Power of sale foreclosures
A foreclosure occurs when a borrower ceases making payments to its lender and the lender seeks to recover the balance of the loan by forcing the sale of the asset, often a house or real estate, securing the debt.
Generally, there are two methods of foreclosure. The first is foreclosure by civil action, whereby the lender forces the sale of the property in an action pursuant to the judicial sale provisions found in the North Carolina General Statutes. Foreclosure by civil action is extremely rare in North Carolina.
Far more common is foreclosure under power of sale, commonly called “non-judicial foreclosure.” This occurs when the instrument, often a deed of trust, gives the trustee, a third party, the power to sell the real property upon a debtor’s default.
In a power of sale foreclosure, the trustee initiates the foreclosure process upon the lender’s request. The trustee is a fiduciary of both the lender and debtor, and has an obligation to conduct the sale diligently and fairly. Notably, the trustee does not advocate for either party at the foreclosure hearing before the clerk of court.
To authorize the sale, the clerk must determine the lender has established the existence of (i) a valid debt, (ii) default, (iii) the right to foreclose, (iv) notice, (v) “home loan” classification and applicable pre-foreclosure notice, and (vi) that the sale is not barred by the debtor's military service. Notably, the clerk may only consider legal defenses negating the above findings. The clerk may not consider equitable defenses or other legal arguments.
Even after foreclosure is authorized, the debtor has the right to terminate the power of sale by curing its default or by paying the total obligation plus expenses under the statute. If the clerk of court authorizes the sale and the debtor does not cure its default, the sale is conducted at the courthouse. Following the sale, a ten-day upset bid period exists, permitting a bid or offer to buy the subject property for a higher price than that realized at the foreclosure sale.
Make no mistake, though not technically a civil action, non-judicial foreclosure is a complex process that requires the skills of an attorney experienced in this area. There are many more nuances to this process than this post could hope to cover. Our firm represents clients on all sides of foreclosure matters. If you come to us with a foreclosure issue, we will take the time evaluate your matter and explain your options.