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Issue  121  Article  206
Published:  8/1/2005

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New Mortgage Satisfaction Law
Chris Burti, Vice President and Legal Counsel

This important new legislation, signed by the Governor on June 29, 2005, takes effect October 1, 2005 and real property practitioners will need to be aware of its key provisions. The legislation ratified as Senate Bill 734 will make substantial additions and revisions to NCGS Section 45-36.4 et seq. Of great benefit will be provisions requiring mandatory reliable written payoffs, obligatory cancellation by lender and "self-help" satisfactions by NC licensed attorneys. There are new forms and many old ones have been streamlined.

There are many changes to the various sections affected. Many of these are merely technical, making only conforming changes to language that has been updated by the revisions. There are also significant substantive changes that attorneys will need to be familiar with before October. These include amendments to the NCGS Section 47-14 provisions concerning the Registers of Deeds review of documents prior to recording and changes to the NCGS Section 161-14.1 requirements for Registers of Deeds indexing subsequent instruments.

The obligation to cancel instruments satisfied prior to the effective date of the new Act remains unchanged by leaving N.C.G.S. Section 45-36.3 in effect and limiting its application to those instruments. Much of the language in the Act conforms to the Model Act promulgated by the National Conference of Commissioners on Uniform State Laws (NCCUSL). North Carolina will be one of the first jurisdictions adopting the Model Act substantially in its promulgated form.

An entirely new definitional section is introduced by the creation of N.C.G.S. Section 45-36.4. There are no surprises here unless the more cynical among us find clarity and conciseness surprising. It is likely that these definitions will reduce the likelihood of disputes as to the meaning of the new substantive provisions.

N.C.G.S. Section 45-36.5 defines the notification procedural rules. This section clearly acknowledges both the accelerated time constraints of commerce today and the increased efficacy of modern communication technology. It makes specific provision for notification by fax or email if agreed to by the recipient. It also makes specific authorization for overnight delivery services with a corresponding earlier notification date compared to the U. S. Postal Service. The effective time of notification is in some instances significantly shorter than we find in the Rules of Civil Procedure and practitioners should make particular note of them. They are contained in N.C.G.S. Section 45-36.5 (b);

"A notification is effective on any of the following:

(1) The day after it is deposited with a commercially reasonable delivery service for overnight delivery.

(2) Three days after it is deposited with the United States Postal Service, first-class mail with postage prepaid, or with a commercially reasonable delivery service for delivery other than by overnight delivery.

(3) The day it is given, if given pursuant to subdivision (a)(2) of this section (fax or email, ed.).

(4) The day it is received, if given by a method other than as provided in subdivision (a)(1) or (a)(2) of this section."

N.C.G.S. Section 45-36.6 introduces a statutory "document of rescission". This is a codification of a common law remedy for erroneous cancellation that the court in G.E. Capital Mortgage v. Neely, 135 N.C. App. 187, 519 S.E.2d 553, (1999) implicitly approved.

We believe that the new N.C.G.S. Section 45-36.7 will prove to be the real gem in this legislation in the long run. It provides for what is commonly termed a "Reliable Payoff Statement" (RPS). The debtor’s agent (attorney) may directly request the RPS without a great deal of formal proof of agency. 45-36.7(d) requires that the RPS must be issued within 10 days. 45-36.7(h) requires the RPS to be free unless more than one is requested within a six-month period. Under 45-36.7(f) the creditor is not required to send the RPS until any properly charged fee is paid or the fee may be included in the payoff statement pursuant to this subsection.

The creditor is expressly prohibited from limiting the effect of the RPS by Section 45-36.7(g) "unless the payoff statement provides information sufficient to permit the entitled person or the person's authorized agent to request an updated payoff amount at no charge and to obtain that updated payoff amount during the secured creditor's normal business hours on the payoff date or the immediately preceding business day."

All too often an attorney makes a payoff according to the lender’s terms only to find out months later that the lender is asserting that the statement was in error and more money is claimed to be owed. By the time the attorney finds out about the issue, usually after a foreclosure has been instituted or upon inquiry about the uncleared payoff check, thousands of additional dollars are claimed due to accrued interest, late charges and attorney’s fees. The title insurer normally takes responsibility for these matters, but that rarely assuages the concern of the attorney or the anger of the client.

