Legislative Update, April 2005
Chris Burti, Vice President and Legal Counsel

It appears as if this session of the North Carolina Legislature is likely to produce some significant changes for real property practitioners. Here is a summary of what is on the table currently.

Notary Amendments

Senate Bill 934, Notary Public Act. This begins by repealing Chapter 10A of the General Statutes and by adding an entire new Chapter 10B. A few provisions that are likely to engender some comment and debate follow. Some will be perceived as beneficial, some not. Space limitations prevent an exhaustive analysis.

Section 10B-14 contains powers and limitations.

Section 10B-14(c)(7) may prove to be a bit limiting; it is essentially a conflict of interest prohibition. It is more restrictive than many prohibitions affecting elected officials. It disqualifies a notary that "is a spouse, domestic partner, or relative by blood or marriage within two degrees of the principal, including in-law, step, and half relatives, unless the notary is an employee or a partner of an attorney licensed to practice law in North Carolina"

10B-14(d) and (e) codify some common law doctrines and should be helpful by providing bright line requirements.

(d) A notary may certify the affixation of a signature by mark on a record presented for notarization if:

(1) The mark is affixed in the presence of the notary;

(2) The notary writes below the mark: "Mark affixed by (name of signer by mark) in presence of undersigned notary"; and

(3) The notary notarizes the signature by performing an acknowledgment, oath or affirmation, jurat, or verification or proof.

(e) If a principal is physically unable to sign or make a mark on a record presented for notarization, that principal may designate another person as his or her designee, who shall be a disinterested party, to sign on the principal's behalf pursuant to the following procedure:

(1) The principal directs the designee to sign the record in the presence of the notary and two witnesses unaffected by the record;

(2) The designee signs the principal's name in the presence of the principal, the notary, and the two witnesses;

(3) Both witnesses sign their own names to the record near the principal's signature;

(4) The notary writes below the principal's signature: "Signature affixed by designee in the presence of (names and addresses of principal and witnesses)"; and

(5) The notary notarizes the signature through an acknowledgment, oath or affirmation, jurat, or verification or proof.

10B-14(g) authorizes "Commissioned officers on active duty in the United States armed forces who are authorized to perform notarial acts may perform the acts for persons serving in or with the United States armed forces, their spouses, and their dependents." Since Federal law authorizes certain Non-commissioned Officers to take acknowledgements, this section will likely produce some interesting conflicts.

The following provisions deal with prohibiting Notaries from engaging in the unauthorized practice of law. As this will permit the Secretary of State to regulate such activities, these provisions should be welcomed by those who feel that the North Carolina State Bar has not been as assiduous as might be desired.

(i) A notary public who is not an attorney licensed to practice law in this State who advertises the person's services as a notary public in a language other than English, by radio, television, signs, pamphlets, newspapers, other written communication, or in any other manner, shall post or otherwise include with the advertisement the notice set forth in this subsection in English and in the language used for the advertisement. The notice shall be of conspicuous size, if in writing, and shall state: "I AM NOT AN ATTORNEY LICENSED TO PRACTICE LAW IN THE STATE OF NORTH CAROLINA, AND I MAY NOT GIVE LEGAL ADVICE OR ACCEPT FEES FOR LEGAL ADVICE." If the advertisement is by radio or television, the statement may be modified but must include substantially the same message.

(j) A notary public who is not an attorney licensed to practice law in this State is prohibited from representing or advertising that the notary public is an "immigration consultant" or expert on immigration matters unless the notary public is an accredited representative of an organization recognized by the Board of Immigration Appeals pursuant to Title 8, Part 292, Section 2(a-e) of the Code of Federal Regulations (8 CFR § 292.2(a-e)).

(k) A notary public who is not an attorney licensed to practice law in this State is prohibited from rendering any service that constitutes the unauthorized practice of law.

(1) A notary public required to comply with the provisions of subsection (g) of this section shall prominently post at the notary public's place of business a schedule of fees established by law, which a notary public may charge. The fee schedule shall be written in English and in the non-English language in which the notary services were solicited and shall contain the notice required in subsection (i) of this section, unless the notice is otherwise prominently posted at the notary public's place of business.

(m) If notarial certificate wording is not provided or indicated for a record, a nonattorney notary shall not determine the type of notarial act or certificate to be used. This does not prohibit a notary from offering the selection of certificate forms recognized in this Chapter or promulgated by the Department of the Secretary of State.

(n) A nonattorney notary shall not assist another person in drafting, completing, selecting, or understanding a record or transaction requiring a notarial act.

(o) A notary shall not claim to have powers, qualifications, rights, or privileges that the office of notary does not provide, including the power to counsel on immigration matters.

