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American College of Mortgage Attorneys — Partner with the Best®

Formed in 1974, the American College of Mortgage Attorneys (ACMA) is comprised of over 500 lawyers in North America who are experts in mortgage law.

United States

North Carolina

Deed of trust is normally used. The nature of the interest is a transfer of title to the trustee named therein, subject to the terms of the trust thereby created. North Carolina is a “title theory” not a lien theory state

SECURITY INSTRUMENT USED

Seal Requirements. Instruments intended to convey real property or an interest therein are not required to be executed under seal, including instruments conveying real property or interests therein executed by corporations (NCGS [hereafter “NCGS”] &sect;&sect;&nbsp;39-6.5 and 47-41.01); however, an instrument under official seal may have a longer statute of limitations period (NCGS &sect;&nbsp;1-47(2)) and carries a statutory presumption of due authority (NCGS &sect;&nbsp;47-18.3(b)). There is also a presumption of consideration created by a sealed instrument. Technical Requirements: For the instrument to be recorded it must be acknowledged by the grantor(s) before a notary or the signature must be proven by a witness who also appears before a notary. NCGS Chapters 47 and 10B. Pursuant to NCGS &sect;&nbsp;161-14(b) (the “Statute”), all instruments presented for registration to any register of deeds office must meet the following requirements: (i)&nbsp;be 8&frac12;” by 11” or 8&frac12;” by 14”; (ii)&nbsp;have a blank margin of 3” at the top of the first page and blank margins of at least 1/2” on the remaining sides of the first page and all sides of subsequent pages; (iii)&nbsp;be typed or printed in black on white paper in a legible font no smaller than 9 points. (blanks in an instrument may be completed in pen and corrections to an instrument may be made in pen); (iv)&nbsp;have text typed or printed on one side of the page only; and (v)&nbsp;state the type of the instrument at the top of the first page. If an instrument does not meet these requirements, the register of deeds may collect an additional $25 non-standard document fee, as required by NCGS &sect;&nbsp;161-10(a)(18a)), in addition to all other applicable recording fees, as set forth in NCGS &sect;&nbsp;161-10. If an instrument fails to meet the requirements because it contains print smaller than 9 points, the register of deeds may accept the instrument if, in the register's discretion, the instrument is legible. NCGS &sect;&nbsp;161-10(a)(18a). The Statute applies to all instruments presented for recordation. Due to some bankruptcy court decisions, lenders should take care to make sure loan documents are dated the same date if the deed of trust references a note “of even date herewith.” Theory: North Carolina is a pure race jurisdiction with certain exceptions; thus, a deed, deed of trust, lease for more than three years, purchase and sale contract, right of first refusal, option, or other document requiring recordation for priority must be validly recorded, including valid notarization by owner-grantor(s) (or their duly authorized representatives) and compliance with other recordation requirements. NCGS &sect; 47-18 and &sect; 47-20. Practice of Law: The drafting of deeds, deeds of trust (mortgages), and other legal documents is considered the practice of law and, thus, must be done by a North Carolina licensed attorney with regard to North Carolina real property. NCGS &sect; 84-2.1(a) and &sect; 84-4. Violation is a Class 1 misdemeanor and a violator is not entitled to collect any fee for the services performed. NCGS &sect;&nbsp;84‑8. NCGS &sect; 84-10.1 also provides for a private cause of action. One case law exception is in the case in which the party to the transaction actually drafts their own documents, such as a lender's in-house staff (not outside counsel) drafting its own deed of trust. State v. Pledger, 127 S.E.2d 337, 257 N.C. 634 (1962). In addition, the register of deeds is required to and may refuse to record a deed or deed of trust (or mortgage) that does not clearly indicate the drafter on the face of the document. NCGS &sect;&nbsp;47-17.1. However, “[t]he register of deeds shall not be required to verify or make inquiry concerning the capacity or authority of the person or entity shown as the drafter on the instrument.” NCGS &sect;&nbsp;47-17.1, as revised effective August 1, 2020. Electronic Recordation: North Carolina has adopted versions of the Uniform Electronic Transaction Act (NCUETA, NCGS Ch. 66, Article 40, 2000), the Electronic Notary Public Act (NCGS Ch. 10B, Article 2, 2005) and the Uniform Real Property Electronic Recording Act, (NC URPERA, NCGS Ch. 47, Article 1A, 2005). E-recording is regularly and increasingly utilized in North Carolina in most (but not all) counties.&nbsp; Effective through June 30, 2024, the Emergency Video Notarization Act, NCGS 10B-25, authorizes remote notarization under limited circumstances.&nbsp; To be effective July 1, 2024, the North Carolina Remote Electronic Notarization Act will allow for remote electronic notarization of electronic documents, subject to significant credential analysis, identity proofing, and special commissioning of the electronic notary, under NCGS 10B-134.1 et seq.

RECORDING REQUIREMENTS

Pursuant to NCGS &sect;&nbsp;10B-20(b), a notarial act must be attested by all of the following: (i)&nbsp;the signature of the notary, exactly as shown on the notary's commission; (ii)&nbsp;the legible appearance of the notary's name exactly as shown on the notary's commission, either typed, printed, or from the seal itself; (iii)&nbsp;the clear and legible notary stamp or seal; and (iv)&nbsp;the date of expiration for the notary's commission, either on the stamp or seal or stated elsewhere in the certificate. The seal of a notary may be either an impression or stamp seal. Absence of any one of these notarial requirements may cause the document to be rejected for recording (NCGS &sect;&nbsp;47-14(a)), and if a defectively notarized document is accepted for recordation, the document might, nonetheless, be invalid for the purpose of constituting “constructive” or “record” notice of the recordation of the document. Again, North Carolina is a “pure race” state, NCGS &sect; 47-18 and &sect; 47-20, with few statutory exceptions, such as mechanics' liens. North Carolina does not require witnesses on deeds, deeds of trust or most documents recorded with the register of deeds. North Carolina adopted the North Carolina Electronic Notary Public Act (NCGS Ch. 10B, Article 2) in 2005 and the Remote Electronic Notarization Act (NCGS Ch. 10B, Article 2, Part 4a) to take effect July 1, 2024.

NOTARIAL REQUIREMENTS

Spousal Joinder; Waiver. In order to waive the interest of a surviving spouse, all deeds, deeds of trust, and other instruments affecting real property owned by one spouse must be executed by both spouses and properly acknowledged before a notary. NCGS &sect; 29-30. Certain exceptions may exist, including in cases where the spouses have executed a “free trader” agreement, and execution of a purchase money mortgage (whether seller financing or an individual lender) pursuant to NCGS &sect;&nbsp;39-13, but caution is advised in such cases. Contract Provisions Waiving Jury Trial Are Against Public Policy and Unenforceable: NCGS &sect;&nbsp;22B-10 states that any provision in a contract requiring a party to the contract to waive their right to a jury trial is unconscionable as a matter of law and the provision shall be unenforceable. However, NCGS &sect;&nbsp;22B-10 does not prohibit parties from entering into agreements to arbitrate or engage in other forms of alternative dispute resolution. Dealings between Lender and New Borrower: It is customary for a security instrument to contain a waiver of the operation of NCGS &sect;&nbsp;45-45.1 (Statute titled: Release of mortgage by dealings between mortgagee and assuming grantee), which otherwise provides that certain dealings between the mortgagee and a new borrower assuming a loan may release the original mortgagor.

