Many questions arise concerning the various procedures involved in getting liens removed from the public records in order to clear the titles to tracts of land. This is the second part of a two part series that we hope will be a useful reference for real estate professionals.

Read the first part here

Deeds of Trust

The typical procedures for cancellation of a deed of trust are well known. This section will provide a summary for reference purposes, set forth the applicable statute and discuss problem situations.

Summary

Cancellation

By acknowledgment of the satisfaction of the deed of trust in the presence of the register of deeds by the trustee, mortgagee, or their agent, attorney or legal representative. NCGS Sec. 45-37(a)(1).

Exhibition

Exhibition to the register of deeds, of the deed of trust and the note with endorsement of payment and satisfaction made by the mortgagee, trustee or their assignee. NCGS Sec. 45-37(a)(2).

 

Exhibition of the security instrument and note to the register of deeds by the grantor, mortgagor, their agent or successor in title, if the exhibition is more than 10 years from the maturity date or last endorsement of partial payment. NCGS Sec. 45-37(a)(3).

Exhibition to the register of deeds of any deed of trust given to secure instruments payable to the bearer or, together with the instrument of indebtedness secured, marked paid and satisfied in full and signed by the bearer or holder. NCGS Sec. 45-37(a)(4).

Notice of satisfaction

By exhibition to the register of deeds of a notice of satisfaction of a deed of trust which has been acknowledged by the trustee or the mortgagee substantially in the form set out in G.S. 47-46.1. Specific requirements are set forth in NCGS Sec. 45-37(a)(5).

Certificate of satisfaction

By exhibition to the register of deeds of an acknowledged certificate of satisfaction of a deed of trust signed by the owner of the note. The certificate of satisfaction shall be accompanied by the note or an affidavit of lost note. NCGS Sec. 45-37(a)(6).

Statutory Provisions

NCGS Sec. 45-37. Discharge of record of mortgages, deeds of trust and other instruments

(a) Subject to the provisions of G.S. 45-73 relating to secured instruments which secure future advances, any deed of trust or mortgage or other instrument intended to secure the payment of money or the performance of any other obligation registered as required by law may be discharged and released of record in the following manner:

(1) By acknowledgment of the satisfaction of the provisions of such deed of trust, mortgage or other instrument in the presence of the register of deeds by:

a. The trustee,

b. The mortgagee,

c. The legal representative of a trustee or mortgagee, or

d. A duly authorized agent or attorney of any of the above.

The register of deeds is not required to verify or make inquiry concerning the authority of the person acknowledging the satisfaction to do so. Upon acknowledgment of satisfaction, the register of deeds shall record a record of satisfaction as described in G.S. 45-37.2, and may forthwith make upon the margin of the record of such deed of trust, mortgage or other instrument an entry of such acknowledgment of satisfaction which shall be signed by the trustee, mortgagee, legal representative, agent or attorney and witnessed by the register of deeds, who shall also affix his name thereto.

(2) By exhibition of any deed of trust, mortgage or other instrument accompanied with the bond, note, or other instrument thereby secured to the register of deeds, with the endorsement of payment and satisfaction appearing thereon and made by:

a. The obligee,

b. The mortgagee,

c. The trustee,

d. An assignee of the obligee, mortgagee, or trustee, or

e. Any chartered banking institution, or savings and loan association, national or state, or credit union, qualified to do business in and having an office in the State of North Carolina, when so endorsed in the name of the institution by an officer thereof.

The register of deeds is not required to verify or make inquiry concerning the authority of the person making the endorsement of payment and satisfaction to do so. Upon exhibition of the instruments, the register of deeds shall cancel the mortgage, deed of trust or other instrument by recording a record of satisfaction as described in G.S. 45-37.2, and may make an entry of satisfaction on the margin of the record. The person so claiming satisfaction, performance or discharge of the debt or other obligation may retain possession of all of the instruments exhibited. The exhibition of the mortgage, deed of trust or other instrument alone to the register of deeds, with endorsement of payment, satisfaction, performance or discharge, shall be sufficient if the mortgage, deed of trust or other instrument itself sets forth the obligation secured or the performance of any other obligation and does not call for or recite any note, bond or other instrument secured by it.

