How Do I Prevent a Foreclosure in North Carolina?

Full question:

My sister & brother-in-law lived with his mother until she went to nursing home. They and his brother were owners of her home after her death. My brother in law passed away about 3 years ago and my sister has been making payments on the house until Sept 2009 now the brother is trying to foreclose on the house. What can my sister do to keep from losing the house?

• Category: Real Property
• Subcategory: Foreclosure
• Date: 04/07/2025
• State: North Carolina

Answer:

In North Carolina, foreclosure of real property can be effected through either a power of sale provision in a deed of trust or through a judicial action. Foreclosure through judicial action is rarely used because of the time and expense involved. The judicial foreclosure requires the filing of a lawsuit, as one would normally do in order to collect any indebtedness. The vast majority of foreclosures in North Carolina are conducted under the contractual power of sale provision in the deed of trust.

The borrower has a 10-day right of redemption after the sale by paying what is owed to the lender plus any sale costs. Further, any party may enter an upset bid during that same period by submitting a deposit of at least 5 percent of the bid to the county clerk.

Depending on the timing of the various required notices, it usually takes approximately 90-120 days to complete an uncontested non-judicial foreclosure. This process may be delayed if the borrower contests the action in court, seeks delays and adjournments of sales, or files forbankruptcy.

During the past decade, mortgages were sold and resold, bundled into securities and sold to investors. It is usually legal for a lender to assign a borrower's contract to another as long as the terms of the contract don't prohibit the assignment. However, it is common for mortgages to be sold or assigned to another company, and the borrower is not relieved of obligations for payments. etc. by the assignment.

In many cases, the original note signed by the homeowner was lost, stored away in a distant warehouse or destroyed. Persuading a judge to compel production of hard-to-find or nonexistent documents can, at the very least, delay foreclosure, buying the homeowner some time and increasing the pressure on the lender to renegotiate the mortgage. The original note is almost always electronically retained and can eventually be found.

Judges are often willing to accept electronic documentation. Lenders are sometimes allowed to produce other paperwork to establish they are the holder of a loan. There have been cases where the foreclosure action was thrown out because of a failure to produce the note, but it will be a matter of subjective determination for the court to decide if the foreclosure may proceed.

In foreclosure lawsuits, the debtor typically asks the court for three things, in the following order:

-a temporary restraining order (which lasts for a certain number of days, typically under 2 weeks)

-a preliminary injunction (will last until the court decides the case), and

-a permanent injunction (which will be granted if you win your case).

An answer is a legally sufficient response to the allegations that have been alleged against you in the complaint. The answer will generally either admit or deny each claim made by paragraph, or state an inability to admit or deny for lack of knowledge. Defenses may also be raised. Lack of funds and inability to pay is not considered a valid defense. A valid defense may include such excuses as identifying the incorrect borrowing party to the loan contract, or having made all payments on time, among others. The answer is an opportunity to show why the property shouldn't be foreclosed upon. Lack of funds and inability to pay is not considered a valid defense. A valid defense may include such excuses as identifying the incorrect borrowing party to the loan contract, or having made all payments on time, among others. The answer is an opportunity to show why the property shouldn't be foreclosed upon.

Types of Foreclosure.

The mortgage holder can usually initiate foreclosure anytime after a default on the mortgage. Within the United States, there exist several types of foreclosure. Two are widely used, with the rest being possibilities only in a few states.

The most important type of foreclosure is foreclosure by judicial sale. This is available in every state and is the required method in many. It involves the sale of the mortgaged property done under the supervision of a court, with the proceeds going first to satisfy the mortgage, and then to satisfy other lien holders, and finally to the mortgagor. Because it is a legal action, all the proper parties must be notified of the foreclosure, and there will be both pleadings and some sort of judicial decision, usually after a short trial.

The second type of foreclosure, foreclosure by power of sale, involves the sale of the property by the mortgage holder not through the supervision of a court. Where it is available, foreclosure by power of sale is generally a more expedient way of foreclosing on a property than foreclosure by judicial sale. The majority of states allow this method of foreclosure, including New Hampshire. Again, proceeds from the sale go first to the mortgage holder, then to other lien holders, and finally to the mortgagor.

