Deed of Trust and Foreclosure

North Carolina Court of Appeals Clarifies Timing Within Which to Enjoin Foreclosure Sales: N.C.G.S. 45-21.34

In this foreclosure-frenzied environment, as we’ve alluded in prior posts, lender-friendly moments are few and far between. A recent Court of Appeals decision, in Goad v. Chase Home Finance, LLC, scores one for the little guys. Let’s review.

Way back in 2005, when money was free and the Phillies weren’t so scary, Borrower Goad executed a deed of trust in favor of Lender JP Morgan Chase to secure a loan. The encumbered property was located in Sunset Beach, North Carolina. Ever been there? Well, it’s beautiful. Enjoy your trip back in time over the Sunset Beach Bridge. Really.

Anyway, in 2008 the Lender initiated a foreclosure proceeding in accordance with the deed of trust. On a scheduled date of the foreclosure sale — August 27, 2009 — Borrower received a $450,000 offer to purchase the property, which Borrower immediately transmitted to Lender. Lender postponed the foreclosure sale until September 8, 2009, notice of which Borrower received on September 5. That isn’t much time. Well, sure as the sunrise, Lender held the sale on September 8, at which Lender bid $423,932.55. Yep, that’s some $26,000 below the price Lender’s other buyer was positioned to pay.

On September 18, 2009, Borrower filed an application to enjoin the foreclosure sale pursuant to N.C.G.S. 45-21.34. So far, so good. The trial court heard Borrower’s application on September 28, 2009 — we’re 20 days past the sale date, by the way — but declined to enjoin, reasoning that “[the] hearing was not timely scheduled as required by the provisions of [N.C.G.S. 45-21.34, 45-21.35].”

On appeal, the issue became: what satisfies the statutory requirement that an application be made “prior to the time that the rights of the parties … become fixed”? Borrower believed the application need only be filed prior to the sale rights becoming “fixed,” while Lender contended that the application must be (i) filed, (ii) heard, and (iii) decided. The Court ultimately agrees with the Lender, decrying Borrower’s “literal language” approach to N.C.G.S. 45-21.34 as “elongating what is clearly intended to be an expeditious process, thereby casting doubt on otherwise vested rights.” In doing so, the Panel offers us some holiday statutory interpretation.

“Fixed”: The rights of the parties to a foreclosure sale become “fixed” for purposes of N.C.G.S. 45-21.34 “upon either the expiration of the period for filing an upset bid, the provision of injunctive relief precluding the consummation of the foreclosure sale, or the occurrence of some similar event.”

“Apply”: Citing “well-established North Carolina law” that a court cannot restrain the doing of that which has already been consummated, the Court concludes that “apply” for purposes of N.C.G.S. 45-21.34 means that the application must be decided, and not just made, before the rights are “fixed.”

Does this threaten a race to the courthouse or otherwise incentivize stall tactics? That may be. But, according to the Court, it’s akin to a policy choice insofar as finality is critical in land dealings.

Mike Thelen is a lawyer in Womble Carlyle’s Real Estate Litigation practice group. He regularly represents a wide variety of clients in land use and land development issues, from local governments to businesses, in both state and federal venues throughout North Carolina.

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