Reserve Homeowners Association commenced a foreclosure against residential rental property owned by Ms. Ackah for unpaid homeowner’s association dues. Notice of the sale was left at the property and notices sent (and returned unclaimed) to other family members. Ultimately, the property was purchased by the Jones Family Holdings a the sale. Finding that Ms. Ackah did not receive actual notice of the foreclosure , the superior court accordingly set aside the sale.
The majority of opinion of the Court of Appeals held that N.C.G.S. § 1A-1, Rule 4 did require the HOA to use “due diligence” in effectuating service. Since the HOA knew or had reason to know that Ms. Ackah was not residing at the property, the HOA was obliged to attempt to contact Ms. Ackah through all modes available, specifically in this case through the email address it had in its records for her.
This lack of due diligence, however, did not allow, pursuant to N.C.G.S. § 1-108, for the sale to a “good faith purchaser” to be set aside as the notice provided was constitutionally sufficient as “it was reasonably calculated to reach the intended recipient when sent[.]” Jones v. Flowers, 547 U.S. 220, 220 (2006). The majority held that it was a rational decision for the legislature to favor the interests of good faith purchasers ahead of property owners. Accordingly, Ms. Ackah is entitled to other remedies from the HOA for the improper sale, but not return of the property.
The dissent relied on Cary v. Stallings, 97 N.C. App. 484, 487, 389 S.E.2d 143, 145 (1990), which had been followed in unpublished opinions by County of Jackson v. Moor, 236 N.C. App. 247, 765 S.E.2d 122 (2014) (unpublished) and Zheng v. Charlotte Prop., 226 N.C. App. 200, 739 S.E.2d 627 (2013) (unpublished), which held that “title to such property may in fact be affected if the court deems it necessary in the interest of justice.”
With a split opinion, where the majority seems to reject a long line of its own cases, this seems like an appropriate case for appeal to the Supreme Court and perhaps a legislative change that would protect against this.
It is also worth noting that the Jones Family Holdings are not naifs when it comes to purchasing property at foreclosure sales, particularly related to tax and homeowners’ associations. The Bennett case from the M.D.N.C. bankruptcy court, involved the Jones Family Holdings and also points towards how this case could have had a different result in a bankruptcy, as 11 U.S.C. § 548 can be used to avoid a transfer where there was a “material irregularity in the sale.”
For a copy of the opinion, please see: