Mortgages and Deeds of Trust: Foreclosure – Notice and Hearing Requirements

Subject:

Mortgages and Deeds of Trust: Foreclosure – Notice and Hearing Requirements.

Requested By:

Honorable C. M. McLeod Clerk of Superior Court Moore County

Question:

Whether a foreclosure sale under a power of sale is valid where no notice was served on the record owner or his personal representative, where no hearing was held since the record owner was dead and no personal representative had been appointed?

Conclusion:

No.

N.C.G.S. § 45-21.16(b) as amended in 1977 and effective at the time this proceeding was commenced, provides that notice of hearing must be given to:

(1)

Any person to whom the security interest instrument itself directs notice to be sent in case of default.

(2)

Any person obligated to repay the indebtedness against whom the holder thereof intends to assert liability . . .

(3)

Every record owner of the real estate whose interest is of record in the county where the real property is located at the time of giving notice . . .

No notice was given to the record owner so the question becomes, whether the personal representative succeeds to the notice rights of an intestate and if so, was the creditor under any duty to have a personal representative appointed?

N.C.G.S. § 28A-18-1 provides that "Upon the death of any person, all demands whatsoever, and rights to prosecute or defend any action or special proceeding, existing in favor of or against such person . . . shall survive to and against the personal representative or collector of his estate." In effect then, the personal representative stands in the intestate’s shoes insofar as defending against claims upon the estate, and would be entitled to notice of hearing.

Did the creditor have any duty to obtain appointment of a personal representative so that proper notice could have been served?

N.C.G.S.

§ 45-21.16 is a drastic change in North Carolina law. Before its enactment no notice (other than by publication) or hearing was required to be given to the debtor. See, e.g. Huggins,

v.

DeMent, 13 N.C. App. 673, 187 S.E.2d 412, appeal dismissed, 281 N.C. 314, 188 S.E. 2d 898, cert denied, 409 U.S. 1071 (1972); Lake, North Carolina Practice Methods, § 177 (1952). However, this lack of notice and hearing came under attack on constitutional grounds in 1975. Turner v. Blackburn, 389 F. Supp. 1250 (1975). As a result, the General Assembly enacted

N.C.G.S.

§ 45-21.16. Webster, North Carolina Real Estate Law, § 252 (Supp. 1977). Turner held that the notice and hearing was required even where a power of sale was granted unless the debtor had also expressly waived a prior hearing and notice. 389 F.Supp., at 1260. N.C.G.S. § 45-21.16(f) goes further and sets forth the only method of waiver followed. The mere signing of a deed of trust does not constitute such a waiver.

The spirit of Turner was that the best notice possible under the circumstances must be given. Under N.C.G.S. 28A-4-1, the creditor himself is qualified to obtain letters of administration and serve as personal representative. Further, there are provisions for the appointment of the public administrator. N.C.G.S. § 28A-12-4. It would appear, then, that the creditor could have had an administrator appointed and could have given the statutory notice, but chose to give no notice (other than publication) to all. Publication is not sufficient notice where personal service or service by mail can be made. Turner. N.C.G.S.S 45-21-16(a) provides that the notice required is that mandated by the Rules of Civil Procedure. This failure to comply with the constitutional and statutory strictures renders the sale void. Turner v. Blackburn, supra; Brett v. Davenport, 151

N.C. 56, 65 S.E. 611 (1909).

Rufus L. Edmisten Attorney General

Lucien Capone, III Associate Attorney General