Pro Se Foreclosure Defense:
Blog Post: September 19, 2014
By: Mathew P. Ceradini, Esq.
Mortgages and Deeds of Trust are governed by Chapter 45 of the North Carolina General Statutes. (http://www.ncga.state.nc.us/gascripts/statutes/StatutesTOC.pl?Chapter=0045). Mainly, you should familiarize yourself with Article 2A – Sales under Power of Sale . As you may know, North Carolina is a non-judicial foreclosure state. This means there is an abbreviated process for foreclosure. It has been judged to be “constitutional” under minimum due process standards (emphasis added). What this means for the home owner is there is an abbreviated timeline until the “lender” can sell your home at public auction (75 to 120 days), and very little opportunity to conduct discovery into what documents the “lender” intends to rely on for demonstrating it has the legal right to foreclose.
Important Documentation
There are two primary documents you should locate and keep readily available during the foreclosure process, the Promissory Note (“Note”) and the Deed of Trust (“DOT”). The Note is your obligation to repay a certain sum of money at specified terms (ex., interest rate, payment amounts, due dates, etc.). In legal terms, this document is considered a negotiable instrument. “Negotiable instrument” is defined under the Uniform Commercial Code (“UCC”), as adopted by the North Carolina General Statutes (“NCGS”), as
an unconditional promise or order to pay a fixed amount of money, with or without interest or other charges described in the promise or order, if it:
(1) Is payable to bearer or to order at the time it is issued or first comes into possession of a holder;
(2) Is payable on demand or at a definite time; and
(3) Does not state any other undertaking or instruction by the person promising or ordering payment to do any act in addition to the payment of money, but the promise or order may contain (i) an undertaking or power to give, maintain, or protect collateral to secure payment, (ii) an authorization or power to the holder to confess judgment or realize on or dispose of collateral, or (iii) a waiver of the benefit of any law intended for the advantage or protection of an obligor.
NCGS § 25-3-104(a).
Negotiable instruments are “freely negotiable” and can be transferred to another party, usually without notice to you the home owner. What this means is you probably don’t know who owns or has possession of your original Note, the one you signed at the closing for your property. There is nothing illegal about the Note being transferred, even if it occurs multiple times without your knowledge, however, it does complicate situation in foreclosure because you don’t know who you are dealing with when it comes down to trying to negotiate a work out to the situation. As a side note, the remainder of NCGS Chapter 25, Article 3 applies to how and when a “transfer” or “negotiation” occurs and who becomes a “holder” of the instrument, which will become very important within the foreclosure process.
The second document, the Deed of Trust (“DOT”), is the security instrument that secures the Note to the title of your property. It creates a lien on the title to your property, and somewhere in the document is the phrase “power of sale.” The inclusion of this phrase means the “holder” of your Note may foreclose on your property by way of non-judicial foreclosure. The document also spells out additional obligations and duties between the parties to the Note. The DOT and Note together are your “mortgage loan.”
A DOT is considered a “trust” instrument and creates a trust in which title to your property is held. There are always three parties to the trust: 1) the “Settlor” or “Grantor”, the person placing property into the trust; 2) the “Beneficiary” or “Grantee” or “Lender”, the person receiving the benefit of the trust (in the case of a mortgage this is the principle owed and mortgage payments); and 3) the “Trustee”, the third party neutral that administers the trust for the benefit of the Grantor and Grantee. On your DOT you will be the Grantor, the lender will be the Grantee, and the another individual or entity will be named as the Trustee. You will most likely see one additional party on your DOT, Mortgage Electronic Registration System, Inc. (“MERS”) as “nominee” for the lender and may also be named as a “Beneficiary.” I won’t discuss MERS at this point in time because it’s somewhat confusing and complicated. It’s sufficient to say that MERS is a purported agent of the “Lender” and will be involved in tracking ownership of the Note and transferring beneficial interest.
The DOT is usually a lengthy document, and it is always recorded in the Registry of Deeds in the county where you property is located. The registry is public records and searchable online in most (if not all) counties within North Carolina (ex., Wake County’s Registry of Deeds can be found here: http://services.wakegov.com/booksweb/genextsearch.aspx). To find your particular county’s Registry of Deeds conduct an internet search with the name of your county and “registry of deeds” and it should pull it up.
Parties to the Process:
It’s important to first define who you will be dealing with during the foreclosure process so you understand each parties role.
