Foreclosure Process Outline
We have outlined the foreclose process for the state of North Carolina .
North Carolina offers two methods of foreclosure:
1.by filing a lawsuit seeking foreclosure
2.by conducting an out-of-court foreclosure sale under the terms of a power of sale clause in a deed of trust.
In the event the lender elects to foreclose by filing a lawsuit, it will try to get a default judgment. Once the lender gets a judgment, the court clerks for the Superior Court have the power of the judge to appoint commissioners to make the foreclosure sale, receive the reports on the sale and confirm the reported sale. They may order the execution and delivery of a deed to the property. The clerk may also issue a writs of assistance to evict any occupants, provided ten days’ advance notice is given to such occupants.
Deed of Trust Foreclosure
In North Carolina, a deed of trust foreclosure has several unusual features. First, there must be a preliminary hearing as to whether to foreclose or not. Interested parties must receive notice of the hearing. The clerk of the court, not the judge, holds the hearing. Afterward, a notice of the foreclosure sale must be given; then the sale is conducted. A deposit must be made at the sale. After the sale, however, a very unusual procedure called an upset bid exists. An upset bid consists of making a higher bid than the foreclosure bid within a set time, which will cause the property to go through a resale, which may happen again and again! After the final sale, the sale is reported to the court clerk.
Under North Carolina law, a lender or trustee who has the power of sale under a deed of trust may foreclosure it by following a statutorily prescribed procedure. At the outset, a hearing must be held before the court clerk (not the judge) to determine whether the foreclosure should take place or not. Notice of the hearing must be served in the manner in which a lawsuit is served, or by certified mail, return receipt requested, or, if no other process to give notice works after diligent effort, then the notice of the hearing can be posted in a conspicuous place on the property that will be foreclosed on.
Notice of the Foreclosure Hearing
Notice of the hearing must be sent to the borrower, anyone who owes money or could owe money on the loan and every person who has a recorded claim or lien on the real estate that would be affected by the foreclosure.
The notice must describe the real estate, give the name and address of the current lender, describe the nature of the default, state whether the loan has been accelerated and mention any right the borrower has to pay cure the default.
The notice must state that the borrower has the right to appear before the clerk of the court at the date and time specified and show cause as to why the foreclosure should not be held. The notice must state that the borrower does not have to appear, and that failure to attend does not preclude the buyer from trying to cure the default or buy at the foreclosure sale.
The notice should warn the borrower that the foreclosure buyer will be entitled to possession as soon as the foreclosure buyer accepts delivery of the deed to the property. The borrower is further advised to keep the lender informed as to the borrower’s latest address to aid delivery of copies of any subsequent foreclosure notices.
The right to receive a notice of hearing may be waived, but only if the debt is over $100,000 and the waiver is in writing and signed in the presence of the witness. When such written waivers are delivered to the court clerk, the clerk may skip the hearing on whether the foreclosure should take place or not.
The clerk will hold the hearing. During the hearing, the clerk will consider evidence as to whether the debt exists, whether a default has occurred and whether the lender has the right to foreclose. If the clerk answers those questions in the lender’s favor, he or she will authorize the foreclosure. Either side may appeal the clerk’s ruling to the judge within ten days. (This is likely to be fruitless.)
Notice of Sale – Contents
The notice of sale shall describe the loan instruments. It must identify the original borrowers as they are shown in the deed records within ten days prior to the posting of the foreclosure notice. If someone other than the borrower owns or claims ownership of the property in an instrument that has been recorded, then such a person must be mentioned in the notice of the foreclosure sale.
The notice must give the date, hour and place of the sale, provided such date, hour and place are consistent with the state law regulating such sales. (More details will follow on the sale itself.) The notice must describe the property and state the terms of the sale and that the property will be sold subject to taxes, special assessments and any other terms required by the deed of trust, which must be specifically described.
Notice of Sale – Posting and Publishing
The notice of the sale of the real estate must be posted at the courthouse door for 20 days prior to the sale. In addition it must be published once a week for two successive weeks. The two ads must be published at least eight days apart. The last ad cannot be published less than ten days before the sale. The notice of the sale must be mailed first class mail at least 20 days before the sale to the borrower and any other owner or record title or lien claimant at the address last known to the trustee or the lender. The notice must further be sent to anyone who has taken the time and trouble to record a request for copy of notice in the statutory form as follows:
In accordance with the provisions of G. S.. 45-21.17(5) request is hereby made that a copy of any notice of sale under the deed of trust (mortgage) recorded on ____________________19____, in Book____, page ______ records of ________________ County, North Carolina, executed by
__________________________ as trustor (mortgagor) in which _________________________
is named as beneficiary (mortgagee), and ____________________________ as trustee to be mailed to ______________________ at the following address __________________________.
