3805 University Drive, Suite E, Durham, NC 27707 919-687-4050
The Durham City/County Tax Office, at the direction of the Durham County Commissioners and the Durham City Council, has for many years proactively and aggressively pursued the the collection of delinquent real property taxes. The City of Durham also separately pursues the collection of delinquent city liens and delinquent special improvement assessments. One of the collection tools used for these efforts is the employment of private attorneys to commence formal foreclosure proceedings under North Carolina General Statutes 105-374 against real property on which there are delinquent unpaid property taxes, delinquent city liens and/or delinquent unpaid special assessments.
Reinhardt Law Offices, PLLC, dba Reinhardt Closing and Property Law Services, is one of three firms employed by the Tax Office to carry out these foreclosure proceedings for taxes, and has also been employed by the City of Durham to carry out foreclosure proceedings for city liens and special assessments. Mr. Reinhardt has been doing this work continuously for the Tax Office since 1989 (there was a 5 year hiatus from 1997 to 2002), and for the City of Durham (on liens and assessments) since 2006. Our efforts, along with those of the other attorneys retained by the County of Durham, have caused a noticeable increase in the successful tax collection rate of the Durham Tax Office and the City of Durham Collector of Revenue.
What follows below is some information, in the format of Frequently Asked Questions (FAQ), about the tax and lien foreclosure process in Durham and in North Carolina:
What are delinquent real property taxes, city liens and/or special improvement assessments subject to foreclosure?
Everyone who owns real property in Durham County is required to list this property as of the first day of January of each year. Most times, this listing is automatic, but if there have been improvements or changes in the property, these must be reported by state law to the Tax Office with the listing forms in January. By July 1 of each year, a tax rate will be set by both the Durham County Commissioners and (if the property is within the Durham City limits) by the Durham City Council. For each parcel of taxable real state, these tax rates will be multiplied by each parcel’s listed and assessed valuation as of January 1, and the product of this multiplication is that year’s tax bill on the parcel. Usually in August, but no later than September, a tax bill will be mailed out to the last known address of the taxpayer as of January 1 for that year. The taxpayer has until the first Tuesday of the following year to pay the tax bill without penalty. After that time, if the bill remains unpaid, it becomes delinquent, and subject to penalties and interest as set forth by state law. Once the property tax is delinquent, it is subject to foreclosure prosecution.
With respect to city liens, this represents liens filed with the Register of Deeds for either property cleanup, property stabilization and repair, or structure demolition.
With respect to special improvement assessments, this represents a lien for capital improvement work (street paving, sewers, water lines, etc) which are done next to, and usually for the benefit of, a taxpayer’s property. The work is generally done by the City as the result of a petition of landowners in the neighborhood, although sometimes it is done on the City’s own initiative. Once the work is complete, an assessment bill is calculated based on the linear footage of the taxpayer’s property next to the improvement. These assessment bills are sent to the landowners as part of a confirmation process by the City Council. Once the City Council confirms the assessment, a final bill is then issued, which is usually scheduled to be paid by the taxpayer over an installment period of several years. Failure to pay the installments when due renders the assessments delinquent and therefore subject to foreclosure in the same manner as delinquent real property taxes.
What if the taxpayer sells the real property after January 1, and what if a bill is not received by the new owner?
Under state law, the listing taxpayer is the responsible party for the taxes owned by the listing taxpayer as of January 1 of each year, even if the taxpayer sold the property after January 1. A change in the law was made in the summer of 2006, which provides that, for taxes which become delinquent on or after January, 2007, and only for the purpose of collecting those delinquent taxes, the listing taxpayer will be the record owner of the property at the date the taxes became delinquent. Even with this change in the law, the Tax Office has always made a good-faith effort to notify new owners of the existence of tax bills, but state law only requires that the tax bill be sent to the taxpayer as of January 1 of that year, and to the last known address of the taxpayer and/or new record owner. It is the duty of each owner of property to keep the Tax Office notified of address changes and to know that taxes are payable each year, regardless of whether a billing was received.
What does the Tax Office do with delinquent tax bills? What does the City of Durham Finance Department do with delinquent city liens and/or special improvement assessment bills?
