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NORTH CAROLINA
MORTGAGE LENDING
MANUAL
MAY 10, 2006
WILLIAM S. BOST III

RAGSDALE LIGGETT PLLC
2840 PLAZA PLACE, SUITE 400
RALEIGH, NC 27612
(919)-787-5200
NORTH CAROLINA
MORTGAGE LENDING
MANUAL
MAY 10, 2006
WILLIAM S. BOST III

RAGSDALE LIGGETT PLLC
2840 PLAZA PLACE, SUITE 400
RALEIGH, NC 27612
(919)-787-5200
Published by
William S. Bost III

Ragsdale Liggett PLLC
2840 Plaza Place
Suite 400
Raleigh, NC 27612
(919)-787-5200
Copyright 2006 by William S. Bost III. All rights reserved. Printed in

the United States of America. No part of this book may be used or
reproduced in any manner whatever without the express written consent
of the author. The author makes no claims related to official government
works.
Although the author and publishers have made every effort to ensure the
accuracy of the information contained herein, we assume no
responsibility for any inaccurate statements, omissions, or
inconsistencies. Readers should use their own judgment and consult with
reputable advisors for specific applications to their individual problems.
None of the comments in this book are to be construed as individual or
legal advice.
NORTH CAROLINA
MORTGAGE LENDING
MANUAL
MAY 10, 2006
BY WILLIAM S. BOST III
TABLE OF CONTENTS
INTEREST AND USURY.................................................................................1

Loans Not Subject To Usury Laws................................................ 1
Loans Subject To Usury Laws....................................................... 2
First Mortgage Loans Under $300,000.......................................... 3
Mortgages By Consumer Finance Company Affiliates ................. 3
Amortization Schedule................................................................... 4
Limitation On Prepayment Penalties ............................................. 5
Permitted Fees On First Mortgage Loans ...................................... 6
Discount Points .............................................................................. 8
Fees To Be Avoided....................................................................... 9
Third-Party Fees............................................................................. 9
Miscellaneous Fees ...................................................................... 10
Fees During Term Of Loan.......................................................... 10
Deferral Fees................................................................................ 10
Late Fees ...................................................................................... 11
Equity Lines Of Credit................................................................. 12
High Cost Loan Provisions .......................................................... 13
Loans Subject To High-Cost Loan Provisions................. 13
Limitations on High Cost Loans ...................................... 13
Thresholds........................................................................ 14
Points and Fees ................................................................ 16
i
TABLE OF CONTENTS CONT.
Discount Points and Prepayment Penalties...................... 19

Total Loan Amount.......................................................... 21
Consumer Protections in Certain Home Loans............................ 22
Consequences of Violation of Usury Statutes ............................. 23
Correction Provisions................................................................... 24
Federal Preemption ...................................................................... 25
THE NORTH CAROLINA MORTGAGE LENDING ACT ..................................29
Scope of MLA.............................................................................. 29
Exemptions .................................................................................. 31
Employment of Loan Officer....................................................... 33
Application................................................................................... 33
Annual renewal ............................................................................ 35
Managing Principals and Branch Managers ................................ 35
Change in business of licensee .................................................... 36
Grandfather Provisions ................................................................ 37
Provisional Licenses .................................................................... 37
Limited Loan Officers and Affiliated Mortgage Bankers............ 38
Exclusive Mortgage Broker ......................................................... 40
Duties imposed on Mortgage Brokers ......................................... 41
Prohibited Activities .................................................................... 42
Enforcement Powers .................................................................... 44
Records ........................................................................................ 48
Miscellaneous .............................................................................. 50
SPECIAL ISSUES.........................................................................................51
Co-Brokering Loans..................................................................... 51
Co-brokerage with brokers not licensed or exempt ..................... 53
Co-brokerage between two licensed mortgage brokers ............... 53
Co-brokerage with state or national chartered banks................... 54
Co-brokerage with Real Estate Agents. ....................................... 55
Manufactured Housing................................................................. 57
Net Branching .............................................................................. 67
Reasons for ruling ............................................................ 67
Basis of Ruling................................................................. 67
HUD “Net Branch” Letter ............................................... 67
Findings of Letter............................................................. 68
Solutions .......................................................................... 70
Second Mortgages........................................................................ 70
Second Mortgage Loans $25,000 or Less........................ 70
ii
TABLE OF CONTENTS CONT.
Second Mortgage Loans Greater Than $25,000.00 ......... 73
Reverse Mortgages....................................................................... 74
Certain Issues related to Employment Agreements ..................... 76
ISSUES IN NORTH CAROLINA.....................................................................81
RESIDENTIAL MORTGAGE TRANSACTIONS................................................81
Security Instruments .................................................................... 81
Purchase money mortgages—Priority over Prior Liens .. 82
Anti-deficiency ................................................................ 83
After-acquired Property ................................................... 83
Future Advances .............................................................. 84
Equity Lines of Credit...................................................... 85
Modification of Deed of Trust ......................................... 86
Arbitration Provisions.................................................................. 87
Recording..................................................................................... 87
Settlement Agents ........................................................................ 90
Good Funds Settlement Act ......................................................... 91
Title Insurance ............................................................................. 92
Acknowledgments........................................................................ 93
Privacy Statute ............................................................................. 94
Satisfaction of Mortgages Act ..................................................... 95
Payoff request .................................................................. 95
Satisfaction....................................................................... 98
Obligations of Lender ...................................................... 99
Affidavit of Satisfaction................................................... 99
Other methods of releasing or satisfying deed of trust .. 100
Foreclosure................................................................................. 100
Hearing and Notice ........................................................ 101
Notice of Sale................................................................. 106
Request for Notice of Sale ............................................. 108
Termination of Power of Sale (Right of Redemption)... 109
Postponement of Sale..................................................... 109
Preliminary Report of Sale............................................. 111
Upset Bids...................................................................... 112
Order for Possession ...................................................... 114
Resale............................................................................. 115
Application of Proceeds................................................. 116
Final Report ................................................................... 117
Rights Of Borrower In Deficiency Action..................... 118
BEST PRACTICES STANDARDS .................................................................119
iii
APPENDICES
APPENDIX 1
Chapter 24....................................................................................................................1
APPENDIX 2
Amortization Table ......................................................................................................5
APPENDIX 3
Prepayment ..................................................................................................................6
APPENDIX 4
YSP Letter ...........................................................................................................15, 16
APPENDIX 5
MLA Documents and Fees ........................................................................................29
APPENDIX 6
Mortgage Lending Act...............................................................................................29
APPENDIX 7
LO Change of Status..................................................................................................33
APPENDIX 8
MLA Application.......................................................................................................33
APPENDIX 9
MLA Surety Bond Forms ..........................................................................................34
APPENDIX 10
MLA Change of Business Forms...............................................................................36
APPENDIX 11
MLA Bank Employee Exemption..............................................................................38
APPENDIX 12
MLA Affiliated Mortgage Banker .............................................................................40
APPENDIX 13
MLA Exempt Entity Notice.......................................................................................50
APPENDIX 14
Net Branching Letter .................................................................................................67
APPENDIX 15
Reverse Mortgage Act ...............................................................................................74
APPENDIX 16
Commissioner's Letter Regarding Reverse Mortgages ..............................................76
APPENDIX 17
Sample Employment Agreement ...............................................................................79
APPENDIX 18
UPL Opinion Regarding Non-lawyer Closings .........................................................90
APPENDIX 19
GFS Surety Bond Form .............................................................................................92
APPENDIX 20
Good Funds Settlent Act............................................................................................92
APPENDIX 21
North Carolina Satisfaction of Mortgages Act...........................................................95
APPENDIX 22
Form of Satisfaction...................................................................................................99
APPENDIX 23
Affidavit of Satisfaction...........................................................................................100
APPENDIX 24
Trustee's Satisfaction and Deed of Release..............................................................100
APPENDIX 25
Foreclosure Statutes.................................................................................................100
INTEREST AND USURY
Chapter 24 governs the charging of interest in North Carolina.

The definition of the term interest under North Carolina usury laws
includes "[A]ny charges made against a borrower..., whether called fines,
charges, dues or interest."1 The legal rate of interest in North Carolina is
eight percent per annum.2 This rate is not applicable to North Carolina
mortgage transactions. Chapter 24 is included as Appendix 1.
Loans Not Subject To Usury Laws
North Carolina usury laws do not apply to a loan

transaction if
• The loan amount is three hundred thousand

dollars ($300,000) or more; or
• The borrower is a person other than a natural

person; or
1
Hollowell v. B. & L. Association, 120 N.C. 286, 287, 26 S.E. 781, 781
(1897).
2
N.C.G.S. §24-1.
NORTH CAROLINA MORTGAGE LENDING MANUAL
• The loan is obtained by a natural person primarily

for a purpose other than a personal, family, or
household purpose. 3
Whether a loan is obtained primarily for a purpose other than a personal,

family, or household purpose is guided by the standards established by
the federal Truth In Lending Act and regulations and rulings issued
pursuant to that Act.4 Under these guidelines, credit extended to acquire
or improve non-owner occupied rental property is considered business
purpose credit, and thus would not be subject to North Carolina usury
laws in most instances.5 Business loans and loans to corporations and
other entities also are not subject to usury laws.
If a loan falls within the categories described in the preceding
paragraph, the North Carolina usury laws do not apply and no
additional analysis of such laws, including those related to high cost
loans and prepayment penalties, is required. The remainder of this
Chapter applies only to loans that are subject to the usury laws.
Loans Subject To Usury Laws
Care should be exercised when making a loan to a North Carolina

resident, even when the collateral securing the loan is located elsewhere.
Chapter 24 applies to any extension of credit if the lender offers or agrees
in North Carolina to lend to a resident of North Carolina, or if such
borrower accepts or makes the offer to borrow in the state, without regard
to the stated situs of the loan documents. Any solicitation or
communication to lend, oral or written, originating outside the state, but
received in the state by a resident borrower, is deemed an offer to lend in
the state. Any solicitation or communication to borrow, oral or written,
originating within the state from a resident borrower and received by the
lender out of the state is subject to Chapter 24. Contracts made to lend
3
N.C.G.S. §24-9(a)(3), (b).
4
N.C.G.S. §24-9(a)(3).
5
See Federal Reserve Board Consumer Compliance Handbook, Regulation Z,
Page 4, January 2006.
2
INTEREST AND USURY
or borrow in this state with nonresident borrowers are subject to the laws
selected by the parties or other applicable law.6
First Mortgage Loans Under $300,000
Chapter 24 applies to loans made by a lender to a resident of

North Carolina with an original principal amount of $300,000 or less.7
Subject to the provisions of the North Carolina Predatory Lending
Act, no limit on interest applies to first mortgage loans (i) where the
principal amount is ten thousand dollars ($10,000) or more, or (ii) where
the principal amount is less than ten thousand dollars ($10,000) and the
lender is either (x) approved as a mortgagee by the Secretary of Housing
and Urban Development, the Federal Housing Administration, the
Department of Veterans Affairs, a national mortgage association or any
federal agency; or (y) a local or foreign bank, savings and loan
association or service corporation wholly owned by one or more savings
and loan associations and permitted by law to make home loans, credit
union or insurance company; or (z) a State or federal agency ("Exempt
Lenders").8
Where the principal amount of a first mortgage loan is less than
ten thousand dollars ($10,000) and the lender is not a lender described in
the preceding paragraph, the parties may contract for the payment of
interest not in excess of (16%) per annum. 9
Mortgages By Consumer Finance Company Affiliates
Notwithstanding any other provision of law, where a lender is an

affiliate (a "consumer finance licensee affiliate") operating in the same
office or subsidiary operating in the same office of a licensee under the
North Carolina Consumer Finance Act (the "NCCFA”), the lender may
charge interest to a borrower on a monthly basis on the borrower's
outstanding principal balance at a rate not to exceed the rate published by
6
N.C.G.S. § 24-2.1.
7
N.C.G.S. §24- 2.1,§24-1.1(f).
8
N.C.G.S. §24-1.1A (a)(1), (2).
9
N.C.G.S. §24-1.1A(a)(3).
3
the North Carolina Commissioner of Banks (the “Commissioner”), which

rate is the latest published noncompetitive rate for U.S. Treasury bills
with a six-month maturity as of the fifteenth day of the month the rate is
published plus six percent (6%), rounded upward or downward, as the
case may be, to the nearest one-half of one percent (1/2 of 1%) or fifteen
percent (15%), whichever is greater.10
The published rate is the maximum rate permitted for the term of
loans by a consumer finance licensee affiliate during the following
calendar month with respect to fixed rate loans. Adjustable-rate loans by
a consumer finance licensee affiliate are permitted, in which case the
maximum rate of interest permitted on such loans during a month during
the term of the loan shall be the rate published by the Commissioner in
the preceding calendar month.11
A consumer finance licensee affiliate may not make a home loan
for a term in excess of six (6) months which provides for a balloon
payment, which is defined as “a loan in which any scheduled payment is
more than twice as large as the average of earlier scheduled payments”.
This limitation does not apply to equity lines of credit by a consumer
finance licensee affiliate.12 Consumer finance licensee affiliates who
make mortgage loans are limited to charging and collecting a 2%
origination fee on a construction loan, and a 1% origination fee on any
other type of loan; bona fide third-party fees; and interest.13
Amortization Schedule
A lender in a mortgage loan transaction must deliver or mail to an

applicant for a mortgage loan information and examples of amortization
of home loans reflecting various terms. The information must be
substantially in a form made available by the Commissioner. The
information must be delivered not later than the date of the home loan
closing or three business days after the lender receives an application for
10
N.C.G.S. § 24-1.1A (a)(4).
11
Id.
12
Id.
13
N.C.G.S. § 24-1.1A(c2); §24-10.
4
INTEREST AND USURY
a home loan, whichever is earlier.14 A sample of this form is included as

Appendix 2.
Not later than three business days after a home loan closing, a
lender must deliver or mail to the borrower an amortization schedule for
the borrower's home loan. A lender is not required to provide an
amortization schedule except where the loan is a fixed rate home loan
that requires the borrower to make regularly scheduled periodic
amortizing payments of principal and interest. 15
With respect to a "construction to permanent" home loan, the
amortization schedule must be provided only with respect to the
permanent portion of the home loan during which amortization occurs.16
If the home loan transaction involves more than one natural person, the
lender may deliver or mail the required materials to any one or more of
such persons.17
The amortization schedule requirement does not apply if the home
loan applicant is not a natural person or if the home loan is for a purpose
other than a personal, family, or household purpose. That is, an
amortization schedule is not required for commercial or investment
transactions or transactions with a corporation or other entity.18
Limitation On Prepayment Penalties
No prepayment fees or penalties are permitted with respect to any

mortgage loan in which: (i) the principal amount borrowed is one
hundred fifty thousand dollars ($150,000) or less, (ii) the borrower is a
natural person, (iii) the debt is incurred by the borrower primarily for
personal, family, or household purposes, (iv) the loan is secured by a first
mortgage on real estate upon which there is or will be located a structure
intended to house one to four families, and (v) which structure is or will
be occupied by the borrower as the borrower's principal dwelling.19
14
N.C.G.S. § 24-1.1A (a1)(1).
15
N.C.G.S. §24-1.1(a1)(2).
16
N.C.G.S. § 24-1.1A (a1)(2).
17
N.C.G.S. § 24-1.1A (a1)(3).
18
N.C.G.S. § 24-1.1A (a1)(4).
19
N.C.G.S. §24-1.1A(b)(1).
5
This prohibition does not apply (i) to commercial or investment

properties, (ii) to loans subordinate to a first mortgage, (iii) to loans to
finance second or vacation homes, or (iv) to loans made to corporations
or other entities.20
The statute contains a provision which states that the limitations
on prepayment fees and penalties described above “shall not apply to the
extent state law limitations on prepayment fees and penalties are
preempted by federal law or regulation”.21 This provision was included
by the North Carolina legislature to insure that, if preemption allowed
prepayment penalties prohibited by state law, then the remainder of the
North Carolina Predatory Lending Act would not be rendered
unenforceable. State regulators do not believe that this prepayment
penalty provision is preempted by federal law; in addition, regulators not
believe that federal preemption principles apply to mortgage brokers or
mortgage bankers who are not state- or federally- chartered institutions.
A borrower may prepay in whole or in part without penalty where
the loan instrument does not explicitly state the borrower's right with
respect to prepayment or where the provisions for prepayment are not in
accordance with law.22
A chart prepared by the Office of the North Carolina
Commissioner of Banks which reflects permissible prepayment penalties
is attached as Appendix 3.
Permitted Fees On First Mortgage Loans
Under North Carolina law, the only fees that may be charged on a
first mortgage loan are those fees permitted under Section 24-1.1A(c)(1),
which consist of the following:
• Loan application, origination, commitment, and

interest rate lock fees;
20
N.C.G.S. § 24-1.1A (b)(1), 24-9(a)(3).
21
N.C.G.S. § 24-1.1A (b)(2).
22
N.C.G.S. § 24-2.4.
6
INTEREST AND USURY
• Fees to administer a construction loan or a

construction/permanent loan, including inspection
fees and loan conversion fees;
• Discount points, but only to the extent the discount

points are paid for the purpose of reducing, and in
fact result in a bona fide reduction of the interest
rate or time-price differential;
• Assumption fees;
• Appraisal fees;
• Third-party fees and charges; and
• Additional fees and charges, however individually

or collectively denominated, payable to the lender
which, in the aggregate, do not exceed the greater
of (i) one quarter of one percent (1/4 of 1%) of the
principal amount of the loan, or (ii) one hundred
fifty dollars ($150.00).23
The statute specifically allows a lender to collect from the

borrower for the payment of (i) bona fide loan related goods, products
and services provided or to be provided by third parties, (ii) taxes, filing
fees, recording fees, and other charges and fees paid or to be paid to
public officials, and (iii) fees payable to the federal government, any
State or local government or any federal, state, or local government
agency in connection with a loan made pursuant to a loan program
sponsored by the federal government or any State or local government.24
A tablefunding mortgage broker is considered a lender for purposes of
collecting third-party fees.25
23
N.C.G.S. §24-1.1A(a1)(c).
24
N.C.G.S. §24-8(d).
25
N.C.G.S. §24- 2.5.
7
No third-party may receive unreasonable compensation for loan

related goods, products, and services, or any compensation for which no
loan related goods and products are provided or for which no or only
nominal loan related services are performed. For these purposes, a
mortgage broker is considered a third-party to the lender.26
No monetary limit applies to these fees except those imposed by
Section 24-1.1E which is discussed below. The limits on the types of
fees allowed by this provision apply only to home mortgages secured by
real property; loans secured solely by personalty are not subject to its
restrictions.27 Unlike provisions discussed above, this provision applies
without regard as to whether the property is owner-occupied.28
There is no statutory description of any of the services required to
be performed in connection with an origination fee, a loan application fee
or a commitment fee. The preferred practice in North Carolina is to
specify the lender’s fee as an “origination fee”. Specifying it as a
“commitment fee” in the absence of clear commitment terms or a rate
lock agreement could result in unintended obligations; “application fees”
in significant amounts are not desirable because they may be subject to
scrutiny on the grounds that the amount of the fee is not commensurate
with the work involved in filling out the application.
No fees may be charged on first mortgage loans less than
$10,000.00 except by certain exempt lenders; Late payment charges and
third party fees are permissible, however. 29
Discount Points
Discount points are only permitted if and to the extent they are
paid for the purpose of reducing, and in fact result in a bona fide
reduction of, the interest rate paid by the borrower. Thus, if a lender or a
broker collects discount points with respect to a particular transaction, it
should maintain records to show that the borrower’s interest rate actually
26
N.C.G.S. §24- 8(d).
27
N.C.G.S. § 24-1.1A (c).
28
N.C.G.S. § 24-1.1A (e).
29
N.C.G.S. § 24-1.1A(a),(c1).
8
INTEREST AND USURY
was affected by the payment of the points. Accordingly, identifying

origination fees as “discount points” should be avoided.
Fees To Be Avoided
Certain fees were intentionally omitted from the list of permitted

fees; processing, document preparation, administrative and underwriting
fees are not specifically included in the list of permitted fees.
Accordingly, they may only be charged if (i) they qualify as third-party
fees, or (ii) they fit under the miscellaneous fee exception. In calculating
whether they qualify under the miscellaneous fee exception, the total of
all miscellaneous fees charged by the lender and the broker must be less
than the threshold amount. With this in mind, it is advisable to charge a
single “loan application fee” or “origination fee” on mortgage loans
which incorporates all of these charges.
Third-Party Fees
Section 24-8 contains a list of permitted third party fees which

generally will avoid scrutiny: tax payment services, fees for flood
certification, fees for pest-infestation determinations, mortgage brokers’
fees, appraisal fees, inspection fees, environmental assessment fees, fees
for credit report services, assessments, costs of upkeep, surveys,
attorneys" fees, notary fees, escrow charges, and insurance premiums
(including, for example, fire, title, life, accident and health, disability,
unemployment, flood, and mortgage insurance).30
The mortgage broker or a mortgage banker originating a loan in a
table funded loan transaction in which the mortgage broker or mortgage
banker is identified as the original payee of the note shall be considered a
lender for purposes of Chapter 24.31
30
N.C.G.S. § 24-8(d).
31
N.C.G.S. §24-2.5.
9
Miscellaneous Fees
The miscellaneous fees subject to the limitation described are all

fees of any kind that are not specifically named in the list above,
provided that all of such fees in the aggregate do not exceed the
threshold. For example, on a $100,000 loan, a document processing fee
of $250.00 would be permitted (provided there were no other
miscellaneous fees), but a document processing fee of $300.00 would
not.
Fees During Term Of Loan
A lender may charge discount points, conversion fees,

assumption fees, appraisal fees, and third-party fees in connection with a
modification, renewal, extension or amendment of a loan. A lender also
may charge miscellaneous fees which do not exceed the greater of (i) one
quarter of one percent (1/4 of 1%) of the principal amount of the loan, or
(ii) one hundred fifty dollars ($150.00).32
Deferral Fees
A lender may charge a deferral fee as may be agreed upon by the

lender and borrower in connection with the deferral of the payment of
one or more unpaid installments.33 Deferral fees on home mortgage
transactions may be charged only pursuant to an agreement which states
the amount of the fee which is made at the time of the specific deferral or
at the time the specific deferral is requested.34 If the agreement relates to
an installment which is past due for 15 days or more, the agreement must
be in writing and signed by at least one borrower. A borrower's facsimile
signature is acceptable. The referral fee may not exceed the greater of
5% of the installment deferred or $50. If a deferral fee has once been
imposed with respect to a particular installment, no deferral fee may be
imposed with respect to any future payment which would have been
32
N.C.G.S. §24-1.1A(2).
33
N.C.G.S. § 24-1.1A(g).
34
N.C.G.S. § 24-1.1A(g)(2).
10
INTEREST AND USURY
timely and sufficient but for the previous deferral. A late fee may be
imposed only if an amount due under a deferral agreement is not paid
when due, and no new deferral agreement is entered into with respect to
that installment.35
Late Fees
A lender is prohibited from charging a late fee:
• in excess of 4% of the amount of the past due

payment;
• in excess of the amount disclosed under applicable

federal law;
• For any payment unless past due for 15 days or

more; provided, however, if the loan is one on
which interest on each installment is paid in
advance, no late payments are to be charged until
the payment is 30 days past due or more;
• more than once with respect to a single late

payment;
• on any loan which by its terms does not provide

for payment of installments; or
• unless the lender notifies the borrower that the late

payment charges been imposed for a particular late
payment which late payment must be paid unless
the borrower can show that the installment was
paid in full and on time; no late payments are to be
collected from a borrower if the borrower informs
a lender that nonpayment of an installment is in
dispute and presents proof of payment within 45
35
N.C.G.S. § 24-1.1A(g)(2).
11
days of receipt of the lender's notice of the late

charge.36
These provisions do not apply to exempt lenders.37
Equity Lines Of Credit
Parties to an equity line of credit may contract and writing for

interest at rates which do not exceed the rate published from time to time
by the commissioner, which rate may not exceed sixteen percent per
annum.38 Fees may be charged on equity lines of credit which, in the
aggregate, over the life of the line do not exceed one percent of the
maximum limit of the line of credit. The lender may charge a party to a
line of credit fees for the modification, renewal, extension, or
amendment, which fees may not exceed the greater ¼ of one percent of
the balance outstanding at the time of the modification, renewal,
extension, or amendment or $50.00.39
These provisions do not apply to equity lines of credit offered by
a bank nor to equity lines of credit to entities other than natural persons
or for business purposes.40 For these purposes, a “bank” is defined as a
bank, savings and loan association, savings bank, or credit union
chartered under the laws of North Carolina or the United States; however,
the term "bank" does not include any subsidiary or affiliate of a bank.41
36
N.C.G.S. § 24-10.1(b).
37
See Note 3 and accompanying text.
38
N.C.G.S. §24-1.2A(a).
39
N.C.G.S. § 24-1.2A(b).
40
N.C.G.S. § 24-9(a)(3).
41
N.C.G.S. §24-9(a).
12
INTEREST AND USURY
High Cost Loan Provisions
North Carolina was the first state to enact comprehensive

predatory lending legislation. The bulk of the provisions related to
predatory lending are contained in Section 24-1.1E of Article 24 which
addresses restrictions placed on “high cost loans”. Section 24-1.1E is
generally referred to as the “Predatory Lending Act” or “PLA”.
Loans Subject To High-Cost Loan Provisions
The provisions of Section 24-1.1E apply to loan transactions

which have certain characteristics described below, and (i) in which the
borrower is a natural person, (ii) in which the debt is incurred by the
borrower primarily for personal, family, or household purposes, and (iii)
the loan is secured by either (x) a security interest in a manufactured
home which is or will be occupied by the borrower as the borrower's
principal dwelling, or (y) a mortgage on real estate upon which there is or
will be located a structure designed principally for occupancy by from
one to four families which is or will be occupied by the borrower as the
borrower's principal dwelling.42
The statute applies to open-end and closed-end credit transactions
secured by a first or more junior lien, and to liens that are subordinate to
a first mortgage, if they otherwise meet the requirements below.43 The
high cost loan provisions do not apply to business loans, second or
vacation home loans, non-owner occupied rentals, or loans over
$300,000.44
Limitations on High Cost Loans
The PLA was drafted and designed to discourage and eliminate

high cost lending in North Carolina. Two important limitations, among
others, make a high cost loan impossible (or at least unprofitable) in
North Carolina.
42
N.C.G.S. § 24-1.1E(a)(4).
43
Id.
44
N.C.G.S. § 24-1.1E(a)(4)a.
13
Firstly, fees may not be financed in a high cost loan transaction.45

Thus, unless a borrower comes to the table with all of his points and fees
in tow before the closing of a high cost loan transaction, a violation of
24-1.1E will occur.
Secondly, the statute requires consumer home ownership
counseling as a condition to the making of a high cost loan.46 This
counseling is not readily available and, where it is available, it is
provided by the same consumer advocacy groups who pushed the PLA.
Other restrictions on high cost loans include prohibitions of (i) negative
amortization, (ii) balloon payments, and (iii) lending without regard to a
borrower’s ability to repay the loan.47
Thresholds
Much of Section 24-1.1E relates to the conditions to and

requirements of making a high cost loan. It simply is not economically
or practically feasible to make a loan of this kind in North Carolina; that
was the intent of the drafters in an effort to thwart federal preemption.
Accordingly, the remainder of this discussion will address the
characteristics of a “high cost loan” that is, for all intents and purposes,
prohibited in North Carolina.
The statute identifies three kinds of high-cost loans. A loan will
be considered a high cost loan if the terms of the loan contain, meet or
exceed any one of the following “triggers”:
• APR Threshold. A loan is high-cost loan if its

annual percentage rate (APR, calculated in
accordance with Regulation Z) at the time the loan
is consummated exceeds by more than ten
percentage points the yield on Treasury securities
having comparable periods of maturity to the loan
maturity as of the fifteenth day of the month
immediately preceding the month in which the
45
N.C.G.S. § 24-1.1E(c)(3).
46
N.C.G.S. § 24-1.1E(c)(1).
47
N.C.G.S. §24-1.1E(b).
14
INTEREST AND USURY
application for the extension of credit is received

by the lender.48 While this threshold is based upon
Section 32 of Regulation Z which applies only to
refinance transactions, this provision applies to all
transactions subject to 24-1.1E.
• Points and Fees Threshold. The total "points and

fees" payable (as defined below) by the borrower
at or before the loan closing exceed: (i) five
percent (5%) of the total loan amount (defined
below) if the total loan amount is $20,000 or more,
or (ii) the lesser of $1,000 or eight percent (8%) of
the total loan amount (defined below), if the total
loan amount is less than $20,000.49 Note that
lender-paid fees, or yield spread premiums, are not
included in this calculation. This position was
confirmed by the Commissioner in the letter
attached as Appendix 4.
• Prepayment Penalty Threshold. The loan

documents permit the lender to charge or collect
prepayment penalties more than thirty (30) months
after the loan closing or the prepayment penalties
may exceed, in the aggregate, more than two
percent (2%) of the amount prepaid.50
• If the loan is an open-end credit plan, the loan

documents permit the lender to charge or collect
prepayment fees or penalties (i) more than 30
months after the loan closing if the borrower has
no right or option under the loan documents to
repay all or any portion of the outstanding balance
of the open-end credit plan at a fixed interest rate
48
N.C.G.S. § 24-1.1E(a)(6).
49
N.C.G.S. § 24-1.1E(a)(6)(b).
50
N.C.G.S. § 24-1.1E(a)(6)(c).
15
over a specified period of time or, (ii) if the

borrower has a right or option under the loan
documents to repay all or any portion of the
outstanding balance of the open-end credit plan at
a fixed interest rate over a specified period of time,
more than 30 months after the date the borrower
voluntarily exercises that right or option, or (iii)
which exceed, in the aggregate, more than two
percent (2%) of the amount prepaid.51
The prepayment penalty threshold and the APR threshold are

fairly simple to understand. The following is a breakdown of the
calculation of the “points and fees” threshold.
Points and Fees
All of the following are included in “points and fees” in

determining whether the “points and fees” threshold has been exceeded:
• All fees and charges other than interest required to

be disclosed as part of the finance charge under
Reg Z, including such things as points, loan fees,
assumption fees, etc. In general, if Reg Z requires
a charge (other than interest) to be included in the
calculation of the finance charge, the charge is also
included in the calculation of “points and fees”.”
Interest, however, including per diem interest, is
excluded in calculating “points and fees”.52 A
chart to assist in identifying items included in the
finance charge is included as Appendix 5.
• All compensation paid directly by the borrower to

a mortgage broker.53 However, fees not paid by
51
Id.
52
N.C.G.S. § 24-1.1E(a)(5)a.1, 2.
53
N.C.G.S. § 24-1.1E(a)(5)a.3.
16
INTEREST AND USURY
the borrower are not included in calculating

“points and fees”. Thus, yield spread premium or
other fees paid to a broker by a lender are not
considered for purposes of the “points and fees”
test.
• The maximum prepayment fees and penalties

which may be charged or collected under the terms
of the loan documents are included in the
calculation of “points and fees”.54
The following items are included in the calculation of “points and

fees” only if (i) the amount of the charge is unreasonable, (ii) the lender
or broker receives direct or indirect compensation in connection with the
charge, or (iii) the charge is paid to an affiliate of the lender or broker.
Otherwise, the following charges are not included within the calculation
of “points and fees”:
• Fees for title examination, abstract of title, title

insurance, property survey, and similar purposes.
• Fees for preparing loan-related documents, such as

deeds, mortgages and reconveyance or settlement
documents.
• Notary and credit report fees.
• Property appraisal fees or fees for inspections to

assess the value or condition of the property if the
service is performed prior to closing, including
fees related to pest infestation or flood hazard
determinations.
54
N.C.G.S. § 24-1.1E(a)(5)a.4.
17
• Amounts required to be paid into escrow or trustee

accounts if the amounts would not otherwise be
included in the finance charge.55
However, the statute specifically provides that “points and fees”

do not include the following, even if they would be included under some
other provisions of the statute:
• Taxes, filing fees, recording and other charges and

fees paid or to be paid to public officials for
determining the existence of or for perfecting,
releasing or satisfying a security interest.
• Fees paid to a person other than a lender or an

affiliate of a lender or to the mortgage broker or an
affiliate of the mortgage broker for the following:
• Fees for tax payment services.
• Fees for flood certification.
• Fees for pest infestation and flood determinations.
• Appraisal fees.
• Fees for inspections performed prior to closing.
• Credit reports.
• Surveys.
• Attorneys’ fees (if the borrower has the right to

select the attorney from an approved list or
otherwise).
55
N.C.G.S. § 24-1.1E(a)(5)a.2.; 12 CFR 226.4(c)(7).
18
INTEREST AND USURY
• Notary fees.
• Escrow charges (so long as not otherwise included

as part of the finance charge).
• Title insurance premiums.
• Fire insurance and flood insurance premiums (so

long as appropriate Reg Z disclosures are given).56
For open-end credit plans, “points and fees” includes those points
and fees described above plus the minimum additional fees the borrower
would be required to pay to draw down an amount equal to the total loan
amount.57
Voluntary credit insurance premiums properly disclosed under
Reg Z are generally excluded from the calculation of “points and fees”,
unless they are received by the lender or an affiliate of the lender.
Fees paid by individuals other than the borrower, such as the
seller in a purchase transaction are not included in the calculation of
“points and fees”.58
Note that mortgage insurance premiums are not included in the
list of excluded charges; thus they may be included in the calculation of
“points and fees” if they are paid to an affiliate of the lender. Up front or
discount fees with respect to certain government loans may be included
in “points and fees”, as well.
Discount Points and Prepayment Penalties
Special rules apply to discount points and prepayment penalties

payable by the borrower:
• Discount points. Up to and including two bona

fide loan discount points payable by the borrower
56
N.C.G.S. § 24-1.1E(a)(5)b.
57
N.C.G.S. § 24-1.1E(a)(5)c.
58
N.C.G.S. §24-1.1E(a)(6)b.
19
will be excluded from the calculation of “points

and fees” if the interest rate from which the loan’s
interest rate will be discounted does not exceed by
more than one percentage point (1%) the required
net yield for a ninety (90) day standard mandatory
delivery commitment for a reasonably comparable
loan from either Fannie Mae or Freddie Mac,
whichever is greater.59
• Up to and including one bona fide loan discount

point payable by the borrower will be excluded
from the calculation of “points and fees” if the
interest rate from which the loan’s interest rate will
be discounted does not exceed by more than two
percentage points (2%) the required net yield for a
ninety (90) day standard mandatory delivery
commitment for a reasonably comparable loan
from either Fannie Mae or Freddie Mac, whichever
is greater.60
• Prepayment penalties. Prepayment penalties

which may be charged or collected under the terms
of the loan documents will be excluded from the
calculation of “points and fees” if the prepayment
penalty does not exceed one percent (1%) of the
amount prepaid and the loan documents do not
permit the lender to charge or collect any
prepayment penalty more than thirty (30) months
after the loan closing. Otherwise, prepayment
penalties are included in points and fees.61
• For an open-end credit plan, prepayment fees and

penalties which may be charged or collected under
59
N.C.G.S. §24-1.1E (a)(6)(b)1.
60
N.C.G.S. §24-1.1E(a)(6)(b)2.
61
N.C.G.S. §24-1.1E(a)(6)(b)3.
20
INTEREST AND USURY
the terms of the loan documents which do not

exceed one percent (1%) of the amount prepaid,
provided the loan documents do not permit the
lender to charge or collect any prepayment fees or
penalties more than (i) 30 months after the loan
closing if the borrower has no right or option under
the loan documents to repay all or any portion of
the outstanding balance of the open-end credit plan
at a fixed interest rate over a specified period of
time or, (ii) if the borrower has a right or option
under the loan documents to repay all or any
portion of the outstanding balance of the open-end
credit plan at a fixed interest rate over a specified
period of time, 30 months after the date the
borrower voluntarily exercises that right or option.
Total Loan Amount
For purposes of the “points and fees” test, the total loan amount is
calculated by taking the amount financed as determined under Reg Z and
deducting any of the following closing costs, but only if the specific
closing costs (i) were specifically financed as part of the loan transaction
and (ii) were included in calculating “points and fees”:
• Fees for title examination, abstract of title, title

insurance, property survey and similar purposes.
• Fees for preparing loan-related documents, such as

deeds, mortgages and reconveyance or settlement
documents.
• Notary and credit report fees.
• Property appraisal fees or fees for inspection to

assess the value or condition of the property if the
service is performed prior to closing, including
21
fees related to pest infestation or flood hazard

determinations.
• Amounts required to be paid into escrow or trustee

accounts if the amounts would not otherwise be
included in the finance charge.62
For an open-end credit plan, "total loan amount" means the

borrower's initial maximum credit limit.63
The high cost loan provisions became effective July 1, 2000.
Consumer Protections in Certain Home Loans
In addition to the high cost loan provisions, the North Carolina

Predatory Lending Act contained provisions intended to protect certain
borrowers from certain unfair and deceptive practices.64
For purposes of these provisions, a "consumer home loan" means
a loan, including an open-end credit plan, in which the borrower is a
natural person, the debt is incurred by the borrower primarily for
personal family or household purposes, in the loan is secured by a
mortgage on of real property on which is or will be located the borrower's
principal residence.65 These provisions do not apply to any loan greater
than $300,000.66
A lender may not finance directly or indirectly any credit life,
disability, or unemployment insurance or any other life or health
insurance premiums in connection with a consumer home loan; provided,
however, that insurance premiums calculated and paid on a monthly basis
shall not be considered financed by a lender for these purposes.67
In addition, a lender may not knowingly or intentionally engage in
the flipping of a consumer home loan. "Flipping" a consumer home loan
62
N.C.G.S. §24-1.1E(a)(5)(b).
63
N.C.G.S. §53-
64
N.C.G.S. § 24-10.2.
65
N.C.G.S. § 24-10.2(a).
66
N.C.G.S. § 24-1.1(f).
67
N.C.G.S. § 24-10.2(b).
22
INTEREST AND USURY
means the making of a consumer loan to a borrower which refinances an

existing consumer home loan when the new loan does not have a
reasonable tangible net benefit to the borrower considering all the
circumstances, including the terms of both new and refinance loans, the
cost of the new loan, and the borrower circumstances. This provision
applies without regard to whether the interest rate, points, fees, and
charges paid or payable by the borrower comply with section 24 1.1E.68
A lender may not recommend or encourage default on an existing
loan or other debts prior to and in connection with the closing or planned
closing of a mortgage that refinances all or a portion of such an existing
loan or debt. 69
In order to prevent a violation of this provision, lenders have
incorporated into their compliance programs a process which ensures (i)
that loan officers obtain an affidavit from their borrowers stating that the
borrower will recognize a tangible net benefit from the loan transaction,
(ii) that the net compensation to the mortgage broker and the lender in
connection with a loan does not exceed the savings to the borrower over
some reasonable time (five to seven years is common), and (iii) that a
borrower does not refinance sooner than 12 months after the closing of
his prior mortgage.
Consequences of Violation of Usury Statutes
Remedies for the violation of the usury statutes contained in

Chapter 24 include forfeiture of the entire interest which the notes or
other evidence of debt carries with it or which have been agreed to be
paid thereon, plus twice the amount of interest paid.70 In addition, a
borrower may be entitled to retain collateral securing a usurious
obligation in the event of foreclosure.71 This makes compliance with
these statutes extremely important. Where a violation with respect to an
unlawful fee occurs, it appears from North Carolina case law that the
68
N.C.G.S. § 24-10.2(c).
69
N.C.G.S. § 24-10.2(d).
70
N.C.G.S. § 24-2.
71
N.C.G.S. § 24-2.
23
amount of the unlawfully collected fee, and not all of the interest on the
loan, is the measure of damages.72
Violation of the high cost loan statutes is an unfair and deceptive
trade practice subject to Chapter 75 of the General Statutes, which means
that treble damages and attorneys’ fees are available to a prevailing
plaintiff. In addition, Chapter 75 gives the Attorney General the power to
cancel contracts which violate the statute, and to prosecute criminally
violators of the Act.
The statute of limitations for a claim under the usury statutes of
N.C. Gen. Stat. § 24-1 et seq. is two years.73 The running of the statute
of limitations for a plaintiff's cause of action for usury begins at the loan
closing.74
Clearly, a borrower in a high cost loan transaction would have a
right of rescission if he showed that the PLA had been violated. This is
an impractical remedy, however, because a borrower will not have a
place to live if he returns the home. It also becomes difficult where
several parties are involved in the transaction, some of whom may not be
liable for a violation of the Act.
In order to seek monetary damages, a borrower must affirm the
transaction under North Carolina law. If the borrower affirms the
transaction, then it is difficult to determine the proper measure of
damages. No case law in North Carolina addresses this issue.
The most significant risk to a lender is during foreclosure
proceedings involving a clear violation of the high cost loan provisions.
Foreclosure of a high cost loan in this state is very difficult.
Correction Provisions
A lender in a high-cost home loan who, when acting in good faith,

fails to comply with the provisions of section 24-1.1E, it will not be
deemed to have violated the statute if the lender establishes that either:
72
See Swindell v. Federal National Mortgage Assn., 330 N.C. 153, 159 (1991).
73
N.C.G.S. §1-53(2),(3).
74
Shepard v. Ocwen Federal Bank, FSB, 617 S.E.2d 61 (2005).
24
INTEREST AND USURY
•
Within 30 days of the loan closing and prior to the
institution of any action under this section, the
borrower is notified of the compliance failure,
appropriate restitution is made, and whatever
adjustments are necessary are made to the loan to
either make the high-cost home loan satisfy the
requirements of the statute or two change the terms
of the loan in a manner beneficial to the borrower
so that the loan no longer will be considered a
high-cost home loan; or
•
The compliance failure was not intentional and
resulted from a bona fide error notwithstanding the
maintenance of procedures reasonably adapted to
avoid such errors, and within 60 days after the
discovery of the compliance failure and prior to the
institution of legal action, the borrower is notified
of the compliance failure, appropriate restitution is
made, and whatever adjustments are necessary are
made to the loan to either make the high-cost home
loan satisfy the requirements of the statute or two
change the terms of the loan in a manner beneficial
to the borrower so that the loan no longer will be
considered a high-cost home loan.75
Federal Preemption
Caution should be exercised by lenders and brokers who rely on

federal preemption to escape North Carolina predatory lending and usury
laws.
There are several sources of federal preemption of state lending
laws whose availability depends on the type of loan, the type of lender
and the type of state law at issue. The three that arise most often are
federal preemption of state usury laws under “most favored lender” and
75
N.C.G.S. § 24-1.1E(e).
25
“exportation authority”; federal preemption of state laws applicable to

federal banks and thrifts; and federal preemption of state usury laws
governing certain residential mortgage loans. These preemption
principles may apply generally to state-chartered and federally-insured
banks and thrifts, but they do not necessarily apply to non-bank and non-
thrift lending institutions or mortgage brokers.
The Depository Institutions Deregulation and Monetary Control
Act ("DIDMCA"), preempts state usury laws with respect to loans
secured by first liens on residential property regardless of the identity of
the lender. More specifically, this provision preempts state laws
governing interest rates, discount points, finance charges and other
related charges (which have generally been interpreted as including fees
that are part of the "annual percentage rate" under the Truth in Lending
Act ("TILA")). While this is a broad preemption relied upon by many
national lenders, this preemption does not apply in North Carolina.76
Another argument lenders make to avoid North Carolina usury
laws is that the Alternative Mortgage Transaction Parity Act applies to
preempt them. AMTPA applies to “alternative mortgage transactions” by
any “housing creditor”, including creditors in transactions involving
manufactured housing loans. There are three types of “alternative
mortgage transactions”: adjustable rate mortgages, balloon loans
(maturity is shorter than term), and any other loan that is not fixed rate,
fixed term. There are three types of “housing creditor”: depository
institutions, HUD-approved lenders, and any person who regularly makes
loans secured by an interest in residential property.
Under AMPTA, banks must make AMT’s in accordance with
OCC regulations; credit unions must make AMT’s in accordance with
NCUA regulations, and all others are subject to OTS regulations. Thus,
state chartered non-bank and non-thrift lenders are not protected by
AMPTA. For many years, OTS rules permitted prepayment penalties in
all AMT’s; these rules were rescinded effective July 1, 2003 and no
longer provide the basis for preemption.
Federal preemption of the North Carolina usury laws is not a
given. The high cost loan statute was designed by some very smart
76
N.C.G.S. § 24-2.3.
26
INTEREST AND USURY
lawyers specifically to avoid federal preemption issues. In addition, bear

in mind that AMPTA and other federal preemption statutes are focused
on the lender: how many lenders are there in a single transaction?
The Commissioner takes the position that current federal
preemption principles do not apply to mortgage brokers. Mortgage
brokers are not likely to be able to seek refuge behind federal lender
preemptions. Mortgage lenders who assist them or require them to
violate North Carolina state law (at least in the eyes of the primary
regulator) may be taking unnecessary legal risks.
27
28
THE NORTH CAROLINA MORTGAGE LENDING ACT
North Carolina adopted its comprehensive licensing statute

known as the “The North Carolina Mortgage Lending Act” (the “MLA”).
The MLA is administered by the North Carolina Commissioner of Banks
(the “Commissioner”). A list of documents required by the MLA, and
filing fees related thereto is attached as Appendix 6. A copy of the MLA
and related regulations are attached as Appendix 7.
Scope of MLA
Any person who acts as a mortgage broker, loan officer or

mortgage banker must be licensed by the Commissioner.77
A mortgage banker is anyone who engages in the lending of
money, but does not include one who engages solely in tablefunding.78
“Tablefunding” is defined as a transaction where a licensee closes a loan
in its own name with funds provided by others, and the loan is assigned
simultaneously to the mortgage lender providing the funding within one
business day of the funding of the loan.79
A mortgage broker is anyone who, for compensation or gain,
directly or indirectly accepts or offers to accept a mortgage loan
77
N.C.G.S. §53-243.02(a), (b).
78
N.C.G.S. §53-243.01(13).
79
N.C.G.S. §53-243.01(20).
application, solicits or offers to solicit a mortgage loan, issues mortgage

loan commitments or interest rate guarantee agreements to borrowers or
engages in tablefunding of mortgage loans.80 This definition can include
real estate agents who receive referral fees or other compensation from
mortgage brokers in exchange for referrals or loan-related services and
those who provide leads for potential borrowers; this latter group is only
considered a mortgage broker where fees are earned and paid only on
closed loans. Lead list generators who are paid without regard to the
closing of loans to the prospects provided do not require a license.
A loan officer is an individual who accepts or offers to accept
mortgage loan applications.81 Generally, account executives of mortgage
lenders who market to mortgage brokers and who do not solicit
customers directly are not required to be licensed. Also, individuals or
businesses who sell closed mortgage loans are not required to be
licensed.
The Commissioner’s current position is that a person is required
to be licensed as a loan officer if he or she makes any oral or written
means communicates to a consumer information regarding a pending
potential application for a mortgage loan. Such communications include,
but are not limited to: (i) explanations or recommendations regarding
specific terms, conditions or benefits of any loan available from or
through his or her employer, whether or not the consumer is made or later
makes application, (ii) explanations of any term or aspect of any
disclosure or agreement given at or after the time that an application is
received, and (iii) offers to make or solicits a loan terms and conditions
different from those for which the consumer applied.
Mortgage lenders and brokers should take care to ensure that their
employees who are not licensed as loan officers, such as processors and
telemarketers, do not engage in activities which would require licensure.
80
N.C.G.S. §53-243.01(1) , (14).
81
N.C.G.S. §53-243.01(10).
30
NORTH CAROLINA MORTGAGE LENDING ACT
Exemptions
The following are exempt from the licensing provisions of the

