Charlotte Bankruptcy Lawyer Bryan W. Stone of Arnold & Smith, PLLC answers the question “Can I keep my house if I file bankruptcy?”
How a group of homeowners ended up facing foreclosure of their properties for loans they didn’t take out would make a great bar-exam question for would-be lawyers. Unfortunately, a group of homeowners are facing the real-life consequences of a complicated concept whose parameters escape the minds of both bar applicants and seasoned attorneys alike: lien priority.
The Charlotte Observer reported in late May on the plight of Allan and Vera Lynn Zanotti, who bought their Statesville home in 2008. Through “no fault of their own,” they are facing foreclosure based on a 2003 loan made to the developer of their subdivision. The developer, Fox Den Development Co., stopped making payments on the loan. The lenders—three children of the late Dwight Goforth, who was a Fox Den investor—say they are owed $4.6 million.
Foreclosure is a process through which a lender takes title to property pledged as collateral for a loan. In North Carolina, a borrower can pledge real property as collateral for a loan. Under common terms, if the borrower fails to repay the loan, the lender can invoke the foreclosure process to take the property. The terms of the loan are set forth on a document called a Deed of Trust, which is filed in the Register of Deeds of the county in which property is located. The Deed of Trust puts the public—and potential buyers—on notice that a lender has an interest in the property.
In other words, when the Zanottis bought their home in 2008, they should have hired an attorney to conduct a title search. The attorney should have found the Deed of Trust that placed the public on notice of the loan between Fox Den Development Co. and the Goforths. The Zanottis should have been advised that the 2003 loan either had to be paid off, or the Goforths had to release the property from the Deed of Trust.
That did not happen. The Zanottis said the Deed of Trust was missed in the title search and they did nothing wrong.
The law does not agree. In most cases in North Carolina, the order of lien priority is based on the time of filing. The Deed of Trust between Fox Den and the Goforths was filed in 2003. The debt was not repaid, and the Zanottis’ property was not released from the loan when they bought the property in 2008. Since the 2003 Deed of Trust was a matter of public record, the Zanottis were presumed to know about it when they bought their home. They bought their home “subject to” the 2003 Deed of Trust.
Their purchase was “subject to” the rights of the Goforths. That means that if the Goforths exercised their rights under the 2003 Deed of Trust, the deeds of properties to the Zanottis and other homeowners and any loans they took out—in fact anything that occurred after 2003—is wiped away.
The Zanottis’ ownership was always subject to divestment by the Goforths—the Zanottis just didn’t know that. Unfortunately, the law of lien priority will not excuse them
The lesson? Buyer beware!
If you find yourself needing the services of a Charlotte, North Carolina bankruptcy attorney, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with the best advice for your particular situation.
About the Author
Bryan Stone is a Partner with Arnold & Smith, PLLC, where he focuses his practice on all aspects of bankruptcy, including: Chapter 7, Chapter 11, Chapter 13, home loan modifications and landlord-tenant issues.
A native of Macon, Georgia, Mr. Stone attended the University of Georgia, where he earned a BBA in Banking and Finance, and Wake Forest University School of Law, where he obtained his law degree.
Following law school, Mr. Stone relocated to Charlotte, where he currently serves as Chair of “Bravo!” – a young professionals organization associated with Opera Carolina – and founded the University of Georgia Alumni Association of Charlotte.
In his spare time, Mr. Stone enjoys perfecting his barbeque skills for the annual “Q-City BBQ Championship” and playing softball in the Mecklenburg County Bar softball league.
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