Creditors in North Carolina can breathe a sigh of relief after Bradley’s win in the North Carolina Supreme Court, which clarified the difference between judicial and non-judicial foreclosure.
In 1997, a couple borrowed money from a finance company to purchase real property, a loan that a national mortgage bank later acquired through a series of transfers. In 2014, the coupled defaulted on the loan, and the mortgage bank filed a complaint, seeking judicial foreclosure on the property. Both the trial court and the North Carolina Court of Appeals dismissed the mortgage bank’s case with prejudice, finding that the mortgage company failed to include a required indorsement between prior parties in the chain of title.
The appeals court also ruled that the mortgage servicer was barred from its ability to foreclose. This ruling was a significant threat to not only servicers’ ability to foreclose when there is an issue with the chain of title but also to the liberal notice pleading requirements in North Carolina.
In reaching their decisions, the trial court and Court of Appeals looked at the mortgage bank’s complaint as if it were seeking a non-judicial foreclosure proceeding rather than a judicial foreclosure. The difference between the two is significant.
A judicial foreclosure is a civil action, meaning it’s a regular lawsuit in a courtroom before a trial judge. The complaint must contain sufficient allegations, but the plaintiff need not prove its entire case up front. Under the liberal standard of notice pleading in North Carolina, the court must accept allegations as true and view them in the light most favorable to the plaintiff.
A non-judicial foreclosure is a special proceeding before the clerk of court outside of the courtroom – it’s not a lawsuit. Chapter 45 of the North Carolina General Statutes governs non-judicial foreclosures and requires the clerk to authorize a foreclosure sale if the creditor provides all the required proof and information.
In addition to handling the appellate briefing, Bradley attorneys argued the case before the North Carolina Supreme Court – which reversed the Court of Appeals’ ruling. The Supreme Court reminded the lower courts that North Carolina has a liberal standard of notice pleading, so a creditor seeking judicial foreclosure does not have to prove its entire case during the initial pleading. The Supreme Court also confirmed that a party does not have to be a holder of the note to judicially foreclose in North Carolina.
The ruling is an important victory for creditors – especially creditors that acquired loans through a chain of transfers and may have issues with their documentation.