If the sale is made to someone other than the lender, or if the lender resells to a good-faith buyer and such a buyer holds the land six months, then a person who did not receive a notice of sale loses the right to challenge the foreclosure. To challenge the sale, the party must post a bond equal to what the lender is owed on the loan against the property. The bond is irrevocable, pending the final decision of the court.
Time of Sale
A sale shall begin at the time designated in the notice of sale, but never on a Sunday and always between the hours of 10 a.m. and
4 p.m. The sale may be continued or postponed. However, a postponement may only be for good cause, such as bad weather, an excessive number of competing sales, illness or another good reason. The postponement must be announced at the time and place the regular sale would have taken place. A notice of the postponement must be posted on the courthouse door, and be given orally to each party who is normally entitled to notice of a foreclosure sale. The notice has to state the hour and date to which the sale is postponed and the reason for the postponement and it must be signed.
Place of Sale
The property must be sold at the courthouse door in the county where the land is located, unless the deed of trust provides for a different location. If the deed of trust gives the trustee the authority to designate a place of sale, then the place of sale will be the place the trustee designates on the notice of sale. The deed of trust may require a cash deposit at the sale and set the amount. If the required cash deposit is not specified in the deed of trust, then the trustee holding the sale may require the highest bidder at the sale to pay a cash deposit not to exceed 10 percent of the bid up to $1,000, and 5 percent of the amount by which the bid exceeds $1,000. If the high bidder fails to make the deposit at the sale, then the trustee may immediately re-offer the property for sale to any bidders.
A preliminary report of the sale must be made to the court within five days after the sale. The report must give the name of the borrower; the lender; the date, time and place of the sale; recording information about the deed; the name of the foreclosure buyer; the price at which the property was sold and the name of the person making the report.
Proceeds of the Sale
The foreclosure sale proceeds should be used to pay off the costs of the sale, the taxes on the property and any special assessments. Next, the money goes to pay the balance due on the loan, and then to creditors in order of their seniority. Anything left over goes to the borrower, or his or her estate. A special proceeding is available to contest the distribution of the sales proceeds.
One of the most intriguing features of North Carolina law is the upset bid on real estate sold at foreclosure. Even after the sale, a potential buyer can come in and make an upset bid. An upset bid is an increased bid whereby a bidder offers to buy the real estate previously sold at foreclosure for an amount exceeding the reported foreclosure sale price by 10 percent of the first $1,000 and 5 percent of the amount over $1,000 of the old foreclosure bid. Such a sum of cash, or a cashier’s check, must be deposited with the clerk of the Superior Court, within ten days after the clerk receives a report on the old foreclosure sale. The clerk may also require a bond in the amount of the upset bid price, minus the cash deposit. The clerk may then order a resale of the property.
Resale Under Upset Bids
When the clerk offers the property for resale due to the deposit of an upset bid, then the notice of the resale must be posted at the courthouse door for 15 days prior to the sale. A newspaper ad must be published once a week for two successive weeks before the sale. Eight days must separate the two ads. The last ad must be run no less than seven days before sale. A notice of the resale must be mailed to each party. The sale will take place in the same manner as the original sale. Once again, a high bidder will emerge, who may well be the person who put down the upset bid deposit. The entire resale may be done again and again as often as upset bids are submitted!
A final report on the sale and the disposition of the proceeds must be given to the clerk by the person who held the foreclosure sale, within 30 days after receipt of the proceeds of the sale. The final report should show what part or parts of the property were sold. The clerk must audit the report and record it. A copy of the notice of sale or resale, and an affidavit of publication should also be recorded. At this point, the sale is final. Special procedures exist to validate foreclosure sales well after they took place when the proper procedures were not complied with, or the trustee was also the lender.
It is possible to enjoin a foreclosure sale in North Carolina.
A lender may not sue for a deficiency if the loan that went into default was for the purchase price of the real estate. However, in other cases a lender may sue for deficiency, but the borrower has the right in a deficiency suit to prove the reasonable value of the property as a defense or offset to the lender’s claims. The borrower is not restricted to forcing the lender to credit only the foreclosure bid against the property; the borrower can instead assert and prove the market value of the property as an offset to a deficiency suit by the lender.
North Carolina Foreclosure LawsNorth Carolina Foreclosure is Non-Judicial.
Right to Foreclose or Sell under Power.
North Carolina foreclosure law states that all sales of real property, under a power of sale contained in any mortgage or deed of trust to secure the payment of money, by any mortgagee or trustee, through an agent or attorney for that purpose, appointed orally or in writing by such mortgagee or trustee, whether such writing has been or shall be registered or not, shall be valid, whether or not such mortgagee or trustee was or shall be present at such sale.
