In re Clayton – Case Opinion

Written by Compliance Attorney Devin Chidester

In a recent decision, North Carolina Court of Appeals held that an individual is not a surviving borrower under a deed of trust if that individual was not obligated on the underlying promissory note. In re Clayton, 802 S.E.2d 920 (2017).

In June 2008, Jackie Clayton (Respondent) and Melvin Clayton executed a deed of trust for a reverse mortgage securing an obligation signed by Mr. Clayton. Mr. Clayton was identified as the “borrower” in all loan documents whereas Respondent was identified as “borrower” only in the deed of trust. Due to Mr. Clayton’s death, the holder initiated a foreclosure of the obligation. At the foreclosure hearing the clerk of court dismissed the matter, because Respondent signed the deed of trust as a borrower, resided at the property, and was still alive. The dismissal was appealed and the Superior Court judge allowed the foreclosure to proceed, ruling that Mr. Clayton was the sole borrower under the note and his status alone controlled default and foreclosure provisions of the loan. Respondent appealed. See In re Clayton, 802 S.E.2d 920 (2017).

The main issue in Clayton is whether a party not obligated under terms of a promissory note can be considered a borrower for the purposes of default and foreclosure of the loan. The Court reasoned that the deed of trust, the note, and other contemporaneously executed loan documents should be evaluated and construed as one document. Id. at 925. Both the note and deed of trust contained similar provisions allowing acceleration and foreclosure if “[a] Borrower dies and the Property is not the principal residence of at least one surviving Borrower.” Id. Respondent contented she was a “surviving borrower” since she executed the deed of trust as a “borrower” and the property remained her principal residence. Id.

The Court disagreed. Although Respondent signed the deed of trust as a borrower the note and corresponding loan documents were executed without her signature. The Court found that Mr. Clayton was the only contemplated borrower as he alone executed the underlying loan documents. Id. Since Respondent neither executed, signed, nor was identified as a borrower to the note or other loan documents, she was not a borrower by virtue of executing the deed of trust as one. Further supporting the interpretation that Respondent was not intended to be a “surviving borrower”, the Court pointed out that she did not qualify as a borrower under North Carolina law. Per N.C. Gen. Stat. § 53-257(2), a borrower for a reverse mortgage must be 62 years of age or older. Id. at 926. Respondent was younger than 62 years of age at the time she signed the deed of trust. Id. Due to her age and the lack of intent to be obligated under the note, respondent’s residency and vital status did not control the right of the holder to foreclose. The Court’s message in Clayton is simple: a borrower must be obligated under the promissory note.