North Carolina Legislative Update

North Carolina Legislative Update

The North Carolina legislature recently amended its general laws relating to notice requirements and protections for tenants of real properties in foreclosure, effective October 1, 2015.




Notice of Sale/Occupants

The existing law includes a requirement for mailing a notice of sale of residential real property containing less than 15 rental units to persons who occupy the property under a residential rental agreement.  House Bill 174 clarifies that the requirement also applies to single-family residential real property.


Any tenant who receives the written notice of sale (described above) is permitted to terminate the rental agreement by providing the landlord with a written notice of termination, to be effective on the date stated in the notice of termination that is at least 10 days, but no more than 90 days, after the sale date that is in the notice of sale, provided that borrower has not cured the default at the time that tenant provides the notice of termination.  Upon termination, the tenant remains liable for the rent due under the agreement prorated to the effective date of the termination.


In addition to the existing requirements, the notice of sale (of residential real property with less than 15 rental units) must include a statement that:

(1)                 Any person who occupies the property under a rental agreement entered into or renewed after October 1, 2007, has the right to terminate as described above; and

(2)                 Upon termination of a rental agreement, the tenant is liable for rent due under the rental agreement prorated to the effective date of the termination.



Effect of Foreclosure on Preexisting Tenant

A new section is added, identifying the effect of foreclosure on a preexisting tenancy and setting forth requirements.


“Purchaser” is defined as any purchaser or successor in interest who has acquired title to single-family residential real property through foreclosure under a power of sale.


Unless the purchaser will occupy the premises as a primary residence, the purchaser assumes the 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 (but in no event shall the purchaser be required to renew the existing lease).  This applies only to a lease that meets all of the following:

(1)               The tenant is not the debtor under the security instrument foreclosed;

(2)               The tenant is not the child, spouse or parent of the such debtor; and

(3)               The lease is in writing, is not terminable at will, and requires the receipt of rent that is not substantially less than fair market rent for the property, provided that the rent has not been reduced or subsidized due to a federal or state subsidy.


A purchaser must provide a tenant in possession of the single-family residential real property with a notice to vacate at least 90 days before making an application for possession in any of the following circumstances:

(1)        The tenant has an oral lease or the lease is terminable at will; or

(2)        The purchaser will occupy the premises as a primary residence.


This new section does not apply to:

(1)               The option to purchase terms in an option contract;

(2)               A lease of residential real property where there is an “imminently dangerous condition” on the premises as of the date of acquisition of title by purchaser.


“Imminently dangerous condition” is defined as one of the following:

(1)               Unsafe wiring;

(2)               Unsafe flooring or steps;

(3)               Unsafe ceilings or roofs;

(4)               Unsafe chimneys or flues;

(5)               Lack of potable water;

(6)               Lack of operable locks on all doors leading to the outside;

(7)               Broken windows or lack of operable locks on all windows on the ground level;

(8)               Lack of operable heating facilities capable of heating living areas to 65° F  when it is 20° F outside from November 1 through March 31;

(9)               Lack of an operable toilet;

(10)           Lack of an operable bathtub or shower;

(11)           Rat infestation as a result of defects in the structure that make the premises not impervious to rodents; or

(12)           Excessive standing water, sewage, or flooding problems caused by plumbing leaks or inadequate drainage that contribute to mosquito infestation or mold.


This new section does not limit the remedies available to the purchaser for breaches of the lease terms by the tenant.


Orders for Possession

Current law:  The clerk of the superior court of the county in which the property is sold under a power of sale may issue orders for possession in favor of the purchaser if all of the following apply:

(1)               The property has been sold in the exercise of the power of sale in the loan documents or under statutory provisions;

(2)               All statutory requirements for sales under power of sale have been complied with;

(3)               The sale has been consummated and the purchase price paid;

(4)               The purchaser has acquired title to and is entitled to possession of the property:

(5)               Ten (10) days notice has been given to the party(ies) remaining in possession at the time of application; or, in the case of residential  property containing 15 or more rental units, 30 days notice; and

(6)               Application is made by petition to the clerk by the mortgagee, the trustee, the purchaser, or any authorized representative of each.


Amended law:  Same requirements as above, with new condition:   If the property is single-family residential and occupied under a lease, whether written or oral, the purchaser must have satisfied the requirements set forth in section above entitled “Effect of Foreclosing on Preexisting Tenant.”  The occupants must also receive the notice described in (5) above.


Various Amendments to Laws Affecting Real Property


A.  Definitions and prohibited actions under the law prohibiting home foreclosure rescue scams have been amended.


B.  The definition of option contract (executed with a lease) or contract is amended to define the subject property as single-family residential real property.  Also, technical corrections have been made to the existing law, as well as setting forth the remedies available to the option seller and the option purchaser.


C.  The requirements for the content of a contract for deed have been amended.  A requirement has been added to provide a completed residential property disclosure statement (as described under the Residential Property Disclosure Act), provided that seller does not choose the option of making “No Representation” as to any characteristic or condition.  The requirement has been deleted that required a seller to provide a statement of lien with the amount and due dates of periodic payments, if the subject property is encumbered by a deed of trust, mortgage, or other encumbrance securing a monetary obligation.