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Issue  145  Article  241
Published:  8/1/2007

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New Legislation 2007
Chris Burti, Vice President and Legal Counsel

House Bill 1708 - "Subject to" Real Estate Transactions

Chapter 75 of the General Statutes is amended by adding a new Article 6. This legislation is intended to curtail schemes designed to acquire distressed residential properties by transfers attempting to evade due on sale clauses of existing mortgages with promises to bring and keep the mortgage current while finding a buyer. These are often associated with advertising that claims to "take over payments", "buy your house," or use other language which implies that the person will pay the mortgage, and then enter into a real estate transaction for the purchase of the home yet the person is not obligated to pay or to extinguish the mortgage or deed of trust.

Violation brings the activity under the sanctions of Chapter 75. Unless acting as, or on behalf of a principal, attorneys are not covered by the requirements when performing services at closing. This act becomes effective October 1, 2007, and applies to contracts for covered transactions entered into on or after that date.

House Bill 1549 – Property Subject To Execution

This Bill makes it clear that encumbered property is subject to execution and sale by Sherriff’s sale. In effect, the equity of redemption is being sold in the case of property encumbered with a mortgage. This act is effective October 1, 2007.

G.S. 1-313(1) (b) reads as rewritten:

“Real or personal property required to satisfy the judgment is subject to execution regardless of whether the property is encumbered. However, any personal or real property sold under execution remains subject to all prior encumbrances, including liens, mortgages, deeds of trust, perfected security interests, and prior judgments which became effective prior to the lien of the judgment pursuant to which the execution sale is held, in the same manner and to the same extent as if no such sale had been held."

House Bill 313 - Identify Loan Originator 

As originally proposed this legislation would have significantly increased the burdens of closing attorneys in this state. As adopted it still requires the attorney to list any known mortgage broker involved in the transaction. The attorney is not required to do any due diligence in discovering any such involvement. This act became effective July 5, 2007 and applies to deeds of trust registered on or after July 1, 2008.

Specifically, the new 45A-4(b) provides:

“If the settlement agent receives information from the lender as provided in G.S. 45A-5(b) or otherwise has actual knowledge that a mortgage broker or other person acted as a mortgage broker in the origination of the loan, the settlement agent shall place an entry on page 1 of the deed of trust showing the name of the mortgage broker or other person who acted as a mortgage broker in the origination of the loan. Information pertaining to the identity of the mortgage broker or other person who acted as a mortgage broker in the origination of the loan shall not be considered confidential information. The terms "mortgage broker" and "act as a mortgage broker" shall have the same meaning as provided in G.S. 53-243.01.”

And 45A-5(b) provides:

“The lender shall include in the loan closing instructions to the settlement agent the name of the mortgage broker or other person, if any, who acted as a mortgage broker in the origination of the loan.”

House Bill 817, Residential Mortgage Fraud Act.

The North Carolina General Assembly enacted this consumer protection legislation which becomes effective December 1, 2007, and applies to offenses committed on or after that date. It creates a new Article 20A in Chapter 14 of the North Carolina General Statutes.  Mortgage fraud has no doubt been around as long as there have been underwriting guidelines for lending institutions, but it has become increasingly prevalent during the last few years.  The sub-prime lending market that targets economically disadvantaged mortgage applicants as well as minorities has had explosive growth.  The Mortgage Lending Act of 2001 reduced a significant number of abuses through its licensure requirements for mortgage brokers, lenders and loan officers, but it did not deal with purely fraudulent activity.  Added to the mix are unscrupulous builders looking to take advantage of the population boom in North Carolina, relatively low interest rates, and the ever-increasing ease in which identity thieves operate. According to the Financial Crimes Enforcement Network, North Carolina ranks 9th in the nation in the number of reported mortgage fraud cases, with 2,500 new reports each year. Most mortgage fraud investigations have involved significant numbers of complaints against a single group of persons or entities.

The legislation codifies residential mortgage fraud as a crime in North Carolina. The elements of the crime are knowingly:

(1)     Making, attempting to make any material misstatements, misrepresentations, or omissions in the lending process intending for anyone involved in the process to rely on it.

