N.C. Ct. Of Appeals: Howse v. Bank of America- Collateral Attack on Foreclosure


In previously ruling on the foreclosure by power of sale on this property, the North Carolina Supreme Court upheld that foreclosure, finding that the Deed of Trust contained a sufficient description to identify the real property. See In re Foreclosure of a Deed of Trust Executed by Reed, 233 N.C. App. 598, 758 S.E.2d 902, 2014 N.C. App. LEXIS 381 (2014). Subsequently, but before the foreclosure sale was completed, Mr. Howse and Ms. Reed brought a separate suit in Superior Court, raising equitable grounds to enjoin the foreclosure. Bank of America successfully argued that this was an impermissible collateral attack on the foreclosure by power of sale. In granting summary judgment, the Superior Court also denied the motion to compel Bank of America to respond to discovery, holding that the entire suit was an impermissible collateral attack.

In a divided opinion, the majority held that the request for relief under the Uniform Declaratory Judgments Act, N.C.G.S. § 1-253 et seq., would be an impermissible collateral attack on the foreclosure by power of sale as “one in which a plaintiff is not entitled to the relief demanded in the complaint unless the judgment in another action is adjudicated invalid.” Thrasher v. Thrasher, 4 N.C. App. 534, 540, 167 S.E.2d 549, 553 (1969) (quotation marks and citation omitted).

Relief sought under N.C.G.S. § 45-21.34 was not a collateral attack on the foreclosure by power of sale. The majority explained that in North Carolina, a foreclosure can proceed either judicially (“foreclosure by action”), in which all claim and counterclaims can be adjudicated, or as a foreclosure by power of sale, wherein the Clerk of Court is, pursuant to N.C.G.S. § 45-21.16(d), limited to making the following six findings of fact:

(1) the existence of a valid debt of which the party seeking to foreclose is the holder;
(2) the existence of default;
(3) the trustee’s right to foreclose under the instrument;
(4) the sufficiency of notice of hearing to the record owners of the property;
(5) the sufficiency of pre-foreclosure notice under [N.C. Gen. Stat. § 45-102] and the lapse of the periods of time established by Article 11, if the debt is a home loan as defined under [N.C. Gen. Stat. § 45-101(1b)]; and
(6) the sale is not barred by [N.C. Gen. Stat. § 45-21.12A].

The clerk’s findings are appealable, but even then the superior court is limited to ruling on those six facts.

N.C.G.S. § 45-21.34 then provides the recourse for raising equitable defenses, as:

Any owner of real estate, or other person, firm or corporation having a legal or equitable interest therein, may apply to a judge of the superior court, prior to the time that the rights of the parties to the sale or resale becoming fixed pursuant to G.S. 45-21.29A to enjoin such sale, upon ...any … legal or equitable ground which the court may deem sufficient…. (Emphasis added in the opinion.)

Accordingly, at any point prior to the fixing and termination of rights in the foreclosure (i.e., after the 10-day upset period has run), this is the “a statutorily-created method” to “present equitable defenses to foreclosure when the foreclosure proceeding does not otherwise contain a mechanism for those defenses to be considered.”

Further, as the superior court denied the motion to compel responses to discovery solely because the it believed underlying action was an impermissible collateral attack, the majority reversed on that matter as well.

The dissent addresses more directly the equitable claims raised, including negligent misrepresentation and breach of the implied covenant of good faith and fair dealing, finding that those are claims that arose under the Note and Deed of Trust, which had been previously upheld and were without merit. As such, raising them again was an impermissible collateral attack. The dissent would then have also upheld the denial of the motion to compel as fruitless. As the majority noted, however, that while this “thoughtful” opinion may ultimately be found to be meritorious, it inappropriately and prematurely precluded possible discovery of relevant evidence.


With a dissent, this case seems certain to return to the Supreme Court for a second time.

For a copy of the opinion, please see:

Howse v. Bank of America- Collateral Attack on Foreclosure


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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