STATUTES TO BE WAIVED

Prepayment. Unless the loan instrument (usually the promissory note) provides otherwise, a borrower may prepay a loan in whole or in part without penalty. NCGS &sect;&nbsp;24-2.4. No prepayment penalty is allowed on residential loans less than $150,000. Prepayment penalties may be agreed upon between the parties without limitation, except non-home loans less than $100,000 are limited to a prepayment penalty not to exceed 2% of the outstanding balance upon 30 days' notice during the first 3 years of the debt term, and thereafter no prepayment penalty may be charged. NCGS &sect;&nbsp;24-10(b). Due-On Sale Provisions. A due on sale clause is legally permissible unless prohibited by federal law at the time the contract is executed. NCGS &sect;&nbsp;24-10(d)(2). Parol Evidence. Parol testimony is not admissible to show that an absolute deed between a lender and a borrower was intended to be a security instrument, unless there is clear and convincing evidence that a reconveyance clause was omitted due to fraud, duress, or mutual mistake by the parties. After-Acquired Property: If a lender wants to include after-acquired property as additional collateral, the lender must comply with NCGS &sect; 47-20.5. Attorneys' fees: North Carolina has a statute governing the collection of attorney fees pursuant to a default under a Note. See NCGS &sect;6-21.2. This statute provides that a provision for the debtor to pay lender's “reasonable attorney fees” shall be presumed to be fifteen percent (15%) of the outstanding balance. NCGS &sect;6-21.2(2). Given the size of commercial loans, and the inequity that would result in a lender collecting 15% of the outstanding balance as attorney fees (notwithstanding the amount of attorney fees actually incurred by the lender), it is customary for counsel to negotiate this statutory presumption. A typical compromise would be a provision that waives the statutory presumption in favor of “attorney fees actually incurred at standard hourly rates.” Of course, some lenders may choose to retain the statutory presumption.&nbsp;

UNUSUAL TREATMENT OF STANDARD PROVISIONS

The mortgagor and mortgagee can agree that the mortgage or deed of trust secures future obligations and/or advances. The key question, however, is whether a future advance has priority over encumbrances arising between the time of the original deed of trust and the later advance. NCGS &sect;&sect;&nbsp;45-67 et seq. provides that all future advances are treated for record priority purposes, vis-&agrave;-vis third parties, as if made when the original deed of trust was executed if the deed of trust states: (1)&nbsp;it is given to secure future advances and obligations, (2)&nbsp;the maximum principal amount that may be secured at any one time, and (3)&nbsp;the period in which such advances may be made, not to exceed 30 years from the date of the instrument or, if undated, the date of its recordation. Note that it is important that any other limitation period stated, such as adding “the earlier of the expiration date of the current indebtedness” may decrease the breadth of this coverage and, thus, the priority of any future advances or obligations under the deed of trust and should be avoided. A deed of trust securing future advances and obligations may still be valid as between the parties even if the above-referenced requirements for record priority of future advances or obligations are not met.&nbsp; NCGS 45-70(a1).

SECURING FUTURE ADVANCES

The accepted practice is for the security instrument to provide contractually as one of the terms that any advancements for the payment of taxes, insurance premiums and the preservation of the collateral shall be secured by the collateral. State statutory law protects the mortgage holder by stating that the mortgagee may pay taxes that constitute a lien on the property and thereby acquire a lien on the property from the time of payment that is superior to all other liens. NCGS &sect; 45-70(c).

SECURING ADDITIONAL ADVANCES TO PROTECT THE COLLATERAL, INCLUDING PAYMENT OF TAXES AND INSURANCE

In North Carolina, a corporate conveyance of real property normally is executed by an officer of the corporation. For mortgages and deeds of trust, effective under legislation which took effect June 25, 2018, the list of approved officers includes the corporation's or limited liability company's chairman, president, chief executive officer, vice-president, assistant vice-president, treasurer, or chief financial officer, chief operations officer, general counsel, deputy or assistant general counsel, manager, member, director, or other fiduciary duly authorized by the applicable business entity's statutes or governing documents. However, real property may be conveyed by an officer, manager, member, or agent of a corporation or limited liability company other than those enumerated if there is a resolution of the board of directors of the corporation or by the managers or members of the limited liability company authorizing said officer, manager, member, or agent to execute, sign, seal, and attest deeds, conveyances, or other instruments. The resolution must be either attached to the instrument or separately recorded in the register of deeds in the county where the real property lies. NCGS &sect;&nbsp;47-18.3(e). Any merger, consolidation, conversion or change of name after the entity has taken title, must be documented by a Certificate of the Secretary of State (or state official of the entity's resident state) recorded in the office of the register of deeds of the county in which the property is located. NCGS &sect;&nbsp;55D-26 and NCGS &sect; 47-18.1. In North Carolina, a limited liability company may be member-managed or manager-managed, and may be managed by one or more company officials who are not designated as managers, as provided in its operating agreement. NCGS &sect; 57D-3-20(d) specifically provides: “(d) All members by virtue of their status as members are managers of the LLC, together with any other person or persons who may be designated as a manager in, or in the manner provided in, the operating agreement. If the operating agreement provides or otherwise contemplates that members are not necessarily managers by virtue of their status as members, then those persons designated as managers in, or in the manner provided in, the operating agreement will be managers. The operating agreement may provide that the LLC is to be managed by one or more company officials who are not designated as managers. All members will be managers for any period during which the LLC would otherwise not have any managers or other company officials.”

CORPORATE, LIMITED LIABILITY AND OTHER ENTITIES' CONVEYANCES OF REAL PROPERTY

Powers of attorney are governed by NCGS Ch. 32C, effective January 1, 2018, as well as common law. The attorney-in-fact (or “agent” under the statute) must be authorized to enter into the transaction. It is now a well-accepted practice that an entity may transact business by and through a recorded power of attorney executed by the duly authorized officers or managers of the entity, notarized and recorded, for the purposes authorized by the organizational documents and the power of attorney. Pursuant to NCGS &sect;&nbsp;47-115, “[a]ny instrument in writing executed by an attorney-in-fact shall be good and valid as the instrument of the principal, whether or not said instrument is signed and/or acknowledged in the name of the principal by the attorney-in-fact or by the attorney-in-fact designating himself as attorney-in-fact for the principal or acknowledged in the name of the attorney-in-fact without naming the principal from which it will appear that it was the purpose of the attorney-in-fact to be acting for and on behalf of the principal mentioned or referred to in the instrument.” This is an issue of significant importance in post-foreclosure lender REO deeds to new purchasers. Though a specific notarial certificate is provided in NCGS &sect; 47-43.1, the generic notarial certificates under NCGS Ch. 10B, will comply. The power of attorney must be recorded in North Carolina; however, if the power of attorney is recorded in a different county in North Carolina, the document executed by the attorney-in-fact may reference the recordation information from the original county rather than additional recording in the county in which the property is located. NCGS &sect; 47-28.

POWERS OF ATTORNEY

The trustee may be either an entity or an individual. There are no eligibility requirements. There are, however, very specific ethics opinions issued by the North Carolina State Bar governing the role of the trustee and required neutrality of&nbsp;North Carolina&nbsp;attorneys, especially: <ul>
 <li>2015 Formal Ethics Opinion 2,&nbsp;”Preparing Waiver of Right to Notice of Foreclosure for Unrepresented Borrower,”</li>
 <li>2014 Formal Ethics Opinion 2, “Dual Representation of Trustee and Secured Creditor in Contested Foreclosure,”</li>
 <li>2013 Formal Ethics Opinion 14, “Representation of Parties to a Commercial Real Estate Loan Closing,”</li>
 <li>2013 Formal Ethics Opinion&nbsp;5, “Disclosure of Confidential Information to Lawyer Serving as Foreclosure Trustee,”</li>
 <li>2013 Formal Ethics Opinion 4, “Representation in Purchase of Foreclosed Property,”</li>
 <li>2008 Formal Ethics Opinion 11, “Representation of Beneficiary on Other Matters While Serving as Foreclosure Trustee,”</li>
 <li>2008&nbsp;Formal Ethics Opinion 12, “Prohibition on Initiating Foreclosure on Client's Property While Still Representing Client,”</li>
 <li>2006 Formal Ethics Opinion 3, “Representation in Purchase of Foreclosed Property,”</li>
 <li>2004 Formal Ethics Opinion 3, “Common Representation of Lender and Trustee on a Deed of Trust,”</li>
 <li>RPC 90, “Trustee for a Deed of Trust,”</li>
 <li>RPC 46, “Foreclosure and Bankruptcy,”</li>
 <li>CPR&nbsp;220 Lawyer-Trustee in contested foreclosure, and</li>
 <li>CPR 166 Lawyer-Trustee's fiduciary capacity in foreclosure.</li>
</ul>

