were higher as a result of not moving into the new home,
but that has not been established by the evidence before the court.

According to Ms. Davis, when her loan commitment was

terminated, she lost the ability to obtain credit at the rate of

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6.25 percent and in the future will have to pay a rate of from 8 to
8.25 percent for a home loan. Other than Ms. Davis' testimony,
there is no other evidence on this subject. There is no evidence
of the rate that she was to receive from Premier Mortgage and no
evidence concerning the current prevailing market rate. If the 8
to 8.25 percent rate she refers to is based on her diminished
credit standing, hopefully the court's determination that the
foreclosure that led to her bankruptcy was wrongful will help her
get a better rate. In any event, there is not sufficient evidence
to support damages based upon her inability to obtain credit at a
lower rate.

The court will also not award damages for expenses Ms. Davis
incurred for clearing her lot or for moving her trailer. These
items were not the responsibility of Millennium under the purchase
contract and are not damages that were incurred as a result of
Millennium's breach of the purchase contract. The court notes
that, in fact, Millennium incurred several expenses for services
that were not required by the purchase contract. Specifically, in
order to satisfy the requirements of Ms. Davis' FHA lender,
Millennium incurred expenses of over $4,000 for landscaping, water
testing, and driveway work that were not provided for in the
purchase agreement. It is not known to what extent Ms. Davis
benefitted from these extra services, but in view of Millennium's
conduct in breaching the purchase agreement, no reimbursement by

Ms. Davis is required.

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Although most of the damages claimed by Ms. Davis have not
been proven, there are three items for which Ms. Davis is entitled
to compensation by Millennium, (1) $5,000 for the loss of a grant
from the Haliwa-Saponi Indian Tribe for a down payment on the home,
(2) $500 paid to her closing attorney Nick Long, and (3) $300 paid
to home inspector Robert B. Rowley. Millennium's wrongful
foreclosure caused Ms. Davis to lose her loan commitment and to
make the purchase of the home impossible. Since she could not
close the transaction, she lost the $5,000 grant as well as the
benefit of the attorney services for which she had paid Mr. Long.
Millennium's failure to provide a mold- and mildew-free home also
caused her to expend $300 for a home inspector.

Damages for Unfair Debt Collection

North Carolina General Statute § 75-56 provides for a maximum
penalty of $2,000 for violations of the Unfair Debt Collection Act.
The facts of this case warrant the maximum allowable. Mr. Davis
and Millennium may have thought that the note and deed of trust
were valid, but the terms of the note and deed of trust clearly
show that the loan was not due and foreclosure was not justified.
The wrongful use of a foreclosure to coerce Ms. Davis to purchase
the modular home warrants the maximum penalty of $2,000.

Damages for Unfair and Deceptive Trade Practices

There were two unfair and deceptive trade practices
perpetrated by Millennium. The first was the threatened
foreclosure that has been dealt with by assessing damages of $2,000

for unfair debt collection. The second unfair and deceptive trade

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practice is the breach of contract which was exacerbated by the
wrongful foreclosure of a deed of trust not contemplated by or
consistent with the purchase agreement. For this aggravated breach
of contract the appropriate sanction, pursuant to North Carolina
General Statute § 75-16, is the trebling of the compensatory
damages of $5,800. The trebled damages are $17,400.

Attorney’s Fees

Both the Fair Debt Collection Practices Act and the Unfair and
Deceptive Trade Practices Act provide that the successful party is
entitled to recover attorney's fees. N.C. Gen. Stat. § 75-16.
Counsel for Ms. Davis stated that she would file a motion regarding
her fees. Counsel shall have 5 days from the date of this order to
provide an affidavit to the court setting forth her fees, and the
court will determine the amount of the fees after reviewing
counsel's submission.

Damages for Breach of Fiduciary Duty

As a direct result of Mr. Thompson's breach of his fiduciary
duty and the wrongful foreclosure, Ms. Davis lost her loan
commitment, lost the ability to purchase her home, lost the $5,000
down payment grant, and lost the benefit of the $500 she paid to
her closing attorney. Additionally, as previously noted, the
wrongful foreclosure caused her great stress, emotional distress,
sleeplessness, and injury to her credit rating. However, Ms.
Davis did not establish the amount of her loss with respect to

those consequences of Mr. Thompson's actions.

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Although the court finds Mr. Thompson's conduct to be as
egregious as that of Millennium and Mr. Davis, the plaintiff has
not sought to have the damages trebled with respect to Mr.
Thompson, and therefore the damages for which he is liable will be
$5,500.

Mr. Thompson is also liable for the attorney's fees that Ms.
Davis incurred in her adversary proceeding against Millennium and
Mr. Davis. To rectify and mitigate the effects of the wrongful
foreclosure brought by Mr. Thompson, Ms. Davis incurred legal fees
to bring this adversary proceeding against Millennium. These costs

were a direct result of Mr. Thompson's breach of his fiduciary

duty, and Mr. Thompson shall be liable to Ms. Davis for the
attorney's fees related to the action against Millennium as
determined by the court after reviewing the affidavit submitted by

counsel for Ms. Davis. See Smith v. Martin, 124 N.C. App. 592, 478

S.H.2d 228 (1996).

Mr. Thompson's liability in the amount of $5,500 plus Ms.
Davis' attorney's fees to be determined by the court, shall be
joint and several with Millennium.

Removal of Modular Home

Millennium is entitled to remove the modular home provided
that it first pays to Ms. Davis the amount of the damages and
attorney's fees awarded, and agrees to indemnify Ms. Davis for any
harm to the property that may result from the removal.

If Millennium wishes to remove the home, it must do so within

60 days from the date of this order. Additionally, at the option

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of Ms. Davis, Millennium shall leave the concrete foundation or, if
requested by Ms. Davis, shall remove the concrete foundation and
return the property to the condition it was in before the home was
delivered in October 2003.

For the reasons stated herein, Millennium's motion for relief

from the automatic stay is DENIED, and its objection to
confirmation of the plan is DENIED. Ms. Davis' objection to
Millennium's claim is ALLOWED, and the deed of trust is determined
to be VOID and shall be cancelled of record.

A separate judgment will be entered consistent with this
memorandum opinion after the amount of the attorney's fees has been
determined.

SO ORDERED.

DATED: MAR 3 1 2006

O. hee Loe

A. Thomas Small
Bankruptcy Judge

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