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The trial court did not err by granting defendants' motions to dismiss based on
expiration of the applicable statutes of limitations for plaintiffs' causes of action nearly five years
after closing on a second mortgage loan asserting usury law violations under Chapter 24 of the
North Carolina General Statutes and unfair and deceptive trade practices under N.C.G.S. § 75-
1.1, because: (1) the statutes of limitations began to run on these claims at the closing of the loan
when the fee in dispute was paid; (2) although plaintiffs did pay a usurious origination fee in
excess of two percent of the loan's value in violation of N.C.G.S. § 24-14(f), the statute of
limitations necessitated that plaintiffs file their claim within two years of paying the fee at
closing; (3) the manner in which the origination fee was or could have been paid at closing
almost five years before plaintiffs filed their complaint is irrelevant and cannot support extension
of the statute of limitations on plaintiffs' claims for usurious origination fees; (4) the entirety of
the origination fee was paid at closing, and not piecemeal as part of the loan payments; (5) no
usurious fees have been charged or paid since closing on 25 July 1997, and thus, the statute of
limitations on plaintiffs' usury claim expired nearly three years before plaintiffs' complaint was
filed on 3 May 2002; and (6) the expiration of the applicable four-year statute of limitations
under N.C.G.S. § 75-16.2 bars plaintiffs' unfair and deceptive trade practices claim when
plaintiffs have conceded that their unfair and deceptive trade practices claim is derived from their
Justice TIMMONS-GOODSON dissenting.
Appeal pursuant to N.C.G.S. § 7A-30(2) from the
decision of a divided panel of the Court of Appeals, 172 N.C.
App. 475, 617 S.E.2d 61 (2005), affirming an order granting
defendants' motions to dismiss entered on 8 July 2004 by Judge
Charles H. Henry in Superior Court, New Hanover County. Heard in
the Supreme Court 16 March 2006.
Hartzell & Whiteman, LLP, by J. Jerome Hartzell, for
Kellam & Pettit, P.A., by William Walt Pettit, and
Kilpatrick Stockton LLP, by Adam H. Charnes, for
North Carolina Justice Center, by Carlene McNulty, for
North Carolina Justice Center, Legal Aid of North
Carolina, Inc., Legal Services of Southern Piedmont,
Inc., Pisgah Legal Services, Legal Aid Society of
Northwest North Carolina, North Carolina Academy of
Trial Lawyers, and Center for Responsible Lending,
On review of a motion to dismiss, we determine
whether, as a matter of law, the allegations
of the complaint, treated as true, are
sufficient to state a claim upon which relief
may be granted under some legal theory. In
ruling upon such a motion, the complaint is
to be liberally construed, and the trial
court should not dismiss the complaint unless
it appears beyond doubt that [the] plaintiff
could prove no set of facts in support of his
claim which would entitle him to relief.
Meyer v. Walls
, 347 N.C. 97, 111-12, 489 S.E.2d 880, 888 (1997)
(brackets in original) (citations and internal quotation marks
A statute of limitations defense may properly be
asserted in a Rule 12(b)(6) motion to dismiss if it appears on
the face of the complaint that such a statute bars the claim.
Horton v. Carolina Medicorp, Inc.
, 344 N.C. 133, 136, 472 S.E.2d
778, 780 (1996). Once a defendant raises a statute of
limitations defense, the burden of showing that the action was
instituted within the prescribed period [rests] on the plaintiff.
A plaintiff sustains this burden by showing that the relevant
statute of limitations has not expired. Id
Chapter 24 of the General Statutes governs lending
transactions by setting maximum rates for interest and other fees
and charges. Plaintiffs assert Chase charged a usurious
origination fee in violation of N.C.G.S. § 24-14(f), which limits
fees for certain secondary real property loans to a maximum of
two percent of the loan amount. N.C.G.S. § 24-14(f) (2005).
The statute of limitations for a claim under the usury statutes
is two years. Id.
§ 1-53(2), (3) (2005). Thus, plaintiffs are
required to show that within two years of filing their complaint
defendant charged or plaintiffs paid a usurious fee. Plaintiffs
cannot do so, and as a result the statute of limitations bars
It appears plaintiffs did pay a usurious origination
fee in excess of two percent of the loan's value. However, thestatute of limitations necessitated that plaintiffs file their
claim within two years of paying the fee at closing. Attempting
to circumvent the statute of limitations, plaintiffs argue that
by paying the fee charged at closing out of loan proceeds they
essentially rolled the fee into the loan and are paying part of
the usurious fee each time they make a loan payment. Therefore,
plaintiffs assert they are entitled to recover for any partial
payments of the usurious fee they made within two years of filing
their complaint plus all partial payments of the usurious fee
made since the filing of the complaint.
