If I buy a home at a foreclosure sale in North Carolina, can its owners later take it back?

Buyers of foreclosed homes in North Carolina should beware the "upset bid."

Question

My wife and I just moved to Chapel Hill, North Carolina, and we found out that there's a great house in foreclosure in the area where we're hoping to live. We really want to buy it because we think we could probably get a great bargain. However, we are a little nervous about buying a house by bidding at a foreclosure sale, having heard that the homeowners could reclaim the house even after the sale. Is this correct? Could we really lose the house after we've bought it and moved in?

Answer

It is possible, although rare, for North Carolina homeowners to get the home back after a foreclosure sale. There is a limited amount of time, under the law, for them to do this; and you wouldn’t be able to move in to the home during this time.

In order for the homeowners to get the home back after the sale, they would have to “redeem” it, by paying the full amount of the mortgage debt plus all foreclosure expenses, within what is called the “upset bid” period. In addition, not only would you have to worry about the foreclosed homeowners reclaiming the home after you’d bought it, but about a legal provision permitting other parties to submit an upset bid and take the property away from you.

We’ll describe below how the upset bid process works and how North Carolina’s laws might affect your ability to settle into your new home without fearing that you’ll eventually lose it.

You Could Lose the Home to an Upset Bid

In North Carolina, there is a ten-day period after a foreclosure sale during which anyone can post an “upset bid” and purchase the home.

What is an upset bid?  Even after the sale, another buyer can come in and buy the home by making a higher bid than you bid at the foreclosure sale. (The other buyer must bid at least 5% over the sale price, but no less than $750.) This is called an upset bid.

If someone files an upset bid, you’ll receive a notice that the home has been purchased by a new bidder. The sale will then remain open for another ten days. This means that if you want to keep the home, you’ll have to upset that bid by raising the price you’re willing to pay by the minimum amount within that ten-day period. (This process can continue indefinitely, with increasing bids.)

The Homeowners Can Redeem During the Upset Bid Period

In addition, the foreclosed homeowners can pay the mortgage debt in full (along with all foreclosure expenses) and redeem the property during the ten-day upset bid period.

Redemption by the foreclosed homeowners is rare, and it is easy to understand why. Most homeowners who were previously unable to keep up on the home’s mortgage payments are also unable to come up with enough money to pay off the total amount of the debt soon after the sale.

On the other hand, an upset bid by some other party is more likely to occur, especially if you get a really good deal at the foreclosure sale. However, if no upset bids are filed during the ten-day period (or if you’re the last bidder to make an upset bid), the home is then considered legally sold to you and you may move into the property. (If the homeowners are still living in the home you’ll have to take steps to evict them.)

The IRS Can Redeem in Some Cases

It's also possible, but not common, for the IRS to redeem the home after you buy it at the foreclosure sale -- but only if there was a federal tax lien on the home. The IRS would have to pay you the amount you paid at the sale (plus interest and expenses) within 120 days after the sale, otherwise it loses the right to redeem. If the IRS considers redeeming the house, it would send you a notice beforehand.

Finding North Carolina’s Laws

To find the statutes that discuss upset bids after a foreclosure sale in North Carolina, go to Chapter 1 ( § § 1-339.64 to 1-339.68) and Chapter 45 ( § 45-21.27) of the  North Carolina General Statutes.

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