The Statewide Title Newsletter and Legal Memorandum

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Issue  48  Article  107
Published:  7/1/1999

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How to Cancel Liens of Record: A Primer - Part 1
Chris Burti, Vice President and Legal Counsel

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. While the provisions in this article are certainly not exhaustive, it is intended to provide a convenient reference source for dealing with some of the more common liens. Due to the length we will publish this in two parts.

Lis Pendens

The statutes do not provide a mechanism for canceling a notice of lis pendens unless an action is commenced by the issuance of summons and the complaint is not filed. The judgment operates to cancel the notice if the property owner prevails. If the owner does not prevail, the judgment operates to determine the status of the land regardless of whether it is recorded in the deed registry. The operative statute is set forth below.

NCGS Sec.1-119. Notice void unless action prosecuted

(a) The notice of lis pendens is of no avail unless it is followed by the first publication of notice of the summons or by an affidavit therefor pursuant to Rule 4(j)(1) c of the Rules of Civil Procedure or by personal service on the defendant within 60 days after the cross-indexing.

(b) When an action is commenced by the issuance of summons and permission is granted to file the complaint within 20 days, pursuant to Rule 3 of the Rules of Civil Procedure, if the complaint is not filed within the time fixed by the order of the clerk, the notice of lis pendens shall become inoperative and of no effect. The clerk may on his own motion and shall on the ex parte application of any interested party cancel such notice of lis pendens by appropriate entry on the records, which entry shall recite the failure of the plaintiff to file his complaint within the time allowed. Such applications for cancellation, when made in a county other than that in which the action was instituted, shall include a certificate over the hand and seal of the clerk of the county in which the action was instituted that the plaintiff did not file his complaint within the time allowed. The fees of the clerk may be recovered against the plaintiff and his surety.

A notice of lis pendens filed in connection with governmental enforcement of building inspection or minimum housing standards must be canceled since there normally is no judgment to resolve the issue of compliance. The ordinance of the governing body may provide for cancellation. If it does not the Clerk must cancel the notice of lis pendens upon receipt of a satisfactory notice of compliance. This notice may consist of a letter from the Governmental official originating the complaint or, depending on the Clerk, a certificate of occupancy. The pertinent statute follows.

1-120.2. Filing of notice by cities and counties in certain cases

The governing body of a city or county may, by ordinance under Part 5 of Article 19 of Chapter 160A of the General Statutes relating to building inspection, or Part 6 of Article 19 of Chapter 160A relating to minimum housing standards, or Part 4 of Article 18 of Chapter 153A relating to building inspection, provide that upon the issuance of a complaint and notice of hearing or order pursuant thereto, a notice of lis pendens, with a copy of the complaint and notice of hearing or order attached thereto, may be filed in the office of the clerk of superior court of the county where the property is located. When a notice of lis pendens and a copy of the complaint and notice of hearing or order is filed with the clerk of superior court, it shall be indexed and cross-indexed in accordance with the indexing procedures of G.S. 1-117. From the date and time of indexing, the complaint and notice of hearing or order shall be binding upon the successors and assigns of the owners of and parties in interest in the building or dwelling. A copy of the notice of lis pendens shall be served upon the owners and parties in interest in the building or dwelling at the time of filing in accordance with G.S. 160A-428, 160A-445, or 153A-368 as applicable. The notice of lis pendens shall remain in full force and effect until canceled. The ordinance may authorize the cancellation of the notice of lis pendens under certain circumstances. Upon receipt of notice from the city, the clerk of superior court shall cancel the notice of lis pendens.

State Judgments

Full payment made to the Clerk will result in an entry in the judgment docket marked "Paid and satisfied in full". If a transcript of judgment is involved, it is advisable to request the clerk’s office to forward a certificate of satisfaction since it is not uncommon for this to be overlooked. Procedure for payment and satisfaction of judgments is governed by NCGS Sec. 1-239. It should be noted that the statute contains protective provisions to help insure payment to the attorney of record for the plaintiff and to provide a short period for objection if the tendered payment is not correct. These provisions may cause a short delay in actual cancellation of the lien when the correct amount is tendered. NCGS Sec. 1-239(c) provides for a $100 penalty for failure to cancel upon payment. This provision is similar to the cancellation penalties discussed elsewhere in this article, and the forms provided for that action may be modified to use under this section. The pertinent provisions pertaining to satisfaction are set out below.

