McGEE, Judge.
Charles N. Stedman (the Trustee) was trustee on a deed of trust executed by Vogler Realty, Inc. (the Mortgagor-Grantor) and J.B. Lee & Company, to a parcel of land in Burlington. The Trustee, acting both as Trustee and the Trustee's Attorney, filed a foreclosure proceeding under power of sale as set forth in the deed of trust, on 20 March 2009. The Alamance County Clerk of Superior Court (the Clerk) conducted a hearing at which the Mortgagor-Grantor appeared, admitted its default, and did not contest the foreclosure. The Clerk entered an order authorizing the Trustee to proceed with the foreclosure sale. After the sale was completed, the Trustee filed a Final Report and Account of Foreclosure Sale (the Final Report), for audit and approval, dated 26 June 2009. In the Final Report, the Trustee noted, inter alia, the following disbursements to himself: (1) "Trustee's Commission" in the amount of $16,813.12; and (2) "Attorney's Fee" in the amount of $33,573.82.
At the time of the sale, CommunityOne Bank, N.A. (the Bank) was a junior lienholder on the real property secured by the deed
The Trustee appealed the Clerk's 27 July 2009 order to the superior court which, in an order entered 4 November 2009, "affirm[ed] the Clerk's Order, in its entirety." The Trustee appeals.
The Trustee first argues that the trial court erred in affirming the Clerk's order because neither the superior court nor the Clerk had authority to make determinations of reasonableness when auditing the Trustee's Final Report. We agree.
N.C. Gen.Stat. § 45-21.31(a) sets forth the procedure for distributing the proceeds of a sale from a foreclosure action:
N.C. Gen.Stat. § 45-21.31(a) (2009). Likewise, N.C. Gen.Stat. § 45-21.33 provides for a: "Final report of sale of real property" and an audit by the clerk of superior court, as follows:
N.C. Gen.Stat. § 45-21.33 (2009).
In In Re Foreclosure of Ferrell Brothers Farms, our Court addressed the scope of the statutory authority granted to the clerk of superior court when conducting an audit pursuant to N.C.G.S. § 45-21.33. Ferrell, 118 N.C. App. 458, 455 S.E.2d 676 (1995). In Ferrell, we reviewed the trial court's order granting the trustee in a foreclosure proceeding a trustee's commission, as well as allowing the payment of the trustee's attorneys' fees. Id. at 459, 455 S.E.2d at 677. After the sale, the holder of a second mortgage filed notice with the trial court, claiming ownership of any surplus funds from the foreclosure sale. Id. The trustee and the trustee's attorneys filed motions with the trial court to allow the commission and attorneys' fees, while the second mortgagee moved "to limit" the attorneys' fees and the trustee's commission. Id. The trial court conducted a hearing but did not allow the second mortgagee to present evidence as to the reasonableness of the commission and attorneys' fees. Id. The trial court determined that the requested commission and attorneys' fees were reasonable and that the trustee and attorneys were entitled to those disbursements. Id.
Our Court stated that the issue for review was "whether a trustee conducting a sale of real property pursuant to an express power of sale contained in a mortgage or deed of trust is required to receive court approval of the amount of disbursements made pursuant to N.C. Gen.Stat. § 45-21.31(a)." Id. "The only question is whether the legislature has provided or whether the instrument provides any means for [the second mortgagee] to contest the amount of disbursements made by the trustee. The answer is no." Id. at 460, 455 S.E.2d at 677-78 (emphasis added).
In reviewing the relevant law, our Court noted that: "The trustee is entitled to compensation `as is stipulated in the instrument,'... [and] [a]lthough N.C. Gen.Stat. § 45-21.31(a) does not have specific reference to attorneys' fees, to the extent the instrument provides for the payment of such fees, they become an `obligation secured by' the instrument." Id. at 460-61, 455 S.E.2d at 677. We therefore recognized that "any entitlement to and the amount of attorneys' fees required for the conduct of the sale is also controlled by the instrument and subject to deduction from the sale proceeds." Id. at 461, 455 S.E.2d at 677.
