Summary:
In this sweeping Consent Judgment, the North Carolina Attorney General effectively finishes what the North Carolina Business Court had already begun in its earlier summary judgment ruling against MV Realty: dismantling the company’s attempt to transform exploitative listing agreements into purported “covenants running with the land.”
As discussed previously in “N.C Bus. Ct.: State of North Carolina v. MV Realty: When ‘Covenants Running with the Land’ Turn Out to Be Pure Fiction,” the Business Court had already concluded that MV Realty’s Homeowner Benefit Agreements (“HBAs”) did not create enforceable real property covenants, that the memoranda recorded against homeowners’ properties were deceptive, and that the company’s collection of “early termination fees” constituted unfair and deceptive trade practices.
This Consent Judgment now permanently enjoins MV Realty from attempting to enforce any HBAs in North Carolina, collect any fees from North Carolina consumers, record any future encumbrances, or even conduct further business operations in North Carolina except to wind down the company.
Commentary:
This decision may be among the more significant consumer-protection rulings to emerge from the Business Court in recent years, particularly because it treats the recorded memoranda not merely as aggressive contract provisions, but as fundamentally deceptive instruments that falsely purported to burden title to consumers’ homes.
What makes this Consent Judgment particularly striking is the breadth of the relief. MV Realty agreed:
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that the HBAs and memoranda are “wholly unenforceable” against North Carolina consumers;
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to dismiss all pending litigation and arbitration against North Carolina consumers;
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to record terminations of all memoranda;
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never to assign these purported rights to third parties;
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and to cease doing business in North Carolina altogether.
The monetary component is also substantial. A $4.5 million judgment was entered against the entity defendants, although $3.18 million was suspended based on asserted inability to pay and MV Realty’s pending Florida bankruptcy proceeding.
But for bankruptcy lawyers, the most interesting — and perhaps vulnerable — portion of this Consent Judgment lies in Section VI, the “Bankruptcy Provisions.”
Those provisions attempt to bind MV Realty in advance to:
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not contest nondischargeability;
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concede that the allegations establish nondischargeability under § 523(a)(2)(A);
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concede collateral estoppel effect;
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and refrain from opposing administrative expense requests for the State’s bankruptcy counsel fees.
Some of these provisions may ultimately be enforceable. Others may not.
There is certainly authority allowing parties to stipulate to underlying facts that later support nondischargeability. Courts also frequently give prepetition consent judgments collateral-estoppel effect where the factual findings are sufficiently detailed and where the parties clearly intended preclusive effect.
But bankruptcy courts have historically been skeptical of contractual “pre-waivers” of discharge rights or provisions that effectively attempt to predetermine dischargeability outside the bankruptcy process itself. A debtor generally cannot simply contract away bankruptcy protections in advance. Bankruptcy courts remain courts of independent federal jurisdiction, and dischargeability ultimately remains a federal question.
That tension is evident here. Section 6.2 attempts to provide that “the facts alleged in the Complaint establish all elements necessary” for nondischargeability under § 523(a)(2)(A) and § 1141(d)(6), while simultaneously giving the Consent Judgment “collateral estoppel effect.” But the Consent Judgment elsewhere expressly states that Defendants “neither admit nor deny” the State’s allegations.
That creates an interesting bankruptcy problem.
Collateral estoppel generally requires actual litigation and actual determination of factual issues. Consent judgments can sometimes satisfy that requirement, but courts often scrutinize whether the parties genuinely intended factual adjudication or merely settlement. Here, the “neither admit nor deny” language may substantially complicate any future attempt to assert issue preclusion automatically.
Similarly, the provision attempting to render all amounts nondischargeable under § 523(a)(7) may face substantial limits. Section 523(a)(7) applies to fines, penalties, or forfeitures payable to and for the benefit of a governmental unit and not compensation for actual pecuniary loss. But portions of this judgment are expressly described as restitution and attorneys’ fees. Whether all of those amounts fit comfortably within § 523(a)(7) is hardly automatic.
There is also an irony here familiar to consumer bankruptcy attorneys.
This settlement devotes extensive attention to constraining any future bankruptcy filed by MV Realty. Yet it says remarkably little about the bankruptcies of the consumers allegedly victimized by these practices.
The Consent Judgment voids the HBAs and prohibits future collection activity. That is important. But many homeowners likely:
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refinanced under pressure,
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paid termination fees,
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delayed sales,
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incurred attorneys’ fees,
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suffered damaged credit,
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or filed bankruptcy while attempting to deal with these recorded memoranda.
The settlement does not appear to address whether:
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restitution recoveries are exempt property for consumers in bankruptcy;
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trustees may attempt to administer those recoveries;
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consumers who paid termination fees while in bankruptcy may have additional bankruptcy-specific causes of action;
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or whether any claims based upon violations of the automatic stay, discharge injunction, or Bankruptcy Rule 3002.1-type notice principles may exist.
Indeed, one can easily imagine scenarios where homeowners filed Chapter 13 cases specifically because these purported “covenants” clouded title, interfered with refinancing, or obstructed home sales. The Business Court’s finding that these memoranda never actually created enforceable real-property interests may ultimately strengthen arguments that many of these collection efforts were little more than sophisticated pressure tactics masquerading as property law.
And for bankruptcy practitioners, there may still be significant unexplored issues regarding:
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avoidance of recorded memoranda under § 544;
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classification of claims arising from HBAs;
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whether any payments extracted postpetition violated the automatic stay;
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and whether debtors may exempt or retain future restitution recoveries.
In many respects, this Consent Judgment marks the collapse of an entire business model that depended upon transforming small upfront payments into long-term leverage against homeowners’ equity and mobility. The North Carolina Business Court had already exposed the legal fiction behind those “covenants running with the land.” This Consent Judgment largely finishes the job.
But the bankruptcy consequences — for both MV Realty and the homeowners caught in its web — are probably not over yet.
For a summary and commentary of previous related decisions, please see N.C Bus. Ct.: State of North Carolina v. MV Realty: When “Covenants Running with the Land” Turn Out to Be Pure Fiction
For an additional summary of this case, please see: Business Court Blast- State of N.C. v. MV Realty PBC, LLC, 2026 NCBC Order 41 (N.C. Super Ct. Apr. 23, 2026) (Davis, J.)
To read a copy of the transcript, please see:
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