What to Expect in North Carolina Foreclosure Proceedings
Whether you are a homeowner or a judgment creditor with a lien on real property, understanding the foreclosure process is critical, as it affects your rights as either a debtor or a creditor. North Carolina is a “power of sale” state, meaning that foreclosure proceedings are ultimately handled through a forced sale of the property, rather than through a formal proceeding involving a superior court judge. The process is governed by Chapter 45 of the North Carolina General Statutes and is handled in the Special Proceedings Division of the applicable County Clerk’s Office.
When a homeowner defaults on a mortgage payment, the mortgage holder will issue a Notice of Default stating the outstanding principal balance, the interest, and offering the homeowner an opportunity to cure the deficiency. This is important, as failing to offer a defaulting property owner an opportunity to cure may later invalidate a mortgage holder’s claim to the property.
When a homeowner defaults on a payment and foreclosure proceedings commence, a number of parties will often have a claim to the property, for instance, holders of a second mortgage or creditors of the property owner who have a valid lien on the property. All of these parties must be notified of foreclosure proceedings so that they may participate and, when applicable, be paid from the proceeds of the property sale.
Once the defaulting property owner is given the requisite notice, the mortgage holder may begin the official foreclosure proceedings. A foreclosure action is a state court case that takes place in a “special proceedings” division. Because North Carolina is a power of sale state, foreclosure proceedings are handled differently than other civil cases. The actions are adjudicated not by a district or superior court judge, but by the Clerk of Court in the county where the action is filed. Unlike most other civil proceedings, once a foreclosure action is filed, a hearing date will immediately be set. Typically, the hearing date will be set about a month out, and may be as early as within twenty days of the filing date.
Next, the mortgage holder must issue a Notice of Hearing to everyone with an interest in the property, including the property owner. This Notice gives each interested party the opportunity to attend and participate in the hearing. At the hearing, the mortgage holder will present its case, providing the Clerk of Court the mortgage documents, deed of trust, and a statement of the amount owed on the mortgage, at a minimum. Those with an interest in the property also have an opportunity to make a statement, for instance, a judgment creditor may present the Clerk of Court with documentation establishing the judgment that created the lien on the property, the date of the judgment, and a statement about the creditor’s priority in receiving payment from the sale proceeds.
The Clerk of Court will review the documents, and is charged with making four determinations:
1) Whether the debt is valid;
2) Whether there has indeed been a default on the debt in question;
3) Whether the mortgage holder has the right to foreclose on the property according to the deed of trust; and
4) Whether the property owner was properly notified of the hearing date.
Because the issues are so narrow, it is very difficult for homeowners to defend these actions. Defenses, when applicable, are typically adjudicated through a separate proceeding in Superior Court.
If the Clerk allows the foreclosure to proceed, the property will be ordered to be sold. The property owner must be given a notice of foreclosure sale – including the date, time, and place of the sale. Additionally, the notice of the sale must be published in the local newspaper for two weeks.
Each person with an interest in the property will be paid from the sale proceeds, in order of priority. In North Carolina, the general rule is “first in time, first in right,” meaning that, with some exceptions, the creditors will be paid according to whose lien or judgment attached to the property first.
After the date of the sale, the law requires a ten-day “upset bid” period, which allows additional bids on the property. The title to the property will not transfer to the prevailing bidder until this ten-day period expires.
It is important to note that while this process is statutory and seems simple, there are multiple steps involved. If you have an interest in property, it is critical to remain engaged in each step of the process, to comply with statutory requirements, to attend the hearing date, and to communicate with the other parties. Similarly, if you are a property owner, it is important to remain apprised of your rights throughout the process so that you can cure your default in a timely manner or, if applicable, challenge the foreclosure.
Experienced Litigation Attorneys
At Miller Monroe & Plyler, our attorneys have represented debtors and creditors on both sides of foreclosure proceedings. We recommend engaging experienced counsel if you are involved in foreclosure proceedings, so that you can effectively navigate the process. Contact us today for a consultation, or click here to learn more about our practice areas.
This article does not establish an attorney-client relationship and must not be construed as legal advice.