Community Association Foreclosures and Squatters

Harmony Taylor

Despite what some may believe, association boards almost never want to foreclose on a condo, townhome or single family home in their community. When they do go through the time and expense of foreclosing, and are forced to purchase the property through foreclosure, it is incredibly frustrating to go to change the locks on a home only to find it already occupied by a stranger. It can appear that someone- not the former owner- showed up in the dead of night, gained access through some means, and moved in- even going so far as to fully furnish the home, hook up utilities, and in one notable case, install a swing set.   These persons are squatters, and like spring allergies or lice, may be difficult to eliminate.

Squatting is generally defined as what happens when someone without legal ownership or rights unlawfully occupies a property, usually residential.  Recently squatting was in the news here in North Carolina when a couple in Davidson was charged with illegally squatting in a multi-million dollar mansion owned by Davidson Mayor, Rusty Knox. In that case law enforcement immediately removed the alleged squatters, but this does not always occur. Sometimes the squatters will allege that they have some ownership interest in the property that was not addressed in the foreclosure process.  Or, they may produce false deeds or conveyances of interest, or they may produce a lease that they claim gives them some right to remain in the home. In my experience, if squatters can produce documentation like this law enforcement will be reluctant to haul them out, and may decline to do more than shake their heads sympathetically and recommend that the association pursue help through the civil courts.

If an association does have to pursue civil action, it should take a deep breath and proceed carefully. For alleged leases, the law does provide some protection to those claiming to have a leasehold right in property after foreclosure.  Prior to December 2014, federal law afforded certain protections to tenants with legitimate, bona fide leases after foreclosure, but that law has now expired. North Carolina has its own version of the federal law, contained in N.C.G.S. Chapter 45-21.33A, which requires a foreclosure sale purchaser who does not intend to occupy the property as a primary residence to honor an existing lease until the end of the remaining term or one year from the date the purchaser acquires title, provided certain conditions are satisfied. The tenant cannot be the prior owner, or the child, spouse or parent of the prior owner; there must be a written lease that is not terminable at will with rent for fair market value (no $1.00 per month); and there cannot be any imminently dangerous conditions on the property.  If an association forecloses, and finds out there is someone already living in the property pursuant to a legitimate lease, that lease will likely need to be honored for some period.

If the squatters claims some other interest in the property, other than a lease, the association may simply need to file a civil action for trespass and conversion of property, and ask a court to order their removal. This action has to be filed in district or civil court, not small claims court, and will be substantially more expensive than a simple summary ejectment filing. You may need to hire a private investigator to determine who to even sue, unless the squatters will do you the courtesy of letting you look at their drivers’ license. You will need to serve the defendants and give them at least 30 days to respond before you can petition the court for possession. Depending on how or if the squatters appear in the civil action, a final order may take 3-6 months or longer to obtain.

What, if anything, can you do to prevent squatting in properties post-foreclosure? There is no silver bullet, but at a minimum the association should monitor whether anyone is living in a property during the foreclosure process, move immediately to change the locks and gain possession after foreclosure, and take immediate action if someone is found to be squatting. Time is not on your side in this process, and the faster you take action, the more likely that the squatter will be moved on to different and, hopefully, less green pastures.

For assistance with squatter issues or any other community association related matter, contact one of our community association attorneys in our Charlotte, Greensboro, Triangle or Coastal offices.