1-239(a)

(3) When a payment to the clerk is made in cash or when a check is finally paid by the drawee bank, the clerk shall give the notice provided for in subsection (b). When the full amount of a judgment has been so paid, the clerk shall include the words "JUDGMENT PAID IN FULL" in the notice.

(4) When a judgment has been paid in part, but not in full, the clerk shall furnish a certificate of partial payment to the clerk of superior court of any county to which a transcript of a judgment has been sent, but only upon the request of that clerk or of the party who made the partial payment.

(5) When a judgment has been paid in full, and the party in whose favor the judgment was rendered has collected all payments made to the clerk, or when ten days have passed since notice of payment in full was sent pursuant to subsection (b) and the party has neither collected all payments made to the clerk nor notified the clerk that the party disputes payment of the full amount of the judgment, then the clerk shall immediately:

a. Mark "PAID AND SATISFIED IN FULL" on the judgment docket, and

b. Forward a certificate of payment in full to the clerk of superior court in each county to which a transcript of the judgment has been sent.

(b) Upon receipt of any payment of money upon a judgment, the clerk of superior court shall within seven days after the receipt of such payment give notice thereof to the attorney of record for the party in whose favor the judgment was rendered, or if there is no attorney of record to the party. Any other official of any court who receives payment of money upon a judgment shall give notice in the same manner; provided, further, that no such moneys shall be paid by the clerk of the superior court until at least seven days after written notice by mail or in person has been given to the attorney of record in whose favor the judgment was rendered; provided further, that the attorney of record may waive said notice, and said moneys shall be paid by the clerk of superior court, by signing the judgment docket.

(c) Upon receipt by the judgment creditor of any payment of money upon a judgment, the judgment creditor shall within 60 days after receipt of the payment give satisfactory notice thereof to the clerk of the superior court in which the judgment was rendered, and the clerk shall thereafter promptly enter the payment on the judgment docket of the court, and the clerk shall immediately forward a certificate thereof to the clerk of the superior court of each county to whom a transcript of the judgment has been sent, and the clerk of each superior court shall thereafter promptly enter the same on the judgment docket of the court and file the original with the judgment roll in the action. If the judgment creditor fails to file the notice required by this subsection within 30 days following written demand by the debtor, he may be required to pay a civil penalty of one hundred dollars ($100.00) in addition to attorneys' fees and any loss caused to the debtor by such failure.

Federal Judgments

Pursuant to 28 U.S.C. Sec. 3201(d) a federal judgment lien is released by the filing of a satisfaction of judgment or a release of lien in the same fashion as the judgment was originally filed. This is done by filing a certified abstract of judgment in the office of the Clerk of Superior Court.

Labor and Materialmens’ Liens

Liens filed under NCGS Chapter 44A are canceled pursuant to NCGS Sec. 44A-16. The provisions of this section are straightforward and clear. With respect to NCGS Sec. 44A-16(3) and NCGS Sec. 44A-16(4) title examiners should be attentive to the holding in Newberry Metal Masters Fabricators, Inc v. Mitek Ind., 333 N.C. 250, 424 S.E.2d 283 (1993). When a lien claimant dismisses the action of lien enforcement without prejudice and refiles his action within one year of the dismissal, the refiled action will be deemed to be within the 180-day lien enforcement period. The result is that the lien is not discharged although the 180-day enforcement period may have in fact expired prior to the subsequent filing.

Occasionally title examiners will request the title company to permit an escrow of the amount of a disputed claim to substitute for the deposit in NCGS Sec. 44A-16(5) or the bond in NCGS Sec. 44A-16(6). Using these procedures actually discharges the lien. An escrow is not recommended when a lien has been filed since the lien is not discharged. It may be an acceptable procedure when a disputed lien has not been filed and a waiver or subordination can not be obtained. Counsel for your policy issuer should be consulted since the facts tend to vary considerably from case to case. NCGS Sec. 44A-16 follows below.

44A-16. Discharge of record lien

Any lien filed under this Article may be discharged by any of the following methods:

(1) The lien claimant of record, his agent or attorney, in the presence of the clerk of superior court may acknowledge the satisfaction of the lien indebtedness, whereupon the clerk of superior court shall forthwith make upon the record of such lien an entry of such acknowledgment of satisfaction, which shall be signed by the lien claimant of record, his agent or attorney, and witnessed by the clerk of superior court.

(2) The owner may exhibit an instrument of satisfaction signed and acknowledged by the lien claimant of record which instrument states that the lien indebtedness has been paid or satisfied, whereupon the clerk of superior court shall cancel the lien by entry of satisfaction on the record of such lien.