Other types of foreclosure are only available in limited places and are therefore considered minor methods of foreclosure. Strict foreclosure is one example. Under strict foreclosure, when a mortgagor defaults, a court orders the mortgagor to pay the mortgage within a certain period of time. If the mortgagor fails, the mortgage holder automatically gains title, with no obligation to sell the property. Strict foreclosure was the original method of foreclosure, but today it is only available in New Hampshire and Vermont.

Statutory Redemption.

Statutory redemption allows the mortgagor to redeem the mortgage even after foreclosure sale. About one-half the states have statutory redemption laws. Generally, these laws give anywhere from six months to a year for the mortgagor to redeem the mortgage by payment of the foreclosure sale price plus a statutory rate of interest to the sale purchaser. Junior lien holders also have a right to redeem under these statutes, in order of their priority, though not until the period for the mortgagor to redeem runs out. As a rule, the mortgagor can retain possession of their property during this statutory redemption period.

Federal Laws Affecting Foreclosure:

At least two federal laws clearly apply to foreclosure actions.

Bankruptcy.

The filing of any bankruptcy action automatically stays a foreclosure proceeding, regardless of type. At that point, whether the stay will be lifted depends on whether the mortgagor has equity in the mortgaged property. If the bankruptcy has been filed under a Chapter 11 petition, the bankruptcy court may "terminate, annul, modify or condition such stay" for cause, including the lack of adequate protection of an interest in property of the mortgage holder, or if the mortgagor does not have equity in the property and the property is not necessary for an effective reorganization.

If it has been filed as a straight bankruptcy petition, asking for discharge of all debts, the mortgage holder will be allowed to foreclose if the bankrupt debtor has no equity in the property. If there is equity in the property, the property can be sold by the bankruptcy court.

Servicemembers Civil Relief Act of 2003.

The Servicemembers Civil Relief Act of 2003, replacing the Soldiers and Sailors Relief Act of 1940, gives special protection to mortgagors on active duty in the armed forces for mortgage loans executed prior to when they went into service. The Act provides that a service person can apply to a court to set aside a default judgment leading to a foreclosure action. Because of this provision, a mortgage holder initiating a foreclosure action against a mortgagor who fails to answer the foreclosure complaint must file an affidavit with the court stating the mortgagor is not on active duty in the armed services.

If the mortgagor is in the armed services, the individual must be present or represented at the foreclosure hearing, meaning foreclosure by power of sale is not available. If a court finds that the mortgagor's ability to meet the terms of the mortgage has been affected by their service in the armed forces, they can stay the foreclosure action as long as the person is in the service.

For further discussion, please see:

http://www.foreclosure.com/statelaw_NC.html

Please see the following NC statutes:

" Section 45-21.16C. Opportunity for parties to resolve foreclosure of
owner-occupied residential property.

(a) At the commencement of the hearing, the clerk shall inquire as to
whether the debtor occupies the real property at issue as his or her
principal residence. If it appears that the debtor does currently occupy
the property as a principal residence, the clerk shall further inquire as
to the efforts the mortgagee, trustee, or loan servicer has made to
communicate with the debtor and to attempt to resolve the matter
voluntarily before the foreclosure proceeding. The clerk's inquiry shall
not be required if the mortgagee or trustee has submitted, at or before
the hearing, an affidavit briefly describing any efforts that have been
made to resolve the default with the debtor and the results of any such
efforts.

