How does foreclosure work in North Carolina?

Judicial or non-judicial?

North Carolina uses the power-of-sale route in most cases, but it is not purely out of court. The lender or trustee must first file a notice of hearing with the clerk of court, and the clerk decides whether the sale may go ahead (G.S. 45-21.16). The statute also keeps the right to foreclose by a regular lawsuit, which Article 2A does not govern (G.S. 45-21.2).

The steps, in order

1. Missed payments. The CFPB says a servicer “can’t start the foreclosure process until at least 120 days after you become delinquent,” except in rare cases.
2. Pre-foreclosure notice. For a “home loan” on a primary residence, the servicer must mail a written notice at least 45 days before filing the notice of hearing. It must list the past-due amounts, say that options other than foreclosure may exist, and give contacts for HUD-approved counselors and the State Home Foreclosure Prevention Project (G.S. 45-102). A home loan is a consumer loan on a one-to-four-family home the borrower occupies, within the Fannie Mae conforming limit (G.S. 45-101(1b)).
3. Notice of hearing. It is filed with the clerk and served on the borrower and record owners at least 10 days before the hearing. If service fails, it may be posted on the property at least 20 days before (G.S. 45-21.16(a)-(b)).
4. Hearing before the clerk. The clerk must find a valid debt held by the foreclosing party, a default, a right to foreclose under the deed of trust, and proper notice. For home loans, the clerk also checks the 45-day notice, and that the sale is not barred by military service (G.S. 45-21.16(d)). If the owner lives in the home, the clerk asks about efforts to resolve the default and may continue the hearing up to 60 days for good cause (G.S. 45-21.16C).
5. Notice of sale. The notice is posted at the courthouse at least 20 days before the sale, published once a week for at least two successive weeks, and mailed first class at least 20 days before to those entitled to notice (G.S. 45-21.17).
6. The sale. It is held between 10:00 a.m. and 4:00 p.m. at the place the deed of trust or statute sets, usually the courthouse door. The high bidder may be required to put down a cash deposit of up to the greater of 5% or $750 if the deed of trust is silent (G.S. 45-21.4, 45-21.10, 45-21.23).
7. Report and upset bids. The seller files a report within five days. The sale then stays open for upset bids (see below).
8. Final report and possession. Once the rights of the parties become fixed, the buyer gets the deed. The clerk can issue an order for possession on petition after 10 days’ notice to those still in the home (G.S. 45-21.29(k)).

The upset bid period

North Carolina has no redemption period after the sale. Instead, a sale stays open for 10 days after the report is filed. An upset bid must exceed the last bid by at least 5%, and by at least $750, and must come with a deposit of at least 5% of the new bid (not under $750). Each upset bid restarts the 10-day clock. When no bid arrives in time, the rights of the parties become fixed (G.S. 45-21.27(a), 45-21.29A).

Example: a home sells at the foreclosure sale for $100,000. The minimum upset bid is $105,000, with a deposit of at least $5,250, filed with the clerk by the close of business on the tenth day after the report. A new bid of $105,000 resets the 10 days, and the next bid would have to be at least $110,250.

How long does it take?

No statute sets a total length. Appeals, hearing continuances, a bankruptcy filing or upset bids can add time.

Can you save the home?

• Pay before the sale ends. The power of sale ends if the full secured debt plus sale expenses is paid or tendered before the sale, or before the upset bid period expires (G.S. 45-21.20).
• Appeal the clerk’s order. Appeal to a judge is allowed within 10 days, heard from the start. An owner who lives in the home posts a bond of 1% of the debt unless the clerk sets less (G.S. 45-21.16(d1)).
• Ask a judge to stop the sale. An owner may seek an injunction on legal or equitable grounds, including an inadequate price, before the rights of the parties are fixed, and must post a bond (G.S. 45-21.34).
• Military service. A sale is barred during, and for 90 days after, the borrower’s military service for loans made before it (G.S. 45-21.12A).

What if the sale does not cover the debt?

Sale money goes first to costs, then unpaid taxes and assessments, then the loan. Any surplus goes to the person entitled to it, or to the clerk if unclear (G.S. 45-21.31).

If it falls short, the lender may seek a deficiency, with limits:

• Purchase-money notes to the seller. For a mortgage given to the seller for the balance of the price, no deficiency is allowed when the note shows on its face it is for purchase money (G.S. 45-21.38).
• Certain primary-residence loans. No deficiency is allowed after foreclosure of some loans on a borrower’s principal dwelling, namely rate-spread home loans and nontraditional loans that allow negative amortization (G.S. 45-21.38A).
• Fair-value defense. If the lender bought the property at the sale and sues for a deficiency, the borrower can show the property was worth the debt, or that the bid was far below its value (G.S. 45-21.36).
• People not notified. A person obligated on the debt who was not served with the notice of hearing is not liable for any deficiency (G.S. 45-21.16(b)(2)).

Renters in a foreclosed home

For homes with fewer than 15 rental units, the notice of sale must tell occupants that a possession order may follow. A tenant under a lease signed or renewed on or after October 1, 2007 may end it with written notice effective 10 to 90 days after the sale date, paying rent up to that day (G.S. 45-21.16A(b), 45-21.17(4)).

Where to get help

• State counseling. The NC Housing Finance Agency offers free counseling through the State Home Foreclosure Prevention Project at 1-888-442-8188. Counselors can work with your servicer and refer low-income owners to free legal help.
• HUD-approved counselors. Call (800) 569-4287, or the Homeowners Hope Hotline at (888) 995-HOPE (HUD).
• Apply to your servicer early. The CFPB says to make sure the servicer gets your complete application “more than 37 days before your scheduled foreclosure sale.”

Related: real estate attorneys in North Carolina, property tax in North Carolina, the Charlotte market, and the escrow account guide.