Moretz Law Group - Community Associations and Business Lawyers

Thursday, September 28, 2017

Case Alert: Emailed Notices of Foreclosure Under In Re Ackah

This was our response when we first read
the N.C. Court of Appeals' opinion in
the new case of In re Ackah

In re Ackah: Must Planned Communities Now Serve Notices of Foreclosure Hearing Via Email?

The North Carolina Court of Appeals issued an opinion on September 5, 2017, that appears to add an additional requirement for foreclosure trustees regarding the due diligence necessary to properly serve the homeowner in an HOA foreclosure proceeding.  The case, "In re: Ackah," is a Wake County case where he HOA foreclosed on Ms. Ackah’s home and a third-party bidder bought the home at the foreclosure sale.  The lower court held that the foreclosure was invalid because the trustee should have emailed the debtor, and also that the deed to the third-party bidder could be invalidated, returning ownership to Ms. Ackah.

The relevant facts are that Ms. Ackah, the owner of the property, rented the property out when she moved to Africa in 2012.  She provided no notice to the HOA that she had moved or rented the property, although she presented evidence that in the past the property management company had emailed her at various times when it sent out community-wide notices.  There was no evidence that Ms. Ackah ever used the email address to respond to any of the notices.  

Ms. Ackah became delinquent in her HOA assessments in 2014 and a lien was filed.  At various times, the HOA or the trustee mailed letters to the addresses it had for Ms. Ackah’s mother and uncle in South Carolina, where she had had her mail forwarded.  Ms. Ackah’s uncle received the letters, but apparently never informed Ms. Ackah.  When the HOA decided to commence foreclosure proceedings to recover the delinquent assessments, it mailed notice to the property and to Ms. Ackah at her mother’s address and her uncle's address.  Notices were mailed both certified and regular mail, and the evidence was that the uncle, at least, received the mail, but failed to realize its importance or forward it on to Ms. Ackah.

Importantly, the notice of hearing was also posted on the front door of the property by the sheriff’s office, although the tenant failed to inform Ms. Ackah of this.  The law allows a foreclosure notice to be served by posting on the front door if the homeowner does not respond to mailed notices.  No foreclosure notice was ever emailed to Ms. Ackah.  

A foreclosure hearing was held and the property was subsequently sold to a third party bidder, the Joneses.  Ms. Ackah sued to invalidate the foreclosure, arguing that she first learned of the proceeding when her tenants received a notice to vacate the property following the foreclosure sale.  At issue was whether the foreclosure trustee had exercised due diligence when attempting to serve Ms. Ackah with the hearing notice since the HOA had her email address but failed to use it to notify her of the impending foreclosure.

All lawsuits, including foreclosures, must be “served” on the adverse party for the court system to have jurisdiction over the parties and to render a binding judgment.  Without proper service, no lawsuit can move forward, and no judgment rendered is effective upon any party not properly served.  Service is generally effectuated by the sheriff, or by certified or overnight mail with a signature receipt.  Foreclosures can also be served by posting on the property itself if the homeowner does not sign for service via mail or overnight delivery. 

The Court of Appeals reviewed the notice requirements set forth in Section 3-116 of the North Carolina Planned Community Act, and in Rule 4 of the North Carolina Rules of the Civil Procedure, which is the service rule.  The Court stated, without citing any real authority, that Rule 4 requires the exercise of "due diligence" when serving a homeowner with a foreclosure notice, and that since the HOA had Ms. Ackah’s emails address but failed to use it to notify her of the impending foreclosure, the HOA had failed to exercise due diligence before resorting to posting the notice on the property.  Therefore, the posting was ineffective to constitute proper service of the lawsuit, and the foreclosure was deemed to be invalid, at least as it pertained to Ms. Ackah.  

Specifically, the Court stated, “[w]hen the notice letters came back ‘unclaimed,’ Rule 4 due diligence required that the HOA at least attempt to notify Ms. Ackah directly through the email address it had for her rather than simply resorting to posting a notice on the Property.” 

The second part of the opinion dealt with an analysis of what to do about the Joneses, the third party bidder who purchased the home at the foreclosure sale and who had no way of knowing that Ms. Ackah was not properly notified.  There is a state statute which says that a bona fide purchaser (i.e. an innocent buyer without reason to know of any procedural or legal defects) is protected against an invalidation of its purchase at a foreclosure sale. Therefore, the Court ruled that the Joneses could keep the property, and that Ms. Ackah could get financial restitution from the HOA, but could not get the home back.

The takeaway from Ackah is that HOAs, their management companies and their attorneys now (at least until the Supreme Court considers and hopefully overrules this case) have an additional inquiry to make when conducting a foreclosure when attempts to serve a defendant (other than by posting) prove ineffective.  Our advice is that if an HOA or a management company knows of an email address used by an owner, then it needs to be provided to the foreclosing trustee prior to commencement of the foreclosure.  The trustee is obligated to determine whether the notice of hearing must also be sent to the email address.  This necessarily requires that email addresses with owners be kept up-to-date, but this is something that most management companies and HOAs do already. If they don’t, they need to start.  

Some attorneys have stated that the Ackah case appears to require that all communications preceding the foreclosure must also be sent via email, which is creating a lot of angst among management companies and HOAs alike.  Although a court or the legislature may one day require all pre-foreclosure communications to be sent by email, Ackah does not specifically require this and we do not recommend it at this time.  We are of the opinion that Ackah addresses only the trustee’s efforts at the foreclosure stage when mailed or personal service is ineffective, and that its ruling should be limited to that situation only.  

The bottom line:  Many HOA attorneys are distressed at this holding by the Court of Appeals.  In fact, Rule 4 of the North Carolina Rules of the Civil Procedure says nothing about due diligence, except for in one particular subsection, not applicable here, which addresses the rare instance of serving someone by publishing a notice in the newspaper rather than personally or by mail.  The Court completely invents this requirement.  It does cite an earlier 2015 case in which a plaintiff failed to use due diligence in notifying his ex-wife, whom he knew to be in New York City, before “serving” her via publication in Charlotte with a divorce lawsuit.  The case said nothing about email except in passing in a footnote.  Therefore, our opinion is that the case is poorly reasoned and should be strictly limited in its application.  We hope the N.C. Supreme Court will take up the case, which we understand has been further appealed, and will reverse the Court of Appeals’ unfortunate decision.

Unfortunately, Ackah is North Carolina law at this time unless overturned by the Supreme Court or the General Assembly. If an HOA or management company has any sort of email addresses for an owner, it should provide them to the attorney handling the foreclosure.  As foreclosure trustee, if other attempts to serve the owner with the foreclosure fail, the Ackah case requires that notification via email must also be attempted before service by posting can be effective.  Thus, this adds an extra step for the notification process for a trustee when foreclosing on an HOA claim of lien.  This case does not require emails to be used in any other scenario. 

Here's a link to the opinion itself:

Here's a link to Rule 4 of the North Carolina Rules of Civil Procedure:,_Rule_4.html

As always, if you have questions regarding this case or other areas of HOA law, please contact us.