North Carolina Foreclosure Laws and Procedures

Learn how the North Carolina process works.

By , Attorney · University of Denver Sturm College of Law

Before the foreclosure crisis, federal and state laws regulating mortgage servicers and foreclosure procedures were relatively limited and tended to favor foreclosing lenders. However, many federal and state laws now give protections to borrowers. Servicers generally must provide borrowers with loss mitigation opportunities, account for each foreclosure step, and carefully comply with foreclosure laws.

Also, most people who take out a loan to buy a residential property in North Carolina sign a promissory note and a deed of trust, which is like a mortgage. These documents give homeowners contractual rights in addition to federal and state legal protections.

So, don't get caught off guard if you're about to go through a foreclosure. Learn about North Carolina foreclosure laws and the foreclosure process, from missing your first payment to a foreclosure sale.

What Are My Rights During Foreclosure in North Carolina?

In a North Carolina foreclosure, you'll most likely get the right to:

  • preforeclosure notices
  • apply for loss mitigation
  • receive certain foreclosure notices
  • get current on the loan and stop the foreclosure sale
  • receive special protections if you're in the military
  • pay off the loan to prevent a sale
  • redeem the property after the sale
  • file for bankruptcy, and
  • get any excess money after a foreclosure sale.

Once you understand the North Carolina foreclosure process and your rights, you can make the most of your situation and, hopefully, work out a way to save your home or at least get through the process with as little anxiety as possible.

What Is the Preforeclosure Period in North Carolina?

The period after you fall behind in your mortgage payments, but before a foreclosure officially starts, is generally called the "preforeclosure" stage. (Sometimes, people refer to the period before a foreclosure sale happens as "preforeclosure," too.)

During this time, the servicer can charge you various fees. Also, federal law says the servicer must usually let you know how to avoid foreclosure. And your mortgage contract might require the servicer to send you a breach letter.

When Can Foreclosure Start in North Carolina?

Under federal law, the servicer usually can't officially begin a foreclosure until you're more than 120 days past due on payments, subject to a few exceptions. (12 C.F.R. § 1024.41).This 120-day period gives most homeowners sufficient time to submit a loss mitigation application to the servicer.

Which Type of Foreclosure Is Permitted in North Carolina?

If you default on your mortgage payments in North Carolina, the lender may foreclose using a judicial or nonjudicial method.

How Judicial Foreclosures Work

A judicial foreclosure begins when the lender files a lawsuit asking a court for an order allowing a foreclosure sale. If you don't respond with a written answer, the lender will automatically win the case.

But if you choose to defend the foreclosure lawsuit, the court will review the evidence and determine the winner. If the lender wins, the judge will enter a judgment and order your home sold at auction.

How Nonjudicial Foreclosures Work

If the lender chooses a nonjudicial foreclosure, it must complete the out-of-court procedures described in the state statutes. However, North Carolina nonjudicial foreclosures usually involve one court hearing (see below).

After completing the required steps, the lender can sell the home at a foreclosure sale. Most lenders opt for the nonjudicial process because it's quicker and cheaper than foreclosing through court.

Which Is the Nonjudicial Foreclosure Process in North Carolina?

Again, most residential foreclosures in North Carolina are nonjudicial. Here's how the process works.

Preforeclosure Notices

At least 45 days before filing a notice of hearing in a foreclosure proceeding on a primary residence, 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 authorized to work with the borrower to avoid foreclosure, and
  • contact information for a HUD-approved housing counseling agency. (N.C. Gen. Stat. § 45-102).

The lender also must send 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), to the borrower within 30 days of the date of the notice of hearing. (N.C. Gen. Stat. § 45-21.16(c)(5a)).

Notice of Hearing

The lender officially starts the foreclosure by filing a notice of hearing with the court clerk. The notice of hearing must be served to the borrower, usually by certified mail, not less than:

  • ten days before the hearing (if served to the borrower personally) or
  • twenty days before the hearing (if posted on the property). (N.C. Gen. Stat. § 45-21.16).

At the hearing, the court will consider certain issues, like whether the debt is valid and the foreclosing party is the holder of the debt, if the homeowner is actually in default, whether foreclosure is allowed under the deed of trust, and whether proper notice was given. (N.C. Gen. Stat. § 45-21.16(7)(d)).

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. (N.C. Gen. Stat. § 45-21.16C).

If a postponement isn't warranted and the lender followed the procedural steps, the clerk will authorize a foreclosure sale.

Notice of Sale

At least 20 days before the sale, a copy of the notice of sale must be:

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. (N.C. Gen. Stat. § 45-21.17).

How Do Foreclosure Sales Work in North Carolina?

The sale is an auction, which is open to the public. At the sale, the lender usually makes a credit bid. The lender can bid up to the total amount owed, including fees and costs, or it may bid less.

In some states, including North Carolina, when the lender is the high bidder at the sale but bids less than the total debt, it can get a deficiency judgment against the borrower, subject to some limitations (see below). If the lender is the highest bidder, the property becomes "Real Estate Owned" (REO).

