We recently received a report that certain Register of Deeds offices will no longer accept instruments for recording that contain a notary acknowledgment with a seal that has anything in it other than "the name of the notary exactly as it appears on the commission, the name of the county in which appointed and qualified, the words "North Carolina" or an abbreviation thereof, and the words ‘Notary Public’" as provided in G.S. 10A-11. This is specifically addressing seals that contain " my commission expires ______" language.

This position is based upon an informal opinion by V. Lori Fuller, Assistant Attorney General, to Blaine Perkins, Director Notary Public Division, and Office of the Secretary of State. In summary, the opinion takes the position that the above-cited statute does not require an expiration statement (and apparently by implication therefore does not permit one) and writing the date in the blank is an improper alteration. Bill Campbell of the Institute of Government concurs and states "Such a seal is invalid and an acknowledgment on which such a seal has been placed is not in due form." We think that this is an unnecessarily narrow interpretation.

Since ink stamp seals containing the commission expiration line have been widely used, this conclusion would have the effect of invalidating countless conveyances if accepted as the law in this state. An acknowledgment of a grantor's execution of an instrument is not required for its validity as between the parties. However, valid acknowledgment is essential in order for the instrument to be validly recorded and effective as against creditors and purchasers for value. G. S. 47-14(a) provides "When the proof or acknowledgment of the execution of any instrument, required or permitted by law to be registered, is had before any other official than the register of deeds of the county in which the instrument is offered for registration, the register of deeds shall examine the certificate or certificates of proof or acknowledgment appearing upon the instrument, and if it appears on the face of the instrument that the execution thereof by one or more of the signers has been duly proved or acknowledged and the certificate or certificates to that effect are in due form, he shall so certify, and shall register the instrument, together with the certificates." And 47-14(d) provides that "Registration of an instrument pursuant to this section is not effective with regard to parties who have not executed the instrument or whose execution thereof has not been duly proved or acknowledged."

The following points can be made to support an opinion that these seals are acceptable. G.S. 10A-2. captioned "Purposes," which is part of the article governing Notaries, provides as follows: "This Chapter shall be construed and applied to advance its underlying purposes, which are:

(1) To promote, serve, and protect the public interests.

(2) To simplify, clarify, and modernize the law governing notaries."

It would seem that the narrow construction relied upon by the Attorney General’s office would run contrary to these stated purposes.

G.S.10A-9 sets forth the powers and limitations of a notary. G.S.10A-9(b) states that "A notarial act shall be attested by all of the following:

(1) The signature of the notary, exactly as shown on the notary's commission.

(2) The readable appearance of the notary's name, either from the notary's signature or otherwise.

(3) The clear and legible appearance of the notary's stamp or seal.

(4) A statement of the date the notary's commission expires."

Since the expiration is required, as well as the seal, it would seem that the type of seal in question is in substantial compliance with the requirements of the Article. Note that G.S. 10A-11 mandates that "A notary public shall provide and keep an official stamp or seal. The stamp or seal shall clearly show and legibly reproduce under photographic methods, when embossed, stamped, impressed, or affixed to a document. A notary public shall replace a seal that has become so worn that it can no longer clearly show or legibly reproduce under photographic methods the information required by this section. The stamp or seal is the property and responsibility of the notary whose name appears on it." This section states what is required for the seal to show, but does not in any way limit what the seal may show. Interestingly, the circles contained in most traditional seals are not required by the statutes either, yet they do not seem to present any problem.

G.S. 47-38, and similar statutes setting forth the form of acknowledgment, provide "Where the instrument is acknowledged by the grantor or maker, the form of acknowledgment shall be in substance as follows:...." With regard to acknowledgments in general it is well established that variations in the form do not necessarily render the acknowledgment invalid if the acknowledgment is in substantial compliance with the statute. Freeman v. Morrison, 214 N. C. 240, 199 S. E. 12 (1938), establishes what constitutes a valid acknowledgment. In Freeman, our Supreme Court stated,

"The courts uniformly give to certificates of acknowledgement a liberal construction, in order to sustain them if the substance be found, and the statute has been substantially observed and followed. It is accordingly a rule of universal application that a literal compliance with the statute is not to be required of a certificate of acknowledgement, and that, if it substantially conforms to the statutory provisions as to the material facts to be embodied therein, it is sufficient."

It would seem that since the statutes have no express limitations on what a seal may contain and acknowledgments do not have to precisely follow the statutory form that the seals in question should be acceptable as to content; therefore, the form of the seal in question should be acceptable. As for the alteration issue, it seems that filling in a blank information line contained within the bounds of the seal imprint is not an alteration of the required components of the seal and should also be acceptable.