MLA:
• Agencies of the federal government or any state or

municipal government granting mortgage loans
under specific authority of the laws of any state or
the United States are exempt. 82
• The Act exempts any employee of a licensee

whose responsibilities are limited to clerical and
administrative tasks for his or her employer and
who does not solicit borrowers, accept
applications, or negotiate the terms of loans on
behalf of the employers. Those whose duties are
limited to processing an application or obtaining
information to complete a loan package need not
be licensed. Communications limited to general
information regarding the licensee or its loan
products also do not subject an otherwise exempt
person to the licensure requirements.83
• The Act exempts any bank or wholly-owned

subsidiary of a bank, farm credit system, savings
institution, or credit union. Note that this
exemption does not include "affiliates" nor does it
include entities in which a bank holds a controlling
interest but less than all of the outstanding
ownership interests.84 Thus, affiliation with a bank
holding company is not sufficient to qualify for an
82
N.C.G.S. §53-243.01(8)a.
83
N.C.G.S. §53-243.01(8)b.
84
N.C.G.S. §53-243.01(8)c.
31
exemption; this is a departure from prior law and

the law of many other states.
• The Act exempts real estate agents, except those

who are compensated with respect to mortgage
loan activities.85 Those who are compensated in
any way for mortgage-related services, such as
completing a loan application, are violating the
Act, along with the mortgage brokers who engage
them.
• The Act exempts any officer or employee of an

entity exempt under another provision of the Act.86
• The Act exempts a seller who receives no more

than five purchase money mortgages in a single
year. Note that this is not a de minimus
exemption; a lender must also be an owner and
seller in order to take advantage of it. Also, note
that builders and others who make more than five
purchase money mortgages in a single year must
be licensed.87
• The North Carolina Housing Finance Agency is

exempt under the Act.88
• The Act exempts 501(c)(3) non-profit

corporations, provided that such corporation is not
primarily in the business of soliciting or brokering
mortgage loans.89
85
N.C.G.S. §53-243.01(8)d.
86
N.C.G.S. §53-243.01(8)e.
87
N.C.G.S. §53-243.01(8)f.
88
N.C.G.S. §53-243.01(8)g.
89
N.C.G.S. §53-243.01(8)h.
32
• Life insurance companies licensed to do business

in North Carolina with regard to provisions
concerning mortgage lenders are exempt.90
Employment of Loan Officer
A mortgage lender or mortgage broker may not hire or pay a loan

officer who is not licensed, or a loan officer who is not registered with a
mortgage lender or broker with the Commissioner.91 A loan officer’s
license is not effective during any period that the loan officer is not
employed by a mortgage broker or mortgage lender.92 A loan officer
may not be employed by more than one mortgage lender or mortgage
broker simultaneously. Employers and loan officers are required to
notify the Commissioner when a loan officer's employment status
changes.93 Change of status forms are attached as Appendix 8.
Application
A mortgage broker or mortgage lender and loan officer must file

an application for licensure which sets forth information required by the
Commissioner.94 Licensure application forms are attached as Appendix
9.
A loan officer applicant must be 18 years old, and have completed
a mortgage fundamentals course and passed an examination.95 In
addition a loan officer's license is not effective unless he is affiliated with
a licensed mortgage lender or mortgage broker.96 In other words, a loan
officer’s license may be granted in the absence of employment, but the
license will be inactive until the loan officer identifies his employer. The
Commissioner has interpreted this requirement to mean that the loan
90
N.C.G.S. §53-243.01(8)i.
91
N.C.G.S. §53-243.02(b), (c).
92
Id.
93
Id.
94
N.C.G.S. §53-243.05(a).
95
N.C.G.S. §53-243.05(b).
96
N.C.G.S. §53-243.02(c).
33
officer must be paid on a W-2 basis; independent contractor status is not

sufficient.97
Each applicant for a mortgage broker or mortgage lender license
must identify at least one person who will qualify as its managing
principal. A managing principal must have at least three years'
experience in mortgage lending business.98 The Commissioner takes
significant efforts to verify employment; obtaining a license can be
difficult where a managing principal’s previous employers are
uncooperative or unreachable or where the three years’ experience
requirement is met with experience with multiple employers.
A person is considered to have acquired "experience in residential
mortgage lending" during any documented period in which: (1) that
person's employment income was principally derived from employment
in the mortgage banking, banking or mortgage brokerage industry; and
(2) he or she had actual responsibility for job functions requiring
knowledge of basics of home purchase and ownership, the mortgage
industry generally, loan evaluation and documentation, the operation of a
mortgage firm, features of various loan products, state and federally
required disclosures, and ethical considerations.99
The license application fee is $1,000 for licensure as mortgage
broker or mortgage lender and $50.00 for licensure as loan officer.100
Mortgage brokers must post a surety bond in the amount of
$50,000, and mortgage lenders must post a surety bond in the amount of
$150,000. Loan officers are not required to post a surety bond as a
condition to licensure. A HUD-approved mortgagee with an audited net
worth of over $250,000 is not required to post a surety bond in
connection with a license application. Each branch office operated by a
mortgage broker or mortgage lender is issued a separate license.101
Forms of the surety bonds for mortgage lenders and mortgage brokers are
97
See N.C.G.S. §53-243.01(7).
98
N.C.G.S. §53-243.05(b).
99
04 NCAC 03M.0204.
100
N.C.G.S. §53-243.05(e).
101
N.C.G.S. §53-243.05(h).
34
Each mortgage broker licensee must maintain a place of business

in North Carolina. The place of business must be accessible during
regular business hours and be appropriate for the storage of books,
records and files. Home offices are allowed, but in certain circumstances
may constitute a branch office that must be licensed. Licensees must
display prominently their licenses.102
The licensing process takes from 30 to 90 days from acceptance
of an application to the issuance of a license.
A licensed mortgage lender does not need to hold a mortgage
broker's license in order to broker loans.
Each licensed loan officer must meet continuing education
requirements of eight hours per year.103
Annual renewal
Licensees are required each year to renew their licenses with the
commissioner, and to pay an annual renewal fee. Renewal fees are
$500.00 per year for mortgage lenders and brokers, with an additional
$100.00 for each branch office and $50 per year for loan officers.104
Managing Principals and Branch Managers
Each licensee must have a managing principal who is responsible

for the licensee's business in this state, and each branch office must have
a branch manager who controls the business of the branch.105 A branch
manager must meet the three years’ experience requirement. Where
individuals assume the responsibility of a managing principal or a branch
manager, they can be held responsible for the acts of employees and
others whom they are obligated to supervise. Thus, the position of
managing principal or branch manager should not be undertaken lightly.
102
N.C.G.S. §53-243.09.
103
N.C.G.S. §53-243.07.
104
N.C.G.S. §53-243.06(a).
105
N.C.G.S. §53-243.08.
35
The managing principal and each of the branch managers must

meet the three year experience requirement. Thus, each branch office on
a licensed mortgage lender or mortgage broker should be supervised by
an experienced branch manager. In addition to his duties as managing
principal of a licensee's business, the managing principal identified by a
mortgage broker or mortgage lender also may manage a branch office.
Each licensee must file any change in location of, or the managing
principal or branch manager of, any office with the Commissioner.106
Forms for these filings are attached as Appendix 7 and 11.
Change in business of licensee
Licenses are not assignable. Any attempt to transfer or assign a

license through a change of control without the prior consent of the
Commissioner is ineffective; is grounds for immediate revocation of such
license; and may render the assignor licensee responsible for any and all
actions or omissions of its assignee which occur while acting under the
apparent authority of such license.107 For these purposes, control means
the power to vote 20% or more of the outstanding interests of a
licensee.108
In addition, a change in the identity of a licensee's controlling
person or any material change in the licensee's organizational structure
shall be considered a transfer or assignment of the license.109 However,
the Commissioner must permit such a change without requiring the
licensee to apply for a new license if the licensee gives notice to the
Commissioner at least 60 days in advance of the effective date of the
proposed change; and the Commissioner determines that permitting the
licensee to continue to operate under its existing license would not be
inconsistent with the purposes of the Act.110
A licensee may, with the prior approval of the Commissioner,
change its corporate name or the name under which it operates, provided:
106
N.C.G.S. §53-243.08.
107
N.C.G.S. §53-243.06(c); 04 NCAC 03M .0202(a).
108
N.C.G.S. §53-243.01(6).
109
04 NCAC 03M .0202(b).
110
Id.
36
(1) the licensee and the proposed new name satisfies all applicable laws
pertaining to corporate, fictitious and trade names; (2) the licensee has
given the Commissioner at least 30 days prior notice of the proposed new
name; and (3) the Commissioner determines that the new name is not
likely to result in confusion among the general banking public regarding
the licensee's identity or powers.111
Grandfather Provisions
Any qualified person who filed, within 90 days after July 1, 2002,
a sworn application with the Commissioner stating that he or she met the
definition of a qualified person, including a statement that he or she had
not been convicted of any felony or any misdemeanor involving moral
turpitude, was issued a license as a loan officer from the Commissioner
without having to meet the training requirements for licensure.112 A
“qualified person" is defined as
a person who was employed at the effective date of the MLA as a loan
officer by a lender, or by a mortgage banker or broker registered with the
Commissioner under former Article 19 of Chapter 53, or who was a
general partner, manager, or officer of a lender, registered mortgage
banker, or registered mortgage broker on such date.113
Licensing under these “grandfather” provisions is no longer
available. Importantly, background checks were no performed with
respect to most loan officers who qualified for grandfathering under these
provisions. Thus, reliance on the issuance of a loan officer license as
evidence of a clean background check is not advisable.
Provisional Licenses
Any person who has completed and filed with the Commissioner
the application and all documents required for licensure as a loan officer
other than documents relating to the required examination and the
mortgage lending fundamentals course may act as a loan officer during
111
04 NCAC 03M .0203.
112
2001 N.C. Sess. Laws ch. 393, § 5(b).
113
N.C.G.S. §53-243.01(18).
37
the period before action is taken on the application by the Commissioner,

if:
• The Commissioner has not denied, revoked, or

taken any adverse action with respect to an
application filed by or license held by such person
during the five-year period ending on the date of
filing of the application;
• The loan officer is employed by a licensed

mortgage broker or mortgage banker, and the
managing principal of such mortgage broker or
mortgage banker (i) certifies to the Commissioner
in writing that the managing principal reasonably
believes that the application of the person for
licensure as a loan officer meets or exceeds all of
the relevant requirements of the MLA for licensure
and (ii) undertakes in writing that the managing
principal and the employer will be responsible for
the acts of the applicant during the period that such
application is pending; and
•
The person is currently or has within the six-month
period prior to the date of the application been
employed as and acting as a loan officer for a bank
or similar financial institution.114
Forms to qualify for this exemption are attached as Appendix 12.
Limited Loan Officers and Affiliated Mortgage Bankers
The MLA allows for the registration of “limited loan officers,”

who are defined as individuals employed by an “affiliated mortgage
banker” who directly solicit, negotiate, offer or make commitments for
114
N.C.G.S. §53-243.02(f).
38
mortgage loans. To qualify as an affiliated mortgage banker, a company

must be a licensed mortgage banker and:
• Maintain mortgage licenses in five or more states;
• Be subject to state licensing laws or a state or

federal agency regulatory structure either approved
by the North Carolina Commissioner of Banks
(Commissioner), or with whom North Carolina has
entered into a reciprocity agreement;
• Employ 100 or more persons required to be

licensed under the Mortgage Lending Act;
• Maintain a net worth of $100,000,000 or more, or

produce evidence that the licensee’s parent
company has a net worth of at least $100,000,000
and that the parent has provided an unconditional
guaranty of the licensee’s performance of the
obligations under the Mortgage Lending Act.
Alternatively, a licensee may qualify as an affiliated mortgage

banker if it:
• Is a wholly owned subsidiary of a holding

company regulated by the Federal Reserve or the
Office of Thrift Supervision (OTS); and
• Maintains a net worth of $100,000,000 or if failing

that, demonstrates that the parent has total assets in
excess of $10,000,000,000 and that the parent has
provided an unconditional guaranty of the
licensee’s performance of the obligations under the
Mortgage Lending Act.115
115
N.C.G.S. §53-243.01(2b).
39
Limited loan officers may work provisionally for up to 60 days,

while the individual’s license application is pending with the
Commission. In addition, affiliated mortgage bankers may obtain
approval from the Commissioner to conduct background checks, training,
testing and education of its limited loan officers through in-house
programs, rather than complete the state’s background check, testing and
education programs. Under these provisions, companies who qualify as
affiliated mortgage bankers are able to license and educate their
employees privately without the intervention of the Commissioner.116
Forms related to qualification as an affiliated mortgage banker are
attached as Appendix 13. A limited loan officer must complete the
application attached as Appendix 8.
Exclusive Mortgage Broker
The MLA authorizes the issuance of a license to one who

qualifies as an exclusive mortgage broker. This is a limited license which
allows an individual to initiate loans exclusively for a single mortgage
banker. Under these provisions, a person with less than three years
experience in residential mortgage lending may be licensed as a mortgage
broker if the person:
• Completes an approved residential mortgage-

lending course of at least 40 hours and passes an
approved exam.
• Acts exclusively for one mortgage banker. The

mortgage banker will be responsible for
supervising the exclusive mortgage broker and
shall be jointly and severally liable with the broker
for any claims arising out of the broker's activities.
• Does not base the broker's compensation on loan

amount, interest rate, fees or any other terms of the
loan brokered.
116
N.C.G.S. §53-243.05A.
40
• Does not handle borrower or other third-party

funds as part of the loan transaction.
Exclusive mortgage brokers are not permitted to operate branch

offices or supervise other licensees.117 These provisions are used by
large insurance companies who operate mortgage lending businesses to
allow agents who do not meet the experience requirements to make
mortgage loans.
Duties imposed on Mortgage Brokers
The MLA imposes several statutory duties on mortgage brokers

which are unique to North Carolina:
• To safeguard and account for any funds handled

for borrower
• Follow reasonable and lawful instructions of the

borrower
• Act with reasonable skill, care and diligence
• Make reasonable efforts, with lenders with whom

the broker regularly does business, to secure a loan
that is reasonably advantageous to the borrower
considering all the circumstances including rates,
charges, and repayment terms of the loan and the
loan options for which the borrower qualifies with
such lenders.
There has been no litigation with respect to these requirements in

North Carolina. Prudent lenders and brokers, however, will take
reasonable steps to document their handling of funds for a borrower; to
document their contact with the borrower; and to document the generally
prevailing market conditions in connection with a loan in order to defend
117
N.C.G.S. §53-243.05(c)(1a).
41
a claim under these provisions.118
Prohibited Activities
The Act prohibits the following activities:
• To misrepresent or conceal material facts or make

false promises.
• To refuse improperly to issue a satisfaction of

mortgage.
• To fail to account for or deliver to any person any

funds, documents, or other thing of value obtained
in connection with loan.
• To pay, receive or collect any fee, commission or

other compensation in violation of the Act.
• To advertise in a misleading manner.
• To fail to disburse funds in accordance with a

written commitment or agreement.
• To engage in any practice which is not in good

faith or fair dealing.
• To fail promptly to pay when due reasonable fees

to a licensed appraiser for appraisal services that
are requested from the appraiser in writing by the
mortgage broker or mortgage lender or an
employee of the mortgage broker or mortgage
lender; and that are performed by the appraiser in
connection with the origination or closing of a
118
N.C.G.S. §53-243.10.
42
mortgage loan for a customer or the mortgage

broker or mortgage lender.
• To influence or attempt to influence through

coercion, extortion, or bribery, the development,
reporting, result, or review of a real estate
appraisal sought in connection with a mortgage
loan.
• To fail to comply with the mortgage loan servicing

transfer, escrow account administration, or
borrower inquiry response requirements imposed
by RESPA.
• To charge or collect any fee prohibited by Chapter

24.119
A few notes about these prohibited items. Firstly, a violation of

these prohibitions may subject a licensee to fines, or suspension or
revocation of its license. Also, note that this list of prohibitions does not
state clearly that they may only be enforced by the Commissioner; thus, a
violation may subject a licensee to a civil action by a damaged borrower.
Secondly, the prohibition with respect to paying fees to
unlicensed individuals was included specifically to prevent the payment
of referral and other fees with respect to mortgage loans to real estate
agents who are not licensed under the Act.
Thirdly, appraisers in North Carolina aggressively use the
provisions in the Act to collect unpaid appraisal fees. The best practice is
to collect appraisal fees from a borrower at the closing or to require the
borrower to pay the fees at the time the appraiser visits the borrower’s
property. Brokers in nearly all circumstances will be required to pay
appraisers’ fees where the appraisal is performed with payment to come
at closing and the loan fails to close for whatever reason. Also, nothing
in the provisions related to appraisals prohibits a mortgage broker or
mortgage lender from asking the appraiser to consider additional
119
N.C.G.S. §53-243.11.
43
appropriate property information; to provide further detail, substantiation,

or explanation for the appraiser's value conclusion; or to correct errors in
the appraisal report.
Fourthly, many lenders use a variety of arguments to state that the
North Carolina laws related to prohibited fees are preempted by federal
law. The last two prohibitions, those with respect to prepayment
penalties and with respect to fees prohibited by Chapter 24, were
included in the Act for the sole purpose of authorizing the Commissioner
to suspend or revoke the licenses of mortgage brokers who engaged in
such practices where the lenders argued that preemption applied.
Fifthly, the Commissioner has placed emphasis on lenders who
engage in business arrangements with brokers who violate these
provisions. Thus, fines of lenders who deal with unlicensed brokers or
with brokers who violate these provisions (particularly the prepayment
penalty provisions) are becoming more frequent.
And finally, these provisions apply to all those engaged in the
mortgage lending business in North Carolina, even those who are not
licensed and those who are exempt from licensure under the Act, subject
to applicable federal preemption.
Enforcement Powers
The Commissioner's powers to enforce the Act are clear and

broad. The Commissioner may enter cease and desist orders, may
impose fines, and may revoke the license of an individual or company
who:
• Has filed an application for license that, as of its

effective date or as of any date after filing,
contained any statement that, in light of the
circumstances under which it was made, is false or
misleading with respect to any material fact.
• Has violated or failed to comply with any

provision of the MLA, rule adopted by the
Commissioner, or order of the Commissioner.
44
• Has been convicted of any felony, or, within the

past 10 years, has been convicted of any
misdemeanor involving mortgage lending or any
aspect of the mortgage lending business, or any
offense involving breach of trust, moral turpitude,
or fraudulent or dishonest dealing.
• Is permanently or temporarily enjoined by any

court of competent jurisdiction from engaging in or
continuing any conduct or practice involving any
aspect of the mortgage lending business.
• Is the subject of an order of the Commissioner

denying, suspending, or revoking that person's
license as a mortgage broker or mortgage lender.
• Is the subject of an order entered within the past

five years by the authority of any state with
jurisdiction over that state's mortgage brokerage or
mortgage banking industry denying or revoking
that person's license as a mortgage broker or
mortgage banking industry or denying or revoking
that person's license as a mortgage broker or
mortgage lender.
• Does not meet the qualifications or the financial

responsibility, character, or general fitness
requirements under the Act or any bond or capital
requirements under the MLA.
• Has been the executive officer or controlling

shareholder or owned a controlling interest in any
mortgage broker or mortgage lender who has been
subject to an order or injunction described in the
Act.
45
• Has failed to pay the proper filing or renewal fee

under the Act.
• Has falsely certified attendance or completion of

hours at an approved mortgage lending continuing
education course.120
The Commissioner may, by order, summarily postpone or

suspend the license of a licensee pending final determination of any
proceeding under the Act. Upon entering the order, the Commissioner
shall promptly notify the applicant or licensee that the order has been
entered and the reasons for the order. The Commissioner shall calendar a
hearing within 15 days after the Commissioner receives a written request
for a hearing. If a licensee does not request a hearing and the
Commissioner does not request a hearing, the order will remain in effect
until it is modified or vacated by the Commissioner. If a hearing is
requested or ordered by the Commissioner, after notice of and
opportunity for hearing, the Commissioner may modify or vacate the
order or extend it until final determination.121
The Commissioner may, by order, impose a civil penalty upon a
licensee or any partner, officer, director, or other person occupying a
similar status or performing similar functions on behalf of a licensee for
any violation of the MLA. The civil penalty shall not exceed ten thousand
dollars ($10,000) for each violation of the MLA by a mortgage broker or
mortgage lender. The Commissioner may impose a civil penalty of up to
ten thousand dollars ($10,000) for each violation of the MLA by a person
other than a licensee or exempt person.122 This has been applied
frequently to unlicensed individuals and companies who have made loans
in North Carolina in violation of the Act; fines have ranged from $500 to
$5,000 per unlawful transaction.
In addition, upon finding that any action of a person is in violation
of the Act, the Commissioner may order the person to cease from the
prohibited action. If the person subject to the order fails to appeal the
120
N.C.G.S. §53-243.12(a).
121
N.C.G.S. §53-243.12(b).
122
N.C.G.S. §53-243.12(c).
46
order of the Commissioner, or if the person appeals and the appeal is

denied or dismissed, and the person continues to engage in the prohibited
action in violation of the Commissioner's order, the person shall be
subject to a civil penalty of up to twenty-five thousand dollars ($25,000)
for each violation of the Commissioner's order. The penalty provision of
this section is in addition to and not in lieu of any other provision of law
applicable to a licensee for the licensee's failure to comply with an order
of the Commissioner.123
When a licensee is accused of any act, omission, or misconduct
that would subject the licensee to disciplinary action, the licensee, with
the consent and approval of the Commissioner, may surrender the license
and all the rights and privileges pertaining to it for a period of time
established by the Commissioner. A person who surrenders a license is
not eligible for or submit any application for licensure under the MLA.124
If the Commissioner has reasonable grounds to believe that a
licensee or other person has violated the provisions of the MLA or that
facts exist that would be the basis for an order against a licensee or other
person, the Commissioner may at any time, either personally or by a
person duly designated by the Commissioner, investigate or examine the
loans and business of the licensee and examine the books, accounts,
records, and files of any licensee or other person relating to the complaint
or matter under investigation. The Commissioner may require any
licensee or other person to consent to a criminal history record check and
submit a set of that person's fingerprints in a form acceptable to the
Commissioner in connection with any examination or investigation.
Refusal to submit the requested criminal history record check or a set of
fingerprints shall be grounds for disciplinary action. The reasonable cost
of this investigation or examination shall be charged against the
licensee.125
The Commissioner may issue subpoenas to require the attendance
of and to examine under oath all persons whose testimony the
Commissioner deems relative to the person's business.126
123
N.C.G.S. §53-243.12(d).
124
N.C.G.S. §53-243.12(f).
125
N.C.G.S. §53-243-12(g).
126
N.C.G.S. §53-243.12(h).
47
The Commissioner may from time to time, at the expense of the

Commissioner's office, conduct routine examinations of the books and
records of any licensee in order to determine the compliance with the
Act.127 Currently, examinations are occurring every two to three years.
The Commissioner may require a licensee to pay to a borrower or
other individual any amounts received by the licensee or its employees in
violation of Chapter 24 of the General Statutes.128
If the Commissioner finds that the managing principal, branch
manager, or loan officer of a licensee had knowledge of or reasonably
should have had knowledge of, or participated in, any activity that results
in the entry of an order under this section suspending or withdrawing the
license of a licensee, the Commissioner may prohibit the branch
manager, managing principal, or loan officer from serving as a branch
manager, managing principal, or loan officer for any period of time the
Commissioner deems necessary. In other words, those responsible for
supervising loan officers who engage in unlawful activities can be
punished for the actions of their subordinates.129
Making or brokering a loan in violation of the Act is a Class I
Felony.130 A Class I felony is punishable by up to a year in prison.131
The Commissioner and his staff frequently will enter into consent
orders to resolve minor violations. These consent orders involve the
payment of fines and the admission of a violation, and can often result in
the avoidance of costly litigation. Retention of outside counsel nearly
always is a condition to discussions related to consent orders; very few
are issued to licensees who choose to represent themselves.
Records
A licensee must create and maintain or cause to be created and

maintained
127
N.C.G.S. §53-243.12(i).
128
N.C.G.S. §53-243.12(j).
129
N.C.G.S. §53-243.12(j).
130
N.C.G.S. §53-243.14.
131
N.C.G.S. §15A-1340.17.
48
• records of all cash, checks or other monetary

instruments received in connection with each
mortgage loan application showing the identity of
the payor, date received, amount, and purpose;
• records of a sequential listing of checks written for

each bank account relating to the licensee's
business as a mortgage broker or mortgage lender,
showing at least the payee, amount, date, and
purpose of payment, including identification of the
loan to which it relates, if any.
• a file for each mortgage loan application which

shall contain, as applicable, applicant's name, date,
name of person taking the application, HUD-1
Settlement Statement, copies of all agreements or
contracts with the applicant, including any
commitment and lock-in agreements, and all
disclosures required by State and Federal law.
• a record of samples of each piece of advertising

relating to the licensee's business of mortgage
brokerage or mortgage banking in North Carolina
for a period of 12 months.
• copies of all contracts, agreements and escrow

instructions to or with any depository.132
Except for samples of advertising materials, all records must be

kept for a period of at least three years, and shall be available for
inspection and copying upon request by the Commissioner. Records may
be maintained in the form of magnetic tape, magnetic disk or other form
of computer, electronic or microfilm media available for examination on
the basis of computer printed reproduction, video display or other
medium that is convertible by the Commissioner into legible, tangible
132
04 NCAC 03M .0501.
49
documents. Records required to be maintained must be secured against

unauthorized access and damage in an accessible location within the
State of North Carolina.133
A mortgage banking licensee which maintains a centralized out-
of-state storage facility for such records from multiple states may request
the Commissioner to approve its storage of such records in such out-of-
state location. Such requests will be approved provided that: (1) The
Commissioner determines that the proposed storage will ensure that the
records are secured against unauthorized access and damage; and (2) The
licensee agrees in writing to make available at its expense for inspection
and copying upon request by the Commissioner copies of all requested
records.134
A licensee must notify the Commissioner of any change in the
location of its books and records within 10 days following such
change.135
Miscellaneous
Each licensee is required to maintain a segregated trust fund for

borrower funds.136 These funds are those collected from the borrower to
pay unearned fees or to pay third parties, such as appraisers. Many
lenders and brokers do not maintain trust accounts because they do not
handle borrowers’ funds. This is an accepted practice, but a better
approach is to establish an account, even if it is not used frequently.
All exempt persons who are engaged in mortgage banking and
mortgage brokering in North Carolina are required to file notices with the
Commissioner identifying the basis of their respective exemptions.137 A
form of the exemption notice is attached as Appendix 14.
133
04 NCAC 03M .0502.
134
Id.
135
Id.
136
N.C.G.S. §53-243.13(e).
137
N.C.G.S. §53-243.15.
50
SPECIAL ISSUES
The following are discussions of frequently asked questions that

are not addressed elsewhere in these materials.
Co-Brokering Loans
The following is a discussion of “co-brokerage” arrangements

between mortgage brokers and others in North Carolina.
For purposes of this discussion, “co-brokerage arrangement” is
defined as any arrangement under which two or more mortgage brokers
agree to share fees or commissions in connection with a residential
mortgage loan.
The laws applicable to these issues are as follows:
• Section 8 of RESPA prohibits anyone (i) from

giving or accepting fees, kickbacks, or any other
consideration under any oral or written agreement
or understanding that mortgage-related business
will be referred to any particular person, or (ii)
from giving or accepting any portion or percentage
of any charge made or received for the rendering
of a mortgage-related service other than for

services actually performed.138
• Under North Carolina law, no person may receive

in connection with a mortgage loan (i) any
unreasonable compensation for loan-related goods,
products, and services, or (ii) any compensation for
which no loan-related goods and products are
provided or for which no or only nominal loan-
related services are performed.139 This provision is
consistent with applicable law under RESPA.
• A mortgage loan officer may be employed by, and

may receive compensation from, only one licensed
mortgage broker or mortgage lender.140
• No person may receive compensation of any kind

for a mortgage loan secured by North Carolina
residential real property unless licensed as a
mortgage broker (or exempt from such
licensure).141
• Loan officers must be employed as “W-2

Employees” by those from whom they receive
compensation.142
• Branch offices of a mortgage broker must be

licensed and must be supervised by a loan officer
with at least three years’ experience in the
mortgage business.143
138
12 USC §2607.
139
N.C.G.S. §24-8(d).
140
N.C.G.S. §53-243.02(c).
141
N.C.G.S. §53-243.02(a); N.C.G.S. §53-243.01(1), (2).
142
N.C.G.S. §53-243.01(7); N.C.G.S. §53-243.02(c).
143
N.C.G.S. §53-243.08; N.C.G.S. §53-243.05(h).
52
SPECIAL ISSUES
• Consumers have a right to financial privacy, to

know with whom they are dealing, and to know
with whom their financial information is being
shared.144
• These laws can be applied to address certain issues

related to co-brokering.
Co-brokerage with brokers not licensed or exempt
Under the provisions of the MLA, no person may receive

compensation of any kind in connection with a mortgage loan transaction
if such person is not licensed under the NCMLA (or exempt from such
licensure). Thus, any co-brokerage arrangement with a broker who is not
licensed under or exempt from the requirements of the NCMLA is
prohibited without regard to relative services provided by each broker. In
other words, co-brokerage arrangements with out-of-state mortgage
brokers who are not licensed under the North Carolina Mortgage Lending
Act (or who are not exempt from such licensure) are not permitted under
any circumstances.
Co-brokerage between two licensed mortgage brokers
Co-brokerage arrangements between two licensed mortgage

brokers are permitted, provided that steps are taken to ensure that the
arrangement does not violate the provisions of the NCMLA and RESPA,
and the rights of consumers. Thus, co-brokerage arrangements between
brokers are permitted under the following conditions:
• The managing principals, or their designees, of

each mortgage broker involved is aware of and
consents to the arrangement;
144
See Title V, Gramm-Leach-Bliley Act of 1999, Pub. L. No. 106-102, 106th
Cong., 1st Sess.
53
• The borrower is aware of and consents to the

participants in and terms of the arrangement;
• Each mortgage broker pays its own employees in

connection with the arrangement;
• Each mortgage broker performs substantial

mortgage-related services in connection with the
transaction (see the discussion below);
• The compensation received by each mortgage

broker in connection with the arrangement reflects
the relative contributions of each mortgage broker
to the transaction.
Co-brokerage with state or national chartered banks
State and national banks are exempt from the provisions of the
NCMLA. These institutions are not exempt, however, from the
requirements of RESPA or the Gramm-Leach-Bliley Act provisions
related to consumer financial privacy. Thus, co-brokerage arrangements
between a bank and a mortgage broker may be appropriate if steps are
taken to ensure compliance by both the bank and the mortgage broker
with the provisions of these laws, and to ensure compliance by the
mortgage broker with the provisions of the NCMLA. Co-brokerage
arrangements between banks and mortgage brokers are permitted if the
following conditions are satisfied:
• The managing principal, or his designee, of the

mortgage broker, and an authorized officer of the
bank involved are aware of and agree to the
arrangement;
• The borrower is made aware of and consents in

writing to the participants in and terms of the
arrangement;
54
SPECIAL ISSUES
• Each participant pays its own employees in

connection with the arrangement (i.e.,
arrangements where a mortgage broker pays a
bank employee directly would not be permitted);
• Each participant performs substantial mortgage-

related services in connection with the transaction
(see the discussion below);
• The compensation received by each participant in

connection with the arrangement reflects the
relative contributions of each mortgage broker to
the transaction.
Co-brokerage with Real Estate Agents.
As noted above, no person may receive compensation with

respect to a mortgage loan secured by North Carolina residential real
property unless such person is licensed under the NCMLA or exempt
from such licensure. Thus, the payment of any compensation to a real
estate agent by a mortgage broker in connection with a mortgage loan is
unlawful in all circumstances where the real estate agent is not licensed
under the NCMLA.
Various programs exist under which a North Carolina real estate
agent may be compensated by a mortgage broker or lender for limited
services (such as the taking of a loan application) in connection with a
mortgage loan. Certain participants in these arrangements believe that
such programs are permitted under the provisions of RESPA. It is not
necessary to make this analysis; these types of arrangements involving
real estate agents who are not licensed under the NCMLA are unlawful
without regard as to whether they are permitted under RESPA.
Becoming more common are arrangements under which real
estate agents have become licensed as loan officers and are employed by
mortgage brokers on a “W-2” basis. These arrangements do not fit
squarely within our definition of “co-brokerage”.
55
These arrangements are not illegal per se, but care should be
exercised in participating in one. Mortgage brokers and real estate agents
who are engaged in such arrangements should take care to ensure (i) that
the requirements of RESPA and NCMLA are satisfied completely, and
(ii) that the real estate agent who acts as a real estate agent and a
mortgage loan officer in a single transaction satisfies his or her fiduciary
duties to the borrower/buyer.
With respect to RESPA and NCMLA, the following requirements
must be satisfied in connection with arrangements under which a
mortgage broker employs a real estate agent:
• if the real estate agent does not regularly work in

the offices of the mortgage broker, the real estate
agent’s regular office must be licensed as a branch;
this may require the real estate agent or some other
supervising person to have three years or more of
experience in the mortgage lending industry;
• the customer must be aware of and agree to the

real estate agent’s acting as a real estate agent and
a mortgage broker in the same transaction;
• the mortgage broker must pay the real estate agent

on a W-2 basis;
• the real estate agent must perform substantial

mortgage-related services in connection with the
mortgage loan; and
• the compensation received by the real estate agent

for loan-related services must be reasonably
related to the value of such services.
In addition, to these conditions, the real estate agent must satisfy

his or her fiduciary duties to the borrower/buyer, which fiduciary duties
include (i) promoting the best interests of the borrower/buyer; (ii) being
56
SPECIAL ISSUES
loyal to the borrower/buyer; (ii) following the instructions of the

borrower/buyer; and (iv) providing the borrower or buyer with all
material facts that could influence his or her decisions.145
Manufactured Housing
The following are questions and answers regarding special issues

that arise in the sale and financing of manufactured housing.
1. Question: How does the predatory lending act

apply where a customer buys a manufactured home from a
retail sales lot, the application is taken by a sales person and
sent to a lender for approval, and the purchase is
consummated by a retail sales contract for the home only?
The Act applies to “loans” secured by “a security interest in a

manufactured home (as defined in G.S. 143-147(7)) which is or will be
occupied by the borrower as the borrower's principal dwelling.” NCGS
§24-1.1E(a)(4)(d). Thus, whether the Act applies to the transaction
described above turns upon whether the retail installment sales contract at
issue is a “loan” for purposes of the Act. Some definitions of “loan”
contained in certain provisions of Chapter 24 limit their application to
transactions secured by real estate (see §§24-1.1A(d) and 24-10.1), but
these definitions do not apply to §24-1.1E which contains no definition of
the term “loan”. Thus, to determine whether a “loan” exists for purposes
of this section, courts will look elsewhere.
North Carolina law recognizes that certain consumer installment
sales transactions are not “loans” for the purpose of the application of
North Carolina usury laws. The general rules are as follows:
A bona fide credit sale upon an installment payment basis

does not involve a loan of money or a forbearance of a
debt within the meaning and application of the usury laws.
Bank v. Merrimon, 260 N.C. 335 (1963).
145
See N.C. Real Estate Commission Publication, Working with Real Estate
Agents.
57
A vendor may fix on his property one price for cash and
another for credit, and the mere fact that the credit price
exceeds the cash price by a greater percentage than is
permitted by the usury laws is a matter of concern to the
parties and not to the courts, barring evidence of bad faith.
....
If there is a real and bona fide purchase, not made as the
occasion or pretext for a loan, the transaction will not be
usurious even though the sale be for an exorbitant price,
and a note is taken, at legal rates, for the unpaid purchase
money. The reason is that the statute against usury is
striking at, and forbidding, the extraction or reception of
more than a specified legal rate for the hire of money, and
not for anything else; and a purchaser is not, like the
needy borrower, a victim of a rapacious lender, since he
can refrain from the purchase if he does not choose to pay
the price asked by the seller. L.C. Williams Oil Co. v.
Nafco Capital Corp., 130 N.C. App. 286, 289 (1998).
The transactions in which manufactured housing lenders regularly

engage do not fit squarely into the “time-price” differential category
which exempts them from North Carolina usury laws. There are no
provisions contained in the NCRISA which provide that provisions of
Chapter 24 do not apply to transactions governed by it; thus, a transaction
can be a “loan” for Chapter 24 purposes and a “retail installment sale” for
Chapter 25A purposes.146
146
In fact, the heading to §25A-32.1 refers to consumer
installment sales contracts of the typed described as “mobile home
loans”. Former N.C.G.S. §24-1.1C (repealed in 1998) also referred to
this type of transaction as a “mobile home loan.” In addition, in the North
Carolina General Statues, the term “loan” is defined as “an agreement to
advance money or property in return for the promise to make payments
therefor, whether such agreement is styled as a loan, . . . a lease or
otherwise.” N.C.G.S. § 66-106(2) (Cum. Supp. 1997). The Real Estate
58
SPECIAL ISSUES
The North Carolina Supreme Court has recognized that a

commercial transaction which involves chattel paper is often structured in
such a manner that its essential character is masked. The courts of this
state regard the substance of a transaction, rather than its outward
appearance, as controlling. Thompson v. Soles, 299 N.C. 484, 263 S.E.2d
599 (1980). Specifically, when there is an allegation that the usury laws
have been violated by a particular act or course of conduct, the courts of
North Carolina will not hesitate to look beneath the formality of the
activity to determine whether such an incident is, in fact, usurious. If the
transaction is of doubtful character it will be submitted to a jury for
determination. Auto Supply v. Vick, 303 N.C. 30 (1981). These latter
cases generally involve commercial transactions, but their language
clearly opens the door to a review of the nature of the transaction to
determine whether a transaction is a “loan” or a “sale” for purposes of
applying the usury laws.
In most circumstances involving transactions in which a dealer is
shown as the initial creditor, interest is charged and the customer is told
that he is entering into a “loan transaction” with a third party lender even
though the documents indicate that the contract is a retail installment
sales contract. The contract is assigned or sold immediately after the
closing of the transaction to a lender who provides funds for the
transaction which are given to the dealer. The charging and collecting of
yield spread premiums, discount points, and other loan fees together with
the provision of credit insurance, also make the transaction look more
like a loan transaction and less like a pure sale. Accordingly, given the
parties whom the Act is intended to protect, the practices that it was
intended to prohibit, and the uncertainty of the Act’s language it is
extremely risky to assume that the Act does not apply to retail installment
contracts on which the dealer is the initial creditor.
With respect to an installment contract or note on which a third
party lender is the initial creditor, it is clear that this type of transaction is
covered by the Act. Applicable in this regard is the case of Collins v.
Horizon Housing, Inc., 135 N.C. App. 227 (1999), in which the plaintiff
Settlement Procedures Act also defines a “federally related mortgage

loan” to include a chattel mortgage on a manufactured home.
59
brought an action under RISA against a mobile home dealer who

allegedly sold him a defective home and against the bank who supplied
the financing. The court in Collins viewed the transaction as a “direct
loan” to which the NCRISA did not apply under Section 25A-1. A
“direct loan” secured by manufactured housing clearly falls within the
definition of a “loan” subject to the PLA. Thus, if lenders make direct
loans to borrowers, then the PLA will apply; if the loans are not direct
loans, RISA will apply and the PLA may also apply.
The PLA has the following effects:
• APR under TILA statements must be less than

provided for in Section 32, even though the loan is
a purchase loan and not a refinance transaction.
• Prepayment penalties are limited to 2 points/30

months.
• Points and fees are limited to five points. Bear in

mind that this amount is total points and fees
received by all parties to the transaction (dealer,
lender and affiliates).
• No restrictions on names and amounts of

individual fees.
• No restriction on discount points, but points and

fees permitted will be reduced.
• Yield spread premiums are permitted and do not

count in the maximum points.
2. Question: How does the Predatory Lending Act

retail sales center; the application is taken by a sales person
and sent to a manufactured home lender and to a land
development company; the home is purchased through a
retail installment sales contract; a real estate loan/mortgage
60
SPECIAL ISSUES
is made for the purchase of the land by the developer; the

dealer places the house on the lot (the home would be titled as
personal property through a DMV title )?
Under North Carolina law, mortgage brokers and mortgage

lenders are required to be licensed by the North Carolina Commissioner
of Banks. For purposes of the law,
• "mortgage broker" means “a person or entity in the

business of soliciting, processing, placing or
negotiating mortgage loans for others or offering to
process, place or negotiate mortgage loans for
others”
• "mortgage loan" means “a loan to a natural person

or persons made primarily for personal, family or
household use, primarily secured by either a
mortgage or a deed of trust on residential real
property”
• "residential real property" means “real property

located in North Carolina upon which there is
located or there is to be located one or more
single family dwellings or dwelling units”
• "Soliciting, processing, placing or negotiating a

mortgage loan" means “for compensation or gain,
either directly or indirectly, accepting or offering
to accept an application for a mortgage loan,
assisting or offering to assist in the processing of
an application for a mortgage loan, soliciting or
offering to solicit a mortgage loan on behalf of a
third party or negotiating or offering to negotiate
the terms or conditions of a mortgage loan with a
lender on behalf of a third party.147
147
N.C.G.S. §53-243.01(a).
61
Under these provisions, the activities of the sales representative

would cause him to fall within the definition of “mortgage broker” which
will require licensure by the Banking Commission.
This transaction would be subject to the provisions of the Act.
Clearly, the mortgage is subject to the Act, and it appears to be a part of
single, consolidated transaction. If it is considered a single transaction
then the PLA would have the following consequences to the transaction
in the aggregate:

provided for in Section 32.

months.
• Points and fees are limited to five points.
• Restrictions on types of fees allowed.
• No discount points unless in good faith charged to

reduce the rate.

Even if it were considered to be two separate transactions (one

land transaction and one personalty transaction), then the Act will clearly
apply to the real estate transaction which will have to meet its provisions
and may have to comply with the laws applicable to retail installment
sales, as well.
In this regard, Section 24-1.1E(d) prohibits intentionally dividing
any loan transaction into separate parts for the purpose and with the
intent of evading the statute’s provisions.
3. Question: How do the high-cost loan statutes

retail sales center; the application is taken by a sales person
62
SPECIAL ISSUES
and sent to a manufactured home lender; the customer owns

his own land; a “land in lieu” loan is made by the lender,
where the land is taken in lieu of a down payment; and the
dealer places the home on the lot and completes the home
improvements.
If a mortgage is placed on the property, then the Act will apply

and will have the following effects:

provided for in Section 32.

months.
• Points and fees are limited to five points.
• Restrictions on types of fees allowed.
• No discount points unless in good faith charged to

reduce the rate.

4. Question: The customer buys a manufactured

home from a retail sales center. The application is taken by a
sales person and sent to a lender and to a broker. A real
estate loan commitment is made for the land/home purchase
and a construction loan is also made. This transaction has
two closings - one on the construction loan with a construction
lender, and a permanent loan is made by a different lender
when the home is completed.
This is a common situation in the manufactured housing and stick

built housing construction lending businesses. In the absence of clear
guidance under North Carolina statutes, attorneys advising lenders have
63
determined that, if it is reasonable for the customer to view the entire

transaction as a single transaction, then it is a single transaction for
purposes of the Act. Thus, the aggregate transaction (that is, the terms of
the entire deal) must be considered for purposes of determining
compliance with the Act. The same limitations set forth in Example 3
will apply.
5. Question: A manufactured home retailer

develops a subdivision. He places “spec” homes on the lots
and offers them for sale. The customer comes to the sales
center, a salesman takes the loan application and forwards it
to the lender/broker. After loan approval, customer signs a
note and deed of trust at closing and title the land and home is
transferred by deed.
The licensing issue clearly applies to this practice, as well. The

loan transaction must comply with the Act, and it will have the effects set
forth above in Example 3.
6. Question: What liabilities, if any, are assumed

by the retailer, the retailer’s salesman, the lender and the
broker?
A retailer who intentionally violates the PLA may be held liable

for civil and criminal penalties, and he may be held liable for the acts of
his salesmen and representatives. Likewise, a salesman or broker can be
held liable for civil and criminal damages for his acts. A lender who
participates in an unlawful transaction can suffer two ways: the
transaction can be rescinded or repudiated and the lender may be subject
to civil and criminal penalties. The most significant risk of
noncompliance is on the lender; I believe that it will be extremely
difficult and expensive, if not impossible, to foreclose upon collateral for
a loan or transaction that violates the PLA. With respect to all of these
examples, it is possible for each of the parties to the transaction to be held
liable for the actions of the others on common law agency theories.
64
SPECIAL ISSUES
If a lender or broker takes the application at the dealer’s lot,

does this change the application of the predatory lending law to these
transactions?
The location of the application does not have any effect on the
application of the PLA to the loan transaction. It may affect, however,
the application of agency principles. For example, if a loan is a direct
loan and the loan transaction is conducted by a lender or broker entirely
off of the dealer’s site and does not involve any of his employees, then it
is unlikely that the dealer will be held liable for unlawful action by a
broker or lender. Likewise, unlawful acts by a dealer in these
circumstances may not be attributed to a broker or lender.
7. Question: What are the total number of buy

down points allowed, and can they be financed in each of the
examples above? Can the dealer take the buy down points in
any of these transactions? Is the answer different if the sale is
through a retail installment sales contract rather than a
mortgage loan?
The maximum number of discount points is five, but the better

way to view this is that the maximum amount of points is five and this
maximum includes discount points. It is prudent to avoid the term “buy
down points” on loans involving real property because it is not an
authorized fee under §24-1.1A. In addition, under §24-1.1A, “discount
points” may only be charged if they have a bona fide effect on the
interest rate.
8. In example 4, will both loans (the construction

and take out) be subject to the predatory lending law? Will
the points and fees on the two loans be considered one
transaction or two separate transactions?
The construction loan and the permanent loan will be subject to

the Act. If a single application is taken and the transaction is seamless to
the borrower, then it is likely that it will be treated as single transaction.
If it is clear to the borrower that he is engaging in two distinct
65
transactions, then a good argument can be made that they both are
separate transactions for purposes of the Act.
9. Question: Traditional manufactured home

lenders allow buy downs along with yield spread premiums
paid to the dealer. This too is normally financed in the loan.
How will the predatory lending law affect this? Is the answer
different if the home is sold through a retail installment sales
contract?
Yield spread premiums are not affected by the law; they are not
prohibited or permitted. But, any transaction in which a yield spread
premium is collected and discount points are charged is almost per se a
violation of RESPA, which does apply to loans for manufactured
housing.
10. Question: Credit life insurance and credit

health insurance are often sold by traditional manufactured
home lenders and financed in the transaction. How is this
practice affected under the predatory lending law? Is the
answer different for a home sold through a retail installment
sales contract?
Single premium term credit insurance is prohibited on loans

secured by a real property interest in the borrower’s principal
residence.148 On loans which are not secured by an interest in real
property, such insurance is permitted, but bear in mind that, if the PLA
applies and the insurance company is owned by the lender, then the
premium will be included in the five point cap under the PLA, and if the
credit insurance is required, then its inclusion in the APR will certainly
cause the APR to exceed the Section 32 limits.
148
N.C.G.S. §24-10.2.
66
SPECIAL ISSUES
Net Branching
On November 6, 2003, the Commissioner issued a declaratory

ruling to clarify its position on “net branching”. A copy of this letter is
Reasons for ruling
The Commissioner was faced with several cases related to net

branching and needed to define a policy to apply consistently. Many of
the rejected licenses were from net branch participants, which indicated a
lack of supervision of net branching operations. Other states and federal
GSE’s have policies, and Commissioner desired to be consistent with
those states and policies.
Basis of Ruling
The Commissioner analyzed the Mortgage Lending Act and

concluded that supervision and personal responsibility were basic
principles on which it is based. The MLA imposes personal
responsibility on the part of licensed loan officers for their behavior in
the conduct of mortgage lending activities. The MLA imposes personal
accountability and potential liability on the part of branch managers and
managing principals who supervise loan officers. The MLA requires
responsibility of licensed firms to supervise and manage the behavior of
all individuals in their employ, with potential liability for their breaches
and misconduct.
HUD “Net Branch” Letter
In making its ruling the commission looked at the HUD net

branch letter. The HUD letter contained No specific definition of “net
branch”, but it barred “net branch” arrangements which were solely for
the purpose of allowing another entity to make FHA loans without
meeting HUD’s asset and application requirements. Importantly,
however, the HUD letter does not prohibit a compensation arrangement
67
under which a branch manager is compensated based on the profitability

of the branch.
Findings of Letter
The Commissioner relied heavily on the HUD letter and made the
following findings:
• “Net branching” is prohibited by the MLA
• “Net branching” is generally defined as any

arrangement in which a business shifts liability and
financial and supervisory responsibility away from
the business and to branch managers
• Commissioner will consider totality of facts and

circumstances in determining whether an
arrangement is a prohibited “net branch”
• Commissioner will review agreements with branch

managers and principals in its audits of licensees
under the MLA
• Provisions which may be objectionable include:
• Those that require the branch manager to be

obligated to third party vendors, landlords, or
utilities providers
• Require a branch manager to indemnify the

company for liabilities incurred through the
operations of the branch
• Require a branch manager to personally cover

operating deficits of the branch
68
SPECIAL ISSUES
• Require a Form 1099 or attempt to characterize the

relationship as an “independent contractor” as
opposed to traditional agency or employee
relationship
• Seek to shift ownership in the licensee to the

branch manager in an effort to get around MLA
provisions
• Permit or require a person to operate exclusively

out of his principal residence without designating
the residence as a branch and without a qualifying
person supervising such activities
• Require a fee on a per transaction basis to be paid

to the company
• Require a branch manager to pay license fees

related to the branch
• Allow a branch manager to operate with little or no

supervision or internal controls
• Allow the branch manager to market products

separate or different from the licensee, or to
maintain lines of credit or warehouse lines separate
and apart from the licensee
• Allow or require a branch to be operated under a

different name than the licensee
Other factors that the commission will consider consist of:
• Clear hierarchy
• Quality control
69
• Systems and procedures for compliance

monitoring
• Continued training of staff
Solutions
Several initial and renewal licenses have been denied to loan

officers and companies because of net branching activities. Accordingly,
those involved in net branch arrangements should move quickly to ensure
that financial responsibility rests with the entity who maintains the
license licensee. In most cases, it is a fairly simple process to license the
net branch as a stand-alone entity.
Second Mortgages
Discussion of permitted fees and interest on second mortgages

(and other junior liens) requires analysis of mortgage loans of $25,000 or
less and mortgage loans of more than $25,000.
Second Mortgage Loans $25,000 or Less
The aggregate amount of permissible rates and fees with respect

to second mortgage loans less than $25,000 depends upon whether the
second mortgage lender is subject to Article 1 of Chapter 24 which
relates to a wide variety of mortgage loans or Article 2 of Chapter 24
which relates to second mortgage loans by certain mortgage lenders.
Second mortgage loans less than $25,000 by all lenders in the
following list are subject to Article 1 of Chapter 24:
“banks, insurance companies, or their duly designated

agents compensated directly by the lender, duly licensed
credit unions, production credit associations authorized by
the Farm Credit Act of 1933, or savings and loan
associations authorized to do business in this State, or to
loans made by any other lender licensed by, and under the
supervision of, the Commissioner of Banks and the State
70
SPECIAL ISSUES
Banking Commission, under the provisions of Chapter 53

of the General Statutes, or the Commissioner of Insurance,
under the provisions of Chapter 58 of the General
Statutes”.149
The maximum interest rate allowed on second mortgage loans

subject to Article 1 is the maximum rate published by the Commissioner
which is the latest published noncompetitive rate for U.S. Treasury bills
with a six-month maturity as of the fifteenth day of the month plus six
percent (6%), rounded upward or downward, as the case may be, to the
nearest one-half of one percent (½ of 1%) or sixteen percent (16%),
whichever is greater.150
Permitted fees on Article 1 second mortgage loans under $25,000
are difficult to determine. Section 24-10(a) of Article 1 provides that the
maximum fees or discounts that may be charged by a lender on a loan
secured by real property made under Section 24-1.1 of Article are one
percent (1%) of the principal amount of the loan (or 2% for certain
exempt lenders). Installment loans more than $25,000 secured by second
liens, however, are not governed by Section 24-1.1 but by Section 24-
1.2(2), and, therefore, are not subject to these fee limitations. In addition,
given the broad definition of “interest” used in Chapter 24, maximum
permitted fees will fluctuate with the interest rate on the applicable
loan.151
Other second mortgage loans less than $25,000 payable in six to
181 installments are subject to Chapter 2 of Article 24. A lender or
broker may receive an origination fee or discount of two points on such
an installment loan, provided that the amount received is less than two
percent (2%) of the principal amount of the loan LESS the amount of any
loan held by Lender to be refinanced, modified or extended.152
Interest on Article 2 loans is capped at one and one-half percent
(1 1/2%) per month or an annual rate equivalent to the Federal Discount
Rate plus five percent (5%), whichever is the greater, computed on the
149
N.C.G.S. §24-16.1.
150
N.C.G.S. §24-1.2(2a); N.C.G.S. §24-1.1(c).
151
152
N. C. Gen. Stat. § 24-10(a); N.C. Gen. Stat. §24-14(f).
71
actual or average daily unpaid balance of the principal amount of the loan
for the time actually outstanding. However, interest may not be
compounded. 153
In addition to the interest permitted, a lender in an Article 2 loan
may include in the loan his actual expenses which are paid to third parties
in connection with the loan. Such expenses shall be limited to those for:
title examination, title insurance, appraisals, surveys, and recording fees
or releasing fees to trustees or public officials, and permitted insurance
charges.154
Evidence of hazard insurance may be required by the lender of the
borrower. Credit life, credit accident and health, and credit
unemployment insurance, or any of them, may be offered but not
required; provided (i) that the borrower has indicated a desire to purchase
such insurance by signing a statement to that effect, (ii) that the borrower
is advised that he may acquire this insurance from any insurance carrier,
(iii) that the borrower is aware that this insurance may be rescinded
within 30 days after receipt of the policy or certificate, and (iv) that the
borrower directs the lender to purchase the above insurance from the
proceeds of his loan. The rates for the described insurance shall not
exceed the standard rates approved by the Commissioner of Insurance for
such insurance. Proof of all insurance issued in connection with loans
subject to Article 2 shall be furnished to the borrower within 10 days
from the date of application therefor by the borrower.155
No application fee or other charge is allowed in the event the loan
is not consummated. 156
A lender in an Article 2 junior mortgage loan must furnish the
borrower a complete and itemized closing statement showing all
disbursements of the loan proceeds and which shall total the principal
amount of the loan or security transaction. The closing statement must be
signed on behalf of the lender. A completed and signed additional copy
must be retained in the files of the lender to be made available at all
reasonable times to the borrower, until such time as the security
153
N. C. Gen. Stat. § 24-14(a).
154
N.C. Gen. Stat. §24-14(b).
155
N.C. Gen. Stat. §24-14(c).
156
N.C. Gen. Stat. §24-14(d).
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SPECIAL ISSUES
instrument shall be satisfied in full. The closing statement must contain

the following language printed in a conspicuous manner: "This loan is
one regulated by the provisions of Chapter 24, Article 2 of the General
Statutes of North Carolina entitled 'Loans Secured by Secondary or
Junior Mortgages'."157
Second Mortgage Loans Greater Than $25,000.00
Installment loans greater than $25,000 which are secured by

junior mortgage loans on residential real property (other than
manufactured homes) are governed by Article 1 of Chapter 24 which
provides that, on a loan greater than $25,000, a party may charge any rate
of interest agreed upon by the parties.158 Second and other junior
mortgages are subject to the Predatory Lending Act.159
Section 24-10(a) of Chapter 24 provides that, on loans made
under Section 24-1.1 (which applies to second mortgage loans over
$25,000), a lender may not receive any fees or discounts which fees or
discounts in the aggregate shall exceed 2% of a construction loan and 1%
on any other type of loan. Accordingly, the maximum loan origination
fee clearly authorized by statute that may be charged by a lender to a
borrower on a junior mortgage loan greater than $25,000 is 1% of the
principal amount of the loan.
Several lenders and brokers in the state have taken the view,
however, that the limitation on fees set forth in N.C.G.S. § 24-10 is not
applicable to fees charged by mortgage brokers who are not “lenders”,
i.e., brokers who do not fund loans with their own money and brokers
who do not tablefund. There is case law in this state supporting the view
that a broker who represents a borrower in obtaining a loan is not subject
to fee limitations.160 However, there is no case law to support the
position that the limitations on fees in Chapter 24 do not apply to a
157
N.C. Gen. Stat. §24-16.
158
N.C.G.S. §24-1.1.
159
N.C.G.S. §24-1.1E(a)(4).
160
Henderson v. Security Mortg. & Finance Co., 273 N.C. 253, 160 S.E.2d 39
(1968).
73
broker who has no agency relationship with the borrower or the lender as
is usually the case in North Carolina.
In addition, fee and interest provisions can be read in connection
with North Carolina case law which provides that an agreement to pay
interest at a rate greater than allowed by law is an essential element in a
claim of usury.161 In determining whether a transaction is usurious, "any
charges made against [a borrower] in excess of the lawful rate of interest,
whether called fines, charges, dues or interest are, in fact, interest..."162
Accordingly, an argument can be made that no usury exists where a
statute clearly authorizes unlimited interest rate charges. While this
position can be supported by existing case law, no case clearly states that
this is the governing principle in North Carolina.
Thus, a conservative approach to second mortgage lending would
allow only a 1% origination fee on loans greater than $25,000. Clearly,
however, compensation by the lender to the broker (i.e., back-end fees,
yield spread premiums) is not covered by the fee restrictions set forth in
Chapter 24.
Reverse Mortgages
Reverse mortgages are permitted in North Carolina only in

compliance with the "Reverse Mortgage Act" or "RMA", a copy of
which is attached as Appendix 16.
Banks, savings institutions and credit unions, and their wholly-
owned subsidiaries may make reverse mortgages without further
permission by the Commissioner.163 Lenders licensed under the MLA
also must be authorized under the RMA to engage in reverse mortgage
lending.164 Among other conditions, lenders who engage in reverse
mortgage lending must ensure that each borrower in such a transaction
161
E.g., Swindell v. Federal National Mortgage Assn, 330 N.C. 153, 159
(1991).
162
Id.
163
N.C.G.S. §53-258(b1).
164
N.C.G.S. §53-258(a).
74
SPECIAL ISSUES
has been counseled by an appropriately trained counselor as a condition

to the making of a reverse mortgage loan.165
In March, 2005, the Commissioner clarified the application of the
RMA and the MLA to reverse mortgages by issuing a declaratory ruling.
The declaratory ruling found as follows:
• A lender licensed under the MLA may make

reverse mortgage loans provided that the lender
meets the additional standards for approval under
the RMA and is approved as a reverse mortgage
issuer. The lender's activities in so doing will be
governed both by the MLA and the RMA.
• A person licensed solely as a mortgage broker

under the MLA may not engage in the business of
making reverse mortgage loans. The RMA only
permits lenders to engage in the business of
making reverse mortgage loans; it does not allow
for such loans to be brokered or for such loans to
be initiated by anyone other than the one who is
the actual lender of the loan.
• A reverse mortgage loan may not be brokered. The

RMA does not allow for the brokering of reverse
mortgages, only the making and servicing of such
loans by those who are approved. This is not to
say, however, that a borrower seeking a reverse
mortgage loan could never be referred by the loan
officer who was first contacted to a lender who
ultimately makes the loan; however, no fee could
be paid in such a case, and the referral would have
to be merely incidental because otherwise, the loan
officer or his employer would be engaged in the
business of brokering reverse mortgage loans.
165
N.C.G.S. §53-264(b).
75
• The RMA provides that certain entities listed in

the RMA occupy a position similar to the exempt
status set forth in the MLA. In order for banks,
thrifts, credit unions, and their wholly owned
subsidiaries to claim exempt status under the
MLA, they must notify the Commissioner of that
status. Similarly under the RMA lenders who do
not have to be approved by the Commissioner still
must notify him of their intent to make reverse
mortgage loans prior to making such mortgages in
the state.
• Individual licensure of representatives of reverse

mortgage lenders is not contemplated. The
safeguards of individual accountability and
responsibility effected by a rigorous licensure of
individuals and firms under the MLA are satisfied
under the RMA by more narrowly restricting
participation in the marketplace. Under the RMA,
approved lenders who participate are directly
responsible and accountable for the making of the
loans, by statute; no hierarchy of responsibility
need be imposed by individual licensure.
• Finally, the RMA calls for counselors to be trained

and approved; counselors need not be employees
of approved lenders and most often, are not.
A copy of the Commissioner’s letter is attached as Appendix 17.
Certain Issues related to Employment Agreements
One of the more common questions asked regarding North