CORPORATE OR INDIVIDUAL

There is no residency requirement. Failure to identify a trustee or reflecting the trustee as the same person or entity as the beneficiary will not render the deed of trust invalid (as it would be a common law for want of a grantee). However, the cure is the execution and recordation by the noteholder of a Substitution of Trustee. NCGS &sect; 45-10, as amended in 2009 regarding an omitted trustee and 2011 regarding a beneficiary also named as trustee. Amendments to NCGS 45-10(a), effective August 30, 2017, enacted statutory conflict of interest provisions as follows: “An attorney who serves as the trustee or substitute trustee shall not represent either the noteholders or the interests of the borrower while initiating a foreclosure proceeding. Notwithstanding this restriction, an attorney may serve as the trustee in a foreclosure proceeding while simultaneously representing the noteholders on unrelated matters and others within the attorney's firm may also continue to represent the noteholders on unrelated matters. Additionally, an attorney who has as trustee initiated a foreclosure proceeding may resign as trustee after the foreclosure is contested and act as counsel to the noteholders.”

RESIDENCY REQUIRED

North Carolina recognizes two types of foreclosure proceedings: (1)&nbsp;foreclosure by civil action, under NCGS Chapter 1, Article 29A, the Judical Sales Act; and (2)&nbsp;foreclosure by power of sale if so provided in the deed of trust under NCGS &sect;&nbsp;45-21.16(a). The former is rarely used and involves the mortgagee (or noteholder) bringing a civil action for the sale of the mortgaged property with the proceeds to be applied to the payment of the obligation secured. More commonly, the deed of trust contains a power of sale provision. Such provision must be strictly followed. Pursuant to NCGS &sect;&sect;&nbsp;45-21.16(a) and (b), a notice of hearing must first be filed with the clerk of court and provided to all parties entitled to notice. A subordinate or junior mortgagee can file a request for notice prior to the proceeding if they want to protect their right to notice of the foreclosure of any prior deed of trust. NCGS &sect; 45-21.17A. At the hearing, under NCGS &sect;&nbsp;45-21.16(d), the clerk of court considers evidence and must find that: (1)&nbsp;a valid debt exists; (2)&nbsp;a default exists; (3)&nbsp;the deed of trust authorizes foreclosure by power of sale; (4)&nbsp;proper notice was given; (5)&nbsp;the underlying debt is not a home loan as defined in NCGS &sect;&nbsp;45-101(1b), or if so, that the required pre-foreclosure notice under NCGS &sect;&nbsp;45-102 was provided and that the required time periods have elapsed; and (6)&nbsp;the sale is not barred due to the debtor's military service under NCGS &sect;&nbsp;45-21.12A. With regard to foreclosures of a deed of trust securing a subprime loan secured by a borrower's primary residence, North Carolina adopted the Emergency Program to Reduce Home Foreclosures Act, NCGS Ch. 45, Article 11, requiring an additional 45-day notice to the borrower and separate notice to the Administrative Office of the Courts for inclusion in the database of the State Home Foreclosure Prevention Project which is administered with the NC Housing Finance Agency, as referenced in (5) above. NCGS 45-103.&nbsp; NCGS &sect; 45-21.12A provides for additional protection, barring foreclosure against borrower during periods of active military service or within 90 days thereafter, as referenced in (6) above. (NOTE:&nbsp; At the time of this update, House Bill 469 would extend that period to 365 days in order to coincide with federal law.)&nbsp; An appeal of the clerk's order must be made within 10 days of the order and the posting of a bond in an amount set by the clerk for hearing de novo before the judge of the district or superior court having jurisdiction. NCGS &sect; 46-21.16(d1). Certain statutory requirements for delivery, posting, and publication of a notice of sale must also be met. The sale after proper notice is held by the trustee or an attorney for the trustee. An action to enjoin a foreclosure must be brought in a separate lawsuit. NCGS &sect; 45-21.34. In addition, the North Carolina foreclosure process for property owned and occupied by the borrower as their principal residence was altered by the Consumer Economic Act of 2009. First, pursuant to NCGS &sect;&nbsp;45-21.16C(a), at a power of sale hearing before the clerk, the clerk must inquire whether the property is the debtor's primary residence and, if so, whether any efforts have been made to resolve the matter voluntarily before the foreclosure proceeding, unless the mortgagee or trustee has submitted in advance an affidavit describing any efforts made to resolve the default. NCGS &sect;&nbsp;45-21.16C(a). Second, pursuant to NCGS &sect; 45-21.16C(b), the clerk shall order the foreclosure hearing continued for not more than 60 days if there is good cause to believe that additional time or measures have a reasonable likelihood of resolving the delinquency without foreclosure. Third, once the clerk enters an order of foreclosure, if the borrower-resident appeals the clerk's findings to a judge, the clerk shall require a bond equal to 1% of the principal balance due on the note or, in the clerk's discretion, a lesser amount in case of undue financial hardship or a greater amount if there is a likelihood of waste or damage to the property during the pendency of the appeal. NCGS &sect; 45-21.16(d1).

BRIEF DESCRIPTION OF PROCEDURE

75 to 90 days, though times may vary widely by county and court schedules.

TYPICAL LENGTH OF PROCEDURE

No specific requirements, but the Notice of Sale may set forth bid requirements. Pursuant to NCGS &sect;&nbsp;45-21.27, an upset bid may be filed within 10 days after the filing of the report of sale or the last notice of upset bid. All upset bids must exceed the reported sale price by the greater of 5% or $750. The upset bidder must file with the clerk of court: (1)&nbsp;an upset bid notice, and (2)&nbsp;a cash deposit of 5% of the upset bid or $750, whichever is greater. A proper upset bid holds the foreclosure sale open for an additional 10 days, during which subsequent upset bids can be made. To complete the foreclosure following the sale and upset bid periods, the trustee must file with the clerk of court a final accounting of the sale and file with the register of deeds a trustee's deed of conveyance and a notice of foreclosure.&nbsp; NCGS 45-21.33; NCGS 45-38.

FORECLOSURE BID REQUIREMENTS

The redemption period ends when the last 10-day upset bid period is over. NCGS 45-21.29A.&nbsp; The price is the amount of the indebtedness owed.

REDEMPTION PERIOD AND PRICE

A mortgagor may not waive their equitable right of redemption in the original mortgage instrument. However, once the mortgage is entered into, a mortgagor can subsequently transfer the equity of redemption to the mortgagee. Such a transfer is presumed fraudulent. To overcome the presumption, the mortgagee must prove: (1)&nbsp;mortgagor received consideration; (2)&nbsp;a lack of undue influence; and (3)&nbsp;the transaction was fair. Hence, under North Carolina practice, a deed of trust is the preferred instrument for real estate collateral. Once the power of sale is utilized, and the upset bid period has passed, the rights of the parties become fixed, NCGS 45-21.29A, and the mortgagor has no equity of redemption available.

