North Carolina Provides Alternative Procedure for Satisfaction of Security Interest
by: Louis Danastorg
Recently North Carolina’s General Assembly introduced and ratified an alternate procedure for satisfaction of security interests-effective July 1, 2013. The revisions provide for the use of a satisfaction agent, who would be authorized to record an affidavit of satisfaction when he or she had reasonable belief the secured obligation had been paid or performed. The reasonable belief must be accompanied by one or more circumstances provided in Section 2.3, which will act as express or implied authorization for the satisfaction agent to enter the affidavit. The revisions also reduce the burden on the Registry of Deeds to verify the statements, seals, and signatures on security instruments, allowing registers to rely on the information provided, to make satisfaction determinations.
House Bill 322, Part 2: Satisfaction of a Security Interest
Section 2.1: Second Creditor to Submit Satisfaction or Release for Recording; Liability
Secured creditors required to submit satisfaction or release of a security instrument that fail to timely do so will be liable to the landowner for any damages arising out of the failure, but not punitive damages. Such secured creditors will also be liable for $1,000 and reasonable attorney fees and court costs if:
- Landowner provides secured creditor a notice containing proof of receipt and demand to submit the satisfaction or release.
- The secured creditor does not respond or act within 30 days of receiving notice.
- The security instrument is not satisfied or released within 30 days.
Section 2.2: Affidavit of Satisfaction: Notice to Secured Creditor
A satisfaction agent does not have to give notice if:
- Secured creditor has authorized agent to sign and submit affidavit.
- Satisfaction agent possess instruments described in G.S. 45-36.15(a)(3), (a)(4), and (a)(5).
- Satisfaction agent is unable to identify secured creditor after diligent inquiry.
Section 2.3: Affidavit of Satisfaction: Authorization to Submit for Recording
A satisfaction agent may sign and submit an affidavit having a reasonable belief that the secured creditor has been fully paid or the secured obligation was performed, and one or more of the following:
- Secured party has not submitted satisfaction or release within 30 days of notification.
- Secured party authorizes satisfaction agent to sign and submit affidavit.
- Satisfaction agent possesses the original security instrument showing an endorsement of payment and satisfaction made by: the secured creditor, trustee, an assignee of the creditor, or North Carolina based bank or other financial institution.
- Satisfaction agent possesses original security instrument and original bond or note. The agent may only need the original security instrument if it establishes the obligation secured and does not refer to any note or bond. All such instruments must be at least 10 years old beginning from the maturity date of the last secured obligation or the date of the most recent endorsement.
- Satisfaction agent possesses original security instrument given to secure the bearer of any negotiable instruments only transferable by delivery. All evidence of indebtedness must accompany these instruments, as well as, a signed indication that the obligation was paid and satisfied in full.
- Satisfaction agent cannot identify secured creditor despite diligent inquiry.
Unless the satisfaction agent possesses the instruments described in the Section 2.3 amendments above or unable to identify the secured creditor, the agent may not submit an affidavit of satisfaction when the security instrument has been assigned. In order to sign and submit the affidavit under such circumstances, the agent must notify the assignee and comply with G.S. 46-36.14 [Section 2.4].
Section 2.4: Affidavit of Satisfaction: Content
An affidavit of satisfaction must be signed and acknowledged, sworn to or affirmed, and must state one or more of the statements from the list found in Section 2.3 with respects to the person signing the affidavit. Copies of any of these required statements may be attached and recorded with the affidavit.
Section 2.5: Affidavit of Satisfaction: Form
Here the General Assembly provides a revised example of a compliant affidavit of satisfaction. The end of the document contains the list of statements from Section 2.3 and 2.4, allowing the signer or satisfaction agent to simply check off the statement(s) that best describe his or her reasonable belief supporting signing and submitting an affidavit.
Section 2.6: Affidavit of Satisfaction: Effect
The Registry of Deeds may not refuse to accept an affidavit unless it is not signed by the satisfaction agent and acknowledged, sworn to or affirmed. The register is not required to verify the truth of the matters asserted or the signatory’s authority to execute the affidavit.
Section 2.7: Liability of Satisfaction Agent
Satisfaction agents are not liable if compliant with this Article, gave proper notice to the secured creditor, and the secured creditor failed to respond within the time period (30 days from notification).
Section 2.8: Expiration of Lien of Security Interest
Security instruments first recorded on or after October 1, 2011. If the maturity date of the secured obligation is not stated in the security instrument, the lien will automatically expire after the instrument’s record date.
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 earned his Juris Doctor and Masters of Business Administration from 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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