(b) The clerk shall order the hearing continued if the clerk finds
that there is good cause to believe that additional time or additional
measures have a reasonable likelihood of resolving the delinquency
without foreclosure. In determining whether to continue the hearing, the
clerk may consider (i) whether the mortgagee, trustee, or loan servicer
has offered the debtor an opportunity to resolve the foreclosure through
forbearance, loan modification, or other commonly accepted resolution
plan appropriate under the circumstances, (ii) whether the mortgagee,
trustee, or loan servicer has engaged in actual responsive communication
with the debtor, including telephone conferences or in-person meetings
with the debtor or other actual two-party communications, (iii) whether
the debtor has indicated that he or she has the intent and ability to
resolve the delinquency by making future payments under a foreclosure
resolution plan, and (iv) whether the initiation or continuance of good
faith voluntary resolution efforts between the parties may resolve the
matter without a foreclosure sale. Where good cause exists to continue
the hearing, the clerk shall order the hearing continued to a date and
time certain not more than 60 days from the date scheduled for the
original hearing. Nothing in this part shall limit the authority of the
clerk to continue a hearing for other good cause shown. "

§ 45-21.21. Postponement of sale.

(a) Any person exercising a power of sale may postpone the sale to a
day certain not later than 90 days, exclusive of Sunday, after the
original date for the sale —

(1) When there are no bidders, or

(2) When, in his judgment, the number of prospective bidders at the
sale is substantially decreased by inclement weather or by any casualty,
or

(3) When there are so many other sales advertised to be held at the
same time and place as to make it inexpedient and impracticable, in his
judgment, to hold the sale on that day, or

(4) When he is unable to hold the sale because of illness or for other
good reason, or

(5) When other good cause exists.

The person exercising a power of sale may postpone the sale more than
once whenever any of the above conditions are met, so long as the sale is
held not later than 90 days after the original date for the sale.

(b) Upon postponement of a sale, the person exercising the power of
sale shall personally, or through his agent or attorney —

(1) At the time and place advertised for the sale, publicly announce
the postponement thereof;

(2) On the same day, attach to or enter on the original notice of sale
or a copy thereof, posted at the courthouse door, as provided by G.S.
45-21.17, a notice of the postponement; and

(3) Give written or oral notice of postponement to each party entitled
to notice of sale under G.S. 45-21.17.

(c) The posted notice of postponement shall —

(1) State that the sale is postponed,

(2) State the hour and date to which the sale is postponed,

(3) State the reason for the postponement, and

(4) Be signed by the person authorized to hold the sale, or by his
agent or attorney.

(d) If a sale is not held at the time fixed therefor and is not
postponed as provided by this section, or if a postponed sale is not held
at the time fixed therefor or within 90 days of the date originally fixed
for the sale, then prior to such sale taking place the provisions of
G.S. 45-21.16 need not be complied with but the provisions of G.S.
45-21.16A, 45-21.17, and 45-21.17A shall be again complied with, or if on
appeal, the appellate court orders the sale to be held, as to such sale so
authorized the provisions of G.S. 45-21.16 need not be complied with
again but those of G.S. 45-21.16A, 45-21.17, and 45-21.17A shall be.

(e) A sale may be postponed more than once provided the final postponed
sale date is not later than 90 days, exclusive of Sunday and legal
holidays when the courthouse is closed for transactions, after the
original date for the sale.

SECTION 2. G.S. 45-21.16(d1) reads as rewritten:

"(d1) The act of the clerk in so finding or refusing to so find is a
judicial act and may be appealed to the judge of the district or superior
court having jurisdiction at any time within 10 days after said act.
Appeals from said act of the clerk shall be heard de novo. If an appeal is
taken from the clerk's findings, the appealing party shall post a bond
with sufficient surety as the clerk deems adequate to protect the
opposing party from any probable loss by reason of appeal; and upon
posting of the bond the clerk shall stay the foreclosure pending appeal.
If the appealing party owns and occupies the property to be sold as his
or her principal residence, the clerk shall require a bond in the amount
of one percent (1%) of the principal balance due on the note or debt
instrument, provided that the clerk, in the clerk's discretion, may
require a lesser amount in cases of undue hardship or for other good
cause shown; and further provided that the clerk, in the clerk's
discretion, may require a higher bond if there is a likelihood of waste
or damage to the property during the pendency of the appeal or for other
good cause shown.