WAIVER OF REDEMPTION; REDUCTION OF REDEMPTION PERIOD

Generally, a deficiency judgment can be recovered. However, there are five situations where the right to a deficiency judgment is either limited or precluded as summarized below: <ul>
 <li>If the statute of limitations has run on the earlier to occur of (a)&nbsp;one year after the date of delivery of a deed pursuant to a foreclosure sale or (b)&nbsp;expiration of any other period of limitation on the underlying indebtedness, if earlier, then in either case the mortgagee is not entitled to a deficiency judgment. NCGS &sect; 1-54(6).</li>
 <li>Pursuant to NCGS &sect;&nbsp;45-21.38, a mortgagee, in owner or seller financing situations, is not entitled to a deficiency judgment if: (a)&nbsp;the mortgagee was the seller of the real property; (b)&nbsp;the security instrument secured the balance of property's purchase price; and (c)&nbsp;the security instrument evidences that it secures the balance of the purchase price of the property.</li>
 <li>Pursuant to NCGS &sect;&nbsp;45-21.16(b)(2), any person obligated to repay any indebtedness is not liable for a deficiency if such person does not receive adequate notice of the foreclosure sale.</li>
 <li>Pursuant to NCGS &sect;&nbsp;45-21.36, in a nonjudicial sale held under a power of sale where the mortgagee purchases the property, the mortgagee's right to a deficiency judgment may be limited by the mortgagor's right to raise an offset as a defense. In this situation, the mortgagor is entitled to an offset to the extent it can show that the true value of the property exceeded the amount the mortgagee paid for it at the foreclosure sale. In a significant holding, the NC Supreme Court has expanded the scope of the Statute to allow guarantors the same protections as the borrower. See High Point Bank and Trust Company v. Highmark Properties, LLC, 368 C. 301, 776 S.E. 2d 838 (2015).</li>
 <li>Pursuant to NCGS &sect;&nbsp;45-21.38A, a deficiency judgment is precluded for a “nontraditional mortgage loan” originated or modified on or after January 1, 2005, and secured by a primary residence, if at the time of origination or modification it qualifies as a “rate spread home loan.” A “nontraditional mortgage loan” is a loan to a natural person, the principal amount of which does not exceed the conforming loan size for a single-family dwelling as established by Fannie Mae, which is secured by a primary residence, and the terms of which permit the borrower to defer payment of principal or interest and allow for the negative amortization of the loan balance. Under NCGS &sect;&nbsp;24-1.1F (originally enacted effective January 1, 2008, but subsequently amended in 2009 and 2013), a “rate spread home loan” is (effective October 1, 2013) defined as a “a loan that has an annual percentage rate that exceeds: (i)&nbsp;the limits set out in 15 U.S.C. &sect; 1639c(c)(1)(B)(ii) and any regulations promulgated thereunder.” Terms are governed by 15 U.S.C. &sect; 1639c and regulations. NCGS &sect; 24-1.1F provides for a single recovery, liability of mortgage brokers as well as lenders, and safe harbors for lenders acting in good faith.</li>
</ul>

DEFICIENCIES

Unrecorded leases for periods that may exceed 3 years are extinguished by foreclosure, NCGS &sect; 47-18, and the tenant in possession is not entitled to notice of foreclosure. The effect of foreclosure upon recorded leases depends upon whether the lease has priority. If the lease has priority over the mortgage, the purchaser at a foreclosure sale takes title subject to the lease. If, however, the mortgage has priority over the lease, a foreclosure generally extinguishes the lease, unless there is a non-disturbance and attornment agreement between the lessee and the mortgagee. The notice of sale of residential property with fewer than 15 rental units must be mailed to all parties in possession under residential rental agreements (by name or as “occupant” if name unknown). NCGS &sect;&sect;&nbsp;45-21.17(4); 42-45.2. The notice of sale must also state that the residential rental tenants may be dispossessed after foreclosure and that the tenant has the right to terminate the rental agreement upon at least 10 days' but no more than 90 days' written notice to the landlord. NCGS &sect;&sect;&nbsp;45-21.16A, 42-45.2.

EFFECT OF FORECLOSURE UPON LEASES

There are numerous interest, fee, and prepayment limitations imposed on certain consumer loans and other loans not exempt from the usury statutes. NCGS Chs. 24 and 53. In particular, there are fee and prepayment premium limitations established for loans secured by real property and that are in amounts of less than $300,000 and less than $100,000. NCGS &sect;&nbsp;24-10. North Carolina does not recognize a “usury savings clause” in a loan document.

USURY CEILING

Pursuant to NCGS &sect;&nbsp;24-9(b), any lender, including any bank, in an “exempt loan transaction” may charge and collect from the borrower interest at any rate and fees and other charges in any amount that the borrower agrees to pay, and the defense of usury is prohibited. Under NCGS &sect;&nbsp;24-9(a)(3), an exempt loan transaction includes any loan in which the amount is in excess of $300,000, or the borrower is not a natural person, or the borrower is a natural person seeking the loan for a purpose other than a personal, family, or household purpose. Whether a loan is obtained primarily for a purpose other than a personal, family, or household purpose is guided by the standards established by the Federal Truth In Lending Act. However, note that NCGS &sect;&nbsp;24-10 establishes prepayment premium limitations on loans secured by real estate that are less than $100,000. Questions of interpretation have been raised in the legal community about whether all fees in an exempt loan transaction can be waived or whether certain provisions in Chapter 24 still apply (such as limits on late charges capped at 4% after past due at least 15 days). Some late fee charges may be limited or prohibited under NCGS &sect; 24-10.1. Likewise, issues of federal preemption may apply to override Chapter 24.

USURY EXEMPTIONS

North Carolina enacted the 1999 official text of Uniform Commercial Code Article&nbsp;9, with certain non-uniform provisions (NCGS &sect;&sect;&nbsp;25-9-101 et seq.) (“Revised Article&nbsp;9”). If North Carolina law governs perfection of a security interest or agricultural lien under Revised Article&nbsp;9, the office in which to file a financing statement to perfect the security interest or agricultural lien is as follows: if the collateral is timber to be cut, as extracted collateral, or fixtures for which the financing statement is filed, the secured party must file in the office of the register of deeds in the county in which said collateral is located. For financing statements covering all other forms of collateral, including fixtures for which the financing statement is not filed as a fixture filing and fixtures of a transmitting utility, the financing statement should be filed only in the Secretary of State's office.

LOCATIONS FOR FILING

To satisfy the requirements for a financing statement under Revised Article&nbsp;9 (NCGS &sect;&nbsp;25-9-502(a)), the financing statement must (i)&nbsp;provide the name of the debtor; (ii)&nbsp;provide the name of the secured party or a representative of the secured party; and (iii)&nbsp;indicate the collateral covered by the financing statement. Pursuant to NCGS &sect;&nbsp;25-9-502(b), a financing statement that covers as-extracted collateral or timber to be cut, or that is filed as a fixture filing and covers goods that are or are to become fixtures, must satisfy the requirements for a financing statement and provide: (i)&nbsp;an indication that it covers this type of collateral; (ii)&nbsp;an indication that it is to be filed in the real property records; (iii)&nbsp;a description of the real property to which the collateral is related; and (iv)&nbsp;the name of the record owner of the real property if the debtor does not have a record interest in the real property. Pursuant to NCGS &sect;&nbsp;25-9-502(c), a mortgage or deed of trust may be recorded as a financing statement for a fixture filing or as a financing statement covering as-extracted collateral or timber to be cut only if such mortgage or deed of trust satisfies the requirements for a financing statement and also: (i)&nbsp;indicates the goods or accounts covered; (ii)&nbsp;states the goods are or are to become fixtures related to the real property described or the collateral is related to the real property described in the mortgage or deed of trust and is as-extracted collateral or timber to be cut; (iii)&nbsp;satisfies the requirements for a financing statement to be filed in the real estate records other than the requirement that the financing statement indicate it is to be filed in the real property records; and (iv)&nbsp;is duly recorded.

FINANCING STATEMENTS, FIXTURE FILINGS AND SECURITY INSTRUMENTS FILED AS FIXTURE FILINGS

UNUSUAL PROVISIONS OR REQUIREMENTS

Guarantor's rights described as “Special Problems” below may be waived by an express provision in a guaranty agreement. The specific statutes to be waived are NCGS &sect;&sect;&nbsp;26-7 through 26-9.

