Before you bid: an NC tax foreclosure due-diligence checklist

These properties sell as-is, and the auction itself won't tell you what comes with them. Work through these steps for every property you plan to bid on.

The checklist

1. 1

   Look at the property itself

   There are usually no showings and no interior access. Drive by, look at the lot and the neighborhood, check the flood zone and recent nearby sales, and budget repairs honestly.

2. 2

   Read the court file

   At the clerk of superior court in the property's county, find the tax foreclosure case and note which method was used: a court action, or a docketed judgment called "in rem". In a court action, the file shows who was named as a party. In an in rem case, the notices go out from the tax collector and the sheriff, so ask them for copies of the notices sent to the taxpayer and each lienholder. Who must be named or notified →G.S. 105-374(c); 105-375(c), (i)

3. 3

   Check every lien against the case

   Get a title search of the deeds of trust and other liens recorded at the register of deeds, plus filings at the clerk: docketed judgments, federal tax lien notices, association claims of lien, contractors' claims of lien, State tax certificates and child-support liens. Compare that list with the case. A lienholder of record who wasn't named or sent notice is a reason to stop and call an attorney.

   A contractor can file a claim of lien up to 120 days after the last work, and the lien dates back to the first work, so ask about any recent work on the property. Which liens survive a sale →G.S. 1-234; 44-68.12(b); 47F-3-116(a); 47C-3-116(a); 44A-12(b); 44A-10; 105-242(c); 44-86

4. 4

   Check for federal liens and the 120-day window

   If a notice of federal tax lien is on file, find out whether the United States was named in a court action, or whether the IRS got written notice at least 25 days before an in rem sale (whether that rule even applies to in rem sales isn't settled). If neither happened, the IRS lien may stay with the property.

   If the United States was named or notified and the lien is cleared, it can generally still buy the property back within 120 days, or a longer state redemption period if one applies. When that clock starts in a sale with upset bids isn't settled, so don't plan a quick resale or major work inside that window without an attorney's advice. How federal liens work →26 U.S.C. 7425(a)-(d); 28 U.S.C. 2410(c)

5. 5

   Search for a bankruptcy

   A bankruptcy filing by the owner generally freezes a pending tax foreclosure sale. Search the owner's name in PACER's Case Locator at pacer.uscourts.gov, which covers North Carolina's three bankruptcy courts (Eastern, Middle and Western). PACER charges small per-page fees. Check shortly before the auction, again before you file an upset bid, and again before the sale is confirmed. If the owner has filed, talk to an attorney before you go further.11 U.S.C. 362(a); G.S. 1-339.67

6. 6

   Ask the tax office what may stay with the property

   • Current-year taxes. Each year's property-tax lien attaches as of January 1, and a court-action sale is subject to taxes that couldn't be determined when the judgment was entered. Ask what's owed.
   • Other local governments' taxes. If the county foreclosed, ask whether the city's taxes were part of the case, and the reverse.
   • Deferred taxes (sometimes called rollback taxes). If the land is in present-use value (farm, forest or horticulture) or another deferral program, deferred taxes for the preceding three years are a lien. Whether a tax foreclosure clears them isn't settled.
   • Keeping present-use value. One way a new owner can keep it is to continue the qualifying use, apply within 60 days of the transfer, and accept liability for the deferred taxes; the law has other paths and conditions, so ask the tax office before you bid. If the land doesn't qualify in the new owner's hands, three years of deferred taxes, plus interest, come due.

   G.S. 105-355(a); 105-285(d); 105-374(k)(i), (k)(ii); 105-375(i); 105-277.4(a), (c); 105-277.3(b2)(1); 105-277.1F(b)

7. 7

   Ask the city or county about code enforcement

   Ask the code-enforcement office about repair, demolition or nuisance-cleanup liens. They're collected like special assessments or taxes, may stay with the property if that government wasn't part of the case, and may not show up in a title search. On commercial, industrial, agricultural or nonprofit property, or multifamily property with five or more units, ask about C-PACE (Commercial Property Assessed Capital Expenditure) assessments too: they stay with the property after the sale.G.S. 160D-1203(7); 160A-193(a); 153A-140; 105-374(k)(ii), (k)(iii); 105-375(i)

8. 8

   If there's an HOA or condo association, get its numbers

   Ask the association for a statement of unpaid assessments. The law makes it give one to the owner or the owner's agent within 10 business days of a written request; a bidder who isn't the owner may or may not get one. Under the planned-community and condominium acts, the association's lien exists only once a claim of lien is filed with the clerk, though those acts don't cover every association. The law that shields first-mortgage foreclosure buyers from older dues doesn't mention tax foreclosures, so whether old dues follow the property isn't settled.G.S. 47F-3-118(b); 47C-3-118(b); 47F-3-116(a), (j); 47C-3-116(a), (j); 47F-1-102

9. 9

   Find out who lives there

   Never assume a property is empty. Federal law protects good-faith ("bona fide") tenants after a foreclosure of residential property: generally at least 90 days' notice to vacate, and a tenant with a lease from before the foreclosure can usually stay to the end of the lease, unless the buyer will live there as a primary residence. Whether that law reaches property-tax foreclosures isn't settled, so plan as if it might.Protecting Tenants at Foreclosure Act, Pub. L. 111-22, s. 702 (12 U.S.C. 5220 note), as restored by Pub. L. 115-174, s. 304

10. 10

    Know the upset-bid window, and that the sale can still be stopped

    The high bid isn't final: a 10-day upset-bid window follows, and every new upset bid restarts it. Until the sale is final, the owner can still stop it by paying what's owed: in a court action, before the sale is confirmed; in an in rem sale, before the upset-bid period ends. The upset-bid guide has the rules and a calculator →G.S. 105-374(e); 1-339.57

11. 11

    Take it to an attorney

    Bring the case file, the notices and the title search to a North Carolina real-estate attorney before you bid. Even after a sale, a notice problem can come back: who can challenge a sale later.

Frequently asked

What should I check before bidding at an NC tax foreclosure auction?

Read the court file to see who was named or notified, get a title search and compare it with the case, check for federal tax liens and a bankruptcy filing, ask the tax office about taxes that may stay with the property, ask about code-enforcement liens and HOA dues, find out who lives there, and know the upset-bid window.

How do I check whether the owner has filed for bankruptcy?

Search the owner's name in PACER's Case Locator, which covers North Carolina's three bankruptcy courts. A bankruptcy filing generally freezes a pending tax foreclosure sale, so check shortly before the auction, again before you file an upset bid, and again before the sale is confirmed.

Can the IRS take the property back after I buy it?

If the sale cleared an IRS lien because the United States was named in the case or got the required notice, the United States can generally still buy the property back within 120 days, or a longer state redemption period if one applies. If the IRS was never properly named or notified, its lien may stay with the property.