When a lienholder starts a foreclosure, it usually is focused on getting money into its pocket. Yet a recent opinion from the North Carolina Court of Appeals (In re: Ackah – Sept. 5, 2017) should provide a warning to all lienholders – make sure you get proper service in the foreclosure or you may end up with significant money going out of your pocket instead. And if you have an email address for the property owner, make sure to use it to send notice of the foreclosure.

The Facts

Gina Ackah owned residential property in an HOA community near Raleigh. Ms. Ackah moved to Africa and leased the residential property to a tenant while she was gone but did not tell the HOA of her move. Her mail was forwarded to her uncle in South Carolina. In 2014, Ms. Ackah failed to pay her HOA dues and the HOA commenced a foreclosure. The HOA made numerous attempts to send certified mail notices of the foreclosure to Ms. Ackah at her mother’s and uncle’s addresses, but these notices were all unclaimed. The HOA then posted the foreclosure notice on the front door of the property. Even though the HOA had Ms. Ackah’s email address, it never sent the foreclosure notice to her via email.

The property was sold at foreclosure sale and was purchased by Jones Family Holdings LLC for $2,708.52. Ms. Ackah finally learned of the foreclosure when her tenant contacted her after receiving a notice from Jones Family to vacate the property. Ms. Ackah moved to set aside the foreclosure sale on the ground that she did not have actual notice of the foreclosure. The trial court agreed and set aside the foreclosure sale, thus restoring title to Ms. Ackah. Jones Family appealed.

The Decision

The Appeals Court (in a 2-1 opinion) agreed with the trial court that Ackah did not have actual notice of the foreclosure. Specifically, the court held that the HOA should have attempted to serve the notice by email as well and since it failed to do so, it could not rely upon the posting of the property as good service. Since service was deficient, Ms. Ackah was entitled to relief.

However, the court noted that the North Carolina legislature has decided to protect good faith purchasers who acquire title to real property. Specifically, N.C.G.S. § 1-108 provides that when a judgment is set aside “[t]itle to property sold under such judgment to a purchaser in good faith is not thereby affected.” Thus, the court reasoned that Jones Family was entitled to keep the property, while Ms. Ackah’s only remedy was to seek restitution from the HOA.

The dissenting judge disagreed and would have affirmed the trial court’s decision to return title to the property to Ms. Ackah.

The Morals

• Always serve by email if you know the property owner’s email address. This is particularly important in foreclosures where lienholders regularly rely upon posting of the property as a means for obtaining service.
• This law is not yet set. Given the split decision from the Court of Appeals, the case is almost certain to be appealed to the North Carolina Supreme Court. Both property owners and lienholders should hope that the view of the dissent is adopted by the Supreme Court, as the current interpretation of N.C.G.S. § 1-108 severely limits the ability to obtain relief from a prior foreclosure sale.
• And for the property owner? When you move out of the country, make sure the HOA has a good address it can reach you at. While Ms. Ackah may be able to seek restitution from the HOA, she still has lost her property and had to deal with significant litigation expense in dealing with this matter. That could have been avoided if she had kept the HOA notified of her address and promptly paid the HOA dues when she was first notified they were past due.