When an obligation that has been guaranteed becomes due, the guarantor may give written notice to the holder or owner of the obligation requiring said owner or holder to proceed against the principal and to realize any securities that are held for the obligation. If the holder or owner of the obligation refuses or fails to take appropriate action within 30 days of such notice, certain guarantor(s) shall be discharged to the extent that they are prejudiced thereby.

SPECIAL PROBLEMS IN ENFORCEMENT OF GUARANTY

Although North Carolina is not a “one action” jurisdiction, some of the limitations on deficiency actions described above under “Foreclosures/Deficiencies” also apply to guarantors. In particular, (1) NCGS &sect;&nbsp;45-21.38 (which prohibits deficiency judgments in seller financing situations) has been interpreted by North Carolina courts to prohibit the guaranty of any debt covered by that statute, i.e., seller financing situations; and (2) NCGS &sect; 45-21.36 has been interpreted as affording the same protections to guarantors as are given to borrowers. See discussion under “Foreclosure; Deficiencies” above.

ISSUES AND GUIDELINES RELATED TO SEEKING/OBTAINING DEFICIENCY JUDGMENTS

Under NCGS &sect;&nbsp;1-47(3), there is a 10-year statute of limitations on the mortgagee's right to foreclose so long as the mortgagor remains in possession. The 10-year period runs from the time of default under the mortgage. See also NCGS &sect;&nbsp;1-54(6) for the 1-year statute of limitations for pursuing a deficiency following a foreclosure sale. Under NCGS &sect;&nbsp;45-36.24, unless the lien of a deed of trust (or other security instrument) has been properly extended in a record filing, has been foreclosed, or has been properly satisfied of record, there is a conclusive presumption that the lien of a deed of trust (or other security instrument) expires from and after (a)&nbsp;15 years from the maturity date stated in the security instrument and in any recorded amendments thereto, or (b)&nbsp;35 years after the date the security instrument was recorded, if there is no stated maturity date. But, consult NCGS &sect;&nbsp;45-36.24 for conditions specific to security instruments recorded before October 1, 2011, methods for extending the lien of a security instrument, and other nuances.

STATUTE OF LIMITATION PERIOD

Payment of the mortgage obligation terminates the title of the mortgagee or trustee by operation of law. Under NCGS &sect;&nbsp;45-36.9(a), “[a] secured creditor shall submit for recording a satisfaction of a security instrument within 30 days after the creditor receives full payment or performance of the secured obligation. If a security instrument secures a line of credit or future advances, the secured obligation is fully performed only if, in addition to full payment, the secured creditor has received (i)&nbsp;a notification requesting the creditor to terminate the line of credit, (ii) a credit suspension directive, or (iii)&nbsp;a notification containing a clear and unambiguous statement sufficient to terminate the effectiveness of the provision for future advances in the security instrument[.]” A landowner or their representative (even if not the original borrower) may request a reliable payoff in order to release the deed of trust from the real property, and the secured creditor must provide that detailed payoff statement in writing to the landowner or their representative within 10 days of the request. NCGS &sect; 45-36.7. Except as stated below, a secured creditor that is required to submit a satisfaction and does not do so by the end of the statutory 30-day period is liable to the landowner (who may no longer be the original borrower): (i)&nbsp;for any actual damages caused by the failure, but not punitive damages (NCGS &sect;&nbsp;45-36.9(b)); and (ii)&nbsp;for $1,000 and any reasonable attorneys' fees and court costs incurred if, after the expiration of the period, all of the following occur: (a)&nbsp;the landowner gives the secured creditor a notification (in conformity with the statutory requirements) demanding that the secured creditor submit a satisfaction or release for recording; (b)&nbsp;the secured creditor does not submit a satisfaction or release for recording within 30 days after receipt of the notification; and (c)&nbsp;the security instrument is not satisfied of record or the release is not filed by any available method within 30 days after the secured creditor's receipt of the notification (NCGS &sect;&nbsp;45-36.9(c)). A secured creditor is not liable under the statutes governing satisfaction of mortgages if it: (i)&nbsp;established a reasonable procedure to achieve compliance with its obligations for satisfaction; (ii)&nbsp;complied with that procedure in good faith; and (iii)&nbsp;was unable to comply with its obligations because of circumstances beyond its control. NCGS &sect;&nbsp;45-36.12. A security instrument may be discharged and released of record by recordings which substantially comply with any of the following: (1)&nbsp;a satisfaction document signed by the secured creditor complying with the statutory requirements of NCGS &sect;&nbsp;45-36.10; (2)&nbsp;an affidavit of satisfaction by a satisfaction agent (who must be a North Carolina licensed attorney) complying with the requirements of NCGS &sect;&nbsp;45-36.16; or (3)&nbsp;a trustee's satisfaction complying with the requirements of NCGS &sect;&nbsp;45-36.20, but only if the security instrument is a deed of trust. A satisfaction of the deed of trust encumbrance on the real property does not require or imply that the underlying obligation itself has been paid in full; these are distinguishable legal liabilities. Other common law methods may be sufficient such as release deeds. An erroneously filed satisfaction can be rescinded, but is subject to the rights of intervening purchasers and creditors who relied thereon. NCGS &sect; 45-36.6.

REQUIREMENTS FOR RELEASE OF LIEN

North Carolina has two separate homestead exemptions and the debtor must elect one or the other. One source of exemptions is in the North Carolina Constitution, and the other is by statute. The constitution provides for an exemption for the homestead in an amount to be determined by the General Assembly, but not less than $1,000, to be selected by the owner thereof. Under the statutory scheme, a debtor may exempt an aggregate interest in value in real property that the debtor uses as a residence, not to exceed $35,000, unless the debtor is an unmarried debtor aged 65 or older, in which case the limit is $60,000 if the property was previously owned by debtor as a tenant by the entireties or as a joint tenant with rights of survivorship, and the former co-owner is deceased. NCGS &sect;&nbsp;1C-1601(a)(1). For obvious reasons, debtors choose the exemption allowed by the legislature.

HOMESTEAD ISSUES

North Carolina is not a community property state. See comments above in the section titled “Form/Statutes to be Waived” regarding joinder of spouses in real estate instruments.

COMMUNITY PROPERTY

There is no mortgage tax in North Carolina.

MORTGAGE TAX

None. On Note: None. On Foreclosure Sale or Deed in Lieu of Foreclosure: See Transfer Tax below, which is applicable.

DOCUMENTARY STAMP TAX

Under NCGS &sect;&nbsp;105-228.30, for the conveyance of an interest in real property for which consideration is paid, excise tax stamps must be purchased at the rate of $1 for each $500, or fractional part thereof, of the consideration received. The excise tax stamp requirement does not apply, among other situations, on leases, transfers by gift, transfers by will, transfers by intestacy, transfers by merger, conversion, or consolidation, or transfers by instruments securing indebtedness. NCGS &sect;&nbsp;105-228.29. Nor does the tax apply to a conveyance by a governmental unit or an instrumentality of a governmental unit.&nbsp; NCGS &sect; 105-228.28.&nbsp; The excise tax stamp requirement applies to transfers pursuant to foreclosure sales and deeds in lieu of foreclosure. A different transfer fee arises in the context of deeds in some communities. North Carolina has enacted legislation to prohibit transfer fee covenants. NCGS &sect; 39A-3. Additional transfer taxes are applicable in some locations under local bills that are not statewide statutes. For example, a 1% transfer tax is also applicable to seven counties in northeastern North Carolina (Camden, Chowan, Currituck, Dare Pasquotank, Perquimans and Washington counties), two of which also tax leaseholds (Dare and Currituck), while three exempt foreclosure sales, deeds in lieu of foreclosure and the later REO outsale by the mortgagor within two years thereafter (Pasquotank, Perquimans and Washington counties). Some local jurisdictions also have other tax and utility liens applicable to real estate that should be addressed at closing. Many jurisdictions require certification that all city and county ad valorem taxes have been paid as a pre-condition to recording deeds. NCGS &sect; 161-31. Many also have form certification requirements regarding valuation and consideration for transfers that must be filed prior to closing. A showroom tax is applicable in the city of High Point.

