§ 105-374. Foreclosure of tax lien by action in nature of action to foreclose a mortgage. - North Carolina Statutes

§ 105‑374.  Foreclosureof tax lien by action in nature of action to foreclose a mortgage.

(a)        General Nature ofAction. – The foreclosure action authorized by this section shall be institutedin the appropriate division of the General Court of Justice in the county inwhich the real property is situated and shall be an action in the nature of anaction to foreclose a mortgage.

(b)        Taxing units mayproceed under this section, either on the original tax lien created by G.S. 105‑355(a)or on the lien acquired at a tax lien sale held under former G.S. 105‑369before July 1, 1983, with or without a lien sale certificate; and the amount ofrecovery in either case shall be the same. To this end, it is hereby declaredthat the original attachment of the tax lien under G.S. 105‑355(a) issufficient to support a tax foreclosure action by a taxing unit, that theissuance of a lien sale certificate to the taxing unit for lien sales heldbefore July 1, 1983, is a matter of convenience in record keeping within thediscretion of the governing body of the taxing unit, and that issuance of suchcertificates is not a prerequisite to perfection of the tax lien.

(c)        Parties; Summonses.– The owner of record as of the date the taxes became delinquent and spouse (ifany), any subsequent owner, all other taxing units having tax liens, all otherlienholders of record, and all persons who would be entitled to be made partiesto a court action (in which no deficiency judgment is sought) to foreclose amortgage on such property, shall be made parties and served with summonses inthe manner provided by G.S. 1A‑1, Rule 4.

The fact that the owner ofrecord as of the date the taxes became delinquent, any subsequent owner, or anyother defendant is a minor, is incompetent, or is under any other disabilityshall not prevent or delay the tax lien sale or the foreclosure of the taxlien; and all such persons shall be made parties and served with summons in thesame manner as in other civil actions.

Persons who have disappearedor who cannot be located and persons whose names and whereabouts are unknown,and all possible heirs or assignees of such persons, may be served bypublication; and such persons, their heirs, and assignees may be designated bygeneral description or by fictitious names in such an action.

(c1)      LienholdersSeparately Designated. – The word "lienholder" shall appearimmediately after the name of each lienholder (including trustees andbeneficiaries in deeds of trust, and holders of judgment liens) whose nameappears in the caption of any action instituted under the provisions of thissection. Such designation is intended to make clear to the public the capacityof such persons which necessitated their having been made parties to suchaction. Failure to add such designation to captions shall not constitutegrounds for attacking the validity of actions brought under this section, ortitles to real property derived from such actions.

(d)        Complaint as LisPendens. – The complaint in an action brought under this section shall, fromthe time it is filed in the office of the clerk of superior court, serve asnotice of the pendency of the foreclosure action, and every person whoseinterest in the real property is subsequently acquired or whose interesttherein is subsequently registered or recorded shall be bound by allproceedings taken in the foreclosure action after the filing of the complaintin the same manner as if those persons had been made parties to the action. Itshall not be necessary to have the complaint cross‑indexed as a notice ofaction pending to have the effect prescribed by this subsection (d).

(e)        Subsequent Taxes. –The complaint in a tax foreclosure action brought under this section by ataxing unit shall, in addition to alleging the tax lien on which the action isbased, include a general allegation of subsequent taxes which are or may becomea lien on the same real property in favor of the plaintiff unit. Thereafter itshall not be necessary to amend the complaint to incorporate the subsequenttaxes by specific allegation. In case of redemption before confirmation of theforeclosure sale, the person redeeming shall be required to pay, before theforeclosure action is discontinued, at least all taxes on the real propertywhich have at the time of discontinuance become due to the plaintiff unit, pluspenalties, interest, and costs thereon. Immediately prior to judgment orderingsale in a foreclosure action (if there has been no redemption prior to thattime), the tax collector or the attorney for the plaintiff unit shall file inthe action a certificate setting forth all taxes which are a lien on the realproperty in favor of the plaintiff unit (other than taxes the amount of whichhas not been definitely determined).

Any plaintiff in a taxforeclosure action (other than a taxing unit) may include in his complaint,originally or by amendment, all other taxes and special assessments paid by himwhich were liens on the same real property.

(f)         Joinder ofParcels. – All real property within the taxing unit subject to liens for taxeslevied against the same taxpayer for the first year involved in the foreclosureaction may be joined in one action. However, if real property is transferred bythe listing taxpayer subsequent to the first year involved in the foreclosureaction, all subsequent taxes, penalties, interest, and costs (for which theproperty is ordered sold under the terms of this Subchapter) shall be proratedto such property in the same manner as if payments were being made to releasesuch property from the tax lien under the provisions of G.S. 105‑356(b).

(g)        Special BenefitAssessments. – A cause of action for the foreclosure of the lien of any specialbenefit assessments may be included in any complaint filed under this section.

