North Carolina Adds Provisions Regarding Marital Property & Counsel Fees
by: Louis Danastorg
October 1, 2013, North Carolina’s amended definition of marital property to include entireties property will come into effect. The General Assembly added to the definition that all real property creating a tenancy by the entirety acquired after the date of marriage and before separation will be considered marital property.
A tenancy by the entirety provides spouses a legal mechanism to hold property as a single entity, providing protection from creditors and a right of survivorship. In a tenancy by the entirety judgment liens against one spouse could not attach to the property interest of the other, only judgments against both spouses. North Carolina’s amendment now treats tenancies by the entirety as community property, subjecting the property to judgment liens against either spouse and the same burden of proof in rebutting the presumption as all property classified as real property. Creditors can now seek judgment liens against property held by the entirety, as the amended definition allows judgments against one spouse to attach the other’s property interest.
Typically in a tenancy by the entirety neither spouse can sell the property without the other’s consent. Under this new definition of marital property, either spouse may sell or attach tenancy by the entirety property, to which each has an equal interest as opposed to holding the same indivisible interest. Either spouse will now have the power to attach or sell the other’s interest in the property, as it will be presumed jointly held. Treating the subject property as jointly owned with an equitable distribution standard weakens the practicality and applicability of tenancy by the entirety doctrine, turning each spouse’s 100% single interest as a tenancy by the entirety into two individual 50% shares.
North Carolina also amended its definition of divisible property to consider fluctuations in marital debt as passive increases or decreases in marital debt under the laws of equitable distribution. Prior to the amendment, the definition of divisible property included increases and decreases to marital debt, with no regard as to their extent or degree. On October 1st the definition will only include passive increases or passive decreases to marital debt incurred during the period between separation and distribution. This protects spouses from post separation actions devaluing the property, or protects newly created value generated as a result of one spouse’s beneficial post separation actions.
[G.S. 45-21.31 a1]
Recently, North Carolina’s General Assembly added provisions authorizing the superior court clerk to assess the reasonableness of counsel fees when an attorney serves as trustee in a power of sale foreclosure proceeding. The new provisions specify that the superior court clerk may exercise discretion to allow reasonable counsel fees (in addition to the compensation allowed to the attorney as a trustee) where the attorney renders professional services, which must be different from those typically performed by a trustee and would reasonably justify the retention of legal counsel. Counsel fees will be presumed reasonable if in compliance with [G.S. 6-21.2.1 and .2], which places a 15% of the outstanding balance on the note limit on fees attached to promissory notes and other forms of indebtedness.
These additions allow attorneys acting as trustee in a power of sale foreclosure proceeding to collect counsel fees for performing duties outside the scope of trusteeship. Typically the trustee to a power of sale foreclosure, as fiduciary to both lender and borrower, exercises its authority to sell the subject property at auction when default has occurred. The auction is scheduled after providing adequate time for the borrower to respond, dispute lender’s claims, or make a loan current. The trustee can then file a notice of foreclosure hearing, where the trustee presents evidence of default and petitions the clerk to sell the property. Once the trustee puts the public on notice of default, he or she may schedule an auction and depose of the property to third parties or the bank.
The superior court clerk will have sole discretion to determine whether an attorney performed duties beyond the scope of a typical trustee. Routine trustee duties (notifying parties, presenting the evidence of default to the clerk, scheduling and auctioning the property) that would not justify retaining legal counsel will not be enforceable. However, legal services such as title and deed searches, loan document review, or serving as counsel to an appeal of the superior court clerk’s judgment may justify compensation for providing legal services. The question will be whether services performed were those typically requiring a licensed attorney. The level of discretion will depend largely on the clerk in office.
About the Author:
Louis Danastorg, J.D., M.B.A. is Associate Counsel and Compliance Specialist at Bankers Advisory, Inc. He is a graduate of Vanderbilt University and received his Juris Doctor and Masters of Business Administration at Suffolk University. He can be reached at louis@bankersadvisory.com
Anna DeSimone founded Bankers Advisory in 1986 and is a nationally recognized authority in residential mortgage lending. She has received numerous industry awards and has authored more than 40 best practices guides and hundreds of articles.
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