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Issue  303  Article  458
Published:  6/1/2024

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Real Time Resolutions, Inc. v. Cole (COA 23-464) 5/7/2024
Statute of Limitations for Foreclosure

Chris Burti, Vice President and Senior Legal Counsel

This unanimous appeal opinion holds that the statute of limitations in N.C.G.S. Section 1-47(3) bars the petitioner's foreclosure action. N.C.G.S. Section 1-47 provides for a ten-year statute of limitations for commencing a foreclosure proceeding or action:

For the foreclosure of a mortgage, or deed in trust for creditors with a power of sale, of real property, where the mortgagor or grantor has been in possession of the property, within ten years after the forfeiture of the mortgage, or after the power of sale became absolute, or within ten years after the last payment on the same.

The respondent executed a deed of trust securing a $360,000 Equity line of credit. In 2008, respondents fell behind on loan payments and the lender gave the respondent the following written notice:

You have the right to cure the default. To cure the default, on or before May 12, 2008, Countrywide must receive the amount of $4,362.28 plus any additional regular monthly payment or payments, late charges, fees and charges, which become due on or before May 12, 2008.

The default will not be cured unless Countrywide receives "good funds" in the amount of $4,362.28 on or before 12 May 2008. . . . Countrywide reserves the right to accept or reject a partial payment of the total amount due without waiving any of its rights herein or otherwise. For example, if less than the full amount that is due is sent to us, we can keep the payment and apply it to the debt but still proceed to foreclosure since the default would not have been cured. If the default is not cured on or before May 12, 2008, the mortgage payments will be accelerated with the full amount remaining accelerated and becoming due and payable in full, and foreclosure proceedings will be initiated at that time. As such, the failure to cure the default may result in the foreclosure and sale of your property.

The respondents made no subsequent payments prior to the stated deadline. Two payments were made afterward and no further payments were made in response to a second Notice of Intent to Accelerate from Countrywide dated 5 November 2008. The petitioner commenced the non-judicial foreclosure proceeding which was heard as a Contested Hearing before the Assistant Clerk of Superior Court who granted the petitioner the right to proceed with foreclosure ("Clerk's Order"). The Clerk's Order explicitly stated that respondents "contested the foreclosure, noting that the foreclosure sale is barred by the statute of limitations and challenging the standing of the Lender to foreclose[.]" The respondents appealed the matter to the Superior Court. The trial court concluded as a matter of law:

20. The language of the Notice from Countrywide sent to the Borrowers in April 2008 constitutes a valid acceleration of the Note.
21. Under N.C.G.S. § 1-47 there is a ten-year statute of limitation for when the power of sale by foreclosure may commence.
22. The provisions of In re Brown, 771 S.E.2d 829 (NC Ct. App. 2015) control, which holds that if a promissory note is accelerated, the statute of limitation runs from the date of acceleration forward for ten years from the acceleration date.
23. In the present case, the date of acceleration was May 12, 2008, and therefore under the In re Brown decision the statute of limitations had run prior to the Notice of Hearing filed on or after November 13, 2018 by the Petitioners and as such the petition to foreclose is barred under the relevant statute of limitations.
24. [Petitioner's] actions were improperly filed after the statute of limitations had expired.

The petitioners appealed to the Court of Appeals which first considered the petitioners' contention that the trial court erred in its conclusion of law that petitioner's "actions were improperly filed after the statute of limitations had expired." The opinion reasons as follows:

In order for a foreclosure to be barred under this section, two events must occur: (1) the lapse of ten years after the forfeiture or after the power of sale became absolute or after the last payment, and (2) the possession of the mortgagor during the entire ten-year period. These two requirements must be coexistent.

In re Lake Townsend Aviation, Inc., 87 N.C. App. 481, 484 (1987) (citation omitted). "[T]he statute of limitations . . . begins on the date of maturity of the loan[ ] unless the note holder or mortgagee has exercised his or her right of acceleration." In re Brown, 240 N.C. App. 518, 522 (2015) (emphasis added). An "acceleration" is "[t]he advancing of a loan agreement's maturity date so that payment of the entire debt is due immediately." Acceleration, BLACK'S LAW DICTIONARY (8th ed. 2004). "[I]f payment on a promissory note is accelerated, the power of sale . . . begin[s] to run on the date of acceleration." Brown, 240 N.C. App. at 522.

