Cover Your Bases: Do you have email addresses for owners in your communities? You may want to use them when collecting!

A North Carolina Court of Appeals court recently held that a homeowner, Ms. Ackah, that lost her home to a foreclosure by her association, did not have notice of said proceeding.  The lower court had also found that the notice was not sufficient and had previously entered an order returning possession of the property to Ms. Ackah.  The matter was on appeal by the third-party buyer, the Jones Family, of the property at the foreclosure sale seeking an order that it should retain the property.

Here are the facts of this case.  The homeowner moved to Africa and failed to update her mailing address with the association.  The property was leased and mail for the owner was being forwarded to the owner’s uncle in South Carolina.  After the owner became delinquent on the assessments, the association began foreclosure proceedings to collect on the debt.

The association sent certified letters addressed to Ms. Ackah to her mother’s and her uncle’s addresses, which were returned as “unclaimed.”  The association also posted notice of the hearing on the front door of the property (which was leased).  The association had an email address for the owner but failed to notify the owner of the foreclosure via email. 

Because Ms. Ackah never made an appearance or otherwise opposed the sale, the property went to sale and the Jones Family purchased the property, subject to the first mortgage.

Rule 4 in North Carolina requires the use of “due diligence” in providing notice.  Colorado’s rule on service (also Rule 4) also requires “due diligence.”  The appellate court was not convinced that the association had satisfied the requirement of due diligence for the following reasons:

• It had reason to know that Ms. Ackah was not residing at the property as the association sent the certified letters to her mother and uncle’s addresses. Remember, that these letters were also returned unclaimed.
• The association had an email address for Ms. Ackah and did not use it, rather it “simply resort[ed] to posting a Notice on the property.”
  • The Court noted that a previous North Carolina Court of Appeals decision had already ruled that due diligence requires emailing to a known email address before resorting to service by publication.

The Court did state that, according to jurisprudence from the United States Supreme Court, that the attempts by the association to notify the owner of the foreclosure were constitutionally sufficient. Jones v. Flowers, 547 U.S. 220, 220 (2006)

The Supreme Court has ruled that constitutional “due process does not require that the property owner receive actual notice.”  Where certified mail is returned as “unclaimed” the sender must take some reasonable follow up measure to provide other notice where it is practicable to do so.  The Supreme Court specifically 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 it is reasonable that the owner’s tenant would notify the owner of the posting.

The association did JUST that and in doing so, believed that it had properly satisfied the rule.  While the Court held that the association’s notice was constitutionally sufficient, it did note that it did not satisfy the “due diligence” requirement of North Carolina’s Rule 4.  As such, Ms. Ackah is entitled to some relief, just not the property.  And here’s why.

The North Carolina Supreme Court has stated that where a court sets aside a judgment, the court may not enter an order which affects the title to property sold under that judgment to a good-faith purchaser, at least so long as the debtor received constitutionally adequate notice of the proceedings.  The Jones Family was a good-faith purchaser.  As such, the Court ordered that the property would be retained by the Jones Family.  Ms. Ackah is entitled to relief in the form of restitution from the association and the case was remanded to the lower court for a ruling on those damages.

While this is a North Carolina case which does not set precedent in Colorado, it is certainly instructive and provides a good practice pointer for our associations.  If you have an email address for an owner and you are preparing to foreclose, use that email address to notify the owner of the proceedings.  If you don’t, your association could potentially open itself up to liability if you find yourself in a similar situation.

If you are interested in reading the entire opinion from the North Carolina Court of Appeals, you can find the case here: https://appellate.nccourts.org/opinions/?c=2&pdf=35255.   If you have questions, comments, or would just like to discuss debt recovery solutions for your association, don’t hesitate to contact us at mail@yourcornerstoneteam.com.