The Statute of Limitations and Two-Dismissal Rule and their Impact on Foreclosure Filings

North Carolina’s power-of-sale procedure has a limited judicial process grafted onto it in order to address due process concerns that were raised several decades ago.  Fortunately, North Carolina has a long limitations period.  N.C.G.S. § 1-47(3) provides:  “For the foreclosure of a mortgage, or deed of trust for creditors with a power of sale, of real property, where the mortgagor or grantor has been in possession of the property, within ten years after the forfeiture of the mortgage, or after the power of sale became absolute, or within ten years after the last payment on the same.”  The North Carolina Court of Appeals recently held that “in order for a foreclosure to be barred under this section, two events must occur: (1) the lapse of ten years after the forfeiture or after the power of sale becomes absolute or after the last payment, and (2) the mortgagor remains in absolute possession during the entire ten-year period.” 

 In re Foreclosure of Brown, 771 S.E.2d 829 (N.C. App. 2015).  The Court rejected the argument that the first to occur (in this case the date of default) of these three events was the starting point for the 10 year period, relying on E.H. & J.A. Meadows Co. v. Bryan, 195 N.C. 398, 401, 142 S.E. 487 (1928), on the basis that default gives the lender the option to accelerate and foreclose, which the lender may waive. Waiver is conclusively presumed in the absence of evidence to the contrary.

An additional consideration in North Carolina is the Rule 41 of the Rules of Civil Procedure, which deals with the dismissal of actions, and employs what is known as the “two dismissal rule”:  a notice of dismissal filed by the plaintiff, even designated “without prejudice”, “operates as an adjudication upon the merits when filed by a plaintiff who has once dismissed in any court… an action based on or including the same claim.”  N.C. R.Civ.P. 41(a)(1).  However, the North Carolina Court of Appeals in the recent case In re Foreclosure of Beasley, 773 S.E.2d 101 (N.C. App. 2015) refused to invoke the two-dismissal rule in a recent decision involving the third filing of a foreclosure special proceeding action.  Noting that it was a matter of first impression in North Carolina, the Court found that with respect to the third foreclosure filing because the period of default, the amount of interest, and the amount necessary to redeem the loan were different from those amounts with respect to the two earlier foreclosure cases, Rule 41’s two-dismissal rule was not implicated.  The Court held that North Carolina courts “have required the strictest factual identity between the original claim, and the new action, which must be based upon the same claim… as the original action.”  Id. at 107.  The Court quoted approvingly from the Supreme Court of Florida that “the subsequent and separate alleged default created a new and independent right in the [lender] to accelerate payment on the note in a subsequent foreclosure action,” and found that each foreclosure action at issue in that case was based on different periods of missed payments constituting separate defaults.  Id. at 105-06, quoting Singleton v. Greymar Associates, Inc., 882 So.2d 1004, 1008 (Fla. 2004). 

Published by Hutchens Law Firm on June 15, 2016