(2)       Using, facilitating or attempting to use or facilitate the use of any such misstatement, misrepresentation, or omission in the lending process intending for anyone involved in the process to rely on it.

 (3)       Receiving or attempting to receive proceeds / funds resulting from a violation of the Act.

(4)       Conspiring or soliciting another to violate the Act.

Prosecution under this Article for residential mortgage fraud only requires a showing that the party accused did the act with the intent to deceive or defraud, not that anyone was harmed or believed the fraud.   It also presumes damages rather than requiring proof of actual monetary loss, and permits the court to order restitution to the injured party in addition to the possible forfeiture of property used in the course of or derived from the fraud.  

District attorneys may institute criminal proceedings under this Act predicated upon their own investigations or referrals from the Commissioner of Banks, the North Carolina Real Estate Commission, the Attorney General, the North Carolina Appraisal Board, or other parties.

A single violation will be a Class H felony. A pattern of residential mortgage fraud that “involves five or more mortgage loans, which have the same or similar intents, results, accomplices, victims, or methods of commission or otherwise are interrelated by distinguishing characteristics” is a Class E felony.

House Bill 1384, Rule Against Perpetuities “Repealed”

The General Assembly repealed Article 2 of Chapter 41 of the General Statutes and added a new Article 2A.

"Article 2A.

"Perpetuities and Suspension of Power of Alienation.

"§  41‑23.  Perpetuities and suspension of power of alienation.

(a)       A trust is void if it suspends the power of alienation of trust property, as that term is defined in G.S. 36C‑1‑103, for longer than the permissible period. The permissible period is no later than 21 years after the death of an individual then alive or lives then in being plus a period of 21 years.

(b)       If the settlor of a revocable trust, as those terms are defined in G.S. 36C‑1‑103, has an unlimited power to revoke or amend the trust, the permissible period under subsection (a) of this section is computed from the termination of that power.

(c)       If a trust is created by exercise of a power of appointment, the permissible period under subsection (a) of this section is computed from the time the power is exercised if the power is a general power even if the power is only exercisable as a testamentary power. In the case of other powers, the permissible period is computed from the time the power is created, but facts at the time the power is exercised shall be considered in determining whether the power of alienation is suspended beyond a life or lives in being at the time of the creation of the power plus 21 years.

(d)       The power of alienation is suspended only when there are no persons in being who, alone or in combination with others, can convey an absolute fee in possession of land, or full ownership of personal property.

(e)       Notwithstanding subsection (a) of this section, there is no suspension of the power of alienability by a trust or by equitable interests under a trust if the trustee has the power to sell, either expressed or implied, or if there exists an unlimited power to terminate the trust in one or more persons in being.

(f)        This section does not apply to a transfer in trust (i) for charitable purposes, as defined in G.S. 36C‑4‑405; (ii) to a literary or charitable organization; (iii) to a veterans' memorial organization; (iv) to a cemetery corporation, society, or association; or (v) as part of a pension, retirement, insurance, savings, stock bonus, profit sharing, death, disability, or similar plan established by an employer for the benefit of some or all of its employees for the purpose of accumulating and distributing to such employees the earnings or the principal, or both earnings and principal, of the trust.

(g)       This section does not apply to a future interest other than a future interest in trust and, other than as set forth in this section, this section does not modify the common law of the State regarding the power of alienation in this State.

(h)       The common law rule against perpetuities is not in force in this State."

SECTION 3.  This act becomes effective January 1, 2008, and applies to all trusts and other property interests created before, on, or after that date.

There is pending legislation that will make this provision applicable only to trusts created and administered in North Carolina.

Senate Bill 947, Trust Code Changes

There are numerous provisions effecting changes in the trust code in this Act. Since trusts are having an ever increasing impact on real property, staying abreast of the changes is becoming more and more imperative…particularly for practitioners who do not prepare trust instruments. We discuss some of the provisions most likely to affect real property transactions and include the full text for reference purposes.

