There is no statutory authority in North Carolina with respect to the right of a lender, mortgagee or beneficiary (“lender”) under a deed of trust to enter a secured property or take action to preserve, repair or re-key a secured property, or to otherwise exercise possession, dominion or control over the secured property.

Only after a foreclosure is completed does statutory authority guide the process that may be employed to secure possession of the property from persons remaining in occupation.  N.C.G.S. § 45-21.29.  In such cases the clerk of superior court may enter an order for possession in the foreclosure proceeding and the county sheriff’s office will execute the writ.  This ensures speedy possession in favor of the foreclosure sale purchaser provided the occupants cannot claim to be tenants protected by North Carolina’s version of the Protecting Tenants at Foreclosure law.  In such cases, legitimate leases may have to be honored for up to one-year.

The security instrument most commonly used by residential lenders in North Carolina is the NORTH CAROLINA-Single Family-Fannie Mae/Freddie Mac UNIFORM INSTRUMENT Form 3034 1/01 (“GSE DOT”).  Uniform Covenant 7 of the GSE DOT provides, in part:

Preservation, Maintenance and Protection of the Property; Inspections.  Borrower shall not destroy, damage or impair the Property, allow the Property to deteriorate or commit waste on the Property.  ….

Lender or its agent may make reasonable entries upon and inspections of the Property.   If it has reasonable cause, Lender may inspect the interior of the improvements on the Property.  Lender shall give Borrower notice at the time of or prior to such an interior inspection specifying such reasonable cause. 

Uniform Covenant 9 provides, in part:

Protection of Lender’s Interest in the Property and Rights Under this Security Instrument.  If (a) Borrower fails to perform the covenants and agreements contained in this Security Instrument, (b) there is a legal proceeding that might significantly affect Lender’s interest in the Property and/or rights under this Security Instrument (such as a proceeding in bankruptcy, probate, for condemnation or forfeiture, for enforcement of a lien which may attain priority over this Security Instrument or to enforce laws or regulations), or (c) Borrower has abandoned the Property, then Lender may do and pay for whatever is reasonable or appropriate to protect Lender’s interest in the Property and rights under this Security Instrument, including protecting and/or assessing the value of the Property, and securing and/or repairing the Property.  Lender’s actions can include, but are not limited to: (a) paying any sums secured by a lien which has priority over this Security Instrument; (b) appearing in court; and (c) paying reasonable attorneys’ fees to protect its interest in the Property and/or rights under this Security Instrument, including its secured position in a bankruptcy proceeding. Securing the Property includes, but is not limited to, entering the Property to make repairs, change locks, replace or board up doors and windows, drain water from pipes, eliminate building or other code violations or dangerous conditions, and have utilities turned on or off.  

The most likely cause of action an aggrieved homeowner could bring to seek redress for the exercise of the lender’s rights under the GSE DOT would be an action for trespass to real property.  Other causes of action are conceivable, and it is common practice for aggrieved borrowers to seek redress for unfair or deceptive trade practices under N.C.G.S. § 75-1.1.  Such a cause of action is usually an “add-on”, relying on the alleged adverse facts in the primary cause of action as a basis for the alleged unfair or deceptive conduct.  

To establish a cause of action for trespass, the homeowner would need to allege, and eventually prove, that she had possession of the property when the alleged trespass took place, the entry by the lender was unauthorized, and the homeowner suffered damage as a result of the trespass.   Matthews v. Forrest, 235 N.C. 281, 69 S.E.2d 553 (1952).  

While there are many reported opinions from North Carolina courts on the issue of trespass to real property, there are few that address the entry onto secured property by a lender before foreclosure proceedings have been completed.  One such is Vinal v. Federal National Mortgage Association, 131 F.Supp.3d 529 (E.D. N.C. 2015).  In that case, SunTrust had directed Safeguard Properties to perform an “initial secure” of several residential properties owned by Vinal that were secured by the GSE DOT.  This included the direction to change the locks, secure the property, board broken windows, cut grass, winterize, and take other preservation measures.  Safeguard’s contractors changed the locks on several properties, two of which contained Vinal’s tenants.  They also secured one property they found to be vacant and unsecure because the locks were missing and the doors and windows were open.  They caused damage to a door while changing the lock.

