Mortgage note holders in North Carolina can no longer voluntarily dismiss more than one non-judicial foreclosure without being banned from filing additional non-judicial foreclosures, the North Carolina Court of Appeals ruled earlier this week.
Note holders can still, however, file a judicial foreclosure after voluntarily dismissing more than one non-judicial foreclosure, the court ruled.
The court issued the ruling as a result of Lifestore Bank's attempt to initiate a judicial foreclosure on land owned by one of its trustees, Mingo Tribal Preservation Trust, after previously voluntarily dismissing two non-judicial foreclosures against Mingo.
South Carolina-based law firm Rogers Townsend and Thomas said in a statement that the appeals court decision "may have a significant impact on non-judicial foreclosures in the state (of North Carolina)."
"The more far-reaching and problematic aspect of the ruling is that it may be interpreted as holding that all of the NC Rules of Civil Procedure apply to non-judicial foreclosures," the law firm said in the statement. "We can anticipate that counsel for borrowers and mortgagors will argue exactly that. This opens the possibility for countless motions, lengthy discovery requests, challenges to service of process, and arguments for sanctioning holders and trustees that file a non-judicial foreclosure after two voluntary dismissals."
Mingo originally signed two promissory notes in 1993 with Lifestore to secure land owned by Tuscarora Rand and Pitchfork Basin (formerly EAC Rev No. 6). Lifestore brought non-judicial foreclosure proceedings in both 2010 and 2011, but all voluntarily dismissed them without prejudice in both cases. In June 2012, Lifestore brought judicial foreclosure proceedings against Mingo in Superior Court, seeking judgments for both promissory notes. Mingo argued for summary judgment on Lifestore's claims, citing Rule 41 of the NC Rules of Civil Procedure and seeking collateral estoppel for the suit on the two notes. The trial court denied the summary judgment as far as claims on the notes but allowed the judicial foreclosure.
The case was taken to the North Carolina Court of Appeals by Mingo. The appeals court ruled on August 19 that the judicial foreclosure filing by Lifestore was legal despite the two previous voluntary dismissals without prejudice of the non-judicial foreclosures on the part of Lifestore. The court did rule, however, that Lifestore could not legally file a third non-judicial foreclosure due to the two previous voluntary dismissals without prejudice.
"We are not yet certain how courts will interpret this decision," Rogers Townsend and Thomas said in the statement. "There are earlier decisions that significantly limit the application of the Rules of Civil Procedure and it is arguable that this decision can be narrowed to only apply to Rule 41. It is also possible that an argument of continuing default could be successfully made; this would allow a new non-judicial foreclosure based on a new default, even where two prior proceedings alleging different default circumstances have been voluntarily dismissed. Essentially, each new missed payment is a new default. This was not addressed at all in the ruling."