GENERAL ASSEMBLY OF NORTH CAROLINA
SENATE BILL 1264
Short Title: Protect Homeowners/Reduce Foreclosure.
Senators Nesbitt; Atwater, Dannelly, Dorsett, Garrou, Graham, Hagan, Hartsell, Jones, Malone, and Stevens.
Judiciary I (Civil).
March 26, 2007
A BILL TO BE ENTITLED
AN ACT (1) to overturn the shepard case and amend the limitation regarding actions to recover for usury; (2) to overturn the skinner case and amend the long‑arm statute to allow north carolina courts to exercise personal jurisdiction over certain nonresident defendants; (3) to allow the reinstatement of a debt secured by a mortgage or deed of trust where the debtor makes or tenders payment of certain sums; (4) to require that a notice of foreclosure contain certain information; and (5) to make other amendments to the law governing home loans.
The General Assembly of North Carolina enacts:
SECTION 1. G.S. 1‑53(2) reads as rewritten:
"(2) An action to recover the penalty for
including an action regarding the financing of usurious points, fees, or other charges,
accrues at the time of the last payment made on the loan."
SECTION 2. G.S. 1‑75.4(6) reads as rewritten:
"(6) Local Property. In any action which arises out of:
a. A promise, made anywhere to the plaintiff or to some third party for the plaintiff's benefit, by the defendant to create in either party an interest in, or protect, acquire, dispose of, use, rent, own, control or possess by either party real property situated in this State; or
b. A claim to recover for any benefit derived by the defendant through the use, ownership, control or possession by the defendant of tangible property situated within this State either at the time of the first use, ownership, control or possession or at the time the action is commenced; or
c. A claim that the defendant return, restore, or account to the plaintiff for any asset or thing of value which was within this State at the time the defendant acquired possession or control over it.
d. A claim related to a loan made in this State or deemed to have been made in this State under G.S. 24‑2.1, regardless of the situs of the lender, assignee, or other holder of the loan note and regardless of whether the loan payment or fee is received directly by the defendant or indirectly through a loan servicer, trustee, or other intermediary, provided all of the following apply to the loan: (i) the loan was made to a borrower who is a resident of this State, and (ii) the loan is secured by real property located in this State."
SECTION 3. G.S. 24‑2.1 reads as rewritten:
For purposes of this Chapter, any extension of credit shall be deemed to have been made in this State, and therefore subject to the provisions of this Chapter if the lender offers or agrees in this State to lend to a borrower who is a resident of this State, or if such borrower accepts or makes the offer in this State to borrow, regardless of the situs of the contract as specified therein.
Any solicitation or communication to lend, oral or written, originating outside of this State, but forwarded to and received in this State by a borrower who is a resident of this State, shall be deemed to be an offer or agreement to lend in this State.
Any solicitation or communication to borrow, oral or written, originating within this State, from a borrower who is a resident of this State, but forwarded to, and received by a lender outside of this State, shall be deemed to be an acceptance or offer to borrow in this State.
Any oral or written offer, acceptance, solicitation or communication to lend or borrow, made in this State to, or received in this State from, a borrower who is not a resident of this State shall be subject to the provisions of this Chapter, applicable federal law, law of the situs of the contract, or law of the residence of any such borrower as the parties may elect.
Any person who acquires a right by contract or by assignment to receive payments under a loan made in this State and who benefits from the laws of this State by having the loan secured by real property located in this State is deemed to have consented to the courts of this State having jurisdiction over such person for any claim under this Chapter and for any claim related to the loan instrument.
The provisions of this section shall be severable and if any phrase, clause, sentence or provision is declared to be invalid, the validity of the remainder of this section shall not be affected thereby.
It is the paramount public policy of North Carolina to protect North Carolina resident borrowers through the application of North Carolina interest laws. Any provision of this section which acts to interfere in the attainment of that public policy shall be of no effect."
SECTION 4. G.S. 45‑21.16(c) reads as rewritten:
"(c) Notice shall be in writing and shall state in a manner reasonably calculated to make the party entitled to notice aware of the following:
(4a) That the debtor has a right to cure a default or have the debt reinstated pursuant to G.S. 45-91 and that the debtor will have failed to exercise that right if the debtor has not done so within the prescribed period.