(h)        Joint Foreclosureby Two or More Taxing Units. – Liens of different taxing units on the sameparcel of real property, representing taxes in the hands of the same taxcollector, shall be foreclosed in one action. Liens of different taxing unitson the same parcel of real property, representing taxes in the hands ofdifferent tax collectors, may be foreclosed in one action in the discretion ofthe governing bodies of the taxing units.

The lien of any taxing unitmade a party defendant in any foreclosure action shall be alleged in an answerfiled by the taxing unit, and the tax collector of each answering unit shall,prior to judgment ordering sale, file a certificate of subsequent taxes similarto that filed by the tax collector of the plaintiff unit, and the taxes of eachanswering unit shall be of equal dignity with the taxes of the plaintiff unit.Any answering unit may, in case of payment of the plaintiff unit's taxes,continue the foreclosure action until all taxes due to it have been paid, andit shall not be necessary for any answering unit to file a separate foreclosureaction or to proceed under G.S. 105‑375 with respect to any such taxes.

If a taxing unit properlyserved as a party defendant in a foreclosure action fails to answer and filethe certificate provided for in the preceding paragraph, all of its taxes shallbe barred by the judgment of sale except to the extent that the purchase priceat the foreclosure sale (after payment of costs and of the liens of all taxingunits whose liens are properly alleged by complaint or answer and certificates)may be sufficient to pay such taxes. However, if a defendant taxing unit isplaintiff in another foreclosure action pending against the same property, orif it has begun a proceeding under G.S. 105‑375, its answer may allegethat fact in lieu of alleging its liens, and the court, in its discretion, mayorder consolidation of such actions or such other disposition thereof (and suchdisposition of the costs therein) as it may deem advisable. Any such order maybe made by the clerk of the superior court, subject to appeal as provided inG.S. 1‑301.1.

(i)         Costs. – Subjectto the provisions of this subsection (i), costs may be taxed in any foreclosureaction brought under this section in the same manner as in other civil actions.When costs are collected, either by payment prior to the sale or upon paymentof the purchase price at the foreclosure sale, the fees allowed officers shallbe paid to those entitled to receive them. In foreclosure actions in which theplaintiff is a taxing unit, no prosecution bond shall be required.

The word "costs," asused in this subsection (i), shall be construed to include one reasonableattorney's fee for the plaintiff in such amount as the court shall, in itsdiscretion, determine and allow. When a taxing unit is made a party defendantin a tax foreclosure action and files answer therein, there may be included inthe costs an attorney's fee for the defendant unit in such amount as the courtshall, in its discretion, determine and allow. The governing body of any taxingunit may, in its discretion, pay a smaller or greater sum than that allowed ascosts to its attorney as a suit fee, and the governing body may allow areasonable commission to its attorney on taxes collected by him after they havebeen placed in his hands; or the governing body may arrange with its attorneyfor the handling of tax foreclosure suits on a salary basis or may make anyother reasonable agreement with its attorney or attorneys. Any arrangement madebetween a taxing unit and its attorney may provide that attorneys' feescollected as costs in foreclosure actions be collected for the use of thetaxing unit.

In any foreclosure action inwhich real property is actually sold after judgment, costs shall include acommissioner's fee to be fixed by the court, not exceeding five percent (5%) ofthe purchase price; and in case of redemption between the date of sale and theorder of confirmation, the fee shall be added to the amount otherwise necessaryfor redemption. In case more than one sale is made of the same property in anyaction, the commissioner's fee may be based on the highest amount bid, but thecommissioner shall not be allowed a separate fee for each such sale. Thegoverning body of any plaintiff unit may request the court to appoint as commissionera salaried official, attorney, or employee of the unit and, when the requestedappointment is made, may require that the commissioner's fees, when collected,be paid to the plaintiff unit for its use.

(j)         Contested Actions.– Any action brought under this section in which an answer raising an issuerequiring trial is filed within the time allowed by law shall be entitled to apreference as to time of trial over all other civil actions.

(k)        Judgment of Sale. –Any judgment in favor of the plaintiff or any defendant taxing unit in anaction brought under this section shall order the sale of the real property oras much as may be necessary for the satisfaction of all of the following:

(1)        Taxes adjudged to beliens in favor of the plaintiff (other than taxes the amount of which has notbeen definitely determined) together with penalties, interest, and coststhereon.

(2)        Taxes adjudged to beliens in favor of other taxing units (other than taxes the amount of which hasnot yet been definitely determined) if those taxes have been alleged in answersfiled by the other taxing units, together with penalties, interest, and coststhereon.

The judgment shall appoint acommissioner to conduct the sale and shall order that the property be sold infee simple, free and clear of all interests, rights, claims, and liens whateverexcept that the sale shall be subject to taxes the amount of which cannot bedefinitely determined at the time of the judgment, taxes and specialassessments of taxing units which are not parties to the action, and, in thediscretion of the court, taxes alleged in other tax foreclosure actions orproceedings pending against the same real property.

