N.C. Court of Appeals: In re Pugh- Arbitration Cannot Be Ordered in Foreclosure Proceeding

Summary: At the foreclosure hearing before the New Hanover County Clerk of Court, the Pughes filed an Election of Arbitration.  The Clerk of Court did not act on this, instead finding that the Substitute Trustee had meet the six statutory requirements to proceed with foreclosure.  The Pughes appealed to Superior Court, where the judge again found that the requirements for foreclosure had been met and declined to rule on the request for arbitration. The Court of Appeals affirmed, finding that both the Clerk of Court and, on appeal, the Superior Court had scope only to review the six criteria for allowing foreclosure.  Determining whether to allow arbitration fell outside that scope. The Court of Appeals noted that the Pughes could have raised their right to arbitrate pursuant to N.C.G.S. § 45-21.34, which allows a trial court to enjoin a foreclosure "upon the ground that the amount bid or price offered therefor is inadequate and inequitable and will result in irreparable damage to the owner or other interested persons, or upon any other legal or equitable ground which the court may deem sufficient...."  (Emphasis added.) Commentary: While arbitration clauses are more common in commercial mortgages, they are not unheard of in residential Deeds of Trusts and Notes.  This case suggests that Debtors could respond to Motions for Relief from Stay by seeking arbitration. For a copy of the opinion, please see: Pugh- Arbitration Cannot Be Ordered in Foreclosure Proceeding.pdf