Families are just too busy! My wife and I have one child, a 4th grader, and she is involved in many different activities as I am sure your children are as well. So after we all arrive home, it always seems like homework time. There is always a spelling test, vocabulary test, bible verse, some math and other things to do. Her vocabulary tests require extra attention. My wife calls out the definitions and our daughter has to tell her the word. However, my wife will not give her the list of words; she has to know them well enough to recall the words from memory. Well, I discovered that the teacher gives them a list of the words and then has them fill in the blank beside the definition. A fill in the blank test is much easier when the words are provided that go in

the blanks. One can much more easily learn the definitions for a test if you know you are given the words.

However, my wife still wants her to learn without the list of words. I get that and understand my wife is right and my daughter will be better prepared.

Real estate attorneys face these types of fill in the blank tests all the time when completing a deed of trust and/or a note. Thankfully, many times with our fill in the blank tests, the information that needs to be placed into the blanks is provided. However, a problem occurs when we don’t place the correct information in the blanks or don’t fill in the blanks at all. These mistakes can result in major problems for the borrower, lender, and the closing attorney.

In This Issue: Today’s Test Will be Fill in the Blank...

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NC Fun Facts 2 CFPB Initiatives 3 Claims Corner 3-4 RELANC Memberships 4

Investors Trust Company: Meadlock v. American...

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Fall Gathering 2012 6

This article will focus on something that seems very simple but can cause great heartache if not done properly: identifying the obligation that a deed of trust is to secure. In other words, closing attorneys must make sure that the deed of trust properly identifies the note. Usually the deed of trust will have a blank that requires the words “as evidenced by a promissory note of even date herewith” or the blank will require you to fill in the note date. I

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“...a problem occurs when we don’t place the correct information in the blanks...”

“Today’s Test will be Fill in the Blank. Please Remember to Check Your Work.” by Marc Garren, VP-Title Attorney mgarren@invtitle.com Click here for Marc’s bio.

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The New Mechanics’ Lien Law in NC On-Demand Course—Details on Page 5

cannot stress enough the importance of this little blank. Let’s look at a couple of cases that demonstrate this point.

In Re Head Grading, Co., 353 B.R. 122 (Bankr. E.D.N.C. 2006) presents us with the following facts. Head Grading Co., Inc (debtor) filed for relief under Chapter 7 of the Bankruptcy Code. The trustee sought to avoid the lien of a deed of trust pursuant to 11 U.S.C. § 544(a). The debtor had granted a deed of trust in the amount of $180,515.75 to Mrs. Ruby Lee Head. The deed of trust was dated July 28, 1998 and was to encumber about 33 acres in Wayne County, N.C. The deed of trust referenced the obligation by saying the deed of trust was given as security for a “Promissory Note of even date herewith.” However, the actual note that Mrs. Head presented was dated July 29, 1998. Mrs. Head did not hold a note that was dated July 28, 1998 which was the same date as the deed of trust. Marc’s law says…Big deal! Obviously, everybody knows that this was the note that the deed of trust was talking about. Look at the parties; they are the same. Look at the amount of the deed of trust and the note; they are the same. Well, Marc’s law would be incorrect. The court held, “While it is likely that the deed of trust was meant to identify the note dated July 29, 1998, it did not properly and specifically identify the obligation secured. As noted in Seventeen South Garment Co., Inc., the ‘clarity and certainty in lien perfection requirements’ would be lost if the court were to allow exceptions to the general

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Today’s Test... continued from page 1

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rule created by the North Carolina courts regarding the specificity with which the obligation secured by a deed of trust must be identified.” The court went on to say that the lien should be avoided because it was not properly perfected. The North Carolina courts focus on specifics. What does this mean with regard to our fill in the blank test? There is no partial credit. If you give an answer, it must be accurate.

What if you don’t put anything in the blank at all? The answer will be wrong, right?

In Beckhart v. Nationwide Trustee Svcs, et. al., Case No. 7:10-CV-137-D (E.D.N.C. March 30, 2011), the debtors filed for relief under Chapter 11 of the Bankruptcy Code and attempted to invalidate a $420,000 deed of trust because it “failed to include the date of the underlying obligation as part of its definition of Note.” So here we have an instance where the blank was left, well, blank. Surely, no answer must be counted wrong, which would most certainly render the deed of trust invalid…right? The debtors cite In Re Head Grading and argue that the deed of trust must be avoided since the note date is not referenced at all in the deed of trust. The court discusses that in In Re Head Grading, the date on the deed of trust and the note date were different. In the present case, “on page 2 of the Deed of Trust, the term ‘Note’ is defined as the ‘promissory note signed by the Borrower and dated __________ [this section was left

blank].’ Although the Deed of Trust fails to provide the date of the Note, the Note itself is undated. Therefore, these references are consistent.” The court goes on to discuss other consistencies in the Note and Deed of Trust and held that the omission of the date of the note on the deed of trust does not invalidate the deed of trust. The court declined to adopt a bright line test with regards to what information a deed of trust must contain to properly reference the underlying note.