(3) By exhibiting to the register of deeds by:

a. The grantor,

b. The mortgagor, or

c. An agent, attorney or successor in title of the grantor or mortgagor

of any mortgage, deed of trust or other instrument intended to secure the payment of money or the performance of any other obligation, together with the bond, note or other instrument secured thereby, or by exhibition of the mortgage, deed of trust or other instrument alone if such instrument itself sets forth the obligation secured or other obligation to be performed and does not call for or recite any note, bond or other instrument secured by it, if at the time of exhibition, all such instruments are more than 10 years old counting from the maturity date of the last obligation secured. If the instrument or instruments so exhibited have an endorsement of partial payment, satisfaction, performance or discharge within the said period of 10 years, the period of 10 years shall be counted from the date of the most recent endorsement.

The register of deeds shall cancel the mortgage, deed of trust, or other instrument by recording a record of satisfaction as described in G.S. 45-37.2, and may make proper entry of cancellation and satisfaction of said instrument on the margin of the record where the same is recorded, whether there be any such entries on the original papers or not.

(4) By exhibition to the register of deeds of any deed of trust given to secure the bearer or holder of any negotiable instruments transferable by delivery, together with all the evidences of indebtedness secured thereby, marked paid and satisfied in full and signed by the bearer or holder thereof.

Upon exhibition of the deed of trust, and the evidences of indebtedness properly marked, the register of deeds shall cancel such deed of trust by recording a record of satisfaction as described in G.S. 45-37.2, and may make an entry of satisfaction upon the margin of the record, which record, or entry if made, shall be valid and binding upon all persons, if no person rightfully entitled to the deed of trust or evidences of indebtedness has previously notified the register of deeds in writing of the loss or theft of the instrument or evidences of indebtedness and has caused the register of deeds to record the notice or loss or theft in a separate document, as required by G.S. 161-14.1.

Upon receipt of written notice of loss or theft of the deed of trust or evidences of indebtedness the register of deeds shall record a record of satisfaction, as described in G.S. 45-37.2, which in this case shall consist of a re-recording of the record of the deed of trust containing the marginal entry and may make on the record of the deed of trust concerned a marginal entry in writing thereof, with the date of receipt of the notice. The deed of trust shall not be canceled after such recording of a record of satisfaction or marginal entry until the ownership of said instrument shall have been lawfully determined. Nothing in this subdivision (4) shall be construed to impair the negotiability of any instrument otherwise properly negotiable, nor to impair the rights of any innocent purchaser for value thereof.

Every entry of acknowledgment of satisfaction or of satisfaction made or witnessed by the register of deeds as provided in subdivision (a)(1) shall operate and have the same effect to release and discharge all the interest of such trustee, mortgagee or representative in such deed or mortgage as if a deed of release or reconveyance thereof had been duly executed and recorded.

(5) By exhibition to the register of deeds of a notice of satisfaction of a deed of trust, mortgage, or other instrument which has been acknowledged by the trustee or the mortgagee before an officer authorized to take acknowledgments. The notice of satisfaction shall be substantially in the form set out in G.S. 47-46.1. The notice of satisfaction shall recite the names of all parties to the original instrument, the amount of the obligation secured, the date of satisfaction of the obligation, and a reference by book and page number to the record of the instrument satisfied. The notice of satisfaction shall be accompanied by the deed of trust, mortgage, or other instrument, or a copy of the instrument, for verification and indexing purposes, which shall not be recorded with the notice.

