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Foreclosures and Bankruptcy Protection

A foreclosure is a lawsuit filed by someone who has a mortgage (South Carolina) or deed of trust (North Carolina) lien on land to get the right to sell the land, which is collateral for the loan because the agreement to pay the loan (usually, called a Note) has been broken. The lender has to send a right to cure letter to the borrower telling him that he has breached, or broken, the agreement and that he is a certain amount behind and that he has a certain amount of time to bring the account current, usually between 20-30 days from the date of the letter. If the loan is not brought current by that time, then the lienholder, who usually is a bank or person who bought the loan or is servicing or collecting the payments, declares that the entire loan is due at once.istock_000006651484xsmall

This is called accelerating the loan. A right to cure letter only has to be sent once in the life of the loan, so if you were behind several years before and received a right to cure letter and caught up the loan, the bank may not have to send you another one if you fall behind again. However, out of caution banks usually do.

In South Carolina foreclosure actions, when the loan is accelerated the bank then serves the borrower with the lawsuit, which consists usually of a lis pendens, a summons and a complaint which lay out the facts of the loan and the failure to pay. A lawsuit is served by having the borrower pick up a letter marked certified mail restricted delivery to him from the post office. It also is done by having a sheriff or process server hand it to the borrower or someone of adult age at the residence. There are other ways to serve someone, but these two methods are used most.

The borrower then has 30 days from the date that he receives the lawsuit to respond in writing to the suit by filing a response at the office of the clerk of court of the county in which the foreclosure was filed. It should have been filed in the county in which the land is located. The borrower also needs to mail a copy of the response to the lawyer representing the bank. He should also take a copy for himself to be clocked in, or stamped, by the clerk of court in his county to prove that he filed the answer or response to the complaint. Then the bank normally will set a hearing to get the person hearing the lawsuit to decide that the bank has the right to sell the property and to set a sale date. Usually a borrower is given 30 days notice of this. Realistically, unless the bank has done something illegal or there is some question of fact or law, the bank wins at the hearing. The sale then is to be held on a date the court sets after notice of the sale is published in the paper once a week for 3 consecutive weeks. Frequently, no other notice is given to the borrower after the hearing. The person who conducts the hearing is called a Special Referee, a Master-in-Equity, or a Clerk of Court, depending on in which state and county the property is located.

The borrower does not have to participate in any of the above. However, he will not know what is happening to his property if he does not. Also, if he does not file and answer and/or counterclaim, he may have waived any defenses he may have to the foreclosure and lose and right to sue the bank for anything it has done wrong.

If a bank does not get enough money to pay off the loan at the sale, then the amount still owed is called a deficiency. Banks can waive it, which means that the borrower does not owe the bank that money. If the bank does not waive it, then the borrower will have a judgement against him for that amount after the sale. In South Carolina, the borrower has to be out of his house the day the house is sold if the bank waives the deficiency, or 30 days later if the bank does not. In North Carolina, the borrower has 10 days after the sale to redeem the property or the sale is final and it is too late to file a chapter 13 bankruptcy to save the house. After the sale is final, the borrower can be evicted if he is not out of the property. However, he cannot be asked to leave until the sale is final because he still owns the property until then.

In a North Carolina foreclosure action, once the loan has been accelerated, the attorney for the lender sets a hearing in front of the Clerk of Court (there is no lawsuit) so that he can ask the Clerk of Court to authorize a sale of the asset/the house. The borrower must be given notice of the hearing, but generally, the lender is going to prove that the loan documents are valid and that there isĀ  a default and the Clerk will set a sale. After the sale is final, there would have to be another hearing to determine the amount of the deficiency judgement if the bank is seeking one. That is because the foreclosure action in North Carolina is not a lawsuit where the bank is seeking a deficiency at the foreclosure hearing or sale. It is done afterwards.

To stop a foreclosure sale a borrower must (a) get all the money that the bank is owed in back payments, attorneys fees, late fees, etc., which the bank frequently will take and stop the foreclosure (but does not have to, so don’t count on it); (b) pay off the loan in its entirety before the sale by getting another loan or by selling the property; or c) file a chapter 13 bankruptcy before the sale in SC and before 10 days after the sale in NC. Otherwise, the real estate is gone.

Of course, a borrower has the right to defend the foreclosure action by contesting the validity of the documents or the balance owed, by contesting the way the bank has conducted the closing of the real estate or the foreclosure action, or by raising any other defenses that the borrower feels he has. However, it generally is advisable to obtain an attorney who deals with foreclosure defense well before the hearing date (preferably right after you are served with the foreclosure action to give the attorney time to investigate and prepare your defense).

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  • Can I go to Jail for not Paying my Bills?

    No, not unless you committed a crime in the creation of the debt (for example, fraud). Simply borrowing money and not being able to pay it back is not a crime. Many creditors representatives will tell you lies on the telephone and say that they will have you put in jail. Perhaps they are too ignorant to know they are wrong or that it is illegal for them even to say that. See More Bankruptcy Q&A