Our Court then addressed the issue of whether the trustee was required to seek approval of the amount of disbursements:
Id., 455 S.E.2d at 678 (emphasis added). Thus, we held in Ferrell that a clerk of superior court, conducting an audit of a final report and account of sale pursuant to N.C.G.S. § 45-21.33, lacks the statutory authority to make determinations of the reasonableness of expenses listed on the report. Id.
Our Court revisited this issue in In re Foreclosure of Webber, 148 N.C. App. 158, 557 S.E.2d 645 (2001). In Webber, the trustee sought pre-approval from the clerk of superior court of certain costs, expenses, and obligations related to a foreclosure sale. Id. at 158-59, 557 S.E.2d at 645. The trustee allocated a payment of "$12,000.00 in legal fees." Id. at 160, 557 S.E.2d at 646. The mortgagees objected to certain of the proposed payments,
Id. at 161, 557 S.E.2d at 647 (citing Ferrell, 118 N.C.App. at 461, 455 S.E.2d at 678). Our Court then held that the trustee's attorney's fees fell "within the costs, expenses, and other obligations listed in subsection (a) of N.C. Gen.Stat. § 45-21.31." Id. at 162, 557 S.E.2d at 647. Therefore, the trustee's proposed payments of attorney's fees were "`within the sole province of the trustee.'" Id. (quoting Ferrell, 118 N.C.App. at 461, 455 S.E.2d at 678). Finally, our Court held that
Webber, 148 N.C.App. at 162, 557 S.E.2d at 647-48.
In the case before us, we find Ferrell and Webber controlling. The facts in the present case show that the Trustee conducted a foreclosure sale under a deed of trust containing a power of sale pursuant to Chapter 45, Article 2A of the General Statutes. The Trustee filed a Final Report pursuant to N.C.G.S. § 45-21.33, dated 26 June 2009. In the Final Report, pursuant to N.C. Gen.Stat. § 45-21.31, the Trustee set forth several items, including the distribution of the proceeds of the sale. As stated in Ferrell, "any entitlement to and the amount of attorneys' fees required for the conduct of the sale is also controlled by the instrument and subject to deduction from the sale proceeds." Ferrell, 118 N.C.App. at 461, 455 S.E.2d at 677-78. The deed of trust in the case before us specifically provides that the Trustee may "retain an attorney to represent him in such proceedings [under power of sale] ... [and that] [t]he proceeds of the Sale shall[,] after the trustee retains his commission, together with reasonable attorneys fees incurred by the Trustee in such proceeding, be applied to the costs of sale[.]" Thus, the Trustee's payment of attorney's fees and his own compensation fall within the "costs, expenses, and other obligations listed in subsection (a)" of N.C.G.S. § 45-21.31, and were "`within the sole province of the trustee.'" Webber, 148 N.C.App. at 162, 557 S.E.2d at 647 (quoting Ferrell, 118 N.C.App. at 461, 455 S.E.2d at 678).
The Bank argued in its motion and objection to disbursements in the Final Report, and in its brief, that the Trustee's payment of additional attorney's fees to himself, as attorney for the Trustee, was prohibited by N.C. Gen.Stat. § 32-61 and by our Court's holding in In re Foreclosure of Newcomb, 112 N.C. App. 67, 434 S.E.2d 648 (1993). The Bank also relies on language from the North Carolina Clerk of Superior Court Procedures Manual, which states that: "Except in unusual circumstances, there is no authority to justify receipt by a trustee/attorney of both a trustee's fee and a separate attorney fee for a foreclosure under power of sale contained in a deed of trust." School of Government, University of North Carolina at Chapel Hill 2003 at 130.5. The Bank also refers us to the Corpus Juris Secundum. However, neither Corpus Juris Secundum nor the Procedures Manual are binding authority on this Court, whereas the North Carolina General Statutes and prior case law of our Court are.
N.C. Gen.Stat. § 32-61 (2009).