“Lender” or “Investor” – this is an individual, company, trust or other entity that allegedly owns your Note. In legal terms they may also be considered the “holder” under NCGS § 25-3-201(21).
“Servicer” – this as a company or entity separate and apart from the “lender” and is usually the party to whom you are sending your mortgage payments. They will often represent themselves as the lender when in fact they are legally a separate entity and merely an “agent” of the lender. Common servicers in the mortgage industry include Bank of America, Wells Fargo, Chase, NationStar, GreenTree, Ocwen, Aurora, just to name a few.
“Substitute Trustee” – this is the person or entity that takes over the responsibilities of the original Trustee to your DOT. This is also the entity that will be conducting the foreclosure process on behalf of the “Lender” or “Servicer.” The Substitute Trustee, like the original Trustee, must remain a neutral third party to the foreclosure and not represent the “Lender” or you the borrower in the foreclosure process. This is a thin line they must walk and it’s important to watch them carefully in what they say and do so you can protect yourself from a trustee that is representing the Lender to the detriment of the DOT. See NCGS § 45-10. In North Caronlina you will see names of entities such as Substitute Trustee Services, Trustee Services of Carolina, Nationwide Trustee Services, to name a few. Law firms may also be named as Substitute Trustees, but often they are only the Attorney for the Substitute Trustee.
“Attorney for the Substitute Trustee” – this is law firm or attorney that represents the Substitute Trustee in legal proceedings, such as the foreclosure. This is necessary if the Substitute Trustee is an company because companies are prohibited from practicing law in North Carolina which includes representing themselves in a court of law. There are a few Trustee companies that are wholly owned by corresponding law firms that specialize in creditor rights and foreclosure. Thus, it may be confusing as to whom you are dealing with in regards to the Substitute Trustee, but if there is a law firm involved you can deal with them directly. Just remember that the Attorney for the Substitute Trustee can not represent the Lender in the foreclosure proceeding. Some of the larger foreclosure law firms in North Carolina include Brock & Scott PLLC, McGuireWood LLP, Hutchens Senter Kellam & Petttit PA, Rogers Townsend & Thomas PC, just to name a few.
“Borrower”, “Obigor”, “Grantor” or “Debtor” – this is you the home owner. You are considered a “Borrower” on the original mortgage application and the Note. You are also considered an “Obligor” under the Note. On the DOT you are considered a “Grantor” since you are granting a security interest in the title of your property. You are considered a “Debtor” at all times when you owe money to another, especially in a foreclosure or bankruptcy proceeding.
45 day letter (NCGS § 45-102 & § 45-103) – If you reside in the property which is being foreclosed (i.e., primary residence) then the lender must send you letter stating that you are delinquent, how much you owe, what steps can be taken to mitigate the delinquency, and where to seek additional assistance from HUD approved counselors.
30 day letter (NCGS § 45-21.16(5a)) – The lender must send a letter to the homeowner by first-class mail to the homeowner’s last known address which details in writing the amount of principal, interest, and any other fees, expenses, and disbursements that the “holder” in good faith is claiming to be due as of the date of the written statement, together with a daily interest charge based on the contract rate as of the date of the written statement.
Notice of Hearing (NCGS § 45-21.16) – A notice of this hearing must be served on the homeowner and all parties of interest in the property not less than 10 days before the hearing; if service is being effected by posting on the property then the posting must be made not less than 20 days before the hearing.
Clerk of Court Hearing (NCGS § 45-21.16) – Four main issues of law decided at this hearing: 1) is there a valid debt; 2) who is the “holder” of the debt; 3) if proper notice was given; and 4) does the “power of sale” exist in the loan documents (look to Deed of Trust). The “Holder” bears the burden of proof in meeting these four issues of law. The Trustee, or Substitute Trustee, can not testify or advocate for either party, they are a third party neutral whose duties are to the Trust created by your Deed of Trust which holds legal title to your property. The homeowner my present evidence and/or testimony to refute any of the evidence the “holder” relies upon to establish their claim to foreclosure based upon the four legal issues involved. Equity is not considered in this hearing, or on appeal form this hearing. Issues of equity, and actions to enjoin the foreclosure sale, must be brought in a separate civil action pursuant to N.C.G.S. § 45-21.34.
Order Allowing Foreclosure Sale – If the Clerk determines that the lender has shown sufficient proof to establish it is entitle to foreclose on the property pursuant to the four issues of law , then they will issue an Order allowing the Trustee (or Substitute Trustee) to advertise and sell the property at a foreclosure auction.