This provision will do much to minimize the risk of these situations occurring in the future because Section 45-36.8 provides that;

(a) If a secured creditor determines that the payoff amount it provided in a payoff statement was understated, the creditor may send a corrected payoff statement. If the entitled person or the person's authorized agent receives and has a reasonable opportunity to act upon a corrected payoff statement before making payment, the corrected statement supersedes an earlier statement.

(b) A secured creditor that sends a payoff statement containing an understated payoff amount may not deny the accuracy of the payoff amount as against any person that reasonably and detrimentally relies upon the understated payoff amount.

(c) This Article does not:

(1) Affect the right of a secured creditor to recover any sum that it did not include in a payoff amount from any person liable for payment of the secured obligation; or

(2) Limit any claim or defense that a person liable for payment of a secured obligation may have under law other than this Article.

N.C.G.S. Section 45-36.9 contains the penalty provisions. Penalties for failure to cancel deeds of trust paid prior to the effective date will remain under the current provisions. While at first glance the penalty may seem essentially the same, in fact, it has been doubled. The old penalty has often been misread as a $1000 penalty, when it actually is $500 for the seller and $500 for the buyer, up to a total $1000. The new Act provides for a $1000 penalty to the landowner. Often the seller was long gone under the old act limiting the penalty recovery to $500. In addition the defaulting creditor is liable for actual damages and reasonable attorney fees. Those attorneys who have been accepting an assignment of the penalty rights will be precluded from that practice by the new Act.

The common law effect of satisfaction has been codified to a limited extent by Section 45-36.10. This section eliminates any hyper-technical objection to any particular form of satisfaction. As long as minimum requirements as to content and execution are met, it must be accepted for recording and will operate as a satisfaction. Section 45-36.11 does provide a form for those who prefer guidance, but it makes it clear that it is not a required form.

"45-36.10. Content and effect of satisfaction.

(a) A document is a satisfaction of a security instrument if it does all of the following:

(1) Identifies the type of security instrument, the original parties to the security instrument, the recording data for the security instrument, and the office in which the security instrument is recorded.

(2) States that the person signing the satisfaction is the secured creditor.

(3) Reserved.

(4) Contains language terminating the effectiveness of the security instrument.

(5) Is signed by the secured creditor and acknowledged as required by law for a conveyance of an interest in real property.

(b) The register of deeds shall accept for recording a satisfaction of a security instrument, unless one of the following applies:

(1) The document is submitted by a method or in a medium not authorized for registration by the register of deeds under applicable law.

(2) The document is not signed by the secured creditor and acknowledged as required by law for a conveyance of an interest in real property. The register of deeds shall not be required to verify or make inquiry concerning (i) the truth of the matters stated in any satisfaction document, or (ii) the authority of the person executing any satisfaction document to do so.

(c) The recording of a satisfaction of a security instrument does not by itself extinguish any liability of a person for payment or performance of the secured obligation."

As noted much of the language in the Act conforms to the Model Act promulgated by NCCUSL. This language incorporates terms of art not commonly used in North Carolina. "Satisfaction Agent" is an example of just such a term. It was considered important to avoid some of the issues that resulted from strained interpretations of the Good Funds Settlement Act. In order to accomplish this objective, Section 45-36.13 limits the eligibility of who may serve as satisfaction agent by requiring that "No person other than an attorney licensed to practice law in the State of North Carolina may serve as a satisfaction agent under this Article."

One of the more controversial provisions among real property practitioners is the Affidavit of Satisfaction, commonly referred to as the ‘self-help’, provisions of N.C.G.S. Section 45-36.14. If the closing attorneys properly do their job, they will get a payoff statement pursuant to the statute. That statement binds the creditor, unless they give effective notice to the contrary prior to closing. If the loan is paid according to the creditor's payoff terms and they fail to timely cancel, the closing attorney is permitted to file an affidavit to that effect after notice. The affidavit has the effect of record satisfaction to third party purchasers for value without actual knowledge of non-payment. Follow the statute and there is absolutely no liability. Other than giving notice of intention to file the satisfaction, there are no additional requirements than those presently existing (note: if there is liability...someone didn't do something they should have done or did something they shouldn't have and would be liable irrespective of the new Act in either case).

45-36.14. Affidavit of satisfaction: notification to secured creditor.