When a property tax bill becomes delinquent, the Tax Office tries various methods to notify the taxpayer and potential owners about the delinquent bill to see if the bill can be collected without the extreme remedy of foreclosure. Sometimes the Tax Office will set up a payment plan with a taxpayer, but the Tax Office is not required to do so, and can terminate payment plans at any time. The final step in the collection procedure is a pre-foreclosure letter sent by the Tax Office to the last known address of an owner and/or taxpayer. If these pre-foreclosure methods still fail, the Tax Office may assign parcels to private attorneys to commence foreclosure proceedings.
The collection procedure for delinquent city liens and/or special improvement assessments due the City of Durham is very similar. The City of Durham Collector of Revenue sends out bills and other collection letters. If these collection efforts fail, the City of Durham Collector of Revenue may assign the property to our office to commence foreclosure proceedings. If there are delinquent real property taxes along with city liens and/or delinquent special improvement assessments, the collection procedures are usually coordinated through the Tax Office and assigned to the same private attorneys to commence combined foreclosure proceedings.
What happens when the Tax Office or the City of Durham Collector of Revenue assigns property to attorneys to foreclose?
Once the Durham Tax Office or the City of Durham Collector of Revenue assigns properties to attorneys to foreclose, the Tax Office and/or the Collector of Revenue mark their respective computer records with the assignment, and will no longer accept direct payments or payment plans from taxpayers. All tax, city lien and/or assessment payments from the point of assignment must pay the taxes, liens, assessments, interest, fees and costs in full, and must be made through the assigned attorney. If a taxpayer/.owner elects to pay the taxes, liens or assessments directly to the taxing authority, the taxing authority is required to accept the payments, but the taxpayer/owner is still required to pay all fees and costs of the action in order to fully terminate foreclosure proceedings. Persons interested in paying off/redeeming properties in foreclosure must contact the assigned attorney directly to whom that property was assigned to secure a payoff quote. At some point after the assignment, the attorney will start a title search of the property to determine as a matter of public record all of the owners, mortgage holders, judgment and lien holders, and other interested parties required by state law. The attorney will then prepare a complaint listing the City and County of Durham as the Plaintiffs (complaining parties), or the City of Durham as sole plaintiff in a lien and/or assessment foreclosure case. The Defendants will be all of those parties found by the record title search to be interested parties in the real estate (owners, mortgage holders, etc.) The complaint will be filed in either Durham District or Durham Superior Court (depending on the amount of taxes and/or assessments owed). The summons and complaint will be delivered to each defendant by the sheriff, or by other approved means of service of process in civil lawsuits (FEDEX, certified mail, process server, etc.). Each party that is served is clearly informed by the summons that written answer, if any, must be filed with the Court within 30 days from the date the papers were served on the party.
What is the legal effect of a tax, city lien or assessment foreclosure filing?
At the time the tax, city lien or assessment foreclosure complaint is filed, a companion filing called a lis pendens is also made. The lis pendens puts title searchers and other searchers of the public records on notice that the title to the property is now being foreclosed. There is no real defense to a property tax, city lien or assessment foreclosure complaint and lawsuit. The main purpose of the foreclosure process is to notify all interested parties that any legal interest they may have in the property will be terminated and extinguished if a tax, city lien or assessment foreclosure sale of the property is completed. This is because property tax liens, city liens and special improvement assessment liens are ahead of and superior to all other liens, except (in a limited extent) to filed income tax liens held by the North Carolina Department of Revenue. When a superior lien is foreclosed, it cuts off all junior liens and ownership rights.
What happens after the filing of the tax, city lien or assessment foreclosure complaint?
As noted above, each defendant has 30 days to file a written answer to the complaint if they wish. Depending upon service on the parties and any answers filed, the attorney conducting the foreclosure will eventually move for a judgment of sale. Once a judgment of sale is entered, the property is scheduled for sale at the new Durham County Justice Center. The sale is conducted by a Commissioner appointed by the Court, currently Mr. R. Douglas Davis. At the sale, the highest successful bidder puts up a 10% cash/certified check deposit with the attorney, and the sale is reported to the Clerk of Court. After that, the sale stands open for 10 days for possible increased upset bids. Upset bids are calculated and received by the Clerk of Court for each property. If no upset bids are received, the attorney notifies the high bidder at the sale that the bidder has won, and that bidder has to come up with the balance of the purchase price. The process is the same when upset bids are received, except that the final high bidder after upset bids are completed is notified to bring in the purchase price of the final high upset bid. When the purchase price is paid under either sale process, the sale is confirmed and a Commissioner’s deed is delivered to the new owner.