Carolina law regards the enforceability of covenants not to compete. In
this State, a covenant not to compete is valid and enforceable if it is (1) in
writing; (2) reasonable as to terms, time, and territory; (3) made a part of
76
SPECIAL ISSUES
the employment contract; (4) based on valuable consideration; and (5)

not against public policy.166
It is well established in North Carolina that the promise of new
employment is valuable consideration and will support an otherwise valid
covenant not to compete contained in the initial employment contract.167
However, if an employment relationship already exists without a
covenant not to compete, any such future covenant must be based upon
new consideration.168 Thus, it is important that, if a covenant not to
compete is included in an employment agreement, then the employment
agreement should be executed at the outset of the employee’s
engagement.
In evaluating the reasonableness of time and territory restrictions,
the two elements are considered in tandem because the two requirements
are not independent and unrelated.169 Although either the time or the
territory restriction, standing alone, may be reasonable, the combined
effect of the two may be unreasonable. A longer period of time is
acceptable where the geographic restriction is relatively small, and vice
versa. One and two year time restrictions generally are well within the
established parameters for covenants not to compete.
In evaluating the reasonableness of the territorial restriction in a
covenant not to compete, this Court has focused on the following six
factors: (1) the area or scope of the restriction; (2) the area assigned to the
employee; (3) the area in which the employee actually worked; (4) the
area in which the employer operated; (5) the nature of the business
involved; and (6) the nature of the employee's duty and knowledge of the
employer's business operation.170 The scope of the territorial restriction
166
Triangle Leasing Co. v. McMahon, 327 N.C. at 228, 393 S.E.2d at 857. See
also Whittaker General Medical Corp. v. Daniel, 324 N.C. 523, 379 S.E.2d 824 (1989);
United Laboratories, Inc. v. Kuykendall, 322 N.C. 643, 370 S.E.2d 375 (1988).
167
Wilmar, Inc. v. Corsillo, 24 N.C. App. 271, 273, 210 S.E.2d 427, 429
(1974).
168
Greene Co. v. Kelley, 261 N.C. 166, 134 S.E.2d 166 (1964).
169
Farr Associates, Inc. v. Baskin, 138 N.C. App. 276, 280, 530 S.E.2d 878,
881 (2000).
170
Hartman v. W.H. Odell and Assoc., Inc., 117 N.C.App. 307, 312, 450
S.E.2d 912, 917 (1994).
77
must not be any wider than is necessary to protect the employer's

reasonable business interests.171
These requirements often are difficult to determine with
specificity, and a court in North Carolina will not “blue pencil” a
covenant not to compete; that is, North Carolina courts will not allow
modification of a covenant that is too broad in order to comply with these
requirements. The covenant is either enforceable as written or not at all.
Often, where an agreement contains an unenforceable non-compete
clause, other provisions related to an employee’s activities after his
termination are not enforced.
For these reasons, this author recommends a non-solicitation
clause which nearly always is enforceable. Non-solicitation provisions
also are easier to market to valuable new employees.
Also, many disputes arise related to payment of commissions on
loans that are originated prior to the termination of an employee’s
employment and closed after such termination. In the absence of an
agreement, commissions should be paid on the loans closed after
termination. Accordingly, provisions stating that an employee will not be
paid for transactions that close after his or her termination should be
included in an employment agreement. Clearly, an owner may decide to
pay such commissions, but this would be done only if the employee is
cooperative in the transition process.
Finally, the requirements of the federal Fair Labor Standards Act
with respect to mortgage loan originators is a source of confusion. As a
general rule, all employees (including loan officers and mortgage
processors) must be paid minimum wage and overtime in the absence of
an applicable exemption. Employees working over 40 hours per week
must receive time and one half for such hours work. An employee
cannot waive his or her rights to overtime.
On March 31, 2006, the Department of Labor (“DOL”) issued a
clarification regarding certain “sales force” mortgage loan officers and
whether they qualify for the minimum wage and overtime exemption for
outside sales employees. For purposes of the DOL letter, “sales force”
171
Triangle Leasing Co., 327 N.C. at 229, 393 S.E.2d at 857.
78
SPECIAL ISSUES
mortgage loan officers are those who perform their work primarily
outside the employer’s offices, and whose responsibilities differ from
those loan officers who are office based. For example, “sales force”
mortgage loan officers are responsible for originating their own sales by
contacting prospective clients and by developing and maintaining referral
sources, and spend a significant amount of time away from their
employer’s place of business in performing their principal duty of selling
the loan products offered by their employer. The DOL’s letter stated that
those loan officers who meet these conditions are exempt from the wage
and hour requirements of the FLSA.
An important implication of the DOL’s letter is that those who do
not meet its conditions for exemption may be, and likely are, subject to
the requirements of the FLSA in the absence of another applicable
exemption. The exemption most likely to apply is the administrative
employee exemption. To qualify for the administrative employee
exemption, all of the following tests must be met:
• The employee must be compensated on a salary or

fee basis (as defined in the regulations) at a rate
not less than $455 per week;
• The employee’s primary duty must be the

performance of office or non-manual work directly
related to the management or general business
operations of the employer or the employer’s
customers; and
• The employee’s primary duty includes the exercise

of discretion and independent judgment with
respect to matters of significance.
Thus, specific provisions to address these issues should be

included in the Employment Agreement.
A copy of a sample Employment Agreement is attached as
Appendix 18.
79
80
ISSUES IN NORTH CAROLINA
RESIDENTIAL MORTGAGE TRANSACTIONS
The following is a summary of the general closing process in

North Carolina along with comments that relate to items that are unique
to North Carolina law and practice. This is not intended to be a
comprehensive discussion of North Carolina real estate law. Reference
should be made to other works or to a North Carolina attorney relating to
conveyancing, foreclosure and other real estate issues.
Security Instruments
A mortgage is the transfer by the owner of property of legal title

to a lender to secure the repayment of the owner’s debt. A deed of trust
is a three party instrument in which the owner transfers legal title to a
trustee for the benefit of the lender. Deeds of trust are the common form
of security instrument in North Carolina. One significant difference
between the mortgage and deed of trust form is that a lender my acquire
title to the pledged property at the sale upon the foreclosure of a deed of
trust, but a lender’s purchase under a mortgage power of sale is voidable
under North Carolina law.172
172
Swindell v. Overton, 1983, 302 S.E.2d 841, 62 N.C. App. 160, review
allowed 310 S.E.2d 358, 309 N.C. 826, affirmed in part, reversed in part 314 S.E.2d
512, 310 N.C. 707.
A mortgage and deed of trust must meet all of the requirements

for a conveyance of property. These include (a) a competent grantor, (b)
a legally existing grantee, (c) words evidencing an intent to convey, and
(d) an adequate legal description of the property. The instrument must be
signed by the grantor, and must be delivered to the grantee.
A date is not required. A deed of trust need not be acknowledged
in order to be valid, but it must be acknowledged in order to be validly
recorded. A deed of trust or mortgage that does not identify the preparer
of the instrument may be denied recording. A married spouse must join
in the execution of the deed of trust to release her rights, if any, in a
marital life estate.
A deed of trust must be validly recorded in order to be valid
against subsequent lien creditors or purchasers for value. The proper
place of recording is in the county in which the real estate lies. In order
for the lien of the deed of trust to be valid, the deed of trust must be
properly indexed.
Purchase money mortgages—Priority over Prior Liens
The principle has been uniformly upheld in North Carolina that a

deed and a mortgage to the vendor for the purchase price, executed at the
same time, are regarded as one transaction. The title does not rest in the
vendee but merely passes through his hands, and during such
instantaneous passage no lien against the vendee can attach to the title
superior to the right of the holder of the purchase-money mortgage. This
rule is equally applicable where a third party loans the purchase price and
takes a deed of trust to a trustee to secure the amount so loaned.173 This
principle applies to give a purchase money deed of trust given by a
purchaser to a lender to secure funds loaned for the purchase of real
property priority over judgments, tax liens and other liens against the
purchaser that otherwise would attach to the property.
173
Smith Builders Supply v. Rivenbark, 231 N.C. 213, 56 S.E.2d, 431 (1949).
82
ISSUES IN NORTH CAROLINA RESIDENTIAL MORTGAGE TRANSACTIONS
Anti-deficiency
In all sales of real property by mortgagees or trustees under

powers of sale contained in any mortgage or deed of trust to secure to the
seller the payment of the balance of the purchase price of real property,
the mortgagee or trustee or holder of the notes secured by such mortgage
or deed of trust shall not be entitled to a deficiency judgment on account
of such mortgage, deed of trust or obligation secured by the same. North
Carolina courts will not apply this statute unless the deed of trust, on its
face, indicates that the deed of trust is for purchase money for the sale of
real property.174
After-acquired Property
An “after-acquired property clause" means any provision or

provisions in an instrument which create a security interest in real
property acquired by the grantor of the instrument subsequent to its
execution. An after-acquired property clause is effective to pass after-
acquired property as between the parties to the instrument containing
such clause, but is not effective to pass title to after-acquired property as
against lien creditors or purchasers for a valuable consideration from the
grantor of the instrument unless and until such instrument has been
registered or reregistered at or subsequent to the time such after-acquired
property is acquired by such grantor and the deed to the grantor of the
after-acquired property is registered.175
In lieu of reregistering the instrument containing the after-
acquired property clause as specified, such instrument may be made
effective to pass title to after-acquired property as against lien creditors
and purchasers for a valuable consideration from the grantor of the
instrument by registering a notice of extension at or subsequent to the
time of acquisition of the after-acquired property by the grantor. The
notice of extension shall
174
N.C.G.S. §45-21.38.
175
N.C.G.S. §47-20.5(a).
83
• Show that effective registration of the after-

acquired property clause is extended,
• Include the names of the parties to the instrument

containing the after-acquired property clause,
• Refer to the book and page where the instrument

containing the after-acquired property clause is
registered, and
• Be signed by the grantee or the person secured by

the instrument containing the after-acquired
property clause or his successor in interest.176
Future Advances
Where a deed of trust is to secure future advances (as opposed to

a one-time loan), the deed of trust must show on its face:
• That it is given wholly or partly to secure future

obligations which may be incurred thereunder;
• The amount of present obligations secured, and the

maximum principal amount, including present and
future obligations, which may be secured thereby
at any one time;
• The period within which such future obligations

may be incurred, which period shall not extend
more than 15 years beyond the date of the security
instrument.177
176
N.C.G.S. §47-20.5(c).
177
N.C.G.S. §45-68.
84
North Carolina law does not require the recording of an

assignment of a deed of trust; the rights under the deed of trust follow the
secured obligation.178
Equity Lines of Credit
The term "equity line of credit" means an agreement in writing

between a lender and a borrower for an extension of credit pursuant
to which:
• At any time within a specified period not to

exceed 30 years the borrower may request and
the lender is obligated to provide, by honoring
negotiable instruments drawn by the borrower
or otherwise, advances up to an agreed
aggregate limit;
• Any repayments of principal by the borrower

within the specified period will reduce the
amount of advances counted against the
aggregate limit; and
• The borrower's obligation to the lender is

secured by a mortgage or deed of trust relating
to real property which mortgage or deed of
trust shows on its face the maximum principal
amount which may be secured at any one time
and that it secures an equity line of credit.179
The term "lender is obligated" means that the lender is
contractually bound to provide advances.180 The contract must set forth
any events of default by the borrower, or other events not within the
178
N.C.G.S. §47-17.2.
179
N.C.G.S. §45-81(a).
180
N.C.G.S. §45-81(b)
85
lender's control, which may relieve the lender from his obligation, and
must state whether or not the lender has reserved the right to cancel or
terminate the obligation.181
At any time when the balance of all outstanding sums secured by
a mortgage or deed of trust is zero, the lender must, upon the request of
the borrower, make written entry upon the security instrument showing
payment and satisfaction of the instrument; provided, however, that such
security instrument may remain in full force and effect for the term set
forth therein absent the borrower's request for such written entry. No
prepayment penalty may be charged with respect to an equity line of
credit loan.182
A mortgage or deed of trust which shows on its face that it
secures an equity line of credit, will, from the time of its registration,
have the same priority to the extent of all advances secured by it as if the
advances had been made at the time of the execution of the mortgage or
deed of trust, notwithstanding the fact that from time to time during the
term of the loan no balance is outstanding. Payments made by the lender
for insurance, taxes, and assessments and other payments made by the
lender pursuant to the deed of trust shall have the same priority as if
made at the time of the execution of the mortgage or deed of trust,
notwithstanding the maximum principal amount set forth in the mortgage
or deed of trust.183
Modification of Deed of Trust
Modifications of deeds of trust should be recorded. Priority of the

modified deed of trust can be affected by a subsequent modification
where a novation occurs or where the modification itself causes a full or
partial loss of priority. The general rule is that where a senior lien holder
discharges its lien of record and contemporaneously takes a new deed of
trust, the senior lien holder will not be held to have subordinated its lien
to intervening lienors. In other words, if the parties intended the senior
debt to maintain its lien position then that position will be maintained.
181
N.C.G.S. §45-81(b).
182
N.C.G.S. §45-81(c).
183
N.C.G.S. §45-82.
86
A modification for an extension of time ordinarily will not result

in a loss of lien priority. Changes to the maximum principal amount
secured and the interest rate, however, can result in a loss of priority.
Renewal notes are not generally a novation.
Arbitration Provisions
Arbitration provisions are generally not favored in North Carolina

consumer credit instruments, including mortgages. For a discussion of
the law relating to this issue in the state, see the unpublished opinion in
Tillman v. Commercial Credit Loans, Inc.184
Recording
North Carolina is one of the few “pure race” notice jurisdictions.

That is, a recorded document is given priority over documents
subsequently recorded, even if the grantee under the prior document has
notice that another inconsistent document has been previously executed
and delivered.185
• Documents must be executed in accordance with

North Carolina acknowledgment statute.186
• Applicable fees must be paid to the Register of

Deeds. These fees are as follows:
184
2005 WL 2295111, N.C. Superior Ct., January 20, 2005.
185
N.C.G.S. §47-18, 47-20.
186
87
Instrument Fee
All instruments that are probated $14 first page
(including deeds, deeds of trust, DBA $3 each additional page
forms, etc...)
Instruments being re-recorded and not $12 first page
probated $3 each additional page
Instruments being re-recorded and $14 first page
probated a second time $3 each additional page
Non-standard document fee $25 in addition to
recording fee
Multiple Instruments: A document $10 for each additional
consists of multiple instruments when it instrument, in addition to
contains two or more instruments with recording fee
different legal consequences or intent,
each of which is separately executed and
acknowledged and could be recorded
alone.
Right-of-Way Plans/Highway Maps $21 first page
$5 each additional page
$5 per copy
Cancellations, Certificates of Satisfaction No Fee
or Notice of Satisfactions
Certified Copy $5 first page
$2 each additional page
Uncertified Copy 15¢ per page
Map (Plat) Recording $21 per page
Map Copy $1 per page
Condominium Map Recording $19 per page
Excise Tax on Deeds $2 per $1000 of purchase
price
Notary Authentication $5 per notary per page187
187
N.C.G.S. §161-10.
88
• Documents to be recorded must meet the following

requirements:
• Be 8 ½” x 11” or 8 ½” x 14”
• Have a 3 inch blank margin at top of first

page and 1/2 inch blank margin on
remaining sides of first page and on all
sides of subsequent pages.
• Black type on white paper.
• Font size no smaller than 10 points (Blanks

in an instrument may be completed in pen
and corrections to an instrument may be
made in pen.)
• Only one-sided typed or printed text
• Type of instrument at top of first page

below blank margin.188
If the instrument does not meet requirement outlined above, the

Register of Deeds must register the instrument after collecting a $25.00
fee for non-standard documents. If an instrument fails to meet the
requirement of font size (less than 10 points), but is determined by the
registrar that the instrument is legible, the registrar may record without
collecting the non-standard fee charge.189
• A document must show the name of the preparer

on the first page.
• A document must identify to whom and at what

address it is to be returned.
188
N.C.G.S. §161-14.
189
Id.
89
Settlement Agents
Nearly all residential closings in North Carolina are performed by

licensed attorneys. The services provided by such attorneys include title
search and certification, settlement, escrow and recording services. A
borrower’s relationship generally is with the closing attorney and not the
title company as in many jurisdictions.
In order to issue title insurance, a title company must receive a
written opinion of title by an independent, unaffiliated North Carolina
attorney. In North Carolina, attorneys do not receive any portion of the
title insurance premium.
A significant amount of discussion among the North Carolina
State Bar has occurred regarding non-lawyers’ providing of settlement
services. In 2002, the Bar issued Formal Ethics Opinion 9 to address this
issue. The scope of activities permitted by the opinion to non-lawyers
participating in real property closings is very limited. Under the opinion,
non-lawyers may preside over the execution of documents and they may
handle the disbursement of funds. Certain other essential activities such
as the examination of the property’s title, the preparation of legal
documents, and the giving of legal advice are matters that involve the
practice of law and can only be performed by lawyers. In order to protect
consumers, the State Bar expects to closely monitor the situation and to
ensure that non-lawyers involved in the process are not engaging in the
unauthorized practice of law. A copy of this opinion is attached as
Appendix 19.
There are several title companies and others in North Carolina
offering settlement services to out-of-state and other lenders. Those
companies who do not use licensed lawyers to attend loan closings are
likely to be under strict scrutiny to ensure that they are not engaged in the
unlicensed practice of law. Others who use licensed attorneys are more
likely to conform to unauthorized practice of law rules, but the prudent
practice for lenders is to close their loans with respectable attorneys.
Fees for closing a purchase and financing transaction range from
$400-$800, and fees for refinance transactions are slightly less.
90
Good Funds Settlement Act
Under the North Carolina Good Funds Settlement Act, a closing

or settlement agent cannot disburse funds until they have
• received all "collected funds" or satisfactory

deposit (below) required for the closing and
• updated and recorded the documents of closing.190
These provisions apply only to transactions involving one-to-four

family residential properties or lots restricted to residential use. The
parties to whom these laws (and their respective penalties) apply include
seller, buyers, borrowers, bankers, brokers, attorneys, title insurers and
any other potential settlement agent or person involved in the transaction.
The form of the funds for a satisfactory "deposit" must be one of the
following:
• A certified check;
• A check issued by the State of North Carolina, the

United States, or a political subdivision of the
State of North Carolina or the United States;
• A cashier's check, teller's check, or official bank

check drawn on or issued by a financial institution
insured by the Federal Deposit Insurance
Corporation or a comparable agency of the federal
or state government;
• A check drawn on the trust account of an attorney

licensed to practice in the State of North Carolina;
190
N.C.G.S. §45A-4.
91
• A check or checks drawn on the trust or escrow

account of a real estate broker licensed under
Chapter 93A of the General Statutes;
• A personal or commercial check or checks in an

aggregate amount not exceeding five thousand
dollars ($5,000) per closing if the settlement agent
making the deposit has reasonable and prudent
grounds to believe that the deposit will be
irrevocably credited to the settlement agent's trust
or escrow account;
• A check drawn on the account of or issued by a

mortgage banker registered under Article 19 of
Chapter 53 of the General Statutes that has posted
with the Commissioner of Banks a surety bond in
the amount of at least three hundred thousand
dollars ($300,000). The surety bond must be in a
form satisfactory to the Commissioner and shall
run to the State for the benefit of any settlement
agent with a claim against the license for a
dishonored check. A form of surety bond is
included as Appendix 20.191
Because documents must be recorded before funds are disbursed,

recording is very simple and efficient, and New York-style or "gap"
closings are uncommon in the State.
The Act is included as Appendix 21.
Title Insurance
All title insurance rates must be filed with and approved with the
North Carolina Department of Insurance. The premium rates charged for
insuring against loss by reason of encumbrances and defective title and
for insuring real estate closing services is based on the purchase price of
191
Id.
92
the real estate being conveyed or the loan amount and may not be
established as flat fees. If a title insurer has also issued title insurance
protecting a lender or owner against loss by reason of encumbrances and
defective title, the insurer must charge one undivided premium for the
combination of the title insurance and the closing services insurance.
Standard rates in North Carolina for most title insurers are as
follows:
Coverage Amount Rate per thousand

Up to $100,000 $2.00
Over $100,000 and up to $500,000 $1.50
Over $500,000 and up to $2,000,000 $1.00
Over $2,000,000 and up to $7,000,000 $0.75
Over $7,000,000 $0.50
Most title companies offer a reissue or refinance rate that ranges

from 30% to 50% of the amount of the previously issued policy.
A charge of $.50 per thousand from $0.00 to $100,000.00 and
$.10 per thousand from $100,001.00 to $500,000.00 for insured closing
protection also applies.
Negotiation of title insurance rates on residential transactions is
uncommon in the State.
Acknowledgments
Some North Carolina Registers of Deeds are extremely stringent

regarding the notarial seals of recorded documents. In addition, under
new statutes, the recording of the document is not proof that it has been
correctly notarized; recording of incorrectly notarized documents may be
ineffective. Accordingly, it is important that all documents recorded in
North Carolina have the appropriate notary acknowledgment.
North Carolina recently changed its notary statutes. From and
after December 1, 2005, the requirement for the notary acknowledgment
for any principal acting in his own or a representative capacity can be
satisfied by the following statutory form:
93
________________ County
North Carolina
I certify that the following person(s) personally

appeared before me this day, each acknowledging to
me that he or she voluntarily signed the foregoing
document for the purpose stated therein and in the
capacity indicated: name(s) of principal(s).
Date:____________
________________________
Notary's printed or typed
name,
Notary Public
My commission expires:___________
(Official Seal)
Other forms are permitted, but may not be sufficient.192
Privacy Statute
North Carolina law prohibits any person preparing or filing a

document for recordation or filing in the official records from including a
social security, employer taxpayer identification, drivers license, state
identification, passport, checking account, savings account, credit card, or
debit card number, or personal identification (PIN) code or passwords in
the document, unless expressly required by law or court order, adopted
by the State Registrar on records of vital events, or redacted so that no
more than the last four digits of the identification number is included.193
Any person has a right to request a register of deeds to remove,
from an image or copy of an official record placed on a register of deeds’
Internet Web site available to the general public or on an Internet Web
site available to the general public used by a register of deeds to display
public records, any social security, employer taxpayer identification,
192
N.C.G.S. §10B-41.
193
N.C.G.S. §132-1.8(g).
94
drivers license, state identification, passport, checking account, savings

account, credit card, or debit card number, or personal identification
(PIN) code or passwords contained in an official record. The request
must be made in writing and delivered by mail, facsimile, or electronic
transmission, or delivered in person, to the register of deeds. The request
must specify the personal information to be redacted, information that
identifies the document that contains the personal information and unique
information that identifies the location within the document that contains
the social security, employer taxpayer identification, drivers license, state
identification, passport, checking account, savings account, credit card, or
debit card number, or personal identification (PIN) code or passwords to
be redacted. No fee will be charged for the redaction pursuant to such a
request.194
Any person who requests a redaction without proper authority to
do so shall be guilty of an infraction, punishable by a fine not to exceed
five hundred dollars ($500.00) for each violation.195
Satisfaction of Mortgages Act
The North Carolina Satisfaction of Mortgages Act went into

effect in October, 2005. Under the Act, a borrower, in either a residential
or commercial transaction, has the right to receive a meaningful payoff
letter in a timely manner, the right to have the related deed of trust or
mortgage cancelled in a timely fashion and a right to self help
cancellation through a satisfaction agent in certain limited situations.196
The Act is included as Appendix 22.
Payoff request
For mortgages satisfied or to be satisfied after October 1, 2005, a

borrower or its agent may request of a lender a payoff statement for a
194
Id.
195
Id.
196
The Act went into effect October 1, 2005. Different provisions apply to
mortgages satisfied before that time. See N.C.G.S. §45-36.3.
95
specified payoff date not more than 30 days after the request is given.
The request must contain all of the following:
• The borrower’s name;
• If given by a person other than the borrower, the

name of the person giving the notification and a
statement that the person is an authorized agent of
the borrower;
• A direction whether the statement is to be sent to

the borrower or its agent;
• The address to which the creditor must send the

statement; and
• Sufficient information to enable the creditor to

identify the secured obligation and the real
property encumbered by the security interest.197
A lender must issue a payoff statement and send it as directed in

the request within 10 days after the effective date of the request. If the
person to whom the request for a payoff is delivered no longer holds an
interest in the secured obligation but has since assigned that interest, the
person need not send a payoff statement but must give to the borrower or
its agent (i) a notification of the assignment to the person to whom the
payoff statement otherwise would have been sent, providing the name
and address of the assignee, or (ii) a notification to the person to whom
the payoff statement otherwise would have been sent, stating that the
recipient claims no interest in the security instrument or the secured
obligation, that the secured obligation was assigned, but that the identity
and address of the assignee is not known.198
A payoff statement must contain:
197
N.C.G.S. §45.36.7.
198
N.C.G.S. §45.36.7(d).
96
• The date on which it was prepared and the payoff

amount as of that date, including the amount by
type of each fee, charge, or other sum included
within the payoff amount;
• The information reasonably necessary to calculate

the payoff amount as of the requested payoff date,
including the per diem interest amount; and
• The payment cutoff time, if any, the address or

place where payment must be made, and any
limitation as to the authorized method of
payment.199
A lender may not qualify a payoff amount or state that it is subject

to change before the payoff date unless the payoff statement provides
information sufficient to permit the borrower or its agent to request an
updated payoff amount at no charge and to obtain that updated payoff
amount during the lender’s normal business hours on the payoff date or
the immediately preceding business day.200
A lender must provide upon request one payoff statement without
charge during any six-month period. A lender may charge a fee of
twenty-five dollars ($25.00) for each additional payoff statement
requested during that six-month period. However, a lender may not
charge a fee for providing an updated payoff amount or a corrected
payoff statement. A lender may require the payment in full of any fees
authorized under this section before issuing a payoff statement.201
Unless the mortgage provides otherwise, a lender is not required
to send a payoff statement by means other than first-class mail. If the
lender agrees to send a statement by another means, it may charge a
reasonable fee for complying with the requested manner of delivery.202
199
N.C.G.S. §45.36.7(e).
200
N.C.G.S. §45-36.7(g).
201
N.C.G.S. §45.36.7(h).
202
N.C.G.S. §45.36.7(i).
97
A lender to which a notification has been given pursuant to the

Act who does not send a timely payoff statement that substantially
complies with its provisions is liable to the borrower for any actual
damages caused by the failure, but not punitive damages. A creditor that
does not pay the damages provided in this subsection within 30 days after
receipt of a notification demanding payment shall also be liable for
reasonable attorneys' fees and costs.203
Satisfaction
A lender must submit for recording a satisfaction of a security

instrument within 30 days after receiving full payment or performance of
the secured obligation. If a security instrument secures a line of credit or
future advances, the secured obligation is fully performed only if, in
addition to full payment, the lender has received a notification requesting
lender to terminate the line of credit or containing a statement sufficient
to terminate the effectiveness of the provision for future advances in the
security instrument.204
A lender who is required to submit a satisfaction of a security
instrument for recording and does not do so in the applicable time period
is liable to the landowner for any actual damages caused by the failure,
but not punitive damages.205
A lender that is required to submit a satisfaction of a security
instrument for recording and does not do so is also liable to the
landowner for one thousand dollars ($1,000) and any reasonable
attorneys' fees and court costs incurred if, after the expiration the thirty
day period described above, all of the following occur:
• The landowner gives the secured creditor a

notification demanding that the secured creditor
submit a satisfaction for recording.
203
N.C.G.S. §45.36.7(j).
204
N.C.G.S. §45-36.9(a).
205
N.C.G.S. §45-36.9(b)
98
• The secured creditor does not submit a satisfaction

for recording within 30 days after the secured
creditor's receipt of the notification.
• The security instrument is not satisfied of record

within 30 days after the secured creditor's receipt
of the notification.206
A form of satisfaction is attached as Appendix 23. The recording

of a satisfaction of a security instrument does not by itself extinguish any
liability of a person for payment or performance of the secured
obligation.207
Obligations of Lender
A secured creditor is not liable under the Act if it:
• Established a reasonable procedure to achieve

compliance with its obligations under the MLA;
• Complied with that procedure in good faith; and
• Was unable to comply with its obligations because

of circumstances beyond its control.208
Affidavit of Satisfaction
If a lender has not submitted for recording a satisfaction of a

security instrument and the security instrument has not been satisfied of
record within the periods described, a North Carolina attorney acting for
and with authority from the landowner may submit for recording an
affidavit of satisfaction of the security instrument which effects the
satisfaction of the security instrument described in the affidavit. The
206
N.C.G.S. §45-36.9(c).
207
N.C.G.S. §45-3.10.
208
N.C.G.S. §45-36.12.
99
recording of an affidavit of satisfaction of a security instrument does not

by itself extinguish any liability of a person for payment or performance
of the secured obligation. Satisfaction of certain notice requirements is a
condition to the filing of the affidavit. A form of affidavit is attached as
Appendix 24.209
Other methods of releasing or satisfying deed of trust
In addition to the new methods of satisfaction described above,

deeds of trust can be released by recording (i) a trustee’s satisfaction
satisfying statutory requirements, (ii) a deed of release signed by the
mortgagee or its personal representative; (iii) and certain other methods
prescribed by statute. Forms of trustee’s satisfaction and deeds of release
are attached as Appendix 25. Deeds of release are often used to release
less than all of the collateral from the deed of trust.
Foreclosure
Power of sale foreclosure is the most common type of foreclosure

in North Carolina. Sales under a power of sale are governed by Article 2
of Chapter 45 of the North Carolina General Statutes, a copy of which is
Sales under deeds of trust are conducted by the trustee or its duly
authorized agent. The holders or owners of the indebtedness, notes,
bonds, or other instruments evidencing a promise or promises to pay
money and secured by mortgages, deeds of trust, or other instruments
conveying real property, or creating a lien thereon, may, in their
discretion, substitute a trustee whether the trustee then named in the
instrument is the original or a substituted trustee, by the execution of a
written document properly recorded.210 Substitutions of trustee can be
made as frequently as desired.211
Every sale of real property under a power of sale must be held in
the county where the property is situated unless the property consists of a
209
N.C.G.S. §45-36.15.
210
N.C.G.S. §45-10.
211
N.C.G.S. §45-17.
100
single tract situated in two or more counties.212 A sale of a single tract of

real property situated in two or more counties may be held in any one of
the counties in which any part of the tract is situated.213
When two or more mortgages or deeds of trust held by the same
person are secured in whole or in part by the same property, and there are
no intervening liens, except for ad valorem taxes, between such
mortgages or deeds of trust, the obligations secured by such mortgages or
deeds of trust may be combined and the property sold once to satisfy the
combined obligations if (i) powers of sale are provided in all such
instruments; (ii) there is no provision in any such instrument which
would not permit such a procedure; (iii) all the terms of all such
instruments requiring compliance by the lender in connection with
foreclosure sales are complied with; and (iv) all requirements of
applicable law governing power of sale foreclosures are met with respect
to all such instruments. As between the combined obligations being
foreclosed, proceeds must be applied in the order of priority of the
instruments securing them, and any deficiencies must be determined
accordingly.214
Hearing and Notice
The mortgagee or trustee granted a power of sale under a

mortgage or deed of trust who seeks to exercise such power of sale must
file with the clerk of court a notice of hearing, which notice of hearing
must be served upon each party entitled to notice. The notice must
specify a time and place for the hearing before the clerk of court and
must be served not less than 10 days prior to the date of such hearing.
The notice must be served and proof of service must be made in any
manner provided by the rules of civil procedure for service of summons,
including service by registered mail or certified mail, return receipt
requested.215
212
N.C.G.S. §45-21.4(a).
213
N.C.G.S. §45-21.4(b).
214
N.C.G.S. §45-21.9A.
215
N.C.G.S. §45-21.16(a).
101
In those instances that publication is authorized, service may be

made by posting a notice in a conspicuous place and manner upon the
property not less than 20 days prior to the date of the hearing, and if
service upon a party cannot be effected after a reasonable and diligent
effort, notice to such party may be given by posting the notice in a
conspicuous place and manner upon the property not less than 20 days
prior to the date of hearing. Service by posting may run concurrently with
any other effort to effect service. The notice must be posted by the
sheriff. In the event that the service is obtained by posting, an affidavit
must be filed with the clerk of court showing the circumstances
warranting the use of service by posting.216
If any party is not served or is not timely served prior to the date
of the hearing, the clerk must order the hearing continued to a date and
time certain, not less than 10 days from the date scheduled for the
original hearing. All notices already timely served remain effective. The
mortgagee or trustee must satisfy the notice requirement of this section
with respect to those parties not served or not timely served with respect
to the original hearing. Any party timely served, who has not received
actual notice of the date to which the hearing has been continued, must be
sent the order of continuance by first-class mail at his last known
address.217
Notice of hearing must be served upon:
• Any person to whom the security interest

instrument itself directs notice to be sent in case of
default.
• Any person obligated to repay the indebtedness

against whom the holder thereof intends to assert
liability therefor, and any such person not notified
must not be liable for any deficiency remaining
after the sale.
216
N.C.G.S. §45-21.16(a).
217
N.C.G.S. §45-21.16(a).
102
• Every record owner of the real estate whose

interest is of record in the county where the real
property is located at the time the notice of hearing
is filed in that county.218
The term "record owner" means any person owning a present or

future interest in the real property, which interest is of record at the time
that the notice of hearing is filed and would be affected by the foreclosure
proceeding, but does not mean or include the trustee in a deed of trust or
the owner or holder of a mortgage, deed of trust, judgment, mechanic's or
materialman's lien, or other lien or security interest in the real property.
Tenants in possession under unrecorded leases or rental agreements are
not considered record owners.219
Notice must be in writing and must state in a manner reasonably
calculated to make the party entitled to notice aware of the following:
• The particular real estate security interest being

foreclosed, with such a description as is necessary
to identify the real property, including the date,
original amount, original holder, and book and
page of the security instrument.
• The name and address of the holder of the security

instrument at the time that the notice of hearing is
filed.
• The nature of the default claimed.
• The fact, if such be the case, that the secured

creditor has accelerated the maturity of the debt.
• Any right of the debtor to pay the indebtedness or

cure the default if such is permitted.
218
N.C.G.S. §45—21.16(b).
219
N.C.G.S. §45-21.16(b).
103
• The holder has confirmed in writing to the person

giving the notice, or if the holder is giving the
notice, the holder must confirm in the notice, that,
within 30 days of the date of the notice, the debtor
was sent by first-class mail at the debtor's last
known address a written statement of the amount
of principal and interest that the holder claims in
good faith is owed as of the date of the written
statement, a daily interest charge based on the
contract rate as of the date of the statement, and the
amount of other expenses the holder contends it is
owed as of the date of the statement.
• The right of the debtor (or other party served) to

appear before the clerk of court at a time and on a
date specified, at which appearance he must be
afforded the opportunity to show cause as to why
the foreclosure should not be allowed to be held.
The notice must contain a statement that if the
debtor does not intend to contest the creditor's
allegations of default, the debtor does not have to
appear at the hearing and that his failure to attend
the hearing will not affect his right to pay the
indebtedness and thereby prevent the proposed
sale, or to attend the actual sale, should he elect to
do so.
• That if the foreclosure sale is consummated, the

purchaser will be entitled to possession of the real
estate as of the date of delivery of his deed, and
that the debtor, if still in possession, can then be
evicted.
• The name, address, and telephone number of the

trustee or mortgagee.
104
• That the debtor should keep the trustee or

mortgagee notified in writing of his address so that
he can be mailed copies of the notice of
foreclosure setting forth the terms under which the
sale will be held, and notice of any postponements
or resales.
• If the notice of hearing is intended to serve also as

a notice of sale, such additional information as is
set forth in G.S. 45-21.16A.
• That the hearing may be held on a date later than

that stated in the notice and that the party will be
notified of any change in the hearing date.220
If the clerk finds the existence of (i) valid debt of which the party
seeking to foreclose is the holder, (ii) default, (iii) right to foreclose under
the instrument, and (iv) notice to those entitled, then the clerk must
authorize the mortgagee or trustee to proceed under the instrument, and
the mortgagee or trustee can give notice of and conduct a sale of the
property.221
The act of the clerk in so finding or refusing to so find is a judicial
act and may be appealed to the judge of the district or superior court
having jurisdiction at any time within 10 days after said act. Appeals
from the act of the clerk must be heard de novo. If an appeal is taken
from the clerk's findings, the appealing party must post a bond with
sufficient surety as the clerk deems adequate to protect the opposing
party from any probable loss by reason of appeal; and upon posting of the
bond the clerk must stay the foreclosure pending appeal. In the event of
an appeal, either party may demand that the matter be heard at the next
succeeding term of the court to which the appeal is taken which convenes
10 or more days after the hearing before the clerk.222
220
N.C.G.S. §45-21.16(c).
221
N.C.G.S. §45-21.16(d).
222
N.C.G.S. §45-21.16(d1).
105
Waiver of the right to notice and hearing is not permitted, except

where the amount of indebtedness secured is one hundred thousand
dollars ($100,000), or more, any person entitled to notice and hearing
may waive after default the right to notice and hearing by written
instrument signed and duly acknowledged by such party.223
Notice of Sale
The conduct of a foreclosure sale following the hearing described

above is subject to giving the borrower and other interested parties notice
of the sale and publication and posting thereof. To comply with the
statutory requirements, a notice of sale must
• Describe the instrument pursuant to which the sale

is held, by identifying the original mortgagors and
recording data. If the record owner is different
from the original mortgagors, the notice shall also
list the record owner of the property, as reflected
on the records of the register of deeds not more
than 10 days prior to posting the notice. The
notice may also reflect the owner not reflected on
the records if known;
• Designate the date, hour and place of sale

consistent with the provisions of the instrument
and this Article;
• Describe the real property to be sold in such a

manner as is reasonably calculated to inform the
public as to what is being sold, which description
may be in general terms and may incorporate the
description as used in the instrument containing the
power of sale by reference thereto. Any property
described in the instrument containing the power
of sale which is not being offered for sale should
223
N.C.G.S. §45-21.16(f).
106
also be described in such a manner as to enable

prospective purchasers to determine what is and
what is not being offered for sale;
• State the terms of the sale provided for by the

instrument pursuant to which the sale is held,
including the amount of the cash deposit, if any, to
be made by the highest bidder at the sale;
• Include any other provisions required by the

instrument to be included therein;
• State that the property will be sold subject to taxes

and special assessments if it is to be so sold; and
• State whether the property is being sold subject to

or together with any subordinate rights or interests
provided those rights and interests are sufficiently
identified.224
In addition to complying with such provisions with respect to

posting or publishing notice of sale as are contained in the security
instrument, the notice of sale must (i) be posted, in the area designated by
the clerk of superior court for posting public notices in the county in
which the property is situated, at least 20 days immediately preceding the
sale, and (ii) be published once a week for at least two successive weeks
in a newspaper published and qualified for legal advertising in the county
in which the property is situated, and (iii) be mailed by first-class mail at
least 20 days prior to the date of sale to each party entitled to notice of
the hearing whose address is known to the trustee or mortgagee and in
addition shall also be mailed by first-class mail to any party desiring a
copy of the notice of sale who has appropriately filed a request therefore.
Notice of the hearing described in the preceding section is sufficient to
224
N.C.G.S. §45-21.16A.
107
satisfy the requirement of notice of sale provided such notice contains the
information set forth above.225
Request for Notice of Sale
Any person desiring a copy of any notice of sale may, at any time
subsequent to the recordation of the security instrument and prior to the
filing of notice of hearing, cause to be filed for record in the office of the
register of deeds of each county where all or any part of the real property
is situated, a duly acknowledged request for a copy of such notice of sale.
This request shall be a separate instrument entitled "Request for Notice"
and shall be signed and acknowledged by the party making the request,
shall specify the name and address of the party to whom the notice is to
be mailed, shall identify the deed of trust or mortgage by stating the
names of the parties thereto, the date of recordation, and the book and
page where the same is recorded, and shall be in substantially the
following form:226
"REQUEST FOR NOTICE"
In accordance with the provisions of G.S. 45-21.17A, request is hereby made

that a copy of any notice of sale under the deed of trust (mortgage) recorded on
______, ______, in Book ____, page ___, records of ____ County, North
Carolina, executed by _______ as trustor (mortgagor), in which __________ is
named as beneficiary (mortgagee), and __________ as trustee, be mailed to
_______ at the following address: _____________________.
Signature:
[Acknowledgement]
225
N.C.G.S. §45-21.17(1).
226
N.C.G.S. §45-21.17A.
108
Termination of Power of Sale (Right of Redemption)
A power of sale is terminated if, prior to the time fixed for a sale,
or prior to the expiration of the time for submitting any upset bid after a
sale or resale has been held, payment is made or tendered of –
• The obligation secured by the mortgage or deed of

trust, and
• The expenses incurred with respect to the sale or

proposed sale, which in the case of a deed of trust
also include compensation for the trustee's
services.227
Postponement of Sale
Any person exercising a power of sale may postpone the sale to a

day certain not later than 90 days, exclusive of Sunday, after the original
date for the sale
• When there are no bidders, or
• When, in his judgment, the number of prospective

bidders at the sale is substantially decreased by
inclement weather or by any casualty, or
• When there are so many other sales advertised to

be held at the same time and place as to make it
inexpedient and impracticable, in his judgment, to
hold the sale on that day, or
• When he is unable to hold the sale because of

illness or for other good reason, or
227
N.C.G.S. §45-21.20.
109
• When other good cause exists.228
The person exercising a power of sale may postpone the sale more
than once whenever any of the above conditions are met, so long as the
sale is held not later than 90 days after the original date for the sale.229
Upon postponement of a sale, the person exercising the power of
sale shall personally, or through his agent or attorney –
• At the time and place advertised for the sale,

publicly announce the postponement thereof;
• On the same day, attach to or enter on the original

notice of sale or a copy thereof, posted at the
courthouse door, a notice of the postponement; and
• Give written or oral notice of postponement to

each party entitled to notice of sale.230
The posted notice of postponement shall –
• State that the sale is postponed,
• State the hour and date to which the sale is

postponed,
• State the reason for the postponement, and
• Be signed by the person authorized to hold the

sale, or by his agent or attorney.231
If a sale is not held at the time fixed therefor and is not postponed
as provided by this section, or if a postponed sale is not held at the time
228
N.C.G.S. §45-21.21(a).
229
N.C.G.S. §45-21.21(a), (e).
230
N.C.G.S. §45-21.21(b).
231
N.C.G.S. §45-21.21(c).
110
fixed therefor or within 90 days of the date originally fixed for the sale,
then prior to such sale taking place the requirements related to the
hearing described above need not be complied with but the provisions
related to notice of sale shall be again satisfied.232
A sale shall begin at the time designated in the notice of sale or as
soon thereafter as practicable, but not later than one hour after the time
fixed therefor unless it is delayed by other sales held at the same place.
The sale shall be held between the hours of 10:00 A.M. and 4:00 P.M. on
any day other than Sunday or a legal holiday when the courthouse is
closed for transactions.233
A sale commenced but not completed within the time allowed
must be continued by the person holding the sale to a designated time
between 10:00 o'clock A.M. and 4:00 o'clock P.M. the next following
day, other than Sunday or a legal holiday when the courthouse is closed
for transactions. In case such continuance becomes necessary, the person
holding the sale shall publicly announce the time to which the sale is
continued.234
Preliminary Report of Sale
The person exercising a power of sale of real property, shall,

within five days after the date of the sale, file a report thereof with the
clerk of the superior court of the county in which the sale was had. The
report shall be signed by the person authorized to hold the sale, or by his
agent or attorney, and shall show –
• The authority under which the person making the

sale acted;
• The name of the mortgagor or grantor;
• The name of the mortgagee or trustee;
232
N.C.G.S. §45-21.21(d).
233
N.C.G.S. §45-21.23.
234
N.C.G.S. §45-21.21(e).
111
• The date, time and place of the sale;
• A reference to the book and page in the office of

the register of deeds, where the instrument is
recorded or, if not recorded, a description of the
property sold, sufficient to identify it, and, if sold
in parts, a description of each part so sold;
• The name or names of the person or persons to

whom the property was sold;
• The price at which the property, or each part

thereof, was sold, and that such price was the
highest bid therefor;
• The name of the person making the report; and
• The date of the report.235
Upset Bids
An upset bid is an advanced, increased, or raised bid whereby any

person offers to purchase real property theretofore sold, for an amount
exceeding the reported sale price or last upset bid by a minimum of five
percent (5%) thereof, but in any event with a minimum increase of seven
hundred fifty dollars ($750.00). Subject to the provisions described
below, an upset bid may be made by delivering to the clerk of superior
court, with whom the report of sale or last notice of upset bid was filed, a
deposit in cash or by certified check or cashier's check satisfactory to the
clerk in an amount greater than or equal to five percent (5%) of the
amount of the upset bid but in no event less than seven hundred fifty
dollars ($750.00).236
The deposit required must be filed with the clerk of the superior
court, with whom the report of the sale or the last notice of upset bid was
235
N.C.G.S. §45-21.26.
236
N.C.G.S. §45-21.21(a).
112
filed by the close of normal business hours on the tenth day after the
filing of the report of the sale or the last notice of upset bid, and if the
tenth day shall fall upon a Sunday or legal holiday when the courthouse is
closed for transactions, or upon a day in which the office of the clerk is
not open for the regular dispatch of its business, the deposit may be made
and the notice of upset bid filed on the day following when said office is
open for the regular dispatch of its business.237
The foreclosure statute does not provide for resales except where
a winning bidder fails to perform its obligations to purchase the property;
rather, there may be successive upset bids each of which shall be
followed by a period of 10 days for a further upset bid. When an upset
bid is not filed following a sale, resale, or prior upset bid within the time
specified, the rights of the parties to the sale or resale become fixed.238
The clerk of the superior court may require an upset bidder or the
highest bidder at a resale to deposit with the clerk a cash bond, or, in lieu
thereof at the option of the bidder, a surety bond, approved by the clerk.
The compliance bond may be in such amount as the clerk deems
adequate, but in no case greater than the amount of the bid of the person
being required to furnish the bond, less the amount of any required
deposit. The compliance bond shall be payable to the State of North
Carolina for the use of the parties in interest and shall be conditioned on
the principal obligor's compliance with the bid.239
At the same time that an upset bid on real property is submitted to
the court, together with a compliance bond if one is required, the upset
bidder shall simultaneously file with the clerk a notice of upset bid. The
notice of upset bid shall:
• State the name, address, and telephone number of

the upset bidder;
• Specify the amount of the upset bid;
237
N.C.G.S. §45-21.27(b).
238
N.C.G.S. §45-21.27(a).
239
N.C.G.S. §45-21.27(b).
113
• Provide that the sale shall remain open for a period

of 10 days after the date on which the notice of
upset bid is filed for the filing of additional upset
bids as permitted by law; and
• Be signed by the upset bidder or the attorney or the

agent of the upset bidder.
• When an upset bid is made as provided in this

section, the clerk shall notify the trustee or
mortgagee who shall thereafter mail a written
notice of upset bid by first-class mail to the last
known address of the last prior bidder and the
current record owner(s) of the property.
• When an upset bid is made as provided in this

section, the last prior bidder, regardless of how the
bid was made, shall be released from any further
obligation on account of the bid and any deposit or
bond provided by him shall be released.240
Order for Possession
Orders for possession of real property sold pursuant to a power of

sale, in favor of the purchaser and against any party or parties in
possession at the time of application therefor, may be issued by the clerk
of the superior court of the county in which such property is sold, when:
• Such property has been sold in the exercise of the

power of sale contained in any mortgage, deed of
trust, leasehold mortgage, leasehold deed of trust,
or a power of sale authorized by any other
statutory provisions,
240
N.C.G.S. §45-21.29.
114
• The provisions of the foreclosure statutes have

been complied with,
• The sale has been consummated, and the purchase

price has been paid,
• The purchaser has acquired title to and is entitled

to possession of the real property sold,
• Ten days' notice has been given to the party or

parties who remain in possession at the time
application is made, and
• Application is made by petition to such clerk by

the mortgagee, the trustee, the purchaser of the
property, or any such person's authorized
representative.
Resale
If the terms of a sale of real property require the highest bidder to

make a cash deposit at the sale, and he fails to make such required
deposit, the person holding the sale shall at the same time and place again
offer the property for sale.241
When the highest bidder at a sale or resale or any upset bidder
fails to comply with his bid upon tender to him of a deed for the real
property or after a bona fide attempt to tender such a deed, the clerk of
superior court may, upon motion, enter an order authorizing a resale of
the real property. The procedure for such resale shall be the same in
every respect as is provided by this Article in the case of an original sale
of real property except that the provisions the foreclosure statutes related
to the initial hearing are not applicable to the resale.242
A defaulting bidder at any sale or resale or any defaulting upset
bidder is liable on his bid, and in case a resale is had because of such
241
N.C.G.S. §45-21.30(a).
242
N.C.G.S. §45-21.30(b).
115
default, he shall remain liable to the extent that the final sale price is less
than his bid plus all the costs of the resale. Any deposit or compliance
bond made by the defaulting bidder shall secure payment of the amount,
if any, for which the defaulting bidder remains liable under this
section.243
Application of Proceeds
The proceeds of any sale shall be applied by the person making

the sale, in the following order, to the payment of –
• Costs and expenses of the sale, including the

trustee's commission, if any, and a reasonable
auctioneer's fee if such expense has been incurred;
• Taxes due and unpaid on the property sold, unless

the notice of sale provided that the property be sold
subject to taxes thereon and the property was so
sold;
• Special assessments, or any installments thereof,

against the property sold, which are due and
unpaid, unless the notice of sale provided that the
property be sold subject to special assessments
thereon and the property was so sold; and
• The obligation secured by the mortgage, deed of

trust or conditional sale contract.244
Any surplus remaining after the application of the proceeds of the

sale as set forth above shall be paid to the person or persons entitled
thereto, if the person who made the sale knows who is entitled thereto.
Otherwise, the surplus shall be paid to the clerk of the superior court of
the county where the sale was had–
243
N.C.G.S. §45-21.30(c).
244
N.C.G.S. §45-21.31(a).
116
• In all cases when the owner of the property sold is

dead and there is no qualified and acting personal
representative of his estate, and
• In all cases when he is unable to locate the persons

entitled thereto, and
• In all cases when the mortgagee, trustee or vendor

is, for any cause, in doubt as to who is entitled to
such surplus money, and
• In all cases when adverse claims thereto are

asserted.245
A special proceeding may be instituted before the clerk of the

superior court by any person claiming any money, or part thereof, paid
into the clerk's office to determine who is entitled thereto.246
Final Report
A person who holds a sale of real property pursuant to a power of

sale shall file with the clerk of the superior court of the county where the
sale is held a final report and account of his receipts and disbursements
within 30 days after the receipt of the proceeds of such sale. Such report
shall show whether the property was sold as a whole or in parts and
whether all of the property was sold. The report shall also show whether
all or only a part of the obligation was satisfied with respect to which the
power of sale of property was exercised.247
The person who holds the sale shall also file with the clerk –
• A copy of the notices of sale and resale, if any,

which were posted, and
245
N.C.G.S. §45-21.31(b).
246
N.C.G.S. §45-21.32.
247
N.C.G.S. §45-21.33(a).
117
• A copy of the notices of sale and resale, if any,

which were published in a newspaper, together
with an affidavit of publication thereof, if the
notices were so published;
• Proof as required by the clerk, which may be by

affidavit, that notices of hearing, sale and resale
were served upon all parties entitled thereto. In the
absence of an affidavit to the contrary filed with
the clerk, an affidavit by the person holding the
sale that the notice of sale was posted in the area
designated by the clerk of superior court for
posting public notices in the county or counties in
which the property is situated 20 days prior to the
sale shall be adequate proof of compliance.248
Rights Of Borrower In Deficiency Action
Where the holder of a secured obligation seeks a deficiency

judgment against the borrower following a sale under a power of sale at
which the holder is the purchaser, the borrower against whom such
deficiency judgment is sought may allege and show as matter of defense
and offset, but not by way of counterclaim, that the property sold was
fairly worth the amount of the debt secured by it at the time and place of
sale or that the amount bid was substantially less than its true value, and,
upon such showing, to defeat or offset any deficiency judgment against
him, either in whole or in part.249 Thus, lenders should exercise care in
“bidding in” properties, and should be prepared to justify bids that are
lower than the debt amount in sales where the lender is the purchaser.
248
N.C.G.S. §45-21.33(c).
249
N.C.G.S. §45-21.36.
118
BEST PRACTICES STANDARDS
These Best Practices Standards have been incorporated into the

Accredited Mortgage Broker and Accredited Mortgage Lender Program
of the North Carolina Association of Mortgage Professionals endorsed by
the North Carolina Commissioner of Banks. Adherence to these
standards by North Carolina brokers and lenders can help to ensure
compliance with legal and ethical obligations.
¿¿¿¿¿
PREAMBLE
The mission of the North Carolina Association of Mortgage

Professionals, Inc., is to enable our membership to deliver a high quality
of loan products and services to the marketplace, and to promote our
association members within the financial community. We recognize that
as Mortgage Professionals, we are, above all, service providers. To that
end, we pledge our honor and our intellect to serving the interests of our
borrowing customers and the lenders who make funds available to them.
The term "Mortgage Professionals" connotes competency, fairness and
integrity, resulting from adherence to an ideal of high moral and ethical
conduct. No inducement of profit and no instruction from customers ever
can justify departure from this ideal.
The North Carolina Association of Mortgage Professionals is not

a regulatory body. The following standards are not intended to set forth
minimum legal standards, but rather are intended to guide Mortgage
Professionals who desire to conduct their businesses at the highest ethical
levels. Adherence to these standards is voluntary. Where these
Standards conflict with applicable law, applicable law shall apply.
ARTICLE I
DEFINITIONS
For purposes hereof, “Mortgage Professional” shall mean an

individual who is licensed as or conducts business as a loan officer in the
State of North Carolina.
For purposes hereof, “Mortgage Broker” shall mean a partnership,

limited liability company, corporation or other entity who is licensed as a
mortgage broker in the State of North Carolina.
For purposes hereof, “Mortgage Lender” shall mean a

partnership, limited liability company, corporation or other entity who
makes mortgage loans secured by real property located in the State of
North Carolina.
For purposes hereof, “Mortgage Company” shall mean a

