A creditor who lends money to a borrower may secure the repayment of that obligation by receiving a deed of trust upon real property owned by the borrower. If the borrower defaults upon the obligation, the creditor has the right to realize the value of the collateral. Foreclosure upon the real estate is the way that the creditor can obtain repayment.
In North Carolina, foreclosure of real property can be effected through either a power of sale provision in a deed of trust or through a judicial action. Foreclosure through judicial action is rarely used because of the time and expense involved. The judicial foreclosure requires the filing of a lawsuit, as one would normally do in order to collect any indebtedness. The vast majority of foreclosures in North Carolina are conducted under the contractual power of sale provision in the deed of trust.
A secured party initiates the foreclosure under the power of sale clause by requesting the trustee under the deed of trust to file a special proceeding in the county in which the property is located. The proceeding normally takes approximately 60 days. The actual time can be longer, depending on the circumstances.
In most circumstances, the creditor will substitute the original trustee with the person, firm or corporation who will be conducting the foreclosure. No other party has to sign the substitution of trustee document, but the document must be filed with the Register of Deeds where the property is located.
This proceeding is begun by the filing of a Notice of Hearing. In some counties a Petition is also required. The Petition is no more than a one page form outlining the parties and requesting the relief.
After the Notice of Hearing is filed, a hearing is held before the Clerk of Superior Court. The hearing can be held only after a minimum ten (10) day notice, personally served, on all record owners of the property, all parties liable for the obligation that is the basis of the foreclosure, and any person to whom the security interest instrument itself directs notice to be sent in case of default. Personal service is also sufficient if the Notice of Hearing is sent by "First Class Mail, Return Receipt Requested." If personal service cannot be obtained, notice can also be effected by posting the Notice of Hearing on the property subject of the foreclosure for a period of no less than twenty (20) days prior to the hearing. Personal service and posting can run simultaneously. In order to rely on posting for the proper service, a good faith attempt of personal service must be made.
At the hearing before the clerk, the trustee must prove four elements:
If the Clerk of Superior Court finds that the trustee has adequately proven the four elements, then the Clerk will enter an order directing the trustee to sell the property. The trustee must post the Notice of Sale at the courthouse at least twenty (20) days immediately prior to the sale, or such other time as required by the deed of trust, and the trustee must publish such notice in a news-paper qualified for legal advertising in the county once a week for at least two successive weeks prior to the sale. The Notice of Sale must be served on everyone entitled to receive notice of the hearing before the Clerk, plus all those who have requested notice.
The sale of the property under the deed of trust is by public auction and is conducted by the trustee. The high bidder must provide a deposit of an amount set by the trustee, usually five percent of the high bid. The trustee must file a Report of Sale with the Clerk of Superior Court within five days of the sale. The high bid remains open for ten (10) days after the filing of the Report of Sale. If no upset bid is received within the time allowed, the sale is deemed final.
The initial bid can be upset by a raised bid. The raised bid or upset bid must exceed the outstanding bid by the amount of five percent of the outstanding bid, and in any event by at least $750.00. An upset bid is made by delivering a deposit of five percent of the upset bid, and in no event less than $750.00, to the Clerk of Superior Court, within ten days of the filing of the original Report of Sale or the last upset bid. The upset bidder must also file a Notice of Upset Bid with the Clerk. The Clerk notifies the trustee of the upset bid, and the trustee is responsible for mailing the notice to the last prior bidder and the current record owners of the property. Upon an upset bid, the last prior bidder is released and any bond or deposit is released. No confirmation by the court is required of any sale.
The borrower can redeem the property at any time before the expiration of the upset bid period. In order to redeem, the borrower must pay the lender in full plus all expenses incurred in connection the foreclosure, unless otherwise waived by the lender.
Upon the expiration of the upset bid period, the trustee collects the balance due from the purchaser and issues a Trustee's Deed to the purchaser. From the sale proceeds the trustee pays the expenses of the sale first and then pays the balance to the secured creditor to the extent of its debt. If surplus funds are available, the trustee may either make those payments to the secured creditors next in priority or may deposit the surplus funds with the court. If the surplus funds are deposited with the court, then the trustee must notify all junior lienholders of the deposit. Any junior secured creditor may file a separate special proceeding with the clerk to recover the funds.
The trustee is required to file a Final Report and Account of the receipts and disbursement of the sale with the Clerk of Superior Court within thirty days after the receipt of the proceeds of the sale. The Final Report and Account is either approved or disapproved by the Clerk and the cash is then closed.
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