TRANSFER TAX

North Carolina has typically followed the doctrine of lex loci celebrationis (also known as lex loci contractus), which provides that the substantive law of the state where the last act to make a binding contract occurred governs all aspects of the contract, including the execution, interpretation, validity and enforcement of the contract. Where the state the contract was made differs from the state of performance, North Carolina law is not clear on whether questions of performance are controlled by the law of the place of performance or the law of the place of contracting. North Carolina cases examining these questions are sparse. Although in cases where a choice of law was in the contract, the courts have given weight to the choice of law by stating that the parties evidenced their intentions that a particular state's law would apply; however, the courts have also considered other factors. It appears that a North Carolina court, in a properly reasoned decision, will give effect to a choice of law provision in a contract if the chosen law is the law of the state of the making of the contract or the law of the state of performance, subject to the following exceptions: (1)&nbsp;if North Carolina personal property or real property is given as security for the loan and the law of another jurisdiction is chosen, North Carolina will apply North Carolina usury laws regardless of the choice of law in the loan documents, and (2)&nbsp;North Carolina courts will apply North Carolina law to matters relating to procedure, remedies, and enforcement, including foreclosure and other matters relating to the real or personal property situated in the state, regardless of the choice of law in the loan documents. Under NCGS &sect;&sect; 1G-1 through 1G-5, applicable to business contracts (excluding consumer contracts and employment contracts) before, on, or after that date, the parties may agree to controlling law and choice of forum (other than as provided in UCC provision NCGS 25-1-301(c), i.e., if permitted under (1) NCGS 25-2-402; (2) NCGS 25-2A-105 and NCGS 25-2A-106; (3) NCGS 25-4-102; (4)&nbsp;NCGS 25-4A-507; (5) NCGS 25-5-116; (6) NCGS 25-8-110; (7) NCGS 25-9-301 through NCGS 25-9-307.).

ENFORCEABILITY OF AGREEMENT OF BORROWER AND LENDER AS TO CHOICE OF LAW PROVISIONS

A receiver may be appointed (1)&nbsp;prior to judgment to preserve property pending the litigation, if the claimant establishes an apparent right to the property and the property or its rents and profits are in danger of being lost or impaired, or (2)&nbsp;after a judgment has been rendered in order to carry the judgment into effect, dispose of the property according to the judgment, preserve the property during an appeal or when execution has been returned unsatisfied and the judgment debtor refuses to apply the property in satisfaction of the judgment. A receiver may be appointed for a corporation when it becomes insolvent or suspends its ordinary business for want of funds, is in imminent danger of insolvency or has forfeited its corporate right, or its corporate existence has expired by limitation. A receiver may also be appointed in cases where a party is seeking restitution for violations of the state unfair trade practices statute and in cases involving partition of real property. With respect to receivership in the context of a deed of trust or other security instrument, the appointment of a receiver is ancillary relief. The North Carolina Commercial Receivership Act, NCGS Chapter 1, Subchapter XIII, Article 38A, NCGS &sect; 1-507.20 et. seq. was enacted effective January 1, 2021.&nbsp;This Article applies only to:&nbsp; <ul>
 <li>an entity, for example, a corporation, limited liability company, or partnership; or</li>
 <li>an individual business debtor. To qualify as an individual business debtor, the individual's total debt (as determined on the date that the receivership action is commenced) must be comprised of less than 50% consumer debt (N.C.G.S. &sect; 1-507.20(12b). A creditor that is only owed consumer debt may not file an action or motion to appoint a receiver for an individual debtor.</li>
</ul> [Note: Part 1 of Article 38 was not repealed by the new Act, so a receiver may still be appointed for an individual who is not an individual business debtor under NCGS &sect; 1-501, et. seq.] This statute does not apply to trusts, other than a business trust, or to the estate of a deceased individual, missing person, or absentee in military service (NCGS &sect; 1-507.21(b)). Commercial receiverships also do not apply if the receiver is a state agency or the receiver is appointed for a ward or ward's estate (NCGS &sect; 1-507.21(b)). Specifically to foreclosure or enforcement of a security agreement, and in connection to a power of sale, a limited receivership may be established via court order in cases&nbsp;where necessary to prevent waste, loss, transfer, concealment; where debtor signed a written agreement to an appointment upon default or after default; where the collateral is not sufficient to satisfy the secured obligation; where the debtor fails to deliver the collateral or proceeds thereof (rents); or, where a subordinate lienholder has had a receiver appointed (NCGS 1-507.24(f)).&nbsp;A business debtor (individual or entity) who is in a limited receivership may not be prevented from filing for protection of federal bankruptcy (NCGS 1-507.21), which would take precedence over a receivership and stay any actions in the receivership case. Presumably, a debtor under a general receivership could only do so with state court consent, but the state receivership statutes do not speak to that. See&nbsp;Chapter 1, Article 38, Receivers, and Article 38A, the North Carolina Commercial Receivership Act.&nbsp;

RECEIVERSHIP

Loan application, advertising, and commitment requirements are generally consistent with HUD requirements. See section on “Usury” regarding fees.

ANY PROHIBITION OR SPECIAL RULES REGARDING LOAN APPLICATION, LOAN FEES OR COMMITMENT FEES

Generally, a foreign corporation or limited liability company (“LLC”) may not transact business in North Carolina until it obtains a certificate of authority from the North Carolina Secretary of State. NCGS &sect;&nbsp;55-15-01(a) and NCGS &sect;&nbsp;57D-7-01(a). However, NCGS &sect;&nbsp;55-15-01(b) provides that a foreign corporation, and NCGS &sect;&nbsp;57D-7-01(b) provides that a foreign LLC, will not be considered to be transacting business in North Carolina by engaging in, among other safe-harbor activities: “(6) Making or investing in loans with or without security including servicing of mortgages or deeds of trust through independent agencies within the State, the conducting of foreclosure proceedings and sale, the acquiring of property at foreclosure sale and the management and rental of such property for a reasonable time while liquidating its investment, provided no office or agency therefor is maintained in this State; (7)&nbsp;Taking security for or collecting debts due to it or enforcing any rights in property securing the same; &hellip; [and] (11)&nbsp;Owning, without more, real or personal property.” In addition, commercial lenders not based in North Carolina are generally not required to obtain any licenses to make commercial loans in North Carolina. Exceptions to this rule, whereby some type of licensing may be required to make loans in North Carolina include, without limitation: (1)&nbsp; persons, banks, or corporations acting as a stockbroker or private banker (NCGS &sect;&nbsp;14-401.7); (2)&nbsp; banks acting in a fiduciary capacity without a bond (NCGS &sect;&nbsp;53-160); (3)&nbsp; persons engaged in making loans under the North Carolina Consumer Finance Act (NCGS &sect;&nbsp;53-166(a)), not including any bank, trust company, savings and loan association, cooperative credit unions or agriculture credit corporations, to which the Consumer Finance Act does not apply (NCGS &sect;&nbsp;53-191); (4)&nbsp; persons engaged in the business of money transmissions, including, soliciting or advertising “money transmission services from a Web site that North Carolina citizens may access in order to enter into those transactions by electronic means,” pursuant to the Money Transmitters Act (NCGS Chapter 53, Article 16B, effective October 1, 2016, replacing the prior Article 16), other than exempt entities such as government agencies, any banks, credit unions, savings and loan associations, savings banks, or mutual banks organized under the laws of the United States or any state (NCGS &sect;&nbsp;53-208.44); (5)&nbsp; persons engaged in the business of making residential mortgage loans as a mortgage banker or broker (NCGS &sect;&sect;&nbsp;53-244.010 et seq.), also known as The Secure and Fair Enforcement Licensing Act (“SAFE Act”); (6)&nbsp; persons engaged in the business of making loans to be repaid from anticipated tax refunds, not including, without limitation, any banks, savings associations, or credit unions organized under the laws of North Carolina or the United States (NCGS &sect;&nbsp;53-247). In addition, loans to be repaid from refunds of North Carolina taxes are prohibited under NCGS &sect;&nbsp;53‑245(b); (7)&nbsp; persons engaged in the check-cashing business (NCGS &sect;&nbsp;53-276), aside from banks, savings institutions, credit unions, or farm credit systems organized under the laws of the United States or any state (NCGS &sect;&nbsp;53-277); and (8)&nbsp; persons determined to be a “loan broker” under NCGS &sect;&nbsp;66-106, which may include certain persons who make loans.