In Newcomb, the trustee-attorney initiated a foreclosure sale, but the mortgagor decided to satisfy the outstanding debt prior to completion of the sale pursuant to N.C. Gen.Stat. § 45-21.20. Newcomb, 112 N.C.App. at 69, 434 S.E.2d at 649. The trustee-attorney agreed to the arrangement proposed by the mortgagor, but "insisted upon a commission of $10,000.00 to accomplish termination of the power of sale[.]" Id. Eventually, the property was sold by the mortgagor through a private sale pursuant to N.C.G.S. § 45-21.20, and the trustee-attorney and the mortgagor brought the issue of the $10,000.00 commission before the clerk of superior court. Id. The clerk ordered $10,000.00 to be paid to the trustee-attorney as a commission. Id. The superior court affirmed, ruling that the trustee-attorney was entitled to the $10,000.00 as "both commission and compensation for legal services." Id. at 72, 434 S.E.2d at 651 (emphasis in the original).
Citing former N.C.G.S. § 32-51, our Court in Newcomb held:
Id. However, we noted that "[i]n passing on the allowance of attorney's fees pursuant to statutory authority ... our appellate courts have consistently held a trial court's order `must contain a finding or findings upon which a determination of the reasonableness of the award can be based[.]'" Id. (citation omitted). Our Court then reviewed the record and concluded that the "findings of fact and conclusions of law [did] not support the amount of attorneys' fees awarded as `legal expenses[.]'" Id. at 74, 434 S.E.2d at 652.
Thus, as the Bank contends, Newcomb did recognize the role of the clerk in evaluating the reasonableness of an attorney-trustee's payment of fees to himself. However, the Bank's reliance on Newcomb is misplaced with respect to its argument that the clerk may review a trustee-attorney's payment of fees when auditing a final report. Newcomb, and its application of N.C.G.S. § 32-51, dealt solely with a foreclosure sale that was incomplete and terminated pursuant to N.C.G.S. § 45-21.20, which is a different context than that which faces us now.
In contrast, our Court in Ferrell and Webber dealt with cases where the trustee completed the foreclosure sale and filed a final report pursuant to N.C.G.S. § 45-21.33. Neither Ferrell nor Webber discussed the applicability of N.C.G.S. § 32-51 to a clerk's audit of a final report pursuant to N.C.G.S. § 45-21.33. The proceeding in the case before us arose from the Bank's objections to the Trustee's Final Report pursuant to N.C.G.S. § 45-21.33, and thus Ferrell and Webber, rather than Newcomb, are controlling. Under N.C.G.S. § 45-21.33, the clerk "is merely authorized to determine whether the entries in the report reflect the actual receipts and disbursements made by the trustee." Ferrell, 118 N.C.App. at 461, 455 S.E.2d at 678.
Our Court provided further guidance in Webber, stating:
Id. at 162-63, 557 S.E.2d at 648. In the case before us, the Bank challenged payments listed in the Final Report made pursuant to N.C.G.S. § 45-21.33. The "proper procedure," as set forth in Webber, would have been for the Trustee to make payments as he deemed proper under N.C.G.S. § 45-21.31(a) and (b), and then to file his Final Report. The Clerk should have audited the Final Report solely to determine whether the payments were made as reflected in the Final Report. Thereafter, if the Bank wished "to challenge payments made pursuant to N.C. Gen.Stat. § 45-21.31(a)[,] [it could] do so in a separate proceeding against the [T]rustee for a breach of fiduciary duty once such payments [had] been made." Webber, 148 N.C.App. at 163, 557 S.E.2d at 648. The "proper procedure" suggested by Webber focuses on the correctness of the foreclosure proceeding itself. Nothing in our holding affects the right of an aggrieved party to challenge the actions of a trustee in a separate action against the trustee focused on the propriety of the trustee's actions, just not by motion filed at the time of the audit where the clerk is without authority to resolve such matters.
Because the Clerk lacked statutory authority to assess the reasonableness of the payments set out in the Trustee's Final Report, the Clerk's order must be vacated. Id. We therefore vacate the Clerk's order and the trial court's order affirming it. In light of our ruling, we need not address the Trustee's remaining arguments.
Vacated.