In all cases in which noanswer is filed within the time allowed by law, and in cases in which answersfiled do not seek to prevent sale of said property, the clerk of the superiorcourt may enter the judgment, subject to appeal as provided in G.S. 1‑301.1.

(l)         Advertisement ofSale. – The sale shall be advertised, and all necessary resales shall be advertised,in the manner provided by Article 29A of Chapter 1 of the General Statutes orby any statute enacted in substitution therefor.

(m)       Sale. – The saleshall be by public auction to the highest bidder and shall, in accordance withthe judgment, be held at the courthouse door on any day of the week except aSunday or legal holiday when the courthouse is closed for transactions. (Inactions brought by a municipality that is not a county seat, the court may, inits discretion, direct that the sale be held at the city or town hall door.)The commissioner conducting the sale may, in his discretion, require from anysuccessful bidder a deposit equal to not more than twenty percent (20%) of hisbid, which deposit, in the event that the bidder refuses to take title and aresale becomes necessary, shall be applied to pay the costs of sale and anyloss resulting. (However, this provision shall not deprive the commissioner ofhis right to sue for specific performance of the contract.) No deposit shall berequired of a taxing unit that has made the highest bid at the foreclosuresale.

(n)        Report of Sale. – Withinthree days following the foreclosure sale the commissioner shall report thesale to the court giving full particulars thereof.

(o)        Exceptions andIncreased Bids. – At any time within 10 days after the commissioner files hisreport of the foreclosure sale, any person having an interest in the realproperty may file exceptions to the report, and at any time within that 10‑dayperiod an increased bid may be filed in the amount specified by and subject tothe provisions (other than provisions in conflict herewith) of Article 29A ofChapter 1 of the General Statutes or the provisions (other than provisions inconflict herewith) of any law enacted in substitution therefor. In the absenceof exceptions or increased bids, the court may, whenever it deems such actionnecessary for the best interests of the parties, order resale of the property.

(p)        Judgment ofConfirmation. – At any time after the expiration of 10 days from the time thecommissioner files his report, if no exception or increased bid has been filed,the commissioner may apply for judgment of confirmation, and in like manner hemay apply for such a judgment after the court has passed upon exceptions filed,or after any necessary resales have been held and reported and 10 days haveelapsed. The judgment of confirmation shall direct the commissioner to deliverthe deed upon payment of the purchase price. This judgment may be entered bythe clerk of superior court subject to appeal as provided in G.S. 1‑301.1.

(q)        Application ofProceeds; Commissioner's Final Report. – After delivery of the deed andcollection of the purchase price, the commissioner shall apply the proceeds asfollows:

(1)        First, to payment ofall costs of the action, including the commissioner's fee and the attorney'sfee, which costs shall be paid to the officials or funds entitled thereto;

(2)        Then to the paymentof taxes, penalties, and interest for which the real property was ordered to besold, and in case the funds remaining are insufficient for this purpose, theyshall be distributed pro rata to the various taxing units for whose taxes theproperty was ordered sold;

(3)        Then pro rata to thepayment of any special benefit assessments for which the property was orderedsold, together with interest and costs thereon;

(4)        Then pro rata topayment of taxes, penalties, interest, and costs of taxing units that wereparties to the foreclosure action but which filed no answers therein;

(5)        Then pro rata topayment of special benefit assessments of taxing units that were parties to theforeclosure action but which filed no answers therein, together with interestand costs thereon;

(6)        And any balance thenremaining shall be paid in accordance with any directions given by the courtand, in the absence of such directions, shall be paid into court for thebenefit of the persons entitled thereto. (If the clerk is in doubt as to who isentitled to the surplus or if any adverse claims are asserted thereto, theclerk shall hold the surplus until rights thereto are established in a specialproceeding pursuant to G.S. 1‑339.71.)

Within five days after deliveringthe deed, the commissioner shall make a full report to the court showingdelivery of the deed, receipt of the purchase price, and the disbursement ofthe proceeds, accompanied by receipts evidencing all such disbursements.

(r)        Purchase and Resaleby Taxing Unit. – The rights of a taxing unit to purchase real property at aforeclosure sale and resell it are governed by G.S. 105‑376. (1939, c. 310, s. 1719; 1945,c. 635; 1947, c. 484, ss. 3, 4; 1951, c. 300, s. 1; c. 1036, s. 1; 1953, c.176, s. 2; 1955, c. 908; 1967, c. 705, s. 1; 1971, c. 806, s. 1; 1973, c. 788,s. 1; 1981, c. 580; 1983, c. 808, s. 8; 1999‑216, ss. 14‑16; 2003‑337,s. 11; 2006‑106, s. 3.)