Attack on Deed of Trust in Bankruptcy Court Redux Not All Ambiguities Are Created Equal

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A recent opinion from the Bankruptcy Court in the Eastern District of North Carolina adds another chapter to the continuing saga of attacks lodged against the validity of deeds of trust encumbering real property owned by debtors. In re Deuce Investments, Inc. involved real property owned by the corporate debtor in Pender County, North Carolina. The real property was subject to a deed of trust held by Crescent State Bank. Donald Mason, another creditor of the debtor, sued the debtor and obtained a judgment in excess of $800,000 prior to the bankruptcy filing. Therefore, as of the bankruptcy petition date, Mason’s judgment lien was junior in priority to Crescent State Bank’s deed of trust, giving Mason incentive to scrutinize the deed of trust for defects.

Mason filed an adversary proceeding in the bankruptcy case against Crescent State Bank and the debtor seeking to have the deed of trust declared void due to a defective description of the real property in the deed of trust as originally recorded. In the original filing, the deed of trust lacked a metes and bounds description of the debtor’s real property. The deed of trust did contain a description of the property in the conveyance paragraph stating the street name (but without a street number), the county, zip code and acreage, and identifying Hampstead as the city. In reality, at the time the deed of trust was recorded the property had been annexed by Surf City so Hampstead was inaccurate, but the zip code remained unchanged and was correct.

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Published In: Bankruptcy Updates, General Business Updates, Finance & Banking Updates, Residential Real Estate Updates

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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