(3) By failure to enforce the lien within the time prescribed in this Article.

(4) By filing in the office of the clerk of superior court the original or certified copy of a judgment or decree of a court of competent jurisdiction showing that the action by the claimant to enforce the lien has been dismissed or finally determined adversely to the claimant.

(5) Whenever a sum equal to the amount of the lien or liens claimed is deposited with the clerk of court, to be applied to the payment finally determined to be due, whereupon the clerk of superior court shall cancel the lien or liens of record.

(6) Whenever a corporate surety bond, in a sum equal to one and one-fourth times the amount of the lien or liens claimed and conditioned upon the payment of the amount finally determined to be due in satisfaction of said lien or liens, is deposited with the clerk of court, whereupon the clerk of superior court shall cancel the lien or liens of record.

Property Tax Judgment Liens

NCGS Sec. 105-375(g) Cancellation upon Payment.--Upon payment in full of any judgment docketed under this section, together with interest thereon and costs accrued to the date of payment, the tax collector receiving payment shall certify the fact thereof to the clerk of superior court and cancel the judgment.

State Tax Liens

Under NCGS Sec. 105-242 (c) a certificate or judgment for taxes is filed with the Clerk of Superior Court, docketed in the judgment docket and indexed on the cross index of judgments. It is a lien upon realty from the date of its docketing in the office of the clerk. A certificate or judgment in favor of the State or the Secretary of Revenue for taxes payable to the Department of is valid and enforceable for a period of 10 years from the date of docketing. When the lien remains unsatisfied for 10 years from the date of its docketing, the same is unenforceable and the tax abates. At the expiration of said 10-year period, the Secretary of Revenue is required to cancel said certificate or judgment of record. NCGS Sec. 105-242 (c) also provides that "such certificate or judgment now on record which has been docketed for more than 10 years shall, upon the request of any interested party, be canceled of record by the Secretary of Revenue or his duly authorized deputy". This provision is governed by the following limitation "provided, in the event of the death of the judgment debtor or his absence from the State before the expiration of the 10-year period herein provided, the running of said 10-year period shall be stopped for the period of his absence from the State or during the pendency of the settlement of the estate and for one year thereafter".

 

NCGS Sec. 105-242(c1) provides for the release of the lien. "The Secretary shall release the State tax lien on a taxpayer's property if the liability for which the lien attached has been satisfied. The Secretary may release the State tax lien on all or part of a taxpayer's property if one or more of the following findings is made:

(1) The liability for which the lien attached has become unenforceable due to lapse of time.

(2) The lien is creating an economic hardship due to the financial condition of the taxpayer.

(3) The fair market value of the property exceeds the tax liability and release of the lien on part of the property would not hinder collection of the liability.

(4) Release of the lien will probably facilitate, expedite, or enhance the State's chances for ultimately collecting a tax due the State.

If the Secretary of Revenue shall find that it will be for the best interest of the State in that it will probably facilitate, expedite or enhance the State's chances for ultimately collecting a tax due the State, he may authorize a deputy or agent to release the lien of a State tax judgment or certificate of tax liability upon a specified parcel or parcels of real estate by noting such release upon the judgment docket where such certificate of tax liability is recorded. Such release shall be signed by the deputy or agent and witnessed by the clerk of court or his deputy or assistant and shall be in substantially the following form: "The lien of this judgment upon (insert here a short description of the property to be released sufficient to identify it, such as reference to a particular tract described in a recorded instrument) is hereby released, but this judgment shall continue in full force and effect as to other real property to which it has heretofore attached or may hereafter attach. This .......... day of .........., 19....

...........................................

Revenue Officer, N.C. Department of Revenue

WITNESS:

The release shall be noted on the judgment docket only upon conditions prescribed by the Secretary and shall have effect only as to the real estate described therein and shall not affect any other rights of the State under said judgment."

In the case of an erroneous lien NCGS Sec. 105-242 (c) provides that a "taxpayer may appeal to the Secretary after a certificate is filed under subsection (c) of this section if the taxpayer alleges an error in the filing of the lien. The Secretary shall make a determination of such an appeal as quickly as possible. If the Secretary finds that the filing of the certificate was erroneous, the Secretary shall issue a certificate of release of the lien as quickly as possible."

Federal Tax Liens

Federal tax liens are released by the filing of a release provided by the Internal Revenue Service. There is often a delay in the issuance of the release unless appropriate provisions are made in advance. Such provisions are highly recommended if the payment involves a negotiated settlement.


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