The process of re-recording instruments in real property transactions engenders far more questions and debate than one would expect. This article is an attempt to discuss some of the more common issues and provide references for the cases that have shaped the requirements for properly re-recording with assurance of avoiding title defects.
NCGS 47-36.1 is probably one of the most indispensable statutes available to correct relatively minor problems when the original instrument is readily available. This statute provides that an obvious typographical error may be corrected on the instrument, initialed by the signatories or the drafting attorney and re-recorded with an explanation attached that has been signed by the party making the correction. Re-execution and re-acknowledgement of the conveyance are not required. The statute does not give any guidance as to what constitutes an "obvious" error. However, Green v. Crane, 96 N.C.App. 464 (1990) tells us that an omitted tract in a description is not within the purview of the statute. We can infer from this case that an error should be obvious on its face or, at the very least, should not change the obligations of the grantor or the rights of the grantee in order to be a valid correction. It is important to note that the statute states that "Notice of the correction made pursuant to this section shall be effective from the time the instrument is rerecorded." Since our Recording Act is a notice statute, it seems apparent that re-recording under this provision does not relate back to the original recording as it affects third parties. The following case differs in result.
One common recording issue results from the failure to attach an exhibit containing a description when recording. In Masonry v. Vision Contractors of Charlotte, Inc., 103 N.C. App. 597, (1991), a lender made a development loan to a contractor for property in Charlotte. The lender accepted a deed of trust from the contractor encumbering the property as security for the loan. However, when the lender recorded the deed of trust, it failed to record a legal description of the property. The developer defaulted on its payments to the lender and to contractors who provided materials and services. Three contractors obtained liens on the property. After the contractors' liens attached, the lender re-recorded the deed of trust with the legal description of the property included. This was an appeal of a judgment in an action to establish the priority of the liens. The Court of Appeals affirmed the trial court’s holding that the re-recording of the deed of trust related back to the original recording date, making the lien of the deed of trust senior to the liens of the contractors.
It is not unlikely that the lender used NCGS 47-36.1 to re-record the deed of trust. Since the issue was not raised, we can not be certain whether such is the case. If it had been, we believe that the holding in Green would likely have changed the outcome of this appeal. First, the statute seems to say that there is no relation back as noted above. Clearly, if relation back is a concern, one should re-execute and re-acknowledge before re-recording as discussed below. Second, with an omitted description, it is obvious that an error has occurred, but it is not necessarily obvious as to what property the grantor intended to convey. If the grantor only owned one parcel, not suitable for subdivision, or in the case of a purchase money deed of trust, the application of Green becomes dubious since there is little doubt as to identity of the property involved. Unfortunately, that information is not apparent on the instrument itself and therefore the error is, arguably, not obvious. In addition, if the exhibit was in fact attached at the time of execution and delivery, the cases discussed below would lead one to the conclusion that a recording error was at issue instead of a typographical error.
NCGS 47-108.20 is a curative statute that provides validity to deeds corrected prior to the adoption of NCGS 47-36.1. If they were recorded prior to June 30, 1986, and were not re-executed and re-acknowledged they are validated. The statute contains similar limitations as set out in NCGS 47-36.1.
Traditional wisdom is that absent proper use of NCGS 47-36.1, a corrected instrument should be re-executed and re-acknowledged before re-recording. Before delivery, the grantor retains full power and control of the instrument and may choose to make any alterations in the instrument desired. It does not become the deed of the grantor until delivered as determined in Wetherington v. Williams, 134 N.C. 276, 46 S.E. 728. The case of Krechel v. Mercer, 262 N.C. 243, 136 S.E. 2d 608 holds that after delivery, a deed may be changed with the consent of the parties and may then be redelivered. In such cases the new delivery constitutes a re-execution. But, the burden is on those claiming under the altered deed to prove that the changes were made with the knowledge and consent of the grantor.
This begs the question of whether such an agreement in fact existed in the case of an instrument bearing changes that are not initialed or re-signed. "A deed must always be consummated by delivery, which is the final act of execution, and this delivery must be either actually or constructively made by the grantor to the grantee." Perry v. Hackney, 142 N.C. 368, 55 S.E. 289. Recording creates a rebuttable presumption of delivery. Perry tells us that without re-execution, however accomplished, transfer of title cannot be accomplished by substituting material terms such as the name of another person for that of the grantee who was designated in the deed (or a different parcel of land). "The registration of deeds is primarily for the protection of purchasers for value and creditors; an unregistered deed is good as between the parties and the fact that it is not registered does not affect the equities between the parties." Bowden v. Bowden, 264 N.C. 296, 141 S.E. 2d 621. Bowden tells us that even after recording "[t]he ultimate inquiry is not what the records show, but what the terms of the original deed…" were between the parties.
This doctrine of re-execution appears to be limited by the holding in Respass v. Jones, 102 N.C. 5, 8 S.E. 770, that, so far as it affects them, a deed may be changed in any way that may be agreed by the parties. The case holds that the agreement to change the instrument must be made prior to registration. To the extent that it affects third parties, recordation will obviously curtail the right to make changes. What is not clear is whether this case limits the right to make corrections. Clearly, Masonry permits corrections even where the rights of third parties are affected.
Therefore, with a Krechel style of re-execution there is a question of the proof of the agreement of the change necessary to support the conveyance. Actual re-execution is considered the better practice. It would seem safe to operate under the premise that an initialing of the correction also operates as a re-execution as well as proof of agreement and should support a re-acknowledgement.
Another common re-recording issue comes from undue reliance upon the doctrine of estoppel by deed. Schuman V. Baker and Assoc., 70 N.C. App. 313, (1984), involved a case where the debtor did not acquire title and register its deed until one month after the execution of its deed of trust to the plaintiff lender. The Court of Appeals held that a deed of trust to a bank registered after the debtor acquired title had priority over plaintiff lenders' deed of trust under G.S. 47-20. Actual notice by the bank of plaintiffs' prior deed of trust did not operate to defeat the bank's statutory priority under the doctrine of estoppel by deed. This case makes it clear that re-recording is required in order to establish a proper chain of title and to receive the protection of the Recording Act.
In conclusion, re-recording should not be lightly undertaken without due regard for the effect the various forms will have on the title.