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North Carolina: Failure to Raise Defenses at Hearing to Authorize Foreclosure Sale Resulted in Waiver

Posted By USFN, Tuesday, November 24, 2015
Updated: Tuesday, January 19, 2016

November 24, 2015


by Graham H. Kidner
Hutchens Law Firm – USFN Member (North Carolina, South Carolina)

In an unpublished opinion, the North Carolina Court of Appeals affirmed the order of the superior court authorizing a foreclosure sale on the basis that the respondent (borrower) failed to raise the arguments he sought to assert on appeal at the trial level. [In re Foreclosure of Herring, No. COA14-1159 (N.C. Ct. App. Sept. 1, 2015)].

The borrower argued on appeal: (1) that the foreclosure proceeding was not brought by the actual trustee as the only real party in interest, as required by Rule 17 of the Rules of Civil Procedure; and; (2) that he received inadequate notice of the foreclosure hearing. As is the usual practice, the creditor had substituted the original trustee, and it was the substitute trustees who had initiated the foreclosure proceedings. The borrower had attended and participated in the foreclosure hearing before the clerk, following which the clerk of court entered an order permitting a foreclosure by power of sale. The borrower appealed that order to the superior court, where the trial court overruled all of the borrower’s objections and entered an order allowing a foreclosure by power of sale to proceed.

In rejecting the first ground for appeal the appellate court noted “[a]lthough Rule 17 requires that an action be brought by the real party in interest, ‘the real party in interest provisions of Rule 17 are for the parties’ benefit and may be waived if no objection is raised[.]’ J & B Slurry Seal Co. v. Mid-South Aviation, Inc., 88 N.C. App. 1, 16, 362 S.E.2d 812, 822 (1987).” The court observed that the borrower failed to mention the issue before the superior court.

In rejecting the second ground, the appellate court again observed that the borrower failed to present the issue before the superior court, and the court of appeals would not consider the argument for the first time on appeal, citing Westminster Homes, Inc. v. Town of Cary Zoning Bd. of Adjustment, 354 N.C. 298, 309, 554 S.E.2d 634, 641 (2001). Moreover, the appellate court noted that even if the issue was properly raised ‘“[i]t is well-settled that a party entitled to notice may waive notice ...,’ by being ‘present at the hearing and participat[ing] in it.’” In re Foreclosure of Norton, 41 N.C. App. 529, 531, 255 S.E.2d 287, 289 (1979).

While not breaking any new ground in the jurisprudence of foreclosure law, the opinion in Herring serves two valuable purposes. Firstly, it affirms that foreclosure proceedings (even though not full-blown civil actions) are still accorded the same degree of solemnity as other actions and all appropriate procedural rules will be applied with equal force. Somewhat ironically, an observed trend with the Court of Appeals has been its treatment of foreclosure special proceedings as akin to other civil actions, and applying the Rules of Civil Procedure to them. In this instance, that reasoning favored the creditor, punishing the respondent-borrower for his failure to follow the Rules. Cause for concern remains, however, in the event that the appellate court were to decide that all of the Rules apply to a special proceeding foreclosure. That would open the door to application of the discovery rules, the rules governing dismissal and summary judgment, and the rules concerning trial by jury. Secondly, the Herring case is a reminder to every litigant of the need to raise all legitimate claims and defenses at the trial stage of legal proceedings; otherwise the Court of Appeals will not entertain the argument for the first time on appeal.

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