(a) If a secured creditor has not submitted for recording a satisfaction of a security instrument and the security instrument has not been satisfied of record by any of the methods provided by G.S. 45-37(a) within the period specified in G.S. 45-36.9(a), a satisfaction agent acting for and with authority from the landowner may give the secured creditor a notification that the satisfaction agent intends to submit for recording an affidavit of satisfaction of the security instrument. The notification must include all of the following:

(1) The identity and mailing address of the satisfaction agent.

(2) Identification of the security instrument for which a recorded satisfaction is sought, including the names of the original parties to, and the recording data for, the security instrument.

(3) A statement that the satisfaction agent has reasonable grounds to believe that:

a. The person to whom the notification is being given is the secured creditor; and

b. The secured creditor has received full payment or performance of the secured obligation.

(4) A statement that the security instrument has not been satisfied of record.

(5) A statement that the satisfaction agent, acting with the authorization of the owner of the real property described in the security instrument, intends to sign and submit for recording an affidavit of satisfaction of the security instrument unless, within 30 days after the effective date of the notification:

a. The secured creditor submits a satisfaction of the security instrument for recording;

b. The satisfaction agent receives from the secured creditor a notification stating that the secured obligation remains unsatisfied;

c. The satisfaction agent receives from the secured creditor a notification stating that the secured creditor has assigned the security instrument and identifying the name and address of the assignee; or

d. The security instrument is satisfied of record by any of the methods provided in G.S. 45-37(a).

(b) A notification under subsection (a) of this section must be sent by a method authorized by G.S. 45-36.5 that provides proof of receipt to the secured creditor's address for giving a notification for the purpose of requesting a payoff statement or, if the satisfaction agent cannot ascertain that address, to the secured creditor's address for notification for any other purpose.

(c) This Article does not require a person to agree to serve as a satisfaction agent.

§ 45-36.15. Affidavit of satisfaction: authorization to submit for recording.

(a) Subject to subsections (b) and (c) of this section, a satisfaction agent may sign and submit for recording an affidavit of satisfaction of a security instrument complying with G.S. 45-36.16 if:

(1) The secured creditor has not, to the knowledge of the satisfaction agent, submitted for recording a satisfaction of a security instrument or otherwise caused the security instrument to be satisfied of record pursuant to any of the methods provided in G.S. 45-37(a) within 30 days after the effective date of a notification complying with G.S. 45-36.14(a); or

(2) The secured creditor authorizes the satisfaction agent to do so.

(b) A satisfaction agent may not sign and submit for recording an affidavit of satisfaction of a security instrument if it has received a notification under G.S. 45-36.14(a)(5)b. stating that the secured obligation remains unsatisfied.

(c) If a satisfaction agent receives a notification under G.S. 45-36.14(a)(5)c. stating that the security instrument has been assigned, the satisfaction agent may not submit for recording an affidavit of satisfaction of the security instrument without:

(1) Giving a notification of intent to submit for recording an affidavit of satisfaction to the identified assignee at the identified address; and

(2) Complying with G.S. 45-36.14 with respect to the identified assignee.

Liability is directly addressed in N.C.G.S. Section 45-36.19. Subsection (a) provides that:

"Except as otherwise provided in subsection (b) of this section, a satisfaction agent or any person purporting to be a satisfaction agent that records or submits for recording an affidavit of satisfaction of a security instrument erroneously or with knowledge that the statements contained in the affidavit are false is liable to the secured creditor for any actual damages caused by the recording and reasonable attorneys' fees and costs."

Subsection (b) is one of the most significant provisions required to make this new self-help feature work.

"A satisfaction agent that records or submits for recording an affidavit of satisfaction of a security instrument erroneously is not liable if the agent properly complied with this Article and the secured creditor did not respond in a timely manner to the notification pursuant to G.S. 45-36.14(a)(5)."

For those who don't like the idea of "assuming the lender's responsibilities" it should be observed that filing the affidavit of satisfaction due to the delinquency of the lender does NOT preclude a suit for penalty, damages and attorneys fees.

The conforming changes are voluminous and space does not permit a detailed discussion of the changes. In large part these changes are not substantive but, they do make changes in forms and procedures so it will be incumbent upon practitioners to familiarize themselves with these changes. As an illustration, requirements for marginal notations and for entering satisfactions on the index have been repealed, and there is now clear authority for re-recording any previously recorded instrument for any purpose which is the way that the record will reflect these actions in the future. See the amendments to N.C.G.S. Section 47-14 and N.C.G.S. Section 161-14.1.


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