In one case you have incorrect information and in another case you have missing information. Since there is no bright line test what does all this mean for the practicing real estate attorney? Until we receive further guidance, we must learn from these cases and try to avoid making the same mistakes. It all comes down to what I tell my daughter seemingly every day, “slow down and take your time and you will have more time to play.” If we double check to make sure that the note is properly identified on the deed of trust, make sure that the legal description is attached to the deed and the deed of trust, make sure that the borrowers’ names match the grantee box on the deed, make sure that the lot number is correct, make sure that the notary section is filled out correctly, make sure that we have a signed block letter when paying off an equity line,

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make sure that the documents are recorded in the correct order…if we slow down and take time to check these things then we will not have to deal with the problems that result from them post closing. And remember, if you do make a mistake, please call a title attorney before you attempt to correct it on your own. We have closed loans and empathize with you and can help you save time and money by suggesting ways to correct mistakes in the most efficient way possible. Remember to take these “fill in the blank tests” seriously. A mistake can be very expensive for all involved.

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Today’s Test... continued from page 2

Claims Corner: How Minor is My Minor Error? Appropriate Use of the Corrective or “Scrivener’s” Affidavit by Uta Zacharias, Esq.

Although a scrivener’s affidavit may be appropriate in certain circumstances, you may be surprised at what it can and cannot fix.

In 1986, the General Assembly added a new method for correction of “typographical or other minor errors” in recorded documents (N.C.G.S. §47-36.1). This method seemed much quicker and easier than the previous methods which included 1) preparing a modification agreement signed by all parties and properly acknowledged; or 2) drafting a new instrument, also duly executed and acknowledged; or 3) making a change directly on the original document with the correction initialed by the grantor and then executed, acknowledged, and recorded all over again. Unfortunately, what was intended to cut down on the number of unauthorized altered documents has become over used as a quick and easy way to correct any error in a document, no matter how minor. Documents were being recorded with entirely new pages attached, and previously recorded documents were being re-recorded with new information that was neither explained nor acknowledged by the original grantors.

In 2008, the statute was amended, and the new law provided several changes. One notable difference was the reduced importance given to a corrective or “scrivener’s” affidavit. Under the 2008 law, a corrective affidavit is ONLY used as a means to put the public on notice of a typographical or other minor error. This mere notice of error is not sufficient to correct the original error. An error that has been “corrected” by such a correction affidavit, under the new law, gives notice to the public of an alleged defect in the original, but does not change the original document or give constructive notice to subsequent purchasers which will be enforced by a later court. Therefore, these correction affidavits should ONLY be used for MINOR errors. Any more significant errors should be addressed under one of the previously mentioned methods for correcting errors.

So how minor is minor? The types of errors that can be resolved by a corrective affidavit include technical errors such as a name that was misspelled or signed differently, the wrong map book or page number, the wrong phase designation, the date on the deed of trust was omitted, the

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Consumer Financial Protection Bureau Initiatives

In recent weeks, Investors Title has distributed communications regarding proposed changes introduced by the Consumer Financial Protection Bureau. These changes will have a direct impact on closing attorneys in NC. A link to these archived communications is provided below, and additional information will be shared as it becomes available.

Although the deadline for comment has passed, please click here to learn more about how the role of the NC closing attorney is being challenged.

Click here to view the letter regarding the proposed rule that Investors Title Insurance Company has submitted to the CFPB.

Click here to view an important notice regarding service provider vetting.

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RELANC is a trade group composed of North Carolina licensed real estate attorneys committed to engaging in research, educational, and promotional activities, and to advocating policies, laws, and regulations that promote the role of the attorney and protection of client-consumers in NC real estate transactions.

At the recent Fall Gathering seminar, Investors Title challenged participants to become a member if they were not one already. As incentive for doing so, Investors agreed to donate a certain amount as each membership level is reached. By the end of the seminar, the membership level reached 350 and Investor Title donated $10,000.

Help RELANC reach the goal of 550 members, and Investors Title will contribute another $15,000 for a total of $25,000! Additional information, including an online membership application, can be found on the organization’s website: www.relanc.com

Already a Member? Please reach out to peers, educate them on RELANC’s role, and encourage them to become a member.

