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Status of Title Post FC Sale in North Carolina – You Better Get It Right the First Time!

Posted By USFN, Monday, May 20, 2019

by Jeremy B. Wilkins, Esq. and Devin Chidester, Esq.
Brock & Scott, PLLC
USFN Member (AL, CT, FL, GA, MA, ME, MD, MI, NC, NH, OH, RI, SC, TN, VA, VT)

In North Carolina, once the clock strikes midnight on the 10-day statutory upset bid period1 the finality of the foreclosure process closes the door on prior owners. The remaining title issues, though, may prevent the door from being locked for good. Absent purchase by a third-party, the property is commonly anointed as Real Estate Owned(“REO”) and the former note holder must ensure the property is suitable or an expeditious preservation, marketing, and re-sale process.

If the subject property reaches status, impediments must be nonexistent as the former note holder will need to realize the liquidity of the asset to minimize potential loss. Accordingly, an essential element to successfully moving an asset in REO is the status of the title on the subject property at time of foreclosure, a process managed by local counsel.

Manifesting the intent of contractual obligations predicated on a future REO purchase/sale agreement requires knowing what type of title product is required post-foreclosure sale. Generally, the dividing line between moving foreclosed property is the difference between marketable and insurable title standards. Certain investors may require a less rigorous product than others2. Simply put, reviewing and approving the chain of title must be done correctly by local counsel from the onset of the foreclosure process or the post-sale implications may be damning to a property transfer.

In North Carolina, reviewing title for property in REO requires knowing how to fix title prior to the rights of the parties to the foreclosure becoming fixed3. This includes the validity of the procedural process of the foreclosure as set forth under Chapter 45 of the North Carolina General Statutes. Consequently, flaws in the foreclosure process can create flaws in the ability to market the subject property as an asset in REO. Therefore, a foreclosure must be prosecuted with a forward-looking mentality to deliver an asset in REO free of impediments. In other words, when viewing the asset post-foreclosure sale, the subject property’s title must have aged well. The challenge rests on the ability to cure title issues through a combination of clearing title by the foreclosing firm, cooperation with title insurance companies, and/or applying certain judicial intervention measures (i.e., judicial foreclosure, quiet title, declaratory actions, etc.).

Similar to the way an errant post on social media has the tendency to age terribly, so will a poor pre-foreclosure title product. If issues lurk after foreclosure, then reparations will require unwanted timeline delays and/or excessive and unnecessary costs.

Poorly aged title correlates to a lack of prudence in title examination and not using appropriate title curative measures. Unfortunately, in the post foreclosure context, reputational damage is extremely costly because one cannot exercise the delete function and start from scratch as you can on social media.

Under North Carolina law, you must slowly unwind the process, revise the public record, admit to the world that proper review was missed and a mistake exists. Hence, prudent review and proper due diligence are paramount when reviewing title at the beginning of the foreclosure process. Title documents provided to local counsel should mirror the level of quality of an attorney search. Proper measures will ensure the desired result for the asset, post-foreclosure sale, while executing to perfection the intended vision for the foreclosing note holder.

For the REO asset’s chain of title to age gracefully, local counsel must ensure pre-foreclosure title is rooted in achieving successful and marketable title in the future. The following tips are best practices to ensure the status of title ages elegantly. The following tips are sensible measures that can be taken in North Carolina, all within the control of local counsel, to ensure the foreclosure chain of title is delivered through the REO process flawlessly.

1. Foreclosure Title Search
Local counsel must ensure that the vendor completing the title search does so completely and accurately. The title search at foreclosure is performed at the beginning of the process but has implications throughout the entirety of the foreclosure. Starting with the first legal stage, the title search is supplemented with updates predicated upon milestones (pre-first legal, pre-hearing, pre-sale). The title search should be viewed in totality with the updates and vetted in all stages of the foreclosure. The more corners cut, the more the title ages terribly. Be thorough in review so decisions can be made with clarity.

2. In-house Title Curative
Local counsel should engage in house title curative measures to clear up title issues prior to a foreclosure sale expeditiously and find solutions that would bypass judicial intervention(e.g. procuring satisfactions of prior liens or curing errors in recorded documents by operation of statute through a curative affidavit, N.C.G.S.§47-36.2).

3. Title Claim Escalation
Local counsel should ensure title insurance coverage is identified early in the review process and title claims are handled expeditiously as needed. Moreover, title claims should be zealously escalated by local counsel striking a balance between continuity of title insurance coverage and prompt resolution of claimable issues.

4. Milestone Awareness
Local counsel must fundamentally grasp and act within the applicable foreclosure milestones promulgated by specific client service level agreements(“SLA”). Knowing the milestone stage and status of title product at that stage allows local counsel to control foreclosure advancement while ensuring finality of the REO asset transfer.

5. Be Forward-Looking During the Foreclosure Process
As discussed earlier, when local counsel starts the foreclosure process, the umbrella mindset for each file must consider the future ramifications so title will not age with impediments and time is carved out to fix issues before it is too late. In North Carolina, failure to critically think, control, and act, as it pertains to the status of title, may create a costly situation requiring sale rescission, court intervention, and unnecessary additional delay and costs. However, if local counsel takes the pragmatic, proactive approach from the onset of the foreclosure process and gets it right, title will age gracefully and move through REO as intended.

1 See Generally, N.C.G.S. §45-21.27

2 In North Carolina, marketable title is statutorily defined as a 30-yearperiod whereby the title is free and clear from defects. N.C.G.S. §47B-2. Thus, as a best practice, marketable title for REO should have a clear30-year timeframe. Insurable title carries a lower standard whereby defects may exist in the chain of title, but a title insurance company has agreed to provide coverage against said defects. Insurable title is contractually rooted and shorter search periods are more appropriate to determine the status of the chain of title for REO purposes.

3 Rights are fixed under N.C.G.S §45-21.27 (a), therefore, the high bidder has an insurance interest in the property and can demand a deed be tendered.

 

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