N.C. Court of Appeals: In re Gray- Foreclosure does Require Showing that the Underlying Debt was not Illegal

Summary: The Homeowners argued that their mortgage closing was conducted by two non-attorneys, whose advice regarding their rights and obligations constituted the unauthorized practice of law under N.C.G.S. § 84-4. As such, relying on In re Foreclosure of a Deed of Trust Executed by Bradburn, 199 N.C. App. 549, 551, 681 S.E.2d 828 (2009), they argued that the contract was void and unenforceable. In Bradburn, the Court of Appeals had found that a mortgage made by a broker unlicensed under N.C.G.S. § 53-243.03, was “not void ab initio, but rather, may be voidable.” Here the Grays failed to make any specific factual allegations showing a violation of N.C.G.S. § 84-4. Further, the Court of Appeals held that foreclosing parties did not have to affirmatively show that the underlying loan were improper, instead such issues could be raised “in an action to enjoin the foreclosure sale under G.S. 45-21.34.” In re Helms, 55 N.C. App. 68, 72, 284 S.E.2d 553, 555 (1981). Commentary: The Court of Appeals also referenced that on remand, the trial court in Bradburn ultimately found that the debt was valid despite the indisputable statutory violation. While not having access to that opinion, it is likely that such a result would be different if the validity of the debt was attacked (particularly by the Trustee) in bankruptcy. For a copy of the opinion, please see: Gray- Foreclosure does Require Showing that the Underlying Debt was not Illegal.pdf