Plaintiffs' argument is not sound. The origination fee
was not added to the loan amount, but was deducted from the
proceeds that plaintiffs received after they obtained their loan.
All the fees in question were fully earned when the loan was
made, N.C.G.S. § 24-14(f), and were charged, paid, and received
at closing as a prerequisite for obtaining the loan. Although
plaintiffs could have paid the origination fee by cash, check, or
credit card, they opted to have the full amount of the fee
subtracted from the proceeds they received at closing.
Regardless of the manner in which the origination fee was or
could have been paid, plaintiffs' monthly payments were and are
calculated solely based on the principal and interest on a
$16,500.00 loan for a fifteen year term. The manner in which the
origination fee was or could have been paid at closing almost
five years before plaintiffs filed their complaint is irrelevant
and cannot support extension of the statute of limitations on
plaintiffs' claims for usurious origination fees. Although not controlling upon this Court, federal case
law interpreting North Carolina's usury statutes reaches the same
conclusion. See Faircloth v. Nat'l Home Loan Corp.
, 313 F. Supp.
2d 544, 553 (M.D.N.C. 2003) (mem.), aff'd per curiam
, 87 F. App'x
314 (4th Cir. 2004) (unpublished). In a case with facts similar
to the case sub judice
, the court in Faircloth
held that the
statute of limitations began to run at closing because all the
'actions' Plaintiff attributes to [defendants] are but one action
which occurred at the closing of Plaintiff's loan rather than a
series of wrongs perpetrated continually. Id
The cases on which plaintiffs rely do not overcome the
fatal flaw in their argument. The loans in Henderson v. Security
Mortgage & Finance Co.
and Hollowell v. Southern Building & Loan
were subject to statutory limitations on interest rates,
not origination fees. Henderson
, 273 N.C. 253, 263, 160 S.E.2d
39, 46-7 (1968); Hollowell
, 120 N.C. 196, 197-98, 120 N.C. 286,
287, 26 S.E. 781, 781 (1897). In these two cases, this Court
made clear that lenders cannot subvert statutory limits on
interest by requiring dues or commissions to be paid as part
of the loan payments. Henderson
, 273 N.C. at 263, 160 S.E.2d at
, 120 N.C. at 197, 120 N.C. at 287, 26 S.E. at 781.
In the case sub judice
, the entirety of the origination fee was
paid at closing, not piecemeal as part of the loan payments.
Swindell v. Federal National Mortgage Ass'n
inapplicable. 330 N.C. 153, 409 S.E.2d 892 (1991). In Swindell
this Court concluded that a usurious late payment fee constituted
interest charged on the separate loan transaction of forbearancein collecting a payment due. Id
. at 158, 409 S.E.2d at 895.
Because the usurious late payment fee represented interest on a
second loan, the lenders forfeited their right to the late
payment fee, but did not forfeit their right to interest charged
on the original loan. Id
. at 160, 409 S.E.2d at 896.
Significantly, in Swindell
, the plaintiffs filed their complaint
for declaratory judgment within two years of the late fee
assessment, and a statute of limitations defense was not raised
by the defendants. Id
. at 155-56, 409 S.E.2d at 893-94.
Because no usurious fees have been charged or paid
since closing on 25 July 1997, the statute of limitations on
plaintiffs' usury claim expired nearly three years before
plaintiffs' complaint was filed on 3 May 2002. The trial court
properly granted Ocwen's and Wells Fargo's motions to dismiss for
failure to state a claim upon which relief could be granted.
Likewise, the expiration of the applicable four-year
statute of limitations bars plaintiffs' unfair and deceptive
trade practices claim. See
N.C.G.S. § 75-16.2 (2005).
Plaintiffs have conceded that their unfair and deceptive trade
practices claim is derived from their usury claim. Therefore,
because we hold that this claim accrued at closing, the trial
court properly dismissed plaintiffs' complaint on this issue.
Accordingly, we conclude the trial court correctly
granted Ocwen's and Wells Fargo's motions to dismiss because
plaintiffs' claims were barred by the applicable statutes of
limitations. We therefore affirm the judgment of the Court of
Justice TIMMONS-GOODSON dissenting.
Plaintiffs have demonstrated, and the majority agrees, that
the loan origination fee plaintiffs were charged is indeed
usurious under North Carolina law. Plaintiffs' loan was for
$16,500, to be repaid over 180 months. Plaintiffs were charged a
loan origination fee of $1485, which amounts to nine percent of
the loan. This fee was financed as part of the mortgage loan.
