When a Borrower Contests a Foreclosure: What Lenders and Servicers Should Expect

Foreclosures can start with a predictable process, but a borrower’s objection can quickly complicate matters for servicers and lenders. Hearing, evidentiary disputes, and litigation can tie up a lender’s time, money, and legal resources. For lenders and servicers in North Carolina and South Carolina, understanding the processes that apply to your state is critical.

Our team is here to help. We serve servicers and lenders throughout South Carolina, North Carolina, and Tennessee. Schedule a consultation by calling our North Carolina office at 910-363-1637 or our South Carolina office at 803-790-2626.

Contested Foreclosures in North Carolina

North Carolina permits foreclosure under a power of sale when the loan documents authorize it. But before the sale can proceed, the clerk of superior court conducts a hearing as required by state law.

The clerk must make multiple statutory findings, including:

• There is a valid debt held by the party seeking foreclosure
• The lender has a right to foreclose under the instrument
• The borrower is in default
• Required notice was provided

Borrowers can appear at the hearing and challenge the creditor’s evidence on these issues. An order authorizing foreclosure may also be appealed to superior court. Appeals are heard de novo, which means that the superior court considers the foreclosure issues anew. The party requesting an appeal may have to post a bond for the foreclosure to be stayed while the appeal plays out.

A borrower may also seek an injunction against a foreclosure sale under limited circumstances permitted under state law. Obtaining an order from a clerk doesn’t always end a contested matter.

Contested Foreclosures in South Carolina

In South Carolina, a foreclosure is a judicial proceeding. Under South Carolina Rules of Civil Procedure, foreclosure actions are tried by the court and referred to a master in equity or special referee.

The judge, whether a special referee or master in equity, determines the debt, which includes principal, interest, escrow adjustments, allowable costs, and attorney’s fees. They may also decide lien priorities before ordering a foreclosure sale.

If a borrower contests the action, they may dispute the allegations in the foreclosure complaint or raise applicable defenses and counterclaims. Depending on the specifics of the case, the case may then require discovery, motions, hearings, or presentation of additional evidence before a foreclosure judgment can be entered.

What Lenders and Servicers Should Have Ready Before a Dispute Arises

Documentation can streamline the process for servicers and lenders after a borrower raises a dispute. Having documentation ready before initiating foreclosure ensures that services are ready for any potential issues that may arise. Records that support the debt and the foreclosure process may include:

• Note, mortgage, or deed of trust
• Assignments and endorsements
• Payment and escrow histories
• Default and acceleration notices
• Proof of mailing or service
• Servicing transfer records
• Loss mitigation communications
• Current payoff and reinstatement figures

Servicing records should be consistent with the figures listed in affidavits, pleadings, and all other court documents.

A Contested Foreclosure Can Change the Timeline, Not Necessarily the Outcome

A borrower’s choice to contest a foreclosure may change the timeline of a foreclosure or what the servicer must present to the court. It does not necessarily prevent foreclosure entirely. Creditor-side foreclosure counsel can review the file before foreclosure to address any issues before filing. We can help identify documentation problems, respond to borrower defenses, prepare evidence, and represent lenders and servicers throughout the entire process.

Prepare for Foreclosure with Crawford & von Keller

Our creditor-side foreclosure counsel services support you before you initiate foreclosure through to a completed sale. Discuss your legal needs by calling our South Carolina office at 803-790-2626, calling our North Carolina office at 910-363-1637, or contacting us online.