Real Property – Foreclosure – Civil Practice – Notice – Constitutional – Good Faith Purchaser

In re Ackah (Lawyers Weekly No. 011-266-17, 19 pp.) (Chris Dillon, J.) (Hunter Murphy, J., dissenting) Appealed from Wake County Superior Court (Kendra Hill, J.) N.C. App.

Holding: When a homeowners’ association foreclosed on the respondent-owner’s property for failure to pay dues, the HOA did not provide respondent with notice that satisfied N.C. R. Civ. P. 4; nevertheless, the notice was constitutionally sufficient. Therefore, under G.S. § 1-108, the superior court could not provide respondent a remedy that negatively affected the good faith purchaser for value.

We affirm the superior court’s determination that respondent was entitled to some form of relief under N.C. R. Civ. P. 60. However, we reverse the order returning possession of the property to respondent.

In order to enforce its statutory lien, the HOA was required to give respondent notice of the hearing before the clerk of court in a form which satisfied Rule 4. Rule 4 requires the use of “due diligence” in providing notice.

The HOA had reason to know that respondent was not residing at the property. The HOA attempted service by certified mail to respondent’s mother and uncle. When those letters came back unclaimed, Rule 4 diligence required that the HOA at least attempt to notify respondent directly through the email address it had for her rather than simply resorting to posting a notice on the property.

Since the HOA failed to comply with Rule 4, respondent was entitled to relief under Rule 60.

However, § 1-108 says that a court setting aside an order pursuant to Rule 60 may order relief in the form of restitution, but that the court cannot order any relief which affects the title to property which has been sold to a good faith purchaser pursuant to the order being set aside.

Section 1-108 may be unconstitutional as applied if the property owner being divested of her property has not received notice which is at least constitutionally sufficient.

Here, however, the HOA’s attempts to notify respondent were constitutionally sufficient. A party need not use “due diligence” under the U.S. Constitution; rather, notice is constitutionally sufficient if it was reasonably calculated to reach the intended recipient when sent. The Supreme Court has held that where the owner no longer resides at the property, due process is satisfied if the notice is posted on the front door of the property (as the HOA did in this case), as it is reasonable that the owner’s tenant would notify the owner of the posting.

Since the notice was constitutionally sufficient, we must follow the policy set out in § 1-108, which favors the interests of the good faith purchaser at a judicial sale, ahead of the respondent’s interests in the property. Section 1-108 does not leave respondent without a remedy; it allows her to seek restitution from the HOA.

We decline to follow Town of Cary v. Stallings, 97 N.C. App. 484, 389 S.E.2d 143 (1990), as it did not cite to any Supreme Court precedent and its holding conflicts with the plain language of § 1-108. Even if we were bound by Stallings, the superior court based its order on its determination that the interests of justice required that the sale be set aside primarily “due to the Property being sold at a substantially low price” of $2,708.52. However, the superior court ignored the fact that the property was sold subject to respondent’s mortgage.

Affirmed in part; reversed in part; and remanded.

Dissent

(Murphy, J.) I agree that the HOA failed to provide respondent with sufficient notice under Rule 4. However, under Stallings, the superior court could enter judgment affecting title if the court deemed it necessary in the interest of justice.

We rejected the purchaser’s interpretation of § 1-108 more than a quarter of a century ago, and our Supreme Court has not seen fit to disturb our holding. The superior court’s order is consistent with our precedent.