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Foreclosure is the legal process by which a bank or other secured creditor repossesses a parcel of real property, home or land after the owner has failed to comply with the mortgage or deed of trust agreement with the lender. Most frequently, the violation of the mortgage agreement is the default of payment. The completion of the foreclosure process allows the lender to sell the property and keep the proceeds to pay off the mortgage as well as any legal costs.
What are the Steps Involved in a Foreclosure?
Here is a summary of the steps involved in the foreclosure process:
- Homeowner defaults on mortgage payments.Once the owner defaults on their payments, they are in pre-foreclosure.This period extends up to when the distressed property is sold, either to a third party as a short sale or at a Trustee or Sheriff’s Auction.
- After a time period established by state law (often 90 days), the lender sends an official notice called a Notice of Default (NOD) to the homeowner notifying the owner that they have defaulted on the mortgage.The NOD formally begins the foreclosure process and also outlines the reinstatement period which is the period of time the owner has to reinstate the loan by making all required payments and bringing the account into good standing.
- If, after receiving the NOD, the borrower does not or is unable to reinstate the loan, a Notice of Sale (NOS) is recorded by the lender.The Notice of Sale advises the homeowner when and where the foreclosure sale, also known as a Trustee Sale or Sheriff’s Auction, will take place.
- At the Trustee Sale / Sheriff’s Auction, the property is auctioned off to the highest bidder.
- If the property is not sold to anyone at the Trustee Sale / Sheriff’s Auction, ownership of the property is transferred to the lender. Once the transfer of ownership occurs, the status of the property is now REO, meaning real estate owned or bank owned.
- The owner can still redeem the property after the foreclosure sale during a process known as the “redemption period”.In NC, the right of redemption period is 10 days.Redemption typically requires that the owner pay the sales price, interest, penalties and other costs.
- If the owner does not redeem the home, the bank will normally put the house on the market for sale.Once it is sold, the proceeds are used to pay off the mortgage amount and other costs.
How are North Carolina Mortgages Foreclosed?
In North Carolina, lenders may foreclose on deeds of trusts or mortgages in default using either a judicial or non-judicial foreclosure process. Most often, the non-judicial foreclosure process is used due to the greater time and expense often associated with judicial foreclosures.
Judicial Foreclosure
Judicial foreclosures are processed through the courts, beginning with the lender filing a complaint and recording a notice of Lis Pendens. The complaint will state what the debt is, and why the default should allow the lender to foreclose and take the property.
The homeowner will be served notice of the complaint, either by mailing, direct service, or publication of the notice, and will have the opportunity to be heard before the court. If the court finds the debt valid, and in default, it will issue a judgment for the total amount owed, including the costs of the foreclosure process. After the judgment has been entered, a writ will be issued by the court authorizing a sheriff's sale.
The sheriff's sale is an auction, open to anyone, and is held in a public place, which can range from in front of the courthouse steps, to in front of the property being auctioned. Sheriff's sales will require either cash to be paid at the time of sale, or a substantial deposit, with the balance paid from later that same day up to 30 days after the sale. Check your local procedures carefully. At the end of the auction, the highest bidder will be the owner of the property, subject to the court's confirmation of the sale. After the court has confirmed the sale, a sheriff's deed will be prepared and delivered to the highest bidder, when that deed is recorded, the highest bidder is the owner of the property.
Non-Judicial Foreclosure
Non-judicial foreclosures are processed without court intervention, with the requirements for the foreclosure established by state statutes.The non-judicial process of foreclosure is the method normally used when a power of sale clause exists in a mortgage or deed of trust. A "power of sale" clause is the clause in a deed of trust or mortgage, in which the borrower pre-authorizes the sale of property to pay off the balance on a loan in the event of the their default.
In deeds of trust or mortgages where a power of sale exists, the power given to the lender to sell the property may be executed by the lender or their representative, typically referred to as the trustee. In most cases, a Trustee or Sheriff’s Auction is held and the property is sold to the highest bidder.Regulations for this type of foreclosure process are outlined below in the "Power of Sale Foreclosure Guidelines". There are very stringent notice requirements and the legal documents are required to contain the power of sale language in order to use this type of foreclosure method.