Upon exhibition of the notice of satisfaction, the register of deeds shall record the notice of satisfaction and cancel the deed of trust, mortgage, or other instrument as required by G.S. 45-37.2. No fee shall be charged for recording any documents or certifying any acknowledgments pursuant to this subdivision. The register of deeds shall not be required to verify or make inquiry concerning the authority of the person executing the notice of satisfaction to do so.

(6) By exhibition to the register of deeds of a certificate of satisfaction of a deed of trust, mortgage, or other instrument that has been acknowledged before an officer authorized to take acknowledgments by the owner of the note, bond, or other evidence of indebtedness secured by the deed of trust or mortgage. The certificate of satisfaction shall be accompanied by the note, bond, or other evidence of indebtedness, if available, with an endorsement of payment and satisfaction by the owner of the note, bond, or other evidence of indebtedness. If such evidence of indebtedness cannot be produced, an affidavit, hereafter referred to as an "affidavit of lost note", signed by the owner of the note, bond, or other evidence of indebtedness, shall be delivered to the register of deeds in lieu of the evidence of indebtedness certifying that the debt has been satisfied and stating: (i) the date of satisfaction; (ii) that the note, bond, or other evidence of indebtedness cannot be found; and (iii) that the person signing the affidavit is the current owner of the note, bond, or other evidence of indebtedness. The certificate of satisfaction shall be substantially in the form set out in G.S. 47-46.2 and shall recite the names of all parties to the original instrument, the amount of the obligation secured, the date of satisfaction of the obligation, and a reference by book and page number to the record of the instrument satisfied. The affidavit of lost note, if necessary, shall be substantially in the form set out in G.S. 47-46.3. The certificate of satisfaction shall be accompanied by the deed of trust, mortgage, or other instrument, or a copy of the instrument, for verification and indexing purposes, which shall not be recorded with the certificate.

Upon exhibition of the certificate of satisfaction and accompanying evidence of indebtedness endorsed paid and satisfied, or upon exhibition of an affidavit of lost note, the register of deeds shall record the certificate of satisfaction and either the accompanying evidence of indebtedness or the affidavit of lost note, and shall cancel the deed of trust, mortgage, or other instrument as required by G.S. 45-37.2. No fee shall be charged for recording any documents or certifying any acknowledgments pursuant to this subdivision. The register of deeds shall not be required to verify or make inquiry concerning the authority of the person executing the certificate of satisfaction to do so.

Problems and Patches

Problem: Old deeds of trust not canceled of record.

Patch: NCGS Sec. 45-37(b). Creates a conclusive presumption that any deed of trust has been paid, as against creditors or purchasers for valuable consideration, from 15 years after the date of maturity of the last installment of debt or interest. Often the instrument does not expressly reveal the maturity date but does state the number of payments or sets out enough information to calculate the maturity date. In such cases, it is the opinion of many title company counsel that the statute applies.

Problem: Cancellation of deeds of trust securing equity lines of credit. NCGS Sec. 45-81(c) provides "At any time when the balance of all outstanding sums secured by a mortgage or deed of trust pursuant to the provisions of this Article is zero, the lender shall, upon the request of the borrower, make written entry upon the security instrument showing payment and satisfaction of the instrument; provided, however, that such security instrument shall remain in full force and effect for the term set forth therein absent the borrower's request for such written entry."

Patch: When securing payoff information have the account blocked, make sure there are no outstanding drafts, send sufficient funds to pay in full including per diem interest and request cancellation in writing on the borrowers behalf. See Raintree Realty and Construction, Inc. v. Kasey, 116 N.C App 340, 447 S.E.2d 823 (1994) if you like horror stories.

Problem: Securing cancellation after payoff.

Patch: NC ST 53-182(b) Upon payment of any loan in full, a licensee shall cancel and return to the borrower, within a reasonable length of time, any note, assignment, mortgage, deed of trust, or other instrument securing such loan, which no longer secures any indebtedness of the borrower to the licensee.

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. We have provided model forms of complaint, default and judgment in our February 1997 Newsletter. They may also be downloaded from our statewidetitle.com Website.