North Carolina Foreclosure Sale of Real Property.
(a) Every sale of real property shall be held in the county where the property is situated unless the property consists of a single tract situated in two or more counties.
(b) A sale of a single tract of real property situated in two or more counties may be held in any one of the counties in which any part of the tract is situated. As used in this section, a “single tract” means any tract which has a continuous boundary, regardless of whether parts thereof may have been acquired at different times or from different persons, or whether it may have been subdivided into other units or lots, or whether it is sold as a whole or in parts.
(c) When a mortgage or deed of trust with power of sale of real property designates the place of sale within the county, the sale shall be held at the place so designated.
(d) When a mortgage or deed of trust with power of sale of real property confers upon the mortgagee or trustee the right to designate the place of sale, the North Carolina foreclosure sale shall be held at the place designated by the notice of sale, which place shall be either on the premises to be sold or as follows:
(1) Property situated wholly within a single county shall be sold at the courthouse door of the county in which the land is situated.
(2) A single tract of property situated in two or more counties may be sold at the courthouse door of any one of the counties in which some part of the real property is situated.
(e) When a mortgage or deed of trust with power of sale of real property does not designate, or confer upon the mortgagee or trustee the right to designate, the place of sale, or when it designates as the place of sale some county in which no part of the property is situated, such real property shall be sold as follows:
(1) Property situated wholly within a single count shall be sold at the courthouse door of the county in which the land is situated.
(2) A single tract of property situated in two or more counties may be sold at the courthouse door of any one of the counties in which some part of the real property is situated.
North Carolina Foreclosure Requirement of Cash Deposit at Sale.
(a) If a mortgage or deed of trust contains provisions with respect to a cash deposit at the sale, the terms of the instrument shall be complied with.
(b) If the instrument contains no provision with respect to a cash deposit at the North Carolina foreclosure sale, the mortgagee or trustee may require the highest bidder immediately to make a cash deposit not to exceed the greater of five percent (5%) of the amount of the bid or seven hundred fifty dollars ($750.00).
(c) If the highest bidder fails to make the required deposit, the person holding the sale may at the same time and place immediately re-offer the property for sale.
North Carolina Foreclosure Notice of Sale and Hearing.
The mortgagee or trustee granted a power of sale under a mortgage or deed of trust who seeks to exercise such power of sale shall file with the clerk of court a notice of hearing in accordance with the terms of this section. After the notice of hearing is filed, the notice of hearing shall be served upon each party entitled to notice under this section of the North Carolina foreclosure laws. The notice shall specify a time and place for the hearing before the clerk of court and shall be served not less than 10 days prior to the date of such hearing. The notice shall be served and proof of service shall be made in any manner provided by the Rules of Civil Procedure for service of summons, including service by registered mail or certified mail, return receipt requested. However, in those instances that publication would be authorized, service may be made by posting a notice in a conspicuous place and manner upon the property not less than 20 days prior to the date of the hearing, and if service upon a party cannot be effected after a reasonable and diligent effort in a manner authorized above, notice to such party may be given by posting the notice in a conspicuous place and manner upon the property not less than 20 days prior to the date of hearing. Service by posting may run concurrently with any other effort to effect service. The notice shall be posted by the sheriff. In the event that the service is obtained by posting, an affidavit shall be filed with the clerk of court showing the circumstances warranting the use of service by posting.
If any party is not served or is not timely served prior to the date of the hearing, the clerk shall order the hearing continued to a date and time certain, not less than 10 days from the date scheduled for the original hearing. All notices already timely served remain effective. The mortgagee or trustee shall satisfy the notice requirement of this section with respect to those parties not served or not timely served with respect to the original hearing. Any party timely served, who has not received actual notice of the date to which the hearing has been continued, shall be sent the order of continuance by first-class mail at his last known address.
Notice of hearing shall be served in a manner authorized in subsection (a) upon:
1. Any person to whom the security interest instrument itself directs notice to be sent in case of default.
2. Any person obligated to repay the indebtedness against whom the holder thereof intends to assert liability therefore, and any such person not notified shall not be liable for any deficiency remaining after the sale.
3. Every record owner of the real estate whose interest is of record in the county where the real property is located at the time the notice of hearing is filed in that county. The term “record owner” means any person owning a present or future interest in the real property, which interest is of record at the time that the notice of hearing is filed and would be affected by the foreclosure proceeding, but does not mean or include the trustee in a deed of trust or the owner or holder of a mortgage, deed of trust, judgment, mechanic’s or materialman’s lien, or other lien or security interest in the real property. Tenants in possession under unrecorded leases or rental agreements shall not be considered record owners.