In dismissing Vinal’s action for trespass against Safeguard, the federal district court held that Vinal had expressly authorized SunTrust to enter the property and change the locks in the event of default.  “In agreeing to the provisions in the deeds of trust, Vinal contractually limited his equitable interests in the property upon default and authorized the actions about which he now complains.  Thus, Safeguard's entries were not trespasses.  Rather, because they were authorized entries onto Vinal's properties, accordingly, Vinal's trespass claim fails.”  Id., at 540. 

Please be aware that federal court opinions are not binding on North Carolina state courts, although they are considered persuasive.  While we would hope that a state court, asked to rule in a case involving a similar fact pattern to the one in Vinal, would follow the same reasoning in Vinal, such an outcome is not a certainty.

Practical Steps

While we believe the law in North Carolina would uphold the right of the lender to act upon uniform covenants 7 and 9 in the GSE DOT, such rights should be exercised with discretion and care.  To that end we offer these practical steps you should consider employing before you direct your contractors to enter a secured property before the foreclosure sale has been completed:

  • Review the security instrument securing the subject property to ensure it contains property entry clauses as described above, or clauses similar thereto.
  • If reasonable and practicable, secure the consent of the homeowner/borrower, in writing, authorizing your entry to perform specific preservation services.
  • Ensure that you have a legitimate reason for entry; while the GSE DOT may authorize entry for the reasons stated therein, you should be satisfied that entry is justified to protect or preserve the property or to prevent the loss of life or serious injury to persons who may enter the property.
  • Document the basis for entry if it is for reasons other than monetary default, and make sure you have adequate evidence justifying the decision to make entry.  This should include, where applicable:
    • Notes or statements from inspectors containing observations of adverse property conditions;
    • Photographic documentation;
    • Notices or orders from local government agencies containing reports of code violations;
    • Notices from home owners associations concerning property condition issues; 
    • Statements from homeowners/borrowers concerning property condition issues.
  • Hire a reputable contractor holding appropriate licenses and having adequate insurance coverage.
  • Perform only the services that are necessary based on the circumstances:
    • Refrain from a one-size-fits-all approach that obliges the contractor to perform a service that may not be necessary for the particular property;
    • Provide the contractor a measure of discretion to perform or not perform an authorized or directed service based upon his observations on the ground; 
    • Provide an immediate point of contact for the contractor so that decisions on performing or not performing a service can be made in the field.
  • Ensure the contractor entering the property exercises good judgment and takes precautionary measures, including that he:
    • Makes contemporaneous notes about the property condition;
    • Takes photographs of the property condition issues;
    • Takes photographs of any rooms he enters to document the status of any contents;
    • Does not remove any personal contents from the dwelling (except in extraordinary circumstances with respect to any damaged or dangerous materials that are likely to be a threat to persons entering the property or a threat to the integrity of the property; e.g., broken glass, hazardous chemicals, or items expressly directed for removal).
  • If your contractor re-keys the property he should, depending on the circumstances giving rise to the order to re-key the property:
    • Place notices prominently at the location of the re-key and at other points of access explaining to the homeowner who may return to the property how to gain entry to the property;
    • Place a lock box at the location of the re-key with instructions for the homeowner as to how to contact the contractor or your designated agent in order to access the lockbox.
  • Neither you nor your contractor may exercise the “self-help” described above if in doing so you cause a breach of the peace.  In the event the homeowner or borrower physically opposes the attempt to enter the property, you must immediately cease and desist in your efforts.  
  • In the event that you have difficulty entering the property, or you are prevented from entering the property, or for any other reason you are concerned about incurring legal liability if you enter the property exercising the “self-help” outlined above, you may apply to court for an order authorizing entry.  If you require assistance in doing so, the Firm would be pleased to accept retention to provide legal services in this regard. 

Published by Hutchens Law Firm on August 9, 2016