Non-Judicial Foreclosures in North Carolina in Light of the Adams Decision

In a recent opinion, the NC Court of Appeals in In the Matter of the Foreclosure of a Deed of Trust executed by Adams affirmed the trial court’s order permitting foreclosure despite the homeowner’s assertion that the petitioner failed to give proper notice of the foreclosure proceeding or establish that it was the holder of the debt.  The relevant facts of Adams are as follows:

Mr. Adams executed a promissory note and a deed of trust securing his real estate.  He later defaulted on his monthly payments under the note.  In January 2015, the first substitute trustee (ST1) filed a notice of hearing to foreclose on the real estate.  ST1 served that notice upon Mr. Adams in March 2015.  Later, in August 2015, a new substitute trustee (ST2) was appointed.  ST2 did not file or serve an amended notice of hearing after it had been appointed as trustee.  At the foreclosure hearing, ST2 submitted in evidence an affidavit of service substantiating that ST1 served Mr. Adams with proper notice of the foreclosure hearing.  Attached to that affidavit of service was a return receipt for certified mail signed by Mr. Adams.  The clerk and the trial court entered orders allowing the foreclosure sale. 

Mr. Adams appealed to the North Carolina Court of Appeals citing two primary arguments: (1) that the petitioner failed to give proper notice of the foreclosure (the “notice defense”) and (2) that the petitioner failed to establish it was the holder of the note (the “holder defense”).  

The Notice Defense:  In support of his notice defense, Mr. Adams argued that ST2 was required to file and serve him with an amended notice of hearing once ST2 was appointed as trustee.  The court found that it was sufficient that ST1 filed and served Mr. Adams with the original notice of hearing and that there is no legal authority to require ST2 to have filed and served an amended notice of hearing just because it was appointed as the new trustee.  Mr. Adams also argued that ST2 was not permitted to submit an affidavit of service because ST2 lacked personal knowledge to attest as to how ST1 served him with the notice of hearing.  The court also rejected this argument noting that there was no legal authority to support it, and besides, Mr. Adams never denied that he was properly served with notice of the foreclosure hearing—a fact which was evident by his signature on the return receipt for certified mail.   

The Holder Defense:  In support of his holder defense, Mr. Adams argued that the petitioner presented different versions of the note containing “variations” within the bar codes affixed to the bottom of them.  Other than those “variations” to the bar codes, each version of the note was identical to the other.  The court rejected Mr. Adams’s argument.  First, the court explained that Mr. Adams never contested the validity of the debt or the fact that the note was indorsed in blank.  The court then noted that the petitioner affirmed in its affidavit that it was in possession of the original note.  Finally, the court held that the “slight variations” within the bar codes were insufficient “to preclude the trial court from finding that [petitioner] was indeed the Note’s holder.”

Albeit unpublished, this case is instructive for lenders and foreclosure practitioners alike.  It reaffirms that once a party is served with a notice of hearing in a foreclosure proceeding, there is no requirement that that party be served again with an amended notice of hearing simply because the trustee has changed.  And, finally, it stands for the proposition that “slight variations” to versions or copies of the note submitted into evidence are insufficient to overcome the petitioner’s holder status which is otherwise clear from the record.