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NC Foreclosure Statute of Limitations – A Tale of “Zombie” Deeds of Trust?

    Client Alerts
  • April 22, 2015

Let’s face it. Zombies are everywhere. I can’t seem to pass a movie theater or flip a TV channel without seeing or hearing something about them. So of course they were top of mind when I read the North Carolina Court of Appeals’ new opinion yesterday (April 21, 2015) on foreclosure statutes of limitation (In re Brown, 14-937). Particularly because it turns out that the NC right to foreclose has a shelf life which may be the envy of even the “living dead.”

The Facts

In 1980, Sherill and Merton (“Sellers”) conveyed two parcels of real property to Grover and Margaret (“Buyers”). The parties were all relatives and Sellers took back 30-year purchase money notes and deeds of trust secured by the properties. Merton became sole owner of the notes upon Sherrill’s death. In 1995, Grover offered to pay $100,000 in satisfaction of the notes, but Merton refused and said “she had forgiven the debts and would not foreclose on the deeds of trust.” Buyers made no further payments on the notes and lived on the land without incident until Merton’s death in 2012. At that point, her estate sought to foreclose on the deeds of trust as the new holder of the notes (apparently ignoring Merton’s prior promise not to foreclose). Buyers contested and argued that the foreclosure was barred by the statute of limitations.

The Law

North Carolina has a ten (10) year statute of limitations for commencing a foreclosure. N.C.G.S. § 1-47(c). The statute applies the ten year period to

the foreclosure of a mortgage, or deed in trust for creditors with a power of sale, of real property, where the mortgagor or grantor has been in possession of the property, within ten years after the forfeiture of the mortgage, or after the power of sale became absolute, or within ten years after the last payment on the same.

In the Brown case, the parties did not dispute that the first prong of the statute had been met since Buyers had been in actual possession of the property for at least ten years. But they disagreed about when the statute of limitations started to run (i.e. from the date the last payment was made on the notes in 1995, or at the maturity date of the notes since they had never been accelerated). 

The trial court found that the foreclosure was not time-barred and the Court of Appeals affirmed. In particular, the Court held that the NC foreclosure statute of limitations does not start to run upon the date of default on the note, but “instead begins on the date of maturity of the loan, unless the note holder or mortgagee has exercised his or her right of acceleration.” Thus, since the notes had 2010 maturity dates and had never been accelerated, the 2012 foreclosure was timely and well within the ten year limitations period (even though no payments had been made since 1995).

The Moral

The Brown opinion is significant because it confirms that North Carolina deeds of trust can have a very impressive shelf life before a statute of limitations bars foreclosure (i.e. up to 40 years on a deed of trust securing a note with a 30 year maturity). As a result of the recent recession, there are many instances in which lenders decided not to foreclose on properties with low values. That means there are many North Carolina deeds of trust out there which have not been cancelled which could be ripe for foreclosure 15 or 20 years down the road as property values increase. The Brown opinion will certainly inspire lenders with loans secured by deeds of trust to take a closer look at those old loans from time to time (or maybe inspire note buyers willing to take a chance on the possibility of a future foreclosure as property values rise).

Zombies? Not exactly, but with such a long statute of limitations in North Carolina, there are sure to be a lot of old, but “undead”, deeds of trust out there. 


Questions regarding this case update or financial services litigation can be addressed to Will Esser at / 704-372-9000. This legal update does not constitute the provision of legal advice or the creation of an attorney/client relationship with any party.