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Issue  168  Article  288
Published:  7/1/2009

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Dirt Tales From the Deed Vault - Episode 27
John Dillard, Vice President and Legal Counsel

This month's edition of Dirt Tales continues the saga of issues created by improper cancelation of deeds of trust.

James T. Kirk was relating to his good friend from the Navy, Lt. Spock, the woes he experienced in trying to develop a piece of investment property.  Spock wasn't to be outdone and had a tale he wanted to share about his venture into buying investment property.  Spock had purchased a duplex that he intended to use as rental property.  There was an existing mortgage on the duplex but it had been sold and assumed several times and then wrapped around a few more times such that his attorney couldn't figure out who really owned the debt.  Percentages of the note had been sold to various parties and some of it had been packaged and sold with other debts overseas.  It was a mess and Spock wasn't going to get clear title to his property if he couldn't identify and locate all the parties who held a piece of the mortgage.

One day while he was listening to the radio Spock heard an ad about debt elimination from the esteemed Vulcan Institute of Financial Independence.  He called the toll free number and enrolled in the program.  Although it cost him $10,000 to hire the services of one of their experts he now held in his hand a Satisfaction of Mortgage certificate.  The duplex was his debt free.  He went to the bank and applied for and got a new loan on the duplex.  With the money he borrowed he bought another piece of rental property.  Look out Carlton Sheets there's a new real estate mogul in town Spock liked to say.

Spock was buying property, getting new loans and buying more property building himself a nice stream of rental income.  About six months after he bought the first duplex a notice of foreclosure was posted on the property.  Spock took the papers to an attorney who informed him that the existing mortgage had not been properly satisfied.  It seems that the Vulcan Institute had sent some kind of notice to the original mortgage holder advising them that unless they responded and objected in a certain period of time Vulcan would be deemed to become their agent for purposes of managing the mortgage instrument.  When the original mortgage holder failed to respond Vulcan assumed agency and drafted and filed an instrument purportedly canceling the deed of trust.

The bank that Spock got the loan on the first duplex would like to know what they could have done to have avoided being placed in a second lien position.  Their attorney should have carefully examined all the instruments of record affecting the duplex.  Obviously the deed of trust cancelation did not come from the party to whom the mortgage had been given and that should have raised a concern.  Of course, that is often the case with the assignee canceling an instrument they have purchased and this raises a concern for the practitioner because on its face in a title examination this would look like any other refinance where one mortgage was replacing another and an assignee of the original mortgage would be filing the satisfaction of debt.  Please see Household Realty Corporation v. Lambeth 656 S.E.2d 336 (NC 2008) for a case with similar facts.

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