How do people find out about upcoming tax, city lien or assessment foreclosure sales?
Tax, City Lien and Assessment Foreclosure sales usually occur once a month, generally on the second Tuesday of the month. Notices of sale are published in the newspaper once a week for two weeks and posted at the Courthouse for at least 20 days. In addition, our office also mails out notices with the minimum bid amounts (see explanation below) to the defendants in the case as well as the owners of property adjacent to the property being sold. For property tax foreclosures, the Tax Office publishes the notices of sale with the minimum bids on their website (see link above). For city lien and/or assessment foreclosures being handled by our office, we post those sales on our website here. The sale commissioner, R. Douglas Davis, also has a website that he regularly posts with all tax and lien sales, including status of bids and upset bids
How does the public sale process work, and what about deposits?
Prior to the sale date, the Commissioner (R. Douglas Davis, 919-477-0280), personally visits each property up for sale, and assembles some very basic information about it (tax value, location, GIS report, etc.). This is only for informational purposes, to allow the Commissioner to tell people prior to or at the sale something about the properties and where they are located. At twelve noon on the sale date, in the Snack Bar area on the first floor of the new Durham County Justice Center (510 S. Dillard Street), Mr. Davis, as the Commissioner, will go through a detailed explanation of which properties are for sale and which have been redeemed (see below). He will also explain that all sales are “where-is, as-is,” no warranties and no representations of any kind. He will then start off the sale with a “minimum bid” which is equal to the the amount of taxes, liens and interest under the judgment, as well as the total estimated fees and costs of the foreclosure sale. The “minimum bid” will have been advertised both at the Tax Office, the Tax Office website, the Commissioner’s website, and, for sales handled by our office, our website (see links to all at top of this page). The “minimum bid” is a starting point, and most properties usually sell for a sum in excess of the “minimum bid.” NOTE: To the extent a final unredeemed sale is completed and confirmed with a sales price higher than the minimum bid, the excess is deemed surplus funds, which are deposited with the Clerk of Superior Court of Durham County. These surplus funds do not go to the City or County of Durham, but are instead are subject to the claims of the defendants in the foreclosure case. Rights in any surplus funds are determined by the Clerk of Court.
At the public sale, the high bidder for a property will be required to post a deposit (equal to 10% of the high bid), payable to the trust account of the attorney handling the sale of that property. The 10% deposit has to be cash, or cash equivalent, such as certified funds or money order. Since most bidders do not have the exact cash or certified funds on them at the public sale, the bidder is allowed to deliver a temporary personal check to the attorney. The bidder then has two hours after the conclusion of the public sale to come to the attorney’s office replace and exchange the personal check for cash or cash-equivalent funds. This accommodation is NOT an excuse to inspect the property after the sale and then not bring in replacement funds. All bidders at a sale, including upset bidders, are bound by state law to honor their bids.
When does the sale become final, and what are upset bids?
Once the public auction is completed, the Commissioner will, usually on the same day of the sale, file a report of sale with the Clerk of Court. This report of sale will give the name, address and phone number of the high bidder at the sale, the property sold, and the high bid for the property at the sale. As required by North Carolina General Statutes 1-339.25, the filing of this report of sale starts a ten (10) day (calendar days, not business days) waiting period called the upset-bid period. For normal tax foreclosure sales on the second Tuesday of the month, this upset period would end on Friday week after the sale took place. The purpose of the upset bid is to allow all interested bidders, including those who might not have been at the sale, to increase the bid amount by filing an upset bid with the Clerk of Court. The minimum bid is 5% of the reported sales price, or a minimum of $750, whichever is higher. For example, if a property sold at public auction for $10,000, then the minimum bid amount would be $750 (5% would be $500, the minimum is $750). In this same example, if a minimum upset bid was filed, then the new overall upset bid price would be $10,750, and another 10-day period would start to run, commencing on the date that the upset bid was filed with the Clerk of Court. Additional upset bids can be filed after that, each with the same minimum of 5%, or $750, bid increase, based on the prior upset bid amount. In the case of the first upset bid, the attorney handling the tax foreclosure sale would notify the public sale bidder of the upset bid, and make arrangements to return the 10% deposit to the original bidder. Once upset bids begin, no further bids or deposits are accepted by the foreclosing attorney. Instead, all upset bids run through the Clerk of Court. There are no limits to the amount or frequency of upset bids.