Mortgage Broker or Mortgage Company.
ARTICLE II
RELATIONSHIP OF MORTGAGE BROKER TO CUSTOMER
Standard 2-01. Nature of Relationship. A Mortgage

Broker acts as a facilitator who brings together borrowers and Mortgage
120
Lenders in residential mortgage loan transactions. The Mortgage Broker

shall not be the agent of the Mortgage Lender nor the borrower in any
such transaction.
Comment:
In a mortgage transaction involving a mortgage broker, the

Mortgage Broker may not serve as an agent to either the borrower nor the
Mortgage Lender because the nature of the transaction and the mortgage
lending business prevents a Mortgage Broker from being able to fulfill
the fiduciary obligations implied by an agency relationship. Clearly, the
Mortgage Broker’s duties involve the collection of information from its
borrowing customers, communicating such information to Mortgage
Lenders, and facilitating the closing of the loan transaction.
Standard 2-02. Disclosure of Nature of Relationship. A

Mortgage Broker shall disclose to its customers upon the initiation of the
customer relationship the nature of such relationship. Such disclosure
shall include statements as to the following:
(a) That the Mortgage Broker does not lend its own funds;
(b) That the Mortgage Broker does not underwrite its loans,
or, in the alternative, that the Mortgage Broker
underwrites its loans but such underwriting is subject to
the review and approval of a third party;
(c) The terms and conditions on which the customer will owe
to the Mortgage Broker a fee in the transaction;
(d) That the Mortgage Broker does not have access to and
cannot provide all mortgage products available in the
market, but is limited to offering the products of those
lenders with whom it has a business relationship;
(e) That the Mortgage Broker is not an agent of the borrower

nor the lender in the transaction.
121
Standard 2-03. Declining or Termination of Relationship.
(a) Neither a Mortgage Company nor a Mortgage Professional

shall provide services to a customer or Mortgage Lender
if:
(i) such relationship would result in a violation of

existing rules, laws or these Standards;
(ii) the Mortgage Broker’s physical or mental

condition impairs his ability to provide such
services; or
(iii) the Mortgage Broker is discharged by the

customer.
(b) A Mortgage Professional may terminate its or his

relationship with a customer if:
(i) such termination may be accomplished with no

material adverse impact to the interests of the
customer; or
(ii) the customer consents to the termination; or
(iii) the Mortgage Professional reasonably believes that

the customer is engaging in a course of conduct
that is fraudulent or otherwise unlawful; or
(iv) the customer insists on engaging in conduct or a

transaction which the Mortgage Professional
believes is imprudent or with which the Mortgage
Professional has a fundamental disagreement; or
(v) the customer has used the Mortgage Professional’s

services to perpetrate a crime or fraud; or
122
(vi) the customer has failed to fulfill an obligation to

the Mortgage Professional or his Mortgage
Company regarding the Mortgage Professional’s
services and has been given reasonable warning
that the Mortgage Professional will terminate his
services if such obligation is not fulfilled; or
(vii) other good cause exists.
(c) Upon the termination of a customer relationship, a

Mortgage Professional shall take reasonable action to
protect the customer’s interests, such as giving reasonable
notice to the customer, surrendering papers and property
of the customer to which he is entitled and refunding any
advance payment of any fee or expense which has not
been earned or incurred.
123
ARTICLE III
OBLIGATIONS OF MORTGAGE PROFESSIONALS AND MORTGAGE BROKERS
Standard 3-01. Services Provided to Customer.
(a) A Mortgage Company through its Mortgage Professionals

and other employees shall provide to a customer one or
more of the following services:
(i) Taking information from the borrower and filling

out the application;
(ii) Analyzing the prospective borrower's income and

debt and pre-qualifying the prospective borrower
to determine the maximum mortgage that the
prospective borrower can afford;
(iii) Educating the prospective borrower in the home

buying and financing process, advising the
borrower about the different types of loan products
available, and demonstrating how closing costs and
monthly payments could vary under each product;
(iv) Collecting financial information (tax returns, bank

statements) and other related documents that are
part of the application process;
(v) Initiating or ordering VOEs (verifications of

employment) and VODs (verifications of deposit);
(vi) Initiating or ordering requests for mortgage and

other loan verifications;
(vii) Initiating or ordering appraisals;
124
(viii) Initiating or ordering inspections or engineering

reports;
(ix) Providing disclosures (truth in lending, good faith

estimate, others) to the borrower;
(x) Assisting the borrower in understanding and

clearing credit problems;
(xi) Maintaining regular contact with the borrower,

realtors, lender, between application and closing to
appraise them of the status of the application and
gather any additional information as needed;
(xii) Ordering legal documents;
(xiii) Determining whether the property was located in a

flood zone or ordering such service; and
(xiv) Participating in the loan closing.
(b) A Mortgage Professional shall listen to and consider the

desires and needs of his customer when entering into a
mortgage loan transaction.
(c) A Mortgage Professional shall not counsel a customer to

engage, or assist a customer, in conduct that the Mortgage
Professional knows is criminal or fraudulent.
(d) In communicating with a customer, the Mortgage

Professional should use plain language and should avoid
reference to technical terms where possible. A Mortgage
Professional shall explain matters to a customer to the
extent reasonable necessary to permit the customer to
make informed decisions regarding such matters.
125
Standard 3-02. Requirement of Competence. A Mortgage

Professional shall not handle any financial matter or transaction that the
Mortgage Professional knows or should know he or she is not competent
to handle. Competence requires the knowledge, skill, thoroughness, and
preparation reasonably necessary for the matter or transaction. A
Mortgage Professional shall not engage in the unauthorized practice of
law, the unlawful practice of appraisal, or the unlawful brokering of real
estate.
Comment:
In determining whether a Mortgage Professional employs the

requisite knowledge and skill in a particular matter, relevant factors
include the relative complexity and specialized nature of the matter, the
Mortgage Professional's general experience, the Mortgage Professional's
training and experience, and the preparation and study the Mortgage
Professional is able to give the matter. A Mortgage Professional need not
necessarily have special training or prior experience to handle matters of
a type with which the Mortgage Professional is unfamiliar. Some
important skills, such as knowledge of mortgage lending products,
current market conditions, and credit evaluation are required in all
matters. To maintain the requisite knowledge and skill, a Mortgage
Professional should keep abreast of changes in the law and its practice,
engage in continuing study and education, and comply with all
continuing legal education requirements to which the Mortgage
Professional is subject.
Standard 3-03. Diligence. A Mortgage Professional shall

act with reasonable diligence and promptness in providing services to
lenders and customers.
Comment:
In obtaining a mortgage loan for a borrower, a Mortgage

Professional must make reasonable efforts, with lenders with whom the
broker regularly does business to secure a loan that is reasonably
126
advantageous to the borrower considering all the circumstances,

including the rates, charges, and repayment terms of the loan and the loan
options for which the borrower qualifies. A Mortgage Professional is not
required, however, to press for every advantage that might be realized for
a customer nor to obtain the very best terms that may be available to the
customer. A Mortgage Professional's work load must be controlled so
that each matter can be handled competently.
Standard 3-04. Safekeeping of Property.
(a) A Mortgage Professional shall take reasonable efforts to

safeguard property and documents entrusted to him by a
customer.
(b) All trust funds received by a Mortgage Professional shall

be promptly deposited into a general trust account
maintained by the Mortgage Professional or his employer.
No funds belonging to the Mortgage Professional shall be
deposited into such account. The Mortgage Professional
shall not use funds held in trust to obtain credit or for
other personal benefit.
(c) A Mortgage Professional shall promptly pay or deliver to

the customer, or to third persons as directed by the
customer, any entrusted property belonging to the
customer.
(d) A Mortgage Professional who discovers or reasonably

believes that entrusted property has been misappropriated
or misapplied (i) by the Mortgage Professional, shall take
prompt steps to remedy the misappropriation or
misapplication, or (ii) by a third person, shall promptly
inform the North Carolina Commissioner of Banks.
Standard 3-05. Rate Locks. A Mortgage Professional

shall inform its customer of the need for and consequences of locking an
interest rate for a mortgage loan product, and shall take reasonable steps
127
to lock a rate with the lender promptly upon receiving directions to do so

from the customer. Disclosure of the rate obtained and the consequences
of the lender’s action may be in writing.
Comment:
A rate-lock or rate commitment is a lender's promise to hold a

certain interest rate and a certain number of points for customer, usually
for a specified period of time, while the customer’s loan application is
processed. Most rate locks are not the same as loan commitments,
although some loan commitments may contain a rate-lock provision. A
Mortgage Professional should communicate to the customer the
consequences of the rate lock, and any events or circumstances which
cause the rate on the customers mortgage to differ from the locked rate.
While rate locks may in many circumstances be oral, a better practice is
to obtain a rate lock confirmation in writing from the lender. Loan
commitments should be evidenced in a writing binding upon the lender.
Standard 3-06. Confidentiality. A Mortgage Professional

shall take necessary steps
(a) To insure the security and confidentiality of customer

information;
(b) To protect against any anticipated threats or hazards to the

security or integrity of such information; and
(c) To protect against unauthorized access to or use of such

information that could result in substantial harm or
inconvenience to any customer.
Standard 3-07. Communication. A Mortgage

Professional shall keep his customer informed regarding the status of his
loan, events that may affect his ability to obtain a loan, and circumstances
which could result in a material change in the fees and expenses charged
or collected by the Mortgage Company.
128
Standard 3-08. Mortgage Professional as Borrower,

Lender or Seller. If a Mortgage Professional is involved in a transaction
with a lender or customer in which the Mortgage Professional is the
borrower, the lender or the seller, then the Mortgage Professional shall
disclose the nature of his role to the other parties in the transaction. If
any of the other parties objects to the Mortgage Professional’s continued
participation in the transaction, then the Mortgage Professional may not
proceed with the transaction.
Standard 3-09. Dealings with Others.
(a) In the course of its business, a Mortgage Professional shall

not knowingly make a false statement to a borrower, a
lender, or any other participant in a residential mortgage
transaction.
(b) A Mortgage Professional shall not seek to influence the

conclusions or activities of an appraiser, a lender, a title
attorney or any other participant in a mortgage transaction
by any means prohibited by law.
(c) In its business, a Mortgage Professional shall not use

means that have no substantial purpose other than to
delay, embarrass or burden a third person, or use means of
obtaining information that violate the legal rights of such
person or applicable law.
(d) Mortgage Professionals should refrain from criticism of

other Mortgage Professionals. Furthermore, the Mortgage
Professional shall not speak disparagingly of the business
practices of a competitor or of a transaction being
negotiated by a competitor.
129
ARTICLE IV
OPERATING A MORTGAGE BUSINESS
Standard 4-01. Fees.
(a) A Mortgage Company shall charge fees that are

reasonably related to the value of the work performed and
the services provided.
(b) In a mortgage transaction, a Mortgage Broker may collect

fees from a Mortgage Lender, the borrowing customer,
and the seller of the property, or any of them.
(c) A Mortgage Company may not charge fees for work not
performed or services that have not been provided.
(d) All fees charged to the borrower or paid to the Mortgage

Broker by the Mortgage Lender in connection with the
borrower’s transaction shall be disclosed to the borrower
in writing in accordance with applicable laws. A
Mortgage Professional should notify the borrower
promptly in writing of any material change in the fees to
be charged or collected by the Mortgage Company.
(e) A Mortgage Company shall not charge rates and fees that
vary based on race, color, religion, natural origin, gender,
marital status, age, receipt of income from public
assistance programs, or good faith exercise of rights under
consumer finance laws.
Standard 4-02. Responsibility of Organization and

Supervisors.
(a) The shareholders, members, directors, and executive

officers of a Mortgage Company who have managerial
130
authority shall make reasonable efforts to ensure that the

company or organization has in effect measures to ensure
that all Mortgage Professionals in the company or
organization conform to the North Carolina Mortgage
Lending Act, applicable federal laws, and these Standards.
(b) An employee of a Mortgage Company who has direct

supervisory authority over another employee shall make
reasonable efforts to ensure that the subordinate employee
conforms to the North Carolina Mortgage Lending Act,
applicable federal laws, and these Standards.
(c) A person shall be deemed to be in violation of these

Standards for the acts of a third person if:
(i) Such person orders, or with knowledge of the

specific conduct, ratifies the conduct of the third
person; or
(ii) Such person is an officer, director, partner or

member of the Mortgage Company in which the
other person is employed, or has direct supervisory
authority over the other person, and knows of such
conduct at a time when its consequences can be
avoided or mitigated but fails to take reasonable
remedial action to avoid the consequences.
Standard 4-03. Responsibilities of Subordinate. A

Mortgage Professional is subject to these Standards notwithstanding that
the Mortgage Professional acted at the direction of another person. A
subordinate employee subject to these standards does not violate these
Standards if that employee acts in accordance with a supervisor’s
reasonable resolution of an arguable question of professional duty.
131
Standard 4-04. Unauthorized Activities.
(a) A Mortgage Company shall not engage in business in a

jurisdiction where doing so violates the regulation of
mortgage lenders and brokers in that jurisdiction.
(b) A Mortgage Professional shall not assist another in

practices that violate the North Carolina Mortgage
Lending Act or other state and federal laws.
(c) A Mortgage Company shall not employ as a processor or

clerk any loan officer whose license has been permanently
suspended if, at the time of the events which caused the
suspension, the loan officer was employed by the
Mortgage Company.
Standard 4-05. Duty Upon Discovery of Violations.
(a) A director, shareholder, member or executive officer of a

Mortgage Company who has managerial authority shall,
upon the discovery of a violation of these Standards or
applicable law:
(i) Take actions to mitigate or prevent adverse harm

to third parties as a result of such unlawful action;
or
(ii) Report promptly such unlawful conduct to the

North Carolina Commissioner of Banks.
(b) A Mortgage Professional who does not have managerial

authority, shall upon the discovery of a violation of these
Standards or applicable law:
(i) Take actions to mitigate or prevent adverse harm

to third parties as a result of such unlawful action;
or
132
(ii) Report promptly such unlawful conduct to the

North Carolina Commissioner of Banks; or
(iii) Report promptly such unlawful conduct to a person

who has managerial authority who is not involved
in such unlawful conduct.
Standard 4-06. Retention of Records. The following

records should be maintained by a Mortgage Company with respect to its
business:
(a) The originals or copies of all documentation dated and

signed by the borrower and a loan originator in connection
with any loan transaction, including, but not limited to:
(i) uniform residential loan application (Fannie Mae

Form 1003);
(ii) Initial Truth-in-Lending Disclosure (within 3 days

of the application date);
(iii) Final Truth-in-Lending Disclosure (at settlement);
(iv) Good Faith Estimate (within 3 days of the

application date);
(v) Notice of Right to Receive Copy of Uniform

Residential Appraisal disclosure (provided any
time during the loan process prior to settlement);
(vi) Equal Credit Opportunity Act Disclosure (within 3

days of application date);
(vii) Notice of Right to Cancel (for refinanced loans at

settlement);
133
(viii) Notice of Adverse Action (within 3 business days

of receiving notice that loan is denied or within 30
calendar days of receiving an application denied by
creditor);
(ix) Affiliated Business Agreement (Disclosure) given

within 3 days of application;
(x) Notice of Transfer Servicing Disclosure (if funding

the loan);
(xi) Signed verification that the applicant received the

“Settlement Cost Booklet” (for a purchase within 3
days of the application date);
(xii) Verification of borrower’s authorization giving

broker/lender permission prior to ordering a credit
report;
(xiii) Notice of Amortization required by statute;
(xiv) Patriot Act and Right to Privacy Notices;
(xv) HUD-1/HUD-1A Settlement Statement (at

settlement);
(b) A log or computer generated list of all residential

mortgage loan applications taken, including originator’s
name, applicant’s name and address, application date, loan
amount, loan status (i.e. closed, rescinded, pending,
denied), and to whom loans were sold, transferred, or
brokered;
(c) Bank statements and cancelled checks of all business

accounts related to residential mortgage lending activity;
134
(d) Receipts and invoices of third party transactions such as

but not limited to appraisers, credit Bureau, title
companies, couriers, etc.;
(e) Copy of receipts provided to consumers for all funds

collected in connection with procurement of a loan.
Standard 4-07. Advertising.

shall engage in false or misleading advertising.
(b) A Mortgage Company shall not offer any loan product or

terms that it knows or should know it cannot provide or
that are subject to onerous conditions that can be satisfied
by few, if any, borrowers.
(c) A Mortgage Company shall maintain a copy of all

advertisements for a period of three years.
Standard 4-08. Appraisers. A Mortgage Company shall

not fail promptly to pay when due reasonable fees to a licensed appraiser
for appraisal services that are requested from the appraiser in writing by
the Mortgage Company or an employee of the Mortgage Company; and
performed by the appraiser in connection with the origination or closing
of a mortgage loan for a customer or the Mortgage Company.
135
(viii) Notice of Adverse Action (within 3 business days

of receiving notice that loan is denied or within 30
calendar days of receiving an application denied by
creditor);
(ix) Affiliated Business Agreement (Disclosure) given

within 3 days of application;
(x) Notice of Transfer Servicing Disclosure (if funding

the loan);
(xi) Signed verification that the applicant received the

“Settlement Cost Booklet” (for a purchase within 3
days of the application date);
(xii) Verification of borrower’s authorization giving

broker/lender permission prior to ordering a credit
report;
(xiii) Notice of Amortization required by statute;
(xiv) Patriot Act and Right to Privacy Notices;
(xv) HUD-1/HUD-1A Settlement Statement (at

settlement);
(b) A log or computer generated list of all residential

mortgage loan applications taken, including originator’s
name, applicant’s name and address, application date, loan
amount, loan status (i.e. closed, rescinded, pending,
denied), and to whom loans were sold, transferred, or
brokered;
(c) Bank statements and cancelled checks of all business

accounts related to residential mortgage lending activity;
132
(d) Receipts and invoices of third party transactions such as

but not limited to appraisers, credit Bureau, title
companies, couriers, etc.;
(e) Copy of receipts provided to consumers for all funds

collected in connection with procurement of a loan.
Standard 4-07. Advertising.

shall engage in false or misleading advertising.
(b) A Mortgage Company shall not offer any loan product or

terms that it knows or should know it cannot provide or
that are subject to onerous conditions that can be satisfied
by few, if any, borrowers.
(c) A Mortgage Company shall maintain a copy of all

advertisements for a period of three years.
Standard 4-08. Appraisers. A Mortgage Company shall

not fail promptly to pay when due reasonable fees to a licensed appraiser
for appraisal services that are requested from the appraiser in writing by
the Mortgage Company or an employee of the Mortgage Company; and
performed by the appraiser in connection with the origination or closing
of a mortgage loan for a customer or the Mortgage Company.
133
APPENDIX 1
Chapter 24
Chapter 24.
Interest.
Article 1.
General Provisions.
§ 24-1. Legal rate is eight percent.
The legal rate of interest shall be eight percent (8%) per annum
for such time as interest may accrue, and no more. (1876-7, c. 91;
Code, s. 3835; 1895, c. 69; Rev., s. 1950; C.S., s. 2305; 1979, 2nd
Sess., c. 1157, s. 1.)
§ 24-1.1. Contract rates and fees.

(a) Except as otherwise provided in this Chapter or other
applicable law, the parties to a loan, purchase money loan, advance,
commitment for a loan or forbearance other than a credit card,
open-end, or similar loan may contract in writing for the payment of
interest not in excess of:
(1) Where the principal amount is twenty-five
thousand dollars ($25,000) or less, the rate set
under subsection (c) of this section; or
(2) Any rate agreed upon by the parties where the
principal amount is more than twenty-five thousand
dollars ($25,000).
(b) As used in this section, interest shall not be deemed in
excess of the rates provided where interest is computed monthly on
the outstanding principal balance and is collected not more than 31
days in advance of its due date. Nothing in this section shall be
construed to authorize the charging of interest on committed funds
prior to the disbursement of said funds.
(c) On the fifteenth day of each month, the Commissioner of
Banks shall announce and publish the maximum rate of interest
permitted by subdivision (1) of subsection (a) of this section on that
date. Such rate shall be the latest published noncompetitive rate for
NC General Statutes - Chapter 24

U.S. Treasury bills with a six-month maturity as of the fifteenth day
of the month plus six percent (6%), rounded upward or downward,
as the case may be, to the nearest one-half of one percent (1/2 of 1%)
or sixteen percent (16%), whichever is greater. If there is no nearest
one-half of one percent (1/2 of 1%), the Commissioner shall round
downward to the lower one-half of one percent (1/2 of 1%). The rate
so announced shall be the maximum rate permitted for the term of
loans made under this section during the following calendar month
when the parties to such loans have agreed that the rate of interest to
be charged by the lender and paid by the borrower shall not vary or
be adjusted during the term of the loan. The parties to a loan made
under this section may agree to a rate of interest which shall vary or
be adjusted during the term of the loan in which case the maximum
rate of interest permitted on such loans during a month during the
term of the loan shall be the greater of the rate announced by the
Commissioner in (i) the preceding calendar month or (ii) the
calendar month preceding that in which the rate is varied or adjusted.
(d) Any bank or savings institution organized under the law of
North Carolina or of the United States may charge a party to a loan
or extension of credit governed by this section a fee for the
modification, renewal, extension, or amendment of any terms of the
loan or extension of credit, such fee not to exceed the greater of
one-quarter of one percent (1/4 of 1%) of the balance outstanding at
the time of the modification, renewal, extension, or amendment of
terms, or fifty dollars ($50.00).
(e) Any bank or savings institution organized under the law of
North Carolina or of the United States may charge a party to a loan
or extension of credit not secured by real property governed by this
section an origination fee not to exceed the greater of one-quarter of
one percent (1/4 of 1%) of the outstanding balance or fifty dollars
($50.00).
(f) This section shall not be construed to limit fees on loans
or extensions of credit in excess of three hundred thousand dollars

($300,000). (1969, c. 1303, s. 1; 1977, c. 778, ss. 1, 3; c. 779, s. 1;
1979, c. 138, s. 1; 1981, c. 465, s. 1; c. 934, s. 1; 1985, c. 663, s. 1;
1991, c. 506, s. 2; 1998-119, s. 1; 1999-75, s. 1.)
§ 24-1.1A. Contract rates on home loans secured by first

mortgages or first deeds of trust.
(a) Notwithstanding any other provision of this Chapter, but
subject to the provisions of G.S. 24-1.1E, parties to a home loan may
contract in writing as follows:
(1) Where the principal amount is ten thousand dollars
($10,000) or more the parties may contract for the
payment of interest as agreed upon by the parties;
(2) Where the principal amount is less than ten
thousand dollars ($10,000) the parties may contract
for the payment of interest as agreed upon by the
parties, if the lender is either (i) approved as a
mortgagee by the Secretary of Housing and Urban
Development, the Federal Housing Administration,
the Department of Veterans Affairs, a national
mortgage association or any federal agency; or (ii)
a local or foreign bank, savings and loan
association or service corporation wholly owned by
one or more savings and loan associations and
permitted by law to make home loans, credit union
or insurance company; or (iii) a State or federal
agency;
(3) Where the principal amount is less than ten
thousand dollars ($10,000) and the lender is not a
lender described in the preceding subdivision (2)
the parties may contract for the payment of interest
not in excess of sixteen percent (16%) per annum.
(4) Notwithstanding any other provision of law, where
the lender is an affiliate operating in the same

office or subsidiary operating in the same office of
a licensee under the North Carolina Consumer
Finance Act, the lender may charge interest to be
computed only on the following basis: monthly on
the outstanding principal balance at a rate not to
exceed the rate provided in this subdivision.
On the fifteenth day of each month, the
Commissioner of Banks shall announce and
publish the maximum rate of interest permitted by
this subdivision. Such rate shall be the latest
published noncompetitive rate for U.S. Treasury
bills with a six-month maturity as of the fifteenth
day of the month plus six percent (6%), rounded
upward or downward, as the case may be, to the
nearest one-half of one percent (1/2 of 1%) or
fifteen percent (15%), whichever is greater. If there
is no nearest one-half of one percent (1/2 of 1%),
the Commissioner shall round downward to the
lower one-half of one percent (1/2 of 1%). The rate
so announced shall be the maximum rate permitted
for the term of loans made under this section during
the following calendar month when the parties to
such loans have agreed that the rate of interest to be
charged by the lender and paid by the borrower
shall not vary or be adjusted during the term of the
loan. The parties to a loan made under this section
may agree to a rate of interest which shall vary or
be adjusted during the term of the loan in which
case the maximum rate of interest permitted on
such loans during a month during the term of the
loan shall be the rate announced by the
Commissioner in the preceding calendar month.

An affiliate operating in the same office or
subsidiary operating in the same office of a
licensee under the North Carolina Consumer
Finance Act may not make a home loan for a term
in excess of six (6) months which provides for a
balloon payment. For purposes of this subdivision,
a balloon payment means any scheduled payment
that is more than twice as large as the average of
earlier scheduled payments. This subsection does
not apply to equity lines of credit as defined in G.S.
45-81.
(a1) Subject to federal requirements, when a natural person
applies for a home loan primarily for personal, family, or household
purposes, the lender shall comply with the provisions of this
subsection.
(1) Not later than the date of the home loan closing or
three business days after the lender receives an
application for a home loan, whichever is earlier,
the lender shall deliver or mail to the applicant
information and examples of amortization of home
loans reflecting various terms in a form made
available by the Commissioner of Banks. The
Commissioner of Banks shall develop and make
available to home loan lenders materials necessary
to satisfy the provisions of this subsection.
(2) Not later than three business days after the home
loan closing, the lender shall deliver or mail to the
borrower an amortization schedule for the
borrower's home loan. Provided, however, that a
lender shall not be required to provide an
amortization schedule unless the loan is a fixed rate
home loan that requires the borrower to make
regularly scheduled periodic amortizing payments

of principal and interest; and provided further that,
with respect to a construction/permanent home
loan, the amortization schedule must be provided
only with respect to the permanent portion of the
home loan during which amortization occurs.
(3) If the home loan transaction involves more than
one natural person, the lender may deliver or mail
the materials required by this subsection to any one
or more of such persons.
(4) This subsection does not apply if the home loan
applicant is not a natural person or if the home loan
is for a purpose other than a personal, family, or
household purpose.
(b) Except as provided in subdivision (1) of this subsection, a
lender and a borrower may agree on any terms as to the prepayment
of a home loan.
(1) No prepayment fees or penalties shall be contracted
by the borrower and lender with respect to any
home loan in which: (i) the principal amount
borrowed is one hundred fifty thousand dollars
($150,000) or less, (ii) the borrower is a natural
person, (iii) the debt is incurred by the borrower
primarily for personal, family, or household
purposes, and (iv) the loan is secured by a first
mortgage or first deed of trust on real estate upon
which there is located or there is to be located a
structure or structures designed principally for
occupancy of from one to four families which is or
will be occupied by the borrower as the borrower's
principal dwelling.
(2) The limitations on prepayment fees and penalties
contained in subdivision (b)(1) of this section shall
not apply to the extent state law limitations on

prepayment fees and penalties are preempted by
federal law or regulation.
(c) If the home loan is one described in subdivision (a)(1) or
subdivision (a)(2) of this section, the lender may charge the
borrower the following fees and charges in addition to interest and
other fees and charges as permitted in this section and late payment
charges as permitted in G.S. 24-10.1:
(1) At or before loan closing, the lender may charge
such of the following fees and charges as may be
agreed upon by the parties notwithstanding the
provisions of any State law, other than G.S.
24-1.1E, limiting the amount of such fees or
charges:
a. Loan application, origination, commitment,
and interest rate lock fees;
a1. Fees to administer a construction loan or a
construction/permanent loan, including
inspection fees and loan conversion fees;
b. Discount points, but only to the extent the
discount points are paid for the purpose of
reducing, and in fact result in a bona fide
reduction of the interest rate or time-price
differential;
c. Assumption fees to the extent permitted by
G.S. 24-10(d);
d. Appraisal fees to the extent permitted by
G.S. 24-10(h);
e. Fees and charges to the extent permitted by
G.S. 24-8(d); and
f. Additional fees and charges, however
individually or collectively denominated,
payable to the lender which, in the
aggregate, do not exceed the greater of (i)

one quarter of one percent (1/4 of 1%) of the
principal amount of the loan, or (ii) one
hundred fifty dollars ($150.00).
(2) Except as provided in subsection (g) of this section
with respect to the deferral of loan payments, upon
modification, renewal, extension, or amendment of
any of the terms of a home loan, the lender may
charge such of the following fees and charges as
may be agreed upon by the parties notwithstanding
the provisions of any State law, other than G.S.
24-1.1E, limiting the amount of such fees or
charges:
a. Discount points, but only to the extent the
discount points are paid for the purpose of
reducing, and in fact result in a bona fide
reduction of, the interest rate or time-price
differential;
a1. Fees which do not exceed one quarter of one
percent (1/4 of 1%) of the principal amount
of the loan if the principal amount of the
loan is less than one hundred fifty thousand
dollars ($150,000), or one percent of the
principal amount of the loan if the principal
amount of the loan is one hundred fifty
thousand dollars ($150,000) or more, for the
conversion of a variable interest rate loan to
a fixed interest rate loan, of a fixed interest
rate loan to a variable interest rate loan, of a
closed-end loan to an open-end loan, or of
an open-ended loan to a closed-end loan;
b. Assumption fees to the extent permitted by
G.S. 24-10(d);

c. Appraisal fees to the extent permitted by
G.S. 24-10(h);
d. Fees and charges to the extent permitted by
G.S. 24-8(d); and
e. If no fees are charged under subdivision
(c)(2)b. of this section, additional fees and
charges, however individually or
collectively denominated, payable to the
lender which, in the aggregate, do not
exceed the greater of (i) one quarter of one
percent (1/4 of 1%) of the balance
outstanding at the time of the modification,
renewal, extension, or amendment of terms,
or (ii) one hundred fifty dollars ($150.00).
The fees and charges permitted by this
sub-subdivision may be charged only
pursuant to a written agreement which states
the amount of the fee or charge and is made
at the time of the specific modification,
renewal, extension, or amendment, or at the
time the specific modification, renewal,
extension, or amendment is requested.
(c1) No lender on home loans under subdivision (a)(3) of this
section may charge or receive any interest, fees, charges, or discount
points other than: (i) to the extent permitted by G.S. 24-8(d), sums
for the payment of bona fide loan-related goods, products, and
services provided or to be provided by third parties and sums for the
payment of taxes, filing fees, recording fees, and other charges and
fees, paid or to be paid to public officials; (ii) interest as permitted in
subdivision (a)(3) of this section; and (iii) late payment charges to
the extent permitted by G.S. 24-10.1.
(c2) No lender on home loans under subdivision (a)(4) of this
section may charge or receive any interest, fees, charges, or discount

points other than: (i) the fees described in G.S. 24-10; (ii) to the
extent permitted by G.S. 24-8(d), sums for the payment of bona fide
loan-related goods, products, and services provided or to be provided
by third parties and sums for the payment of taxes, filing fees,
recording fees, and other charges and fees, paid or to be paid to
public officials; (iii) interest as permitted in subdivision (a)(4) of this
section; and (iv) late payment charges to the extent permitted by
G.S. 24-10.1.
(d) The loans or investments regulated by G.S. 53-45 shall not
be subject to the provisions of this section.
(e) The term "home loan" shall mean a loan, other than an
open-end credit plan, where the principal amount is less than three
hundred thousand dollars ($300,000) secured by a first mortgage or
first deed of trust on real estate upon which there is located or there
is to be located one or more single-family dwellings or dwelling
units.
(f) Any home loan obligation existing before June 13, 1977,
shall be construed with regard to the law existing at the time the
home loan or commitment to lend was made and this act shall only
apply to home loans or loan commitments made from and after June
13, 1977; provided, however, that variable rate home loan
obligations executed prior to April 3, 1974, which by their terms
provide that the interest rate shall be decreased and may be increased
in accordance with a stated cost of money formula or other index
shall be enforceable according to the terms and tenor of said written
obligations.
(g) The parties to a home loan governed by subdivision (a)(1)
or (2) of this section may contract to defer the payment of all or part
of one or more unpaid installments and for payment of interest on
deferred interest as agreed upon by the parties. The parties may
agree that deferred interest may be added to the principal balance of
the loan. This subsection shall not be construed to limit payment of
interest upon interest in connection with other types of loans. Except

as restricted by G.S. 24-1.1E, the lender may charge deferral fees as
may be agreed upon by the parties to defer the payment of one or
more unpaid installments. If the home loan is of a type described in
subdivision (1) of this subsection, the deferral fees shall be subject to
the limitations set forth in subdivision (2) of this subsection:
(1) A home loan will be subject to the deferral fee
limitations set forth in subdivision (2) of this
subsection if:
a. The borrower is a natural person;
b. The debt is incurred by the borrower
purposes; and
c. The loan is secured by a first mortgage or
first deed of trust on real estate upon which
there is located or there is to be located a
structure or structures designed principally
for occupancy of from one to four families
which is or will be occupied by the borrower
as the borrower's principal dwelling.
(2) Deferral fees for home loans identified in
subdivision (1) of this subsection shall be subject to
the following limitations:
a. Deferral fees may be charged only pursuant
to an agreement which states the amount of
the fee and is made at the time of the
specific deferral or at the time the specific
deferral is requested; provided, that if the
agreement relates to an installment which is
then past due for 15 days or more, the
agreement must be in writing and signed by
at least one of the borrowers. For purposes
of this subdivision an agreement will be
considered a signed writing if the lender

receives from at least one of the borrowers a
facsimile or computer-generated message
confirming or otherwise accepting the
agreement.
b. Deferral fees may not exceed the greater of
five percent (5%) of each installment
deferred or fifty dollars ($50.00), multiplied
by the number of complete months in the
deferral period. A month shall be measured
from the date an installment is due. The
deferral period is that period during which
no payment is required or made as measured
from the date on which the deferred
installment would otherwise have been due
to the date the next installment is due under
the terms of the note or the deferral
agreement.
c. If a deferral fee has once been imposed with
respect to a particular installment, no
deferral fee may be imposed with respect to
any future payment which would have been
timely and sufficient but for the previous
deferral.
d. If a deferral fee is charged pursuant to a
deferral agreement, a late charge may be
imposed with respect to the deferred
payment only if the amount deferred is not
paid when due under the terms of the
deferral agreement and no new deferral
agreement is entered into with respect to that
installment.
e. A lender may charge a deferral fee under
this subsection for deferring the payment of

all or part of one or more regularly
scheduled payments, regardless of whether
the deferral results in an extension of the
loan maturity date or the date a balloon
payment is due. A modification or extension
of the loan maturity date or the date a
balloon payment is due which is not incident
to the deferral of a regularly scheduled
payment shall be considered a modification
or extension subject to the provisions of
subdivision (c)(2) of this section.
(h) The parties to a home loan governed by subdivision (a)(1)
or (2) of this section may agree in writing to a mortgage or deed of
trust which provides that periodic payments may be graduated
during parts of or over the entire term of the loan. The parties to such
a loan may also agree in writing to a mortgage or deed of trust which
provides that periodic disbursements of part of the loan proceeds
may be made by the lender over a period of time agreed upon by the
parties, or over a period of time agreed upon by the parties ending
with the death of the borrower(s). Such mortgages or deeds of trust
may include provisions for adding deferred interest to principal or
otherwise providing for charging of interest on deferred interest as
agreed upon by the parties. This subsection shall not be construed to
limit other types of mortgages or deeds of trust or methods or plans
of disbursement or repayment of loans that may be agreed upon by
the parties.
(i) Nothing in this section shall be construed to authorize or
prohibit a lender, a borrower, or any other party to pay compensation
to a mortgage broker or a mortgage banker for services provided by
the mortgage broker or the mortgage banker in connection with a
home loan. (1973, c. 1119, ss. 1, 2; 1975, c. 260, s. 1; 1977, c. 542,
ss. 1, 2; 1979, c. 362; 1983, c. 126, s. 4; 1985, c. 154, s. 1; c. 381, ss.
1, 2; 1987, c. 444, ss. 1, 3, 4; c. 853, s. 4; 1989, c. 17, ss. 13, 14;

1999-332, s. 1; 2000-140, ss. 40(a), 40(b); 2001-340, s. 1; 2001-413,
s. 9; 2001-487, s. 56.)
§ 24-1.1B. Repealed by Session Laws 1979, c. 335.
§ 24-1.1C: Repealed by Session Laws 1998-119, s. 2.
§ 24-1.1D. Expired.
§ 24-1.1E. Restrictions and limitations on high-cost home loans.

(a) Definitions. – The following definitions apply for the
purposes of this section:
(1) "Affiliate" means any company that controls, is
controlled by, or is under common control with
another company, as set forth in the Bank Holding
Company Act of 1956 (12 U.S.C. § 1841 et seq.),
as amended from time to time.
(2) "Annual percentage rate" means the annual
percentage rate for the loan calculated according to
the provisions of the federal Truth-in-Lending Act
(15 U.S.C. § 1601, et seq.), and the regulations
promulgated thereunder by the Federal Reserve
Board (as said Act and regulations are amended
from time to time).
(3) "Bona fide loan discount points" means loan
discount points knowingly paid by the borrower for
the purpose of reducing, and which in fact result in
a bona fide reduction of, the interest rate or
time-price differential applicable to the loan,
provided the amount of the interest rate reduction
purchased by the discount points is reasonably
consistent with established industry norms and
practices for secondary mortgage market
transactions.

(4) A "high-cost home loan" means a loan other than a
reverse mortgage transaction in which:
a. The principal amount of the loan (or, in the
case of an open-end credit plan, the
borrower's initial maximum credit limit)
does not exceed the lesser of (i) the
conforming loan size limit for a
single-family dwelling as established from
time to time by Fannie Mae, or (ii) three
hundred thousand dollars ($300,000);
b. The borrower is a natural person;
c. The debt is incurred by the borrower
purposes;
d. The loan is secured by either (i) a security
interest in a manufactured home (as defined
in G.S. 143-147(7)) which is or will be
occupied by the borrower as the borrower's
principal dwelling, or (ii) a mortgage or
deed of trust on real estate upon which there
is located or there is to be located a structure
or structures designed principally for
occupancy of from one to four families
which is or will be occupied by the borrower
as the borrower's principal dwelling; and
e. The terms of the loan exceed one or more of
the thresholds as defined in subdivision (6)
of this section.
(5) "Points and fees" is defined as provided in this
subdivision.
a. The term includes all of the following:
1. All items required to be disclosed
under sections 226.4(a) and 226.4(b)

of Title 12 of the Code of Federal
Regulations, as amended from time to
time, except interest or the time-price
differential.
2. All charges for items listed under
section 226.4(c)(7) of Title 12 of the
Code of Federal Regulations, as
amended from time to time, but only
if the lender receives direct or
indirect compensation in connection
with the charge or the charge is paid
to an affiliate of the lender;
otherwise, the charges are not
included within the meaning of the
phrase "points and fees".
3. All compensation paid directly by the
borrower to a mortgage broker not
otherwise included in sub-subdivision
a.1. or a.2. of this subdivision.
4. The maximum prepayment fees and
penalties which may be charged or
collected under the terms of the loan
documents.
b. Notwithstanding the remaining provisions of
this subdivision, the term does not include
(i) taxes, filing fees, recording and other
charges and fees paid or to be paid to public
officials for determining the existence of or
for perfecting, releasing, or satisfying a
security interest; and (ii) fees paid to a
person other than a lender or an affiliate of
the lender or to the mortgage broker or an
affiliate of the mortgage broker for the

following: fees for tax payment services;
fees for flood certification; fees for pest
infestation and flood determinations;
appraisal fees; fees for inspections
performed prior to closing; credit reports;
surveys; attorneys' fees (if the borrower has
the right to select the attorney from an
approved list or otherwise); notary fees;
escrow charges, so long as not otherwise
included under sub-subdivision a. of this
subdivision; title insurance premiums; and
fire insurance and flood insurance
premiums, provided that the conditions in
section 226.4(d)(2) of Title 12 of the Code
of Federal Regulations are met.
c. For open-end credit plans, the term includes
those points and fees described in
sub-subdivisions a.1. through a.3. of this
subdivision that are charged at or before
loan closing, plus (i) the minimum
additional fees the borrower would be
required to pay to draw down an amount
equal to the total loan amount, and (ii) the
maximum prepayment fees and penalties
which may be charged or collected under the
terms of the loan documents.
(6) "Thresholds" means:
a. Without regard to whether the loan
transaction is or may be a "residential
mortgage transaction" (as the term
"residential mortgage transaction" is defined
in section 226.2(a)(24) of Title 12 of the
Code of Federal Regulations, as amended

from time to time), the annual percentage
rate of the loan at the time the loan is
consummated is such that the loan is
considered a "mortgage" under section 152
of the Home Ownership and Equity
Protection Act of 1994 (Pub. Law 103-25,
[15 U.S.C. § 1602(aa)]), as the same may be
amended from time to time, and regulations
adopted pursuant thereto by the Federal
Reserve Board, including section 226.32 of
Title 12 of the Code of Federal Regulations,
as the same may be amended from time to
time;
b. The total points and fees payable by the
borrower at or before the loan closing
exceed five percent (5%) of the total loan
amount if the total loan amount is twenty
thousand dollars ($20,000) or more, or (ii)
the lesser of eight percent (8%) of the total
loan amount or one thousand dollars
($1,000), if the total loan amount is less than
twenty thousand dollars ($20,000);
provided, the following discount points and
prepayment fees and penalties shall be
excluded from the calculation of the total
points and fees payable by the borrower:
1. Up to and including two bona fide
loan discount points payable by the
borrower in connection with the loan
transaction, but only if the interest
rate from which the loan's interest
rate will be discounted does not
exceed by more than one percentage

point (1%) the required net yield for a
90-day standard mandatory delivery
commitment for a reasonably
comparable loan from either Fannie
Mae or the Federal Home Loan
Mortgage Corporation, whichever is
greater;
2. Up to and including one bona fide
loan discount point payable by the
borrower in connection with the loan
transaction, but only if the interest
rate from which the loan's interest
rate will be discounted does not
exceed by more than two percentage
points (2%) the required net yield for
a 90-day standard mandatory delivery
commitment for a reasonably
comparable loan from either Fannie
Mae or the Federal Home Loan
Mortgage Corporation, whichever is
greater;
3. For a closed-end loan, prepayment
fees and penalties which may be
charged or collected under the terms
of the loan documents which do not
exceed one percent (1%) of the
amount prepaid, provided the loan
documents do not permit the lender to
charge or collect any prepayment fees
or penalties more than 30 months
after the loan closing;
4. For an open-end credit plan,
prepayment fees and penalties which

may be charged or collected under
the terms of the loan documents
which do not exceed one percent
(1%) of the amount prepaid, provided
the loan documents do not permit the
lender to charge or collect any
prepayment fees or penalties more
than (i) 30 months after the loan
closing if the borrower has no right or
option under the loan documents to
repay all or any portion of the
outstanding balance of the open-end
credit plan at a fixed interest rate over
a specified period of time or, (ii) if
the borrower has a right or option
under the loan documents to repay all
or any portion of the outstanding
balance of the open-end credit plan at
a fixed interest rate over a specified
period of time, 30 months after the
date the borrower voluntarily
exercises that right or option; or
c. If the loan is a closed-end loan, the loan
documents permit the lender to charge or
collect prepayment fees or penalties more
than 30 months after the loan closing or
which exceed, in the aggregate, more than
two percent (2%) of the amount prepaid. If
the loan is an open-end credit plan, the loan
documents permit the lender to charge or
collect prepayment fees or penalties (i) more
than 30 months after the loan closing if the
borrower has no right or option under the

loan documents to repay all or any portion
of the outstanding balance of the open-end
credit plan at a fixed interest rate over a
specified period of time or, (ii) if the
borrower has a right or option under the loan
documents to repay all or any portion of the
outstanding balance of the open-end credit
plan at a fixed interest rate over a specified
period of time, more than 30 months after
the date the borrower voluntarily exercises
that right or option, or (iii) which exceed, in
the aggregate, more than two percent (2%)
of the amount prepaid.
(7) For a closed-end loan, "total loan amount" has the
same meaning as the term "total loan amount" as
used in section 226.32 of Title 12 of the Code of
Federal Regulations, and shall be calculated in
accordance with the Federal Reserve Board's
Official Staff Commentary thereto. For an
open-end credit plan, "total loan amount" means
the borrower's initial maximum credit limit.
(b) Limitations. – A high-cost home loan shall be subject to
the following limitations:
(1) No call provision. – No high-cost home loan may
contain a provision which permits the lender, in its
sole discretion, to accelerate the indebtedness. This
provision does not apply when repayment of the
loan has been accelerated by default, pursuant to a
due-on-sale provision, or pursuant to some other
provision of the loan documents unrelated to the
payment schedule.
(2) No balloon payment. – No high-cost home loan
may contain a scheduled payment that is more than

twice as large as the average of earlier scheduled
payments. This provision does not apply when the
payment schedule is adjusted to the seasonal or
irregular income of the borrower.
(3) No negative amortization. – No high-cost home
loan may contain a payment schedule with regular
periodic payments that cause the principal balance
to increase.
(4) No increased interest rate. – No high-cost home
loan may contain a provision which increases the
interest rate after default. This provision does not
apply to interest rate changes in a variable rate loan
otherwise consistent with the provisions of the loan
documents, provided the change in the interest rate
is not triggered by the event of default or the
acceleration of the indebtedness.
(5) No advance payments. – No high-cost home loan
may include terms under which more than two
periodic payments required under the loan are
consolidated and paid in advance from the loan
proceeds provided to the borrower.
(6) No modification or deferral fees. – A lender may
not charge a borrower any fees to modify, renew,
extend, or amend a high-cost home loan or to defer
any payment due under the terms of a high-cost
home loan.
(c) Prohibited Acts and Practices. – The following acts and
practices are prohibited in the making of a high-cost home loan:
(1) No lending without home-ownership counseling. –
A lender may not make a high-cost home loan
without first receiving certification from a
counselor approved by the North Carolina Housing
Finance Agency that the borrower has received

counseling on the advisability of the loan
transaction and the appropriate loan for the
borrower.
(2) No lending without due regard to repayment
ability. – As used in this subsection, the term
"obligor" refers to each borrower, co-borrower,
cosigner, or guarantor obligated to repay a loan. A
lender may not make a high-cost home loan unless
the lender reasonably believes at the time the loan
is consummated that one or more of the obligors,
when considered individually or collectively, will
be able to make the scheduled payments to repay
the obligation based upon a consideration of their
current and expected income, current obligations,
employment status, and other financial resources
(other than the borrower's equity in the dwelling
which secures repayment of the loan). An obligor
shall be presumed to be able to make the scheduled
payments to repay the obligation if, at the time the
loan is consummated, the obligor's total monthly
debts, including amounts owed under the loan, do
not exceed fifty percent (50%) of the obligor's
monthly gross income as verified by the credit
application, the obligor's financial statement, a
credit report, financial information provided to the
lender by or on behalf of the obligor, or any other
reasonable means; provided, no presumption of
inability to make the scheduled payments to repay
the obligation shall arise solely from the fact that,
at the time the loan is consummated, the obligor's
total monthly debts (including amounts owed under
the loan) exceed fifty percent (50%) of the obligor's
monthly gross income.

(3) No financing of fees or charges. – In making a
high-cost home loan, a lender may not directly or
indirectly finance:
a. Any prepayment fees or penalties payable
by the borrower in a refinancing transaction
if the lender or an affiliate of the lender is
the noteholder of the note being refinanced;
b. Any points and fees; or
c. Any other charges payable to third parties.
(4) No benefit from refinancing existing high-cost
home loan with new high-cost home loan. – A
lender may not charge a borrower points and fees
in connection with a high-cost home loan if the
proceeds of the high-cost home loan are used to
refinance an existing high-cost home loan held by
the same lender as noteholder.
(5) Restrictions on home-improvement contracts. – A
lender may not pay a contractor under a
home-improvement contract from the proceeds of a
high-cost home loan other than (i) by an instrument
payable to the borrower or jointly to the borrower
and the contractor, or (ii) at the election of the
borrower, through a third-party escrow agent in
accordance with terms established in a written
agreement signed by the borrower, the lender, and
the contractor prior to the disbursement.
(6) No shifting of liability. – A lender is prohibited
from shifting any loss, liability, or claim of any
kind to the closing agent or closing attorney for any
violation of this section.
(d) Unfair and Deceptive Acts or Practices. – Except as
provided in subsection (e) of this section, the making of a high-cost
home loan which violates any provisions of subsection (b) or (c) of

this section is hereby declared usurious in violation of the provisions
of this Chapter and unlawful as an unfair or deceptive act or practice
in or affecting commerce in violation of the provisions of G.S.
75-1.1. The provisions of this section shall apply to any person who
in bad faith attempts to avoid the application of this section by (i) the
structuring of a loan transaction as an open-end credit plan for the
purpose and with the intent of evading the provisions of this section
when the loan would have been a high-cost home loan if the loan
had been structured as a closed-end loan, or (ii) dividing any loan
transaction into separate parts for the purpose and with the intent of
evading the provisions of this section, or (iii) any other such
subterfuge. The Attorney General, the Commissioner of Banks, or
any party to a high-cost home loan may enforce the provisions of
this section. Any person seeking damages or penalties under the
provisions of this section may recover damages under either this
Chapter or Chapter 75, but not both.
(e) Corrections and Unintentional Violations. – A lender in a
high-cost home loan who, when acting in good faith, fails to comply
with subsections (b) or (c) of this section, will not be deemed to have
violated this section if the lender establishes that either:
(1) Within 30 days of the loan closing and prior to the
institution of any action under this section, the
borrower is notified of the compliance failure,
either, at the choice of the borrower, (i) make the
high-cost home loan satisfy the requirements of
subsections (b) and (c) of this section, or (ii)
to the borrower so that the loan will no longer be
considered a high-cost home loan subject to the
provisions of this section; or

(2) The compliance failure was not intentional and
resulted from a bona fide error notwithstanding the
maintenance of procedures reasonably adapted to
avoid such errors, and within 60 days after the
discovery of the compliance failure and prior to the
institution of any action under this section or the
receipt of written notice of the compliance failure,
the borrower is notified of the compliance failure,
either, at the choice of the borrower, (i) make the
high-cost home loan satisfy the requirements of
subsections (b) and (c) of this section, or (ii)
to the borrower so that the loan will no longer be
considered a high-cost home loan subject to the
provisions of this section. Examples of a bona fide
error include clerical, calculation, computer
malfunction and programming, and printing errors.
An error of legal judgment with respect to a
person's obligations under this section is not a bona
fide error.
(f) Severability. – The provisions of this section shall be
severable, and if any phrase, clause, sentence, or provision is
declared to be invalid or is preempted by federal law or regulation,
the validity of the remainder of this section shall not be affected
thereby. If any provision of this section is declared to be inapplicable
to any specific category, type, or kind of points and fees, the
provisions of this section shall nonetheless continue to apply with
respect to all other points and fees. (1999-332, s. 2; 2000-140, s.
40.1; 2001-487, s. 14(a); 2003-401, s. 3.)
§ 24-1.2: Repealed by Session Laws 1998-119, s. 2.

§ 24-1.2A. Equity lines of credit.
(a) Notwithstanding any other provision of this Chapter, the
parties to an equity line of credit, as defined in G.S. 45-81, may
contract in writing for interest at rates which shall not exceed the
maximum rates permitted under G.S. 24-1.1(c); provided, however,
that the parties may contract for interest rates which shall be
adjustable or variable, so long as for adjustable or variable rate
contracts the rate in effect for a given period does not exceed the
maximum rate permitted under G.S. 24-1.1(c) for the same period.
(b) Fees may be charged on equity lines of credit which in the
aggregate, over the life of the contract based on the maximum limit
of the line of credit, do not exceed those permitted under G.S. 24-10.
Any lender may charge a party to a loan or extension of credit
governed by this section a fee for the modification, renewal,
extension, or amendment of any terms of the loan or extension of
credit, such fee not to exceed the greater of one-quarter of one
percent (1/4 of 1%) of the balance outstanding at the time of the
modification, renewal, extension, or amendment of terms, or fifty
dollars ($50.00). (1985, c. 207, s. 1; 1991, c. 506, s. 4; 1998-119, s.
2.1.)
§ 24-1.3: Repealed by Session Laws 1979, 2nd Session, c. 1302, s.

3.
§ 24-1.4. Interest rates for savings and loan associations.

(a) Notwithstanding any other provision of law, a savings and
loan association domiciled in North Carolina may charge interest or
collect fees with respect to any loan to the same extent as if the
provisions of section 501 of Public Laws 96-221, as interpreted by
the Federal Home Loan Bank Board prior to the effective date of this
section, were still in effect in North Carolina.

(b) Notwithstanding any other provision of law, any savings
and loan association in North Carolina may contract for interest on
any loan, purchase money loan, advance, commitment for a loan or
forbearance at any rate permitted by federal law to a savings and
loan association the accounts of which are insured by the Federal
Savings and Loan Insurance Corporation. (1981, c. 282, s. 3; 1983,
c. 126, s. 6.)
§ 24-2. Penalty for usury; corporate bonds may be sold below

par.
The taking, receiving, reserving or charging a greater rate of
interest than permitted by this chapter or other applicable law, either
before or after the interest may accrue, when knowingly done, shall
be a forfeiture of the entire interest which the note or other evidence
of debt carries with it, or which has been agreed to be paid thereon.
And in case a greater rate of interest has been paid, the person or his
legal representatives or corporation by whom it has been paid, may
recover back twice the amount of interest paid in an action in the
nature of action for debt. In any action brought in any court of
competent jurisdiction to recover upon any such note or other
evidence of debt, it is lawful for the party against whom the action is
brought to plead as a counterclaim the penalty above provided for, to
wit, twice the amount of interest paid as aforesaid, and also the
forfeiture of the entire interest. If security has been given for an
usurious loan and the debtor or other person having an interest in the
security seeks relief against the enforcement of the security or seeks
any other affirmative relief, the debtor or other person having an
interest in the security shall not be required to pay or to offer to pay
the principal plus legal interest as a condition to obtaining the relief
sought but shall be entitled to the advantages provided in this
section. Nothing contained in this section or in G.S. 24-1, however,
shall be held or construed to prohibit private corporations from
paying a commission on or for the sale of their coupon bonds, nor

from selling such bonds for less than the par value thereof. (1876-7,
c. 91; Code, s. 3836; 1895, c. 69; 1903, c. 154; Rev., s. 1951; C.S., s.
2306; 1955, c. 1196; 1959, c. 110; 1969, c. 1303, s. 3.)
§ 24-2.1. Transactions governed by Chapter.