Notice shall be in writing and shall state in a manner reasonably calculated to make the party entitled to notice aware of the following:
1. The particular real estate security interest being foreclosed, with such a description as is necessary to identify the real property, including the date, original amount, original holder, and book and page of the security instrument.
2. The name and address of the holder of the security instrument at the time that the notice of hearing is filed.
3. The nature of the default claimed.
4. The fact, if such be the case, that the secured creditor has accelerated the maturity of the debt.
5. Any right of the debtor to pay the indebtedness or cure the default if such is permitted. The holder has confirmed in writing to the person giving the notice, or if the holder is giving the notice, the holder shall confirm in the notice, that, within 30 days of the date of the notice, the debtor was sent by first-class mail at the debtor’s last known address a written statement of the amount of principal and interest that the holder claims in good faith is owed as of the date of the written statement, a daily interest charge based on the contract rate as of the date of the statement, and the amount of other expenses the holder contends it is owed as of the date of the statement.
6. The right of the debtor (or other party served) to appear before the clerk of court at a time and on a date specified, at which appearance he shall be afforded the opportunity to show cause as to why the foreclosure should not be allowed to be held. The notice shall contain a statement that if the debtor does not intend to contest the creditor’s allegations of default, the debtor does not have to appear at the hearing and that his failure to attend the hearing will not affect his right to pay the indebtedness and thereby prevent the proposed sale, or to attend the actual sale, should he elect to do so.
7. That if the North Carolina foreclosure sale is consummated, the purchaser will be entitled to possession of the real estate as of the date of delivery of his deed, and that the debtor, if still in possession, can then be evicted. The name, address, and telephone number of the trustee or mortgagee.
8. That the debtor should keep the trustee or mortgagee notified in writing of his address so that he can be mailed copies of the notice of foreclosure setting forth the terms under which the sale will be held, and notice of any postponements or re-sales.
Contents of notice of sale.
The North Carolina foreclosure notice of sale shall –
1. Describe the instrument pursuant to which the sale is held, by identifying the original mortgagors and recording data. If the record owner is different from the original mortgagors, the notice shall also list the record owner of the property, as reflected on the records of the register of deeds not more than 10 days prior to posting the notice. The notice may also reflect the owner not reflected on the records if known;
2. Designate the date, hour and place of sale consistent with the provisions of the instrument and this Article;
3. Describe the real property to be sold in such a manner as is reasonably calculated to inform the public as to what is being sold, which description may be in general terms and may incorporate the description as used in the instrument containing the power of sale by reference thereto. Any property described in the instrument containing the power of sale which is not being offered for sale should also be described in such a manner as to enable prospective purchasers to determine what is and what is not being offered for sale;
4. State the terms of the sale provided for by the instrument pursuant to which the sale is held, including the amount of the cash deposit, if any, to be made by the highest bidder at the sale;
5. State that the property will be sold subject to taxes and special assessments if it is to be so sold.
6. State whether the property is being sold subject to or together with any subordinate rights or interests provided those rights and interests are sufficiently identified.
Posting and Publishing North Carolina foreclosure Notice of Sale of Real Property.
In addition to complying with such provisions with respect to posting or publishing notice of sale as are contained in the security instrument,
North Carolina foreclosure notice of sale of real property shall-
1. Be posted, in the area designated by the clerk of superior court for posting public notices in the county in which the property is situated, at least 20 days immediately preceding the sale.
2. The notice shall be published once a week for at least two successive weeks in a newspaper published and qualified for legal advertising in the county in which the property is situated.
3. If no such newspaper is published in the county, then notice shall be published once a week for at least two successive weeks in a newspaper having a general circulation in the county.
4. In addition to the required newspaper advertisement, the clerk may in his discretion, on application of any interested party, authorize such additional advertisement as in the opinion of the clerk will serve the interest of the parties, and permit the charges for such further advertisement to be taxed as a part of the costs of the foreclosure.
When the notice of sale is published in a newspaper-
1. The period from the date of the first publication to the date of the last publication, both dates inclusive, shall not be less than seven days, including Sundays, and
2. The date of the last publication shall be not more than 10 days preceding the date of the sale.
3. The notice of sale shall be mailed by first-class mail at least 20 days prior to the date of sale to each party entitled to notice of the hearing whose address is known to the trustee or mortgagee and in addition shall also be mailed by first-class mail to any party desiring a copy of the notice of sale.
Time of sale.
A sale shall begin at the time designated in the notice of sale or as soon thereafter as practicable, but not later than one hour after the time fixed therefore unless it is delayed by other sales held at the same place. The sale shall be held between the hours of 10:00 A.M. and 4:00 P.M. on any day other than Sunday or a legal holiday.