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North Carolina Enacts Version of Federal Protecting Tenants at Foreclosure Act

Posted By USFN, Tuesday, September 1, 2015
Updated: Saturday, September 26, 2015

September 1, 2015


by Graham H. Kidner
Hutchens Law Firm – USFN Member (North Carolina, South Carolina)

On August 5, 2015 the governor of North Carolina signed into law a bill that, among other provisions, resurrects some of the rights enjoyed by tenants under the now-defunct federal Protecting Tenants at Foreclosure Act. The federal law expired on December 31, 2014, when Congress declined to extend its terms. The new North Carolina law is effective October 1, 2015.

North Carolina Session Law 2015-178 makes a number of amendments to Chapter 45 of the North Carolina General Statutes, which sets forth North Carolina’s power of sale foreclosure process, as well as Chapter 42 of the North Carolina General Statutes, which specifies North Carolina’s landlord/tenant procedures. A new section, § 45-21.33A, provides that:

• A foreclosure sale purchaser who does not intend to occupy the property as a 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 the purchaser acquires title, whichever is shorter.”

• The tenant’s rights are qualified:

o He may not be the borrower, or child, spouse, or parent of the borrower
o There must be a written lease, that is not terminable at will, and the rent must be not substantially less than fair market value
o 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.

As was the case with the federal PTFA, it is likely that the new law will lead to litigation. Issues surround, for example, the documents necessary to prove the existence of a “written lease;” when does the lease term end; and how far below market value must the rent be before it qualifies as “substantially less”? Both identifying the tenant and communicating successfully with him to determine the salient facts about the tenancy will remain as obstacles to compliance with the new law.

Additionally, the new law provides some relief for various interested persons, which would not adversely impact foreclosing lenders:

• Tenants of borrowers in foreclosure are entitled to terminate their leases early, under certain conditions; and

• Foreclosure rescue schemes are prohibited, with limited exceptions designed to ensure such transactions are legitimate and not intended to deprive the borrower of his interest in the property.

Editor’s Note: Federal H.R. 1354 (introduced 3/13/15 to permanently extend the PTFA and sent to House Committee on Financial Services); Federal S.730 (introduced 3/12/15 to permanently extend the PTFA; read twice and sent to Senate Committee on Banking, Housing, and Urban Affairs). No status change to either bill as of September 7, 2015. Additionally, USFN has two state-by-state publications that are helpful in the post-PTFA environment: REO/Eviction Desk Guide and Eviction Timelines Matrix. They are especially effective when used together.

©Copyright 2015 USFN and Hutchens Law Firm. All rights reserved.
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