For purposes of this Chapter, any extension of credit shall be
deemed to have been made in this State, and therefore subject to the
provisions of this Chapter if the lender offers or agrees in this State
to lend to a borrower who is a resident of this State, or if such
borrower accepts or makes the offer in this State to borrow,
regardless of the situs of the contract as specified therein.
Any solicitation or communication to lend, oral or written,
originating outside of this State, but forwarded to and received in
this State by a borrower who is a resident of this State, shall be
deemed to be an offer or agreement to lend in this State.
Any solicitation or communication to borrow, oral or written,
originating within this State, from a borrower who is a resident of
this State, but forwarded to, and received by a lender outside of this
State, shall be deemed to be an acceptance or offer to borrow in this
State.
Any oral or written offer, acceptance, solicitation or
communication to lend or borrow, made in this State to, or received
in this State from, a borrower who is not a resident of this State shall
be subject to the provisions of this Chapter, applicable federal law,
law of the situs of the contract, or law of the residence of any such
borrower as the parties may elect.
The provisions of this section shall be severable and if any
phrase, clause, sentence or provision is declared to be invalid, the
validity of the remainder of this section shall not be affected thereby.
It is the paramount public policy of North Carolina to protect
North Carolina resident borrowers through the application of North
Carolina interest laws. Any provision of this section which acts to

interfere in the attainment of that public policy shall be of no effect.
(1979, c. 706, s. 3; 1983, c. 126, s. 11.)
§ 24-2.2. Interest on extensions of credit by banks and savings

and loan associations; exceptions.
Notwithstanding any other provision of law, banks and savings
and loan associations chartered in North Carolina by the State of
North Carolina or the federal government shall each be entitled to
charge on extensions of credit those interest rates allowed any lender
under North Carolina law. Provided, that any extension of credit
pursuant to this authority shall be governed by those restrictions or
limitations contained in the authorizing statute. Provided further, the
authority granted under this section shall not apply to rates provided
in Article 15 of Chapter 53, the Consumer Finance Act, nor in
Subchapter III of Chapter 54, concerning credit unions. (1983, c.
126, s. 8.)
§ 24-2.3. State opt-out from federal preemption.

(a) The provisions of section 501, of United States Public
Law 96-221, as well as any modifications made to date, shall not
apply to loans, mortgages, credit sales and advances made in this
State.
(b) Effective July 1, 1995, sections 521-524 of United States
Public Law 96-221, shall apply to loans, mortgages, credit sales, and
advances made in this State on or after that date as if North Carolina
had never opted out of sections 521-524 of United States Public Law
96-221. (1983, c. 126, s. 1; 1995, c. 387, s. 1.)
§ 24-2.4. Prepayment of a loan if there are no prepayment terms

or if the prepayment terms are not in accordance with
law.
A borrower may prepay a loan in whole or in part without
penalty where the loan instrument does not explicitly state the

borrower's rights with respect to prepayment or where the provisions
for prepayment are not in accordance with law. (1985, c. 681, s. 1.)
§ 24-2.5. Mortgage bankers and mortgage brokers.

A mortgage broker or a mortgage banker originating a loan in a
table-funded loan transaction in which the mortgage broker or
mortgage banker is identified as the original payee of the note shall
be considered a lender for purposes of this Chapter. (1999-332, s. 3.)
§ 24-3. Time from which interest runs.

Interest is due and payable on instruments, as follows:
(1) All bonds, bills, notes, bills of exchange, liquidated
and settled accounts shall bear interest from the
time they become due, provided such liquidated
and settled accounts be signed by the debtor, unless
it is specially expressed that interest is not to accrue
until a time mentioned in the said writings or
securities.
(2) All bills, bonds, or notes payable on demand shall
be held and deemed to be due when demandable by
the creditor, and shall bear interest from the time
they are demandable, unless otherwise expressed.
(3) All securities for the payment or delivery of
specific articles shall bear interest as moneyed
contracts; and the articles shall be rated by the jury
at the time they become due.
(4) Bills of exchange drawn or indorsed in the State,
and which have been protested, shall carry interest,
not from the date thereof, but from the time of
payment therein mentioned. (1786, c. 248, P.R.;
1828, c. 2; R.C., c. 13; Code, ss. 44, 45, 46, 47;
Rev., s. 1952; C.S., s. 2307.)

§ 24-4. Obligations due guardians to bear compound interest;
rate of interest.
Guardians shall have power to lend any portion of the estate of
their wards upon bond with sufficient security, to be repaid with
interest annually, and all the bonds, notes or other obligations which
he shall take as guardian shall bear compound interest, for which he
must account, and he may assign the same to the ward on settlement
with him. On loans made out of the estate of their wards, guardians
may lend at any rate of interest not less than four percent per annum
and not more than the maximum lawful rate. This section shall in no
way limit or affect the powers of guardians to make other
investments which are now or may hereafter be authorized or
permitted by the laws, statutory or otherwise, of the State of North
Carolina. (1762, c. 69, P.R.; 1816, c. 925, P.R.; R.C., c. 54, s. 23;
1868-9, c. 201, s. 29; Code, s. 1592; Rev., s. 1953; C.S., s. 2308;
1943, c. 728; 1969, c. 1303, s. 4.)
§ 24-5. Interest on judgments.

(a) Actions on Contracts. – In an action for breach of
contract, except an action on a penal bond, the amount awarded on
the contract bears interest from the date of breach. The fact finder in
an action for breach of contract shall distinguish the principal from
the interest in the award, and the judgment shall provide that the
principal amount bears interest until the judgment is satisfied. If the
parties have agreed in the contract that the contract rate shall apply
after judgment, then interest on an award in a contract action shall be
at the contract rate after judgment; otherwise it shall be at the legal
rate. On awards in actions on contracts pursuant to which credit was
extended for personal, family, household, or agricultural purposes,
however, interest shall be at the lower of the legal rate or the
contract rate. For purposes of this section, "after judgment" means
after the date of entry of judgment under G.S. 1A-1, Rule 58.

(a1) Actions on Penal Bonds. – In an action on a penal bond,
the amount of the judgment, except the costs, shall bear interest at
the legal rate from the date of entry of judgment under G.S. 1A-1,
Rule 58, until the judgment is satisfied.
(b) Other Actions. – In an action other than contract, any
portion of a money judgment designated by the fact finder as
compensatory damages bears interest from the date the action is
commenced until the judgment is satisfied. Any other portion of a
money judgment in an action other than contract, except the costs,
bears interest from the date of entry of judgment under G.S. 1A-1,
Rule 58, until the judgment is satisfied. Interest on an award in an
action other than contract shall be at the legal rate. (1786, c. 253,
P.R.; 1789, c. 314, s. 4, P.R.; 1807, c. 721, P.R.; R.C., c. 31, s. 90;
Code, s. 530; Rev., s. 1954; C.S., s. 2309; 1981, c. 327, s. 1; 1985, c.
214, s. 1; 1987, c. 758; 1999-384, s. 1; 2000-133, s. 8; 2003-59, s.
4.)
§ 24-6. Clerk to ascertain interest upon default judgment on

bond, covenant, bill, note or signed account.
When a suit is instituted on a single bond, a covenant for the
payment of money, bill of exchange, promissory note, or a signed
account, and the defendant does not plead to issue thereon, upon
judgment, the clerk of the court shall ascertain the interest due by
law, without a writ of inquiry, and the amount shall be included in
the final judgment of the court as damages, which judgment shall be
rendered therein in the manner prescribed by § 24-5. (1797, c. 475,
P.R.; R.C., c. 31, s. 91; Code, s. 531; Rev., s. 1956; C.S., s. 2310.)
§ 24-7. Interest from verdict to judgment added as costs.

Except with respect to compensatory damages in actions other
than contract as provided in G.S. 24-5, when the judgment is for the
recovery of money, interest from the time of the verdict or report
until judgment is finally entered shall be computed by the clerk and

added to the costs of the party entitled thereto. (Code, s. 529; Rev., s.
1955; C.S., s. 2311; 1981, c. 327, s. 2.)
§ 24-8. Loans not in excess of $300,000; what interest, fees and

charges permitted.
(a) If the principal amount of a loan is less than three hundred
thousand dollars ($300,000), no lender shall charge or receive from
any borrower or require in connection with any loan any borrower,
directly or indirectly, to pay, deliver, transfer, or convey or
otherwise confer upon or for the benefit of the lender or any other
person, firm, or corporation any sum of money, thing of value, or
other consideration other than that which is pledged as security or
collateral to secure the repayment of the full principal of the loan,
together with fees and interest provided for in this Chapter or
Chapter 53 of the General Statutes.
(b) Repealed by Session Laws 2003-401, s. 2, effective
October 1, 2003, and applicable to contracts entered into or renewed
on or after that date.
(c) The provisions of this section shall not prevent a borrower
from selling, transferring, or conveying property other than security
or collateral to any person, firm, or corporation for a fair
consideration so long as such transaction is not made a condition or
requirement for any loan.
(d) Notwithstanding any contrary provision of State law, any
lender may collect money from the borrower for the payment of (i)
bona fide loan-related goods, products, and services provided or to
be provided by third parties, (ii) taxes, filing fees, recording fees,
and other charges and fees paid or to be paid to public officials, and
(iii) fees payable to the federal government, any state or local
government or any federal, state, or local governmental agency in
connection with a loan made pursuant to a loan program sponsored
by or offered through the federal government, any state or local
government or any federal, state or local government agency,

including loan guarantee and tax credit programs. No third party
shall charge or receive (i) any unreasonable compensation for
loan-related goods, products, and services, or (ii) any compensation
for which no loan-related goods and products are provided or for
which no or only nominal loan-related services are performed.
Loan-related goods, products, and services include fees for tax
payment services, fees for flood certification, fees for
pest-infestation determinations, mortgage brokers' fees, appraisal
fees, inspection fees, environmental assessment fees, fees for credit
report services, assessments, costs of upkeep, surveys, attorneys'
fees, notary fees, escrow charges, and insurance premiums
(including, for example, fire, title, life, accident and health,
disability, unemployment, flood, and mortgage insurance).
(e) Notwithstanding any contrary provision of State law, any
lender may receive the proceeds from any insurance policies where
loss occurs under the terms of such policies.
(f) This section shall not be applicable to any corporation
licensed as a "Small Business Investment Company" under the
provisions of the United States Code Annotated, Title 15, section 66,
et seq., nor shall it be applicable to the sale or purchase of
convertible debentures, nor to the sale or purchase of any debt
security with accompanying warrants, nor to the sale or purchase of
other securities through an organized securities exchange. (1961, c.
1142; 1969, c. 127; c. 1303, s. 5; 1993, c. 226, s. 12; 1999-332, s. 4;
2000-140, s. 40(c); 2003-401, s. 2.)
§ 24-9. Loans exempt from rate and fee limitations.

(a) As used in this section, the following definitions apply:
(1) "Bank" means a bank, savings and loan association,
savings bank, or credit union chartered under the
laws of North Carolina or the United States.
However, the term "bank" does not include any
subsidiary or affiliate of a bank, savings and loan

association, savings bank, or credit union chartered
under the laws of North Carolina or the United
States that is not itself a bank, savings and loan
association, savings bank, or credit union chartered
under the laws of North Carolina or the United
States.
(2) "Equity line of credit" means a loan, other than an
exempt loan, that satisfies all of the following
conditions:
a. The lender is a bank.
b. The loan is a revolving line of credit,
open-end loan, revolving credit plan, or
revolving credit card plan, and the loan is
secured by a mortgage or deed of trust on
real property.
c. At any time within a specified period not to
exceed 30 years the borrower may request
and the lender is obligated to provide credit
advances up to the agreed aggregate credit
limit. As used in this sub-subdivision,
"lender is obligated" means that the lender is
contractually bound to provide credit
advances. However, the equity line of credit
and the lender's obligation to make credit
advances shall be subject to the provisions
of section 226.5b(f) of Title 12 of the Code
of Federal Regulations and the official
commentaries and rulings issued pursuant
thereto, as the same may be amended from
time to time, without regard to whether that
section of the Code of Federal Regulations
would otherwise apply to the loan.

d. Any repayments of principal by the
borrower within the specified time will
reduce the amount of advances counted
against the aggregate credit limit.
e. The initial loan amount is ten thousand
dollars ($10,000) or more. On January 1,
2008, and on January 1 every five years
thereafter, the minimum initial loan amount
sufficient to qualify a loan closed on or after
that date as an equity line of credit under
this section shall be increased by one
thousand dollars ($1,000). For example, a
loan closed on or after January 1, 2008, but
prior to January 1, 2013, shall not be
considered an equity line of credit unless the
initial loan amount is eleven thousand
dollars ($11,000) or more, and a loan closed
on or after January 1, 2013, but prior to
January 1, 2018, shall not be considered an
equity line of credit unless the initial loan
amount is twelve thousand dollars ($12,000)
or more.
An equity line of credit shall cease being an equity
line of credit subject to the provisions of this
section from and after the date the loan amount is
reduced below the equity line of credit's initial loan
amount unless (i) the loan amount was reduced for
one or more of the reasons or pursuant to one or
more of the methods specified in section
226.5b(f)(2) or section 226.5b(f)(3)(vi) of Title 12
of the Code of Federal Regulations and the official
commentaries and rulings issued pursuant thereto,
as the same may be amended from time to time,

without regard to whether that section of the Code
of Federal Regulations would otherwise apply to
the loan, or (ii) the loan amount was reduced at the
request of the borrower because the borrower was
engaged in the refinancing of a loan secured by a
superior lien on the same real property and the
reduction in the loan amount of the equity line of
credit is no greater than the difference between the
loan amount secured by the refinancing mortgage
and the outstanding principle balance of the loan
being refinanced.
(3) "Exempt loan" means a loan in which:
a. The loan amount is three hundred thousand
dollars ($300,000) or more; or
b. The borrower is a person other than a natural
person; or
c. The loan is obtained by a natural person
primarily for a purpose other than a
personal, family, or household purpose.
Whether a loan is obtained primarily for a
purpose other than a personal, family, or
household purpose shall be guided by the
standards established by the federal Truth In
Lending Act (Title 1 of Public Law 90-321;
82 Stat. 146; 15 U.S.C. § 160, et seq.) and
all regulations and rulings issued pursuant to
that Act, as the same may be amended from
time to time.
(4) "Loan" means an advance of money or an
extension of credit that is made to or on behalf of a
borrower, the principal amount of which the
borrower has an obligation to pay the lender. The
term includes revolving lines of credit, open-end

loans, revolving credit plans, and revolving credit
card plans in addition to closed-end loans.
(5) "Loan amount" means the principal amount of a
loan or, in the case of a revolving line of credit,
open-end loan, revolving credit plan, or revolving
credit card plan, the initial maximum credit limit.
(b) Notwithstanding any other provision of this Chapter or
any other provision of State law, any borrower in an exempt loan
transaction may agree to pay, and any lender, including a bank, may
charge and collect from the borrower, interest at any rate and fees
and other charges in any amount that the borrower agrees to pay. A
claim or defense of usury is prohibited in an exempt loan
transaction.
(c) The provisions of G.S. 24-1.2A, 24-11, and 24-11.1 shall
not apply to equity lines of credit offered by banks. Except as
provided in this subsection and notwithstanding any other provision
of this Chapter or any other provision of State law, any bank may
charge and collect from any borrower interest at any rate and fees
and other charges in any amount that the borrower agrees to pay in
connection with an equity line of credit. However, an equity line of
credit made by a bank shall be subject to the following, to the extent
otherwise applicable:
(1) The provisions of G.S. 24-1.1E (relating to
restrictions and limitations on high-cost home
loans).
(2) The provisions of G.S. 24-10.2 (relating to
consumer protections in certain home loans).
(3) Notwithstanding the limitation against prepayment
penalties contained in G.S. 45-81(c), a bank may
charge and collect prepayment fees or penalties
following the borrower's voluntary exercise of a
right or option to repay all or any portion of the
outstanding balance of a variable interest rate

equity line of credit at a fixed interest rate over a
specified period of time, subject to the following
limitations:
a. Prepayment fees or penalties may be
charged only with respect to the prepayment
of that portion of the outstanding balance the
borrower voluntarily agrees to repay at a
fixed interest rate over a specified time;
b. No prepayment fees or penalties may be
charged for prepayments made more than 30
months after the borrower voluntarily
exercises the right or option to repay that
portion of the outstanding balance of the
equity line of credit at a fixed interest rate
over a specified period of time; and
c. The prepayment fees or penalties charged
with respect to that portion of the
outstanding balance to be repaid at a fixed
rate over a specified period of time may not
exceed, in the aggregate, more than two
percent (2%) of the amount prepaid.
Otherwise, no prepayment fees or penalties may be
charged or collected by the bank with respect to an
equity line of credit.
(d) The provisions of G.S. 24-11 and G.S. 24-11.1 shall not
apply to revolving credit card plans offered by banks.
Notwithstanding any other provision of this Chapter or any other
provision of State law, any bank may charge and collect from any
borrower interest at any rate, as well as fees and other charges in any
amount that the borrower agrees to pay in connection with a
revolving credit card plan. This subsection (d) shall not apply to a
revolving credit card plan that is secured by a mortgage or deed of

trust on real property. (1963, c. 753, s. 1; 1965, c. 335; 1969, c. 896;
1979, c. 138, s. 5; 1995, c. 351, s. 13; 2003-401, s. 1.)
§ 24-9.1. Certain repayments to consumers by public utilities

not subject to claim or defense of usury.
Notwithstanding any other provision of this Chapter or any other
provision of law, any public utility, as defined by G.S. 62-3, shall
pay to its customers such rate of interest as may be required by order
of the North Carolina Utilities Commission in transactions wherein
the utility is refunding to its customers funds advanced by or
overcollected from the customers. As to such transactions, the claim
or defense of usury by such public utility and its successors or
anyone else in its behalf is prohibited. (1981, c. 461, s. 3.)
§ 24-9.2: Repealed by Session Laws 1995, c. 351, s. 14.
§ 24-9.3. Economic development loans.

Fees or other funds paid by borrowers for contribution to loss
reserve accounts administered and controlled by nonprofit
corporations that are part of State-funded programs that provide
loans to promote economic development shall not be considered
interest under this Chapter and shall not be subject to claims or
defenses of usury. (1995, c. 252, s. 1.)
§ 24-10. Maximum fees on loans secured by real property.

(a) No lender on loans made under G.S. 24-1.1 shall charge or
receive from any borrower or any agent for a borrower, any fees or
discounts unless otherwise allowed where the principal amount is
less than three hundred thousand dollars ($300,000) and is secured
by real property, which fees or discounts in the aggregate shall
exceed two percent (2%) if a construction loan on other than a one or
two family dwelling, and one percent (1%) on any other type of
loan; provided, however, if a single lender makes both the
construction loan and a permanent loan utilizing one note, the lender

may collect the fees as if they were two separate loans. Except as
provided herein or otherwise allowed, no party shall pay for the
benefit of the lender any other fees or discounts.
(b) Any loan made under G.S. 24-1.1 in an original principal
amount of one hundred thousand dollars ($100,000.00) or less may
be prepaid in part or in full, after 30 days notice to the lender, with a
maximum prepayment fee of two percent (2%) of the outstanding
balance at any time within three years after the first payment of
principal and thereafter there shall be no prepayment fee, provided
that there shall be no prepayment fee charged or received in
connection with any repayment of a construction loan; and except as
herein provided, any lender and any borrower may agree on any
terms as to prepayment of a loan.
(c) "Construction loan" means a loan which is obtained for
the purpose of financing fully, or in part, the cost of constructing
buildings or other improvements upon real property and the proceeds
of which, under the terms of a written contract between a lender and
a borrower, are to be disbursed periodically as such construction
work progresses; and such loan shall be payable in full not later than
18 months in case of a loan made under the provisions of G.S.
24-1.1(1) or 36 months in case of any other construction loan made
after the execution of the note by the borrower. A construction loan
may include advances for the purchase price of the property upon
which such improvements are to be constructed.
(d) (1) Any lender may charge to any person, firm or
corporation that assumes a loan, secured by real
property, the following fee:
a. Where the mortgage or deed of trust
contains a due on sale clause, a fee not to
exceed four hundred dollars ($400.00);
provided, however, that if the original
obligor is not released from liability on the

obligation, the fee shall not exceed one
hundred twenty-five dollars ($125.00).
b. Where the mortgage or deed of trust does
not contain a due on sale clause, a fee not to
exceed one hundred twenty-five dollars
($125.00).
The fees authorized by this subsection may be paid in whole or in
part by any party but the total shall not exceed the maximum fees set
forth herein.
(2) For purposes of this subsection, the term "due on
sale clause" means a contract provision that
authorizes a lender to declare immediately due and
payable all sums secured by the lender's security
instrument if all or any part of the secured property,
or an interest therein, is sold or transferred without
the lender's prior written consent or contrary to the
requirements of the mortgage or the deed of trust.
For purposes of this subsection, no lender shall
exercise its rights under the due on sale clause if
prohibited by federal law as of the date of
execution of the contract containing the clause.
(e), (f) Repealed by Session Laws 1985, c. 755, s. 2.
(g) Notwithstanding the limitations contained in subsection
(a) of this section, a lender described in G.S. 24-1.1A(a)(2) may
charge or receive from any borrower or any agent for a borrower,
fees or discounts which in the aggregate do not exceed two percent
(2%) on loans made under G.S. 24-1.1 or G.S. 24-1.2(2) when such
loans are secured by a second or junior lien on real property. The
fees or discounts are fully earned when the loan is made and are not
a prepayment penalty under this Chapter or any other law of this
State.
(h) A bank, savings and loan association, savings bank, or
credit union, or any subsidiary or affiliate thereof organized under

the laws of this State or the United States, may charge a party to a
loan secured by real property a reasonable fee as may be agreed
upon by the parties for an appraisal performed by an employee of the
bank, savings and loan association, savings bank, or credit union, or
any subsidiary or affiliate thereof. Upon the request of the borrower,
the lender shall provide at no additional charge to the borrower a
copy of any appraisal for which the lender has collected a fee under
this subsection. Provision of the copy of an appraisal shall not be
construed to create or imply any warranty which does not otherwise
exist by the lender as to the accuracy of the appraisal. (1967, c. 852,
s. 1; 1969, c. 40; c. 1303, s. 6; 1971, c. 1168; 1979, c. 684; c. 849, s.
1; c. 969; 1981, c. 933; 1983, c. 541, s. 1; 1985, c. 154, s. 2; c. 755,
s. 2; 1991, c. 506, s. 5.)
§ 24-10.1. Late fees.

(a) Subject to the limitations contained in subsection (b) of
this section, any lender may charge a party to a loan or extension of
credit governed by the provisions of G.S. 24-1.1, 24-1.2, or 24-1.1A
a late payment charge as agreed upon by the parties in the loan
contract.
(b) No lender may charge a late payment charge:
(1) In excess of four percent (4%) of the amount of the
payment past due; or
(2) In excess of the amount disclosed with particularity
to the borrower pursuant to the provisions of the
Federal Consumer Credit Protection Act if the
transaction is one to which the provisions of that
act apply, which in no event shall exceed four
percent (4%); or
(3) For any payment unless past due for 15 days or
more; provided, however, if the loan is one on
which interest on each installment is paid in

advance, no late payment charge may be charged
until the payment is 30 days past due or more; or
(4) More than once with respect to a single late
payment. If a late payment charge is deducted
from a payment made on the contract and such
deduction results in a subsequent default on a
subsequent payment, no late payment charge may
be imposed for such default. If a late payment
charge has been once imposed with respect to a
particular late payment, no such charge shall be
imposed with respect to any future payment which
would have been timely and sufficient but for the
previous default; provided that when a borrower
fails to make an installment payment, and the terms
of the loan agreement provide that subsequent
payments shall first be applied to the past due
balance, and the borrower resumes making
installment payments but has not paid all past due
installments, then the lender may enforce the
contract according to its terms, imposing a separate
late payment charge for each installment that
becomes due until the default is cured; or
(5) On any loan which by its terms calls for repayment
of the entire balance in a single payment and not
for installments of interest or principal and interest;
or
(6) Unless the lender notifies the borrower within 45
days following the date the payment was due that a
late payment charge has been imposed for a
particular late payment which late payment must be
paid unless the borrower can show that the
installment was paid in full and on time. No late
payment charge may be collected from any

borrower if the borrower informs the lender that
non-payment of an installment is in dispute and
presents proof of payment within 45 days of receipt
of the lender's notice of the late charge.
(c) The provisions of this subsection apply only to home
loans made by lenders described in G.S. 24-1.1A(a)(2).
Notwithstanding that the note or other loan document sets forth a
late payment charge in excess of that permitted in this section, the
loan shall not be deemed to be unlawful if:
(1) No late fee in excess of those permitted in this
section has been assessed or collected by the
lender; and
(2) a. If the loan is executed on or after July 14,
1993, the lender provides written notice to
the borrower within 90 days of the date of
execution of the loan documents that the late
payment charge with respect to the loan
shall be four percent (4%) or less; or
b. If the loan was executed prior to July 14,
1993, the lender provides written notice to
the borrower within six months of that date
that the late payment charge with respect to
the loan shall be four percent (4%) or less.
(1985, c. 755, s. 1; 1987, c. 447; 1993, c.
339, s. 1.)
§ 24-10.2. Consumer protections in certain home loans.

(a) For purposes of this section, the term "consumer home
loan" means a loan, including an open-end credit plan but excluding
a reverse mortgage transaction, in which (i) the borrower is a natural
person, (ii) the debt is incurred by the borrower primarily for
personal, family, or household purposes, and (iii) the loan is secured
by a mortgage or deed of trust upon real estate upon which there is

located or there is to be located a structure or structures designed
principally for occupancy of from one to four families which is or
will be occupied by the borrower as the borrower's principal
dwelling.
(b) Notwithstanding the provisions of G.S. 58-57-35(b), it
shall be unlawful for any lender in a consumer home loan to finance,
directly or indirectly, any credit life, disability, or unemployment
insurance, or any other life or health insurance premiums; provided,
that insurance premiums calculated and paid on a monthly basis
shall not be considered financed by the lender.
(c) No lender may knowingly or intentionally engage in the
unfair act or practice of "flipping" a consumer home loan. "Flipping"
a consumer loan is the making of a consumer home loan to a
borrower which refinances an existing consumer home loan when
the new loan does not have reasonable, tangible net benefit to the
borrower considering all of the circumstances, including the terms of
both the new and refinanced loans, the cost of the new loan, and the
borrower's circumstances. This provision shall apply regardless of
whether the interest rate, points, fees, and charges paid or payable by
the borrower in connection with the refinancing exceed those
thresholds specified in G.S. 24-1.1E(a)(6).
(d) No lender shall recommend or encourage default on an
existing loan or other debt prior to and in connection with the
closing or planned closing of a consumer home loan that refinances
all or any portion of such existing loan or debt.
(e) The making of a consumer home loan which violates the
provisions of this section is hereby declared usurious in violation of
the provisions of this Chapter and unlawful as an unfair or deceptive
act or practice in or affecting commerce in violation of the
provisions of G.S. 75-1.1. The Attorney General, the Commissioner
of Banks, or any party to a consumer home loan may enforce the
provisions of this section. Any person seeking damages or penalties

under the provisions of this section may recover damages under
either this Chapter or Chapter 75, but not both.
(f) In any suit instituted by a borrower who alleges that the
defendant violated this section, the presiding judge may, in the
judge's discretion, allow reasonable attorneys' fees to the attorney
representing the prevailing party, such attorneys' fees to be taxed as
a part of the court costs and payable by the losing party, upon a
finding by the presiding judge that:
(1) The party charged with the violation has willfully
engaged in the act or practice, and there was
unwarranted refusal by such party to fully resolve
the matter which constitutes the basis of such suit;
or
(2) The party instituting the action knew, or should
have known, that the action was frivolous and
malicious.
(g) This section establishes specific consumer protections in
consumer home loans in addition to other consumer protections that
may be otherwise available by law. (1999-332, s. 5; 2003-401, s. 4.)
§ 24-11. Certain revolving credit charges.

(a) On the extension of credit under an open-end credit or
similar plan (including revolving credit card plans, and revolving
charge accounts, but excluding any loan made directly by a lender
under a check loan, check credit or other such plan) under which no
service charge shall be imposed upon the consumer or debtor if the
account is paid in full within 25 days from the billing date, but upon
which there may be imposed an annual charge not to exceed
twenty-four dollars ($24.00), there may be charged and collected
interest, finance charges or other fees at a rate in the aggregate not to
exceed one and one-half percent (1 1/2%) per month computed on
the unpaid portion of the balance of the previous month less

payments or credit within the billing cycle or the average daily
balance outstanding during the current billing period.
(a1) If the lender chooses not to impose an annual charge
under this section, the lender may impose a service charge not to
exceed two dollars ($2.00) per month on the balance of any account
which is not paid in full within 25 days from the billing date.
(a2) No person, firm or corporation may charge a discount or
fee in excess of six percent (6%) of the principal amount of the
accounts acquired from or through any vendors or others providing
services who participate in such plan.
(b) On revolving credit loans (including check loans, check
credit or other revolving credit plans whereby a bank, banking
institution or other lending agency makes direct loans to a borrower),
if agreed to in writing by the borrower, such lender may collect
interest and service charges by application of a monthly periodic rate
computed on the average daily balance outstanding during the billing
period, such rate not to exceed one and one-half percent (1 1/2%).
(c) Any extension of credit under an open-end or similar plan
under which there is charged a monthly periodic rate greater than
one and one-quarter percent (1 1/4%) may not be secured by real or
personal property or any other thing of value, provided, that this
subsection shall not apply to consumer credit sales regulated by
Chapter 25A, the Retail Installment Sales Act; provided further, that
in any action initiated for the possession of property in which a
security interest has been taken, a judgement for the possession
thereof shall be restricted to commercial units (as defined in G.S.
25-2-105(6)) for which the cash price was one hundred dollars
($100.00) or more.
(d) The term "billing date" shall mean any date selected by
the creditor and the bill for the balance of the account must be
mailed to the customer at least 14 days prior to the date specified in
the statement as being the date by which payment of the new balance
must be made in order to avoid the imposition of any finance charge.

(d1) A lender may charge a party to a loan or extension of
credit governed by this section a late payment charge not to exceed
five dollars ($5.00) on accounts having an outstanding balance of
less than one hundred dollars ($100.00) and ten dollars ($10.00) on
accounts having an outstanding balance of one hundred dollars
($100.00) or more, for any payment past due for 30 days or more;
provided, in no case shall the late charge exceed the outstanding
principal balance. If a late payment charge has been once imposed
with respect to a late payment, no late charge shall be imposed with
respect to any future payment which would have been timely and
sufficient but for the previous default.
(e) An annual or service charge pursuant to this section upon
an existing credit card account upon which the charge has not
previously been imposed may not be imposed unless the lender has
given the cardholder at least 30 days notice of the proposed charge,
and has advised the cardholder of his right not to accept the new
charge. This notice shall be bold and conspicuous, and shall be on
the face of the periodic billing statement or on a separate statement
which is clearly noted on the face of the periodic billing statement
provided to the cardholder. If the cardholder does not accept the new
charge upon an existing credit card account, the lender may require
that the cardholder make no further use of the account beyond the
30-day period in order to avoid paying the annual charge, but the
cardholder shall be entitled to pay off any remaining balance
according to the terms of the credit agreement. Nothing in this
subsection shall limit the lender from decreasing any rates or fees to
the cardholder forthwith. Should any cardholder within 12 months of
the initial imposition of an annual charge rescind his credit card
contract and surrender all cards issued under the contract to the
lender, he shall be entitled to a prorated refund of the annual fee
previously charged, credited to the cardholder's credit card account.
(1967, c. 852, s. 1.1; 1969, c. 1303, s. 7; 1977, c. 148, s. 1; cc. 917,

1108; 1979, 2nd Sess., c. 1330, s. 3; 1981, c. 844, s. 1; 1983, c. 126,
ss. 5, 10; 1991, c. 506, s. 6; c. 761, s. 45; 1995, c. 387, s. 2.)
§ 24-11.1. Disclosure requirements for credit cards.

(a) This section applies to any application, solicitation of an
application, offer of credit, or communication extending credit that
is:
(1) For an open-end credit plan accessed through a
credit card or a revolving credit loan accessed
through a credit card;
(2) Printed;
(3) Mailed or otherwise delivered to a person at any
address within this State;
(4) Not delivered pursuant to an existing credit
agreement; and
(5) Not printed in a newspaper, magazine, or periodical
generally circulated outside as well as inside the
State.
(b) Disclosures. – The following disclosures shall be clearly
and conspicuously made in or with all documents described in
subsection (a) of this section:
(1) The annual percentage rate or, if the rate may vary,
a statement that it may vary, the circumstances
under which the rate may increase, any limitations
on the increase, and the effects of the increase on
the other terms of the agreement.
(2) The date or occasion upon which the finance
charge begins to accrue on a transaction and the
duration of any grace period.
(3) Whether an annual fee is charged and the amount
of the fee.
(4) Any delinquency charge, late charge, or collection
charge which may be assessed for the late payment

of any installment, including the terms and
conditions for the imposition of such charge.
(c) Federal Requirements. – The form and content of the
disclosures described in subsection (b) may be consistent with
similar disclosures required by the federal Truth-in-Lending Act, 15
U.S.C. § 1601 et seq., and Regulation Z, 12 C.R.F. 226. Any
amendment to the Act or Regulation that addresses credit card
disclosures shall to the extent it covers applications, solicitations,
and other communications covered by this section, replace the
disclosure requirements of this section for creditors subject to the
Act.
(d) Penalty. – A violation of this section shall constitute a
violation of G.S. 75-1.1 except that the creditor shall not be liable for
any fine, civil penalty, treble damages, or attorney's fee where the
creditor shows by a preponderance of the evidence that the violation
was not intentional and resulted from a bona fide error,
notwithstanding the maintenance of procedures reasonably adapted
to avoid any such error.
(e) Severability. – If any part of this section is found
unconstitutional or is preempted by federal law with regard to a
creditor because the creditor is located outside of the State, that part
does not apply to creditors located within the State.
(f) Nothing in this section shall be construed to authorize any
fee, charge, surcharge or penalty not otherwise authorized by law.
(1987, c. 735, s. 1.)
§ 24-11.2. Disclosure requirements for charge cards.

(a) Applications and Other Communications. – This section
applies to any application, solicitation of an application, offer of
credit, or communication extending credit that is:
(1) For credit accessed through a charge card;
(2) Printed;

(3) Mailed or otherwise delivered to a person at any
address within this State;
(4) Not delivered pursuant to an existing credit
agreement; and
(5) Not printed in a newspaper, magazine, or periodical
generally circulated outside as well as inside the
State.
For purposes of this section, the term "charge card" means any card,
plate or other device pursuant to which the charge card issuer
extends credit which is not subject to a finance charge and where the
charge cardholder cannot automatically access credit that is
repayable in installments.
(b) Disclosures. – The following disclosures shall be clearly
and conspicuously made in or with all documents described in
subsection (a) of this section:
(1) The annual fee and other charges, if any, applicable
to the issuance or use of the charge card.
(2) That charges incurred by the use of the charge card
are due and payable upon receipt of a periodic
statement of charges.
(3) Any delinquency charge, late charge, or collection
charge which may be assessed for late payment,
including the terms and conditions for the
imposition of such charge.
(c) Federal Requirements. – The form and content of the
disclosures described in subsection (b) may be consistent with
similar disclosures required by the federal Truth-in-Lending Act, 15
U.S.C. § 1601 et seq., and Regulation Z, 12 C.F.R. 226. Any
amendment to the Act or Regulation that addresses credit card
disclosures shall, to the extent it covers applications, solicitations,
and other communications covered by this section, replace the
disclosure requirements of this section for creditors subject to the
Act.

(d) Penalty. – A violation of this section shall constitute a
violation of G.S. 75-1.1 except that the creditor shall not be liable for
any fine, civil penalty, treble damages, or attorney's fee where the
creditor shows by a preponderance of the evidence that the violation
was not intentional and resulted from a bona fide error,
notwithstanding the maintenance of procedures reasonably adapted
to avoid any such error.
(e) Severability. – If any part of this section is found
unconstitutional or is preempted by federal law with regard to a
creditor because the creditor is located outside of the State, that part
does not apply to creditors located within the State.
(f) Nothing in this section shall be construed to authorize any
fee, charge, surcharge or penalty not otherwise authorized by law.
(1987, c. 735. s. 1.)
Article 2.
Loans Secured by Secondary or Junior Mortgages.
§ 24-12. Applicability of Article.
This Article shall apply only to loans of money:
(1) Secured in whole or in part by a security instrument
on real property, other than a first security
instrument on real property; and
(2) The principal amount of the loan does not exceed
twenty-five thousand dollars ($25,000);
(3) The loan is repayable in no less than six nor more
than 181 successive monthly payments, which
payments shall be substantially equal in amount.
(1971, c. 1229, s. 2; 1979, 2nd Sess., c. 1157, ss. 2,
3.)
§ 24-13. Principal amount defined.

The aggregate of the amount or value actually received at the
time of the loan, plus the charges allowed by G.S. 24-14(b) (c) and

(f); plus the sum of all existing indebtedness of the borrower paid on
his behalf by the lender, shall be deemed the principal amount of the
loan. (1971, c. 1229, s. 2; 1979, 2nd Sess., c. 1157, s. 4; 1985, c.
154, s. 3.)
§ 24-14. Limitations on charges and interest.

(a) No person, copartnership, association, trust, corporation or
other legal entity making loans under this Article may charge, take
or receive, directly or indirectly, simple interest in excess of one and
one-half percent (1 1/2%) per month or an annual rate equivalent to
the Federal Discount Rate plus five percent (5%), whichever is the
greater, computed on the actual or average daily unpaid balance of
the principal amount of the loan for the time actually outstanding.
However, interest may not be compounded.
(b) In addition to the interest permitted in subsection (a), the
lender may include in the loan his actual expenses which are paid to
third parties in connection with the loan. Such expenses shall be
limited to those for: title examination, title insurance, appraisals,
surveys, and recording fees or releasing fees to trustees or public
officials, and only such insurance charges as permitted in subsection
(c).
(c) Evidence of hazard insurance may be required by the
lender of the borrower. Credit life, credit accident and health, and
credit unemployment insurance, or any of them, may be offered but
not required; provided (i) that the borrower has indicated a desire to
purchase such insurance by signing a statement to that effect, (ii)
that the borrower is advised that he may acquire this insurance from
any insurance carrier, (iii) that the borrower is aware that this
insurance may be rescinded within 30 days after receipt of the policy
or certificate, and (iv) that the borrower directs the lender to
purchase the above insurance from the proceeds of his loan.
The rates for the herein described insurance shall not exceed the
standard rates approved by the Commissioner of Insurance for such

insurance. Proof of all insurance issued in connection with loans
subject to this Article shall be furnished to the borrower within 10
days from the date of application therefor by said borrower.
(d) No application fee or other charge shall be allowed in the
event the loan is not consummated.
(e) The borrower shall further have the right to anticipate
payment of his debt in whole or in part at any time, without payment
of interest penalty, or any other fee or charge for such prepayment.
(f) In addition to the interest permitted by subsection (a), the
lender may include in the principal balance fees or discounts not
exceeding two percent (2%) of the principal amount of the loan less
the amount of any existing loan by that lender to be refinanced,
modified or extended. The fees and discounts are fully earned when
the loan is made and are not a prepayment penalty. (1971, c. 1229, s.
2; 1973, c. 1150; 1977, c. 698, ss. 1, 2; 1979, 2nd Sess., c. 1157, ss.
5, 6; 1985, c. 154, s. 4; 1993, c. 226, s. 13.)
§ 24-15: Repealed by Session Laws 1979, 2nd Session, c. 1157, s.

7.
§ 24-16. Itemized closing statements.

Any person, copartnership, association, trust, corporation, or any
other legal entity making on its own behalf, or as agent, broker or in
other representative capacity on behalf of any other person,
copartnership, association, trust, corporation or any other legal
entity, a loan or real property financing transaction within the
regulatory authority of this Article, at the time of the closing shall
furnish the debtor or borrower or grantor in the mortgage, deed of
trust or any other security instrument, in addition to the disclosures
required by federal law known as "Truth in Lending," a complete
and itemized closing statement which shall show all disbursements
of the loan proceeds and which shall total the principal amount of
the loan or security transaction, and the said closing statement shall

be signed by the lending agency or a representative of the lending
agency, or a responsible officer in its behalf and a completed and
signed additional copy retained in the files of the lending agency
involved and available at all reasonable times to the borrower, the
borrower's successor in interest to the security real property, or the
authorized agent of the borrower or the borrower's successor, until
such time as the security instrument shall be satisfied in full. Such
closing statement shall contain the following language printed in a
conspicuous manner:
"This loan is one regulated by the provisions of Chapter 24,
Article 2 of the General Statutes of North Carolina entitled 'Loans
Secured by Secondary or Junior Mortgages'." (1971, c. 1229, s. 2.)
§ 24-16.1. Loans exempt from §§ 24-12 to 24-17.

G.S. 24-12 to 24-17 shall not apply to loans made by banks,
insurance companies, or their duly designated agents compensated
directly by the lender, duly licensed credit unions, production credit
associations authorized by the Farm Credit Act of 1933, or savings
and loan associations authorized to do business in this State, or to
loans made by any other lender licensed by, and under the
supervision of, the Commissioner of Banks and the State Banking
Commission, under the provisions of Chapter 53 of the General
Statutes, or the Commissioner of Insurance, under the provisions of
Chapter 58 of the General Statutes. Provided, any lender approved as
a mortgagee by the Federal Housing Administration shall be entitled
to make loans under this Article.
G.S. 24-12 to 24-17 shall not apply to a loan made under Article
1 of this Chapter. (1971, c. 1229, s. 2; 1983, c. 126, s. 9; 1985, c.
154, s. 5.)
§ 24-17. Misdemeanors.

A wilful or knowing violation of G.S. 24-12 through G.S. 24-16
is hereby made a Class 1 misdemeanor. (1971, c. 1229, s. 2; 1993, c.
539, s. 400; 1994, Ex. Sess., c. 24, s. 14(c).)

APPENDIX 2
Amortization Table
APPENDIX 3
Prepayment
APPENDIX 4
YSP Letter
APPENDIX 5
MLA Documents and Fees

APPENDIX 6
Mortgage Lending Act

Article 19A.
Mortgage Lending Act.
§ 53-243.01. Definitions.
The following definitions apply in this Article:
(1) Act as a mortgage broker. – To act, for compensation or gain, or in the
expectation of compensation or gain, either directly or indirectly, by
accepting or offering to accept an application for a mortgage loan,
soliciting or offering to solicit a mortgage loan, negotiating the terms or
conditions of a mortgage loan, issuing mortgage loan commitments or
interest rate guarantee agreements to borrowers, or engaging in
tablefunding of mortgage loans, whether such acts are done through
contact by telephone, by electronic means, by mail, or in person with the
borrowers or potential borrowers.
(2) Act as a mortgage lender. – To engage in the business of making
mortgage loans for compensation or gain.
(2a) Affiliate. – Any company that controls, is controlled by, or is under
common control with another company, as set forth in the Bank Holding
Company Act of 1956 (12 U.S.C. § 1841), et seq., as amended from
time to time. For purposes of this subdivision, the term control means
ownership of all of the voting stock or comparable voting interest of the
controlled person.
(2b) Affiliated mortgage banker. – A licensed mortgage banker that meets
the criteria of either sub-subdivisions a., b., and c. of this subdivision or
sub-subdivisions d. and e. of this subdivision:
a. The licensee, by itself or with its affiliates, is licensed in five or
more states to engage in the mortgage lending business and (i) is
supervised by a state or federal regulatory agency whose
regulatory scheme has been determined by the Commissioner to
be substantially similar to that of North Carolina, (ii) is organized
and supervised under the laws of a state that has adopted a model
licensing law endorsed by the Commissioner; or (iii) is
supervised by a state or federal agency that is a party to an
interstate compact, or has otherwise entered into a cooperative
reciprocal agreement by which the state or federal regulatory
agency and the State of North Carolina, directly or by duly
authorized act of the Commissioner, have mutually agreed to
recognize state licensing laws which have specific enumerated
criteria.
b. The licensee, including its affiliates and wholly owned
subsidiaries, has more than 100 employees that are licensed
pursuant to this Article.
G.S. 53-243.01 Page 1

c. The licensee has a consolidated net worth of one hundred million
dollars ($100,000,000) or more, or if the licensee does not have
the required net worth, its parent shall provide to the
Commissioner (i) evidence satisfactory to the Commissioner that
the parent has a net worth of one hundred million dollars
($100,000,000) or more, and (ii) an unconditional guarantee or
comparable instrument of surety satisfactory to the
Commissioner of the performance of the licensee of its
obligations under this Article.
d. The licensee is a direct or indirect wholly owned subsidiary of a
bank holding company or financial services holding company
subject to regulation by the Federal Reserve Board or the Office
of Thrift Supervision.
e. The licensee has a net worth of one hundred million dollars
($100,000,000) or, if the licensee does not have the required net
worth, (i) its parent, if it is not a bank holding company or
financial holding company, meets the requirements of
sub-subdivision c. of this subdivision or (ii) its parent, if such
parent is a bank holding company or financial holding company,
has total assets in excess of ten billion dollars ($10,000,000,000)
and provides the Commissioner with the unconditional guarantee
or comparable instrument of surety required by sub-subdivision
c. of this subdivision.
(3) Branch manager. – The individual whose principal office is physically
located in, who is in charge of, and who is responsible for the business
operations of a branch office of a mortgage broker or mortgage banker.
(4) Branch office. – An office of the licensee acting as a mortgage broker or
mortgage banker that is separate and distinct from the licensee's
principal office.
(5) Commissioner. – The North Carolina Commissioner of Banks and the
Commissioner's designees. For purposes of compliance with this Article
by credit unions, Commissioner means the Administrator of the Credit
Union Division of the Department of Commerce.
(6) Control. – Except as provided in subdivision (2a) of this section,
"control" means the power to vote more than twenty percent (20%) of
outstanding voting shares or other interests of a corporation, partnership,
limited liability company, association, or trust.
(7) Employee. – An individual, who has an employment relationship,
acknowledged by both the individual and the mortgage broker or
mortgage banker and is treated as an employee for purposes of
compliance with the federal income tax laws.
G.S. 53-243.01 Page 2

(7a) Exclusive mortgage broker. – An individual who acts as a mortgage
broker exclusively for a single mortgage banker or single exempt person
and who is licensed under the provisions of G.S. 53-243.05(c)(1a).
(8) Exempt person. – The term includes any of the following:
a. Any agency of the federal government or any state or municipal
government granting mortgage loans under specific authority of
the laws of any state or the United States.
b. Any employee of a licensee whose responsibilities are limited to
clerical and administrative tasks for his or her employer and who
does not solicit borrowers, accept applications, or negotiate the
terms of loans on behalf of the employer.
c. Any person authorized to engage in business as a bank or a
wholly owned subsidiary of a bank, a farm credit system, savings
institution, or a wholly owned subsidiary of a savings institution,
or credit union or a wholly owned subsidiary of a credit union,
under the laws of the United States, this State, or any other state.
Except for G.S. 53-243.11 and G.S. 53-243.15, this Article does
not apply to the exempt persons set forth in this sub-subdivision
(8)c.
d. Any licensed real estate agent or broker who is performing those
activities subject to the regulation of the North Carolina Real
Estate Commission. Notwithstanding the above, an exempt
person does not include a real estate agent or broker who receives
compensation of any kind in connection with the referral,
placement, or origination of a mortgage loan.
e. Any officer or employee of an exempt person described in
sub-subdivision c. of this subdivision when acting in the scope of
employment for the exempt person.
f. Any person who, as seller, receives in one calendar year no more
than five mortgages, deeds of trust, or other security instruments
on real estate as security for a purchase money obligation.
g. The North Carolina Housing Finance Agency as established by
Article 122A of the General Statutes and the North Carolina
Agricultural Finance Authority as established by Article 122D of
the General Statutes.
h. Any nonprofit corporation qualifying under section 501(c)(3) of
the Internal Revenue Code which makes mortgage loans to
promote home ownership or home improvements for the
disadvantaged, provided that such corporation is not primarily in
the business of soliciting or brokering mortgage loans.
i. Any life insurance companies licensed to do business in North
Carolina with regard to provisions concerning mortgage lenders.
G.S. 53-243.01 Page 3

(9) Licensee. – A loan officer, limited loan officer, mortgage broker, or
mortgage banker who is licensed pursuant to this Article.
(10) Loan officer. – An individual who, in exchange for compensation as an
employee of another person, accepts or offers to accept applications for
mortgage loans. The definition of loan officer shall not include any
exempt person described in sub-subdivision (8)b. of this section.
(10a) Limited loan officer. – An individual who, in exchange for
compensation as an employee of an affiliated mortgage banker, directly
solicits, negotiates, offers, or makes commitments for mortgage loans.
The definition of limited loan officer shall not include any exempt
person described in sub-subdivision (8)b. of this section.
(11) Make a mortgage loan. – To close a mortgage loan, to advance funds, to
offer to advance funds, or to make a commitment to advance funds to a
borrower under a mortgage loan.
(12) Managing principal. – A person who meets the requirements of G.S.
53-243.05(c) and who agrees to be primarily responsible for the
operations of a licensed mortgage broker or mortgage banker.
(13) Mortgage banker. – A person who acts as a mortgage lender as that term
is defined in subdivision (2) of this section. However, the definition
does not include a person who acts as a mortgage lender only in
tablefunding transactions.
(14) Mortgage broker. – A person who acts as a mortgage broker as that term
is defined in subdivision (1) of this section. The term "mortgage broker"
includes an exclusive mortgage broker, except when expressly provided
otherwise.
(15) Mortgage loan. – A loan made to a natural person or persons primarily
for personal, family, or household use, primarily secured by either a
mortgage or a deed of trust on residential real property located in North
Carolina.
(15a) Parent. – The person that controls an affiliated mortgage banker, as
control is defined in subdivision (2a) of this section.
(16) Person. – An individual, partnership, limited liability company, limited
partnership, corporation, association, or other group engaged in joint
business activities, however organized.
(17) Qualified lender. – A person who is engaged as a mortgage lender in
North Carolina and is either a supervised or a nonsupervised institution,
as these terms are defined in 24 C.F.R. § 202.2, approved by the United
States Department of Housing and Urban Development.
(18) Qualified person. – A person who is employed as a loan officer by a
qualified lender, or by a mortgage banker or broker registered with the
Commissioner under former Article 19 of this Chapter, or who is a
general partner, manager, or officer of a qualified lender, registered
mortgage banker, or registered mortgage broker.
G.S. 53-243.01 Page 4

(19) Residential real property. – Real property located in the State of North
Carolina upon which there is located or is to be located one or more
single-family dwellings or dwelling units.
(20) Tablefunding. – A transaction where a licensee closes a loan in its own
name with funds provided by others, and the loan is assigned
simultaneously to the mortgage lender providing the funding within one
business day of the funding of the loan. (2001-393, s. 2; 2002-169, ss. 1,
2; 2005-316, s. 1.)
§ 53-243.02. License required; licensee records.

(a) Other than an exempt person, it is unlawful for any person in this State to act
as a mortgage broker or mortgage banker, or directly or indirectly to engage in the
business of a mortgage broker or a mortgage banker, without first obtaining a license
from the Commissioner under the provisions of this Article.
(b) It is unlawful for any natural person to engage in the solicitation and
acceptance of applications for mortgage loans without first obtaining a license as a loan
officer, limited loan officer, mortgage banker, or mortgage broker issued by the
Commissioner under the provisions of this Article. It is unlawful for any person to
employ, to compensate, or to appoint as its agent a loan officer unless the loan officer is
licensed as a loan officer under this Article. Exempt persons shall not be subject to this
subsection.
(c) The license of a loan officer or limited loan officer is not effective during any
period when that person is not employed by a mortgage broker, affiliated mortgage
banker, or mortgage banker licensed under this Article. The license of an exclusive
mortgage broker is not effective during any period when that person is not authorized to
act as a single licensee or exempt person pursuant to G.S. 53-243.05(c)(1a).
When a loan officer or a limited loan officer ceases to be employed by a mortgage
broker, affiliated mortgage banker, or mortgage banker licensed under this Article, the
loan officer, limited loan officer, and the mortgage broker, affiliated mortgage banker, or
mortgage banker licensed under this Article by whom that person is employed shall
promptly notify the Commissioner in writing. When the authority of an exclusive
mortgage broker to act on behalf of the principal licensee or exempt person identified in
G.S. 53-243.05(c)(1a) has been terminated, the exclusive mortgage broker and the
licensee or exempt person for whom the exclusive mortgage broker is an agent shall
promptly notify the Commissioner in writing. The mortgage broker, affiliated mortgage
banker, mortgage banker, or exempt person's notice shall include a statement of the
specific reason or reasons for, as applicable, the termination of the loan officer's or
limited loan officer's employment or exclusive mortgage broker's authority.
A loan officer or limited loan officer shall not be employed simultaneously by more
than one affiliated mortgage banker, mortgage broker, or mortgage banker licensed under
this Article.
(d) Each affiliated mortgage banker, mortgage broker, and mortgage banker
licensed under this Article shall maintain on file with the Commissioner a list of all loan
G.S. 53-243.01 Page 5

officers or limited loan officers who are employed with the affiliated mortgage banker,
mortgage broker, or mortgage banker.
(e) No person, other than an exempt person, shall hold himself or herself out as a
mortgage banker, an affiliated mortgage banker, a mortgage broker, limited loan officer,
or loan officer unless such person is licensed in accordance with this Article.
(f) Any person who has completed and filed with the Commissioner the
application and all documents required for licensure as a loan officer other than
documents relating to the required examination and the mortgage lending fundamentals
course may act as a loan officer during the period before action is taken on the
application by the Commissioner, if:
(1) The Commissioner has not denied, revoked, or taken any adverse action
with respect to an application filed by or license held by such person
during the five-year period ending on the date of filing of the
application;
(2) The loan officer is employed by a licensed mortgage broker or mortgage
banker, and the managing principal of such mortgage broker or
mortgage banker (i) certifies to the Commissioner in writing that the
managing principal reasonably believes that the application of the
person for licensure as a loan officer meets or exceeds all of the relevant
requirements of this Article for licensure and (ii) undertakes in writing
that the managing principal and the employer will be responsible for the
acts of the applicant during the period that such application is pending;
and
(3) The person is currently or has within the six-month period prior to the
date of the application been employed as and acting as a loan officer for
an exempt entity which entity is exempt by virtue of an exemption
claimed under G.S. 53-243.01(8)c.
(g) The Commissioner may deny or suspend the rights of a mortgage broker or
mortgage banker to employ a loan officer acting under subsection (f) of this section if the
Commissioner finds that the mortgage broker or mortgage banker, or the managing
principal thereof, makes the certification or undertaking set forth in subdivision (2) of
subsection (f) of this section not in good faith. (2001-393, s. 2; 2004-171, s. 7; 2005-316,
s. 2.)
§ 53-243.03. Review by Banking Commission.