LENDER QUALIFICATION AND/OR LICENSURE

There are no unusual provisions or requirements for modifications of existing mortgage loans. Care should be taken to assess whether the nature of the modification may trigger loss of lien priority of the security instrument, depending upon the terms of the future advance provision in the recorded deed of trust or previously recorded modifications. It is generally advisable to obtain an updated title search (and in some circumstances a title insurance policy endorsement changing the effective date of coverage through the title update) as part of the assessment.

MODIFICATION

NCGS &sect;&nbsp;130A-20&nbsp;imposes a lien when the government enters property to take action to abate an imminent hazard. In addition, NCGS &sect;&nbsp;130A-19 imposes a lien for the abatement of a public health nuisance. These liens are in the nature of a mechanic's and materialmen's lien, which arguably allows the lien to relate back to the commencement of work rather than the time of actual filing of the lien. These liens may be enforced by the Secretary of Environment and Natural Resources or a local health director. The abatement of an imminent hazard includes “a situation that is likely to cause an immediate threat to human life, an immediate threat of serious physical injury, an immediate threat of serious adverse health effects, or a serious risk of irreparable damage to the environment if no immediate action is taken.” NCGS &sect;&nbsp;130A-2(3). Under NCGS &sect;&nbsp;160A-193, a city has the authority to abate a public health nuisance that is dangerous to public health or safety and the expense of the abatement is a lien with the same priority as unpaid ad valorem taxes on the subject premises. In addition, the abatement of the public health nuisance also is a lien on any other real property in or near the city owned by the person in default, but this lien is subject to prior liens and is collected in the same manner as a money judgment. A county has similar authority to abate a public health nuisance. NCGS &sect;&nbsp;153A-140. A city may remove or demolish a building that has an unsafe condition and the cost thereof is a lien in the nature of a special assessment upon the subject property. NCGS &sect;&nbsp;160A-432. The cost of demolition is also a lien upon all property of the owner in or near the city, but this lien is subject to prior liens and is collected in the same manner as a money judgment. Finally, the Department of Health and Human Services may collect Brownfields fees and impose a lien therefore in the same manner as unpaid ad valorem taxes. NCGS &sect;&nbsp;130A-310.39.

ENVIRONMENTAL LIENS

The North Carolina Bar Association has several resources for the issuance of legal opinions in the context of transactions. The Legal Opinion Committee of the Business Law Section of the North Carolina Bar Association adopted a Report titled “Third-Party Legal Opinions in Business Transactions, Second Edition,” dated March 31, 2004 (), as amended by Supplement to Report of the Legal Opinion Committee of the Business Law Section of the North Carolina Bar Association, adopted February 2009 (https://www.ncbar.org/wp-content/uploads/2020/12/Supplement-to-the-Report-of-the-Legal-Opinion-Committee-of-the-BL-Section-of-the-NCBA.pdf). The Legal Opinion Committee of the Real Property Section of the North Carolina Bar Association published an illustrative form of real estate opinion published April 2017, titled “Illustrative Form of Real Estate Secured Lending Opinion Letter Form” (https://www.ncbar.org/wp-content/uploads/2020/06/securedlendingopinion2017.pdf).

LEGAL OPINIONS

A statutory procedure is available for converting manufactured home titles from personal property (with a Certificate of Title) to real property (and so included as part of the real estate conveyed under a deed or deed of trust) through appropriate filing with the NC Department of Transportation Division of Motor Vehicles (“DMV”). <ul>
 <li>If the home has never had a Certificate of Title issued with DMV, or the Certificate of Title was canceled with DMV prior to January 1, 2002, then the owner would file a Declaration of Intent to Affix the Manufactured Home to the Real Property with the registered of deeds of the county in which the property is located. NCGS &sect; 47-20.7. The statute details required recitals but there is no official DMV form.</li>
 <li>If a Certificate of Title has been issued, the owner of the land and home would file a DMV Form MVR-46G “Affidavit of Removal of Manufactured Home from Vehicle Registration Files,” including release of any liens, with the DMV, and the form executed by DMV and returned &nbsp;must then be filed with the register of deeds of the county in which the property is located. NCGS &sect; 20-109.2, &sect;&nbsp;47-20.6, &sect; 20-58.3A, and &sect; 20-58.4.</li>
 <li>Retaining a Certificate of Title with the DMV and placing a security interest or lien on the Certificate of Title would not be appropriate if the home is intended to be real estate secured by a deed of trust as it indicates the home remains personal property. Counsel should consult the statutes for various curatives and more detailed procedures.</li>
</ul>

PERFECTING LIENS SECURED BY MANUFACTURED HOMES

Closings in North Carolina are traditionally handled by independent NC licensed attorneys, for residential and commercial transactions, though commercial disbursements are sometimes handled by the title insurance companies working with the closing attorneys. The drafting of documents, abstracting or opining on title and giving of legal advice must be by a NC licensed attorney, as noted earlier. NCGS &sect;&nbsp;84-2.1, &sect;&nbsp;84-4 and &sect; 84-10.1.&nbsp; Title insurance can only be issued based upon the title opinion of a North Carolina licensed attorney who is not an employee or agent o the title insurer or title agency.&nbsp; NCGS 58-26-1(a). For commercial transactions, since documents can be recorded effective immediately at the time of updating the title, especially given the increasing ability to record electronically, recordation prior to disbursement is still the standard of practice, though “gap” closings are sometimes utilized when parties are distant and timing is critical. Most importantly, North Carolina is a “pure race” state. If a party's documents are not recorded first within the chain of title, i.e. an intervening purchaser or lender records instruments first, the party who delayed recording loses priority to any intervening purchaser or lender, whether or not they had notice of the alternative transaction or interest. For residential transactions, the documents must be recorded prior to the disbursement of funds. NCGS &sect;&nbsp;45A-4. “Good Funds” are required in the form of collected funds or the following form: (1) A certified check; (2) A check issued by the state, the United States, a political subdivision of the state, or an agency or instrumentality of the United States, including an agricultural credit association; (3) A cashier's check, teller's check, or official bank check drawn on or issued by a financial institution insured by the Federal Deposit Insurance Corporation or a comparable agency of the federal or state government; (4) A check drawn on the trust account of an attorney licensed to practice in the State of North Carolina; (5) A check or checks drawn on the trust or escrow account of a real estate broker licensed under Chapter 93A of the General Statutes; (6) A personal or commercial check or checks in an aggregate amount not exceeding $5,000 per closing if the settlement agent making the deposit has reasonable and prudent grounds to believe that the deposit will be irrevocably credited to the settlement agent's trust or escrow account; (7) A check drawn on the account of or issued by a mortgage lender licensed under Article 19B of Chapter 53 of the General Statutes, the S.A.F.E. Act.. For residential transactions, a non-attorney is allowed to “(1) present and identify the documents necessary to complete a North Carolina residential real estate closing, direct the parties where to sign the documents, and ensure that the parties have properly executed the documents; or (2)&nbsp;receive and disburse the closing funds.” North Carolina State Bar Authorized Practice Advisory Opinion 2002-1, “On the Role of Laypersons in the Consummation of Residential Real Estate Transactions” (January&nbsp;24, 2003, revised January 26, 2012). Any trust or escrow account governed by the Good Funds Settlement Act (i.e. residential transactions, whether lawyer or non-lawyer settlement agent)) is required to be maintained as required by the North Carolina State Bar Interest on Lawyer's Trust Account (IOLTA) Program. NCGS &sect; 45A-9.

