The North Carolina Court of Appeals recent decision in the case Whisnant v. Carolina Farm Credit (N.C. App. 5-18-2010) sets forth a useful summary of the legal claims that property owners may considering utilizing in their efforts to defendant against foreclosure sales in North Carolina. In the Whisnant case, the plaintiffs filed a complaint in state court seeking an injunction to stop the defendant financial institution from proceeding with a foreclosure sale of their property.
The lower court ruled in favor of the defendant, and granted it summary judgment dismissing the plaintiffs’ complaint. The Court of Appeals reversed, finding that the plaintiffs had raised legitimate factual issues as to whether plaintiffs were entitled to the considerable legal protections provided by North Carolina General Statutes to individuals who execute loan documents for the benefit of third parties. In legal parlance, one who executes the contract solely to provide security for the benefit of another is known as an “accommodation party” or surety. Here, the plaintiffs executed the loan documents solely for the benefit of their extended family members. Under North Carolina law, creditors have an affirmative obligation to inform a surety of any information that “the creditor know or has good grounds for believing that the surety is being deceived or misled.” Id.
The Court of Appeals concluded that the plaintiffs had raised triable issues of fact with respect to their legal claims against the lender sounding in negligence, actual fraud, fraud in the inducement, and unfair and deceptive trade practices.