If no upset bids are filed, OR if upset bids are filed and the period for filing additional upset bids has ended with no other upset bids being filed, THEN the foreclosing attorney will contact the high bidder to inform them of the successful bid and to demand the balance of the bid price (or balance of the upset bid price) over and above the initial deposit (or upset bid deposit). These funds must be paid in cash or certified funds to the foreclosing attorney within three (3) days after the demand for the additional funds is made. If a bidder does not honor the bid (or upset bid) by paying in the balance of the additional funds, then that bidder is in default, the bid deposit (or upset bid deposit) will be held pending further orders of the court, and the property will be placed for resale. Remember that, subject to upset bid requirements, all sales are final, absolute, and unconditional - there is no “closing,” settlement statement, financing contingency or any other contingencies. That is why it is so important for bidders to fully check out a property prior to placing any bid or upset bid.
Once the balance of the purchase price is paid by the bidder (or upset bidder), then the foreclosing attorney will secure a confirmation order from the court, and record the deed to the new purchaser.
Can the tax, city lien or assessment foreclosure sale be stopped or redeemed from sale?
State law provides that any owner, mortgage holder or defendant in a filed tax, city lien or assessment foreclosure proceeding can stop the foreclosure process at any time by redeeming the property. The redemption price is equal to the taxes, city liens and/or assessments, interest, fees and costs of the foreclosure proceeding to the date of the redemption (fees including the 5% commissioner fees on the sale price or current upset bid price at the time of redemption). Parties wishing to redeem property from tax, city lien or assessment foreclosure and stop the foreclosure process must contact the assigned attorney for a redemption payoff figure. Redemption can even occur after a sale, as long as the sale has not been confirmed by the Court. However, once the foreclosure property sale has been completed with a confirmation order and delivery of deed, all rights of redemption are terminated.
Bankruptcy proceedings filed by the property owner under federal law can also stop tax, city lien or assessment foreclosures, but all of the taxes, city liens and/or assessments, interest, fees and costs of the action to the date of the bankruptcy filing must be paid as a priority claim in the bankruptcy proceeding.
What is the status of title delivered by a tax, city lien or assessment foreclosure deed? Are there any warranties on the property?
The Commissioner will make it clear to all bidders present at the public sale that no representation or warranty of any kind is being made about the property or the status of title being delivered. Under state law, it is up to each bidder to carefully check out the title and status of the property being sold before placing either a public sale bid or an upset bid. No closing statement or title policy is delivered to a buyer at a tax, city lien and/or assessment foreclosure sale. Title will be delivered by a non-warranty commissioner’s deed.
What if the successful bidder at the public sale or at upset bid doesn’t bring in the purchase price?
Any bidder at either public sale or upset bid who doesn’t bring in the purchase price upon demand by the attorney will be subject to immediate loss of all deposits, as well as civil and/or contempt prosecution for failure to make the bid. All bidders who bid at tax, city lien and/or assessment foreclosure sales, either public or upset bid, are required by law to be aware of the penalties for failure to honor their bid
What happens if no one bids on the property at the foreclosure sale?
The County of Durham will enter a minimum starting bid at each property tax foreclosure sale, while the City of Durham will enter a minimum starting bid for each property at a city lien and/or assessment foreclosure sale. The minimum bid is equal to all the taxes, city liens and/or assessments, interest, fees and costs of the judgment of sale, as well as the additional costs and fees of the sale itself. If no one bids, then the sale is usually postponed to the next sale date to see if other bidders might come forward at a later time. If, at the postponed sale, there are still no bidders, then the County (or City’s) minimum bid will be the successful bid. If no upset bids are received (see above), then the sale will be confirmed to the County of Durham (for tax foreclosure cases) or the City of Durham (for city lien and/or assessment foreclosure cases), and a deed will be issued to the County or City of Durham.
What happens to property which is deeded to the County or City of Durham?
After its deed is recorded, the County of Durham or the City of Durham, as the new owner, will evaluate the property to see if it wants to keep the property or dispose of it. Anyone interested in acquiring property from the County of Durham or City of Durham should contact their respective Real Estate Administrators. For more details, see our Surplus Property Page,