Property Disclosure Statement and Foreclosure
Q: I am listing a foreclosed house for sale. My seller client, XYZ Loans, bought the house at a foreclosure sale. Another lender, ABC Mortgage, had foreclosed on the property. XYZ loans says it does not have to provide a Residential Property Disclosure Statement to the purchaser because it is in the business of lending and bought the real property at a foreclosure sale. Is my client’s sale of this real property exempt from the N.C. Residential Property Disclosure Act?
A: No. The answer lies in N.C. General Statues §47E-2, which is a list of exemptions to the Act. Specifically, §47E-2(2) deals with transfers pursuant to foreclosure sales. Transfer by the foreclosing lender’s representative to a third-party buyer at the foreclosure sale is exempt from the Act. However, when the third-party buyer, such as your client, then turns around and sells the house, such subsequent transfer is not exempt from the Act. It does not matter under the Act whether the third-party buyer is in the business of lending or happened to buy the house at a foreclosure sale. Therefore, while the initial transfer from ABC Mortgage’s representative to XYZ Loans at the foreclosure sale is exempt from the Act (meaning ABC Mortgage’s representative does not have to give XYZ Loans a N.C. Residential Property Disclosure Statement for the property), you should inform XYZ Loans that it must deliver a N.C. Residential Property Disclosure Statement to its purchaser, as XYZ Loans’ subsequent transfer of the real property will not be exempt from the Act.
Q: My seller client, ABC Mortgage, foreclosed on one of its loans and ended up buying the real property at the foreclosure sale. When we eventually find a purchaser, do we have to provide that purchaser with a N.C. Residential Property Disclosure Statement?
A: No. ABC Mortgage “bought back” the real property at its foreclosure sale, which is not an uncommon occurrence-a lender forecloses on one of its loans, ends up buying the real property at its foreclosure sale, and then turns around and lists it for sale. The lender bought the real property at a sale conducted pursuant to a foreclosure of its own deed of trust. The subsequent transfer by a lender who acquired the real property in such a way is exempt from the Act.
This article is intended solely for the benefit of NC REALTORS® members, who may reproduce and distribute it to other NC REALTORS® members and their clients, provided it is reproduced in its entirety without any change to its format or content, including disclaimer and copyright notice, and provided that any such reproduction is not intended for monetary gain. Any unauthorized reproduction, use or distribution is prohibited.