• North Carolina Court of Appeals Forestalls Borrower’s Attempt to Collaterally Attack Foreclosure Proceeding
  • February 12, 2013 | Authors: D. Kyle Deak; John C. Lynch
  • Law Firms: Troutman Sanders LLP - Raleigh Office ; Troutman Sanders LLP - Washington Office
  • On Plaintiff’s appeal of dismissal of his Complaint seeking to challenge the authority of the lender to foreclose, the Court of Appeals affirmed the Superior Court’s dismissal and found that Plaintiff’s failure to properly and timely appeal the Order of the Clerk of Court in a prior foreclosure proceeding precluded Plaintiff’s attempt to later litigate in a subsequent civil action the issue of validity of the debt and authority of the lender to foreclose.

    The foreclosure process in North Carolina is a quasi-judicial process, which begins with an initial hearing before the Clerk of Court of the respective county in which the property is located. Upon making the appropriate statutory findings, the Clerk will authorize a foreclose sale to take place.

    In Haughton, the noteholder initiated a foreclosure action with the Mecklenburg County Clerk of Court. In that foreclosure proceeding, a hearing was held before the Clerk of Court during which the Clerk found the existence of a valid debt, a default in payment of said debt, proper notice, and entitlement to foreclosure under the Deed of Trust, which encumbered the property at issue. Plaintiff did not appeal that Order.

    Almost a year later, Plaintiff filed his Complaint in the Superior Court of Mecklenburg County against HSBC Bank USA, National Association, as Trustee for the benefit of the Certificate Holders of Nomura Home Equity Loan, Inc. Asset-Backed Certificates, Series 2007-3, The Caudle Law Firm, P.A., Litton Loan Servicing, LP, Mortgage Electronic Registration Systems, Inc., and Marti Noriega.

    The Complaint alleged that HSBC is not the owner and holder of the promissory note; that the Clerk’s Order permitting the substitute trustee to proceed with the foreclosure sale was invalid; that the Caudle Law Firm, P.A. was not the proper substitute trustee; that the Defendants had no valid interest in the property; and, that the entire foreclosure proceeding was invalid.

    In finding the Complaint deficient and warranting of dismissal, the Court of Appeals noted that N.C.G.S. § 45-21.16 provides, in pertinent part, that the Clerk may only authorize a foreclosure sale upon a finding of (i) a valid debt of which the party seeking to foreclose is the holder; (ii) default; (iii) trustee's right to foreclose under the instrument; and (iv) sufficiency of notice to the record owners of the hearing.

    The Court of Appeals found that the Complaint filed by Plaintiff sought to challenge two of those required findings: namely, (i) the existence of a valid debt of which the party seeking to foreclose is the holder; and (iii) the trustee's right to foreclose under the instrument.

    In so doing, the Court found that Plaintiff was attempting to circumvent the 10-day appeal period under N.C.G.S. § 45-21.16, having failed to file an appeal, within 10 days of issuance, of the prior Order of the Clerk of Court allowing the foreclosure sale to proceed. As such, the Court of Appeals found dismissal was proper.

    The opinion of the Court of Appeals in Haughton v. HSBC, et al., North Carolina Court of Appeals February 5, 2013 (COA12-420).