If you default on your home loan payments in North Carolina, the servicer (on behalf of the loan owner, called the “lender” in this article) will eventually begin the foreclosure process. The procedure will most likely be nonjudicial (out of court), although judicial foreclosures are also allowed. North Carolina law specifies how nonjudicial procedures work, and both federal and state laws give you rights and protections throughout the foreclosure.
If you get a loan to buy residential real estate in North Carolina, you'll likely sign two documents: a promissory note and a deed of trust, which is like a mortgage. The promissory note is the document that contains your promise to repay the loan along with the repayment terms. The deed of trust is the document that gives the lender a security interest in the property and will probably include a power of sale clause. If you fail to make the payments, the power of sale clause gives the lender the right to sell the home nonjudicially so it can recoup the money it loaned you.
If you miss a payment, the servicer can charge a late fee after the grace period expires. Most mortgage loans give a grace period of ten to fifteen days, for example, before you’ll incur late charges. To find out the grace period in your situation and the amount of the monthly late fee, review the promissory note or your monthly billing statement.
If you miss a few mortgage payments, the servicer will probably send letters and call you to try to collect. Federal mortgage servicing laws require the servicer to contact you (or attempt to contact you) by phone to discuss foreclosure alternatives—called “loss mitigation” options—no later than 36 days after a missed payment and again within 36 days after each following missed payment. No more than 45 days after a missed payment, the servicer must let you know in writing about loss mitigation options that could be available, and assign personnel to help you. Some exceptions to a few of these requirements exist, like if you file bankruptcy or tell the servicer not to contact you under the Fair Debt Collection Practices Act. (12 C.F.R. § 1024.39).
Many deeds of trust in North Carolina have a provision that requires the lender to send a breach letter if you fall behind in payments. This notice tells you that the loan is in default. If you don’t cure the default, the lender can accelerate the loan (call it due) and go ahead with the foreclosure.
Federal law generally requires the servicer to wait until the loan is over 120 days delinquent before officially starting a foreclosure. However, in a few situations, like if you violate a due-on-sale clause or if the servicer is joining the foreclosure action of a superior or subordinate lienholder, the foreclosure can begin sooner. (12 C.F.R. § 1024.41).
If the property is your primary residence, at least 45 days prior to the filing of a notice of hearing (the official start to a foreclosure), the lender has to mail you a notice about the amount due and resources that are available to avoid losing your home. (N.C. Gen. Stat. § 45-102). The lender must also mail a notice of default to you within 30 days of the date of the notice of hearing (see below). (N.C. Gen. Stat. § 45-21.16(c)(5a)).
Again, most North Carolina foreclosures are nonjudicial. But even in the nonjudicial process, a court has a minor role.
To officially start the foreclosure, the lender files a notice of hearing with the court clerk. The lender must serve a notice of hearing to you no less than ten days before the hearing occurs (or 20 days if served by posting). (N.C. Gen. Stat. § 45-21.16).
The clerk may continue (postpone) the proceedings for up to 60 days if the property is your principal residence, and it's likely that you and the lender will be able to resolve the matter without a foreclosure. (N.C. Gen. Stat. § 45-21.16C). But if a postponement isn’t warranted and the lender took certain procedural steps, the clerk authorizes a foreclosure sale.
At least 20 days before the sale, the lender has to mail you a notice of sale and post the notice in a public place. It must also publish the notice in a newspaper for two weeks before the sale. (N.C. Gen. Stat. § 45-21.17). The sale is an auction, which is open to the public.
Sometimes, when a home sells at a foreclosure sale, the sale doesn’t bring in enough money to pay off the full amount owed on the loan. The difference between the sale price and the total debt is called a “deficiency balance.” Many states allow the lender to get a personal judgment, which is called a “deficiency judgment,” for this amount against the borrower.
In North Carolina, the lender can get a deficiency judgment after a nonjudicial foreclosure, except in certain instances, like after the foreclosure of 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 in certain cases when the mortgage or deed of trust is:
Some states have a law that gives a foreclosed homeowner time after the foreclosure sale to redeem the property. In North Carolina, you can redeem the home during the "upset bid" period. In North Carolina, following the foreclosure sale, another buyer may buy the home by making a higher bid than was bid at the sale. This higher bid is called an "upset bid." The upset-bid period initially lasts for ten days after the report of sale is filed. (N.C. Gen. Stat. § 45-21.20, § 45-21.27). After an upset bid is made, it starts a new 10-day upset bid period.
If you (the foreclosed homeowner) don't leave after the foreclosure, the purchaser from the sale must give you a notice to quit (leave) before going to court clerk to get an order for possession. (N.C. Gen. Stat. § 45-21.29).
Foreclosure laws are complicated. Servicers and lenders sometimes make errors or forget steps. If you think your servicer or lender failed to complete a required step, made a mistake, or violated state or federal foreclosure laws, you might have a defense that could force a restart to the foreclosure or you might have leverage to work out an alternative.
Consider talking to a local foreclosure attorney or legal aid office immediately to learn about your rights. A lawyer can also tell you about different ways to avoid foreclosure. Likewise, a HUD-approved housing counselor can provide helpful information (at no cost) about various alternatives to foreclosure.