Help RELANC Increase Membership

maturity date is in error, or the rider was omitted from the original recording. Errors where a corrective deed (properly executed and acknowledged by the grantor) is necessary, as opposed to a corrective affidavit, include facts such as a missing legal description, a legal description that is missing a call, or a legal description that describes the wrong property. Other examples requiring a corrective deed include mistakes in the notarization of documents such as the name of the person being acknowledged is missing or a notary seal or signature has been omitted.

By way of example let’s examine a common closing error. Developer sells lot 112 to Buyer. Buyer was supposed to get lot 211. At the time of sale, Developer owned both lots 112 and 211. Although this seems like an appropriate use of a corrective affidavit due to a minor typographical error, in this case, Buyer actually just received the deed to lot 112. Anyone looking at the public records would have no way of knowing that the parties intended to convey lot 211. Therefore, in this case, the solution requires a corrective deed from the Developer (properly executed and

acknowledged) and not merely a corrective affidavit from the closing attorney. Furthermore, to completely correct the title in this case, a deed needs to be recorded conveying lot 112 from Buyer back to Developer.

On the other hand, if there was no lot 112 in the development or the Developer did not own lot 112, then this may be the case where a corrective affidavit would be appropriate as it is more obvious that this was merely a typographical error.

Remember to use the corrective affidavit very sparingly and only under circumstances where you are not changing the underlying document but merely directing the attention of subsequent title examiners to a perceived mistake in a document. If the underlying document really needs to be changed, then an alternate method of correcting documents needs to be employed such as a corrective deed. A claim can go from bad to worse if the attorney tried to correct an error in an inappropriate way. If you are not sure how to correct an error, please call an Investors Title attorney.

Claims Corner continued from page 3.

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For more information, contact Ben Foreman at 877.327.9110 or bforeman@invtrust.com

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Personalized service and individualized attention, delivered the old fashioned way. that Meadlock’s application

contained misrepresentations. The beneficiary filed suit, alleging that the company’s agent, who was aware of Meadlock’s prior health issues, had completed the application, so the company had knowledge of her health problems and was therefore bound to pay the benefits. The trial court issued summary judgment in favor of the insurance company, and the beneficiary appealed. The appellate court affirmed, specifically concluding that, even if the agent had completed the application form, “there was also evidence that Mrs. Meadlock was aware of the misrepresentation and did nothing to correct it.”

--Meadlock v. American Family Life Assurance Co., No. COA11-1009, N.C. Ct. App. 7/17/12

Meadlock v. American Family Life Assurance Co.

Policyholders of a life insurance contract have a duty to read the policy for errors and failure to do so may be sufficient grounds for the insurance company to refuse payment even if the insured may be initially unaware of the errors. The North Carolina Court of Appeals reached that decision in a case that arose after the death of Terri Meadlock in January 2009. Only a few months before her death, Meadlock purchased a life insurance policy from AFLAC. On the insurance application, Meadlock indicated that she had never been treated for a heart disorder or a tumor. In fact, she had been treated for both. After Meadlock died, the policy’s beneficiary attempted to collect the benefits, but AFLAC denied the claim, arguing

This article is for informational purposes only and does not constitute legal advice.

The New Mechanics’ Lien Law in NC—On-Demand Course Available Click here to access On-Demand content.

Course Content: Steve Brown, Esq. discusses some of the relevant questions surrounding the new Mechanics Lien Law in NC: 1. How did we get here?; 2. Who and what is a lien agent?; 3. How will it work?; 4. What role will the attorney play?; and 5. What do we do now?

Credit Available: NC CLE and CPE

Cost: $25

“...an event that any attorney who practices real estate cannot afford to miss!” ~Wells King, King Law Group, PLLC

“I continue to appreciate having the opportunity to select sessions that particularly appeal to me…” ~Bruce Laney, Attorney

The Investors Title Team (from left to right): Lisa Gallimore, Rhonda Debruhl, Tracy Weekman, Beth Adams, Carol Faucette, Judy Medford, Angie Fortune, Marshall Beach, Lou Ann Craven, Kim Dean, Kathy Baum, Craig Burris, Jackie Thomas

“Informative in both educational and practical ways.” ~Ashley Warner – Perry, Perry & Perry

"Wonderful seminar!”

~William G. Holland, Attorney

“Being able to choose six topics that are immediately usable to me makes the entire program worthwhile.”

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From L-R: Elizabeth Voltz, Holly Simmons, Daniel Pate, Bryant Webster, Alfred Adams, David Woods, Drew Foley, Steve Brown, Tom Steele, Troy Crawford, Daniel Taylor, John-Paul Schick, Robynn Moraites