If you are a homeowner in North Carolina facing the scary prospect of losing your home to foreclosure, don’t be caught off guard. Read on to find out each step in a North Carolina foreclosure (from missing your first payment all the way to eviction) and learn about your rights during the process.
North Carolina Mortgage Loans
When you take out a loan to purchase residential property in North Carolina, you typically sign a promissory note and a deed of trust. A promissory note is basically an IOU that contains the promise to repay the loan, as well as the terms for repayment. The deed of trust provides security for the loan that is evidenced by a promissory note.
Find out more in our article What’s the Difference Between a Mortgage and a Promissory Note?
To learn more about mortgage terminology, see our Glossary of Foreclosure Terms.
What Happens When You Miss a Payment
If you miss a payment, most loans include a grace period of fifteen days after which time the loan servicer will assess a late fee. (Loan servicers collect and process payments from homeowners, as well as handle loss mitigation applications and foreclosures for defaulted loans.)
The late fee is generally 4% of the overdue payment of principal and interest based on the terms of the note. To find out the late charge amount and grace period for your loan, look at the promissory note that you signed. This information can also be found on your monthly mortgage statement.
Learn more about fees that the lender can charge if you’re late on mortgage payments.
What Happens When You Fall Behind in a Few Payments
If you miss a few mortgage payments, your mortgage servicer will probably send a letter or two reminding you to get caught up, as well as call you to try to collect the payments. Don’t ignore the phone calls and letters. This is a good opportunity to discuss loss mitigation options and attempt to work out an agreement (such as a loan modification, forbearance, or payment plan) so you can avoid foreclosure.
Learn the difference between a loan modification, forbearance agreement, and payment plan.
To get information about these and other options to avoid foreclosure, see our Alternatives to Foreclosure area.
Pre-Foreclosure Loss Mitigation Review Period
Under the federal Consumer Financial Protection Bureau servicing rules that went into effect January 10, 2014, the mortgage servicer must wait until you are 120 days delinquent on payments before making the first official notice or filing for any nonjudicial or judicial foreclosure. This is to give you sufficient time to explore loss mitigation opportunities. (If a servicer's sole purpose of providing a notice is to inform you that you are late on your payments and/or explain what your loss mitigation options are, the servicer can deliver the notice within this pre-foreclosure period.)
North Carolina Foreclosures
In North Carolina, most residential foreclosures are nonjudicial. This means the lender can foreclose without going to court so long as the deed of trust contains a power of sale clause. (Learn more about power of sale clauses.)
For more information about the difference between judicial and nonjudicial foreclosure, and the procedures for each, see Will Your Foreclosure Take Place In or Out of Court?
45-Day Pre-Foreclosure Notice
At least 45 days before foreclosure is initiated, the servicer must send a notice to the borrower that includes the following information (among other things):
- the past due amount and other charges that must be paid to bring the loan current
- contact information for the mortgage lender, the servicer, or an agent who is authorized to work with the borrower to avoid foreclosure, and
- contact information for a HUD-approved housing counseling agency.
Notice of Default
A notice of default, which includes a detailed statement of amounts due along with a daily interest charge (based on the contract rate as of the date of the statement), must be sent to the borrower 30 days before the notice of hearing.
Notice of Hearing
A notice of hearing to show cause as to why the foreclosure should not be allowed to proceed must be served to the borrower:
- 10 days before the hearing (if served to the borrower personally) or
- 20 days before the hearing (if posted on the property).
The borrower does not need to file any formal pleading to contest the foreclosure. He or she may simply appear at the hearing, which is conducted by the clerk of court.
At the hearing, the clerk can decide to postpone the hearing (for no more than 60 days) if:
- the residence being foreclosed is the borrower’s principal residence, and
- the clerk determines there is good cause to believe that additional time or additional measures have a reasonable likelihood of resolving the delinquency without foreclosure.
If foreclosure is approved at the hearing, the clerk’s decision can be appealed within ten days.