Power of Sale Foreclosure Guidelines
If the deed of trust or mortgage contains a power of sale clause and specifies the time, place and terms of sale, then the specified procedure must be followed. In North Carolina, notices must be sent to all parties attached to the property. Following this, a court clerk will conduct a hearing to determine if a foreclosure sale (aka Trustee Sale / Auction) will take place or not. If the clerk issues a notice of sale, then the process continues on to the trustee's sale or auction of the house.
Once the court clerk issues a Notice of Sale, the foreclosure process continues as follows:
A Notice of Sale must be: 1) mailed first class mail to the borrower at least twenty days before the sale; 2) published in a newspaper of general circulation in the county where the property is located once a week for two successive weeks, with the last ad being published not less than ten days before the sale; and 3) posted on the courthouse door for twenty days prior to the Trustee Sale / Auction.
Said notice must name the borrowers, the lenders, provide a description of the property and state the date, time and place of sale. Said notice must be served on all occupants/owners of the property being foreclosed on.
The Trustee Sale / Auction must be conducted at the courthouse in the county where the property is located between the hours of 10:00 am and 4:00 pm on any day other than a Sunday or legal holiday or when the courthouse is closed. The trustee or agent will auction the property to the highest bidder including the lender.
Upset (higher) bids may be filed with the court clerk for a period of ten (10) days after the foreclosure sale.
North Carolina has a very short statutory right of redemption, which would allow a party whose property has been foreclosed to reclaim that property by making payment in full of the sum of the unpaid loan plus costs within ten (10) days of the sale through the upset bid process, where any bidder can increase the sale bid by 5% in order to become the winning bidder at the sale.
The sale may be postponed up to 90 days by posting a notice of postponement at the same location the sale was originally going to occur at, normally the courthouse door. The postponement notice must state the revised date and time of the Trustee Sale / Auction.
How Long Does It Take to Foreclose a Property in North Carolina?
Depending on the timing of the various required notices, it usually takes approximately 90-120 days to effectuate 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 for bankruptcy. mRecently, increasing default rates among homeowners have caused bank staffs to be overloaded with work, causing foreclosure processing times to increase substantially. In some cases, it can take a lender up to a year to foreclose on a home.
What Statutes Govern North Carolina Foreclosures?
The laws that govern North Carolina non-judicial foreclosures are found in North Carolina General Statutes, Chapter 45 (Mortgages and Deeds of Trust), Article 2, Article 2A as referenced in §45-4 to §45-21.38.They can be found on the web at:
http://www.ncga.state.nc.us/gascripts/Statutes/StatutesTOC.pl?Chapter=0045
If you are a North Carolina homeowner facing possible foreclosure and would like help, visit the North Carolina Foreclosure Help website.
What is an SFR?
The complex details involved with short sales and foreclosures are unique calls for specialized expertise.Contact an agent such as myself that has earned the Short Sale and Foreclosure Resource (SFR) Certification through the National Association of Realtors and who is committed to helping you understand your options so you can make the best possible decisions for you and your family.
If you are in a situation where your home is “underwater” due to falling home prices, you are unable to make your current mortgage payments and you are considering pursuing options such as a short sale, deed in lieu of foreclosure, strategic default or even foreclosure, there could be drawbacks that I, as a real estate agent, cannot advise you on.For your protection, I suggest that all borrowers:
- Obtain legal advice from a competent real estate lawyer regarding deficiency judgments
- Call an accountant or CPA to discuss short sale and foreclosure tax ramifications
Except for certain conditions pursuant to the Mortgage Forgiveness Debt Relief Act of 2007, be aware the I.R.S. could consider debt forgiveness as income, and there is no guarantee that a lender who accepts a short sale or foreclosure will not legally pursue a borrower for the difference between the amount owed and the amount paid. In some states, this amount is known as a deficiency. A lawyer can determine whether your loan qualifies for a deficiency judgment or claim.
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