The Power of Sale

Almost all mortgages are secured in North Carolina with a Deed of Trust containing a power of sale.  Foreclosure under a power of sale is essentially an accelerated judicial action heard before the County Clerk of Court not a judge.  What most lay persons find surprising (and probably disturbing) about the North Carolina foreclosure process, is that the Clerk may only hear "legal defenses"  at the foreclosure hearing.  Defenses of fraud can only be raised in a collateral action.  If you believe there is fraud during the origination of your loan or foreclosure, you should retain an attorney as raising this defense is procedurally complicated.  

Pre-Foreclosure Notice

Before a lender may foreclose on a home loan, the lender must provide you with a pre-foreclosure notice at least 45 days prior to filing judicial action.  Do not ignore this letter!  This is the time to seek counsel, or at the very least, a housing counselor to determine if there are any resolutions short of foreclosure. 

Filing The Foreclosure Action

After the 45 days has expired, the Lender may now file suit to foreclose.  In most cases, your lender does not actually file the foreclosure action.  The trustee under the deed of trust files on behalf of the lender. 

Although the trustee is theoretically a disinterested third party, the trustee is paid by your lender and does not have your best interests in mind.  Treat them as essentially your lender. 

Service of the 'Notice of Hearing' and 'Notice of Foreclosure Sale'

After filing the action, the trustee must serve you with two items: (1) Notice of Hearing, and (2) Notice of Foreclosure Sale.  Do not ignore these items.  Now is the time to seek counsel. 

These notices are again confusing.  But you must be aware that you have a constitutional right to a hearing before your home can be taken from you.  A lot of people do not show up for their hearing and a default judgment is granted.   Even if you don't retain counsel, show up for your hearing because once a default judgment is granted, your options for a successful defense diminish greatly.  

The Foreclosure Hearing

The initial hearing is before the Clerk of Court and not a Judge.  Your lender only has to prove a couple of elements at the hearing to be entitled to foreclosure.   The most important of which are whether the lender actually holds a valid debt and is entitled to foreclose under the deed of trust. 

Appeal From An Adverse Finding

You may appeal an adverse finding from the Clerk to the Judge for a new hearing within (10) days after entry of the judgment.  But you may have to post a bond while the hearing before judge is pending.  The amount of the bond varies significantly among the counties. 

The hearing before the judge is essentially a mulligan.  Meaning, the lender only has to prove the same elements it did at the Clerk's hearing.  The Judge still does not have jurisdiction to consider equitable defenses such as fraud.   Thus, you are limited to the same defenses unless you file a collateral action.  If you are again unsuccessful, you may appeal the Judge's Order to the appellate courts and eventually to the North Carolina Supreme Court.  

The Foreclosure Sale

If you do not contest the foreclosure at hearing or lose at hearing, the next step is the foreclosure sale.  The Trustee must advertise the property for a period of at least twenty days by publication. 

After that period has expired, the trustee may conduct a public auction for the property.  After a purchase is made, the bidding period is held open for another ten days to allow an upset bid or for you to exercise your right of redemption.  The right of redemption allows you to pay the full amount of the debt to keep the home. 

But after the ten-day period has expired, the rights of the parties become fixed and a substitute trustee's deed is executed to the purchaser.  Once the ten-day upset-bid period has expired, not even a bankruptcy will stay the proceedings. 

Following the Foreclosure Sale

After the substitute trustee's deed is recorded, the purchaser owes the home for legal and equitable purposes.  You are essentially a trespasser.    However, most trustees do not seek forcible eviction for at least a couple of months following the sale.   The trustee or agent of the purchaser may even offer you money to leave on your own account and avoid eviction.  But you will be evicted at some point at the sale.

Deficiency Judgments

Generally, there are no deficiency judgments in North Carolina if the mortgage is for your principal residence or you used the mortgage to purchase the real estate.   That means that if the foreclosure sale does not satisfy the complete amount owed, any excess amount is discharged and you are not liable for the amount. 

However, you must be wary of home equity line deficiencies because these are not automatically discharged and your lender may pursue for any unpaid balance on a home equity line.  Although this practice is not prevalent, it does occur.