Of prime significance to property professionals may be the new provision added to Chapter 39 of the general Statutes. This provision creates a rule of construction that eliminates the problem in North Carolina created by attempting to convey property to a trust rather than the trustee.

§ 39‑6.7.  Construction of conveyances to or by trusts.

(a)       A deed, will, beneficiary designation, or other instrument that purports to convey, devise, or otherwise transfer any ownership or security interest in real or personal property to a trust shall be deemed to be a transfer to the trustee or trustees of that trust.

(b)       A deed or other instrument which purports to convey or otherwise transfer any ownership or security interest in real or personal property by a trust shall be deemed to be a transfer by the trustee or trustees of that trust. This rule of construction shall apply:

(1)       Regardless of whether the instrument is signed by the trustee or trustees as such, or by the trustee or trustees purportedly for or on behalf of the trust; and

(2)       Regardless of whether the instrument by which the trustee or trustees acquired title transferred that title to the trustee or trustees as such, or purportedly to the trust.

(c)       A deed or other instrument by which the trustee or trustees of a trust convey or otherwise transfer any ownership or security interest in real or personal property shall be deemed sufficient:

(1)       Regardless of whether the instrument is signed by the trustee or trustees as such, or by the trustee or trustees purportedly for or on behalf of the trust; and

(2)       Regardless of whether the instrument by which the trustee or trustees acquired title transferred that title to the trustee or trustees as such, or purportedly to the trust.

(d)       The trustee or trustees of a trust may convey or otherwise transfer any ownership or security interest in real or personal property as trustee or trustees even though the deed or instrument by which the trustee or trustees acquired title purported to convey or transfer that title to the trust.

(e)       Nothing in this section shall be construed to limit the manner in which title to real or personal property may be conveyed or transferred to or by trustees."

Chapter 36C of the General Statutes is amended by adding a corresponding new section to read:

"§ 36C‑11‑1104.   Trustee signatures.

The signature of a trustee of a trust who signs a document for or on behalf of the trust shall be deemed to be the signature of the trustee as such. A document which identifies a trust shall be deemed to include the trustee or the trustees as such."

New provisions are added for determining the class of beneficiaries whose consent is required to modify or terminate a trust.  Under this section, the presumption of fertility is now rebuttable.   If the trust instrument provides for the disposition of property to a class of persons described only as "heirs" or "next of kin", the court may limit the class of beneficiaries whose consent is needed to order the modification or termination to the beneficiaries who are reasonably likely to take.

A new section 36C‑6‑602.1 has been added clarifying the power of an agent or guardian to exercise the settlor's powers with respect to revocable trust. A general guardian or a guardian of the estate of the settlor may exercise the powers of the settlor with respect to a revocable trust as provided in G.S. 35A‑1251(24). An attorney in fact may exercise any of the following powers of a settlor of a revocable trust to the extent expressly authorized by the terms of the trust or the power of attorney as long as the act does not alter the designation of beneficiaries to receive property on the settlor's death under that settlor's existing estate plan:

(1)       Revocation of the trust.

(2)       Amendment of the trust.

(3)       Additions to the trust.

(4)       Direction to dispose of property of the trust.

(5)       The creation of the trust, notwithstanding G.S. 36C‑4‑402(a)(1) and (2).

Section 36C‑6‑605 provides for the failure of the disposition of property of a trust by lapse or otherwise by creating anti–lapse provisions.

Section 36C‑6‑606 provides for the revocation of provisions in revocable trust by divorce or annulment trust in favor of the settlor's former spouse.

This act is effective October 1, 2007, and applies to

a.)     all trusts created, and to all conveyances, devises, beneficiary designations, or other transfers occurring before, on, or after that date;      

b.)     all judicial proceedings concerning trusts or transfers to or by trusts commenced on or after that date; and

c.)     all judicial proceedings concerning trusts or transfers to or by trusts commenced before that date unless the court finds that application of a particular provision of this act would substantially interfere with the effective conduct of the judicial proceedings or prejudice the rights of the parties, in which case the law as it existed on September 30, 2007, shall apply.


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