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2007 “Protect Homeowners & Reduce Foreclosure” Law

August 16, 2007
Mortgage Lending

Session Law (pdf)
Frequently Asked Questions

House Bill 1374, the "Protect Homeowners & Reduce Foreclosures" law, passed unanimously in both the North Carolina House and Senate and was signed into law by Governor Easley on August 16, 2007. This law makes the foreclosure process fairer and helps protect NC homeowners from abusive practices by the companies that collect and process mortgage payments ("loan servicers"). It also addresses two recent NC Supreme Court decisions that made it harder for homeowners to sue for illegal lending practices. Here are the law's key provisions:

Clarifies the two-year statute of limitations for usury claims.
This law reverses the Shepard decision by the NC Supreme Court, which had made it extremely hard for a NC homeowner to bring a usury claim against their lender, because the Court said the clock on the two-year statute of limitations started the day the loan was closed. So, if homeowners discovered a problem two years and one day after the loan was closed, they could not challenge the loan. This law reversed this Supreme Court decision by making it clear that the two-year statute of limitations begins anew with each usurious loan payment the borrower makes. Now, if a family discovers a problem five years after a loan closing, they have a mechanism for challenging the loan.

Gives North Carolina courts jurisdiction over home loans made in the state.
This law reverses the Skinner decision by the NC Supreme Court, which made it difficult for NC homeowners to bring legal claims against an out-of-state trust that held their loan. Loans are often sold to out-of-state trusts, and this practice increased as a way to protect the lender or investor from legal claims. HB 1374 reversed this decision, making it clear that NC courts have jurisdiction over home loans made for primary residences located in the state.

Makes the foreclosure process fairer by increasing disclosures.
When sending notice of foreclosure, the law requires loan servicers to itemize the fees owed and give homeowners better information about their rights.

Protects homeowners from abusive mortgage loan servicing.
Abusive servicing companies misapply payments, charge illegal fees, and mishandle escrow accounts on home loans. Improper fees lead to default and make foreclosures more likely. HB 1374 requires loan servicers to notify homeowners of any fees charged on the loan and to provide a full accounting of how payments are handled and fees accessed.

The Shepard and Skinner case reversals were effective August 16, 2007. All other sections of the law were effective April 1, 2008.