SB 974, SB 974, which had the strong support of Attorney General Roy Cooper, includes important new consumer protections in two distinct areas: Greater protections for homeowners during the foreclosure process; and greater protections for consumers against abusive debt buying activities.

Foreclosure protections: This new law allows a clerk of court to continue (delay) a foreclosure hearing for up to 60 days for owner-occupied residential property if the clerk believes that additional time will increase the likelihood of resolving the delinquency without foreclosure. This delay gives homeowners more time to negotiate a workable and affordable loan modification or payment plan with the mortgage servicer, increasing their chances of saving their home. In addition, if a foreclosure of a principal residence is under appeal, the clerk of court shall require a bond on 1% of the principal balance owed on the loan. This amount may be waived in hardship cases, or increased if the clerk believes that waste or damage to the property is likely.

Debt buyer protections: This law sets new rules for companies that purchase consumer debts, and requires those purchasers to be licensed under the debt collectors statutes. In the past, these debt buyers have purchased old or stale debt (debt where the statute of limitations had expired) for pennies on the dollar. They then aggressively tried to collect on this debt, hoping of course to collect more than the small amount they paid.

One particular tactic this bill addressed was the use of lawsuits to gain judgments against the debtor on stale debt. Under the previous law, passage of the statute of limitations was a defense to a lawsuit. However, the debt buyers knew that the debtors were unlikely to be able to afford legal representation. Then, when the debtor did not attend the court hearing and the judge would enter a default judgment on behalf of the debt buyer. The debt buyer could then file a lien against the debtor's house and potentially force a foreclosure if the debt was large enough.

Under this new law, it is now illegal for debt collectors to bring a lawsuit or initiate arbitration proceedings if:

  • They know, or should know, that the debt collection is barred by statute of limitations.
  • They don't have complete documentation and clear proof of debt.
  • They haven't given the debtor at least 30 days notice before filing legal action.

The law also increases the penalties for unfair debt collection from $2000 to $4000, and includes a private right to action.

Effective date: October 1, 2009, applies to foreclosures initiated, debt collection activities undertaken and actions filed on or after that date.