Prior to the foreclosure crisis, which peaked in 2010, state and federal laws regulating foreclosure procedures and mortgage servicers were somewhat limited and favored foreclosing lenders more. Things have changed since then. Currently, state and federal laws heavily regulate foreclosure and loan servicing processes. Moreover, most of these laws protect the borrowers. 

Generally, servicers provide borrowers with opportunities to mitigate their losses, account for each step in the foreclosure process, and strictly heed the foreclosure laws. Moreover, most people who acquire loans to purchase a residential property in North Carolina sign a deed of trust (which is like a mortgage) and a promissory note. These two documents give homeowners contractual rights and state and federal legal protection. 

Ahead, we’ll take you through all you need to know about foreclosure proceedings in North Carolina so that you are not caught off-guard if you are behind on your mortgage payments. 

What Is a Foreclosure? 

A foreclosure procedure enforces debt payment secured through a mortgage, lien on real property, or deed of trust by selling the real property and using the proceeds to settle the debt. When a foreclosure procedure goes through, the property owner loses all the rights to the property. 

Defining the Pre-Foreclosure Period

Pre-Foreclosure is that period after you fall behind on your mortgage payments but before the foreclosure proceedings officially begin. During this period, the servicer has the right to charge you various fees like inspection fees which could cost you around $10 or $15, late charges, and preservation costs (winterizing an abandoned home or yard maintenance). 

Federal Mortgage Servicing Laws and Foreclosure Protections 

The federal mortgage servicing statutes mandate that the servicer should contact or at least attempt to contact you via phone to discuss various loss mitigation options such as forbearance, repayment plan, or loan modification within 36 days after you miss a payment. The servicer should also contact you within a similar time frame after each subsequent delinquency. They also have to inform you within 45 days about various loan mitigation options at your disposal and appoint personnel to assist you to come up with a way to avoid foreclosure. 

That said, there are some exceptions to some of these requirements. For instance, if you’ve filed for bankruptcy or requested that the servicer doesn’t contact you in accordance with the Fair Debt Collection Practices Act. (12 C.F.R. § 1024.39). 

The federal servicing statutes also prohibit dual tracking ( a situation whereby a servicer pursues foreclosure while a complete loss mitigation application is unsettled). 

What Is a Breach Letter? 

Many North Carolina deeds of trust have a provision that mandates that the servicer send you a breach letter when you default on your mortgage payments. This notice informs you that your loan is in default. Failure to cure the default gives the lender the power to accelerate the loan and proceed with the foreclosure. 

When Does the Foreclosure Proceeding Begin? 

Federal law mandates that the lender cannot officially move forward with foreclosure until you’re 120 days delinquent on the payments. However, there are a few exceptions to this. For instance, the foreclosure can start sooner if the lender joins the foreclosure action of a subordinate or superior lienholder or if you violate the due-on-sale clause. (12 C.F.R. § 1024.41). 

The Foreclosure Procedure in North Carolina 

If you fall behind on your mortgage loan payments in North Carolina, the servicer/lender may foreclose using non-judicial and judicial methods. 

How Judicial Foreclosures Work

A judicial foreclosure starts when the servicer/lender files a lawsuit asking the court to grant them an order allowing a foreclosure sale. Suppose you don’t respond with a written reaction; the servicer will automatically win the case. However, if you opt to defend the foreclosure, the court will examine the evidence and determine the winner. If the servicer wins the case, the presiding judge will enter a judgment and order that your home be auctioned off.  

How Non-Judicial Foreclosures Work

If the lender decides to pursue a non-judicial foreclosure, they must ensure that it completes the out-of-court procedures mandated in the state statutes. However, North Carolina non-judicial foreclosures typically involve one court hearing. Upon completing all the requisite steps, the servicer/lender can sell your home at a foreclosure sale. The speediness and cheapness of the non-judicial process make it the go-to foreclosure tool for most lenders. 

Common Foreclosure Processes in North Carolina

As we mentioned earlier, most foreclosures in North Carolina are non-judicial. Below is a look at how the process works. 

