We often receive questions on how to deal with title problems that call for pragmatic, as well as legal, solutions. This article will deal with such issues in order to present some practical skills benefit on problems that do not frequently occur but can be vexing when they do appear.
In the first situation, the problem property is located in Chatham County; however, it is apparently very close to the Wake County line. A little over 10 years ago, the owners took out a loan secured by a Deed of Trust that was mistakenly recorded in Wake County. This mistake was noticed, and the Deed of Trust was subsequently put on record in Chatham County. However, the Wake County recording remained unaltered.
First issue: once the error was discovered, how would the Wake County Deed of Trust have been removed of record prior to satisfaction of the indebtedness? Since the property was not located in Wake County, there is no legal need for removal because it cannot constitute an encumbrance on the land. The Deed of Trust is not a cloud on the title and does not affect marketability. NCGS Sec. 47-18(a) is referred to as the Conner Act and provides that no "(i) conveyance of land, or (ii) contract to convey, or (iii) option to convey, or (iv) lease of land for more than three years shall be valid to pass any property interest as against lien creditors or purchasers for a valuable consideration from the donor, bargainor or lessor but from the time of registration thereof in the county where the land lies, or if the land is located in more than one county, then in each county where any portion of the land lies to be effective as to the land in that county." Obviously, recording in the wrong county does not provide protection under the statute. NCGS Sec. 47-20.1 is the corollary statute effective for Deeds of Trust. It requires that to "be validly registered pursuant to G.S. 47-20, a deed of trust or mortgage of real property must be registered in the county where the land lies, or if the land is located in more than one county, then the deed of trust or mortgage must be registered in each county where any portion of the land lies in order to be effective as to the land in that county." Our courts have consistently upheld our status as a "race to the courthouse" system, see Schuman v. Roger Baker and Associates, Inc., 70 N.C.App. 313, 319 S.E.2d 308.
It may be desirable to deal with the Wake County Deed of Trust in the interest of professionalism. In such a case, cancellation prior to satisfaction of the debt is not advisable since that would imply that the borrowers had paid the loan. A release deed with adequate recitals about the erroneous recording and about not constituting a release of the Chatham County Deed of Trust would clear up and correct the status very effectively.
When the Deed of Trust was paid, the documents were properly marked satisfied and sent to the Wake County Register of Deeds where it was canceled of record. Once canceled, the original Note and Deed of Trust were sent to the borrowers and are now unavailable. About 10 years later, the property had been sold and the current owners were refinancing. The certifying attorney found the Chatham County Deed of Trust still of record. The bank that made the loan secured by the Deed of Trust is now defunct. Quite fortunately, the Trustee was a local attorney still practicing law. After discussion of the problem, the Chatham County Register of Deeds suggested that the trustee be contacted to provide a Certificate of Satisfaction and Affidavit of Lost Note to correctly remove the Deed of Trust.
Second Issue: How would the Deed of Trust be removed of record in Chatham County if the Trustee had been deceased, unwilling to cancel or otherwise unable to be located? This is a much more difficult issue to resolve. The most reliable cancellation could be achieved by filing a declaratory action and securing a judicial cancellation of the Deed of Trust. This is time consuming and expensive.
The easiest method would be to record a certified copy of the Wake County instrument in Chatham County showing the cancellation by exhibition and ask the Title insurer to provide affirmative coverage against claims arising from non-satisfaction of the debt. The insurer will most likely comply because NCGS Sec. 47-31 provides that a "duly certified copy of any deed or writing required or allowed to be registered may be registered in any county without further certification pursuant to G.S. 47-14; and the registered or duly certified copy of any deed or writing that has been registered in the county where the land is situate may be given in evidence in any court of the State." The concern that this option raises is that, at some point in the future, title marketability may arise as an issue in a contract dispute and the affirmative coverage will not likely protect the insured from such matters.
The least reliable (maybe even questionable) method would be the use of NCGS Sec. 45-37(6). When the original mortgagors paid off the indebtedness they, technically, became the owners of the note and Deed of Trust. NCGS Sec. 45-37 provides that cancellation may be made by "exhibition to the register of deeds of a certificate of satisfaction of a deed of trust, mortgage, or other instrument that has been acknowledged before an officer authorized to take acknowledgments by the owner of the note, bond, or other evidence of indebtedness secured by the deed of trust or mortgage." The certificate of satisfaction has to be accompanied by the note, if available, with an endorsement of payment and satisfaction by the owner. If it cannot be produced, an affidavit of lost note "signed by the owner of the note, bond, or other evidence of indebtedness, shall be delivered to the register of deeds in lieu of the evidence of indebtedness certifying that the debt has been satisfied and stating: (i) the date of satisfaction; (ii) that the note, bond, or other evidence of indebtedness cannot be found; and (iii) that the person signing the affidavit is the current owner of the note, bond, or other evidence of indebtedness." The statute requires that the "certificate of satisfaction shall be accompanied by the deed of trust, mortgage, or other instrument, or a copy of the instrument, for verification and indexing purposes, which shall not be recorded with the certificate." While a technical analysis of the statute seems to permit the borrower (as owner of the paid note) to cancel, the potential for fraud would normally prevent a subsequent title examiner from relying on such a cancellation. In the example cited here, the certified copy of the canceled Wake County Deed of Trust should be sufficient to satisfy those concerns.
We would like to acknowledge our gratitude to James Kilbourne of Raleigh for providing the fact situation as a suggested topic for this article. We welcome and encourage suggestions from our readers.