4th Circut: Sun Trust v. Nassida- Foreclosure Hearing Finding of Valid Debt and Default was Res Judicata as to later Challenges to Debt


Sun Trust sued to collect on deficiencies following a foreclosure in North Carolina.  The Debtors raised defenses challenging the validity of the debt and the default.  The Court of Appeals held that the determination of a valid debt and default at the foreclosure hearing was res judicata.    While the Debtors  could not have raised these equitable defenses in the hearing under N.C.G.S. §  45-21.16, they could have raised such  defenses in a proceeding to enjoin the foreclosure under N.C.G.S. § 45-21.34 (2006).  The failure by the Debtors to do so resulted in the rights of the parties to the foreclosure becoming “fixed” and therefore barred the Debtors from raising such an equitable challenge in a later proceeding in a different court.


While I have not reviewed the underlying state court nor district court dockets,  the 4th Circuit seems, at least in its own description of the facts,  in this case to misunderstand several aspects of North Carolina foreclosures.  First,  it discusses that “a North Carolina superior court had already determined to be valid during a hearing to confirm the power of sale foreclosure pursuant to N.C. Gen. Stat. § 45-21.16 (2006)” (Emphasis added.)  It is not,  however,  a Superior Court that presides over such a hearing,  but instead, as stated in N.C.G.S § 45-21.16 (d),  it is the clerk of court that makes the required determinations.  This impacts whether the issues can be considered to be fully litigated, a requirement for res judicata.  Further,  while  N.C.G.S § 45-21.16 (d)(i) and (ii)  does require that the Clerk of Court find that there is a “valid debt of which the party seeking to foreclose is the holder” and that there has been a “default”,  the Clerk is not required to determine the amount of the debt or the default.  In fact,  the Clerk of Court is not allowed to make such a determination.  Again,  this would show that the question of the amount of the debt had not actually been litigated and res judicata  should not apply.

For a copy of the opinion, please see:

Sun Trust v. Nassida- Foreclosure Hearing Finding of Valid Debt and Default was Res Judicata as to later Challenges to Debt.pdf


1. Bachelor of Arts degree in English Literature from Washington University, 1993. 2. Juris Doctor degree from George Washington University, 1996. Admissions to Practice of Law: North Carolina Bar, 1996. Federal District Courts for the Eastern and Middle Districts of North Carolina. Specialty Certification: North Carolina State Bar: Certified as a Specialist in Consumer Bankruptcy. Areas of Practice: Practice limited to consumer and business debtor bankruptcy law, 1998 to present. Memberships: National Association of Consumer Bankruptcy Attorneys (NACBA). North Carolina Academy of Trial Lawyers (NCATL). North Carolina Bar Association, Bankruptcy Section. Lectures prepared and presented: North Carolina Academy of Trial Lawyers seminar on bankruptcy; Topic: Counseling the Consumer Debtor Prior to Court - C.Y.A. Forms to Help 'Gird They Loins'; 2001. Middle District Bankruptcy Seminar; Topic: Preparing Chapter 13 Plans; 2002. NACBA National Convention; Topic: Efficient Office Practices; 2003. NACBA National Convention; Topic: Chapter 7 vs. Chapter 13 Debates; 2004. Middle District Bankruptcy Seminar; Topic: Chapter 7 & 13 Hot Issues; 2004. Positions held: NACBA National Convention; Convention Chair; 2008. NACBA National Convention; Panel Moderator: Topic: Basic Bankruptcy Issues; 2008. NACBA National Convention; Panel Moderator; Topic: Chapter 13-Disposable Income and Other Issues; 2007. NACBA National Convention; Panel Moderator; Topic: Representing Members of the Military and Their Families; 2007. NACBA, Member of National Board of Directors, 2006 to present. NCATL, Chair of the Bankruptcy Section, 2003 to 2007. NACBA, Chair of the North Carolina Section, 2003 to 2007. NC Bar Association, Bankruptcy Section, Bankruptcy Council Member, 2004 to present.

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