Civil Penalties for Failure to Cancel Deeds of Trust
Chris Burti and Charles D. Coppage

Because of the frequency of calls concerning satisfied, but uncanceled Deeds of Trust, we are running the this article for a second time as a service to real property practitioners. Two observations may be helpful and appropriate. Some attorneys have reported excellent results from sending a copy of the article along with their demand letter in situations where lenders have been slow to respond. Frequently, we now receive reports of attorneys who seem to be unwilling to make any effort to remove these title defects after closing. This is easy to understand considering the increasing difficulty in getting lenders to fulfill their obligations, but it would seem that an attorney is remiss in failing to clear the title for the client. If representing a purchaser, in most areas of the state, the attorney is engaged to search the title and close the transaction in such a manner as to provide marketable title for the client. Failure to follow through and clear these encumbrances is a failure to meet that obligation. If attorneys feel they are not adequately compensated for the difficult lenders, then they should charge the sellers an appropriate fee to clear the title on the sellers’ behalf. In areas where sellers are represented, the problem is less clear since attorneys for both parties arguably have responsibility. It would simplify matters if we could agree as a standard of practice that the attorney making the loan payoff is responsible for clearing the title.

G.S. Sec.45-36.3 provides for civil penalty of up to $1,000 by a mortgagee (or holder), upon satisfaction of the obligation, in the event of a failure to either cancel or return the original instruments with satisfaction properly acknowledged as provided in G.S. 45-37. The statute does not provide or refer to a procedure to recover the penalty. The purpose of this article is to discuss the requirements of the statute and to provide examples of forms that have been successfully used to recover the penalty.

G.S. Sec.45-36.3(a) requires that within 60 days after the satisfaction of the provisions of any deed of trust or mortgage, or other instrument intended to secure any obligation with real property, registered as required by law, the holder of the evidence of the indebtedness, if it is a single instrument, or a duly authorized agent or attorney of such holder shall: "Discharge and release of record such documents and forward the canceled documents to the grantor, trustor or mortgagor; or, ...[a]lternatively, the holder of the evidence of the indebtedness or a duly authorized agent or attorney of such holder, at the request of the grantor, trustor or mortgagor, shall forward said instrument and the deed of trust or mortgage instrument, with payment and satisfaction acknowledged in accordance with the requirements of G.S. 45-37, to the grantor, trustor or mortgagor."

G.S. Sec.45-36.3(b) provides that failure to comply with the statute may subject the party responsible to a requirement to pay a civil penalty of not more than $1,000 "in addition to reasonable attorney’s fees and any other damages awarded by the court to the grantor, trustor or mortgagor, or to a subsequent purchaser of the property from the grantor, trustor or mortgagor". A $500.00 civil penalty may be recovered by the grantor, trustor or mortgagor, and a $500.00 penalty may be recovered by the purchaser of the property. Before damages may be recovered the petitioner must give the mortgagee written notice of his intention to bring an action pursuant to the statute. The mortgagee has 30 days, in addition to the initial 60-day period, to fulfill the requirements of the statute after receipt of the notice.

The statute does not contain a procedure for action on the penalty in the event the responsible party does not comply with the notice and does not refer a petitioner to a procedural statute. It may be helpful to summarize the requirements of the statute in the transmittal letter accompanying the payoff funds thereby making demand for cancellation. Some law firms are enclosing an affidavit of lost note and mortgagee’s notice of satisfaction as well in order to speed compliance. The following forms can be used to obtain a penalty or, preferably, compliance once served.

 

Complaint:

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE

DISTRICT COURT DIVISION

COUNTY OF ______________ FILE NO. ___--CVD--___

 

__________________________

__________________________

__________________________

Plaintiffs

vs. COMPLAINT FOR RECOVERY OF CIVIL PENALTY PURSUANT TO N.C.G.S 45-36.3

__________________________

__________________________

Defendant

1. Plaintiffs, _________________________ and _________________________ are citizens and residents of __________________________, and ___________________ and ________________________ are citizens and residents of _____________________.

 

2. Defendant, ____________________________ is a ______________________

with an office and doing business in the State of _________________________________ and is not suffering under any disability.

3. On or about __________________, Plaintiffs _____________________ and _____________________ executed a promissory note to _________________________, secured by a Dee of Trust, dated _________________, and recorded on ____________, in Book ____, at page ____ in the office of the ____________________ County, North Carolina, Register of Deeds.

4. Subsequently Defendant acquired or was assigned the aforesaid note and Deed of Trust

 

5. On or about __________________ Plaintiffs ____________________ and _______________ purchased the property described in the aforesaid Deed of Trust and the sum of $ __________ was paid to Defendant in full and final satisfaction of the indebtedness out of the proceeds of the sale.

6. More than 60 days has passed since Defendant received full satisfaction if the indebtedness secured by the aforesaid Deed of Trust and defendant has neglected and refused, after notice and demand, to comply with the provisions of N.C.G.S. 45-36.3(a), in that Defendant has not canceled the Deed of trust of record nor has forwarded the note and Deed of Trust with payment and satisfaction acknowledged in accordance with the provisions of N.C.G.S. 45-37.

7. On ____________, Plaintiffs’ Attorney in compliance with the Requirements of N.C.G.S. 45-36.3(b), notified Defendant of the obligation to discharge and release the lien of the aforesaid Deed of Trust. More than thirty (30) days have elapsed since Defendants receipt of said notice.