Section 10B-38 is a curative provision where defective acts of notaries public in certain instances are validated.

Subsection (b) (1) drags along the abysmally horrid language of the prior Act. "All documents bearing a notarial seal and which contain any of the following errors are validated and given the same legal effect as if the errors had not occurred:

…The date of the expiration of the notary's commission is stated, whether correctly or erroneously." It should be obvious that if a Notary incorrectly states the date of expiration in an instrument prior to July 1, 2002 (why don’t they update this provision as well?) the the effect of the misstatement is cured. However, the language is contorted that such is debatable, rendering the statute less than helpful.

Subsections c, d and e need to be updated rather than merely brought forward as proposed.

(c) All deeds of trust in which the notary was named in the document as a trustee only are validated.

(d) All notary acknowledgments performed before January 1, 1953, bearing a notarial seal are hereby validated.

(e) This section applies to notarial acts performed on or before July 1, 2002.

Article 2 contains the "Electronic Notary Act". Space limitations do not permit an extensive discussion of this part of the legislation. Certain sections will undoubtedly prove controversial. A great deal of effort and discussion has gone into the development of this part of the proposed Act. It is reported that the Secretary of State is strongly committed to the submitted language. It may be fair to say that the legislation is more oriented to an enforcement and regulatory view at the expense of easy implementation in commerce. We suspect that this may have the consequence of hindering the widespread use of electronic documentation within North Carolina. We submit the following provision as an example the inhibiting effect of which should be obvious.

§ 10B-59. Certificate of authority for electronic notarial act.

(a) An electronic certificate of authority evidencing the authenticity of the official signature and seal of an electronic notary of this State shall contain substantially the following words:

Certificate of Authority for an Electronic Notarial Act

I, _________ (name, title, jurisdiction of commissioning official) certify that _______ (name of electronic notary), the person named as an electronic notary public in the attached or associated document, was indeed registered as an electronic notary public for the State of North Carolina and authorized to act as such at the time of the document's electronic notarization.

To verify this Certificate of Authority for an Electronic Notarial Act, I have included herewith my electronic signature this _____ day of _______, 20 ___.

(Electronic signature (and seal) of commissioning official)

(b) The Secretary of State may charge ten dollars ($10.00) for issuing an electronic certificate of authority.

The provisions of this Bill, currently in the Judiciary II committee, should be carefully studied by all practitioners.

Mortgage Satisfaction

Senate Bill 738 is an Act to amend article 4 of Chapter 45 relating to the satisfaction of mortgages and deeds of trust as recommended by the North Carolina Bar Association. If you are fortunate enough to live in that perfect world where nothing ever goes wrong and everybody does as they are supposed to, this proposal will have little to offer of interest. If, however, your view is occluded by those miscreants of the lending world whose only evident purpose for existence is to render you senseless with frustration, then this is the Bill for you.

We have one relatively minor pique with the proposal. It would carry forward the current $500 penalty provision for a lender’s failure to cancel and seems to add an additional $1000. South Carolina has a $5000 penalty. If you are a lender, which state has your attention and gets your priority? Further, the ambiguity make the penalties difficult to collect.

Section 45-6.6 codifies the common law with a Document of Rescission and it provides for the effect and liability for a wrongful or erroneous recording of a satisfaction.

(a) In this section, "document of rescission" means a document stating that an identified satisfaction or affidavit of satisfaction of a security instrument was recorded erroneously or that a security instrument was satisfied of record erroneously, the secured obligation remains unsatisfied, and the security instrument remains in force.

(b) If a person records a satisfaction or affidavit of satisfaction of a security instrument in error or if a security instrument is satisfied of record erroneously by any other means, the person or the secured creditor may execute and record a document of rescission. Upon recording, the document rescinds an erroneously recorded satisfaction or affidavit and the erroneous satisfaction of record of the security instrument, and reinstates the security instrument.

(c) A recorded document of rescission has no effect on the rights of a person that:

(1) Records an interest in the real property described in a security instrument after the recording of the satisfaction or affidavit of satisfaction of the security instrument or the erroneous satisfaction of record of the security instrument by other means and before the recording of the document of rescission; and

(2) Would otherwise have priority over or take free of the lien created by the security instrument as reinstated under Chapter 47 of the General Statutes.

(d) A person that erroneously or wrongfully records a document of rescission is liable to any person injured thereby for the actual loss caused by the recording and reasonable attorneys' fees and costs.

Section 45-36.7 makes provision for what is referred to as a Reliable Payoff Statement. This statement may be obtained by the closing attorney and the secured creditor must send the statement to the attorney, unless the secured creditor knows that the debtor has not authorized the request. The secured creditor must issue a payoff statement and send it as directed within 10 days after the effective date of a notification.