But if a bidder, say a third party, is the highest bidder and offers more than you owe, and the sale results in excess proceed (more than what's needed to pay off all the liens on your property), you're entitled to that surplus money.

What Are the Options Available for Borrowers During Foreclosure in North Carolina?

A few potential ways to stop a foreclosure include reinstating the loan, redeeming the property before or after the sale, or filing for bankruptcy. (Of course, if you're able to work out a loss mitigation option, like a loan modification, that will also stop a foreclosure.)

Reinstating the Loan

While state law doesn't provide a statutory right to reinstate the loan before the sale, many deeds of trust, like the uniform Fannie Mae and Freddie Mac deeds of trust, give the borrower the right to complete a reinstatement. Check your loan documents to find out if you have a reinstatement period and, if so, the deadline to do so.

Redeeming the Property Before or After the Sale

One way to stop a foreclosure is by "redeeming" the property. To redeem, you have to pay off the full amount of the loan before the foreclosure sale.

Some states also provide foreclosed borrowers a redemption period after the foreclosure sale, during which they can buy back the home. North Carolina law provides an upset-bid period that lasts ten days after the report of sale is filed. So, after the foreclosure sale, another buyer can buy the home by making a higher bid than was bid at the sale. This kind of bid is called an "upset bid." Once an upset bid is made, it starts a new 10-day upset bid period. During the upset-bid period, the borrower has the right to pay the debt in full and redeem the property. (N.C. Gen. Stat. § 45-21.20, § 45-21.27).

Filing for Bankruptcy

If you're facing a foreclosure, filing for bankruptcy might help. In fact, if a foreclosure sale is scheduled to occur in the next day or so, the best way to stop the sale immediately is by filing for bankruptcy.

Once you file for bankruptcy, something called an "automatic stay" happens. The stay works as an injunction, prohibiting the lender from foreclosing on your home or trying to collect its debt, at least temporarily.

In many cases, filing for Chapter 7 bankruptcy can delay the foreclosure by a matter of months. Or, if you want to save your home, filing for Chapter 13 bankruptcy might be the answer. To find out about the options available, speak with a local bankruptcy attorney.

Foreclosure Protections and Military Servicemembers

The Servicemembers Civil Relief Act provides legal protections to military personnel facing a foreclosure.

Are Deficiency Judgments Allowed in North Carolina?

In a foreclosure, the borrower's total mortgage debt frequently exceeds the foreclosure sale price. The difference between the total debt and the sale price is called a "deficiency." For example, say the total debt owed is $500,000, but the home sells for $450,000 at the foreclosure sale. The deficiency is $50,000.

In some states, the lender can seek a personal judgment against the borrower to recover the deficiency. Generally, once the lender gets a deficiency judgment, the lender may collect this amount—in the above example, $50,000—from the borrower.

North Carolina law permits deficiency judgments, with some exceptions.

North Carolina Deficiency Judgment Laws

In North Carolina, a lender may obtain a deficiency judgment by filing a lawsuit against you after a nonjudicial foreclosure. But a deficiency judgment isn't allowed if the loan was a purchase money, seller-financed mortgage or deed of trust. (N.C. Gen. Stat § 45-21.38).

The lender might also be barred from seeking a deficiency judgment after foreclosure if:

  • the loan is nontraditional, like a loan that permits the borrower to defer payment of principal or interest and allows negative amortization of the loan balance or is a rate spread home loan (where the annual percentage rate exceeds a certain threshold), and
  • the loan is secured by borrower's principal residence. (N.C. Gen. Stat. § 45-21.38A).

Review the relevant statute or talk to a local foreclosure attorney for more information on this prohibition on deficiency judgments in North Carolina.

Can I Reduce a Deficiency Judgment in North Carolina?

The borrower can challenge the deficiency amount if the lender (or current loan owner) purchased the home at the foreclosure sale and the sale price was less than the home's fair market value. Under North Carolina law, if the borrower can show that the property's fair market value is more than the sale price, then the borrower is only liable for the difference between the fair market value and the total debt. (N.C. Gen. Stat. § 45-21.36).

Example. Again, say the borrower owed $500,000 to the lender. The lender buys the home at the foreclosure sale for $450,000. But the borrower proves to a court that the home's fair market value was $475,000. Then, the deficiency will be reduced to $25,000 ($500,000 - $475,000) from $50,000.

Because most foreclosure sales end with the lender getting title to the property and with a deficiency, you might be able to fight a deficiency judgment by raising a defense based on fair market value asserted under this statute.

What Are the Potential Consequences of Foreclosure?

A foreclosure could result in serious consequences, like lower credit scores, a deficiency judgment (as mentioned), or tax ramifications.

Getting More Foreclosure Information

For more information on federal mortgage servicing laws, as well as foreclosure relief options, go to the Consumer Financial Protection Bureau (CFPB) website.

Getting Help

If you have questions about North Carolina's foreclosure process or want to learn about potential defenses to a foreclosure and possibly fight the foreclosure in court, consider talking to a foreclosure attorney. It's also a good idea to talk to a HUD-approved housing counselor to learn about different loss mitigation options.

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