The NC Court of Appeals has issued a number of opinions this year involving lender foreclosure or collection efforts. Not all of the holdings have been monumental, but there is a common thread of useful principles, summarized here:

I. Defaulting Foreclosure Bidder Gets Full Refund

Glass v. Zaftrin, LLC: At issue in this foreclosure was a defaulting bidder’s claim for refund of its bid deposit where there was a subsequent resale of the property at a price greater than the original bid. The facts were simple.  Zaftrin was the high bidder at a foreclosure sale and paid its bid deposit to the Clerk. Zaftrin thereafter notified the trustee it was unable to complete the purchase, and the property was resold at a higher price. The trustee moved for an order to disburse the bid deposit back to Zaftrin, but sought to deduct the costs of resale. The trial court granted the trustee’s motion over Zaftrin’s objection. On appeal, the Court of Appeals reversed and awarded Zaftrin its full deposit. The court found that a “bidder in default is liable only to the extent that the final sale price is less than his bid plus the costs of sale.” In this case, the final sale price ($350,000.00) was greater than the defaulting bid ($315,000.00) plus the costs of resale ($1,469.80).

II. Deed of Trust Rights Survive Failure to Assert Timely Claim Against Deceased Borrower

Wells Fargo Bank, N.A. v. Coleman et al.: At issue in this case was the borrower’s claim that the lender’s reformation action was time-barred by the “non-claim statute,” a time limitation on claims against a decedent’s estate. The lender sought to reform an erroneous property description in a deed of trust before proceeding with foreclosure. The now-deceased borrower’s estate raised a number of defenses to reformation, all of which were based on the timing of the lender’s efforts. The trial court granted summary judgment for the borrower, without explaining its ruling. The Court of Appeals reversed and ruled in the lender’s favor, concluding that the non-claim statute does not apply to an action to enforce a deed of trust, such as foreclosure or reformation. The statute limits the time in which a creditor may sue to collect money from a decedent’s estate, but not the time a creditor has to enforce a deed of trust. 

III. Borrowers’ Hyper-Technical Reading of Consent Judgment Rejected

Macon Bank, Inc. v. Cornblum: This appeal involved a married couple’s attempt to avoid enforcement of a consent judgment based on the lender’s use of the singular “Defendant” instead of “Defendants” in the body of the document. The borrowers entered the consent judgment as part of a settlement of liability under their defaulted home equity line. When the lender attempted enforcement, the borrowers argued the use of the singular “Defendant” (as opposed to “Defendants”) rendered the judgment unenforceable. This argument  failed at every level, ultimately resulting in sanctions against the borrowers. The court stated that “names are to designate persons, and where identity is certain a variance is immaterial” and “errors or defects in pleadings or proceedings not affecting substantial rights are to be disregarded.” The court then confirmed the trial court’s authority to correct such clerical errors by motion under Rule 60(a).

IV. Foreclosure Hearing Still Not Proper Forum to Seek Injunction

In re Foster: This is another opinion in the long line of foreclosure appeals defeated by subject matter jurisdiction.  In power of sale foreclosure proceedings, the court’s jurisdiction is limited to making the findings prescribed under N.C. Gen. Stat. § 45-21.16—i.e., valid debt, default, right to foreclose, and notice to necessary parties. Any attempt to enjoin a foreclosure is properly raised in a separate proceeding pursuant to N.C. Gen. Stat. § 45-21.34. Despite this limitation, it is not uncommon for borrowers (and their attorneys) to treat foreclosure hearings as open forums, seeking to stay or enjoin the lender’s efforts for various justifications. In In re Foster, the borrower sought injunctive relief against the lender, which the trial court appropriately denied given its limited jurisdiction.  The Court of Appeals affirmed, confirming again that the proper means to enjoin a foreclosure is by bringing a separate action pursuant to N.C. Gen. Stat. § 45-21.34

V. Multiple Defaults = Multiple Rights to Foreclose

In re Foreclosure by Rogers Townsend & Thomas: This opinion considers application of the so-called “two dismissal rule” under Rule 41(a) of the Rules of Civil Procedure to power of sale foreclosure proceedings. Specifically, the Court of Appeals considered whether successive foreclosure proceedings share an “identity of claims” such that a second voluntary dismissal operates to bar any future power of sale foreclosure. In practice, the issue arises with some frequency. A borrower defaults on payment, the lender commences foreclosure, the borrower cures, and the lender dismisses the foreclosure. If this cycle occurs more than once, the question becomes whether Rule 41(a), which provides that a second voluntary dismissal “operates as an adjudication upon the merits,” prohibits the lender from commencing another foreclosure proceeding based upon a subsequent default. The court considered this issue and found that a successive foreclosure based upon a different default involves different operative facts. On this basis, the court concluded that Rule 41(a)’s two dismissal rule does not apply.