May 2, 2016
by Graham H. Kidner
Hutchens Law Firm
USFN Member (North Carolina, South Carolina)
Although the federal Protecting Tenants at Foreclosure Act (PTFA) expired December 31, 2014 when Congress declined to extend its terms, North Carolina enacted legislation effective October 1, 2015 to provide similar protections to tenants occupying foreclosed residential property. North Carolina Session Law 2015-178 added a new section to the power of sale foreclosure statute, § 45-21.33A, which provides that:
• A foreclosure sale purchaser who does not intend to occupy the property as his primary residence “shall assume title subject to the rights of any tenant to occupy the premises until the end of the remaining term of the lease or one calendar year from the date [that] the purchaser acquires title, whichever is shorter.”
• The tenant’s rights are qualified:
(i) He may not be the borrower — or spouse, parent, or child of the borrower;
(ii) There must be a written lease that is not terminable at will, and the rent must not be substantially less than fair market value; and
(iii) If there is an “imminently dangerous condition” [as defined in N.C.G.S. § 42-42(a)(8)] on the premises as of the date of acquisition, then the tenant has no right to continue occupying the premises.
• The tenant must be provided with at least a 90-day notice to vacate if: (a) the purchaser will occupy the premises as his/her primary residence; (b) the tenant has only an oral lease; or (c) if the lease is terminable at will.
There are no reported (or even unreported) judicial decisions interpreting the new section, but litigation can be expected. As was the case with the federal PTFA, litigation is likely to focus on such topics as: what documents are sufficient to establish a lease (a “written lease” is required under the NC law); when did the lease begin and when does it end; and what qualifies as “substantially less” than fair market rent?
As was also a problem in complying with the federal law, both identifying the tenant and communicating successfully with him to obtain accurate information about the claimed tenancy will be among the difficulties faced by mortgage lenders and investors taking title to REO after the foreclosure sale.
If a tenant does not qualify for either the lease assumption or the 90-day notice period, the standard 10-day notice period prevails (for residential properties containing less than 15 rental units). N.C.G.S. § 45-21.29.
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Spring 2016 USFN Report