"A payoff statement must contain:

(1) The date on which it was prepared and the payoff amount as of that date, including the amount by type of each fee, charge, or other sum included within the payoff amount;

(2) The information reasonably necessary to calculate the payoff amount as of the requested payoff date, including the per diem interest amount; and

(3) The payment cutoff time, if any, the address or place where payment must be made, and any limitation as to the authorized method of payment."

"A secured creditor may not qualify a payoff amount or state that it is subject to change before the payoff date unless the payoff statement provides information sufficient to permit the entitled person or the person's authorized agent to request an updated payoff amount at no charge and to obtain that updated payoff amount during the secured creditor's normal business hours on the payoff date or the immediately preceding business day."

One downside to this section is that unless the security instrument provides otherwise, a secured creditor is not required to send a payoff statement by means other than first-class mail. If the creditor agrees to send a statement by another means, it may charge a reasonable fee for complying with the requested manner of delivery.

Section 45-36.8 makes provision for an understated Payoff Statement:

(a) If a secured creditor determines that the payoff amount it provided in a payoff statement was understated, the creditor may send a corrected payoff statement. If the entitled person or the person's authorized agent receives and has a reasonable opportunity to act upon a corrected payoff statement before making payment, the corrected statement supersedes an earlier statement.

(b) A secured creditor that sends a payoff statement containing an understated payoff amount may not deny the accuracy of the payoff amount as against any person that reasonably and detrimentally relies upon the understated payoff amount.

(c) This Article does not:

(1) Affect the right of a secured creditor to recover any sum that it did not include in a payoff amount from any person liable for payment of the secured obligation; or

(2) Limit any claim or defense that a person liable for payment of a secured obligation may have under law other than this Article.

Section 45-36.15 makes provision for an Affidavit of Satisfaction which may be recorded by the settlement agent when a secured lender fails to provide a satisfaction in a timely manner. Some think that this provision creates an added burden on the closing attorney. When one considers that a fully paid yet uncancelled Deed of Trust makes title unmarketable under North Carolina case law and that the closing attorney has undertaken responsibility to assure the existence of marketable title to the buyer, the lender, the title company and, arguably the seller, it would clearly seem that this should be considered a boon.

There are extensive provisions to this proposed legislation that should be reviewed.

NC Lien Law Revised

Senate Bill 887 is what has been termed a comprehensive revision of the North Carolina lien laws. The bill was referred to Judiciary II. While it may afford some clarification and consistency to muddied area of our law, it is unlikely that this revision will be considered comprehensive. At least, at first blush, it seems comprehensible. It is likely that we will deal with in future articles as progress develops.

Personal Representative/Selling Real Property

Senate Bill 917 authorizes the personal representative in a decedent’s estate to handle real property without a court order if the will allows. The bill was referred to Judiciary I. This legislation has been around for almost a decade and has been exhaustively considered by the Real Property and Estate Planning Sections of the North Carolina Bar Association. The general consensus is that it would operate as a codification of the common law in most respects. It would serve to answer some issues inferred or of necessity implied by some decisions. It does not, arguably, create any new rights in the personal representative.

Partition Sales of Real Property

Senate Bill 963 would provide for a co-tenant’s right of first refusal in property held by co-tenants in lieu of sale by partition. This bill was referred to Judiciary II. This proposal is considered by many to counterproductive.

Partition is just about the only equitable and expeditious method left for co-tenants to resolve differences without expensive, protracted, adversarial litigation. This is true because partition is an absolute right. The statute, as it exists, provides ample protection for co-tenants...bring your wallet and bid. The free market and a public sale will produce the fair value in the vast majority of cases. This proposed legislation would create ample opportunities to produce the opposite results.

This proposed legislation will do nothing but add delay, expense and some pseudo-socialistic value system layered over a burdensome procedure that would allow some contentious in-law/out-law enhanced powers to engage in extortion in troubled family situations. Worse, if unscrupulous developers acquire a minority interest in a tract, they can use this proposal to avoid a public sale and force the actual family members to sell at an appraised price far lower than might be received at a public sale. In effect, it gives a co-tenant a right of private sale.

This proposal would add a minimum of three months to a disputed proceeding and it puts value in the hands of the 'experts' instead of the 'put your money where your mouth is' public sale procedure that has proved so reliable for centuries. Ultimately, we have a presumption favoring public sale because a free market tends to be the ultimate arbiter of fair value. Fairness demands that every co-tenant have an equal opportunity to buy or to sell and receive fair value. This proposal says 'take the appraiser's best guess or wait three years while we litigate it'.