Summary:
Calmore & Hygiena George, residents of St. Croix in the U.S. Virgin Islands, purchased a townhome in Charlotte for their four daughters, all of whom were attending college there. There were no mortgages or liens against the property. Ms. George would typically visit for a month during the summer and both during Christmas.
The Georges fell $204.75 delinquent on their homeowner's dues to Crossings Community Association ("CCA"), which filed a Claim of Lien and subsequently commenced foreclosure proceedings. CCA attempted without success to serve the Georges at their home in St. Croix . A Mecklenburg County Deputy Sheriff attempted personal service at the townhome, delivering the notice of foreclosure to a person who identified herself as Hygiena George and stating in the return of service that she had left a copy for Calmore George, with a person of suitable age and discretion who resided at Mr. George's dwelling house or usual place of abode. Service was, however, actually left with the George's eldest daughter, Jeanine George, who had claimed to be Hygiena.
The townhome was subsequently sold at a foreclosure sale to KPC Holdings for $2,650.22, which then resold the townhome to National Indemnity Group. Upon being ordered to vacate the property, the Georges brought suit to have the foreclosure declared null and void due to insufficient notice. The trial court determined that Mr. George had not been served with notice of the foreclosure at his dwelling house or usual place of abode, declared the foreclosure invalid and the transfers to KPC Holdings and then to National Indemnity null and void. Both appealed and while that appeal was progressing the trial court further determined that neither KPC Holding or National Indemnity were qualified as good faith purchasers for value for purposes of N.C.G.S. § 1-108.
The Court of Appeals that, following Swindell v. Overton, 310 N.C. 707, 713, (1984), "a gross inadequacy of purchase price is insufficient, in and of itself, to support a determination that a subsequent purchaser of foreclosed-upon property did not act in good faith." And while Mr. George did not receive actual notice, he could be deprived of his property since he had received "constitutionally sufficient notice" of the pending foreclosure, which only required that the "the sender must take some reasonable follow-up measure to provide other notice where it is practicable to do so.” Id. at 50 (quoting In re Ackah, 255 N.C. App. at 288). Lacking any actual or constructive knowledge of any deficiencies or irregularities in service, a divided Court of Appeals held that KPC Holdings and National Indemnity were entitled to rely on the foreclosure proceeding.
Continuing to uphold that an insufficient purchase price alone would not overturn a foreclosure sale, the Supreme Court held that the record from the trial court contained ample other support for finding that KPC Holdings and National Indemnity were not good faith purchasers. This included that the proof of service by the substitute trustee clearly indicated that service to the Georges in St. Croix had failed, that the property was being sold due to $204.75 in missed homeowners' dues and that Laura Schoenig, the agent for KPC Holdings at the auction (and owner of National Indemnity), had purchased properties at foreclosure "many times" and would have gleaned from that experience and quick, online title searching, that there were no other liens against the property. Further, the trial court had explicitly doubted Ms. Schoenig's testimony to such an extent that it would not "believe her if she said it was daylight right now outside." Accordingly, in addition to a grossly inadequate price for the property, KPC Holdings and National Indemnity had or should have had reason to question the sufficiency of notice to Mr. George. While remanding the case to determine if the Georges owed any degree of restitution for improvements made to the property, the Supreme Court held that the foreclosure and subsequent transfers were null and void.
Commentary:
This case does establish that purchasers of properties at foreclosure cannot merely bid blindly at a foreclosure auction, but are also expected to conduct due diligence in reviewing the foreclosure proceeding for deficiencies in notice and, presumably, any other irregularities.
That neither the trial court nor the Supreme Court struggled with the attempt by KPC Holdings and National Indemnity to "launder" this sale through quick transfers following the foreclosure sale, is both heartening and also should give title insurers pause.
This presents another hurdle that foreclosing parties must leap, as it is not hard to imagine that purchasers at foreclosure auctions will require greater certainty from substitute trustees that the proceeding was conducted in full compliance with all legal requirements.
Lastly, this does present a chance for homeowners to obtain relief from rapacious foreclosure sales by showing that purchasers cannot turn blind eyes to problems, but must actually investigate those sales. It is worth noting that homeowner's associations are the the worst of neighbors.
For a copy of the opinion, please click here:
For a copy of the Court of Appeals opinion, please click here:
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