Register of Deeds; Mortgages and Deeds of Trust – Cancellation

Subject:

Register of Deeds; Mortgages and Deeds of Trust – Cancellation

Requested By:

Howard P. Neumann Assistant County Attorney Washington County

Questions:

(1)

The beneficiary of a deed of trust marks both the note and deed of trust as satisfied and paid in full. Upon presenting these to the Register of Deeds, is the beneficiary entitled to have the deed of trust cancelled of record?

(2)

A note and deed of trust are given to secure an obligation. The payee on the note and the beneficiary of the deed of trust are the same party. The payee endorses the note to a third party but no physical assignment of the deed of trust is made. The third party marks the note satisfied and paid in full, and the beneficiary marks the deed of trust satisfied and paid in full. May the Register of Deeds cancel the deed of Trust of record?

Conclusion:

(1)

No.

(2)

No.

The discharge of record of mortgages, deeds of trust and other instruments is governed by G.S. 45-37. That statute sets out several methods of discharge. However, there must be strict compliance with the statute, regardless of the particular method chosen. Mills v. Kemp, 196 N.C. 309, 145 S.E. 557 (1928).

Cancellation under the facts presented is governed by G.S. 45-37(2). The deed of trust, mortgage or other instrument along with the bond, note or other instrument thereby secured must be exhibited to the Register of Deeds, with the endorsement of payment and satisfaction by

(a)

the obligee

(b)

The mortgagee

(c)

The trustee

(d)

An assignee of the obligee, mortgagee, or trustee or

(e)

Any chartered banking institution, national or state, or credit union, qualified to do business in and having an office in the State of North Carolina, where so endorsed in the name of the

institution by an officer thereof.

Cancellation is not authorized by anyone other than those parties listed in the statute. Faircloth v. Johnson, 189 N.C. 429, 127 S.E. 346 (1925). Thus the underlying question must be whether a beneficiary of a deed of trust is one of the parties listed in the statute – either expressly or by construction.

"In construing a statute it will be presumed that the legislature comprehended the import of the words employed by it to express its intent. Accordingly, technical terms must ordinarily be given their technical connotation." 12 Strong’s N.C. Index 3rd, Statutes 5.11 (1978).

At the outset, there is no indication in the question that the beneficiary of the deed of trust is a bank or an assignee of the obligee, mortgagee or trustee.

The term "obligee" refers to a person in favor of whom some obligation is contracted, but when used in its technical sense includes only payees of notes, bonds, etc., and not to mortgage parties. BLACK’s LAW DICT. 1226 (Rev. 4th ed. 1968).

Technically the beneficiary in a deed of trust is also not a mortgagee, but a cestui que trust. Osborne, Mortgages, § 17(2nd ed. 1970).

There are three parties to a deed of trust – the grantor or trustor, the trustee and the cestui que trust (beneficiary). There are only two parties to a mortgage, the mortgagor and the mortgagee.

The Courts clearly recognize a difference between the true mortgage and a deed of trust as evidenced by the following statement,

Upon the execution of a mortgage or deed of trust on real estate, legal title to the land vests in the mortgagee or trustee, as the case may be. Simms v. Hawkins, 1 N.C. App. 168, 160 S.E.2d 514 (1968). (Emphasis added).

Unlike the trustee or mortgagee, the beneficiary does not hold legal title. Webster, Real Estate Law in North Carolina, § 228-230 (1970). Thus, the beneficiary in a deed of trust is not synonymous with a mortgagee.

Finally, although it is theoretically possible for the beneficiary and trustee to be the same person, there is no indication of that here and, indeed, it would be highly unlikely in the typical deed of trust case.

In the opinion of this Office there is no authority for cancellation of record of the deed of trust upon endorsement of satisfaction by the beneficiary thereof. See, also, Mills v. Kemp, supra.

Regarding the second question, although the payee (obligee) is a proper party to cancellation under G.S. 45-37(2), his endorsement appears only on the note. It has already been established that the beneficiary’s endorsement in the deed of trust is insufficient. The question then becomes whether both the note and the deed of trust must be marked satisfied by the proper party?

It would appear that the Legislature intended an answer in the affirmative when one considers the following exception in the statute providing.

The exhibition of the mortgage, deed of trust or other instrument alone to the Register of deeds with endorsement of payment, satisfaction, performance or discharge, shall be sufficient if the mortgage, deed of trust or other instrument itself sets forth the obligation secured . . . and does not call for or recite any note, bond or other instrument secured by it. G.S. 45-37(2).

Also see Webster, Real Estate Law In North Carolina, § 225 at p. 316 (1971).

Rufus L. Edmisten Attorney General

Lucien Capone, III Associate Attorney General