The Banking Commission may review any rule, regulation, order, or article of the
Commissioner adopted pursuant to or with respect to the provisions of this Article, and
any person aggrieved by any rule, regulation, order, or article may appeal to the Banking
Commission for review upon giving notice in writing 20 days after the rule, regulation,
order, or article that is the subject of the complaint is adopted or issued. Notwithstanding
any other provision of law, any party aggrieved by a decision of the Banking
Commission shall be entitled to an appeal pursuant to G.S. 53-92. (2001-393, s. 2.)
G.S. 53-243.01 Page 6

§ 53-243.04. Rule-making authority.
The Banking Commission may adopt any rules when it deems necessary to carry out
the provisions of this Article, to provide for the protection of the borrowing public, and to
instruct mortgage lenders or brokers in interpreting this Article. (2001-393, s. 2.)
§ 53-243.05. Qualifications for licensure; issuance.

(a) Any person, other than an exempt person, desiring to obtain a license pursuant
to this Article shall make written application for licensure to the Commissioner on forms
prescribed by the Commissioner. In accordance with rules adopted by the Commission,
the application shall contain any information the Commissioner deems necessary
regarding the following:
(1) The applicant's name and address and social security number.
(2) The applicant's form and place of organization, if applicable.
(3) The applicant's proposed method of and locations for doing business, if
applicable.
(4) The qualifications and business history of the applicant and, if
applicable, the business history of any partner, officer, or director, any
person occupying a similar status or performing similar functions, or
any person directly or indirectly controlling the applicant, including: (i)
a description of any injunction or administrative order by any state or
federal authority to which the person is or has been subject; (ii) a
conviction of a misdemeanor involving fraudulent dealings or moral
turpitude or relating to any aspect of the residential mortgage lending
business; (iii) any felony convictions.
(5) With respect to an application for licensing as a mortgage banker or
broker, the applicant's financial condition, credit history, and business
history; and with respect to the application for licensing as a loan
officer, the applicant's credit history and business history.
(6) The applicant's consent to a federal and State criminal history record
check and a set of the applicant's fingerprints in a form acceptable to the
Commissioner. In the case of an applicant that is a corporation,
partnership, limited liability company, association, or trust, each
individual who has control of the applicant or who is the managing
principal or a branch manager shall consent to a federal and State
criminal history record check and submit a set of that individual's
fingerprints pursuant to this subdivision. Refusal to consent to a
criminal history record check constitutes grounds for the Commissioner
to deny licensure to the applicant as well as to any entity (i) by whom or
by which the applicant is employed, (ii) over which the applicant has
control, or (iii) as to which the applicant is the current or proposed
managing principal or a current or proposed branch manager.
(b) In addition to the requirements imposed by the Commissioner under subsection
(a) of this section, each individual applicant for licensure as a loan officer shall:
G.S. 53-243.01 Page 7

(1) Be at least 18 years of age.
(2) Have satisfactorily completed, within the three years immediately
preceding the date application is made, a mortgage lending
fundamentals course approved by the Commissioner. The course shall
consist of at least eight hours of classroom instruction in subjects related
to mortgage lending approved by the Commissioner. In addition, the
applicant shall have satisfactorily completed a written examination
approved by the Commissioner or possess residential mortgage lending
education or experience in residential mortgage lending transactions that
the Commissioner deems equivalent to the course.
(c) In addition to the requirements under subsection (a) of this section, each
applicant for licensure as a mortgage broker or mortgage banker at the time of application
and at all times thereafter shall comply with the following requirements:
(1) Except as provided for in subdivision (1a) of this subsection, if the
applicant is a sole proprietor, the applicant shall have at least three years
of experience in residential mortgage lending or other experience or
competency requirements as the Commissioner may impose. Experience
as an exclusive mortgage broker or as a limited loan officer shall not
constitute mortgage-lending experience under this subdivision.
(1a) If an individual applicant to be licensed as a mortgage broker meets all
other requirements for licensure under this section but does not meet the
requirements of subdivision (1) of this subsection, the individual
applicant may be licensed as an exclusive mortgage broker upon
compliance with all of the following:
a. Successfully complete both a residential mortgage-lending
course approved by the Commissioner of not less than 40 hours
of classroom instruction, and a written examination approved by
the Commissioner.
b. Act exclusively as a mortgage broker for a single mortgage
banker licensee or single exempt mortgage banker for whom the
broker shall be deemed an agent, who shall be responsible for
supervising the broker as required by this Article, who shall sign
the license application of the applicant, and who shall be jointly
and severally liable with the broker for any claims arising out of
the broker's mortgage lending activities.
c. Shall be compensated for the broker's mortgage brokering
activities on a basis that is not dependent upon the loan amount,
interest rate, fees, or other terms of the loans brokered.
d. Shall not handle borrower or other third-party funds in
connection with the brokering or closing of mortgage loans.
(2) If the applicant is a general or limited partnership, at least one of its
general partners shall have the experience as described under
subdivision (1) of this subsection.
G.S. 53-243.01 Page 8

(3) If the applicant is a corporation, at least one of its principal officers shall
have the experience as described under subdivision (1) of this
subsection.
(4) If the applicant is a limited liability company, at least one of its
managers shall have the experience as described under subdivision (1)
of this subsection.
(d) Each applicant shall identify one person meeting the requirements of
subsection (c) of this section to serve as the applicant's managing principal.
(e) Every applicant for initial licensure shall pay a filing fee of one thousand
dollars ($1,000) for licensure as a mortgage broker or mortgage banker or fifty dollars
($50.00) for licensure as a loan officer or limited loan officer, in addition to the actual
cost of obtaining credit reports and State and national criminal history record checks.
(f) A mortgage banker shall post a surety bond in the amount of one hundred fifty
thousand dollars ($150,000), and a mortgage broker shall post a surety bond in the
amount of fifty thousand dollars ($50,000). The surety bond shall be in a form
satisfactory to the Commissioner and shall run to the State for the benefit of any
claimants against the licensee to secure the faithful performance of the obligations of the
licensee under this Article. The aggregate liability of the surety shall not exceed the
principal sum of the bond. A party having a claim against the licensee may bring suit
directly on the surety bond, or the Commissioner may bring suit on behalf of any
claimants, either in one action or in successive actions. Consumer claims shall be given
priority in recovering from the bond. Any appropriate deposit of cash or securities shall
be accepted in lieu of any bond that is required. An audited financial statement from a
qualified lender showing a net worth of two hundred fifty thousand dollars ($250,000) or
more shall be accepted in lieu of any bond required.
(g) Any general partner, manager of a limited liability company, or officer of a
corporation who individually meets the requirements under subsection (b) of this section
shall, upon payment of the applicable fee, meet the qualifications for licensure as a loan
officer subject to the provisions of subsection (i) of this section.
(h) Each principal office and each branch office of a mortgage broker or mortgage
banker licensed under the provisions of this Article shall be issued a separate license. A
licensed mortgage broker or mortgage banker shall file with the Commissioner an
application on a form prescribed by the Commissioner that identifies the address of the
principal office and each branch office and branch manager. A filing fee of one hundred
dollars ($100.00) shall be assessed by the Commissioner for each office issued a license.
(i) If the Commissioner determines that an applicant meets the qualifications for
licensure and finds that the financial responsibility, character, and general fitness of the
applicant are such as to command the confidence of the community and to warrant belief
that the business will be operated honestly and fairly, the Commissioner shall issue a
license to the applicant. In addition, for an applicant qualifying as an exclusive mortgage
broker, the Commissioner shall determine if the mortgage broker/mortgage banker
relationship is in the public interest. (2001-393, s. 2; 2002-169, ss. 3-6; 2004-171, s. 8;
2005-316, ss. 3, 4.)
G.S. 53-243.01 Page 9

§ 53-243.05A. Licensing for limited loan officers; qualifications, revoked,
suspended, or barred.
(a) An affiliated mortgage banker shall notify the Commissioner when it hires a
limited loan officer on forms prescribed by the Commissioner. The form shall contain
any information the Commissioner deems necessary including the name, social security
number, address, and business location of the limited loan officer. Limited loan officers
employed by an affiliated mortgage banker shall:
(1) Be at least 18 years of age.
(2) Work exclusively for an affiliated mortgage banker. The affiliated
mortgage banker who hires the limited loan officer shall:
a. Supervise the limited loan officer as required by this Article.
b. Sign the notification form regarding the hiring of the applicant.
c. Certify the applicant is qualified as a limited loan officer subject
to background checks, training, testing, and fundamental
education requirements.
d. Be jointly and severally liable for any and all claims and
damages of any type, including punitive damages pursuant to
Chapter 1D of the General Statutes arising out of the limited loan
officer's mortgage lending activities, as allowed by law.
(b) An applicant for a limited loan officer license may act provisionally as a
limited loan officer during the pendency of the application before the Commissioner for
up to 60 days after submission of the completed forms identified in subsection (a) of this
section and a written undertaking by the employing affiliated mortgage banker that it will
be responsible for all the applicant's mortgage banking activities.
(c) Systems, programs, and procedures used by the affiliated mortgage banker for
employment background checks, training, testing, and education by the affiliated
mortgage banker shall be submitted to and reviewed by the Commissioner who may
approve those which are comparable and functionally equivalent to those for loan officers
under G.S. 53-243.05 and G.S. 53-243.07. The Commissioner must be notified of any
material changes or modifications to such approved systems, programs, and procedures.
The Commissioner may approve those systems, programs, and procedures used by the
affiliated mortgage banker for these purposes that meet or exceed programs otherwise
accredited by the Commissioner or that have been approved for the affiliated mortgage
banker by at least five other states in which the affiliated mortgage banker is licensed and
whose licensing requirements are substantially similar to those of North Carolina.
(d) Except as specified in this section, limited loan officers are subject to licensing
standards and disciplinary authority in the same way as loan officers under this Article.
(e) A person whose license is revoked, suspended, or barred under this section is
prohibited from participating in the mortgage lending business in this State. (2005-316, s.
5.)
§ 53-243.06. License renewal; termination.
G.S. 53-243.01 Page 10

(a) All licenses issued by the Commissioner under the provisions of this Article
shall expire annually on the 30th day of June following issuance or on any other date that
the Commissioner may determine. The license shall become invalid after that date unless
renewed. A license may be renewed 45 days prior to the expiration date by compliance
with subsection (b1) of this section and by paying to the Commissioner, in addition to the
actual cost of obtaining credit reports and State and national criminal history record
checks as the Commissioner may require, a renewal fee as follows:
(1) Licensed mortgage bankers shall pay an annual fee of five hundred
dollars ($500.00) and one hundred dollars ($100.00) for each branch
office.
(2) Licensed mortgage brokers shall pay an annual fee of five hundred
dollars ($500.00) and one hundred dollars ($100.00) for each branch
office. Licensed exclusive mortgage brokers shall pay an annual fee of
five hundred dollars ($500.00).
(3) Licensed loan officers shall pay an annual fee of fifty dollars ($50.00).
(b) If a license is not renewed prior to the applicable expiration date, then an
additional two hundred fifty dollars ($250.00) in addition to the renewal fee under
subsection (a) of this section shall be assessed as a late fee to any renewal. In the event a
licensee fails to obtain a reinstatement of the license within 90 days after the date the
license expires, the Commissioner may require the licensee to comply with the
requirements for the initial issuance of a license under the provisions of this Article.
(b1) When required by the Commissioner, each individual described in G.S.
53-245.05(a)(6) shall furnish to the Commissioner his or her consent to a criminal history
record check and a set of his or her fingerprints in a form acceptable to the
Commissioner. Refusal to consent to a criminal history record check may constitute
grounds for the Commissioner to deny renewal of the license of the person as well as the
license of any other person by which he or she is employed, over which he or she has
control, or as to which he or she is the current or proposed managing principal or a
current or proposed branch manager.
(c) Licenses issued under this Article are not assignable. Control of a licensee
shall not be acquired through a stock purchase or other device without the prior written
consent of the Commissioner. The Commissioner shall not give written consent if the
Commissioner finds that any of the grounds for denial, revocation, or suspension of a
license pursuant to G.S. 53-243.12 are applicable to the acquiring person. (2001-393, s. 2;
2002-169, s. 7; 2004-171, s. 9.)
§ 53-243.07. Continuing education.

(a) As a condition of license renewal, the Commissioner may adopt rules to
require continuing education of licensees under this Article for the purpose of enhancing
the professional competence and professional responsibility of all licensees. The rules
may include criteria for:
(1) The content of continuing education courses.
(2) Accreditation of continuing education sponsors and programs.
G.S. 53-243.01 Page 11

(3) Accreditation of videotape or other audiovisual programs.
(4) Computation of credit.
(5) Special cases and exemptions.
(6) General compliance procedures.
(7) Sanctions for noncompliance.
(b) Annual continuing professional education requirements shall be determined by
the Commissioner. However, the requirements shall not exceed eight credit hours within
a one-year period.
(c) The Commissioner may require education providers of the fundamentals
mortgage lending course required under the provisions of G.S. 53-243.05(b)(2) and the
continuing education courses required under this section to file information regarding the
contents and materials of proposed courses to satisfy the education requirements with the
Commissioner for review and approval. The Commissioner may set fees for the initial
and continuing review of courses for which credit hours will be granted. The initial filing
fee for review of materials shall not exceed five hundred dollars ($500.00) and the fee for
continued review shall not exceed two hundred fifty dollars ($250.00) per annum per
course offered. (2001-393, s. 2; 2002-169, s. 8.)
§ 53-243.08. Managing principals and branch managers.

Each mortgage broker or mortgage banker licensed under this Article shall have a
managing principal who operates the business under that person's full charge, control,
and supervision. Mortgage bankers and mortgage brokers, other than exclusive mortgage
brokers, may operate branch offices subject to the requirements of this Article. Each
principal and branch office of a mortgage broker or mortgage banker licensed under this
Article, shall have a branch manager who meets the experience requirements under G.S.
53-243.05(c)(1); provided, that an affiliated mortgage banker may designate a branch
manager who does not meet the experience requirements so long as at or before the
designation, it certifies that the person has been employed by the affiliated mortgage
banker for at least one year as a loan officer, limited loan officer, or in a comparable
position in another state. The managing principal for a licensee's business may also serve
as the branch manager of one of the licensee's branch offices. Each mortgage broker or
mortgage banker licensed under this Article shall file a form as prescribed by the
Commissioner indicating the business's designation of managing principal and branch
manager for each branch and each individual's acceptance of the responsibility. Each
mortgage broker or mortgage banker licensed under this Article shall notify the
Commissioner of any change in its managing principal or branch manager designated for
each branch. Any licensee who does not comply with this provision shall have the
licensee's license suspended pursuant to G.S. 53-243.12 until the licensee complies with
this section. Any individual licensee who operates as a sole proprietorship shall be
considered a managing principal for the purposes of this Article. (2001-393, s. 2;
2002-169, s. 9; 2005-316, s. 6.)
§ 53-243.09. Offices; address changes; display of license.
G.S. 53-243.01 Page 12

(a) Each mortgage broker licensee shall maintain and transact business from a
principal place of business in this State. A principal place of business in this State shall
consist of at least one enclosed room or building of stationary construction in which
negotiations of mortgage loan transactions of others may be conducted and carried on in
privacy and in which all of the books, records, and files pertaining to mortgage loan
transactions relating to borrowers in this State are maintained. However, the
Commissioner may, by rule, impose terms and conditions under which the records and
files may be maintained outside of this State.
(b) A mortgage banker or mortgage broker licensee shall report any change of
address of the principal place of business or any branch office within 15 days after the
change.
(c) Each mortgage broker or mortgage banker licensed under this Article shall
display in plain view the certificate of licensure issued by the Commissioner in its
principal office and in each branch office. Each loan officer licensed under this Article
shall display in each branch office in which the officer acts as a loan officer the certificate
of licensure issued by the Commissioner. (2001-393, s. 2.)
§ 53-243.10. Mortgage broker duties.

A mortgage broker, including any mortgage broker licensee and any person required
to be licensed as a mortgage broker under this Article, shall, in addition to duties imposed
by other statutes or at common law:
(1) Safeguard and account for any money handled for the borrower;
(2) Follow reasonable and lawful instructions from the borrower;
(3) Act with reasonable skill, care, and diligence; and
(4) Make reasonable efforts, with lenders with whom the broker regularly
does business to secure a loan that is reasonably advantageous to the
borrower considering all the circumstances, including the rates, charges,
and repayment terms of the loan and the loan options for which the
borrower qualifies with such lenders. (2001-393, s. 2.)
§ 53-243.11. Prohibited activities.

In addition to the activities prohibited under other provisions of this Article, it shall be
unlawful for any person in the course of any mortgage loan transaction:
(1) To misrepresent or conceal the material facts or make false promises
likely to influence, persuade, or induce an applicant for a mortgage loan
or a mortgagor to take a mortgage loan, or to pursue a course of
misrepresentation through agents or otherwise.
(2) To refuse improperly to issue a satisfaction of a mortgage.
(3) To fail to account for or to deliver to any person any funds, documents,
or other thing of value obtained in connection with a mortgage loan,
including money provided by a borrower for a real estate appraisal or a
credit report, which the mortgage banker, broker, or loan officer is not
entitled to retain under the circumstances.
G.S. 53-243.01 Page 13

(4) To pay, receive, or collect in whole or in part any commission, fee, or
other compensation for brokering a mortgage loan in violation of this
Article, including a mortgage loan brokered by any unlicensed person
other than an exempt person.
(5) To charge or collect any fee or rate of interest or to make or broker any
mortgage loan with terms or conditions or in a manner contrary to the
provisions of Chapter 24 of the General Statutes.
(6) To advertise mortgage loans, including rates, margins, discounts, points,
fees, commissions, or other material information, including material
limitations on the loans, unless the person is able to make the mortgage
loans available to a reasonable number of qualified applicants.
(7) To fail to disburse funds in accordance with a written commitment or
agreement to make a mortgage loan.
(8) To engage in any transaction, practice, or course of business that is not
in good faith or fair dealing or that constitutes a fraud upon any person,
in connection with the brokering or making of, or purchase or sale of,
any mortgage loan.
(9) To fail promptly to pay when due reasonable fees to a licensed appraiser
for appraisal services that are:
a. Requested from the appraiser in writing by the mortgage broker
or mortgage banker or an employee of the mortgage broker or
mortgage banker; and
b. Performed by the appraiser in connection with the origination or
closing of a mortgage loan for a customer or the mortgage broker
or mortgage banker.
(10) To broker a mortgage loan which contains a prepayment penalty if the
principal amount of the loan is one hundred fifty thousand dollars
($150,000) or less.
(11) To influence or attempt to influence through coercion, extortion, or
bribery, the development, reporting, result, or review of a real estate
appraisal sought in connection with a mortgage loan. Nothing in this
subdivision shall be construed to prohibit a mortgage broker or
mortgage banker from asking the appraiser to do one or more of the
following:
a. Consider additional appropriate property information.
b. Provide further detail, substantiation, or explanation for the
appraiser's value conclusion.
c. Correct errors in the appraisal report.
(12) To fail to comply with the mortgage loan servicing transfer, escrow
account administration, or borrower inquiry response requirements
imposed by sections 6 and 10 of the Real Estate Settlement Procedures
Act (RESPA), 12 U.S.C. § 2605 and § 2609, and regulations adopted
G.S. 53-243.01 Page 14

thereunder by the Secretary of the Department of Housing and Urban
Development. (2001-393, s. 2; 2001-399, s. 3; 2004-171, s. 10.)
§ 53-243.12. Disciplinary authority.

(a) The Commissioner may, by order, deny, suspend, revoke, or refuse to issue or
renew a license of a licensee or applicant under this Article or may restrict or limit the
activities relating to mortgage loans of any licensee or any person who owns an interest
in or participates in the business of a licensee, if the Commissioner finds both of the
following:
(1) That the order is in the public interest.
(2) That any of the following circumstances apply to the applicant, licensee,
or any partner, member, manager, officer, director, loan officer, limited
loan officer, managing principal, or any person occupying a similar
status or performing similar functions or any person directly or
indirectly controlling the applicant or licensee. The person:
a. Has filed an application for license that, as of its effective date or
as of any date after filing, contained any statement that, in light
of the circumstances under which it was made, is false or
misleading with respect to any material fact.
b. Has violated or failed to comply with any provision of this
Article, rule adopted by the Commissioner, or order of the
Commissioner.
c. Has been convicted of any felony, or, within the past 10 years,
has been convicted of any misdemeanor involving mortgage
lending or any aspect of the mortgage lending business, or any
offense involving breach of trust, moral turpitude, or fraudulent
or dishonest dealing.
d. Is permanently or temporarily enjoined by any court of
competent jurisdiction from engaging in or continuing any
conduct or practice involving any aspect of the mortgage lending
business.
e. Is the subject of an order of the Commissioner denying,
suspending, or revoking that person's license as a mortgage
broker or mortgage banker.
f. Is the subject of an order entered within the past five years by the
authority of any state with jurisdiction over that state's mortgage
brokerage or mortgage banking industry denying or revoking that
person's license as a mortgage broker or mortgage banking
industry or denying or revoking that person's license as a
mortgage broker or mortgage banker.
g. Does not meet the qualifications or the financial responsibility,
character, or general fitness requirements under G.S. 53-243.05
or any bond or capital requirements under this Article.
G.S. 53-243.01 Page 15

h. Has been the executive officer or controlling shareholder or
owned a controlling interest in any mortgage broker or mortgage
banker who has been subject to an order or injunction described
in sub-subdivision d., e., or f. of this subdivision.
i. Has failed to pay the proper filing or renewal fee under this
Article. However, the Commissioner may enter only a denial
order under this sub-subdivision, and the Commissioner shall
vacate the order when the deficiency has been corrected.
j. Has falsely certified attendance or completion of hours at an
approved mortgage lending continuing education course.
(b) The Commissioner may, by order, summarily postpone or suspend the license
of a licensee pending final determination of any proceeding under this section. Upon
entering the order, the Commissioner shall promptly notify the applicant or licensee that
the order has been entered and the reasons for the order. The Commissioner shall
calendar a hearing within 15 days after the Commissioner receives a written request for a
hearing. If a licensee does not request a hearing and the Commissioner does not request a
hearing, the order will remain in effect until it is modified or vacated by the
Commissioner. If a hearing is requested or ordered by the Commissioner, after notice of
and opportunity for hearing, the Commissioner may modify or vacate the order or extend
it until final determination.
(c) The Commissioner may, by order, impose a civil penalty upon a licensee or
any partner, officer, director, or other person occupying a similar status or performing
similar functions on behalf of a licensee for any violation of this Article. The civil penalty
shall not exceed ten thousand dollars ($10,000) for each violation of this Article by a
mortgage broker or mortgage banker. The Commissioner may impose a civil penalty of
up to ten thousand dollars ($10,000) for each violation of this Article by a person other
than a licensee or exempt person.
(d) In addition to other powers under this Article, upon finding that any action of a
person is in violation of this Article, the Commissioner may order the person to cease
from the prohibited action. If the person subject to the order fails to appeal the order of
the Commissioner in accordance with G.S. 53-243.03, or if the person appeals and the
appeal is denied or dismissed, and the person continues to engage in the prohibited action
in violation of the Commissioner's order, the person shall be subject to a civil penalty of
up to twenty-five thousand dollars ($25,000) for each violation of the Commissioner's
order. The penalty provision of this section shall be in addition to and not in lieu of any
other provision of law applicable to a licensee for the licensee's failure to comply with an
order of the Commissioner.
(e) Unless otherwise provided, all actions and hearings under this Article shall be
governed by Chapter 150B of the General Statutes.
(f) When a licensee is accused of any act, omission, or misconduct that would
subject the licensee to disciplinary action, the licensee, with the consent and approval of
the Commissioner, may surrender the license and all the rights and privileges pertaining
G.S. 53-243.01 Page 16

to it for a period of time established by the Commissioner. A person who surrenders a
license shall not be eligible for or submit any application for licensure under this Article.
(g) If the Commissioner has reasonable grounds to believe that a licensee or other
person has violated the provisions of this Article or that facts exist that would be the basis
for an order against a licensee or other person, the Commissioner may at any time, either
personally or by a person duly designated by the Commissioner, investigate or examine
the loans and business of the licensee and examine the books, accounts, records, and files
of any licensee or other person relating to the complaint or matter under investigation.
The Commissioner may require any licensee or other person to submit a consent to a
criminal history record check and a set of that person's fingerprints in a form acceptable
to the Commissioner in connection with any examination or investigation. Refusal to
submit the requested criminal history record check or a set of fingerprints shall be
grounds for disciplinary action. The reasonable cost of this investigation or examination
shall be charged against the licensee.
(h) The Commissioner may issue subpoenas to require the attendance of and to
examine under oath all persons whose testimony the Commissioner deems relative to the
person's business.
(i) The Commissioner may from time to time, at the expense of the
Commissioner's office, conduct routine examinations of the books and records of any
licensee in order to determine the compliance with this Article and any rules adopted
pursuant to the authority of G.S. 53-243.04.
(j) In addition to the rights described under this section, the Commissioner may
require a licensee to pay to a borrower or other individual any amounts received by the
licensee or its employees in violation of Chapter 24 of the General Statutes.
(k) If the Commissioner finds that the managing principal, branch manager, or
loan officer of a licensee had knowledge of or reasonably should have had knowledge of,
or participated in, any activity that results in the entry of an order under this section
suspending or withdrawing the license of a licensee, the Commissioner may prohibit the
branch manager, managing principal, or loan officer from serving as a branch manager,
managing principal, or loan officer for any period of time the Commissioner deems
necessary.
(l) In addition to the authority to require criminal history background checks as set
forth in G.S. 53-243.05 and G.S. 53-243.06, the Commissioner shall have the authority to
require a criminal history background check at any other time as a condition of continued
licensure. Upon the request of the Commissioner, a licensee shall furnish to the
Commissioner the licensee's consent to a criminal history record check and a set of the
licensee's fingerprints in a form acceptable to the Commissioner. Refusal to consent to a
criminal history record check under this subsection may constitute grounds for the
Commissioner to suspend or revoke the license of the licensee. (2001-393, s. 2;
2002-169, s. 10; 2004-171, ss. 11-13; 2005-316, s. 7.)
§ 53-243.13. Records; escrow funds or trust accounts.
G.S. 53-243.01 Page 17

(a) The Commissioner shall keep a list of all applicants for licensure under this
Article that includes the date of application, name, and place of residence and whether the
license was granted or refused.
(b) The Commissioner shall keep a current roster showing the names and places of
business of all licensees that shows their respective loan officers and a roster of exempt
persons required to file a notice under G.S. 53-243.02. The rosters shall: (i) be kept on
file in the office of the Commissioner; (ii) contain information regarding all orders or
other action taken against the licensees, loan officers, and other persons; and (iii) be open
to public inspection.
(c) Every licensee shall make and keep the accounts, correspondence, memoranda,
papers, books, and other records as prescribed in rules adopted by the Commissioner. All
records shall be preserved for three years unless the Commissioner, by rule, prescribes
otherwise for particular types of records. The recordkeeping requirements imposed by the
Commissioner or this subsection shall not be greater than those imposed by applicable
federal law.
(d) If the information contained in any document filed with the Commissioner is or
becomes inaccurate or incomplete in any material respect, the licensee shall promptly file
a correcting amendment to the information contained in the document.
(e) A licensee shall maintain in a segregated escrow fund or trust account any
funds which come into the licensee's possession, but which are not the licensee's property
and which the licensee is not entitled to retain under the circumstances. The escrow fund
or trust account shall be held on deposit in a federally insured financial institution.
(2001-393, s. 2.)
§ 53-243.14. Criminal penalty.

A violation of G.S. 53-243.02 is a Class I felony. Each transaction involving the
unlawful making or brokering of a mortgage loan is a separate offense. (2001-393, s. 2.)
§ 53-243.15. Filing required for exempt persons; civil penalty.

(a) All exempt persons described in G.S. 53-243.01(8) who are engaged in the
mortgage brokerage or mortgage banking business on October 1, 2002, shall be required
to file a form with the Commissioner on or before that date. All exempt persons, who
commence mortgage brokerage or mortgage banking business in this State after October
1, 2002, shall file the form with the Commissioner upon commencement of the business.
This form, prescribed by the Commissioner, shall contain all of the following
information:
(1) The name of the respective exempt person.
(2) The basis of the exempt status of the exempt person.
(3) The principal business address of the exempt person.
(4) The State or federal regulatory authority responsible for the exempt
person's supervision, examination, or regulation, if any.
(b) In addition to any other measures the exempt person may be subject to under
this Article, failure by an exempt person to file the required form shall not affect the
G.S. 53-243.01 Page 18

exempt status of the person. However, the exempt person shall be subject to a civil
penalty set by the Commissioner that shall not exceed the sum of two hundred fifty
dollars ($250.00) for each year the form is not filed. No person required to file under this
section may transact business in this State as a mortgage banker or mortgage broker
unless the person has filed the prescribed form with the Commissioner in accordance
with this section. (2001-393, s. 2.)
§ 53-243.16. Criminal history record checks.

(a) The Department of Justice may provide a criminal record check to the
Commissioner for any person who has applied for or holds a mortgage banker, mortgage
broker, exclusive mortgage broker, or loan officer license through the Commissioner
under this Article.
(b) In addition, if a person described in subsection (a) of this section is a
corporation, partnership, limited liability company, association, or trust, the Department
of Justice may provide a criminal history record check to the Commissioner for any
person who has control of that person, or who is the managing principal or a branch
manager of that person.
(c) The Commissioner shall provide to the Department of Justice, along with the
request, the fingerprints of the person, any additional information required by the
Department of Justice, and a form signed by the person consenting to the check of the
criminal record and to the use of the fingerprints and other identifying information
required by the State or national repositories. The person's fingerprints shall be forwarded
to the State Bureau of Investigation for a search of the State's criminal history record file,
and the State Bureau of Investigation shall forward a set of the fingerprints to the Federal
Bureau of Investigation for a national criminal history check. The Commissioner shall
keep all information pursuant to this section privileged, in accordance with applicable
State law and federal guidelines, and the information shall be confidential and shall not
be a public record under Chapter 132 of the General Statutes.
The Department of Justice may charge a fee for each person for conducting the checks
of criminal history records authorized by this section. (2002-169, s. 11; 2004-171, s. 14.)
§ 53-244. Reserved for future codification purposes.
G.S. 53-243.01 Page 19

APPENDIX 7
LO Change of Status
APPENDIX 8
MLA Application
APPENDIX 9
MLA SURETY BOND FORMS

APPENDIX 10
MLA Change of Business Forms

APPENDIX 11
MLA Bank Employee Exemption

APPENDIX 12
MLA Affiliated Mortgage Banker

APPENDIX 13
MLA Exempt Entity Notice

APPENDIX 14
Net Branching Letter

APPENDIX 15
Reverse Mortgage Act

Article 21.
Reverse Mortgages.
§ 53-255. Title.
This Article shall be known and may be cited as the Reverse
Mortgage Act. (1991, c. 546, s. 1; 1995, c. 115, s. 1.)
§ 53-256. Purpose.
It is the intent of the General Assembly that reverse mortgage
loans be available so that elderly homeowners may use the equity in
their homes to meet their financial needs. The General Assembly
recognizes that there may be restrictions and requirements governing
traditional mortgage transactions that should not apply to reverse
mortgages. The purpose of this Article is to authorize reverse
mortgage transactions and to clarify other provisions of North
Carolina law that might otherwise apply to reverse mortgage loans,
and to provide protection for elderly homeowners who enter into
reverse mortgage transactions. (1991, c. 546, s. 1; 1995, c. 115, s. 1.)
§ 53-257. Definitions.
The following definitions apply in this Article:
(1) Authorized lender or lender. – The North Carolina
Housing Finance Agency, any lender authorized to
engage in business as a bank, savings institution, or
credit union under the laws of this State or of the
United States, or any other person, firm, or
corporation authorized to make reverse mortgage
loans by the Commissioner of Banks.
(2) Borrower. – A natural person 62 years of age or
older who occupies and owns, in fee simple
individually, or with another borrower as tenants
by the entireties or as joint tenants with right of
survivorship, an interest in residential real property
G.S. 53-255
securing a reverse mortgage loan, and who borrows
money under a reverse mortgage loan.
(3) Commissioner. – The Commissioner of Banks of
this State.
(4) Counselor. – An individual who has completed a
training curriculum on reverse mortgage counseling
provided or approved by the North Carolina
Housing Finance Agency and whose name is
maintained on the Commissioner's list of approved
reverse mortgage counselors.
(5) Outstanding balance. – The current net amount of
money owed by the borrower to the lender,
calculated in accordance with G.S. 53-262(b),
whether or not the sum is suspended under the
terms of the reverse mortgage loan agreement or is
immediately due and payable.
(6) Reverse mortgage loan or loan. – A loan for a
definite or indefinite term (i) secured by a first
mortgage or first deed of trust on the principal
residence of the mortgagor located in North
Carolina, (ii) the proceeds of which are disbursed
to the mortgagor in one or more lump sums, or in
equal or unequal installments, either directly by the
lender or the lender's agent, and (iii) that requires
no repayment until a future time, upon the earliest
occurrence of one or more events specified in the
reverse mortgage loan contract.
(7) Shared appreciation. – An agreement by the lender
and the borrower that, in addition to the principal
and any interest accruing on the outstanding
balance of a reverse mortgage loan, the lender may
collect an additional amount equal to a percentage
of the increase in the value of the property from the
G.S. 53-255
date of origination of the loan to the date of loan
repayment.
(7a) Shared value. – An agreement by the lender and the
borrower that, in addition to the principal and any
interest accruing on the outstanding balance of a
reverse mortgage loan, the lender may collect an
additional amount equal to a percentage of the
value of the property at the time of loan repayment.
(8) Total annual percentage rate. – The annual average
rate of interest, which provides the total amount
owed at loan maturity when this rate is applied to
the loan advances, excluding closing costs not paid
to third parties, over the term of the reverse
mortgage loan. (1991, c. 546, s. 1; 1995, c. 115, s.
1; 1998-116, s. 3; 2004-171, s. 15.)
§ 53-258. Authority and procedures governing reverse mortgage

loans.
(a) Except as provided in subsection (b1) of this section, no
person, firm, or corporation shall engage in the business of making
reverse mortgage loans without first being approved as an authorized
reverse mortgage lender by the Commissioner. Mortgage lenders
licensed under Article 19A of this Chapter must also be authorized
under this Article before making reverse mortgage loans.
(b) An application for authorization to make reverse mortgage
loans shall be in writing to the Commissioner and in the form
prescribed by the Commissioner. The application shall contain the
name and complete business address or addresses of the applicant.
The application shall also include affirmation of financial solvency
and all capitalization requirements that are required by the
Commissioner. The application shall be accompanied by a
nonrefundable fee, payable to the Commissioner, of five hundred
dollars ($500.00).
G.S. 53-255
(b1) Each of the following lenders shall be considered
authorized to engage in the business of making reverse mortgage
loans without being required to apply pursuant to subsection (b) of
this section and may represent to the public that it is so authorized:
(1) The North Carolina Housing Finance Agency.
(2) A bank, savings institution, or credit union formed
under the laws of this or any other state or of the
United States.
(3) A wholly owned subsidiary of an entity described
in subdivision (2) of this subsection.
Each lender listed in this subsection may, upon written request to
the Commissioner of Banks, obtain written confirmation of its
authority to engage in the business of making reverse mortgage
loans. In the case of lenders listed in subdivisions (2) and (3) of this
subsection, the request shall be accompanied by the fee set forth in
subsection (d) of this section.
(c) Repealed by Session Laws 2004-171, s. 16, effective
October 1, 2004, and applicable to acts occurring and transactions or
agreements entered into on or after that date.
(d) The Commissioner shall, upon determination that an
applicant should be authorized to make reverse mortgage loans,
issue notice of this authority to the lender. The authority to issue
reverse mortgage loans is valid for the period of time specified by
the Commissioner. A lender to whom a notice of authority is issued
shall display the notice prominently in any and all offices of the
lender that make reverse mortgage loans. Authorizations issued
under this section are nontransferable. Except for lenders described
in subsection (b1) of this section, each lender to which an
authorization is issued shall pay an annual renewal fee of two
hundred fifty dollars ($250.00). (1991, c. 546, s. 1; 1995, c. 115, s. 1;
2004-171, s. 16.)
§ 53-259. Application of rules.
G.S. 53-255
In addition to the provisions of this Article, authorized lenders
shall comply with rules adopted by the Commissioner that are
reasonable and necessary to effectuate the purposes of this Article
and to protect the public interest. Provided, however, that provisions
in Chapters 24 or 45 of the General Statutes and the rules adopted
under those Chapters that conflict with this Article shall not apply to
reverse mortgage transactions governed by this Article. (1991, c.
546, s. 1; 1995, c. 115, s. 1.)
§ 53-260. Interest.
Notwithstanding any other provisions of law to the contrary, the
parties to a reverse mortgage loan may contract for the payment of
interest at a rate agreed to by the parties. Interest shall be deferred
until the earliest occurrence of one or more events specified in the
reverse mortgage loan contract. Payment of interest on deferred
interest shall be as agreed upon by the parties to the contract. The
parties may agree that the deferred interest may be added to the
outstanding balance of the loan. The Commissioner may determine
that the total annual percentage rate is excessive. If the
Commissioner determines the total annual percentage rate to be
excessive, that determination shall be included in the information
provided to counselors under G.S. 53-264(a)(7), and to applicants
for reverse mortgage loans under G.S. 53-264(b). (1991, c. 546, s. 1;
1995, c. 115, s. 1.)
§ 53-261. Taxes, insurance, and assessments.

A reverse mortgage loan contract may provide that it is the
primary obligation of the borrower to pay all property taxes,
insurance premiums, and assessments in a timely manner, and that
the failure of the borrower to make these payments and to provide
evidence of payment to the lender may constitute grounds for default
of the loan. A reverse mortgage loan contract shall state that if a
borrower fails to pay property taxes, insurance premiums, or
G.S. 53-255
assessments, the lender may choose, at the lender's option, to pay the
amounts due, charge them to the reverse mortgage loan, and
recalculate regularly scheduled payments under the loan to account
for the increased outstanding loan balance. (1991, c. 546, s. 1; 1995,
c. 115, s. 1.)
§ 53-262. Renegotiation of loan; calculation of outstanding

balance; prepayment.
(a) If a reverse mortgage loan contract allows for a change in
the payments or payment options, the lender may charge a
reasonable fee when payments are recalculated.
(b) The outstanding loan balance shall be calculated by
adding the current totals of items described in subdivisions (1)
through (4) below, and subtracting the current totals of all reverse
mortgage loan payments made by the borrower to the lender:
(1) The sum of all disbursements made by the lender to
the borrower, or to another party on the borrower's
behalf.
(2) All taxes, assessments, insurance premiums, and
other similar charges paid to date by the lender
under G.S. 53-261 and not reimbursed by the
borrower within 60 days of the date payment was
made by the lender.
(3) All actual closing costs the borrower has deferred,
if a deferral provision is contained in the loan
agreement.
(4) The total accrued interest to date.
(c) Prepayment of the reverse mortgage loan, in whole or
part, shall be permitted without penalty at any time during the term
of the loan. (1991, c. 546, s. 1; 1995, c. 115, s. 1.)
§ 53-263. Limits on borrowers' liability.
G.S. 53-255
(a) When a reverse mortgage loan becomes due, if the
borrower mortgaged one hundred percent (100%) of the full value of
the house then the amount owed by the borrower shall not be greater
than (i) the fair market value of the house, minus sale costs, or (ii)
the outstanding balance of the loan, whichever amount is less.
(b) If the borrower mortgaged less than one hundred percent
(100%) of the full value of the house, the amount owed by the
borrower shall not be greater than (i) the outstanding balance of the
loan, or (ii) the percentage of the fair market value, minus sale costs,
as provided in the contract, whichever amount is less.
(c) The lender shall enforce the debt only through the sale of
the property and shall not obtain a deficiency judgment against the
borrower. (1991, c. 546, s. 1; 1995, c. 115, s. 1.)
§ 53-264. Disclosures of loan terms.

(a) On forms prescribed by the Commissioner, all authorized
lenders shall provide all of the following information to the
Commissioner for dissemination to all counselors who provide
counseling to prospective reverse mortgage borrowers:
(1) The borrower's rights, obligations, and remedies
with respect to the borrower's temporary absence
from the home, late payments by the lender, and
payment default by the lender.
(2) Conditions or events that require the borrower to
repay the loan obligation.
(3) The right of the borrower to mortgage less than the
full value of the home, if permitted by the reverse
mortgage loan contract.
(4) The projected total annual percentage rate
applicable under various loan terms and
appreciation rates and interest rates applicable at
sample ages of borrowers.
(5) Standard closing costs.
G.S. 53-255
(6) All service fees to be charged during the term of
the loan.
(7) Other information required by the Commissioner.
(8) Information relating to contracts for shared
appreciation or shared value, as required by G.S.
53-270.1.
(b) Within 10 business days after application is made by a
borrower, but not less than 20 business days before closing of the
loan, lenders shall provide applicants with the same information
required in subsection (a) of this section, shall inform applicants that
reverse mortgage counseling is required before the loan can be
closed, and shall provide the names and addresses of counselors
listed with the Commissioner's office. (1991, c. 546, s. 1; 1995, c.
115, s. 1; 1998-116, s. 4.)
§ 53-265. Information required of lender.

(a) At the closing of the reverse mortgage loan, the lender
shall provide to the borrower the name of the lender's employee or
agent who has been designated specifically to respond to inquiries
concerning reverse mortgage loans. This information shall be
provided by the lender to the borrower at least annually, and
whenever the information concerning the designated employee or
agent changes.
(b) On an annual basis and when the loan becomes due, the
lender shall issue to the borrower, without charge, a statement of
account regarding the activity of the mortgage for the preceding
calendar year, or for the period since the last statement of account
was provided. The statement shall include all of the following
information for the preceding year:
(1) The outstanding balance of the loan at the
beginning of the statement period.
(2) Disbursements to the borrower.
G.S. 53-255
(3) The total amount of interest added to the
outstanding balance of the loan.
(4) Any property taxes, insurance premiums, or
assessments paid by the lender.
(5) Payments made to the lender.
(6) The total mortgage balance owed to date.
(7) The remaining amount available to the borrower in
reverse mortgage loans wherein proceeds have
been reserved to be disbursed in one or more lump
sum amounts. (1991, c. 546, s. 1; 1995, c. 115, s.
1.)
§ 53-266. Effects of lender's default.

(a) A lender's failure to make loan advances to the borrower
under the reverse mortgage loan contract shall be deemed the
lender's default of the contract. Upon the lender's default, the lender
shall forfeit any right to collect interest or service charges under the
contract. The lender's right to recovery at loan maturity shall be
limited to the outstanding balance as of the date of default, minus all
interest. Lenders may also be subject to other default penalties
established by the Commissioner.
(b) Subsection (a) of this section shall not apply if the lender
has previously declared the borrower in default under G.S. 53-267,
or if the lender makes the required loan advance within the time
stated in the mortgage contract or within 30 days of receipt of notice
from the borrower that the loan advance was not received. (1991, c.
546, s. 1; 1995, c. 115, s. 1.)
§ 53-267. Repayment upon borrower's default.

A reverse mortgage loan contract may provide for a borrower's
default, thereby triggering early repayment of the loan, based only
upon one or more of the following terms and conditions:
G.S. 53-255
(1) The borrower fails to maintain the residence as
required by the contract.
(2) The borrower sells or otherwise conveys title to the
home to a third party.
(3) The borrower dies and the home is not the principal
residence of the surviving borrower.
(4) The home is not the principal residence of at least
one of the borrowers for a period of 12 consecutive
months for reasons of physical or mental illness.
(5) For reasons other than physical or mental illness,
the home ceases to be the principal residence of the
borrower for a period of 180 consecutive days and
is not the principal residence of another borrower
under the loan, without prior written permission
from the lender.
(6) The borrower fails to pay property taxes, insurance
premiums, and assessments under G.S. 53-261.
(1991, c. 546, s. 1; 1995, c. 115, s. 1.)
§ 53-268. Time for initiation of foreclosure.

When a borrower's obligation to repay the reverse mortgage loan
is triggered under G.S. 53-267, in addition to all rights conferred
upon owners and borrowers under Chapter 45 of the General
Statutes, the lender must give the borrower not less than 90 days'
notice of its intent to initiate foreclosure proceedings. If the contract
so provides, interest will continue to accrue during the 90-day
period. (1991, c. 546, s. 1; 1995, c. 115, s. 1.)
§ 53-269. Counseling provisions.

(a) The North Carolina Housing Finance Agency shall adopt
rules governing the training of counselors and necessary standards
for counselor training and shall establish reasonable fees for training.
The North Carolina Housing Finance Agency shall forward the
G.S. 53-255
names of all persons satisfying counselor training requirements to
the Commissioner.
(b) The Commissioner shall maintain a list of counselors who
have satisfied training requirements and shall periodically provide an
up-to-date copy of the list to all authorized lenders.
(c) The Commissioner shall provide to all counselors who
have satisfied training requirements information provided to the
Commissioner by authorized lenders under G.S. 53-265. (1991, c.
546, s. 1; 1995, c. 115, s. 1.)
§ 53-270. Prohibited acts.

Reverse mortgage lenders are prohibited from engaging in any of
the following acts in connection with the making, servicing, or
collecting of a reverse mortgage loan:
(1) Misrepresenting material facts, making false
promises, or engaging in a course of
misrepresentation through agents or otherwise.
(2) Failing to disburse funds in accordance with the
terms of the reverse mortgage loan contract or other
written commitment.
(3) Improperly refusing to issue a satisfaction of a
mortgage.
(4) Engaging in any action or practice that is unfair or
deceptive, or that operates a fraud on any person.
(5) Contracting for or receiving shared appreciation or
shared value, except as provided in G.S. 53-270.1.
(6) Closing a reverse mortgage loan without receiving
certification from a person who is certified as a
reverse mortgage counselor by the State that the
borrower has received counseling on the
advisability of a reverse mortgage loan and the
various types of reverse mortgage loans and the
availability of other financial options and resources
G.S. 53-255
for the borrower, as well as potential tax
consequences.
(7) Failing to comply with this Article. (1991, c. 546,
s. 1; 1995, c. 115, s. 1; 1998-116, s. 1.)
§ 53-270.1. Contracts for shared appreciation or shared value.

(a) A lender and a borrower may agree, in writing, that in
addition to the principal and any interest accruing on the outstanding
balance of a reverse mortgage loan, the lender may receive:
(1) Shared appreciation if it is in an amount not
exceeding ten percent (10%) of the increase in the
value of the property from the date of origination of
the reverse mortgage loan to the date of loan
repayment; or
(2) Shared value if it is in an amount not exceeding ten
percent (10%) of the value of the property at the
time of repayment of the reverse mortgage loan;
and
(3) The shared appreciation or shared value is paid in
conjunction with a loan that:
a. Is outstanding for 24 months or longer; and
b. Either (i) is guaranteed or insured by an
agency of the federal government, or (ii) has
been originated under a reverse mortgage
program approved by Fannie Mae, the
Government National Mortgage
Association, or the Federal Home Loan
Mortgage Corporation, provided the loan is
sold to one of those agencies or enterprises
within 90 days of loan closing, or has been
originated under a reverse mortgage
program of a person, firm, or corporation
G.S. 53-255
approved as an authorized lender by the
Commissioner; and
c. Provides that the borrower receives
additional economic benefit in exchange for
paying the shared appreciation or shared
value, including, but not limited to, larger
monthly payments or a larger line of credit.
The specific nature of the economic benefit
shall be provided to the Commissioner with
the other information about the reverse
mortgage program required under G.S.
53-264 for dissemination to the reverse
mortgage counselors; and
d. At least 14 days prior to closing, the
borrower receives a disclosure that explains
the additional costs and benefits of shared
appreciation or shared value and compares
those costs and benefits with a comparable
loan without shared appreciation or shared
value. These costs and benefits shall also be
included in the information required under
G.S. 53-264.
(b) Under subdivisions (a)(1) and (2) of this section, in
determining the value of the property at the time of origination of the
reverse mortgage loan and at the time of repayment, if repayment is
not in conjunction with the sale of the property, the lender and the
borrower shall have the right to obtain an appraisal from an appraiser
licensed or certified in accordance with G.S. 93E-1-6. If the
appraisals differ, and the parties cannot agree on a value, an average
of the appraisals shall determine the value. If the borrower does not
desire an appraisal, the lender may obtain an appraisal, which shall
be controlling. Notwithstanding the foregoing, the parties may agree
G.S. 53-255
in writing to waive these requirements and agree upon the value of
the property.
(c) If repayment is made in conjunction with the sale of the
property, the actual and reasonable costs of sale shall be deducted
from the value of the property prior to the calculation of the amount
of shared appreciation or shared value. (1998-116, s. 2; 2001-487, s.
14(b).)
§ 53-271. Commissioner's authority to enforce; penalties.

