September 1, 2015
by Graham H. Kidner
Hutchens Law Firm – USFN Member (North Carolina, South Carolina)
Following a foreclosure sale, the general rule is that the amount of the debt is reduced by the net proceeds realized from the sale, setting the deficiency amount a foreclosing creditor may seek to recover. N.C.G.S. § 45-21.31(a)(4). However, when the foreclosing creditor is the successful high bidder at the foreclosure sale, this general rule is abrogated by N.C.G.S. § 45-21.36, which provides a borrower with two alternative defenses. [See Branch Banking & Trust Co. v. Smith, 769 S.E.2d 638, 640 (Feb. 17, 2015)]. Either the deficiency is eliminated if it is shown “that the collateral was fairly worth the amount of the entire debt,” or the deficiency may be reduced “by way of offset” where it is shown that the creditor’s high bid was “substantially less” than the actual value of the collateral. Id.
In reversing summary judgment for the creditor, the North Carolina Court of Appeals recently observed that in opposing the motion for summary judgment, the borrowers “relied on their own joint affidavit, stating that it was “made on [Defendants’] personal knowledge” and that Defendants “verily believe[ ] that the [property] was at the time of the [foreclosure] sale fairly worth the amount of the debt it secured.” United Community Bank v. Wolfe, 2015 WL 4081940 (July 7, 2015).
The value of the collateral, in a deficiency action, is generally a material fact. Id., at 2, citing Raleigh Fed. Sav. Bank v. Godwin, 99 N.C. App. 761, 763; 394 S.E.2d 294, 296 (1990). Since the “[North Carolina] Supreme Court has repeatedly held that the owner’s opinion of value is competent to prove the property’s value,” Wolfe, citing Department of Transp. v. M.M. Fowler, Inc., 361 N.C. 1, 6; 637 S.E.2d 885, 890 (2006), and the owner is presumed competent to give his opinion of the value of his property, Id., at 2, citing North Carolina State Highway Comm’n v. Helderman, 285 N.C. 645, 652; 207 S.E.2d 720, 725 (1974), the affidavit raises a genuine issue of material fact so as to prevent the entry of summary judgment.
The lesson here is that a foreclosing creditor contemplating a post-foreclosure deficiency action against a solvent borrower may want to make additional efforts to encourage a third-party sale. For example: by broadening the advertising of the sale or, where permissible, adjusting its sale bid. This may avoid the uncertainty and expense of a trial in the deficiency action.
©Copyright 2015 USFN and Hutchens Law Firm. All rights reserved.