FORECLOSURES

A foreclosure in North Carolina is a legal process through which a lender (typically a bank or mortgage company) seeks to recover the balance of a loan from a borrower who has defaulted on their mortgage payments. This process allows the lender to sell the property to satisfy the debt owed. Foreclosure in North Carolina is generally a non-judicial process, meaning it does not require a court’s involvement, although a lawsuit can be filed if certain conditions are met.

Key Aspects of Foreclosure in North Carolina:

1. Non-Judicial Foreclosure:
   • North Carolina primarily uses non-judicial foreclosure for residential and commercial real estate. This means the lender can initiate the foreclosure process without filing a lawsuit in court, as long as the mortgage or deed of trust contains a “power of sale” clause. The power of sale allows the lender to sell the property without going to court.
   • However, if the foreclosure involves a judicial sale (in specific cases like tax foreclosure or other disputes), it would go through the courts.
2. Steps in the Foreclosure Process in NC:

1. Default and Notice of Default:

1. • Foreclosure typically begins when the borrower misses several mortgage payments and defaults on the loan. The lender must send a Notice of Default to the borrower. In North Carolina, the lender is required to give the borrower at least 45 days’ notice after the default before starting the foreclosure process.
   • The notice informs the borrower of the default and the intention to foreclose, giving the borrower a chance to cure the default by paying the overdue amount.

1. Notice of Foreclosure Hearing:

1. • After the 45-day notice period, the lender can file a Notice of Foreclosure with the Clerk of Court in the county where the property is located. This notice includes the date, time, and place of the foreclosure sale. The borrower is given a chance to contest the foreclosure in court, but most foreclosures proceed if the borrower does not act to stop or defend the process.

1. Foreclosure Sale:

1. • The foreclosure sale is typically conducted at a public auction in front of the courthouse. The lender (or a trustee acting on behalf of the lender) will sell the property to the highest bidder.
   • The auction proceeds are used to pay off the outstanding loan balance, plus any associated foreclosure costs, legal fees, and unpaid property taxes. Any remaining funds after the debt is settled may be returned to the borrower, though this is rare.

1. Right of Redemption:

1. • North Carolina law does not grant the borrower a right of redemption after the foreclosure sale. This means that once the property is sold at auction, the borrower cannot buy it back.
2. Deficiency Judgment:
   • If the foreclosure sale does not generate enough money to cover the full amount of the outstanding debt, the lender may seek a deficiency judgment against the borrower for the remaining balance. However, in North Carolina, deficiency judgments are generally not allowed after a non-judicial foreclosure under a power of sale clause.
   • For judicial foreclosures, a deficiency judgment may be sought if the sale proceeds are insufficient to cover the debt.
3. Reinstatement and Redemption:
   • In North Carolina, the borrower has the right to reinstate the loan (pay the overdue amounts plus fees and costs) up until the foreclosure sale. This is a way for the borrower to stop the foreclosure and keep their home.
   • However, post-sale redemption is not available, meaning the borrower cannot reclaim the property after the sale has been completed.
4. Eviction:
   • After the foreclosure sale, the new owner (usually the lender or a third-party buyer at auction) can take possession of the property. If the former owner or any tenants are still occupying the property, they may be evicted through a legal process known as a summary ejectment.
5. Foreclosure Defenses:
   • Borrowers may be able to challenge the foreclosure process if there are procedural errors, issues with the mortgage documents, or if the lender fails to follow proper legal procedures. Some common defenses include:
     • The lender did not provide the proper notice.
     • The borrower is eligible for certain legal protections, such as bankruptcy.
     • The mortgage or deed of trust has been improperly executed.
6. Impact of Foreclosure:
   • Credit Impact: A foreclosure will severely damage the borrower’s credit score and remain on their credit report for up to seven years.
   • Deficiency Liability: If the borrower is subject to a deficiency judgment, they may still be liable for the remaining balance of the loan.
   • Property Loss: The borrower loses the property, which may be sold at auction for less than its market value.

Key Terms in North Carolina Foreclosure:

• Deed of Trust: A legal document that secures the loan and gives the lender a security interest in the property.
• Power of Sale: A clause in the deed of trust that allows the lender to sell the property in the event of default without going through court.
• Notice of Default: A document sent to the borrower informing them that they have defaulted on the loan.
• Clerk of Court: The official who oversees the foreclosure process and ensures compliance with North Carolina law.
• Trustee: A third party who may be appointed to oversee the foreclosure process.