Further, the second element of § 1-47(3), "possession of the mortgagor during the entire ten-year period[,]" Lake Townsend, 87 N.C. App. at 484; see § 1-47(3), is not in dispute. The parties dispute the date of acceleration, and thus, the date from which the clock started on the 10-year statute of limitations under § 1-47(3). The trial court concluded that the respondents' failure to cure the default on or before 12 May 2008 as provided in the petitioners' notice resulted in the note holder's acceleration of the entire loan amount, and started the running of the relevant 10-year statute of limitations under § 1-47(3). The opinion is illuminating on this issue:

It appears to be well settled that a provision in a bill or note accelerating the maturity thereof on nonpayment of interest or installments, or other default, at the option of the holder, requires some affirmative action on the part of the holder, evidencing his election to take advantage of the accelerating provision, and that until such action has been taken the provision has no operation. In other words, some positive action on the part of the holder is an essential condition for the exercise of his option and a mere mental intention to declare the full amount due is not sufficient. This rule requires objective evidence of an election to exercise the option.

Shoenterprise Corp. v. Willingham, 258 N.C. 36, 39-40 (1962) (internal quotation marks and citation omitted). That is, "[t]he exercise of the option to accelerate maturity of a note should be in a manner so clear and unequivocal as to leave no doubt as to the holder's intention." Vreede v. Koch, 94 N.C. App. 524, 527 (1989) (quotation marks and citation omitted). "The rationale is that the acceleration clause is for the sole benefit and security of the creditor[,] and he must elect to take advantage of it." Id. (citation omitted).

Here, the 7 April 2008 Notice contains this clear statement: "[i]f the default is not cured on or before May 12, 2008, [then] the mortgage payments will be accelerated with the full amount remaining accelerated and becoming due and payable in full[.]"

The Notice does not employ verbs such as "might" or "may" in reference to acceleration. The Notice uses the term "will," which indicates inevitability. The only reference to a possibility is foreclosure and sale of the subject property at a later proceeding should respondents fail to cure the default. Thus, acceleration is not a possible future event - it is guaranteedto occur if respondents do not tender "'good funds' in the amount of $4,362.28 on or before May 12, 2008."

Respondents failed to cure the default on their Account by the specified date - 12 May 2008. Thus, we determine that acceleration of the loan occurred the next day (13 May 2008). Cf. Vreede, 94 N.C. App. at 527 (quotation marks and citation omitted) (holding that a note holder must, in no uncertain terms, affirmatively invoke its option to accelerate maturity of a note, and "a mere threat to commence suit" following notice of default "is not sufficient either to set in motion the limitations statute or to establish an earlier maturity date for any purpose."); Lake Townsend, 87 N.C. App. 481, 486 (1987) (emphasis added) (determining that language in a note and deed of trust that states, "the holder of this Note may declare the entire sum due and payable[,]" is a statement of the note holder's "right to accelerate payment on the entire amount of the note[,]" but is not sufficient by itself to show that the note holder had in fact "exercised this right[ ]" to accelerate.). Because petitioner did not file its first Notice of Hearing on Foreclosure of Deed of Trust until 15 November 2018 - approximately 10 years and 6 months after acceleration of the full loan amount - petitioner's action for non-judicial foreclosure of respondents' property is time barred under § 1-47(3).

The Court of Appeals citing Vreede, concluded that the petitioners' 2008 notice contained "clear and unequivocal" language "as to leave no doubt as to the holder's intention[,]" and that the petitioner filed the foreclosure action outside the applicable 10-year statute of limitations under § 1- 47(3). The opinion also addresses clerical errors in the trial court's order and remanded for correction of those errors while affirming the trial court's order.

It should be noted that the case should prove helpful for foreclosure defense practitioners, but unfortunately, offers little aid for title examiners dealing with uncancelled deeds of trust as notices of acceleration and reinstatement agreements are seldom matters of public record. It might be observed that this decision might lead a title insurer considering insuring over an old uncancelled deed of trust and open foreclosure proceeding that has never been properly dismissed to rely upon the allegations concerning default and acceleration in the proceeding.

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