If the homeowner remains in default after the time period specified in the pre-foreclosure demand letter, the lender may begin the foreclosure process.
Which legal action to take?
Once the lender decides to take legal action, they have a choice about what sort of legal action to take. The lender can sue on the debt itself for money owed, or the lender can begin the foreclosure process. Unless the homeowner has little equity in the property or has other more liquid assets, lender will choose to foreclose.
The Foreclosure Hearing
To start the foreclosure process, the trustee on the deed of trust must file a notice of hearing with the Clerk of Superior Court in the county in which the property is located. The trustee will frequently file the petition asking the Clerk for an order permitting foreclosure at the same time.
The Notice of Hearing
N.C. Gen. Stat. § 45-21.16 details what the notice must contain and who must be notified. To summarize, the notice must be serve no less than 10 days of the hearing; it must specify the time and place of the hearing; it must be served on all record owners of the property, including those who may have a future interest in the property; and it must be served on anyone who may be liable on the underlying debt, like cosigners or guarantors. The statement must contain information that shows that the trustee has the right to foreclose and information that notifies the homeowner of certain rights. The notice is served the same way as the summons and complaint for a civil lawsuit.
Conducting the Hearing
Non-judicial foreclosure hearings are held before the Clerk of Superior Court. The clerk must authorize the sale if the clerk finds the follwing facts:
- The party seeking to foreclose is the holder of a valid debt. (The homeowner owes the person bringing the suit money.)
- The debt is in default.
- The deed of trust contains a right of foreclosure on default; and
- Proper notice has been given under N.C. Gen. Stat. § 45-21.16.
These are the only issues considered in a foreclosure proceedings. If the homeowner has any other defenses to the foreclosure, these are not considered in the foreclosure proceeding before the clerk. Instead, the homeowner must go to Superior Court and get an injunction from a Superior Court judge to stop the proceedings.
The Clerk of Court may consider affidavits, certified copies of documents, or any other evidence required or permitted by law in determining whether the facts exist to grant the order to sell the property. Frequently, the lender provides an affidavit to the trustee that the homeowner has defaulted and the trustee provides it to the court. Often the homeowners present no defense. However, when the homeowner can present a defense and challenge the affidavit, then things get more complicated. Technically, the trustee is a neutral party, even though the lender substituted in the current trustee for the specific purpose of foreclosing on the property. If the homeowner challenges the affidavit given to the trustee, then no one representing the lender’s interest. When this happens, the Clerk will continue the hearing to allow the lender to obtain counsel to be represented at the hearing.
Even though foreclosure hearings are before the Clerk of Court, they are still court proceedings and should be treated as such.
The appeal of a foreclosure hearing must be made within ten (10) days after the act of the Clerk of Court. The appeal is made to a district or superior court judge. The appeal is de novo, meaning that the district or superior court judge does not take into account anything that happened in the hearing before the clerk. The appeal stops the foreclosure sale.
However, the losing party in the hearing before the clerk must post a bond to protect the winner’s interest. This is to prevent appeals from becoming a stalling tactic.