A Tough Reminder from the Court to Draft Carefully

In re: Tacket: Davidson County, North Carolina File No. 17 CVS 1059

In a small county in the Piedmont region of North Carolina (best known for arguably being the ‘Barbeque Capital of the World’), a recent ruling has some foreclosure lawyers scouring their Notice of Foreclosure Sale templates and others wondering if previous foreclosure sales could end … up in smoke.

This potential firestorm began harmless enough. A foreclosure was prosecuted under the usual quasi-judicial process and an order for sale was entered by the Clerk of Court. The Notice of Foreclosure Sale was then posted and published, containing the seemingly innocuous language,

This sale is made subject to all prior liens, unpaid taxes, any unpaid land transfer taxes, special assessments, easements, rights of way, deeds of release, and any other encumbrances or exceptions of record. (emphasis added).

Do you see the potential issue? Let’s first examine the applicable statute.

§ 45-21.16A. Contents of notice of sale. (a) Except as provided in subsection (b) of this section, the notice of sale shall include all of the following: … (8) State whether the property is being sold subject to or together with any subordinate rights or interests provided those rights and interests are sufficiently identified.

As in most states, a North Carolina foreclosure sale is subject to any and all superior liens and operates to wipe out any and all junior liens. The above statute conditions that in order for the sale to be made subject to any interests otherwise, those interests must be identified. So, when the language in the Notice of Foreclosure Sale stated it was made “subject to … any other encumbrances or exceptions of record,” the trial court very liberally interpreted that to include any other liens of record - to include junior mortgage liens, as if it were some ‘catch-all’ provision in the Notice of Sale. Clearly that was not the intent of that Notice of Sale to subject the foreclosure sale to junior liens; but applying the plain meaning rule, the Court held otherwise.

At the foreclosure sale, a third party bidder was the purchaser and ostensibly believed he had bought the subject property free and clear of any liens (as there were no prior/superior liens of record). Well, it just so happened that there was a very sizable junior mortgage lien of record, which in the usual course of business would have been wiped out by the foreclosure. But after the Tackett ruling, this junior lienholder currently still holds its lien on this property; and the third party bidder is looking back to the lender and trustee with its confused hands in the air. The matter is currently pending appeal in the North Carolina Court of Appeals.

After the Tackett ruling, I am certain each firm who does foreclosures of any type in North Carolina gave a swift and thorough review of the language in their Notices of Foreclosure Sale. The more immediate and potentially destructive results may come in the form of former junior lienholders retroactively examining the language in the Notices of Sale wherein they were potentially wiped out – and wondering if they too may be saved by the unfortunate (or fortunate) language interpretation of this trial court.

Also concerned are all of those third party buyers at foreclosure sales and purchasers post-REO wondering that if instead of piece property at a premium they actually bought a slow-and-low smoked ‘pig in a poke.’

Published by Terry Hutchens on May 18, 2018