(5) Any right of the debtor to pay the indebtedness or
the default if such is permitted.to reinstate the loan pursuant to
contract or under G.S. 45‑91(f).
(5a) The holder has confirmed in writing to the person
giving the notice, or if the holder is giving the notice, the holder shall
confirm in the notice, that, within 30 days of the date of the notice, the
debtor was sent by first‑class mail at the debtor's last known address a
written statement of the amount of principal and interest that the holder
claims in good faith is owed as of the date of the written statement, a daily
interest charge based on the contract rate as of the date of the statement, and
the amount of other expenses the holder contends it is owed as of the date of
statement.statement, and the amount necessary to reinstate the
loan under G.S. 45‑91(f). This statement shall include a complete
transaction history of the loan and shall set forth the amounts alleged to be
in default. This transaction history shall document all debits and credits to
the account during this period of time, including the application and
disbursement of all payments received from or for the benefit of the mortgagor.
This transaction history shall be clear and easily understood. The statement
should set forth the total amount owed by or on behalf of the borrower and
shall itemize the amount and basis for the following fees, as applicable:
a. The past due scheduled principal payments.
b. The interest due.
c. Past due taxes.
d. Hazard insurance.
e. Mortgage insurance premiums.
f. Late fees.
g. Homeowners association dues or assessments.
h. Filing fees.
i. Service fees.
l. Publication expenses.
m. Reasonable attorneys' fees incurred with respect to the foreclosure proceeding.
n. Compensation for the trustee's services under the conditions set forth in G.S. 45‑21.15.
(6) Repealed by Session Laws 1977, c. 359, s. 7.
(7) The right of the debtor (or other party served) to
appear before the clerk of court at a time and on a date specified, at which
appearance he shall be afforded the opportunity to show cause as to why the
foreclosure should not be allowed to be held. The notice shall contain
statement that if the debtor does not intend to contest the creditor's
allegations of default, the debtor does not have to appear at the hearing and
that his failure to attend the hearing will not affect his right to pay the
indebtedness and thereby prevent the proposed sale, or to attend the actual
sale, should he elect to do so.all of the following:
a. A statement that if the debtor does not intend to contest the creditor's allegations of default, the debtor does not have to appear at the hearing and that his failure to attend the hearing will not affect his right to pay the indebtedness and thereby prevent the proposed sale, or to attend the actual sale, should he elect to do so.
b. A statement that the trustee, or substitute trustee, is a neutral party and, while holding that position, may not advocate for the secured creditor or for the debtor.
c. A statement that the debtor has the right to apply to a judge of the superior court pursuant to G.S. 45‑21.34 to enjoin the sale, upon any legal or equitable ground that the court may deem sufficient prior to the time that the rights of the parties to the sale or resale become fixed, provided that the debtor complies with the requirements of G.S. 45‑21.34.
d. A statement that the debtor has the right to appear at the hearing and serve a written response.
e. A statement that if the debtor fails to appear at the hearing, the trustee will ask the clerk for an order to sell the real property being foreclosed.
f. A statement that the debtor has the right to contest the allegations in the notice.
(8) That if the foreclosure sale is consummated, the purchaser will be entitled to possession of the real estate as of the date of delivery of his deed, and that the debtor, if still in possession, can then be evicted.
(8a) The name, address, and telephone number of the trustee or mortgagee.
(9) That the debtor should keep the trustee or mortgagee notified in writing of his address so that he can be mailed copies of the notice of foreclosure setting forth the terms under which the sale will be held, and notice of any postponements or resales.
(10) If the notice of hearing is intended to serve also as a notice of sale, such additional information as is set forth in G.S. 45‑21.16A.
(11) That the hearing may be held on a date later than that stated in the notice and that the party will be notified of any change in the hearing date."
SECTION 5. Chapter 45 of the General Statutes is amended by adding a new Article to read:
"§ 45‑85. Definitions.
