Family gets back home that was sold cheap at void sale 

A family whose home was foreclosed upon over barely $200 in unpaid homeowners’ association dues will be getting their house back after the North Carolina Supreme Court unanimously ruled that the company that purchased it for less than 2 percent of its true worth wasn’t an innocent purchaser for value. 

In August 2016 The Crossings Community Association filed a lien against a property owned by Calmore and Hygiena George over $204.75 in unpaid HOA dues. Less than two months later, it began foreclosure proceedings on the home and tried to serve notice on the Georges by having a sheriff’s deputy leave copies of the notice at the house. But while the Georges owned the house, they live in the Virgin Islands and only visited it perhaps once a year; state law requires that notice be served on a person at their “dwelling house or usual place of abode.” 

A Mecklenburg County clerk permitted the foreclosure sale to take place in January 2017. The successful buyer at auction, KPC Holdings, landed the house for just $2,650. It then sold the property to National Indemnity Group for a promise to pay $150,000. 

After the Georges learned about the sale, they filed a motion to have it set aside. Mecklenburg County Superior Court Judge Nathaniel Poovey entered orders setting aside the foreclosure and canceling the foreclosure deed conveyed to KPC, which KPC and NIG appealed. 

The three judges on the Court of Appeals panel produced three separate opinions. All agreed that voiding the foreclosure sale was proper because the Georges received insufficient notice, but they disagreed over what exactly should happen next and who should bear the cost of compensating the Georges for the loss of their house. Two of the three judges ruled that, by law, the sale of the property to KPC couldn’t be set aside because KPC was a good faith purchaser for value. 

The Georges appealed, and in an April 16 opinion written by Justice Sam Ervin IV, the Supreme Court reversed. Ervin noted that the rock-bottom price KPC paid for the home wasn’t by itself enough to deny KPC and NIG the privileges of an innocent purchaser. Rather, the record must also show the existence of some additional irregularity or defect in the proceedings leading to the challenged foreclosure sale. 

The sale of the George’s home was unusual in several ways. The lien on it was trivially small, the Georges owned their home free and clear of any mortgage, the home had been foreclosed upon without any opposition from the Georges, the Georges lived in St. Croix, and mail sent to them at their St. Croix address hadn’t reached them—information that was all available in the public record. As such, KPC and NIG had “ample reason to question the sufficiency of the notice” the Georges had received, even though the sheriff’s deputy noted (incorrectly) that they’d been personally served. 

KPC and NIG were also hamstrung by the unconvincing testimony of NIG’s owner, Laura Schoening. At the hearing on the Georges’ motion for relief, Schoening so persistently remembered facts that might help NIG’s case while claiming no memory of any facts that might weaken it that Poovey stated that he “[wasn’t] sure if I would believe her if she said it were daylight right now outside.” 

As such, Ervin said that the Supreme Court was satisfied that Poovey hadn’t abused his discretion in setting aside the sale. 

“The testimony before the trial court clearly suggests that a grossly inadequate price had been paid for the property at the hearing and that KPC Holdings and National Indemnity had a history of dealing in foreclosed upon properties together,” Ervin wrote. “The nature of the prior dealings between KPC Holdings and National Indemnity, the fact that the Georges appeared to have ‘lost’ the property over $204.75, and Ms. Schoening’s lack of credibility provide further indication that KPC Holdings and National Indemnity had reason to question the sufficiency of the notice that the Georges had received.” 

The court remanded the case back to the superior court to consider what restitution, if any, might be appropriate in the case. 

James Galvin of Thurman, Wilson, Boutwell & Galvin in Charlotte represented the Georges. Galvin said that the ruling allows trials courts to look at all of the facts, beyond the relatively thin record contained in a foreclosure file, that a buyer at a foreclosure sale should have been able to ascertain. 

“Part of the issue was what facts is a purchaser allowed to rely on and still be considered innocent?” Galvin said. “What the purchasers were trying to say was all we have to do is look at the foreclosure file in the courthouse, and we don’t have to pay attention to anything else, and that’s just not realistic. The people who look at foreclosures look at the whole public record when considering whether this is a property they want to buy.” 

Galvin said that the ruling also reflects the court’s trust in trial judges and their unique position to assess the credibility of evidence and witnesses—a position that the pandemic is now complicating. 

“The trial judge looking the witnesses in the eyes thought there was something fishy here,” Galvin said. “But what if this was done by Webex? Would that have changed his ability to read her? We’ll be working those things out for years to come.” 

Derek Adler of DeVore Acton & Stafford in Charlotte represented NIG. Adler said that he thought it was difficult to distinguish the Georges’ case from the Court of Appeals’ 2017 decision in In re Ackah, which was affirmed by the Supreme Court, and in which the court declined to set aside a similar sale. Adler said that the latest ruling could reduce clarity and generate more litigation. 

“The two cases are so similar that anyone in the future now has to distinguish these two opinions, and the only distinguishing fact I can determine is that my client had bid on foreclosures before, and so she should have known there was some defect in the notice,” Adler said. “But at what point do you say there’s some defect in the notice? There’s no bright line as to what amount of a bid is fair, and I think this case has blurred that even further.” 

The Supreme Court’s ruling gives the trial court substantial latitude over what restitution might be owed to whom. Galvin said his clients believe they deserve restitution for their damages resulting from the sale. Adler said that his client also believes it deserves restitution, both from the Georges for improvements done to the home and from the HOA for its legal bills. 

Preston Odom of James, McElroy & Diehl in Charlotte represented KPC. He did not respond to a request for comment on the rulings. 

The 27-page decision is In re George (Lawyers Weekly No. 010-037-21). The full text of the opinion is available online at nclawyersweekly.com. 

Follow David Donovan on Twitter @NCLWDonovan