How the North Carolina Foreclosure Process Works

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North Carolina is a power of sale foreclosure jurisdiction.

This means that unlike many other states in which a lender seeking to foreclose must go through a lengthy judicial process in order to regain collateral (your house), North Carolina lenders may foreclose through a private sale process.

Let’s dig in and discuss what this North Carolina  “power of sale” process means for you and your family.

Power of sale foreclosure can happen fast depending on backlog and bank desire to take back the home

Power of sale foreclosure is typically much quicker than judicial foreclosure, however, foreclosure under a power of sale is permitted only where the mortgage document specifically grants such a right. In most cases, your bank will have this covered, but it’s worth double checking to make sure they included a power of sale provision.

If the provisions are there, the first step for North Carolina banks looking to foreclose is a pre-sale hearing.

Pre-sale hearing

In North Carolina, foreclosure under a power of sale must be preceded by a pre-sale hearing before the clerk of the court in the county where the property is located.

This is essentially an administrative requirement put in place to ensure that the relatively quick power of sale process is not abused. The trustee (or lender) is required to give notice of the pre-sale hearing (usually via a mailed form letter) to all interested parties not less than 10 days prior to the date of the pre-sale hearing.

At the pre-sale hearing the clerk of the court will limit its review to only four issues:

(i) Is there a valid debt?

(ii) Has there been a default?

(iii) Does the mortgage authorize foreclosure by power of sale?

(iv) Has proper notice been given to interested parties? In addition to arranging for the pre-sale hearing, the trustee (or lender) must also give the general public notice of the sale by: (i) posting such notice in a place designated by the clerk of the court for twenty (20) days prior to the sale (ii) mailing notice of the sale to all interested parties (iii) publishing notice in a newspaper at least once a week for two consecutive weeks.

After the pre-sale hearing

After a proper pre-sale hearing and appropriate notice of sale, the trustee (or lender) conducts a sale of the property, typically at the courthouse door. A sale is not final until a period of time has passed to allow for the submission of upset bids. Within five days of a sale (or resale) of the property, the person conducting the sale must submit a preliminary report of the sale to the clerk.

An upset bid must then be filed within ten days following the filing of the preliminary report. If no upset bid is filed, the original sale becomes final.

To be effective, the upset bid must exceed the reported sales price by 5%. It does not invoke a resale but merely holds the sale open for another 10 days, during which time a subsequent upset bid can be made. If there is a subsequent upset bid, the sale is held open for another 10 days, during which time a third upset bid can be made and so on. Were the borrower to exercise its statutory right of redemption it would be in the form of an upset bid. The entire process usually takes between 60-90 days.

Sample foreclosure timeline

Day 1.          Notice of pre-sale hearing given to interested parties.

Day 10-30.   (depending on Court schedule). Pre-sale hearing takes place.

Day 30.        Notice of impending sale given to general public.

Day 50.        Property sold.

Day 55.        Trustee (or lender) submits preliminary report of sale.

Day 65.        Deadline for filing of upset bid.

Day 65.        Upset bid filed.

Day 70.        Trustee (or lender) submits preliminary report of sale.

Day 80.        Absent additional upset bids, sale becomes final

Practical considerations

The purpose of this article is to give North Carolinians a reference to understand how quickly a lender can foreclose on a home.

However, just because a lender has the right to foreclose this rapidly, doesn’t mean they necessarily will. Some lenders will initiate foreclosure soon after a default, others may wait for a year or more.

The bottom line is this: if you get foreclosure paperwork in the mail you don’t understand, especially in North Carolina, it’s important to act fast and contact an attorney.