Judge STROUD concurs.
Judge HUNTER, JR. dissents with a separate opinion.
HUNTER, JR., ROBERT N., Judge, dissenting.
For the reasons set forth herein, I must respectfully dissent.
The majority opinion addresses two lines of conflicting authority from this Court regarding the discretion, if any, the clerk of court and the superior court possess to approve or deny the attorney's fees charged by trustees in a foreclosure proceeding. In re Foreclosure of Newcomb, 112 N.C. App. 67, 434 S.E.2d 648 (1993) represents the first line of cases; and In re Foreclosure of Ferrell Brothers Farms, 118 N.C. App. 458, 455 S.E.2d 676 (1995), and In re Foreclosure of Webber, 148 N.C. App. 158, 557 S.E.2d 645 (2001), represent the second line of cases.
I agree with the majority that the language of the statute supporting the decision in Newcomb, N.C. Gen.Stat. § 32-51, is substantially the same as the presently enacted section 32-61, which permits counsel fees for attorneys serving as fiduciaries. N.C. Gen. Stat. § 32-61 (2009). I further agree that Newcomb recognizes that the clerk of superior court and the superior court have discretion in determining the reasonableness of an attorney-trustee's request for disbursement of fees to himself. I cannot agree, however, that Newcomb limits the clerk's or the trial court's discretion in determining "reasonable attorneys' fees" to only those situations in which the foreclosure was arrested by payment of the underlying debt pursuant to N.C. Gen.Stat. § 45-21.20 (2009).
Longstanding North Carolina precedent permits the award of attorneys' fees only when the fees are provided for in an instrument and allowed by statute.
Stillwell Enterprises v. Interstate Equipment Co., 300 N.C. 286, 289, 266 S.E.2d 812, 814-15 (1980).
In the foreclosure proceeding underlying the instant case, Vogler Realtor (hereinafter "debtor") signed a promissory note dated 26 June 1997 in the principal amount of $250,000 to accrue interest at the rate of 9% per annum and payable in 179 equal monthly installments of $2,011.56. The promissory note's language provides for receipt of attorneys' fees as follows:
(Emphasis added.) The note further provides, "[t]his note is to be governed and construed in accordance with the laws of the State of North Carolina."
The debtor's obligation was secured by a "North Carolina Deed of Trust" form prepared by the N.C. Bar Association. This document provides the following language:
(Emphasis added.) These are all the relevant terms of the instruments which govern the award of a trustee's commissions and a payment of attorneys' fees in this case.
A trustee in a foreclosure proceeding may or may not require the services of an attorney. When a non-attorney trustee employs an attorney, one assumes that the trustee examines the fee to be charged in discharge of his fiduciary duty to act as a reasonable person would act in conducting his own affairs and insure that the attorneys' fees charged are reasonable. When a trustee also serves as the attorney for the foreclosure proceeding, however, self-dealing makes the exercise of fiduciary duty problematic for the trustee and the determination of a "reasonable" fee under N.C. Gen.Stat. § 32-61 is given to the clerk.
For example, the trustee in prosecuting this foreclosure proceeding acted in conformance with North Carolina law provided in N.C. Gen.Stat. § 6-21.2 (2009) and § 32-61 that enables him to receive "reasonable attorneys' fees" under an instrument of indebtedness. For example, his affidavit contains the following language:
In addition, the trustee filed with the clerk of court an itemization of his time spent in this matter as trustee and as attorney for the trustee and copies of the documents he prepared. These documents were submitted along with his motion to audit and approve his final account. An examination of the record reveals that the trustee in this matter submitted a factual basis for an award of attorneys' fees using the proper procedure, which I would hold needs to be utilized in all foreclosure proceedings. In my opinion, this action judicially estops the appellant from submitting a different argument on appeal than the argument he put forth in the underlying proceeding. Even if estoppel is not applicable here, it appears this appeal is not based on a difference in law as to what procedure should be used to determine a reasonable fee, but instead is based on a disappointment in the results of the procedure utilized.
