It is commonly accepted that foreclosure with proper notice to junior lien holders cuts off those lien rights. While this is certainly true in most cases, as may be expected, there are exceptions. The most insidious exception derives from a line of cases that may best be explained by the following example:
O gives a deed of trust in favor of B. Subsequent to the recording of the deed of trust, a junior deed of trust is granted by O and recorded. O then defaults on the loan from B and B causes foreclosure to be instituted. B then purchases the property at the foreclosure sale. B next conveys the property to O. Presumably O would take title free of the junior lien but this is not the case under the holding of the Jones "Where the mortgaged premises were sold under a prior lien, and bought by a third person, who sold again to the mortgagor, the rights of the mortgagee are not impaired by this transaction; so far from it, it will be regarded only as the removal of an encumbrance (sic), which it was the duty of the mortgagor to effect." Jones v. Kingsey, 55 N.C. 463. The doctrine was restated in a case where the owner purchased at the sale, "We hold that the purchase by trustor at the senior mortgage sale did not extinguish the lien of the junior deed of trust" DIXIELAND REALTY COMPANY,v.WYSOR 272 N.C. 172, 158 S.E.2d 7 (1967).
Presumably this exception would apply to a judgment lien docketed after the senior deed of trust. Extreme care should be taken when a title examination reveals a foreclosure and the debtor reacquires title if there are any liens of record that appear to be cut off by the foreclosure proceeding.