As used in this Article, the following definitions apply:
(1) Collateral protection insurance. Insurance coverage that is purchased unilaterally by a lender or servicer of a home loan that provides monetary protection against loss of, or damage to, the collateral and is purchased as a result of a borrower's alleged failure to provide evidence of insurance or failure to maintain adequate insurance covering the home. Collateral protection insurance does not include any of the following:
a. Insurance coverage that is purchased by the lender for which the borrower is not charged.
b. Credit insurance.
c. Mortgage protection insurance.
d. Insurance issued to cover the life or health of the borrower or any other insurance maintained to cover the inability or failure of the borrower to make payment under the credit agreement.
e. Title insurance.
f. Flood insurance required under 42 U.S.C. § 4012(a), as amended, to be placed by creditors pursuant to the National Flood Insurance Reform Act of 1994.
(2) Home loan. A loan secured by a home used, or intended to be used, as a principal dwelling in this State, whether it is real or personal property, and regardless of whether the loan is used to purchase the home or whether the proceeds of the loan are used for personal, family, or business purposes.
(3) Servicer. A person who, under contract with a lender, or on its own behalf, receives payments from borrowers for home loans, or taxes and insurance associated with a home loan.
"§ 45‑86. Duty of good faith and fair dealing.
Both the lender and the servicer owe a duty of good faith and fair dealing to the borrower in all dealings related to a home loan. This duty specifically includes an obligation to avoid foreclosure on the home unless both of the following are true:
(1) The servicer or lender has made a good faith review of the borrower's financial situation and offered, whenever feasible, a repayment plan, forbearance, loan modification, or other option to assist the borrower in bringing the arrears current.
(2) There is no other reasonable mechanism to collect on the loan.
"§ 45‑87. Assessment of fees; processing of payments; publication of statements.
(a) Every outstanding home loan, regardless of whether the loan is considered in default or the borrower is in bankruptcy or the borrower has been in bankruptcy, shall comply with the following requirements:
(1) Any fee charged by a lender or servicer must be reasonable, for services actually rendered, and specifically authorized by the home loan contract. Unless the home is the subject of a foreclosure action and the debt has been accelerated, the home loan contract shall not require, nor shall any lender or servicer assess or receive, any fees, charges, or payment other than the following:
b. Interest at the contract rate.
c. Lawfully imposed late fees.
d. Non‑sufficient funds fees.
e. Amounts to be put into an escrow account to pay taxes, hazard insurance, private mortgage insurance, homeowners association dues, and other similar property charges.
(2) A fee that is otherwise permitted under subdivision (1) of this subsection shall be both:
a. Assessed within 30 days of the date on which the fee was accrued.
b. Explained clearly and conspicuously in the next periodic statement provided to the borrower.
(3) Monthly periodic statements shall be provided to the borrower that plainly indicate all of the following:
a. The application of the previous month's payment, including the allocation of the payment to interest, principal, escrow, and fees.
b. The status of the escrow account, if there is an escrow account, including the payments into and from the escrow account during the previous month.
c. The assessment of fees accruing in the previous month, including their purpose and the date they accrued.
d. The loan balance.
(4) All amounts received by a lender or a servicer shall be accepted and credited on the date received. The payments shall be credited to interest and principal due on the loan before crediting payments to taxes, insurance, or fees. For purposes of this subdivision, payments shall be applied first to current installments, then to delinquent payments, and then to delinquency charges.
(5) Notwithstanding G.S. 24‑10.1(b)(4), if a payment is otherwise a full payment for the applicable period and is paid on its due date or within an applicable grace period, and the only delinquency or insufficiency of payment is attributable to any late fee or delinquency charge assessed on any earlier payment, no late fee or delinquency charge shall be imposed on such payment. If a late payment charge has been once imposed with respect to a particular late payment, no such charge shall be imposed with respect to any future payment which would have been timely and sufficient but for the previous late payment.
(b) Failure to provide the information or charge the fee within the allowable time and in the manner required under subdivision (2) of subsection (a) of this section constitutes a waiver of such fee.
"§ 45‑88. Restrictions on collateral protection insurance.
