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Wells Fargo Bank N.A. v. AMH Roman Two NC, LLC

United States Court of Appeals, Fourth Circuit

June 12, 2017

WELLS FARGO BANK, N.A., Creditor - Appellant,
v.
AMH ROMAN TWO NC, LLC, Party-in-Interest - Appellee, and PNC BANK, Creditor, and JOHN F. LOGAN, Trustee, and CHARLES AZIZ FARAG; SUSAN FARAG, Debtors.

          Argued: May 10, 2017

         Appeal from the United States District Court for the Eastern District of North Carolina, at Raleigh. Terrence W. Boyle, District Judge. (5:15-cv-00422-BO; 12-02431-8-SWH)

         ARGUED:

          John T. Benjamin, Jr., THE LAW OFFICE OF JOHN T. BENJAMIN, JR., P.A., Raleigh, North Carolina, for Appellant.

          Clinton Shepperd Morse, BROOKS, PIERCE, MCLENDON, HUMPHREY & LEONARD, L.L.P., Greensboro, North Carolina, for Appellee.

         ON BRIEF:

          Benjamin W. Smith, THE LAW OFFICE OF JOHN T. BENJAMIN, JR., P.A., Raleigh, North Carolina, for Appellant.

          Edwin L. West, III, Julia C. Ambrose, BROOKS, PIERCE, MCLENDON, HUMPHREY & LEONARD, L.L.P., Greensboro, North Carolina, for Appellee.

          Before NIEMEYER, KING, and DUNCAN, Circuit Judges.

          DUNCAN, Circuit Judge

         Two years after the bankruptcy court canceled Wells Fargo Bank, N.A.'s ("Wells Fargo") deed of trust covering a piece of real property, and several months after the property was sold in foreclosure to a bona fide purchaser for value, Wells Fargo moved to set aside the bankruptcy court's order. The bankruptcy court denied Wells Fargo's motion, and the district court affirmed. Wells Fargo appealed. For the reasons that follow, we affirm.

         I.

         On November 20, 2002, Wells Fargo extended an equity line of credit in the amount of $240, 800.00 to Susan Farag and Charles Aziz Farag ("Debtors") secured by a deed of trust on property located at 633 Pendleton Lake Road in Raleigh, North Carolina ("the Property"). On or about December 28, 2004, Debtors refinanced the Property with PNC Bank ("PNC"), taking out a new installment loan and a new line of credit. During this process, Wells Fargo notified PNC that it had frozen the line of credit Wells Fargo had extended to the Debtors, and that the amount due to pay off the obligation was $285, 082.11. PNC transmitted the money to Wells Fargo, who receipted it. All of the relevant correspondence and documents referenced the correct loan number. However, Wells Fargo did not close the line of credit, and in fact allowed the Debtors to continue to take advances on it totaling over $300, 000.00.

         On March 29, 2012, Debtors filed for Chapter 13 bankruptcy, triggering an automatic stay on collection efforts outside the bankruptcy proceeding. See 11 U.S.C. § 362(a). At the time of filing, the Debtors owned two properties secured by deeds of trust held by Wells Fargo: the Property and another property located at 8148 Upper Lake Road in Raleigh, North Carolina ("the Other Property"). In the Chapter 13 bankruptcy, PNC filed two proofs of claim secured by the Property in the amounts of $64, 970.51 and $475, 924.81--the first from the equity line of credit and the second from the promissory note. Wells Fargo also filed a secured proof of claim in the amount of $307, 530.84 for the debt arising from its line of credit secured by the Property.

         On April 5, 2012, Sean Corcoran, an attorney with the law firm of Brock & Scott, PLLC, filed a notice of appearance in the same Chapter 13 action "as counsel for Wells Fargo Bank, NA, a creditor of the above named Debtor(s), " Charles Aziz Farag and Susan Farag, "pursuant to Bankruptcy Rule 9010(b)." J.A. 183. On October 4, 2012, PNC filed a motion for relief from the automatic stay in the same action under 11 U.S.C. § 362(d), seeking permission to foreclose on its interest in its two deeds of trust on the Property ("Stay Motion"). PNC electronically served the Stay Motion on Corcoran. Wells Fargo did not file a response to the Stay Motion.

         On November 7, 2012, the bankruptcy court entered an order (the "Pendleton Property Order" or "Order"), which granted PNC relief from the automatic stay, accorded PNC's deeds of trust priority over Wells Fargo's deed of trust, and canceled Wells Fargo's deed of trust. On January 9, 2013, a certified copy of the Order was recorded in the Office of the Wake County Register of Deeds. Debtors received their final discharge on May 1, 2013, and the bankruptcy court entered a final decree on May 29, 2013.

         After the case concluded, PNC foreclosed on the Property. Relying on the Wake County Registry of Deeds, AMH Roman Two NC, LLC ("AMH") purchased the Property on or about June 30, 2014. Corcoran's law firm, Brock & Scott, PLLC, acted as counsel for the foreclosure trustee and prepared the deed ...


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