Until a formal opinion is issued, or an appellate court rules against the form of seal in question, we will insure existing conveyances without exception, unless the certifying attorney is aware of a likely contest of the validity of the instrument. There exist some curative statutes, set out below, that may salvage older recorded instruments if they turn out to be improperly acknowledged.

 § 10A-16. Acts of notaries public in certain instances validated

(a) Any acknowledgment taken and any instrument notarized by a person prior to qualification as a notary public but after commissioning or recommissioning as a notary public, or by a person whose notary commission has expired, is hereby validated. The acknowledgment and instrument shall have the same legal effect as if the person qualified as a notary public at the time the person performed the act.

(b) All documents bearing a notarial seal in which the date of the expiration of the notary's commission is erroneously stated, or having a notarial seal that does not contain a readable impression of the notary's name, fails to contain the words "North Carolina" or the abbreviation "N. C.," or contains correct information except that instead of the abbreviation for North Carolina contains the abbreviation for Georgia, are validated and given the same legal effect as if the errors had not occurred.

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

(d) This section applies to notarial acts performed before October 1, 1991.

G.S. 47-2.2. Notary public of sister state; lack of seal or stamp or expiration date of commission

If the proof or acknowledgment of any instrument is had before a notary public of any state other than North Carolina and the instrument does not show the seal or stamp of the notary public and the expiration date of the commission of the notary public, the certificate of proof or acknowledgment made by such notary public shall be accompanied by the certificate of the county official before whom the notary qualifies for office, stating that such notary public was at the time his certificate bears date an acting notary public of such state, and that such notary's genuine signature is set to his certificate. The certificate of the official herein provided for shall be under his hand and official seal.

G.S. 47-53.1. Acknowledgment omitting seal of notary public

Where any person has taken an acknowledgment as a notary public and has failed to affix his seal and such acknowledgment has been otherwise duly probated and recorded then such acknowledgment is hereby declared to be sufficient and valid: Provided this shall apply only to those deeds and other instruments acknowledged prior to January 1, 1991.

Unless the Attorney General’s office can be prevailed upon to reconsider its opinion, legislation may be required in order to clear up the status of conveyances with acknowledgments bearing questionable seals. In the interim, if an instrument bearing such a seal must be recorded and an acceptable seal cannot be secured or if, for some reason, the grantors are unavailable to reacknowledge, it may still be possible to get it recorded.

G.S. 47-14 (a) contains the authority for the Register of deeds to pass on certificates and register instruments. "When the proof or acknowledgment of the execution of any instrument, required or permitted by law to be registered, is had before any other official than the register of deeds of the county in which the instrument is offered for registration, the register of deeds shall examine the certificate or certificates of proof or acknowledgment appearing upon the instrument, and if it appears on the face of the instrument that the execution thereof by one or more of the signers has been duly proved or acknowledged and the certificate or certificates to that effect are in due form, he shall so certify, and shall register the instrument, together with the certificates. No certification is required when the proof or acknowledgment is before the register of deeds of the county in which the instrument is offered for registration."

G.S. 47-14(b) and (c) provide that "If a register of deeds denies registration pursuant to subsection (a), the person offering the instrument for registration may present the instrument to a judge, as provided in subsection (c), and he shall examine the certificate or certificates of proof or acknowledgment appearing upon the instrument, and if it appears on the face of the instrument that the execution thereof by one or more of the signers has been duly proved or acknowledged and the certificates to that effect are in due form, he shall so adjudge, and shall order the instrument to be registered, together with the certificates, and the register of deeds shall register them accordingly.

(c) When a district court has been established in the district including the county in which the instrument is to be registered, application for an order for registration pursuant to subsection (b) shall be made to any judge of the district court in the district including the county in which the instrument is to be registered..."

This procedure would require the district court to accept the interpretation advocated in this article and order registration.

A recent U.S. district court case held that, under Texas law, federal tax liens are valid when filed, not when indexed. The case is Ibraham E. Hanafy v. United States, 81 AFTR2d Par. 98-438, No. 3:96-CV-2957-X. The facts of the case are as follows. The IRS filed a notice of federal tax lien in the Johnston County, Texas clerk’s office on August 20, 1996 against real property owned by the Roses. Ten days later the Roses transferred a warranty deed to Ibraham Hanafy. However, when the deed was transferred to Hanafy, the federal lien had not been indexed in the county’s computerized indexing system. Therefore, the federal tax lien was not discovered in title searches conducted July 31 and August 29, 1996.

Hanafy paid the Roses’ tax liability to avoid foreclosure on the property and then sued the IRS for wrongful levy, claiming that Texas law required the federal tax lien be indexed to be valid. The district court judge granted the United States’ motion for summary judgement, relying on a 19^th century case (Throckmorton v. Price, 28 Tex. 606 (1866)) and rejecting a 1992 case (Harriman v. United States, No. H-91 3283 (S.D. Tex. July 7, 1992)) which took a contrary position. The judge’s decision was based on the policy consideration that requiring indexing to validate a tax lien would subject the IRS to the prejudices of recording personnel. The judge also found that Texas recording statutes meet due process constitutional standards.