The note and deed of trust should be read in pari materia to allow an attorney, or a trustee collecting on the note for the holder, to collect reasonable counsel fees "not to exceed fifteen percent" of the note. When an instrument does not provide for calculation of the amount of "reasonable" attorneys' fees, as in the present case, our courts have held such calculation to be a proper subject for judicial determination. "When the court determines that an award of attorneys' fees is appropriate, but such amount is not fixed by statute or otherwise, the amount ordinarily lies with the discretion of the court." Coastal Production Credit Ass'n v. Goodson Farms, Inc., 70 N.C. App. 221, 319 S.E.2d 650 (1984) (citing Hill v. Jones, 26 N.C. App. 168, 170, 215 S.E.2d 168, 170 (1975)).
The plain language of the deed of trust, as well as North Carolina law, imposes a duty to use diligence and fairness in conducting the sale and receiving and disbursing the proceeds of the sale. Sloop v. London, 27 N.C. App. 516, 219 S.E.2d 502 (1975). Our
Mills v. Building & Loan Ass'n, 216 N.C. 664, 669, 6 S.E.2d 549, 552 (1940) (citations omitted).
Given this theory of foreclosure law, it is clear, whether the foreclosure is complete or partial, that a trustee is a fiduciary within the context of N.C. Gen.Stat. § 32-61. In this context, a debtor or his assignee, such as a second mortgagee whose pecuniary interest in the proceeds created by the sale (the in rem estate), adversely affected by a trustee's discretion, has the right to petition the clerk for relief. In this case, the original debtor's liability for funds due the second mortgagee is adversely affected where the trustee reduces the amount of proceeds available to the second mortgagor. I would hold, a successor in interest to the debtor has sufficient standing to raise this issue before the clerk.
Newcomb has not been directly overruled by another panel of this Court. Our panel lacks the ability to overrule Newcomb as well. The two decisions cited by the majority in support of its opinion, Ferrell and Webber, postdate Newcomb without expressly overruling or modifying its holding. Newcomb ratified a well-established procedure in clerks' offices across the state. Until Newcomb's rationale has been overruled or affirmed by our Supreme Court, the effect of the majority's decision places in doubt a practice which is efficient and beneficial and does so without any compensating benefit.
The remedy that Webber suggests, that a person injured by a trustee's decision may bring a suit for breach of fiduciary duty, seems to me to be a problematic solution for both the fiduciary and the debtor. Webber, 148 N.C.App. at 162-63, 557 S.E.2d at 648. Foreclosure procedures are intended to be summary and expeditious. Webber's proposed solution unnecessarily lengthens the dispute and would be estopped by a clerk's approval of fees charged.
The prompt judicial review of attorneys' fees is routine in probate and special proceedings matters and is a procedure familiar to both clerks and the practicing bar. For example, the appellee in this case prepared and filed his petition containing sufficient information with which a clerk or judge could ascertain a "reasonable fee."
A trustee's commission fee is predetermined by the instrument or by statute. Permitting a trustee to set his own attorney's fees, however, when the fee is not established by the instruments is inherently a conflict of interest. For example, a trustee is prohibited from jointly representing himself and a noteholder under the North Carolina Rules of Professional Responsibility. See North Carolina Revised Rules of Professional Conduct, Rule 1.7 (2009). When a trustee self-deals with regard to fees he is charging a beneficiary, it would be difficult, if not impossible, for him to subsequently show he acted openly, honestly, and fairly taking no advantage of his beneficiary. On the other hand,
As neither our General Assembly nor our Supreme Court has resolved the conflict presented by Newcomb, Ferrell, and Webber, the real property practitioner will continue to have difficulty applying the law regarding this matter of significant public interest.
Our statutes and case law hold that trustees are fiduciaries. See N.C. Gen.Stat. § 32-61; Sloop, 27 N.C. App. 516, 219 S.E.2d 502. Clerks are allowed to use discretion in the audit procedures contained in N.C. Gen. Stat. § 45-21.33 and § 32-61 for review of "reasonable" attorneys' fees when the instruments do not provide a method of calculating those sums and when a trustee is also serving as his own attorney.