Pre-Foreclosure Notices

The lender must send a notice to the borrower at least 45 days before filing a notice of hearing in a foreclosure proceeding. Among the things that should be included in the notice are: 

• The contact information for the mortgage servicer, lender, or agent who is authorized to assist the borrower in avoiding foreclosure. 
• The past due amount and other charges that need to be settled to make the loan current. 
• Contact details of a HUD-approved housing counseling agency. (N.C. Gen. Stat. § 45-102)

Besides that, the lender must also send you a letter of default that provides a detailed statement of arrears along with the interest charged within 30 days of the notice of hearing. (N.C. Gen. Stat. § 45-21.16(c)(5a). 

Notice of Hearing 

For the foreclosure proceedings to start officially, the lender must file a notice of hearing with the court clerk. The notice should be served no later than 10 days before the hearing takes place (or 20 days if it is served by posting). (N.C. Gen. Stat. § 45-21.16). 

During the hearing, the court will consider matters such as the validity of the debt and whether the foreclosing party is the debt holder, whether the homeowner has actually defaulted on payments, whether the foreclosure is provided for under the trust deed, and whether proper notice was given to the borrower. (N.C. Gen. Stat. § 45-21.16(7)(d)). 

The court clerk may decide to postpone the hearing for a maximum of 60 days if: 

• The residence being foreclosed is your principal residence.
• The clerk determines that there is a noble cause to believe that additional time and measures are likely to resolve the delinquency without resorting to foreclosure. (N.C. Gen. Stat. § 45-21.16C). 

Notice of Sale

A copy of the notice of sale must be sent to the borrower and published in a public place at least 20 days before the sale. (N.C. Gen. Stat. § 45-21.17). 

The notice of sale should be published once a week for at least two consecutive weeks in a newspaper in the county where the property in question is located. The last publication should be no more than 10 days prior to the sale. (N.C. Gen. Stat. § 45-21.17).

The Foreclosure Sale

The foreclosure sale is an auction that is open to the public. The lender usually makes a credit bid at the sale. The lender has the power to bid up to the total amount owed by the borrower (including fees and costs). Some states, including North Carolina, can issue a deficiency judgment against the borrower if the lender is the highest bidder at the sale, but their bid is less than the total amount owed. 

On the other hand, if a third-party bidder offers more for the property than you owe, you are entitled to receive that surplus. 

How to Stop a Foreclosure in North Carolina 

Some of the ways you can stop a foreclosure include: 

Filing for Bankruptcy 

Filing for bankruptcy may help if you are facing foreclosure. In fact, suppose a foreclosure is scheduled to take place in a day or so, filing for bankruptcy is the best way of stopping the foreclosure immediately. Once you file for bankruptcy, the automatic stay comes into effect. It serves as an injunction that bars the lender from foreclosing your home or trying to collect the debt, well, temporarily. 

You can file for chapter 7 bankruptcy to delay the foreclosure by a few months. Alternatively, you could opt for chapter 13 bankruptcy. 

Reinstating the Loan 

Whereas the state laws don’t give borrowers statutory rights to reinstate their loans before foreclosure, numerous deeds of trusts such as the uniform Fannie Mae and Freddie Mac give borrowers the right to reinstate their loans. Check your loan documents to ascertain whether you have a reinstatement period, and if so, what is the deadline for doing so? 

Redeeming the Property Before and After the Sale

States like North Carolina have a law that gives homeowners time to redeem the property after a foreclosure sale. You can redeem the property during the upset period—this is a scenario whereby, after the foreclosure sale, another buyer purchases the home by making a bid higher than that which was at the sale. The higher bid is referred to as the upset bid. The upset bid period usually lasts 10 days after the filing of the report of sale.  (N.C. Gen. Stat. § 45-21.20, § 45-21.27). After an upset bid is initiated, it starts a new 10-day upset bid period. 

Get Help From a North Carolina Foreclosure Attorney

Foreclosure laws are usually complicated. As such, you are better placed working with a professional adept in the field. Lenders and servicers sometimes forget steps or make errors. Suppose your lender or servicer made a mistake, failed to complete the requisite steps, or violated federal or state foreclosure laws. In that case, you may have a defense that could restart the foreclosure proceedings or provide you with a better way of taking care of your mortgage loan. The team at Green Mistretta Law can help with your foreclosure questions – contact us today to schedule a consultation!