(a) Collateral protection insurance may be obtained and charged to the borrower only if all of the following conditions are met:
(1) The home loan agreement requires the borrower to maintain insurance on the collateral and clearly provides all of the following:
a. The terms and conditions for payment for, and imposition of, the collateral protection insurance.
b. A clear and conspicuous statement in the agreement that the collateral protection insurance may not protect the interests of the borrower and may be substantially more expensive than insurance that the borrower may be able to obtain independently.
c. A clear and conspicuous statement in the agreement that the borrower will be charged for the cost of the collateral protection insurance.
(2) The servicer of the home loan shall make every effort to avoid obtaining collateral protection insurance, including at least written notice and telephone communications with the borrower, and the insurance agent of record, where appropriate, regarding the borrower's obligations to maintain property insurance and an explanation of the additional cost to the borrower, on a monthly basis, if collateral protection insurance is obtained by the lender or servicer.
(3) Clear notice is received by the borrower at least 15 days in advance of the obtaining of the collateral protection insurance that the obtaining of the insurance is imminent, the costs of the insurance to the borrower, the new monthly payment to the borrower that reflects these additional costs, the fact that the insurance will not protect the borrower from loss, and instructions on the steps the borrower can take to avoid this placement of insurance.
(4) After placement of the insurance, notice of the new monthly payment requirements shall be delivered to the borrower at least 15 days prior to the first payment increase to cover the cost of the collateral protection insurance with an explanation of the imposition of the new charges for the insurance and what the borrower can do to obviate the need for the collateral protection insurance.
(b) In no event shall collateral protection insurance be obtained when the servicer or lender is collecting fees in escrow from the borrower for the payment of property taxes and homeowners insurance, unless the borrower has had the borrower's insurance cancelled for some reason other than nonpayment of the premium.
"§ 45‑89. Obligation of servicer to handle escrow funds.
The servicer or lender shall make all payments from the escrow account held for the borrower for insurance, taxes, and other charges with respect to the property in a timely manner so as to ensure that no late penalties are assessed or other negative consequences result regardless of whether the loan is delinquent unless the servicer or lender has a reasonable basis to believe that recovery of these funds will not be possible.
"§ 45‑90. Borrower requests for information.
(a) The servicer or lender shall respond without cost to, and within 10 days of, a borrower's request for information and for resolution of disputes. The servicer or lender shall maintain written or electronic records of each request for information and the handling of all oral disputes. Specifically, the servicer or lender is required to do all of the following:
(1) Provide the following information when requested:
a. Whether the account is current or, if the account is not current, an explanation of the date the account went into default and the basis for any default.
b. The current balance due on the loan, including the principal due, an explanation of the escrow balance, and whether there are any escrow deficiencies or shortages.
c. A full payment history that shows in a clear and easily understandable manner all of the activity on the home loan since the origination of the loan, including the escrow account and the application of payments.
d. A copy of the original note and security instrument.
e. The identity, address, and other relevant information about the current holder, owner, or assignee of the loan.
f. The telephone number of a lender or servicer representative with the information and authority to answer questions and resolve issues.
(2) Correct errors relating to the allocation of payments, final balances for purposes of paying off the loan or avoiding foreclosure, or any other servicer's or lender's obligations.
(b) During the 90‑day period beginning on the date of the servicer's or lender's receipt from any borrower of a request under subsection (a) of this section, a servicer or lender shall not provide information regarding any overdue payment, or other default on the loan, by such borrower to any consumer reporting agency.
"§ 45‑91. Borrower's right to cure and reinstate the home loan.
(a) Before any action is filed to foreclose upon the home, any exercise of the power of sale governed by Article 2A of this Chapter or any other action is taken to seize or transfer ownership of a home, the borrower shall be provided a right to cure under this section. The borrower shall have at least 30 days to cure a default.
(b) A notice of the right to cure the default shall be delivered to the borrower, informing the borrower of all of the following:
(1) The nature of the default claimed on the home loan and the borrower's right to cure the default by paying the sum of money required to cure the default. If the amount necessary to cure the default is subject to change before the expiration of the right to cure has expired due to the application of a daily interest rate or the addition of late fees, the notice shall give sufficient information to enable the borrower to calculate the amount at any point during this period.