N.C.G.S. § 24-14(f) provides, in pertinent part:
[T]he lender may include in the principal balance fees
or discounts not exceeding two percent (2%) of the
principal amount of the loan less the amount of any
existing loan by that lender to be refinanced, modified
N.C.G.S. § 24-14(f) (2005). This section applies to loans which
meet the following criteria:
(1) Secured in whole or in part by a security
instrument on real property, other than a
first security instrument on real property;
(2) The principal amount of the loan does not
exceed twenty-five thousand dollars
(3) The loan is repayable in no less than six nor
more than 181 successive monthly payments,
which payments shall be substantially equal
§ 12-12 (2005). Plaintiffs' loan clearly meets these
requirements. Therefore, the loan origination fee charged in
conjunction with plaintiffs' loan is usurious under N.C.G.S. §
24-14(f). Moreover, for loans of less than $300,000, including
plaintiffs' loan, any fee or interest imposed by a lender that is
not affirmatively permitted by Chapter 24 or Chapter 53 of the
General Statutes is prohibited by N.C.G.S. § 24-8(a). The majority holds that the statute of limitations for
claims of usury violations under the facts in the instant case
accrued on the closing date of the loan. In reaching that
conclusion, the majority adopts the reasoning in Faircloth v.
National Home Loan Corp
., 313 F. Supp. 2d 544 (M.D.N.C. 2003),
aff'd per curiam
, 87 Fed. App'x 314 (4th
(unpublished), a federal case in which the plaintiff argued the
identical theory that plaintiffs present in the instant case.
Federal decisions, with the exception of the United States
Supreme Court, are not binding upon this Court. See State v.
310 N.C. 61, 74, 310 S.E.2d 301, 310 (1984) (State
courts should treat decisions of the United States Supreme Court
as binding and accord to decisions of lower federal courts such
persuasiveness as these decisions might reasonably command.).
disagree with the rationale in Faircloth
, and therefore with the
majority, for the reasons which follow.
It is the paramount public policy of North Carolina to
protect North Carolina resident borrowers through the application
of North Carolina interest laws.
N.C.G.S. § 24-2.1 (2005).
Our courts do not hesitate to look beneath the forms of the
transactions alleged to be usurious in order to determine whether
or not such transactions are in truth and reality usurious.
Kessing v. Nat'l Mortgage Corp.
, 278 N.C. 523, 531, 180 S.E.2d
823, 828 (1971) (citations omitted). As this Court stated in
Henderson v. Security Mortgage and Finance Co.
, 'A profit,'
greater than the lawful rate of interest; intentionally exacted
as a bonus for the loan of money, . . . is a violation of theusury laws, it matters not what form or disguise it may assume.'
273 N.C. 253, 263, 160 S.E.2d 39, 46 (1968) (quoting Doster v.
, 152 N.C. 325, 237, 152 N.C. 339, 341, 67 S.E. 754, 755
I would hold that plaintiffs' usury claim is not time-
barred. Because plaintiffs' usurious loan origination fee was
financed and added to their mortgage loan, plaintiffs have paid
usurious interest with each monthly mortgage payment. This
conclusion comports with our view in Henderson v. Security
Mortgage & Finance Co.
, 273 N.C. 253, 160 S.E.2d 39 (1968), which
holds that [t]he right of action to recover the penalty for
usury paid accrues upon each payment of usurious interest when
that payment is made. Id.
at 264, 160 S.E.2d at 47. In the
instant case, plaintiffs' monthly payment is $219.63. This
payment amount includes the usurious nine percent origination
fee. If plaintiffs had been charged a non-usurious origination
fee of two percent, their monthly payment would have been
$203.86. Accordingly, plaintiffs are paying usurious interest
every month. Therefore, following Henderson
, plaintiffs' claim
is not barred.
Further support can be found for my position in the Internal
Revenue Service's treatment of financed fees. As a matter of
economic reality, the Internal Revenue Service recognizes that
fees that are financed are not paid at closing. Specifically,
the United States Tax Court has determined that financed fees
cannot be deducted as part of the interest on a home mortgage in
the year the loan is made. See, e.g., Schubel v. Comm'r
, 77 T.C.701, 704-07 (1981). Instead, such fees must be deducted over the
life of the loan. Id.
This treatment reflects the reality of
the present plaintiffs' situation. Plaintiffs have made and
continue to make payments that include interest for the alleged
usurious loan origination fee.
For the foregoing reasons, I would hold that plaintiffs'
claim for twice the amount of interest paid within two years of
the filing of the complaint is not barred by the statute of
limitations. Accordingly, I respectfully dissent.
Justices MARTIN and EDMUNDS join in this dissenting opinion.
Footnote: 1 Donald T. Ritter failed to answer plaintiffs' complaint
and default judgment was entered against him on 9 September 2002.
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