Appeal from the Clerk’s Order – An appeal for the Clerk’s Order must be made by filing a Notice of Appeal in the Special Proceeding (the foreclosure action) within 10 days of the issuing of the order. If the Order is properly appealed, the matter will be heard in Superior Court on a de novo review. You must follow up with the Clerk’s office to ensure this hearing is calendared in a timely manner.
Appeal Hearing in Superior Court – The Superior Court will hold a de novo (“from the new”) review hearing on the four issues of law which were decided by the Clerk. Again, only the four issues of law are before the court and no arguments in equity will be considered. The hearing will be as if the prior Clerk’s hearing did not take place, however the Superior Court judge may take judicial notice of what the determinations where at the Clerk’s hearing.
Notice and Posting of Foreclosure Sale – 20 days prior to sale date, posted in courthouse and advertised in the paper. All interested parties in the property must be sent a copy of this notice or the sale is wrongful.
Foreclosure Sale – Anyone can bid at the foreclosure sale, including the home owner, however there is a minimum deposit amount that must be posted with the Clerk of Court before an individual is can bid at the sale (see the Notice of Foreclosure Sale for details).
Upset Bids – Anybody can “upset bid” a property that has been sold at a foreclosure sale if they make their bid to the Clerk of Court’s (Special Proceeding division) within 10 days of the foreclosure sale date. Typically, the individual must bid 5% more than the winning bid, or 5% more than the last upset bid. Every time an upset bid is made, the 10 day Right of Redemption period runs anew.
10 Day Right of Redemption – Every homeowner that has their property sold at a foreclosure auction has an equitable period of redemption in which they can “redeem” their property. This period of time is only for 10 day from the foreclosure sale, or 10 days from the last upset bid. In order to redeem the property, the homeowner must pay the “holder” the full amount due at the time of the foreclosure sale, including all penalties, costs, and fees.
“Rights of the Parties Have Fixed” – Under North Carolina law, after the 10 day Right of Redemption period has expired “the rights of the parties have fixed,” meaning the high bidder is now the owner of the property. After the rights of the parties have fixed it is no longer possible to enjoin the foreclosure sale under N.C.G.S. § 45-21.34 and the court will consider such actions “moot”.
Action to Enjoin the Foreclosure Sale Pursuant to N.C.G.S. § 45-21.34 – Prior to the time of the foreclosure sale, or before the rights of the parties have fixed, a homeowner can bring grievances in equity against the lender and move to enjoin the sale of the property. Causes of action in equity vary and are specific to the facts of each situation. *(A full discussion is not appropriate in this summary of procedure and will be addressed in a separate post.)
Mortgage Debt Collection and Servicing (NCGS § 45-90 et seq.)
Borrowers Request for Information (NCGS § 45-93)
Injunctins; Deficiency Judgments (NCGS § 45-21.34 et seq.
Consumer Financial Protection Bureau (http://www.consumerfinance.gov/)
Real Estate Settlement Procedures Act (RESPA)
Reg. X §§ 1024.39, 1024.40, 1024.41
1024.39 – requires services to make live contact – or a good faith effort to establish contact – with delinquent mortgage loan borrowers by the 36th calendar day of their delinquency
1024.39(b)(1) – notice must be given no later than the 45th day of delinquency (floor not ceiling)
1024.41(b)(2) – servicer promptly review an application for completeness and notify a borrower concerning the same
1024.41(e)(1) – if a complete application is received 90 or more days prior to a foreclosure sale, the borrower must be afforded at least 14 days to accept or reject an offer. Bust should a complete application be received between 37 and 90 days prior to a foreclosure sale, then the borrower must be afforded at least seven days to accept or reject an offer
1024.41(f)(1) – defines “notice of filing” as “any document required to be filed with a court, entered into a land record or provided to a borrower as a requirement for proceeding with a judicial or non-judicial foreclosure process.” Example of a “notice” includes anything “required by applicable law in order to pursue . . . sale of a property securing a mortgage loan obligation.”
1025.40 – Continuity of Contact with Delinquent Borrowers rule
Holder: NCGS § 25-1-201 (21) “Holder” means:
- The person in possession of a negotiable instrument that is payable either to bearer or to an identified person that is the person in possession;
- The person in possession of a negotiable tangible document of title if the goods are deliverable either to bearer or to the order of the person in possession; or
- The person in control of a negotiable electronic document of title.
