The Steps to Foreclosure
This post covers the foreclosure process in North Carolina. Although North Carolina has both judicial foreclosure and non-judicial foreclosure processes, non-judicial foreclosures are far more common. This post will cover what happens in the non-judicial foreclosure process before the lender takes legal action.
Default and Acceleration Letters
A Deeds of Trust is nothing more a contract between the lender and the homeowner. As previously discussed on the North Carolina Debt Law Blog, a default is the failure of a party to perform a legal duty under the contract, such as the homeowner’s failure to pay the home loan as agreed. The foreclosure process is governed primarily by the contract between the lender and borrower, subject to limitations provided by state and federal law. Both the homeowner and the lender are bound by the terms of the contract.
After the homeowner has defaulted by missing a payment, the lender will send a demand letter notifying the homeowner that he has missed payment and is in default. These letters will generally give the homeowner a period of time to cure the default before further action is taken. In North Carolina, the lender must send the homeowner a pre-foreclosure letter at least forty-five (45) days before any foreclosure hearing. Under N.C. Gen. Stat. § 45-102 this letter must contain the following:
- An itemization of all past due amounts causing the loan to be in default.
- An itemization of any other charges that must be paid in order to bring the loan current.
- A statement that the borrower may have options available other than foreclosure and that the borrower may discuss available options with the mortgage lender, the mortgage servicer, or a counselor approved by the U.S. Department of Housing and Urban Development.
- The address, telephone number, and other contact information for the mortgage lender, the mortgage servicer, or the agent for either of them who is authorized to attempt to work with the borrower to avoid foreclosure.
- The name, address, telephone number, and other contact information for one or more HUD‑approved counseling agencies operating to assist borrowers in North Carolina to avoid foreclosure.
- The address, telephone number, and other contact information for the consumer complaint section of the Office of Commissioner of Banks, or, alternatively, if the loan is serviced by a credit union, the address, telephone number, and other contact information for the consumer complaint section of the Credit Union Division.
Additionally, because this is an attempt to collect a debt, the pre-foreclosure letter must comply with the federal Fair Debt Collection Practices Act and the consumer protections in N.C. Gen. Stat. Chapter 75, Article 2.
If the homeowner fails to cure the default, the lender almost always has the right to accelerate the debt, making the entire amount due and payable in full. The lender knows that a homeowner who can’t make a monthly payment can’t pay off the entire debt. The purpose of acceleration is so that the lender can take legal action on the entire debt and not just the missed payments. About the same time, the lender will frequently exercise their right under the contract to substitute the trustee to a law firm that specializes in foreclosing deeds of trust.