(a) The Commissioner shall adopt rules necessary to
implement and enforce the provisions of this Article. Upon finding
probable cause to believe that an authorized lender is in violation of
this Article, or of any law or any rule or regulation of this State, the
United States, or an agency of the State or the United States, the
Commissioner shall, after affording reasonable notice and
opportunity to be heard to the lender, order the lender to cease and
desist from the violation.
(b) If a lender fails to comply with or appeal the
Commissioner's cease and desist order, the lender shall be subject to
a civil penalty of one thousand dollars ($1,000) for each violation
that is the subject of the cease and desist order. The penalty imposed
under this section shall be in addition to and not in lieu of penalties
available under any other provision of law applicable to a reverse
mortgage lender.
(c) Upon a finding that a reverse mortgage lender has violated
this Article, the Commissioner may revoke, temporarily or
permanently, the authority of the lender to make reverse mortgage
loans.
(d) A person damaged by a lender's actions may file an action
in civil court to recover actual and punitive damages. Attorneys'
fees shall be awarded to a prevailing borrower. Nothing in this
Article shall limit any statutory or common law right of a person to
bring an action in court for any act, nor shall this Article limit the
G.S. 53-255
right of the State to punish a person for the violation of any law.
(1991, c. 546, s. 1; 1995, c. 115, s. 1.)
§ 53-272. Appeals.
The Banking Commission shall have full authority to review any
rule, regulation, order, or act of the Commissioner done pursuant to
or with respect to the provisions of this Article; and any person
aggrieved by any such rule, regulation, order, or act may appeal to
the Commission for review upon giving notice in writing within 20
days after such rule, regulation, order, or act complained of is
adopted, issued, or done. Notwithstanding any other provision of
law, any aggrieved party to a decision of the Banking Commission
shall be entitled to an appeal pursuant to G.S. 53-92. (1991, c. 546, s.
1; 1995, c. 115, s. 1; c. 129, s. 42.)
G.S. 53-255
APPENDIX 16
Commissioner's Letter Regarding Reverse Mortgages

APPENDIX 17
Sample Employment Agreement

EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated this March 3, 2005, by and between

[Insert name of Loan Officer] ("Loan Officer"), and MORTGAGE
COMPANY, LLC., a North Carolina limited liability company
("Mortgage Company").
RECITALS:
WHEREAS, Mortgage Company desires to enter into a contract

with the Loan Officer relating to the mortgage loan origination services;
NOW, THEREFORE, subject to the terms and conditions of this

Agreement, the parties hereto agree as follows:
1. Employment and Term. Mortgage Company hereby

employs Loan Officer, and Loan Officer hereby accepts employment by
Mortgage Company, on the terms and subject to the conditions set forth in
this Agreement. The term of this Agreement (the "Term") shall
commence on the date first written above and shall terminate on the third
anniversary hereof, unless sooner terminated as provided herein.
2. Duties. The Employee agrees that he will perform services

as a loan officer and will perform such additional duties as the President of
Mortgage Company from time to time may determine and communicate to
the Loan Officer in connection with the origination of home mortgage
loans. The Employee acknowledges and agrees (i) that working as a loan
officer requires advanced knowledge and education and the exercise of
discretion, and that she has the knowledge and education required to
perform such duties, and (ii) that the work performed as a loan officer is
intellectual and varied in character, the accomplishment of which cannot
be standardized as to time. The Loan Officer agrees that, during the term,
(i) he will devote his full business time and exclusive attention to the
business of Mortgage Company, (ii) he will not engage directly or
indirectly in any activities that interfere with the performance of his duties
hereunder, or that adversely affect the business of Mortgage Company,
and (iii) that he will not spend more than 20% of his time performing
duties other than those required in connection with the origination of
loans.
3. Compensation.
3.1 Salary. During the term, the Mortgage Company shall pay
the Loan Officer a salary of $455.00 per week, subject to applicable
withholdings. Salary shall be paid on a bi-monthly basis, and shall be
applied as an advance on the Commission described below. Under no
circumstances will the Employee be required to refund the Salary paid
hereunder to the Mortgage Company.
3.2 Commission. During the Term, Mortgage Company shall

pay the Loan Officer a commission equal to fifty percent (50%) of the
loan origination fee and lender paid yield spread premium (the
"Commission") received by Mortgage Company with respect to each
home mortgage loan originated and closed by the Loan Officer during the
term hereof. The Commission shall be payable to the Loan Officer within
five (5) days after the closing of each loan, and shall be subject to
applicable withholdings. The Commissions due hereunder shall be
reduced by the amount of the Salary paid to the Employee during the
period from the later to occur of (i) the date of employment hereunder, or
(ii) the last date Commissions were paid to the Employee.
3.2 Additional Benefits. During the Term, the Loan Officer

may be entitled to participate in such benefit programs as may be provided
generally to all employees of Mortgage Company in the sole discretion of
the Board of Directors or the President of Mortgage Company.
4. Covenants of Loan Officer.
4.1 Restriction on Solicitation Activities. The Loan Officer

agrees that, during the term hereof and for a period of one year
commencing on the date of the termination or expiration of this
Agreement, he shall not, directly or indirectly, except as required in the
2
performance of his duties for Mortgage Company hereunder, (i) induce or
attempt to influence any loan officer or other employee of Mortgage
Company to terminate his employment with Mortgage Company; or (ii)
canvass, solicit or accept any mortgage loan business from any Customer
(as defined below) or any lenders who provide loans for Mortgage
Company, or (iii) request or advise any such Customer or lenders to
withdraw, curtail or cancel their mortgage loan business with Mortgage
Company; or (iv) solicit or originate mortgage loan business on behalf of
any corporation, partnership, limited liability company, or other entity that
originates mortgage loans in Wake County [Consider the omission of iv.
above.]
4.2 Restriction on Competition. The Loan Officer agrees

that, during the term hereof and for a period of one year commencing on
the date of the termination or expiration of this Agreement, he shall not,
directly or indirectly, acquire any interest in, act as agent for, assist,
manage, operate, control, be employed by, or be connected in any way
with any person, corporation or entity that is engaged in any activity
prohibited to the Loan Officer by Paragraph 4.1.
4.3 Definition. For purposes of this Agreement, "Customer"

shall mean (i) any customer of Mortgage Company for whom Mortgage
Company provided mortgage loan financing during the three (3) years
preceding the termination or expiration of this Agreement, and (ii) any
Customer from whom any representative of Mortgage Company,
including without limitation the Loan Officer, has taken a mortgage loan
application during the calendar year preceding the termination or
expiration of this Agreement.
4.4 Non-Disclosure of Proprietary Information and

Confidential Records. Except as required in the performance of his
duties hereunder, the Loan Officer agrees that, during the Term and for a
period of one year after the termination of his employment or expiration of
this Agreement, he will not (i) disclose any Proprietary Information or
Confidential Records (as defined below) to any individual or entity at any
time, or (ii) permit any inspection or copying of Confidential Records by
3
any individual or entity at any time. For purposes of this Agreement,
"Proprietary Information" shall mean (i) the name or address of any
Customer, (ii) any information concerning transactions by Mortgage
Company with any Customer or supplier of Mortgage Company; (iii) any
information concerning any sales contracts, prices or pricing policies of
Mortgage Company; (iv) any information relating to the marketing
methods, sales or profit margins, discounts, capital structure, or business
plan of Mortgage Company; (v) any information which is generally
regarded as confidential by other businesses in the industry engaged in by
Mortgage Company; and (vi) any other information determined to be
confidential or proprietary by resolution of the Board of Directors of
Mortgage Company and communicated to the Loan Officer. For purposes
of this Agreement, "Confidential Records" shall mean all correspondence,
memoranda, files, financial records, operating or marketing records,
magnetic tape, or electronic or other media of any kind that contains or
reflects Proprietary Information.
4.5 Permissible Disclosure. Notwithstanding the provisions

of Paragraph 4.4, the disclosure of Proprietary Information or Confidential
Records shall not be deemed to violate the provisions of Paragraph 4.4 if
such disclosure is required by law.
4.6 Survival of Common Law Protection. During and after

the term of this Agreement, Proprietary Information and Confidential
Records shall be entitled to receive any and all protection otherwise
available under applicable law, and Mortgage Company may seek to
enforce any of its rights with respect thereto.
4.7 Enforcement. The Loan Officer recognizes that

irreparable injury may result to Mortgage Company, its business and
property if he breaches any of the restrictions imposed by this Paragraph
4, and he agrees that, if he shall engage in any act in violation of the
provisions thereof, Mortgage Company shall be entitled to an injunction
prohibiting him from engaging in any such act in addition to such other
remedies and damages as may be available. In addition, upon the
termination or expiration of this Agreement, the Loan Officer agrees that
4
any fees, commissions, premiums or other compensation paid to or
received the Loan Officer or any other corporation, partnership, limited
liability company or other entity for loans to any Customer (as defined
herein) which are made or closed as a the result of a violation of the terms
and conditions of this Paragraph 4 shall belong to Mortgage Company,
and the Loan Officer shall not be entitled to receive any Commission with
respect to such sums.
5. Termination.
5.1 Termination. Either Mortgage Company or the Loan

Officer may terminate this Agreement at any time upon ten (10) days'
prior written notice to the opposite party, in which event Mortgage
Company shall pay the Loan Officer at termination any earned but unpaid
Salary and Commission as of the date of termination; provided, however,
that this Agreement may be terminated immediately by either party upon a
breach of any term or condition hereunder by the other party. In addition,
no Commission shall be due or paid to the Loan Officer with respect to
any mortgage loan closed after the termination or expiration of this
Agreement [the following may be added here: “if the Loan Officer has
violated any of the terms and conditions of Paragraph 4 hereof”];
provided, however, Salary shall be paid through the last day of
employment without regard as to such breach.
5.2 Effect of Termination. Upon the expiration or termination

of this Agreement, the Loan Officer shall provide Mortgage Company
with all Confidential Records, and copies thereof, then in the possession of
the Loan Officer. The provisions of Paragraph 4 of this Agreement shall
remain in effect for a period of one year after such expiration or
termination.
6. Miscellaneous.
6.1 Severability. The parties agree that each of the paragraphs

of this Agreement, and the different provisions and parts thereof, are
separate and severable, and all shall not be invalid if any one or more
5
portions shall be declared invalid or unenforceable.
6.2 No Waiver. No waiver by a party of a breach hereof by

the other party shall be deemed to constitute a waiver of a future breach,
whether of a similar or dissimilar nature.
6.3 Governing Law. This Agreement shall be governed by

and construed and interpreted in accordance with the laws of the State of
North Carolina, and all questions relating to the validity and performance
hereof and remedies hereunder shall be determined in accordance with
such law.
6.4 Entire Agreement. This Agreement and any exhibits

attached hereto shall constitute the entire agreement between the parties
hereto relating and supersedes any and all prior oral or written
employment or other agreements between the Loan Officer and Mortgage
Company. This Agreement may not be amended, modified or canceled
except as provided herein or by written agreement of the parties signed by
the party against whom enforcement is sought.
6.5 Notice. Any notice required or permitted to be given

hereunder shall be deemed sufficiently given if sent by registered or
certified mail, postage prepaid, addressed to the addressee at its address
last provided the sender in writing by the addressee for purposes of
receiving notices hereunder or, unless or until such address shall be so
furnished, to the address indicated opposite its signature to this
Agreement.
6.6 Counterparts. This Agreement may be executed in one or

more counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same agreement.
6.7 Merger. If during the period that any rights or obligations

of Mortgage Company are in effect, in the event of any merger or
consolidation of Mortgage Company with, or transfer of assets and
liabilities of Mortgage Company to, any other company, the rights and
6
obligations of the parties hereunder shall continue.
IN WITNESS WHEREOF, this Agreement has been duly executed

under seal as of the day and year first written above.
SIGNATURES OMITTED
7
APPENDIX 18
UPL Opinion Regarding Non-lawyer Closings

APPENDIX 19
GFS Surety Bond Form

APPENDIX 20
Good Funds Settlement Act

Chapter 45A.
Good Funds Settlement Act.
§ 45A-1. Short title.
This Chapter shall be known as the Good Funds Settlement Act.
(1995 (Reg. Sess., 1996), c. 714, s. 1.)
§ 45A-2. Applicability.
This Chapter applies only to real estate transactions involving a
one- to four-family residential dwelling or a lot restricted to
residential use. (1995 (Reg. Sess., 1996), c. 714, s. 1.)
§ 45A-3. Definitions.
As used in this Chapter, unless the context otherwise requires:
(1) "Bank" means a financial institution, including but
not limited to a national bank, state chartered bank,
savings bank, or credit union that is insured by the
Federal Deposit Insurance Corporation or a
comparable agency of the federal or state
government.
(2) "Borrower" means the maker of the promissory
note evidencing the loan to be delivered at the
closing.
(3) "Cashier's check" means a check that is drawn on a
bank, is signed by an officer or employee of the
bank on behalf of the bank as drawer, is a direct
obligation of the bank, and is provided to a
customer of the bank or acquired from the bank for
remittance purposes.
(4) "Certified check" means a check with respect to
which the drawee bank certifies by signature on the
check of an officer or other authorized employee of
the bank that (i) the signature of the drawer on the
check is genuine and the bank has set aside funds
NC General Statutes - Chapter 45A

that are equal to the amount of the check and will
be used to pay the check or (ii) the bank will pay
the check upon presentment.
(5) "Closing" means the time agreed upon by the
purchaser, seller, and lender (if applicable), when
the execution and delivery of the documents
necessary to consummate the transaction
contemplated by the parties to the contract occurs,
and includes a loan closing.
(6) "Closing funds" means the gross or net proceeds of
the real estate transaction, including any loan
funds, to be disbursed by the settlement agent as
part of the disbursement of settlement proceeds on
behalf of the parties.
(7) "Collected funds" means funds deposited and
irrevocably credited to a settlement agent's account
used to fund the disbursement of settlement
proceeds which account is a trust account, escrow
account, or an account held by a company or its
subsidiary which is licensed and supervised by the
North Carolina Commissioner of Banks.
(8) "Disbursement of settlement proceeds" means the
payment of all closing funds from the transaction
by the settlement agent to the persons or entities
entitled to that payment.
(9) "Lender" means any person or entity engaged in
making or originating loans secured by mortgages
or deeds of trust on real estate.
(10) "Loan closing" means the time agreed upon by the
borrower and lender, as applicable, when the
execution and delivery of loan documents by the
borrower occurs.

(11) "Loan documents" means the note evidencing the
debt due to the lender, the deed of trust or mortgage
to secure that debt to the lender, and any other
documents required by the lender to be executed by
the borrower as part of the loan closing transaction.
(12) "Loan funds" means the gross or net proceeds of
the loan to be disbursed by the settlement agent as
part of the disbursement of settlement proceeds on
behalf of the borrower and lender.
(13) "Party" or "parties" means the seller, purchaser,
borrower, lender, and settlement agent, as
applicable to the subject transaction.
(14) "Settlement" means the time when the settlement
agent has received the duly executed deed, deed of
trust or mortgage, and other loan documents and
funds required to carry out the terms of the
contracts between the parties.
(15) "Settlement agent" means the person or persons
responsible for conducting the settlement and
disbursement of the settlement proceeds, and
includes any individual, corporation, partnership,
or other entity conducting the settlement and
disbursement of the closing funds.
(16) "Teller's check" means a check provided to a
customer of a bank or acquired from a bank for
remittance purposes, that is drawn by the bank, and
drawn on another bank or payable through or at a
bank. (1995 (Reg. Sess., 1996), c. 714, s. 1.)
§ 45A-4. Duty of settlement agent.

The settlement agent shall cause recordation of the deed, if any,
the deed of trust or mortgage, or other loan documents required to be
recorded at settlement. The settlement agent shall not disburse any of

the closing funds prior to the recordation of any deeds or loan
documents required to be filed by the lender, if applicable, and
verification that the closing funds used to fund disbursement are
deposited in the settlement agent's trust or escrow account in one or
more forms prescribed by this Chapter. Unless otherwise provided in
this Chapter, a settlement agent shall not cause a disbursement of
settlement proceeds unless those settlement proceeds are collected
funds. Notwithstanding that a deposit made by a settlement agent to
its trust or escrow account does not constitute collected funds, the
settlement agent may cause a disbursement of settlement proceeds
from its trust or escrow account in reliance on that deposit if the
deposit is in one or more of the following forms:
(1) A certified check;
(2) A check issued by the State, the United States, a
political subdivision of the State, or an agency or
instrumentality of the United States, including an
agricultural credit association;
(3) A cashier's check, teller's check, or official bank
check drawn on or issued by a financial institution
insured by the Federal Deposit Insurance
Corporation or a comparable agency of the federal
or state government;
(4) A check drawn on the trust account of an attorney
licensed to practice in the State of North Carolina;
(5) A check or checks drawn on the trust or escrow
account of a real estate broker licensed under
Chapter 93A of the General Statutes;
(6) A personal or commercial check or checks in an
aggregate amount not exceeding five thousand
dollars ($5,000) per closing if the settlement agent
making the deposit has reasonable and prudent
grounds to believe that the deposit will be

irrevocably credited to the settlement agent's trust
or escrow account;
(7) A check drawn on the account of or issued by a
mortgage banker licensed under Article 19A of
Chapter 53 of the General Statutes that has posted
with the Commissioner of Banks a surety bond in
the amount of at least three hundred thousand
dollars ($300,000). The surety bond shall be in a
form satisfactory to the Commissioner and shall
run to the State for the benefit of any settlement
agent with a claim against the licensee for a
dishonored check. (1995 (Reg. Sess., 1996), c. 714,
s. 1; 2001-420, ss. 1, 2.)
§ 45A-5. Duty of lender, purchaser, or seller.

The lender, purchaser, or seller shall, at or before closing, deliver
closing funds, including the gross or net loan funds, if applicable, to
the settlement agent either in the form of collected funds or in the
form of a negotiable instrument described in G.S. 45A-4(1) through
(7), provided that the lender, purchaser, or seller, as applicable, shall
cause that negotiable instrument to be honored upon presentment for
payment to the bank or other depository institution upon which the
instrument is drawn. However, in the case of a refinancing, or any
other loan where a right of rescission applies, the lender shall, no
later than the business day after the expiration of the rescission
period required under the federal Truth-in-Lending Act, 15 U.S.C. §
1601, et seq., cause disbursement of loan funds to the settlement
agent in one or more of the forms prescribed by provisions in this
Chapter. (1995 (Reg. Sess., 1996), c. 714, s. 1.)
§ 45A-6. Validity of loan documents.

Failure to comply with the provisions of this Chapter shall not
govern the validity or enforceability of any document, including a

deed or any loan document, executed and delivered at any settlement
occurring after October 1, 1996. (1995 (Reg. Sess., 1996), c. 714, s.
1.)
§ 45A-7. Penalty.
Any party violating this Chapter is liable to any other party
suffering a loss due to that violation for that other party's actual
damages plus reasonable attorneys' fees. In addition, any party
violating this Chapter shall pay to the party or parties suffering a loss
an amount equal to one thousand dollars ($1,000) or double the
amount of interest payable on any loan for the first 60 days after the
loan closing, whichever amount is greater. (1995 (Reg. Sess., 1996),
c. 714, s. 1.)

APPENDIX 21
North Carolina Satisfaction of Mortgages Act

Article 4.
Satisfaction.
§ 45-36.2. Obligation of good faith.
Every action or duty within this Article imposes an obligation of
good faith in its performance or enforcement. (1953, c. 848;
2005-123, s. 1.)
§ 45-36.3. Notification by mortgagee of satisfaction of provisions

of deed of trust or mortgage, or other instrument; civil
penalty.
(a) After the satisfaction of the provisions of any deed of trust
or mortgage, or other instrument intended to secure with real
property the payment of money or the performance of any other
obligation and registered as required by law, the holder of the
evidence of the indebtedness, if it is a single instrument, or a duly
authorized agent or attorney of such holder shall within 60 days:
(1) Discharge and release of record such documents
and forward the cancelled documents to the
grantor, trustor or mortgagor; or,
(2) Alternatively, the holder of the evidence of the
indebtedness or a duly authorized agent or attorney
of such holder, at the request of the grantor, trustor
or mortgagor, shall forward said instrument and the
deed of trust or mortgage instrument, with payment
and satisfaction acknowledged in accordance with
the requirements of G.S. 45-37, to the grantor,
trustor or mortgagor.
(b) Any person, institution or agent who fails to comply with
this section may be required to pay a civil penalty of not more than
one thousand dollars ($1,000) in addition to reasonable attorneys'
fees and any other damages awarded by the court to the grantor,
trustor or mortgagor, or to a subsequent purchaser of the property
NC General Statutes - Chapter 45 Article 4

from the grantor, trustor or mortgagor. A five hundred dollar
($500.00) civil penalty may be recovered by the grantor, trustor or
mortgagor, and a five hundred dollar ($500.00) penalty may be
recovered by the purchaser of the property from the grantor, trustor
or mortgagor. If that purchaser of the property consists of more than
a single grantee, then the civil penalty will be divided equally among
all of the grantees. A petitioner may recover damages under this
section only if he has given the mortgagee, obligee, beneficiary or
other responsible party written notice of his intention to bring an
action pursuant to this section. Upon receipt of this notice, the
mortgagee, obligee, beneficiary or other responsible party shall have
30 days, in addition to the initial 60-day period, to fulfill the
requirements of this section.
(c) Should any person, institution or agent who is not the
present holder of the evidence of indebtedness be required to pay a
civil penalty, attorneys' fees, or other damages under this section,
they will have an action against the holder of the evidence of
indebtedness for all sums they were required to pay.
(d) This section applies only if the provisions of the deed of
trust, mortgage, or other instrument are satisfied before October 1,
2005. (1979, c. 681, s. 1; 1987, c. 662, ss. 1-3; 2005-123, s. 1.)
§ 45-36.4. Definitions.
As used in this Article, the following terms mean:
(1) Address for giving a notification. – For the purpose
of a particular type of notification, the most recent
address provided in a document by the intended
recipient of the notification to the person giving the
notification, unless the person giving the
notification knows of a more accurate address, in
which case the term means that address.
(2) Day. – Calendar day.

(3) Document. – Information that is inscribed on a
tangible medium or that is stored in an electronic or
other medium and is retrievable in perceivable
form.
(4) Electronic. – Relating to technology having
electrical, digital, magnetic, wireless, optical,
electromagnetic, or similar capabilities.
(5) Entitled person. – A person liable for payment or
performance of the obligation secured by the real
property described in a security instrument, or the
landowner.
(6) Good faith. – Honesty in fact and the observance of
reasonable commercial standards of fair dealing.
(7) Landowner. – A person that, before foreclosure,
has the right of redemption in the real property
described in a security instrument. The term does
not include a person that holds only a lien on the
real property.
(8) Notification. – A document containing information
required under this Article and signed by the
person required to provide the information.
(9) Original parties. – With respect to a security
instrument, each person named as a party to the
security instrument on the face thereof as originally
recorded. In identifying the original parties to a
deed of trust for purposes of this Article, it is not
necessary to include the original trustee or trustees
named therein.
(10) Payoff amount. – The sum necessary to satisfy a
secured obligation.
(11) Payoff statement. – A document containing the
information specified in G.S. 45-36.7(d).

(12) Person. – An individual, corporation, business
trust, estate, trust, partnership, limited liability
company, association, joint venture, public
corporation, government, or governmental
subdivision, agency, or instrumentality, or any
other legal or commercial entity.
(13) Recording data. – The book and page number or
document number that indicates where a document
is recorded in the office of the register of deeds.
(14) Register of deeds. – Includes the register of deeds,
assistant register of deeds, or deputy register of
deeds.
(15) Satisfy. – With respect to a security instrument, to
terminate the effectiveness of the security
instrument.
(16) Secured creditor. – A person that holds or is the
beneficiary of a security interest or that is
authorized both to receive payments on behalf of a
person that holds a security interest and to record a
satisfaction of the security instrument upon
receiving full performance of the secured
obligation. The term does not include a trustee
under a security instrument.
(17) Secured obligation. – An obligation the payment or
performance of which is secured by a security
interest.
(18) Security instrument. – An agreement, however
denominated, that creates or provides for an
interest in real property to secure payment or
performance of an obligation, whether or not it also
creates or provides for a lien on personal property.
The term includes a deed of trust and a mortgage.

(19) Security interest. – An interest in real property
created by a security instrument.
(20) Sign. – With present intent to authenticate or adopt
a document:
a. To execute or adopt a tangible symbol; or
b. To attach to or logically associate with the
document an electronic sound, symbol, or
process.
(21) State. – A state of the United States, the District of
Columbia, Puerto Rico, the United States Virgin
Islands, or any territory or insular possession
subject to the jurisdiction of the United States.
(22) Submit for recording. – To deliver, with required
fees and taxes, a document sufficient to be recorded
under this Article to the register of deeds in the
county in which the real property described in the
related security instrument is located. (2005-123, s.
1.)
§ 45-36.5. Notification: manner of giving and effective date.

(a) A person gives a notification by any of the following:
(1) Depositing it with the United States Postal Service
with first-class postage paid or with a commercially
reasonable delivery service with cost of delivery
provided, properly addressed to the recipient's
address for giving a notification.
(2) Sending it by facsimile transmission, electronic
mail, or other electronic transmission to the
recipient's address for giving a notification, but
only if the recipient agreed to receive notification
in that manner.
(3) Causing it to be received at the address for giving a
notification within the time that it would have been

received if given pursuant to subdivision (1) of this
subsection.
(b) A notification is effective on any of the following:
(1) The day after it is deposited with a commercially
reasonable delivery service for overnight delivery.
(2) Three days after it is deposited with the United
States Postal Service, first-class mail with postage
prepaid, or with a commercially reasonable
delivery service for delivery other than by
overnight delivery.
(3) The day it is given, if given pursuant to subdivision
(a)(2) of this section.
(4) The day it is received, if given by a method other
than as provided in subdivision (a)(1) or (a)(2) of
this section.
(c) If this Article or a notification given pursuant to this
Article requires performance on or by a certain day and that day is a
Saturday, Sunday, or legal holiday under the laws of this State or the
United States, the performance is sufficient if performed on the next
day that is not a Saturday, Sunday, or legal holiday. (2005-123, s. 1.)
§ 45-36.6. Document of rescission: effect; liability for wrongful

recording.
(a) In this section, "document of rescission" means a
document stating that an identified satisfaction or affidavit of
satisfaction of a security instrument was recorded erroneously or that
a security instrument was satisfied of record erroneously, the secured
obligation remains unsatisfied, and the security instrument remains
in force.
(b) If a person records a satisfaction or affidavit of
satisfaction of a security instrument in error or if a security
instrument is satisfied of record erroneously by any other means, the
person or the secured creditor may execute and record a document of

rescission. Upon recording, the document rescinds an erroneously
recorded satisfaction or affidavit and the erroneous satisfaction of
record of the security instrument and reinstates the security
instrument.
(c) A recorded document of rescission has no effect on the
rights of a person that:
(1) Records an interest in the real property described in
a security instrument after the recording of the
satisfaction or affidavit of satisfaction of the
security instrument or the erroneous satisfaction of
record of the security instrument by other means
and before the recording of the document of
rescission; and
(2) Would otherwise have priority over or take free of
the lien created by the security instrument as
reinstated under Chapter 47 of the General Statutes.
(d) A person that erroneously or wrongfully records a
document of rescission is liable to any person injured thereby for the
actual loss caused by the recording and reasonable attorneys' fees
and costs. (2005-123, s. 1.)
§ 45-36.7. Payoff statement: request and content.

(a) An entitled person, or an agent authorized by an entitled
person to request a payoff statement, may give to the secured
creditor a notification requesting a payoff statement for a specified
payoff date not more than 30 days after the notification is given. The
notification must contain all of the following:
(1) The entitled person's name.
(2) If given by a person other than an entitled person,
the name of the person giving the notification and a
statement that the person is an authorized agent of
the entitled person.

(3) A direction whether the statement is to be sent to
the entitled person or that person's authorized
agent.
(4) The address to which the creditor must send the
statement.
(5) Sufficient information to enable the creditor to
identify the secured obligation and the real property
encumbered by the security interest.
(b) If a notification under subsection (a) of this section directs
the secured creditor to send the payoff statement to a person
identified as an authorized agent of the entitled person, the secured
creditor must send the statement to the agent, unless the secured
creditor knows that the entitled person has not authorized the
request.
(c) A person who gives to a secured creditor a notification
requesting a payoff statement thereby represents that the person is an
entitled person or the authorized agent of an entitled person. A
secured creditor may rely on that representation in providing a
payoff statement unless the secured creditor knows that the
requesting person is neither an entitled person nor the authorized
agent of an entitled person. A secured creditor has no duty to make
inquiry as to whether, or to verify that, the person requesting a
payoff statement is an entitled person or the authorized agent of an
entitled person.
(d) Within 10 days after the effective date of a notification
that complies with subsection (a) of this section, the secured creditor
shall issue a payoff statement and send it as directed pursuant to
subdivision (a)(3) of this section in the manner prescribed in G.S.
45-36.5 for giving a notification. A secured creditor that sends a
payoff statement to the entitled person or the authorized agent may
not claim that the notification did not satisfy subsection (a) of this
section. If the person to whom the notification is given once held an
interest in the secured obligation but has since assigned that interest,

the person need not send a payoff statement but shall give (i) a
notification of the assignment to the person to whom the payoff
statement otherwise would have been sent, providing the name and
address of the assignee, or (ii) a notification to the person to whom
the payoff statement otherwise would have been sent, stating that the
recipient claims no interest in the security instrument or the secured
obligation, that the secured obligation was assigned, but that the
identity and address of the assignee is not known.
(e) A payoff statement must contain:
(1) The date on which it was prepared and the payoff
amount as of that date, including the amount by
type of each fee, charge, or other sum included
within the payoff amount;
(2) The information reasonably necessary to calculate
the payoff amount as of the requested payoff date,
including the per diem interest amount; and
(3) The payment cutoff time, if any, the address or
place where payment must be made, and any
limitation as to the authorized method of payment.
(f) A payoff statement may contain the amount of any fees
authorized under this section not included in the payoff amount. A
secured creditor may require the payment in full of any fees
authorized under this section before issuing a payoff statement.
(g) A secured creditor may not qualify a payoff amount or
state that it is subject to change before the payoff date unless the
payoff statement provides information sufficient to permit the
entitled person or the person's authorized agent to request an updated
payoff amount at no charge and to obtain that updated payoff
amount during the secured creditor's normal business hours on the
payoff date or the immediately preceding business day.
(h) A secured creditor must provide upon request one payoff
statement without charge during any six-month period. A secured
creditor may charge a fee of twenty-five dollars ($25.00) for each

additional payoff statement requested during that six-month period.
However, a secured creditor may not charge a fee for providing an
updated payoff amount under subsection (f) of this section or a
corrected payoff statement under G.S. 45-36.8(a).
(i) Unless the security instrument provides otherwise, a
secured creditor is not required to send a payoff statement by means
other than first-class mail. If the creditor agrees to send a statement
by another means, it may charge a reasonable fee for complying with
the requested manner of delivery.
(j) Except as otherwise provided in G.S. 45-36.12, if a
secured creditor to which a notification has been given pursuant to
subsection (a) of this section does not send a timely payoff statement
that substantially complies with subsection (d) of this section, the
creditor is liable to the entitled person for any actual damages caused
by the failure, but not punitive damages. A creditor that does not pay
the damages provided in this subsection within 30 days after receipt
of a notification demanding payment shall also be liable for
reasonable attorneys' fees and costs.
(k) This section does not apply unless the notification
requesting a payoff statement is given on or after October 1, 2005.
(2005-123, s. 1.)
§ 45-36.8. Understated payoff statement: correction; effect.

(a) If a secured creditor determines that the payoff amount it
provided in a payoff statement was understated, the creditor may
send a corrected payoff statement. If the entitled person or the
person's authorized agent receives and has a reasonable opportunity
to act upon a corrected payoff statement before making payment, the
corrected statement supersedes an earlier statement.
(b) A secured creditor that sends a payoff statement
containing an understated payoff amount may not deny the accuracy
of the payoff amount as against any person that reasonably and
detrimentally relies upon the understated payoff amount.

(c) This Article does not:
(1) Affect the right of a secured creditor to recover any
sum that it did not include in a payoff amount from
any person liable for payment of the secured
obligation; or
(2) Limit any claim or defense that a person liable for
payment of a secured obligation may have under
law other than this Article. (2005-123, s. 1.)
§ 45-36.9. Secured creditor to submit satisfaction for recording;

liability for failure.
(a) A secured creditor shall submit for recording a satisfaction
of a security instrument within 30 days after the creditor receives full
payment or performance of the secured obligation. If a security
instrument secures a line of credit or future advances, the secured
obligation is fully performed only if, in addition to full payment, the
secured creditor has received a notification requesting the creditor to
terminate the line of credit or containing a statement sufficient to
terminate the effectiveness of the provision for future advances in
the security instrument.
(b) Except as otherwise provided in G.S. 45-36.12, a secured
creditor that is required to submit a satisfaction of a security
instrument for recording and does not do so by the end of the period
specified in subsection (a) of this section is liable to the landowner
for any actual damages caused by the failure, but not punitive
damages.
(c) Except as otherwise provided in subsection (d) of this
section and in G.S. 45-36.12, a secured creditor that is required to
submit a satisfaction of a security instrument for recording and does
not do so by the end of the period specified in subsection (a) of this
section is also liable to the landowner for one thousand dollars
($1,000) and any reasonable attorneys' fees and court costs incurred

if, after the expiration of the period specified in subsection (a) of this
section, all of the following occur:
(1) The landowner gives the secured creditor a
notification, by any method authorized by G.S.
45-36.5 that provides proof of receipt, demanding
that the secured creditor submit a satisfaction for
recording.
(2) The secured creditor does not submit a satisfaction
for recording within 30 days after the secured
creditor's receipt of the notification.
(3) The security instrument is not satisfied of record by
any of the methods provided in G.S. 45-37(a)
within 30 days after the secured creditor's receipt of
the notification.
The right to receive the additional one thousand dollars ($1,000) is
personal to the landowner who gives the secured creditor notification
under this subsection and may not be assigned.
(d) Subsection (c) of this section does not apply if the secured
creditor received full payment or performance of the secured
obligation before October 1, 2005.
(e) This section does not apply if the security instrument is
satisfied of record by any of the methods provided in G.S. 45-37(a)
within 30 days after the secured creditor receives full payment or
performance of the secured obligation. (2005-123, s. 1.)
§ 45-36.10. Content and effect of satisfaction.

(a) A document is a satisfaction of a security instrument if it
does all of the following:
(1) Identifies the type of security instrument, the
original parties to the security instrument, the
recording data for the security instrument, and the
office in which the security instrument is recorded.

(2) States that the person signing the satisfaction is the
secured creditor.
(3) Reserved.
(4) Contains language terminating the effectiveness of
(5) Is signed by the secured creditor and acknowledged
as required by law for a conveyance of an interest
in real property.
(b) The register of deeds shall accept for recording a
satisfaction of a security instrument, unless one of the following
applies:
(1) The document is submitted by a method or in a
medium not authorized for registration by the
register of deeds under applicable law.
(2) The document is not signed by the secured creditor
and acknowledged as required by law for a
conveyance of an interest in real property. The
register of deeds shall not be required to verify or
make inquiry concerning (i) the truth of the matters
stated in any satisfaction document, or (ii) the
authority of the person executing any satisfaction
document to do so.
(c) The recording of a satisfaction of a security instrument
does not by itself extinguish any liability of a person for payment or
performance of the secured obligation. (2005-123, s. 1.)
§ 45-36.11. Satisfaction: form.

No particular phrasing is required for a satisfaction of a security
instrument. The following form, when properly completed, is
sufficient to satisfy the requirements of G.S. 45-36.10(a):
"SATISFACTION OF SECURITY INSTRUMENT

(G.S. 45-36.10; G.S. 45-37(a)(7))
The undersigned is now the secured creditor in the security

instrument identified as follows:
Type of Security Instrument: (identify type of security
instrument, such as deed of trust or mortgage)
Original Grantor(s): (Identify original grantor(s), trustor(s), or
mortgagor(s))
Original Secured Party(ies): (Identify the original
beneficiary(ies), mortgagee(s), or secured party(ies) in the security
instrument)
Recording Data: The security instrument is recorded in Book
____ at Page ____ or as document number ________ in the office of
the Register of Deeds for ____________ County, North Carolina.
This satisfaction terminates the effectiveness of the security
instrument.
Date: ______________
_____________________________
(Signature of
secured creditor)
[Acknowledgment before officer authorized to take

acknowledgments]".
(2005-123, s. 1.)
§ 45-36.12. Limitation of secured creditor's liability.

A secured creditor is not liable under this Article if it:
(1) Established a reasonable procedure to achieve
compliance with its obligations under this Article;
(2) Complied with that procedure in good faith; and
(3) Was unable to comply with its obligations because
of circumstances beyond its control. (2005-123, s.
1.)

§ 45-36.13. Eligibility to serve as satisfaction agent.
No person other than an attorney licensed to practice law in the
State of North Carolina may serve as a satisfaction agent under this
Article. (2005-123, s. 1.)
§ 45-36.14. Affidavit of satisfaction: notification to secured

creditor.
(a) If a secured creditor has not submitted for recording a
satisfaction of a security instrument and the security instrument has
not been satisfied of record by any of the methods provided by G.S.
45-37(a) within the period specified in G.S. 45-36.9(a), a satisfaction
agent acting for and with authority from the landowner may give the
secured creditor a notification that the satisfaction agent intends to
submit for recording an affidavit of satisfaction of the security
instrument. The notification must include all of the following:
(1) The identity and mailing address of the satisfaction
agent.
(2) Identification of the security instrument for which a
recorded satisfaction is sought, including the names
of the original parties to, and the recording data for,
(3) A statement that the satisfaction agent has
reasonable grounds to believe that:
a. The person to whom the notification is being
given is the secured creditor; and
b. The secured creditor has received full
payment or performance of the secured
obligation.
(4) A statement that the security instrument has not
been satisfied of record.
(5) A statement that the satisfaction agent, acting with
the authorization of the owner of the real property

described in the security instrument, intends to sign
and submit for recording an affidavit of satisfaction
of the security instrument unless, within 30 days
after the effective date of the notification:
a. The secured creditor submits a satisfaction
of the security instrument for recording;
b. The satisfaction agent receives from the
secured creditor a notification stating that
the secured obligation remains unsatisfied;
c. The satisfaction agent receives from the
secured creditor a notification stating that
the secured creditor has assigned the
security instrument and identifying the name
and address of the assignee; or
d. The security instrument is satisfied of record
by any of the methods provided in G.S.
45-37(a).
(b) A notification under subsection (a) of this section must be
sent by a method authorized by G.S. 45-36.5 that provides proof of
receipt to the secured creditor's address for giving a notification for
the purpose of requesting a payoff statement or, if the satisfaction
agent cannot ascertain that address, to the secured creditor's address
for notification for any other purpose.
(c) This Article does not require a person to agree to serve as
a satisfaction agent. (2005-123, s. 1.)
§ 45-36.15. Affidavit of satisfaction: authorization to submit for

recording.
(a) Subject to subsections (b) and (c) of this section, a
satisfaction agent may sign and submit for recording an affidavit of
satisfaction of a security instrument complying with G.S. 45-36.16
if:

(1) The secured creditor has not, to the knowledge of
the satisfaction agent, submitted for recording a
satisfaction of a security instrument or otherwise
caused the security instrument to be satisfied of
record pursuant to any of the methods provided in
G.S. 45-37(a) within 30 days after the effective
date of a notification complying with G.S.
45-36.14(a); or
(2) The secured creditor authorizes the satisfaction
agent to do so.
(b) A satisfaction agent may not sign and submit for recording
an affidavit of satisfaction of a security instrument if it has received
a notification under G.S. 45-36.14(a)(5)b. stating that the secured
obligation remains unsatisfied.
(c) If a satisfaction agent receives a notification under G.S.
45-36.14(a)(5)c. stating that the security instrument has been
assigned, the satisfaction agent may not submit for recording an
affidavit of satisfaction of the security instrument without:
(1) Giving a notification of intent to submit for
recording an affidavit of satisfaction to the
identified assignee at the identified address; and
(2) Complying with G.S. 45-36.14 with respect to the
identified assignee. (2005-123, s. 1.)
§ 45-36.16. Affidavit of satisfaction: content.

An affidavit of satisfaction of a security instrument must comply
with all of the following:
(1) Identify the type of security instrument, the original
parties to the security instrument, the secured
creditor, the recording data for the security
instrument, and the office in which the security
instrument is recorded.

(2) State the basis upon which the person signing the
affidavit is a satisfaction agent.
(3) Reserved.
(4) State that the person signing the affidavit has
reasonable grounds to believe that the secured
creditor has received full payment or performance
of the secured obligation.
(5) State that the person signing the affidavit, acting
with the authority of the owner of the real property
described in the security instrument, gave
notification to the secured creditor of its intention
to sign and submit for recording an affidavit of
satisfaction.
(6) Describe the method by which the person signing
the affidavit gave notification in compliance with
this Article.
(7) State that:
a. More than 30 days have elapsed since the
effective date of that notification, and the
person signing the affidavit has no
knowledge that the secured creditor has
submitted a satisfaction for recording and
has not received a notification that the
secured obligation remains unsatisfied; or
b. The secured creditor authorized the person
signing the affidavit to sign and record an
affidavit of satisfaction.
(8) Be signed and acknowledged as required by law for
a conveyance of an interest in real property.
(2005-123, s. 1.)
§ 45-36.17. Affidavit of satisfaction: form.

No particular phrasing of an affidavit of satisfaction is required.
The following form of affidavit, when properly completed, is
sufficient to satisfy the requirements of G.S. 45-36.16:
"AFFIDAVIT OF SATISFACTION
_________________
(Date of Affidavit)
The undersigned hereby states as follows:
1. I am an attorney licensed to practice law in the State of
North Carolina.
2. I am signing this Affidavit of Satisfaction to evidence full
payment or performance of the obligations secured by real property
covered by the following security instrument (the "security
instrument") currently held by ______ (the "secured creditor"):
Type of security instrument:
Original parties to security instrument:
County and state of recording:
Recording data for security instrument:
3. I have reasonable grounds to believe that the secured

creditor has received full payment or performance of the balance of
the obligations secured by the security instrument.
4. With the authorization of the owner of the real property
described in the security instrument, I gave notification to the
secured creditor by method authorized by G.S. 45-36.5 that provides
proof of receipt that I would sign and record an affidavit of
satisfaction of the security instrument if, within 30 days after the
effective date of the notification, the secured creditor did not submit
a satisfaction of the security interest for recording or give
notification that the secured obligation remains unsatisfied.

5. [Check appropriate box]
[ ] The 30-day period identified in paragraph 4 has
elapsed, I have no knowledge that the secured creditor has submitted
a satisfaction for recording, and I have not received notification that
the secured obligation remains unsatisfied.
[ ] The secured creditor responded to the notification in

paragraph 4 by authorizing me to execute and record this Affidavit
of Satisfaction.
____________________________
(Signature of Satisfaction Agent)
acknowledgments]"
(2005-123, s. 1.)
§ 45-36.18. Affidavit of satisfaction: effect.

(a) Upon recording, an affidavit substantially complying with
the requirements of G.S. 45-36.16 constitutes a satisfaction of the
security instrument described in the affidavit.
(b) The recording of an affidavit of satisfaction of a security
instrument does not by itself extinguish any liability of a person for
payment or performance of the secured obligation.
(c) The register of deeds may not refuse to accept for
recording an affidavit of satisfaction of a security instrument unless:
(1) The affidavit is submitted by a method or in a
medium not authorized for registration by the
register of deeds under applicable law; or
(2) The affidavit is not signed by the satisfaction agent
and acknowledged as required by law for a
conveyance of an interest in real property. The
register of deeds shall not be required to verify or
make inquiry concerning (i) the truth of the matters

stated in any affidavit of satisfaction, or (ii) the
authority of the person executing any affidavit of
satisfaction to do so. (2005-123, s. 1.)
§ 45-36.19. Liability of satisfaction agent.

(a) Except as otherwise provided in subsection (b) of this
section, a satisfaction agent or any person purporting to be a
satisfaction agent that records or submits for recording an affidavit
of satisfaction of a security instrument erroneously or with
knowledge that the statements contained in the affidavit are false is
liable to the secured creditor for any actual damages caused by the
recording and reasonable attorneys' fees and costs.
(b) A satisfaction agent that records or submits for recording
an affidavit of satisfaction of a security instrument erroneously is not
liable if the agent properly complied with this Article and the
secured creditor did not respond in a timely manner to the
notification pursuant to G.S. 45-36.14(a)(5).
(c) If a satisfaction agent or any person purporting to be a
satisfaction agent records or submits for recording an affidavit of
satisfaction of a security instrument with knowledge that the
statements contained in the affidavit are false, this section does not
preclude any of the following:
(1) A court from awarding punitive damages on
account of the conduct.
(2) The secured creditor from proceeding against the
satisfaction agent or person purporting to be a
satisfaction agent under law of this State other than
this Article.
(3) The enforcement of any criminal statute prohibiting
the conduct. (2005-123, s. 1.)
§ 45-36.20. Trustee's satisfaction of deed of trust: content and

effect.

(a) Upon recording, a trustee's satisfaction substantially
complying with the requirements of this section constitutes a
satisfaction of the deed of trust described in the trustee's satisfaction.
(b) The recording of a trustee's satisfaction does not by itself
extinguish any liability of a person for payment or performance of
the secured obligation.
(c) This section applies only if the security instrument is a
deed of trust. This section is not exclusive. Deeds of trust may also
be satisfied of record by methods other than the filing of a trustee's
satisfaction.
(d) Document is a trustee's satisfaction of a deed of trust if it
complies with all of the following:
(1) Identifies the original parties to the deed of trust,
the recording data for the deed of trust, and the
office in which the deed of trust is recorded.
(2) States that the person signing the trustee's
satisfaction is then serving as trustee or substitute
trustee under the terms of the deed of trust.
(3) Contains language terminating the effectiveness of
the deed of trust.
(4) Is signed by the trustee or substitute trustee then
serving under the terms of the deed of trust and
acknowledged as required by law for a conveyance
of an interest in real property.
(e) The register of deeds shall accept for recording a trustee's
satisfaction of a deed of trust, unless:
(1) The trustee's satisfaction is submitted by a method
or in a medium not authorized for registration by
the register of deeds under applicable law; or
(2) The trustee's satisfaction is not signed by the
trustee or substitute trustee and acknowledged as
required by law for a conveyance of an interest in
real property. The register of deeds shall not be

required to verify or make inquiry concerning (i)
the truth of the matters stated in any trustee's
satisfaction, or (ii) the authority of the person
executing any trustee's satisfaction to do so.
(2005-123, s. 1.)
§ 45-36.21. Trustee's satisfaction of deed of trust: form.

No particular phrasing is required for a trustee's satisfaction of a
deed of trust. The following form, when properly completed, is
sufficient to satisfy the requirements of G.S. 45-36.20:
"TRUSTEE'S SATISFACTION OF DEED OF TRUST

(G.S. 45-36.20; G.S. 45-37(a)(7))
The undersigned is now serving as the trustee or substitute trustee

under the terms of the deed of trust identified as follows:
Original Grantor(s): (Identify original grantor(s) or
trustor(s))
Original Secured Party(ies): (Identify the original

beneficiary(ies) or secured party(ies) in the deed of trust)
Recording Data: The deed of trust is recorded in Book

____ at Page ____ or as document number ________ in the office of
the Register of Deeds for __________ County, North Carolina.
This satisfaction terminates the effectiveness of the deed of trust.
Date:______________
_________________________________
(Signature of trustee or
substitute trustee)

acknowledgments]"
(2005-123, s. 1.)
§ 45-37. Satisfaction of record of security instruments.

(a) Subject to the provisions of G.S. 45-36.9(a) and G.S.
45-73 relating to security instruments which secure future advances,
any security instrument intended to secure the payment of money or
the performance of any other obligation registered as required by
law may be satisfied of record and thereby discharged and released
of record in the following manner:
(1) Security instruments satisfied of record pursuant to
this subdivision as it was in effect prior to October
1, 2005, shall be deemed satisfied of record,
discharged, and released.
(2) By presentation of any original security instrument
accompanied with the original bond, note, or other
instrument thereby secured to the register of deeds,
with the endorsement of payment and satisfaction
appearing thereon and made by:
a. The secured creditor,
b. The trustee or substitute trustee, if the
security instrument is a deed of trust,
c. An assignee of the secured creditor, or
d. Any bank, savings and loan association,
savings bank, or credit union chartered
under the laws of this or any other state or
the United States having an office or branch
in the State of North Carolina, when so
endorsed in the name of the institution by an
officer thereof.

The register of deeds is not required to verify or
make inquiry concerning the authority of the
person making the endorsement of payment and
satisfaction to do so. Only upon presentation of the
original instruments with endorsement of payment
and satisfaction appearing thereon shall the register
of deeds record a record of satisfaction as described
in G.S. 45-37.2(b). The person so claiming
satisfaction, performance or discharge of the debt
or other obligation may retain possession of all of
the instruments presented. The presentation of the
security instrument alone to the register of deeds,
with endorsement of payment, satisfaction,
performance or discharge, shall be sufficient if the
security instrument itself sets forth the obligation
secured or the performance of any other obligation
and does not call for or recite any note, bond or
other instrument secured by it.
(3) By presentation to the register of deeds by:
a. The grantor,
b. The mortgagor, or
c. An agent, attorney or successor in title of the
grantor or mortgagor
of any original security instrument intended to
secure the payment of money or the performance of
any other obligation, together with the original
bond, note or other instrument secured thereby, or
by presentation of the original security instrument
alone if such instrument itself sets forth the
obligation secured or other obligation to be
performed and does not call for or recite any note,
bond or other instrument secured by it, if at the
time of presentation, all such instruments are more

than 10 years old counting from the maturity date
of the last obligation secured. If the instrument or
instruments so presented have an endorsement of
partial payment, satisfaction, performance or
discharge within the said period of 10 years, the
period of 10 years shall be counted from the date of
the most recent endorsement.
Only upon presentation of the original
instruments shall the register of deeds record a
record of satisfaction as described in G.S.
45-37.2(b).
(4) By presentation to the register of deeds of any
original security instrument given to secure the
bearer or holder of any negotiable instruments
transferable by delivery, together with all the
evidences of indebtedness secured thereby, marked
paid and satisfied in full and signed by the bearer
or holder thereof.
Only upon presentation of the original security
instruments, and the originals of evidences of
indebtedness properly marked shall the register of
deeds record a record of satisfaction as described in
G.S. 45-37.2(b), which record of satisfaction shall
be valid and binding upon all persons, if no person
rightfully entitled to the security instrument or
evidences of indebtedness has previously notified
the register of deeds by means of a written affidavit
of the loss or theft of the security instrument or
evidences of indebtedness and has caused the
register of deeds to record the affidavit of loss or
theft as a separate document, as required by G.S.
161-14.1.

Upon receipt of an affidavit of loss or theft of
the security instrument or evidences of
indebtedness that identify the security instrument,
the original parties to the security instrument, and
the recording data for the security instrument, the
register of deeds shall record a record of
satisfaction, as described in G.S. 45-37.2(b). The
security instrument shall not be presented for
satisfaction after such recording of a record of
satisfaction or marginal entry until the ownership
of said instrument shall have been lawfully
determined. Nothing in this subdivision (4) shall be
construed to impair the negotiability of any
instrument otherwise properly negotiable, nor to
impair the rights of any innocent purchaser for
value thereof.
(7) By recording:
a. A satisfaction document that satisfies the
requirements of G.S. 45-36.10,
b. An affidavit of satisfaction that satisfies the
requirements of G.S. 45-36.16, or
c. A trustee's satisfaction that satisfies the
requirements of G.S. 45-36.20, but only if
the security instrument is a deed of trust.

The register of deeds shall not be required to verify
or make inquiry concerning (i) the truth of the
matters stated in any satisfaction document,
affidavit of satisfaction, or trustee's satisfaction, or
(ii) the authority of the person executing any
satisfaction document, affidavit, or trustee's
satisfaction to do so.
(b) It shall be conclusively presumed that the conditions of
any security instrument securing the payment of money or securing
the performance of any other obligation or obligations have been
complied with or the debts secured thereby paid or obligations
performed, as against creditors or purchasers for valuable
consideration from the mortgagor or grantor, from and after the
expiration of 15 years from whichever of the following occurs last:
(1) The date when the conditions of the security
instrument were required by its terms to have been
performed, or
(2) The date of maturity of the last installment of debt
or interest secured thereby;
provided that the holder of the indebtedness secured by the security
instrument or party secured by any provision thereof may file an
affidavit with the register of deeds which affidavit shall specifically
state:
(1) The amount of debt unpaid, which is secured by the
security instrument; or
(2) In what respect any other condition thereof shall
not have been complied with; or
may record a separate instrument signed by the secured creditor and
witnessed by the register of deeds stating:
(1) Any payments that have been made on the
indebtedness or other obligation secured by the
security instrument including the date and amount
of payments and

(2) The amount still due or obligations not performed
under the security instrument.
The effect of the filing of the affidavit or the recording of a separate
instrument made as herein provided shall be to postpone the
effective date of the conclusive presumption of satisfaction to a date
15 years from the filing of the affidavit or from the recording of the
separate instrument. There shall be only one postponement of the
effective date of the conclusive presumption provided for herein.
The register of deeds shall record and index the affidavit provided
for herein or the separate instrument made as herein provided as a
subsequent instrument in accordance with G.S. 161-14.1. This
subsection shall not apply to any security instrument made or given
by any railroad company, or to any agreement of conditional sale,
equipment trust agreement, lease, chattel mortgage or other
instrument relating to the sale, purchase or lease of railroad
equipment or rolling stock, or of other personal property.
(c) Repealed by Session Laws 1991, c. 114, s. 4.
(d) Repealed by Session Laws 2005-123, s. 1.
(e) Any transaction subject to the provisions of the Uniform
Commercial Code, Chapter 25 of the General Statutes, is controlled
by the provisions of that act and not by this section.
(f) Whenever this section requires a signature or
endorsement, that signature or endorsement shall be followed by the
name of the person signing or endorsing the document printed,
stamped, or typed so as to be clearly legible.
(g) The satisfaction of record of a security instrument
pursuant to this section shall operate and have the same effect as a
duly executed and recorded deed of release or reconveyance of the
property described in the security instrument and shall release and
discharge (i) all the interest of the secured creditor in the real
property arising from the security instrument and, (ii) if the security
instrument is a deed of trust, all the interest of the trustee or
substitute trustee in the real property arising from the deed of trust.

(1870-1, c. 217; Code, s. 1271; 1891, c. 180; 1893, c. 36; 1901, c.
46; Rev., s. 1046; 1917, c. 49, s. 1; c. 50, s. 1; C.S., s. 2594; 1923, c.
192, s. 1; c. 195; 1935, c. 47; 1945, c. 988; 1947, c. 880; 1951, c.
292, s. 1; 1967, c. 765, ss. 1-5; 1969, c. 746; 1975, c. 305; 1985, c.
219; 1987, c. 405, s. 1; c. 620, s. 1; 1989, c. 434, s. 1; 1991, c. 114,
s. 4; 1995, c. 292, ss. 1, 2, 5; 1995 (Reg. Sess., 1996), c. 604, s. 1;
2005-123, s. 1.)
§ 45-37.1. Validation of certain entries of cancellation made by

beneficiary or assignee instead of trustee.
In all cases where, prior to January 1, 1930, it appears from the
margin or face of the record in the office of the register of deeds of
any county in this State that the original beneficiary named in any
deed of trust, trust indenture, or other instrument intended to secure
the payment of money and constituting a lien on real estate, or his
assignee of record, shall have made an entry purporting to fully
satisfy and discharge the lien of such instrument, and such entry has
been signed by the original payee and beneficiary in said deed of
trust, or other security instrument, or by his assignee of record, or by
his or their properly constituted officer, agent, attorney, or legal
representatives, and has been duly witnessed by the register of deeds
or his deputy, all such entries of cancellation and satisfaction are
hereby validated and made full, sufficient and complete to release,
satisfy and discharge the lien of such instrument, and shall have the
same effect as if such entry had been made and signed by the trustee
named in said deed of trust, or other security instrument, or by his
duly appointed successor or substitute. (1945, c. 986.)
§ 45-37.2. Recording satisfactions of security instruments.

(a) When a satisfaction document, affidavit of satisfaction, or
trustee's satisfaction is recorded pursuant to G.S. 45-37(a)(7), the
register of deeds shall record and index the instrument in accordance
with G.S. 161-14.1. No fee shall be charged by the register of deeds

for recording a satisfaction document, affidavit of satisfaction, or a
trustee's satisfaction.
(b) When a security instrument is satisfied of record by a
method other than by means of recording a satisfaction document,
satisfaction affidavit, or trustee's satisfaction pursuant to G.S.
45-37(a)(7), the register of deeds shall record and index in
accordance with G.S. 161.14.1 a record of satisfaction as provided
for in this subsection. If the security instrument is being satisfied of
record pursuant to G.S. 45-37(a)(2), the record of satisfaction may
consist of either (i) all or a portion of the original security instrument
rerecorded as described in subdivision (1) of this subsection or (ii) a
separate instrument as described in subdivision (2) of this
subsection. In all other cases, the record of satisfaction shall consist
of a separate instrument as described in subdivision (2) of this
subsection. No fee shall be charged by the register of deeds for
recording a record of satisfaction.
(1) If the security instrument is being satisfied of
record pursuant to G.S. 45-37(a)(2), all or a portion
of the security instrument rerecorded is a sufficient
record of satisfaction if it identifies the security
instrument, the original parties to the security
instrument, and the recording data for the security
instrument as originally recorded. In addition, the
rerecorded security instrument must contain either
(i) an endorsement of payment and satisfaction
made by a person authorized under G.S.
45-37(a)(2) to make such an endorsement, or (ii) an
endorsement signed by the register of deeds that
states substantially the following: "This security
instrument is satisfied of record pursuant to G.S.
45-37(a)(2), the original security instrument and
secured obligations having been presented to me

with appropriate endorsement of payment and
satisfaction appearing thereon as required by law."
(2) A separate instrument is a sufficient record of
satisfaction if it complies with all of the following:
a. Identifies the security instrument, the
original parties to the security instrument,
the recording data for the security
instrument, and the office in which the
security instrument is recorded.
b. States the statutory authority pursuant to
which the security instrument is being
satisfied of record.
c. Contains language terminating the
effectiveness of the security instrument.
d. Is signed by the register of deeds.
No particular phrasing is required for a record of satisfaction.
The following form, when properly completed, is sufficient to satisfy
the requirements of this subdivision:
"RECORD OF SATISFACTION
(G.S. 45-37.2)
This Record of Satisfaction applies to the following

security instrument:
Type of Security Instrument: (Identify type

of security instrument, such as deed of trust
or mortgage)
Original Grantor(s): (Identify original

grantor(s), trustor(s), or mortgagor(s))

Original Secured Party(ies): (Identify the
original beneficiary(ies), mortgagee(s), or
secured party(ies) in the security instrument)
Recording Data: The security instrument is

recorded in Book ____ at Page ____ or as
document number ________ in the office of
the Register of Deeds for __________
County, North Carolina.
This Record of Satisfaction terminates the effectiveness of

the security instrument pursuant to the following statutory
authority: (check applicable box)
[] G.S. 45-37(a)(2), the original security

instrument and secured obligations having
been presented to me with appropriate
endorsement of payment and satisfaction
appearing thereon as required by law.

instrument and secured obligations having
been presented to me, each such instrument
being more than 10 years old as provided by
law.

instrument and all negotiable instruments
transferable by delivery secured thereby
having been presented to me, each having
been marked paid and satisfied in full by the
bearer or holder thereof.

