In late 2024, I hosted a live webinar featuring expert tax foreclosure attorneys from across North Carolina sharing best practice pointers for local governments who use the foreclosure remedy. That webinar is now available for on-demand purchase and viewing. (Note that once purchased by your office, the webinar may be viewed multiple times by as many staff as you desire.) Today’s post summarizes some of the advice we shared with the live audience and provides links to additional foreclosure resources.
- Develop a consistent foreclosure policy and program.
The tax office should work with the manager and board to develop an objective plan for how foreclosure will be employed. How long must taxes be delinquent before foreclosure will be employed? Is there a minimum amount of delinquent taxes that will trigger a foreclosure? Will foreclosure be used on occupied residences or only on vacant properties?
Consistency is key, to maximize the deterrent effect of foreclosure on other taxpayers and to minimize complaints of inequitable tax enforcement. This blog post highlights the most important questions that the tax office should answer before initiating a foreclosure.
2. Decide which type of foreclosures the government will pursue and whether the tax office needs to retain an attorney.
“Mortgage-style” foreclosures under GS 105-374 require the assistance of attorneys because they involve traditional litigation. A tax office could work with their jurisdiction’s regular attorney, if that person has the necessary foreclosure experience. If not, the tax office will need to hire outside counsel. Tax offices can pursue in rem foreclosures under GS 105-375 without the assistance of attorneys, but only if they hire and develop the staff expertise needed to perform the title searches that ensure taxpayers and other interested parties receive appropriate due process. This book provides the nuts-and-bolts details of rem foreclosures.
3. Communicate clearly with taxpayers to inform them of their right to redeem their properties and stop foreclosures.
A foreclosure may be terminated by payment of all taxes, interest, and costs until a mortgage-style sale is confirmed by the court (GS 105-374(e)) or the upset bid period ends in an in rem foreclosure (GS 1‑339.57). Tax offices need to make taxpayers aware of this right to “redeem” their properties. If attorneys are involved in a foreclosure, the tax office and those attorneys need to be on the same page about how, when, and where those redemption payments may be made. In a mortgage-style foreclosures, the pay-off amount should include attorneys fees after the initial complaint is filedb. Tax offices need to be able to communicate effectively with their attorneys to make sure that they collect the correct amounts owed on the properties under foreclosure. If full payment is received, the attorneys should be instructed to dismiss the foreclosure. If only partial payment is received, the attorneys must reduce the amount sought in the foreclosure action accordingly.
This post discusses attorneys fees and interest charges in foreclosure actions. This post illustrates the potential problems when a tax office does not communicate well with their foreclosure attorneys.
4. Discuss with the board and manager whether the government should submit initial bids at foreclosures so that the properties do not sell for less than the amount owed on them.
At the foreclosure sale, the local government conducting the foreclosure has a choice to make. Will it open bidding at the total taxes, costs, and interest owed on the property by submitting an initial bid at that amount? Or will it allow the bidding to start at a lower amount? The risk with the first option is that no one else bids and the government wins the auction and must purchase the property. The risk with the second option is that someone buys the property for less than the amount owed on it and the government does not collect all taxes, costs, and interests included in the foreclosure.
There is no absolutely correct answer to this question. It involves a policy choice. Does the government want to temporarily own foreclosed properties in the hope that it can sell them for more later? (Remember that during this period of government ownership, the property will remain off the tax roll and the government will be responsible for all maintenance costs.) Or is the government willing to lose money on a foreclosure in order to get the property into the hands of a more responsible taxpayer?
This post and this one discuss the legal implications of a government purchasing property at a tax foreclosure.