Notice of Sale
At least 20 days before the sale, a copy of the notice of sale must be:
- sent to the borrower, and
- posted in a public place. (Typically, the notice is posted at the courthouse immediately after the hearing).
The notice of sale must be published once a week for at least two successive weeks in a newspaper in the county in which the property is situated, with the last publication being not more than ten days before the sale.
Reinstatement Before Sale
There is no statutory right to reinstate the loan prior to the sale in North Carolina. However, most deeds of trust, such as the conventional FNMA/FHLMC mortgage, provide the borrower the right to cure the default after acceleration and reinstate the loan, usually up to five days prior to the foreclosure sale.
Learn more about reinstating a loan to avoid foreclosure.
Foreclosure Must Be Put on Hold if You Request Loss Mitigation
Under Rule 702 of the North Carolina mortgage lending rules, if the borrower requests loss mitigation, a mortgage servicer must:
- acknowledge the request no later than ten business days after the request
- respond to the request no later than 30 business days after receiving all necessary information from the borrower, and
- refrain from initiating or furthering a foreclosure proceeding while the loss mitigation request is pending.
However, the foreclosure does not have to be postponed if one of the below conditions applies.
- The borrower failed to comply with the terms of a loss mitigation plan within the previous 12 months, if the loss mitigation plan was pursuant to a federal or state foreclosure prevention program (including HAMP) or reduced the monthly payment of the loan by 6% from the scheduled monthly payment and resulted in a monthly payment of principal, interest, taxes, and insurance of less that 31% of the borrower’s household income.
- The servicer has provided a final response regarding a loss mitigation request within the last 12 months and reasonably believes that the current loss mitigation request was not made in good faith.
- The borrower has failed to comply with a Chapter 13 bankruptcy repayment plan or has had any bankruptcy proceedings dismissed for abuse of process within the last 12 months.
- The request for assistance comes after the time to appeal the foreclosure order (that is, ten days after the foreclosure hearing) has expired.
- Delaying the foreclosure would violate the terms of the servicing contract, if the contract was entered into before October 1, 2009.
(To read the North Carolina Commissioner of Bank’s responses to FAQ’s regarding Rule 702, go to www.nccob.gov/public/FinancialInstitutions/Mortgage/MortgageFAQ_4.aspx.)
The Foreclosure Sale
The foreclosure sale will take place at the courthouse where the property will be:
- sold to the highest third-party bidder, or
- revert to the foreclosing lender and become REO.
Deficiency Judgment Following Sale
When a lender forecloses on a mortgage, the total debt owed by the borrower to the lender frequently exceeds the foreclosure sale price. The difference between the sale price and the total debt is called a “deficiency.” In some states, the lender can seek a personal judgment against the debtor to recover the deficiency. Generally, once the lender gets a deficiency judgment, the lender may collect this amount from the borrower.
Learn about methods that creditors can use to collect judgments.
In North Carolina, no deficiency judgment is allowed if the foreclosure was nonjudicial and the mortgage was a purchase money mortgage.
The lender may also be barred from seeking a deficiency judgment after foreclosure if:
- the mortgage is nontraditional (for example, Pick-a-Payment or Option ARM loans) or is a rate spread home loan (where the annual percentage rate exceeds a certain threshold), and
- the mortgage secures borrower’s principal residence.
Find out more about Deficiency Judgments After Foreclosure in North Carolina.
A redemption period is the legal right of any mortgage borrower in foreclosure to pay off the total debt, including the principal balance, plus certain additional costs and interest, in order to reclaim the property.
In North Carolina, there is a ten-day redemption period after the foreclosure sale. During this time, the borrower has the right to pay the debt in full and reclaim the property.
Learn more about redemption periods.
Eviction Following Foreclosure
If you don’t vacate the property following the foreclosure sale, the new owner will likely:
- offer you a cash-for-keys deal (where the new owner offers you money in exchange for you agreeing to move out), or
- give you a notice to quit (leave) before going to court to evict you.
To learn more about foreclosure in general, ways to defend against foreclosure, and programs to help struggling homeowners avoid foreclosure, visit our Foreclosure Law Center.