Other: (specify)
Date: ______________
______________________
________
(Signature of register of
deeds)".
(1963, c. 1021, s. 1; 1967, c. 765, s. 6; 1987, c. 620, s. 2; 1991, c.
114, s. 2; 1993, c. 425, s. 3; 1995, c. 292, s. 6; 2005-123, s. 1.)
§ 45-38. Recording of foreclosure.

In case of foreclosure of any deed of trust, or mortgage, the
trustee, mortgagee, or the trustee's or mortgagee's attorney shall
record a notice of foreclosure that includes the date when, and the
person to whom, a conveyance was made by reason of the
foreclosure. In the event the entire obligation secured by a mortgage
or deed of trust is satisfied by a sale of only a part of the property
embraced within the terms of the mortgage or deed of trust, the
trustee, mortgagee, or the trustee's or mortgagee's attorney shall
indicate in the notice of foreclosure which property was sold.
A notice of foreclosure shall consist of a separate instrument, or
that part of the original deed of trust or mortgage rerecorded, reciting
the information required hereinabove, the names of the original
parties to the original instrument foreclosed, and the recording data
for the instrument foreclosed. A notice of forfeiture shall be indexed
by the register of deeds in accordance with G.S. 161.14.1. (1923, c.
192, s. 2; C.S., s. 2594(a); 1949, c. 720, s. 2; 1963, c. 1021, s. 2;
1971, c. 985; 1991, c. 114, s. 3; 1993, c. 305, s. 24; 2005-123, s. 1.)
§ 45-39: Repealed by Session Laws 1949, c. 720, s. 5.
§ 45-40: Repealed by Session Laws 2005-123, s. 1, effective

October 1, 2005.

§ 45-41. Recorded deed of release of mortgagee's representative.
The personal representative of any mortgagee or trustee in any
mortgage or deed of trust which has heretofore or which may
hereafter be registered in the manner required by the laws of this
State may satisfy of record, discharge and release the same and all
property thereby conveyed by deed of quitclaim, release or
conveyance executed, acknowledged and recorded as is now
prescribed by law for the execution, acknowledgment and
registration of deeds and mortgages in this State. (1909, c. 283, s. 1;
C.S., s. 2596; 2005-123, s. 1.)
§ 45-42. Satisfaction of corporate mortgages by corporate

officers.
All security instruments executed to a corporation may be
satisfied and so marked of record as by law provided for the
satisfaction of security instruments, by any officer of the corporation
indicating the office held. For the purposes of recordation and
satisfaction, such signature shall be deemed to be a certification by
the signer that he is an officer and is authorized to execute the
satisfaction on behalf of such corporation. Where security
instruments were marked "satisfied" on the records before the
twenty-third day of February, 1909, by any president, secretary,
treasurer or cashier of any corporation by such officer writing his
own name and affixing thereto the title of his office in such
corporation, such satisfaction is validated, and is as effective to all
intents and purposes as if a deed of release duly executed by such
corporation had been made, acknowledged and recorded. (1909, c.
283, ss. 2, 3; C.S., s. 2597; 1935, c. 271; 1963, c. 193; 1991, c. 647,
s. 6; 2005-123, s. 1.)
§ 45-42.1. Corporate cancellation of lost mortgages by register

of deeds.

Upon affidavit of the secretary and treasurer of a corporation
showing that the records of such corporation show that such
corporation has fully paid and satisfied all of the notes secured by a
security instrument executed by such corporation and such payment
and satisfaction was made more than 25 years ago, and that such
security instrument was made to a corporation which ceased to exist
more than 25 years ago, and such affidavit shall further state that the
records of such corporation show that no payments have been made
on such secured obligation by the corporation executing such
security instrument for 25 years, the register of deeds of the county
in which such security instrument is recorded is authorized to record
the affidavit. The register of deeds shall index the affidavit according
to G.S. 161-22 using the names of parties stated in the affidavit and
shall make reference to the recording data of the original security
instrument as stated in the affidavit opposite the name of each party
so indexed. Upon recording such affidavit, the said security
instrument shall be deemed to be cancelled and satisfied of record:
Provided, that this section shall not apply to any mortgagor
corporation except those in which the State of North Carolina owns
more than a majority of the capital stock and shall not apply to any
security instrument in which the principal amount secured thereby
exceeds the sum of fifteen thousand dollars ($15,000): Provided,
such cancellation shall not bar any action to foreclose such security
instrument instituted within 90 days after the same is cancelled.
(1945, c. 1090; 1991, c. 114, s. 7; 2005-123, s. 1.)

APPENDIX 22
Form of Satisfaction
APPENDIX 23
Affidavit of Satisfaction
APPENDIX 24
Trustee's Satisfaction and Deed of Release

APPENDIX 25
Foreclosure Statutes
Article 2A.
Sales under Power of Sale.
Part 1. General Provisions.
§ 45-21.1. Definitions; construction.
(a) The following definitions apply in this Article:
(1) "Resale" means a resale of real property or a resale of any leasehold
interest created by a lease of real property held pursuant to G.S.
45-21.30.
(2) "Sale" means a sale of real property or a sale of any leasehold interest
created by a lease of real property pursuant to (i) an express power of
sale contained in a mortgage, deed of trust, leasehold mortgage, or
leasehold deed of trust or (ii) a "power of sale", under this Article,
authorized by other statutory provisions.
(b) The following constructions apply in this Article:
(1) The terms "mortgage" or "deed of trust" include leasehold mortgages or
leasehold deeds of trust.
(2) The terms "mortgagee" or "trustee" include any person or entity
exercising a power of sale pursuant to this Article.
(3) The terms "real property" or "property" include any leasehold interest
created by a lease of real property. (1949, c. 720, s. 1; 1967, c. 562, s. 2;
1991, c. 255; 1993, c. 305, s. 1.)
§ 45-21.2. Article not applicable to foreclosure by court action.

This Article does not affect any right to foreclosure by action in court, and is not
applicable to any such action. (1949, c. 720, s. 1.)
§ 45-21.3. Repealed by Session Laws 1993, c. 305, s. 2.
§ 45-21.4. Place of sale of real property.

(a) Every sale of real property shall be held in the county where the property is
situated unless the property consists of a single tract situated in two or more counties.
(b) A sale of a single tract of real property situated in two or more counties may be
held in any one of the counties in which any part of the tract is situated. As used in this
section, a "single tract" means any tract which has a continuous boundary, regardless of
whether parts thereof may have been acquired at different times or from different
persons, or whether it may have been subdivided into other units or lots, or whether it is
sold as a whole or in parts.
(c) When a mortgage or deed of trust with power of sale of real property
designates the place of sale within the county, the sale shall be held at the place so
designated.
(d) When a mortgage or deed of trust with power of sale of real property confers
upon the mortgagee or trustee the right to designate the place of sale, the sale shall be
NC General Statutes - Chapter 45 Article 2A 1

held at the place designated by the notice of sale, which place shall be either on the
premises to be sold or as follows:
(1) Property situated wholly within a single county shall be sold at the
courthouse door of the county in which the land is situated.
(2) A single tract of property situated in two or more counties may be sold
at the courthouse door of any one of the counties in which some part of
the real property is situated.
(e) When a mortgage or deed of trust with power of sale of real property does not
designate, or confer upon the mortgagee or trustee the right to designate, the place of sale,
or when it designates as the place of sale some county in which no part of the property is
situated, such real property shall be sold as follows:
(1) Property situated wholly within a single county shall be sold at the
courthouse door of the county in which the land is situated.
(2) A single tract of property situated in two or more counties may be sold
at the courthouse door of any one of the counties in which some part of
the real property is situated. (1949, c. 720, s. 1; 1975, c. 57, s. 1.)
§§ 45-21.5 through 45-21.6. Repealed by Session Laws 1967, c. 562, s. 2.
§ 45-21.7. Sale of separate tracts in different counties.

(a) When the property to be sold consists of separate tracts of real property
situated in different counties, there shall be a separate advertisement, sale and report of
sale of the property in each county. The report of sale for the property in any one county
shall be filed with the clerk of the superior court of the county in which such property is
situated. The sale of each such tract shall be subject to separate upset bids. The clerk of
the superior court of the county where the property is situated has jurisdiction with
respect to upset bids of property situated within his county. To the extent the clerk deems
necessary, the sale of each separate tract within his county, with respect to which an upset
bid is received, shall be treated as a separate sale for the purpose of determining the
procedure applicable thereto.
(b) The exercise of the power of sale with respect to a separate tract of property in
one county does not extinguish or otherwise affect the right to exercise the power of sale
with respect to tracts of property in another county to satisfy the obligation secured by the
mortgage or deed of trust. (1949, c. 720, s. 1; 1993, c. 305, s. 3.)
§ 45-21.8. Sale as a whole or in parts.

(a) When the instrument pursuant to which a sale is to be held contains provisions
with respect to whether the property therein described is to be sold as a whole or in parts,
the terms of the instrument shall be complied with.
(b) When the instrument contains no provisions with respect to whether the
property therein described is to be sold as a whole or in parts, the person exercising the
power of sale may, in his discretion, subject to the provisions of G.S. 45-21.9, sell the
property as a whole or in such parts or parcels thereof as are separately described in the

instrument, or he may offer the property for sale by each method and sell the property by
the method which produces the highest price.
(b1) When real property is sold in parts, the sale of any such part is subject to a
separate upset bid; and, to the extent the clerk of superior court having jurisdiction deems
advisable, the sale of each such part shall thereafter be treated as a separate sale for the
purpose of determining the procedure applicable thereto.
(c) This section does not affect the equitable principle of marshaling assets. (1949,
c. 720, s. 1; 1993, c. 305, s. 4.)
§ 45-21.9. Amount to be sold when property sold in parts; sale of remainder if

necessary.
(a) When a person exercising a power of sale sells property in parts pursuant to
G.S. 45-21.8 he shall sell as many of such separately described units and parcels as in his
judgment seems necessary to satisfy the obligation secured by the instrument pursuant to
which the sale is being made, and the costs and expenses of the sale.
(b) If the proceeds of a sale of only a part of the property are insufficient to satisfy
the obligation secured by the instrument pursuant to which the sale is made and the costs
and expenses of the sale, the person authorized to exercise the power of sale may
readvertise the unsold property and may sell as many additional units or parcels thereof
as in his judgment seems necessary to satisfy the remainder of the secured obligation and
the costs and expenses of the sale. As to any such sale, it shall not be necessary to comply
with the provisions of G.S. 45-21.16 but the requirements of G.S. 45-21.17 relating to
notices of sale shall be complied with.
(c) When the entire obligation has been satisfied by a sale of only a part of the
property with respect to which a power of sale exists, the lien on the part of the property
not so sold is discharged.
(d) The fact that more property is sold than is necessary to satisfy the obligation
secured by the instrument pursuant to which the power of sale is exercised does not affect
the validity of the title of any purchaser of property at any such sale. (1949, c. 720, s. 1;
1975, c. 492, s. 15.)
§ 45-21.9A. Simultaneous foreclosure of two or more instruments.

When two or more mortgages or deeds of trust held by the same person are secured in
whole or in part by the same property, and there are no intervening liens, except for ad
valorem taxes, between such mortgages or deeds of trust, the obligations secured by such
mortgages or deeds of trust may be combined and the property sold once to satisfy the
combined obligations if (i) powers of sale are provided in all such instruments; (ii) there
is no provision in any such instrument which would not permit such a procedure; (iii) all
the terms of all such instruments requiring compliance by the lender in connection with
foreclosure sales are complied with; and (iv) all requirements of this Chapter governing
power of sale foreclosures are met with respect to all such instruments. The proceeds of
any sale shall be applied as provided in this Chapter. As between the combined
obligations being foreclosed, proceeds shall be applied in the order of priority of the

instruments securing them, and any deficiencies shall be determined accordingly. (1985,
c. 515, s. 1; 1993, c. 305, s. 5.)
§ 45-21.10. Requirement of cash deposit at sale.

(a) If a mortgage or deed of trust contains provisions with respect to a cash deposit
at the sale, the terms of the instrument shall be complied with.
(b) If the instrument contains no provision with respect to a cash deposit at the
sale, the mortgagee or trustee may require the highest bidder immediately to make a cash
deposit not to exceed the greater of five percent (5%) of the amount of the bid or seven
hundred fifty dollars ($750.00).
(c) If the highest bidder fails to make the required deposit, the person holding the
sale may at the same time and place immediately reoffer the property for sale. (1949, c.
720, s. 1; 1993, c. 305, s. 6.)
§ 45-21.11. Application of statute of limitations to serial notes.

When a series of notes maturing at different times is secured by a mortgage or deed of
trust and the exercise of the power of sale for the satisfaction of one or more of the notes
is barred by the statute of limitations, that fact does not bar the exercise of the power of
sale for the satisfaction of indebtedness represented by other notes of the series not so
barred. (1949, c. 720, s. 1; 1967, c. 562, s. 2.)
§ 45-21.12. Power of sale barred when foreclosure barred.

(a) Except as provided in subsection (b), no person shall exercise any power of
sale contained in any mortgage or deed of trust, or provided by statute, when an action to
foreclose the mortgage or deed of trust, is barred by the statute of limitations.
(b) If a sale pursuant to a power of sale contained in a mortgage or deed of trust, or
provided by statute, is commenced within the time allowed by the statute of limitations to
foreclose such mortgage or deed of trust, the sale may be completed although such
completion is effected after the time when commencement of an action to foreclose
would be barred by the statute. For the purpose of this section, a sale is commenced when
the notice of hearing or the notice of sale is first filed, given, served, posted, or published,
whichever occurs first, as provided by this Article or by the terms of the instrument
pursuant to which the power of sale is being exercised. (1949, c. 720, s. 1; 1967, c. 562, s.
2; 1969, c. 984, s. 1; 1977, c. 359, s. 1.)
§ 45-21.14. Clerk's authority to compel report or accounting; contempt proceeding.

Whenever any person fails to file any report or account, as provided by this Article, or
files an incorrect or incomplete report or account, the clerk of the superior court having
jurisdiction on his own motion or the motion of any interested party, may issue an order
directing such person to file a correct and complete report or account within 20 days after
service of the order on him. If such person fails to comply with the order, the clerk may

issue an attachment against him for contempt, and may commit him to jail until he files
such correct and complete report or account. (1949, c. 720, s. 1.)
§ 45-21.15. Trustee's fees.

(a) When a sale has been held, the trustee is entitled to such compensation, if any,
as is stipulated in the instrument.
(b) When no sale has actually been held, compensation for a trustee's services is
determined as follows:
(1) If no compensation for the trustee's services in holding a sale is
provided for in the instrument, the trustee is not entitled to any
compensation;
(2) If compensation is specifically provided for the trustee's services
when no sale is actually held, the trustee is entitled to such
compensation;
(3) If the instrument provides for compensation for the trustee's services
in actually holding a sale, but does not provide compensation for the
trustee's services when no sale is actually held, the trustee is entitled to
compensation as follows: (i) one-fourth of the completed sale
compensation before the trustee files the notice of hearing; (ii) one-half
after the filing of the notice of hearing; and (iii) three-fourths after the
hearing.
(4) Repealed by Session Laws 1993, c. 305, s. 7. (1949, c. 720, s. 1; 1993,
c. 305, s. 7.)
Part 2. Procedure for Sale.

§ 45-21.16. Notice and hearing.
(a) The mortgagee or trustee granted a power of sale under a mortgage or deed of
trust who seeks to exercise such power of sale shall file with the clerk of court a notice of
hearing in accordance with the terms of this section. After the notice of hearing is filed,
the notice of hearing shall be served upon each party entitled to notice under this section.
The notice shall specify a time and place for the hearing before the clerk of court and
shall be served not less than 10 days prior to the date of such hearing. The notice shall be
served and proof of service shall be made in any manner provided by the Rules of Civil
Procedure for service of summons, including service by registered mail or certified mail,
return receipt requested. However, in those instances that publication would be
authorized, service may be made by posting a notice in a conspicuous place and manner
upon the property not less than 20 days prior to the date of the hearing, and if service
upon a party cannot be effected after a reasonable and diligent effort in a manner
authorized above, notice to such party may be given by posting the notice in a
conspicuous place and manner upon the property not less than 20 days prior to the date of
hearing. Service by posting may run concurrently with any other effort to effect service.
The notice shall be posted by the sheriff. In the event that the service is obtained by

posting, an affidavit shall be filed with the clerk of court showing the circumstances
warranting the use of service by posting.
If any party is not served or is not timely served prior to the date of the hearing, the
clerk shall order the hearing continued to a date and time certain, not less than 10 days
from the date scheduled for the original hearing. All notices already timely served remain
effective. The mortgagee or trustee shall satisfy the notice requirement of this section
with respect to those parties not served or not timely served with respect to the original
hearing. Any party timely served, who has not received actual notice of the date to which
the hearing has been continued, shall be sent the order of continuance by first-class mail
at his last known address.
(b) Notice of hearing shall be served in a manner authorized in subsection (a)
upon:
(1) Any person to whom the security interest instrument itself directs notice
to be sent in case of default.
(2) Any person obligated to repay the indebtedness against whom the
holder thereof intends to assert liability therefor, and any such person
not notified shall not be liable for any deficiency remaining after the
sale.
(3) Every record owner of the real estate whose interest is of record in the
county where the real property is located at the time the notice of
hearing is filed in that county. The term "record owner" means any
person owning a present or future interest in the real property, which
interest is of record at the time that the notice of hearing is filed and
would be affected by the foreclosure proceeding, but does not mean or
include the trustee in a deed of trust or the owner or holder of a
mortgage, deed of trust, judgment, mechanic's or materialman's lien, or
other lien or security interest in the real property. Tenants in possession
under unrecorded leases or rental agreements shall not be considered
record owners.
(c) Notice shall be in writing and shall state in a manner reasonably calculated to
make the party entitled to notice aware of the following:
(1) The particular real estate security interest being foreclosed, with such a
description as is necessary to identify the real property, including the
date, original amount, original holder, and book and page of the security
instrument.
(2) The name and address of the holder of the security instrument at the
time that the notice of hearing is filed.
(3) The nature of the default claimed.
(4) The fact, if such be the case, that the secured creditor has accelerated the
maturity of the debt.
(5) Any right of the debtor to pay the indebtedness or cure the default if
such is permitted.

(5a) The holder has confirmed in writing to the person giving the notice, or if
the holder is giving the notice, the holder shall confirm in the notice,
that, within 30 days of the date of the notice, the debtor was sent by
first-class mail at the debtor's last known address a written statement of
the amount of principal and interest that the holder claims in good faith
is owed as of the date of the written statement, a daily interest charge
based on the contract rate as of the date of the statement, and the amount
of other expenses the holder contends it is owed as of the date of the
statement.
(6) Repealed by Session Laws 1977, c. 359, s. 7.
(7) The right of the debtor (or other party served) to appear before the clerk
of court at a time and on a date specified, at which appearance he shall
be afforded the opportunity to show cause as to why the foreclosure
should not be allowed to be held. The notice shall contain a statement
that if the debtor does not intend to contest the creditor's allegations of
default, the debtor does not have to appear at the hearing and that his
failure to attend the hearing will not affect his right to pay the
indebtedness and thereby prevent the proposed sale, or to attend the
actual sale, should he elect to do so.
(8) That if the foreclosure sale is consummated, the purchaser will be
entitled to possession of the real estate as of the date of delivery of his
deed, and that the debtor, if still in possession, can then be evicted.
(8a) The name, address, and telephone number of the trustee or mortgagee.
(9) That the debtor should keep the trustee or mortgagee notified in writing
of his address so that he can be mailed copies of the notice of
foreclosure setting forth the terms under which the sale will be held, and
notice of any postponements or resales.
(10) If the notice of hearing is intended to serve also as a notice of sale, such
additional information as is set forth in G.S. 45-21.16A.
(11) That the hearing may be held on a date later than that stated in the notice
and that the party will be notified of any change in the hearing date.
(c1) The person giving the notice of hearing, if other than the holder, may rely on
the written confirmation received from the holder under subdivision (c)(5a) of this
section and is not liable for inaccuracies in the written confirmation. Any dispute
concerning the mailing or accuracy of the written statement described in subdivision
(c)(5a) of this section shall not be considered in a hearing under this section.
(d) The hearing provided by this section shall be held before the clerk of court in
the county where the land, or any portion thereof, is situated. In the event that the
property to be sold consists of separate tracts situated in different counties or a single
tract in more than one county, only one hearing shall be necessary. However, prior to that
hearing, the mortgagee or trustee shall file the notice of hearing in any other county
where any portion of the property to be sold is located. Upon such hearing, the clerk shall
consider the evidence of the parties and may consider, in addition to other forms of

evidence required or permitted by law, affidavits and certified copies of documents. If the
clerk finds the existence of (i) valid debt of which the party seeking to foreclose is the
holder, (ii) default, (iii) right to foreclose under the instrument, and (iv) notice to those
entitled to such under subsection (b), then the clerk shall authorize the mortgagee or
trustee to proceed under the instrument, and the mortgagee or trustee can give notice of
and conduct a sale pursuant to the provisions of this Article. A certified copy of any
authorization or order by the clerk shall be filed in any other county where any portion of
the property to be sold is located before the mortgagee or trustee may proceed to
advertise and sell any property located in that county. In the event that sales are to be held
in more than one county, the provisions of G.S. 45-21.7 apply.
(d1) The act of the clerk in so finding or refusing to so find is a judicial act and may
be appealed to the judge of the district or superior court having jurisdiction at any time
within 10 days after said act. Appeals from said act of the clerk shall be heard de novo. If
an appeal is taken from the clerk's findings, the appealing party shall post a bond with
sufficient surety as the clerk deems adequate to protect the opposing party from any
probable loss by reason of appeal; and upon posting of the bond the clerk shall stay the
foreclosure pending appeal.
(e) In the event of an appeal, either party may demand that the matter be heard at
the next succeeding term of the court to which the appeal is taken which convenes 10 or
more days after the hearing before the clerk, and such hearing shall take precedence over
the trial of other cases except cases of exceptions to homesteads and appeals in summary
ejectment actions, provided the presiding judge may in his discretion postpone such
hearing if the rights of the parties or the public in any other pending case require that
such case be heard first. In those counties where no session of court is scheduled within
30 days from the date of hearing before the clerk, either party may petition any regular or
special superior court judge resident in a district or assigned to hold courts in a district
where any part of the real estate is located, or the chief district judge of a district where
any part of the real estate is located, who shall be authorized to hear the appeal. A
certified copy of any order entered as a result of the appeal shall be filed in all counties
where the notice of hearing has been filed.
(f) Waiver of the right to notice and hearing provided herein shall not be permitted
except as set forth herein. In any case in which the original principal amount of
indebtedness secured was one hundred thousand dollars ($100,000), or more, any person
entitled to notice and hearing may waive after default the right to notice and hearing by
written instrument signed and duly acknowledged by such party. In all other cases, at any
time subsequent to service of the notice of hearing provided above, the clerk, upon the
request of the mortgagee or trustee, shall mail to all other parties entitled to notice of such
hearing a form by which such parties may waive their rights to the hearing. Upon the
return of the forms to the clerk bearing the signatures of each such party and that of a
witness to each such party's signature (which witness shall not be an agent or employee
of the mortgagee or trustee), the clerk in his discretion may dispense with the necessity of
a hearing and proceed to issue the order authorizing sale as set forth above.

(g) Any notice, order, or other papers required by this Article to be filed in the
office of the clerk of superior court shall be filed in the same manner as a special
proceeding. (1975, c. 492, s. 2; 1977, c. 359, ss. 2-10; 1983, c. 335, s. 1; 1983 (Reg.
Sess., 1984), c. 1108, ss. 1, 2; 1993, c. 305, s. 8; 1995, c. 509, s. 135.1(g); 1999-137, ss.
1, 2.)
§ 45-21.16A. Contents of notice of sale.

The notice of sale shall –
(1) Describe the instrument pursuant to which the sale is held, by
identifying the original mortgagors and recording data. If the record
owner is different from the original mortgagors, the notice shall also list
the record owner of the property, as reflected on the records of the
register of deeds not more than 10 days prior to posting the notice. The
notice may also reflect the owner not reflected on the records if known;
(2) Designate the date, hour and place of sale consistent with the provisions
of the instrument and this Article;
(3) Describe the real property to be sold in such a manner as is reasonably
calculated to inform the public as to what is being sold, which
description may be in general terms and may incorporate the description
as used in the instrument containing the power of sale by reference
thereto. Any property described in the instrument containing the power
of sale which is not being offered for sale should also be described in
such a manner as to enable prospective purchasers to determine what is
and what is not being offered for sale;
(5) State the terms of the sale provided for by the instrument pursuant to
which the sale is held, including the amount of the cash deposit, if any,
to be made by the highest bidder at the sale;
(6) Include any other provisions required by the instrument to be included
therein;
(7) State that the property will be sold subject to taxes and special
assessments if it is to be so sold; and
(8) State whether the property is being sold subject to or together with any
subordinate rights or interests provided those rights and interests are
sufficiently identified. (1949, c. 720, s. 1; 1951, c. 252, s. 1; 1967, c.
562, s. 2; 1975, c. 492, s. 1; 1987, c. 493; 1993, c. 305, s. 9.)
§ 45-21.17. Posting and publishing notice of sale of real property.

In addition to complying with such provisions with respect to posting or publishing
notice of sale as are contained in the security instrument,
(1) Notice of sale of real property shall

a. Be posted, in the area designated by the clerk of superior court
for posting public notices in the county in which the property is
situated, at least 20 days immediately preceding the sale.
b. And in addition thereto,
1. The notice shall be published once a week for at least two
successive weeks in a newspaper published and qualified
for legal advertising in the county in which the property is
situated.
2. If no such newspaper is published in the county, then
notice shall be published once a week for at least two
successive weeks in a newspaper having a general
circulation in the county.
3. In addition to the required newspaper advertisement, the
clerk may in his discretion, on application of any
interested party, authorize such additional advertisement
as in the opinion of the clerk will serve the interest of the
parties, and permit the charges for such further
advertisement to be taxed as a part of the costs of the
foreclosure.
(2) When the notice of sale is published in a newspaper,
a. The period from the date of the first publication to the date of the
last publication, both dates inclusive, shall not be less than seven
days, including Sundays, and
b. The date of the last publication shall be not more than 10 days
preceding the date of the sale.
(3) When the real property to be sold is situated in more than one county,
the provisions of subdivisions (1) and (2) shall be complied with in each
county in which any part of the property is situated.
(4) The notice of sale shall be mailed by first-class mail at least 20 days
prior to the date of sale to each party entitled to notice of the hearing
provided by G.S. 45-21.16 whose address is known to the trustee or
mortgagee and in addition shall also be mailed by first-class mail to any
party desiring a copy of the notice of sale who has complied with G.S.
45-21.17A. Notice of the hearing required by G.S. 45-21.16 shall be
sufficient to satisfy the requirement of notice under this section
provided such notice contains the information required by G.S.
45-21.16A.
(6) Any time periods relating to notice of hearing or notice of sale that are
provided in the security instrument may commence with and run
concurrently with the time periods provided in G.S. 45-21.16, 45-21.17,
or 45-21.17A. (1949, c. 720, s. 1; 1965, c. 41; 1967, c. 979, s. 3; 1975,

c. 492, s. 3; 1977, c. 359, ss. 11-14; 1985, c. 567, s. 1; 1993, c. 305, s.
10.)
§ 45-21.17A. Requests for copies of notice.

(a) Any person desiring a copy of any notice of sale may, at any time subsequent
to the recordation of the security instrument and prior to the filing of notice of hearing
provided for in G.S. 45-21.16, cause to be filed for record in the office of the register of
deeds of each county where all or any part of the real property is situated, a duly
acknowledged request for a copy of such notice of sale. This request shall be a separate
instrument entitled "Request for Notice" and shall be signed and acknowledged by the
party making the request, shall specify the name and address of the party to whom the
notice is to be mailed, shall identify the deed of trust or mortgage by stating the names of
the parties thereto, the date of recordation, and the book and page where the same is
recorded, and shall be in substantially the following form:
"REQUEST FOR NOTICE"
In accordance with the provisions of G.S. 45-21.17A, request is hereby made that a
copy of any notice of sale under the deed of trust (mortgage) recorded on ______,
______, in Book ____, page ___, records of ____ County, North Carolina, executed by
_______ as trustor (mortgagor), in which __________ is named as beneficiary
(mortgagee), and __________ as trustee, be mailed to _______ at the following address:
_____________________.
Signature: ______________________________
[Acknowledgement]
(b) Register of Deeds' Duties. – Upon the filing for record of such request, the
register of deeds shall index in the general index of grantors the names of the trustors
(mortgagors) recited therein, and the names of the persons requesting copies, with a
marginal entry in the index of the book and page of the recorded security instrument to
which the request refers; or upon the filing for record of such request, the register of
deeds may, instead of indexing such request on the general index of grantors, stamp upon
the face of the security instrument referred to in the request the book and page of each
request for notice thereunder.
(c) Mailing Notice. – The mortgagee, trustee, or other person authorized to
conduct the sale shall at least 20 days prior to the date of the sale cause to be deposited in
the United States mail an envelope with postage prepaid containing a copy of the notice
of sale, addressed to each person whose name and address are set forth in the Request for
Notice, and directed to the address designated in such request.
(d) Effect of Request on Title. – No request for a copy of any notice filed pursuant
to this section nor any statement or allegation in any such request nor any record thereof
shall affect the title to real property, or be deemed notice to any person that the person

requesting copies of notice has any claim or any right, title or interest in, or lien or charge
upon, the property described in the deed of trust or mortgage referred to therein.
(e) Evidence of Compliance. – The affidavit of the mortgagee, trustee, or other
person authorized to conduct the sale that copies of the notice of sale have been mailed to
all parties filing requests for the same hereunder shall be deemed prima facie true. If on
hearing it is proven that a party seeking to have the foreclosure sale set aside or seeking
damages resulting from the foreclosure sale was mailed notice in accordance with this
section or had actual notice of the sale before it was held (or if a resale was involved,
prior to the date of the last resale), then the party shall not prevail. Costs, expenses, and
reasonable attorneys' fees incurred by the prevailing party in any action to set aside the
foreclosure sale or for damages resulting from the foreclosure sale shall be allowed as of
course to the prevailing party.
(f) Action to Set Foreclosure Sale Aside for Failure to Comply. – A person
entitled to notice of sale by virtue of this section shall not bring any action to set the sale
aside on grounds that he was not mailed the notice of sale unless such action is brought
prior to the filing of the final report and account as provided in G.S. 45-21.33, if the
property was purchased by someone other than the secured party; or if brought by the
secured party, unless such action is brought within six months of the date of such filing
and prior to the time the secured party sells the property to a bona fide purchaser for
value, if the property was purchased by the secured party. In either event, the party
bringing such an action shall also tender an amount exceeding the reported sale price or
the amount of the secured party's interest in the property, including all expenses and
accrued interest, whichever is greater. Such tender shall be irrevocable pending final
adjudication of the action.
(g) Action for Damages from Foreclosure Sale for Failure to Comply. – A person
entitled to notice of sale by virtue of this section shall not bring any action for damages
resulting from the sale on grounds that he was not mailed the notice unless such action is
brought within six months of the date of the filing of the final report and account as
provided in G.S. 45-21.33. The party bringing such an action shall also deposit with the
clerk a cash or surety bond approved by the clerk and in such amount as the clerk deems
adequate to secure the party defending the action for such costs, expenses, and reasonable
attorneys' fees to be incurred in the action. (1993, c. 305, s. 11; 1999-456, s. 59.)
§§ 45-21.18 through 45-21.19. Repealed by Session Laws 1967, c. 562, s. 2.
§ 45-21.20. Satisfaction of debt after publishing or posting notice, but before

completion of sale.
A power of sale is terminated if, prior to the time fixed for a sale, or prior to the
expiration of the time for submitting any upset bid after a sale or resale has been held,
payment is made or tendered of –
(1) The obligation secured by the mortgage or deed of trust, and
(2) The expenses incurred with respect to the sale or proposed sale, which
in the case of a deed of trust also include compensation for the trustee's

services under the conditions set forth in G.S. 45-21.15. (1949, c. 720, s.
1; 1967, c. 562, s. 2.)
§ 45-21.21. Postponement of sale.

(a) Any person exercising a power of sale may postpone the sale to a day certain
not later than 90 days, exclusive of Sunday, after the original date for the sale –
(1) When there are no bidders, or
(2) When, in his judgment, the number of prospective bidders at the sale is
substantially decreased by inclement weather or by any casualty, or
(3) When there are so many other sales advertised to be held at the same
time and place as to make it inexpedient and impracticable, in his
judgment, to hold the sale on that day, or
(4) When he is unable to hold the sale because of illness or for other good
reason, or
(5) When other good cause exists.
The person exercising a power of sale may postpone the sale more than once whenever
any of the above conditions are met, so long as the sale is held not later than 90 days after
the original date for the sale.
(b) Upon postponement of a sale, the person exercising the power of sale shall
personally, or through his agent or attorney –
(1) At the time and place advertised for the sale, publicly announce the
postponement thereof;
(2) On the same day, attach to or enter on the original notice of sale or a
copy thereof, posted at the courthouse door, as provided by G.S.
45-21.17, a notice of the postponement; and
(3) Give written or oral notice of postponement to each party entitled to
notice of sale under G.S. 45-21.17.
(c) The posted notice of postponement shall –
(1) State that the sale is postponed,
(2) State the hour and date to which the sale is postponed,
(3) State the reason for the postponement, and
(4) Be signed by the person authorized to hold the sale, or by his agent or
attorney.
(d) If a sale is not held at the time fixed therefor and is not postponed as provided
by this section, or if a postponed sale is not held at the time fixed therefor or within 90
days of the date originally fixed for the sale, then prior to such sale taking place the
provisions of G.S. 45-21.16 need not be complied with but the provisions of G.S.
45-21.16A, 45-21.17, and 45-21.17A shall be again complied with, or if on appeal, the
appellate court orders the sale to be held, as to such sale so authorized the provisions of
G.S. 45-21.16 need not be complied with again but those of G.S. 45-21.16A, 45-21.17,
and 45-21.17A shall be.
(e) A sale may be postponed more than once provided the final postponed sale
date is not later than 90 days, exclusive of Sunday and legal holidays when the

courthouse is closed for transactions, after the original date for the sale. (1949, c. 720, s.
1; 1967, c. 562, s. 2; 1975, c. 492, ss. 4-6; 1983, c. 335, s. 2; 1989, c. 257; 1991 (Reg.
Sess., 1992), c. 777, s. 1; 1993, c. 305, s. 12; 1995, c. 509, s. 25; 2003-337, s. 3.)
§ 45-21.22. Procedure upon dissolution of order restraining or enjoining sale, or

upon lifting of automatic bankruptcy stay.
(a) When, before the date fixed for a sale, a judge dissolves an order restraining or
enjoining the sale, he may, if the required notice of sale has been given, provide by order
that the sale shall be held without additional notice at the time and place originally fixed
therefor, or he may, in his discretion, make an order with respect thereto as provided in
subsection (b).
(b) When, after the date fixed for a sale, a judge dissolves an order restraining or
enjoining the sale, he shall by order fix the time and place for the sale to be held upon
notice to be given in such manner and for such length of time as he deems advisable.
(c) When, after the entry of any authorization or order by the clerk of superior
court pursuant to G.S. 45-21.16 and before the expiration of the 10-day upset bid period,
the foreclosure is stayed by the debtor filing a bankruptcy petition and thereafter the stay
is lifted, the trustee or mortgagee shall not be required to comply with the provisions of
G.S. 45-21.16, but shall advertise and hold the sale in accordance with the provisions of
G.S. 45-21.16A, 45-21.17, and 45-21.17A. (1949, c. 720, s. 1; 1993, c. 305, s. 13.)
§ 45-21.23. Time of sale.

A sale shall begin at the time designated in the notice of sale or as soon thereafter as
practicable, but not later than one hour after the time fixed therefor unless it is delayed by
other sales held at the same place. The sale shall be held between the hours of 10:00 A.M.
and 4:00 P.M. on any day other than Sunday or a legal holiday when the courthouse is
closed for transactions. (1949, c. 720, s. 1; 1993, c. 305, s. 14; 2003-337, s. 4.)
§ 45-21.24. Continuance of uncompleted sale.

A sale commenced but not completed within the time allowed by G.S. 45-21.23 shall
be continued by the person holding the sale to a designated time between 10:00 o'clock
A.M. and 4:00 o'clock P.M. the next following day, other than Sunday or a legal holiday
when the courthouse is closed for transactions. In case such continuance becomes
necessary, the person holding the sale shall publicly announce the time to which the sale
is continued. (1949, c. 720, s. 1; 1993, c. 305, s. 15; 2003-337, s. 5.)
§ 45-21.26. Preliminary report of sale of real property.

(a) The person exercising a power of sale of real property, shall, within five days
after the date of the sale, file a report thereof with the clerk of the superior court of the
county in which the sale was had.

(b) The report shall be signed by the person authorized to hold the sale, or by his
agent or attorney, and shall show –
(1) The authority under which the person making the sale acted;
(2) The name of the mortgagor or grantor;
(3) The name of the mortgagee or trustee;
(4) The date, time and place of the sale;
(5) A reference to the book and page in the office of the register of deeds,
where the instrument is recorded or, if not recorded, a description of the
property sold, sufficient to identify it, and, if sold in parts, a description
of each part so sold;
(6) The name or names of the person or persons to whom the property was
sold;
(7) The price at which the property, or each part thereof, was sold, and that
such price was the highest bid therefor;
(8) The name of the person making the report; and
(9) The date of the report. (1949, c. 720, s. 1; 1951, c. 252, s. 2.)
§ 45-21.27. Upset bid on real property; compliance bonds.

(a) An upset bid is an advanced, increased, or raised bid whereby any person
offers to purchase real property theretofore sold, for an amount exceeding the reported
sale price or last upset bid by a minimum of five percent (5%) thereof, but in any event
with a minimum increase of seven hundred fifty dollars ($750.00). Subject to the
provisions of subsection (b) of this section, an upset bid shall be made by delivering to
the clerk of superior court, with whom the report of sale or last notice of upset bid was
filed, a deposit in cash or by certified check or cashier's check satisfactory to the clerk in
an amount greater than or equal to five percent (5%) of the amount of the upset bid but in
no event less than seven hundred fifty dollars ($750.00). The deposit required by this
section shall be filed with the clerk of the superior court, with whom the report of the sale
or the last notice of upset bid was filed by the close of normal business hours on the tenth
day after the filing of the report of the sale or the last notice of upset bid, and if the tenth
day shall fall upon a Sunday or legal holiday when the courthouse is closed for
transactions, or upon a day in which the office of the clerk is not open for the regular
dispatch of its business, the deposit may be made and the notice of upset bid filed on the
day following when said office is open for the regular dispatch of its business. Subject to
the provisions of G.S. 45-21.30, there shall be no resales; rather, there may be successive
upset bids each of which shall be followed by a period of 10 days for a further upset bid.
When an upset bid is not filed following a sale, resale, or prior upset bid within the time
specified, the rights of the parties to the sale or resale become fixed.
(b) The clerk of the superior court may require an upset bidder or the highest
bidder at a resale held pursuant to G.S. 45-21.30 also to deposit with the clerk a cash
bond, or, in lieu thereof at the option of the bidder, a surety bond, approved by the clerk.
The compliance bond shall be in such amount as the clerk deems adequate, but in no case
greater than the amount of the bid of the person being required to furnish the bond, less

the amount of any required deposit. The compliance bond shall be payable to the State of
North Carolina for the use of the parties in interest and shall be conditioned on the
principal obligor's compliance with the bid.
(c), (d) Repealed by Session Laws 1993, c. 305, s. 16.
(e) At the same time that an upset bid on real property is submitted to the court as
provided for in subsection (a) above, together with a compliance bond if one is required,
the upset bidder shall simultaneously file with the clerk a notice of upset bid. The notice
of upset bid shall:
(1) State the name, address, and telephone number of the upset bidder;
(2) Specify the amount of the upset bid;
(3) Provide that the sale shall remain open for a period of 10 days after the
date on which the notice of upset bid is filed for the filing of additional
upset bids as permitted by law; and
(4) Be signed by the upset bidder or the attorney or the agent of the upset
bidder.
(e1) When an upset bid is made as provided in this section, the clerk shall notify the
trustee or mortgagee who shall thereafter mail a written notice of upset bid by first-class
mail to the last known address of the last prior bidder and the current record owner(s) of
the property.
(f) When an upset bid is made as provided in this section, the last prior bidder,
regardless of how the bid was made, shall be released from any further obligation on
account of the bid and any deposit or bond provided by him shall be released.
(g) Any person offering to purchase real property by upset bid as permitted in this
Article shall be subject to and bound by the terms of the original notice of sale except as
modified by court order or the provisions of this Article.
(h) The clerk of superior court shall make all such orders as may be just and
necessary to safeguard the interests of all parties, and shall have the authority to fix and
determine all necessary procedural details with respect to upset bids in all instances in
which this Article fails to make definite provisions as to that procedure. (1949, c. 720, s.
1; 1963, c. 377; 1967, c. 979, s. 3; 1993, c. 305, s. 16; 2003-337, s. 6.)
§ 45-21.28: Repealed by Session Laws 1993, c. 305, s. 17.
§ 45-21.29. Orders for possession.

(a) through (j) repealed by Session Laws 1993, c. 305, s. 18.
(k) Orders for possession of real property sold pursuant to this Article, in favor of
the purchaser and against any party or parties in possession at the time of application
therefor, may be issued by the clerk of the superior court of the county in which such
property is sold, when:
(1) Such property has been sold in the exercise of the power of sale
contained in any mortgage, deed of trust, leasehold mortgage, leasehold
deed of trust, or a power of sale authorized by any other statutory
provisions,

(2a) The provisions of this Article have been complied with,
(3) The sale has been consummated, and the purchase price has been paid,
(4) The purchaser has acquired title to and is entitled to possession of the
real property sold,
(5) Ten days' notice has been given to the party or parties who remain in
possession at the time application is made, and
(6) Application is made by petition to such clerk by the mortgagee, the
trustee, the purchaser of the property, or any such person's authorized
representative.
(l) An order for possession issued pursuant to G.S. 45-21.29(k) shall be directed to the
sheriff and shall authorize him to remove all occupants and their personal property from
the premises and to put the purchaser in possession, and shall be executed in accordance
with the procedure for executing a writ or order for possession in a summary ejectment
proceeding under G.S. 42-36.2. The purchaser shall have the same rights and remedies in
connection with the execution of an order for possession and the disposition of personal
property following execution as are provided to a landlord under North Carolina law,
including Chapters 42 and 44A of the General Statutes.
(m) When the real property sold is situated in more than one county, the provisions
of subsection (l) of this section shall be complied with in each county in which any part
of the property is situated. (1949, c. 720, s. 1; 1951, c. 252, s. 3; 1965, c. 299; 1967, c.
979, s. 3; 1975, c. 492, ss. 7-9; 1987, c. 627, s. 3; 1993, c. 305, s. 18.)
§ 45-21.29A. No necessity for confirmation of sale.

No confirmation of sales or resales of real property made pursuant to this Article shall
be required. If an upset bid is not filed following a sale, resale, or prior upset bid within
the period specified in this Article, the rights of the parties to the sale or resale become
fixed. (1967, c. 979, s. 3; 1993, c. 305, s. 19.)
§ 45-21.30. Failure of bidder to make cash deposit or to comply with bid; resale.
(a) If the terms of a sale of real property require the highest bidder to make a cash
deposit at the sale, and he fails to make such required deposit, the person holding the sale
shall at the same time and place again offer the property for sale.
(b) Repealed by Session Laws 1967, c. 562, s. 2.
(c) When the highest bidder at a sale or resale or any upset bidder fails to comply
with his bid upon tender to him of a deed for the real property or after a bona fide attempt
to tender such a deed, the clerk of superior court may, upon motion, enter an order
authorizing a resale of the real property. The procedure for such resale shall be the same
in every respect as is provided by this Article in the case of an original sale of real
property except that the provisions of G.S. 45-21.16 are not applicable to the resale.
(d) A defaulting bidder at any sale or resale or any defaulting upset bidder is liable
on his bid, and in case a resale is had because of such default, he shall remain liable to the
extent that the final sale price is less than his bid plus all the costs of the resale. Any

deposit or compliance bond made by the defaulting bidder shall secure payment of the
amount, if any, for which the defaulting bidder remains liable under this section.
(e) Nothing in this section deprives any person of any other remedy against the
defaulting bidder. (1949, c. 720, s. 1; 1967, c. 562, s. 2; 1975, c. 492, s. 10; 1977, c. 359,
s, 15; 1993, c. 305, s. 20.)
§ 45-21.31. Disposition of proceeds of sale; payment of surplus to clerk.

(a) The proceeds of any sale shall be applied by the person making the sale, in the
following order, to the payment of –
(1) Costs and expenses of the sale, including the trustee's commission, if
any, and a reasonable auctioneer's fee if such expense has been incurred;
(2) Taxes due and unpaid on the property sold, as provided by G.S.
105-385, unless the notice of sale provided that the property be sold
subject to taxes thereon and the property was so sold;
(3) Special assessments, or any installments thereof, against the property
sold, which are due and unpaid, as provided by G.S. 105-385, unless the
notice of sale provided that the property be sold subject to special
assessments thereon and the property was so sold;
(4) The obligation secured by the mortgage, deed of trust or conditional sale
contract.
(b) Any surplus remaining after the application of the proceeds of the sale as set
out in subsection (a) shall be paid to the person or persons entitled thereto, if the person
who made the sale knows who is entitled thereto. Otherwise, the surplus shall be paid to
the clerk of the superior court of the county where the sale was had–
(1) In all cases when the owner of the property sold is dead and there is no
qualified and acting personal representative of his estate, and
(2) In all cases when he is unable to locate the persons entitled thereto, and
(3) In all cases when the mortgagee, trustee or vendor is, for any cause, in
doubt as to who is entitled to such surplus money, and
(4) In all cases when adverse claims thereto are asserted.
(c) Such payment to the clerk discharges the mortgagee, trustee or vendor from
liability to the extent of the amount so paid.
(d) The clerk shall receive such money from the mortgagee, trustee or vendor and
shall execute a receipt therefor.
(e) The clerk is liable on his official bond for the safekeeping of money so
received until it is paid to the party or parties entitled thereto, or until it is paid out under
the order of a court of competent jurisdiction. (1949, c. 720, s. 1; 1951, c. 252, s. 1; 1967,
c. 562, s. 2; 1981, c. 682, s. 10.)
§ 45-21.32. Special proceeding to determine ownership of surplus.

(a) A special proceeding may be instituted before the clerk of the superior court by
any person claiming any money, or part thereof, paid into the clerk's office under G.S.
45-21.31, to determine who is entitled thereto.

(b) All other persons who have filed with the clerk notice of their claim to the
money or any part thereof, or who, as far as the petitioner or petitioners know, assert any
claim to the money or any part thereof, shall be made defendants in the proceeding.
(c) If any answer is filed raising issues of fact as to the ownership of the money,
the proceeding shall be transferred to the civil issue docket of the superior court for trial.
When a proceeding is so transferred, the clerk may require any party to the proceeding
who asserts a claim to the fund by petition or answer to furnish a bond for costs in the
amount of two hundred dollars ($200.00) or otherwise comply with the provisions of G.S.
1-109.
(d) The court may, in its discretion, allow a reasonable attorney's fee for any
attorney appearing in behalf of the party or parties who prevail, to be paid out of the
funds in controversy, and shall tax all costs against the losing party or parties who
asserted a claim to the fund by petition or answer. (1949, c. 720, s. 1.)
§ 45-21.33. Final report of sale of real property.

(a) A person who holds a sale of real property pursuant to a power of sale shall file
with the clerk of the superior court of the county where the sale is held a final report and
account of his receipts and disbursements within 30 days after the receipt of the proceeds
of such sale. Such report shall show whether the property was sold as a whole or in parts
and whether all of the property was sold. The report shall also show whether all or only a
part of the obligation was satisfied with respect to which the power of sale of property
was exercised.
(b) The clerk shall audit the account and record it.
(c) The person who holds the sale shall also file with the clerk –
(1) A copy of the notices of sale and resale, if any, which were posted, and
(2) A copy of the notices of sale and resale, if any, which were published in
a newspaper, together with an affidavit of publication thereof, if the
notices were so published;
(3) Proof as required by the clerk, which may be by affidavit, that notices of
hearing, sale and resale were served upon all parties entitled thereto
under G.S. 45-21.16, 45-21.17, 45-21.17A, and 45-21.30. In the
absence of an affidavit to the contrary filed with the clerk, an affidavit
by the person holding the sale that the notice of sale was posted in the
area designated by the clerk of superior court for posting public notices
in the county or counties in which the property is situated 20 days prior
to the sale shall be proof of compliance with the requirements of G.S.
45-21.17(1)a.
(d) The clerk's fee for auditing and recording the final account is a part of the
expenses of the sale, and the person holding the sale shall pay the clerk's fee as part of
such expenses. (1949, c. 720, s. 1; 1975, c. 492, s. 11; 1983, c. 799; 1993, c. 305, s. 21;
1995, c. 509, s. 26.)

NORTH CAROLINA
MORTGAGE LENDING
MANUAL
CONTENTS
INTEREST AND USURY
THE NORTH CAROLINA MORTGAGE LENDING ACT
SPECIAL ISSUES
CO-BROKERING LOANS
MANUFACTURED HOUSING
NET BRANCHING
SECOND MORTGAGES
REVERSE MORTGAGES
EMPLOYMENT AGREEMENTS
WAGE AND HOUR ISSUES
NON-COMPETITION AGREEMENTS
NORTH CAROLINA RESIDENTIAL REAL ESTATE TRANSACTIONS
SECURITY INSTRUMENTS
ARBITRATION PROVISIONS
RECORDING
SETTLEMENT AGENTS
GOOD FUNDS SETTLEMENT ACT
TITLE INSURANCE
ACKNOWLEDGMENTS
PRIVACY STATUTE
SATISFACTION OF MORTGAGES ACT
FORECLOSURE
STATUTES AND REGULATIONS
FORMS
REGULATORY INTERPRETATIONS

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NORTH CAROLINA

MAY 10, 2006

WILLIAM S. BOST III

MAY 10, 2006

WILLIAM S. BOST III

William S. Bost III

Copyright 2006 by William S. Bost III. All rights reserved. Printed in

BY WILLIAM S. BOST III

INTEREST AND USURY.................................................................................1

Discount Points and Prepayment Penalties...................... 19

Chapter 24 governs the charging of interest in North Carolina.

Loans Not Subject To Usury Laws

North Carolina usury laws do not apply to a loan

• The loan amount is three hundred thousand

• The borrower is a person other than a natural

• The loan is obtained by a natural person primarily

Whether a loan is obtained primarily for a purpose other than a personal,

Loans Subject To Usury Laws

Care should be exercised when making a loan to a North Carolina

First Mortgage Loans Under $300,000

Chapter 24 applies to loans made by a lender to a resident of

Mortgages By Consumer Finance Company Affiliates

Notwithstanding any other provision of law, where a lender is an

the North Carolina Commissioner of Banks (the “Commissioner”), which

A lender in a mortgage loan transaction must deliver or mail to an

a home loan, whichever is earlier.14 A sample of this form is included as

Limitation On Prepayment Penalties

No prepayment fees or penalties are permitted with respect to any

This prohibition does not apply (i) to commercial or investment

Permitted Fees On First Mortgage Loans

• Loan application, origination, commitment, and

• Fees to administer a construction loan or a

• Discount points, but only to the extent the discount

• Third-party fees and charges; and

• Additional fees and charges, however individually

The statute specifically allows a lender to collect from the

No third-party may receive unreasonable compensation for loan

was affected by the payment of the points. Accordingly, identifying

Certain fees were intentionally omitted from the list of permitted

Section 24-8 contains a list of permitted third party fees which

The miscellaneous fees subject to the limitation described are all

Fees During Term Of Loan

A lender may charge discount points, conversion fees,

A lender may charge a deferral fee as may be agreed upon by the

A lender is prohibited from charging a late fee:

• in excess of 4% of the amount of the past due

• in excess of the amount disclosed under applicable

• For any payment unless past due for 15 days or

• more than once with respect to a single late

• on any loan which by its terms does not provide

• unless the lender notifies the borrower that the late

days of receipt of the lender's notice of the late

These provisions do not apply to exempt lenders.37

Equity Lines Of Credit

Parties to an equity line of credit may contract and writing for

High Cost Loan Provisions

North Carolina was the first state to enact comprehensive

Loans Subject To High-Cost Loan Provisions

The provisions of Section 24-1.1E apply to loan transactions

Limitations on High Cost Loans

The PLA was drafted and designed to discourage and eliminate

Firstly, fees may not be financed in a high cost loan transaction.45

Much of Section 24-1.1E relates to the conditions to and

• APR Threshold. A loan is high-cost loan if its