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In re George: Innocence Won

Posted By USFN, Monday, March 25, 2019

by Devin Chidester, Esq. 

Brock and Scott, PLLS

USFN Member (AL, CT, FL, GA, MA, ME, MD, MI, NC, NH, OH, RI, SC, TN, VA, VT)

In re George[1] handed down by the North Carolina Court of Appeals on February 19, 2019 examines the balance between improper foreclosure and ownership rights of a third-party purchaser of the foreclosed property.  In George, owners of a property[2] in Mecklenburg County, NC were foreclosed upon by their community’s HOA for failure to pay unpaid dues totaling $204.75.  During the foreclosure, service was attempted by sending certified and first-class mailings to all known addresses[3] as well as having the county sheriff attempt to personally serve respondents at the subject property.  The foreclosure was granted and a foreclosure sale was conducted on January 12, 2017.  The property was purchased by a third-party (KPC Holdings) and transferred to National Indemnity (“NI”) shortly thereafter.  The property owners filed a motion to set under Rule 60(c), citing lack of personal service.  The superior court ruled in favor of the property owners and voided the foreclosure while also setting aside any subsequent deed chains.

 

Upon appeal, two issues were raised: 1) whether improper service voids an entire foreclosure (first legal through deed recording) and 2) a good faith third-party purchaser’s title will be impacted by the voided foreclosure.  On the issue of service, the Court of Appeals examined whether the property owners were deprived of constitutionally protected due process rights and/or the procedural requirements of North Carolina’s Rules of Civil Procedure.  The Court of Appeals held that as long as the intended notice was reasonably calculated to reach the intended person then that person is not deprived of due process simply because they did not receive actual notice.  The foreclosing party sent notice via multiple mailings and in-person service by the sheriff.  This satisfied the reasonableness requirement because the methods required under law were used to attempt service, thus the property owners were not deprived of property without notice and opportunity to be heard. 

As for the issue of personal service, North Carolina allows personal service by leaving notice with an individual or with a person of suitable age at the individual’s dwelling house or usual place of abode.  The subject property was occupied by the owner’s children, and the owners infrequently visited the property, nor did they claim it to be their residence.  Furthermore, when the county sheriff attempted personal service he unintentionally served one of the property owners’ children who signed the sheriff’s notice using her mother’s name.  Thus, the property owners were not properly served pursuant to North Carolina law and the foreclosure was void as a result.  However, the majority opinion from the Court of Appeals differed from the trial court’s conclusion.  Although the trial court correctly identified the legal flaw in personal service and correctly voided the foreclosure, it incorrectly set aside the deeds to the third-party purchasers. 

Pursuant to N.C.G.S. § 1-108, title to property sold to a good faith purchaser for value is not affected by the set aside of a foreclosure.  KPC was a purchaser for good faith due to the lack of knowledge or reason to believe in any defects in the foreclosure.  KPC did not have reason to believe anything in the record or foreclosure was invalid, so the deed chain was not impacted by the voided foreclosure. 

 

The property owners are victims of improper foreclosure, but the statutory authority is clear that innocent, good faith purchasers for value shall retain title regardless of the voided foreclosure.  In re George should be a reminder of the importance of quality legal work.  An innocent third-party purchaser may prevent the need to redo the foreclosure, but poor legal work opens unwanted and expensive doors of restitution.

[1] -- S.E.2d --, 2019 WL 660956 (2019)

[2] Clamore and Hygiena George owned the property in Mecklenburg County but did not live there.

[3] The Georges lived in the Virgin Islands.  Their children lived at the home.


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