CLOSING AND DISBURSEMENT REQUIREMENT

LABOR AND MATERIALMEN'S LIEN CLAIMS - PRIORITY ISSUES

NCGS Chapter 44A, Article 2 governs statutory liens in favor of mechanics, laborers, and materialmen. These statutory liens may attach to real property or to funds paid to a higher-tier contractor. For priority purposes, a prior recorded mortgage or deed of trust normally will have priority over a subsequent lien created under Chapter 44A. A major exception to this general rule is that a properly perfected lien relates back and takes effect from the date of the first furnishing of labor or materials at the site by the claimant, not the date of the contract. NCGS &sect;&nbsp;44A-10. The North Carolina Supreme Court has ruled that this provision implies that there must be a visible commencement of the improvement for relation back purposes. However, services regarding the specific project by design professionals (surveyors, architects, engineers and landscape engineers) often have a first furnishing which may not be as obvious.&nbsp; No formal notice of commencement is required. Pursuant to NCGS &sect;&nbsp;44A-8, “[a]ny person who performs or furnishes labor or professional design or surveying services or furnishes materials or furnishes rental equipment pursuant to a contract, either express or implied, with the owner of real property for the making of an improvement thereon shall, upon complying with the provisions of this Article, have a right to file a claim of lien on real property on the real property to secure payment of all debts owing for labor done or professional design or surveying services or material furnished or equipment rented pursuant to the contract.” The lien thus provided for extends to the improvements and the land on which the improvements are situated. For purposes of this statute, “[a]n &lsquo;owner' is a person who has an interest in the real property improved and for whom an improvement is made and who ordered the improvement to be made.” The North Carolina Court of Appeals has held that a vendee's equitable interest under an enforceable executory contract for the sale of land satisfies the statutory definition of “owner” where the vendee's equitable interest is followed by a subsequent acquisition of the legal interest. See Carolina Builders Corp. v. Howard-Veasey Homes, Inc., 72 N.C. App. 224, 231, 324 S.E.2d 626, 631 (1985). North Carolina has a centralized electronic registration system for potential mechanic's lien claimants. The system is known as the North Carolina Online Lien Agent System and is located at www.LiensNC.com. NCGS &sect;&nbsp;44A-11.1 and &sect; 44A-11.2. The “owner” (as defined in the prior paragraph above) or their legal representative must designate a lien agent at the time of first contracting in connection with the construction of commercial improvements and certain residential improvements costing $30,000 or more.&nbsp; (NOTE:&nbsp; At the time of this update, that amount may be increased to $40,000 under House Bill 488, effective Oct. 1, 2023.) Any contractors, subcontractors, or suppliers (“potential lien claimants”) may (but are not required to) file a notice on the particular project's appointment. The notice preserves the relation back of their priority interest in the land vis-&agrave;-vis an intervening third-party lender or purchaser in the event the potential lien claimant must file a claim of lien and lawsuit under pre-existing law to be paid. Consulting the current statute is strongly recommended. As of October 1, 2018, notice filers on residential property are required to cancel their notices when they are paid in full, notice filers on commercial property can but are not required (by the statute, though they may be by contract) to file cancellations when paid in full, and, in any event, notices to lien agent will expire after five years unless extended by additional notice. The North Carolina Land Title Association has published standardized lien waiver and lien subordination forms that are to be obtained from the applicable party or parties (owner, general contractor, and subcontractor) in connection with transfers or financing transactions. Commercial real estate brokers also are entitled to certain lien rights. NCGS &sect;&sect;&nbsp;44A-24.1 et seq.

INCEPTION OF LIEN; PRIORITY OF LIEN AS TO DEED OF TRUST

For priority purposes, the general rule is that the security interest in the fixture must be perfected by a fixture filing. A fixture filing needs to be filed in the real estate records and must satisfy the requirements of NCGS &sect;&nbsp;25-9-502, which, among other things, requires an adequate description of the real estate where the fixture is attached. Pursuant to NCGS &sect;&nbsp;25-9-334(e)(2), a fixture filing is not required, however, if before the goods become fixtures, the security interest is perfected by any other method (e.g., ordinary filing), and the fixtures are readily removable factory or office machines, equipment that is not primarily used or leased for use in the operation of real property, or replacements of domestic appliances that are consumer goods. Security interests in such fixtures have priority over a prior deed of trust if they are perfected by any ordinary means before the fixtures are annexed.

PRIORITY AS TO REMOVABLE FIXTURES

North Carolina utilizes the “approved attorney” system for title certifications and closings. Title companies issue commitments and policies only upon receipt of an opinion of title from a North Carolina licensed attorney who is not an employee or agent of the title company. Title companies will issue insured closing protection letters for attorneys approved by the company and company agents, using forms filed with the North Carolina Department of Insurance. NCGS &sect;&nbsp;58-26-1. Insurance premiums for policies are filed with the North Carolina Department of Insurance and, since most insurers are members of the North Carolina Title Insurance Rating Bureau, are the same across the state regardless of the insurer or the location of the property within the state. Title insurers operating in North Carolina typically use the title insurance policy forms and closing protection letter forms currently adopted by the American Land Title Association (“ALTA”), filed with the North Carolina Department of Insurance by the North Carolina Land Title Association (“NCLTA”) on behalf of all member companies. Although lenders may require a policy of loan title insurance as a requirement of closing, the lender may not dictate the title insurance company to provide such insurance. NCGS &sect; 75-17. Title insurance may only be issued based on the certification of title by a North Carolina licensed approved attorney, independent from and not an employee of the title insurance underwriter or agent. NCGS &sect;58-26-1. The abstracting or passing upon titles is the practice of law. NCGS &sect;&nbsp;84-2.1 and &sect;&nbsp;84-4. A violation is a misdemeanor and the violator is prohibited from collection of fees for the services. NCGS &sect;&nbsp;84-8. NCGS &sect; 84-10.1 also provides for a private cause of action.

FORM USUALLY REQUIRED BY LENDER

Most ALTA endorsements are available in North Carolina, and are filed with the North Carolina Department of Insurance for most title insurance underwriters doing business in the state, with a few exceptions: (1) The ALTA Endorsement Form 29.2-06 (Interest Rate Swap Endorsement - Direct Obligation - Defined Amount) and ALTA Endorsement Form 29.3-06 (Interest Rate Swap Endorsement - Additional Interest - Defined Amount) would not be appropriate since they do not require a maximum amount be stated in the deed of trust. (2) The ALTA Endorsement Form 38-06 (Mortgage Tax) is not applicable since North Carolina does not impose a mortgage tax. (3) The ALTA Endorsement Form 44-06 (Insured Mortgage Recording - Loan) should not be issued on residential transactions in North Carolina since the deed of trust must be recorded prior to disbursement under the Good Funds Settlement Act, NCGS &sect; 45A-4, and to establish priority. (4) Given that North Carolina provides for recordation of an option (or memorandum thereof) under NCGS &sect; 47-18, in order to establish priority, the ALTA Endorsement Form 46-06 (Option) is not consistent with North Carolina law or practice, so a non-ALTA form would be more appropriate. &nbsp; &nbsp;

North Carolina

Mortgage Law Summary

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Mortgage Law Summary for North Carolina

North Carolina

Mortgage Law Summary

Continue reading theMortgage Law Summary for North Carolina

Continue reading the
Mortgage Law Summary for North Carolina