8. Defendants unwarranted refusal and neglect to discharge and cancel the lien of the Deed of Trust of record constitutes a cloud on Plaintiffs’ title to the property and violates the provisions of N.C.G.S. 45-36.3.

9. ( optional - if plaintiffs have special damages set forth the allegations here )

WHEREFORE, Plaintiffs pray judgment against Defendant as follows:

1. A penalty of $ 500.00 in favor of Plaintiffs ______________________ and __________________, and $500.00 in favor of Plaintiffs ______________________ and __________________ as prescribed by N.C.G.S. 45-36.3(b); and

2. ( optional - Damages in the sum of $______________ in favor of Plaintiffs _________________ and _____________________________.

3. Recovery of the costs, including reasonable attorney’s fees, required by plaintiffs to prosecute this action; and

4. Such other and further relief as the Court may deem just and proper.

This the _________ day of _______________, ____.

_________ and ________ LLP

By: ________________________________

________________________

Attorneys for Plaintiffs

________________________

________________________

________________________

Motion for default:

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE

DISTRICT COURT DIVISION

COUNTY OF ______________ FILE NO. ___--CVD--___

 

__________________________

__________________________

__________________________

Plaintiffs

vs. MOTION AND AFFIDAVIT

FOR ENTRY OF DEFAULT

__________________________

__________________________

Defendant

 

Plaintiffs, by counsel and pursuant to Rule 55(a) of the North Carolina Rules of Civil Procedure, move that default be entered in this action against Defendant ___________________________, on plaintiffs’ claim, and in support of this motion makes the following affidavit:

NORTH CAROLINA

______ COUNTY SS:

___________________________, being duly sworn, deposes and says that:

1. A complaint was filed in this action by Plaintiff seeking affirmative relief on _________;

2. A summons and a copy of the complaint were served upon Defendant by serving its registered ( optional - authorized) agent via certified mail, return receipt requested, on _____________;

3. Personal jurisdiction of the defendant was acquired by service of process in the manner described above; ( optional - because Defendant is without a place of business or registered agent in the State of North Carolina, but subjected itself to the jurisdiction if the courts of North Carolina through the purchase or mortgage indebtedness secured by property located in _______ County, North Carolina;

4. No answer, other responsive pleading to the complaint, or extension of time to file an answer or any responsive pleading has been filed, requested by or granted to or by the Defendant;

5. The time within which an answer or other responsive pleading may be filed has expired.

6. Affiant has expended ___ hours in the prosecution of this action and customarily charges $ ____ per hour for similar matters.

This the _______ day of ______________, ____.

Judgment:

 

STATE OF NORTH CAROLINA IN THE GENERAL COURT OF JUSTICE

DISTRICT COURT DIVISION

COUNTY OF ______________ FILE NO. ___--CVD--___

 

__________________________

__________________________

__________________________

Plaintiffs

vs. JUDGMENT

__________________________

__________________________

Defendant

 

THIS MATTER COMING on for Hearing before the undersigned Judge of the District Court of _________ County on Plaintiff’s Motion for Hearing; and

It appears to the Court that default was previously entered in this matter on or about the _____ day of ____________, ____ by the Clerk of Superior Court of _____ County, and that the matter is properly before the Court. Based thereon the Court makes the following Findings of Facts, enters its Conclusions of Law and its Judgment based thereon:

FINDINGS OF FACT:

1. This Court has personal and subject matter jurisdiction, the Defendant is not suffering under any disability and this matter is properly before the Court.

2. This is an action brought by Plaintiffs against Defendant to enforce the requirements of N.C.G.S. 45-36.3 which requires that the holder of an indebtedness secured by a Deed of Trust cancel or make provisions for cancellation of its Deed of Trust in a timely manner not more than 60 days after satisfaction plus 30 days after notice pursuant to the statute.

3. Plaintiffs satisfied the secured indebtedness and Defendant was notified of its obligation to cancel or provide for cancellation of the Deed of Trust.

4. Defendant failed to do so within 60 days as provided by Statute.

5. After 60 days had elapsed without Defendant complying with the Statute, Plaintiffs by and through their attorney provided Defendant the 30 day notice required by the Statute and Defendant failed and neglected to comply with the provisions of the Statute.

6. Plaintiffs filed a complaint against Defendant in this matter on the ____ day of __________, ____ and Defendant was properly served as required by law. Defendant failed to answer or respond and Default was entered by the Clerk of Superior Court of _____ County on or about the ____ day of _________, ____.

7. ( optional - Plaintiffs were damaged in the sum of $______ )

8. Plaintiffs are entitled to attorney’s fees and $ __________ is a reasonable amount.

BASED UPON THE FOREGOING FINDINGS OF FACT THE COURT

MAKES THE FOLLOWING CONCLUSIONS OF LAW:

CONCLUSIONS OF LAW:

1. Plaintiffs are entitled to recover of the Defendant for its failure to comply with the requirements of N.C.G.S. 45-36.3.

IT IS THEREFORE ORDERED, ADJUDGED AND DECREED THAT:

1. Plaintiffs _______________ and __________________ recover of the Defendant a civil penalty in the amount of $ 500.00.

2. Plaintiffs _______________ and __________________ recover of the Defendant a civil penalty in the amount of $ 500.00.

3. ( optional - Plaintiffs _______________ and __________________ recover of the Defendant damages in the amount of $ _______.

4. Plaintiffs recover of the Defendant reasonable attorney’s fees required to prosecute their claim in the amount of $ ______.

5. That the costs of this action be taxed against the Defendant.

This the _____ day of __________, ____.

________________________________

Judge Presiding