(2) The date by which the borrower must cure the default to avoid acceleration and initiation of foreclosure or other action to seize the home and the name and address and phone number of a person to whom the payment or tender shall be made. The date required under this subdivision shall not be less than 30 days after the date the notice is received.
(3) That, if the borrower does not cure the default by the date specified, the lender or servicer may take steps to terminate the borrower's ownership in the property by commencing a foreclosure proceeding or other action to seize the home.
(4) The name and address of the lender or servicer and the telephone number of a representative of the lender or servicer whom the borrower may contact if the borrower disagrees with the lender's or servicer's assertion that a default has occurred or the correctness of the lender's or servicer's calculation of the amount required to cure the default.
(5) That a repayment plan, forbearance, loan modification, or other workout tool may be available to help the borrower repay the arrears and the name, address, and telephone number of the lender or servicer whom the borrower may contact to request this assistance.
(6) That the borrower may be eligible for a Home Preservation Loan to cure the default, a short description of the eligibility requirements, and the name, address, and telephone number of the agency whom the borrower may contact to request this assistance.
(c) To cure a default under this section, a borrower shall not be required to pay any charge, fee, or penalty attributable to the exercise of the right to cure a default as provided for in this section. The borrower's payment of all amounts past due for principal, interest, escrow, and late charges, as specifically permitted in the home loan and under this Article, shall cure a default.
(d) The borrower shall not be liable for any attorneys' fees relating to the borrower's default that are incurred by the lender or servicer prior to the expiration of the right to cure period.
(e) If a borrower fails to cure the default and a lender or servicer files or initiates a foreclosure action or takes other action to seize or transfer ownership of the home, the borrower shall only be liable for attorneys' fees that are reasonable and actually incurred by the lender or servicer based on a reasonable hourly rate and a reasonable number of hours plus any other reasonable and necessary expenses incurred by the lender or servicer.
(f) The borrower may reinstate the loan at any time after a notice of foreclosure hearing is filed pursuant to G.S. 45-21.16, up to the time the foreclosure sale has been consummated and the upset bid period has expired, by paying all amounts past due for principal, interest, escrow, and late charges, as specifically permitted in the home loan agreement and under this Article, plus reasonable expenses related to the foreclosure. Upon reinstatement by the borrower, the mortgage or deed of trust and the obligation secured thereby shall remain fully effective as if no acceleration had occurred.
(g) If a default is cured prior to the filing of a notice of foreclosure hearing pursuant to G.S. 45-21.16 or the initiation of any action to foreclose or to seize or transfer a home, the lender or servicer shall not file a notice of hearing, institute the foreclosure proceeding or other action for that default. If the loan is reinstated by the borrower, the lender or servicer shall take such steps as are necessary to terminate the foreclosure special proceeding or other action,
"§ 45‑92. Remedies.
In addition to any other remedies at law, any violation of this Article is declared unlawful as an unfair or deceptive practice in violation of G.S. 75‑1.1. Any person who fails to comply with any requirement imposed under this Article is liable for each violation in an amount equal to the sum of any actual damages sustained by such person as a result of the failure, or an amount not less than five thousand dollars ($5,000), whichever is greater. The Attorney General, the Commissioner of Banks, or any party to a home loan may enforce the provisions of this section.
"§ 45‑93. Severability.
The provisions of this Article shall be severable, and if any phrase, clause, sentence, or provision is declared to be invalid or is preempted by federal law or regulation, the validity of the remainder of this section shall not be affected thereby. If any provision of this Article is declared to be inapplicable to any specific category, type, or kind of points and fees, the provisions of this Article shall nonetheless continue to apply with respect to all other points and fees.
"§ 45‑94. Servicer is an agent of the lender.
For purposes of this Article, a servicer is the agent of the lender with which the servicer has contracted, as described in G.S. 45‑85(3)."
SECTION 6. Sections 4 and 5 of this act become effective October 1, 2007. All other sections of this act are effective when it becomes law.