North Carolina Law Update

You have just purchased a property in North Carolina through a power of sale foreclosure only to discover that the property is being occupied by a tenant who has a lease agreement with the former owner of the property. Not only that, but they wish to remain in possession of the property until the end of their lease term. What do you do?

Prior to the enactment of North Carolina Session Law 2019-53, which becomes effective on and applies to all Writs of Possession filed on or after October 1, 2019, it could be confusing to determine the exact procedure to follow because N.C. Gen. Stat. 45-21.33A, which was enacted when the federal Protecting Tenants at Foreclosure Act (“PTFA”) sunset, contained requirements different than the PTFA. When the North Carolina legislature enacted N.C. 45-21.33A, the purpose was to provide similar protections to tenants occupying properties that were foreclosed as the federal PTFA provided at the time of its sunset. When the federal PTFA was restored, there was no longer a need for N.C. Gen. Stat. 45-21.33A. Session Law 2019-53 repeals N.C. Gen. 45-21.33A, and in doing so, eliminates the confusion some faced when trying to comply with both N.C. Gen. Stat. 45-21.33A and the federal PTFA. 

Procedure

Pursuant to N.C. Gen.  Stat. § 45-21.29, the purchaser of a foreclosed property can obtain an order for possession of the property against a tenant if the following six requirements are met:

1. The real property has been sold using the Power of Sale;
2. The provisions of Chapter 45 Article 2a Sales Under Power of Sale have been followed;
3. Sale has been completed and the purchase price paid;
4. The purchaser has acquired title and is entitled to possession; 
5. A petition is made to the clerk by either:  the magistrate, the trustee, the purchaser of the property, or any of the aforementioned party’s authorized representatives; and
6. If the property is covered by the federal Protecting Tenants at Foreclosure Act (PTFA), Pub. L. 111-22, Title VII, Sections 701 through 703, as amended, the provisions of PTFA must be satisfied.

What is Covered Under The PTFA

The PFTA covers any foreclosure on a federally-related mortgage loan or on any dwelling or residential real property, if there is a ‘’bona fide lease or tenancy"¹ entered before the notice of foreclosure. 

What Provision of the PTFA Must Be Satisfied

If the property is covered by the PTFA, the purchaser must provide the bona fide tenant with a notice to vacate at least 90 days from the effective date of the notice before the purchaser can assume control of the property (the “90 Day Notice”).

1. If the purchaser intends to use the property as a primary residence, the purchaser may terminate the lease effective on the date of sale, but must still provide the tenant with the 90 Day Notice;
2. If the purchaser does not intend to use the property as a primary place of residence, the lease will continue until the end of the lease term, and the purchaser may assume control once the lease term expires and the tenant has been provided with the 90 Day Notice; or,
3. If there is no lease or the lease is terminable at will, the tenancy may be terminated through the 90 Day Notice.
4. Please be aware that nothing in PTFA affects any requirements related to termination of any federal or state subsidized tenancy nor does it affect any state or local laws granting additional protection for tenants.

1. _{The PFTA defines “bona fide lease” as:  (1) the mortgagor or the child, spouse, or parent of the mortgagor under the contract is not the tenant; (2) the lease or tenancy was the result of an arms-length transaction; and (3) the lease or tenancy requires the receipt of rent that is not substantially less than fair market rent for the property or the unit's rent is reduced or subsidized due to a Federal, State, or local subsidy.}