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Issue  21  Article  49
Published:  4/1/1997

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G.S. 45-38 and "Notice of Foreclosure"
Ed Urban, Vice President and Corporate Counsel

G.S. 45-38 requires the recording of a "notice of foreclosure." The trustee in a deed of trust or the trustee’s attorney must do so. The notice can consist of a separate instrument, or that part of the original deed of trust re-recorded, showing the information required by the statute. What happens if the notice is not recorded? It is helpful to analyze the problem chronologically.

First, the deed of trust must be properly recorded, which includes proper indexing. G.S. 47-20. A deed of trust is indexed in the names of the grantor and trustee only; it need not be indexed in the name of the lender-beneficiary. G.S. 161-22(d). This is an exception to the general rule that indexing under the names of all parties is required under G.S. 161-22(a).

Second, foreclosure under power of sale results in a deed to the foreclosure purchaser from the trustee. This deed will be indexed under the name of the trustee (or substitute trustee) in the grantor index and under the name of the grantee in the grantee index. G.S. 161-22.1. So, up to this point, the chain of title would be complete and properly indexed of record. The notice of foreclosure must be indexed in the names of the parties to the original deed of trust. G.S. 161-14.1. One authority states that this means that the notice is indexed in the grantor’s index under the name of the grantor of the deed of trust and in the grantee’s index in the name of the trustee. W. Campbell, North Carolina Guidebook For Register of Deeds, p. 82 (Instit. of Gov’t., Seventh Ed. 1994). (This excellent book can be ordered by calling (919) 966-5381. Fax number (919) 962-0654.)

So, for priority purposes, if the deed of trust and trustee’s deed are properly indexed, it would seem that failure to record and index a notice of foreclosure should not cause a priority problem. However, that leaves the question: what is the effect of failure to record such a notice? While the answer is uncertain, it seems doubtful that the foreclosure sale would be invalidated. If there was a time gap between the foreclosure and the recording of the trustee’s deed one could argue that a title examiner would be entitled to rely on any apparent extinguishment of a deed of trust under any applicable statute of limitations absent a recorded notice of foreclosure and trustee’s deed. Other harmful results under priority rules are difficult to imagine, however. Perhaps G.S. 45-38 should be clarified. In any event, G.S. 45-38 should be complied with, due to the uncertainty. We have given coverage over failure to comply with G.S. 45-38 in certain cases.

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