In Funderburk v. JPMorgan Chase Bank, N.A., 2015 WL 3777353 (N.C. Ct. App., June 16, 2015) a foreclosure sale was authorized by the Clerk, and the Order authorizing sale was appealed to the Superior Court.  On de novo review, the Superior Court Judge entered an Order authorizing the Substitute Trustee to proceed with the foreclosure sale.  The borrowers did not appeal the Superior Court’s Order to the Court of Appeals.  Instead, they proceeded with their separate civil action against the bank, alleging various causes of action, each of which was contingent upon there being no default under the terms of the promissory note and subsequent agreement entered into to settle an earlier foreclosure proceeding.  The trial court dismissed the complaint for failure to state a claim pursuant to N.C.R. Civ. P. 12(b)(6).

On appeal, the Court of Appeals observed that in Phil Mechanic Constr. Co. v. Haywood, 72 N.C.App. 318, 325 S.E.2d 1 (1985), it had held:

[T]hat when a mortgagee or trustee elects to proceed under [N.C. Gen. Stat. §] 45-21.1 et seq., issues decided thereunder as to the validity of the debt and the trustee’s right to foreclose are res judicata and cannot be relitigated in an action for strict judicial foreclosure.”  Id. at 322, 325 S.E.2d at 3.  For that reason, “[s]ince [the] plaintiffs did not perfect an appeal of the order of the Clerk of Superior Court, the clerk’s order is binding and [the] plaintiffs [were] estopped from arguing those same issues in [a subsequent] case.”  Id.

Funderburk, at 4.

The Court noted that it had addressed “the preclusive effect of orders authorizing foreclosures on subsequent suits in a number of cases within the past year and a half, albeit in unpublished decisions.”  Funderburk, at 5 (citations omitted).  “In each of those cases, this Court affirmed the lower court’s dismissal pursuant to Rule 12(b)(6) upon determining the plaintiffs were collaterally estopped from relitigating an issue decided in a prior foreclosure action that barred recovery in the plaintiffs' subsequent cases.”  Id.

This opinion demonstrates that the borrower’s opportunity to challenge a foreclosure is limited, and a subsequent civil action relying on fact allegations already decided in the foreclosure proceeding, and necessary to the outcome of that proceeding, cannot be relitigated.  Importantly, because this opinion was published, it has precedential value and can be freely cited in proceedings in state court.