The holding in the Hanafy case seems contrary to North Carolina law. In North Carolina, as in Texas, federal tax liens are to be filed in the office of the clerk of superior where the real property in question in located (N.C.G.S. § 44-68.12(b)). N.C.G.S. § 44-68.14(a)(2) addresses the duties of filing officers other than the Secretary of State: "Any other officer described in G.S. 44-68.12, he shall endorse thereon his identification and the date and time of receipt and forthwith file it alphabetically or enter it in an alphabetical index showing the name and address of the person named in the notice, the date and time of receipt, the title and address of the official or entity certifying the lien, and the total amount appearing on the notice of lien." Therefore, to be valid against any purchaser, holder of a security interest, mechanics’ lienor or judgment creditor, a federal tax lien must be properly indexed to be properly filed.

N.C.G.S. § 161-22 addresses the requirements of recording instruments in the Register of Deeds; it requires proper indexing in order for instruments to be properly registered. The case of B. C. Cuthrell v. Camden County, 118 S. E. 2d 601, 254 N.C. 181 (1961) addresses this issue. In Cuthrell, Mollie Cuthrell and her husband owned property as tenants by the entirety, and upon her husband’s death, she became the owner of the property in fee simple. In 1950 a deed of trust was conveyed to secure a note executed by Ms. Cuthrell. When the deed of trust was indexed, Ms. Cuthrell’s name was not included in the grantor’s index; the deed of trust was indexed as "R. G. Cuthrell et al." In 1952 an old age assistance lien was filed against Mollie Sawyer Cuthrell. In 1960, after it was discovered that the deed of trust was not indexed in the name of Mollie Cuthrell, the deed of trust was indexed against Ms. Cuthrell. The court held that the lien had priority over the deed of trust as it was properly indexed first. The court stated that "Indexing of deeds is an essential part of registration, and the indexing of judgments is an essential part of docketing." Id. at 602. The court stated that "The primary purpose of the law requiring the registration and indexing of conveyances is to give notice, and it has been repeatedly stated by those writing on this subject that an index will hold a subsequent purchaser or encumbrancer to notice if enough is disclosed by the index to put a careful and prudent examiner upon inquiry, and if upon such inquiry the instrument would be found." Id. at 603.

National Surety Corp et al. v. Sharpe et al. 72 S.E. 2d 109, 236 N.C. 35 (1952) addresses the issue of priority of federal tax liens. This case dealt with a partnership, Carthage Weaving Company, which went into receivership, At the time the receiver was appointed, the partnership was indebted to several creditors, including numerous judgment creditors and the United States for income taxes in the amount of $30,148. The court noted that unrecorded federal tax liens have priority over all persons except "as against any mortgagee, pledgee, purchaser, or judgment creditor until notice thereof has been filed …." Id. at 120. The court also noted that "Under Section 3672 of Title 26 of the United States Code Annotated, the date of the filing of the notice of a federal tax lien controls in a controversy respecting priority as between the United States and a judgment lien creditor, a mortgagee, a pledgee, or a purchaser." Id at 121. Therefore, the federal tax lien in the present case did not take priority over the other mortgages and liens that were filed before the federal tax lien was filed.

Based on the holdings in Cuthrell and National Surety and the statutes which address the requirements for proper recordation and filing, proper indexing is required in order to have proper filing in either the clerk of superior court’s office or in the Register of Deeds. As a result, it appears that the holding in the Hanafy case would not stand in North Carolina, since the federal tax lien had been filed but not indexed when the title searches were performed.

However, the IRS in Greensboro, North Carolina takes a position contrary to both the North Carolina statutes and the North Carolina cases. The IRS says that a federal tax lien only has to be filed to be valid; indexing is not required. The IRS’s position supports the holding of the Hanafy case in that it says the IRS should not be at the mercy of the clerk’s office to insure that federal tax liens are indexed in the proper or a timely manner.

At Statewide Title, we take the position that North Carolina law controls this issue and that proper indexing is required before a lien is valid. However, based on the holding in the Hanafy case and the IRS’s position, there is uncertainty in this area. Therefore, in addition to checking for indexed federal tax liens, a prudent title examiner should also check for federal tax liens which have been filed but not yet been indexed. Most clerk of court offices keep a file of liens which have been filed and need to be indexed; it would be wise to inquire about where this information is kept and to check it when completing title examinations. It is also important to report all federal tax liens to Statewide Title on your title opinion and to give your opinion as to the lien’s priority.

Special thanks to Clinton Forbis of Forbis and Grossman in Kannapolis for bringing the Hanafy case to our attention.