A PUBLICATION OR THE TITLE COMPANY OF NORTH CAROLINA
PURCHASE MONEY MORTGAGES AND DEEDS OF TRUST –
JOINDER AND PRIORITY ISSUES
purchase money mortgage is a mortgage given to the seller securing the
buyer’s obligation to repay all or a portion of the purchase price of
the land. However, a deed of
trust is normally used in North Carolina.
A purchase money deed of trust can secure the seller.
In certain contexts discussed below, it can secure a third party
lender. Certain title examination aspects will be discussed under a
separate article pertaining to “tacking.”
G.S. 39-13 provides that the purchaser of land “who does not pay the whole of the purchase money at the time [the purchaser] takes” the deed may make a mortgage or deed of trust for the balance of the purchase money without the joinder of the spouse who is not the purchaser. It is believed that the italicized words mean that G.S. 39-13 does not apply to a deed of trust to a third party, since, in that event, loan proceeds result in the whole of the purchase money being paid before the deed is taken.
G.S. 29-30, enacted after G.S. 39-13, provides for an elective estate in favor of the spouse that does not own title. G.S. 29-30(g)(2) makes the elective estate subject to a debt secured by “a purchase
money mortgage or deed of trust…made prior to or during the marriage.” This language is not limited by, nor does it contain the conditions and limitations of, G.S. 39-13. A mortgage or deed of trust need only secure the repayment of purchase money to someone and that someone can be, among others, a third party lender such as a bank or savings bank. It should be noted that such a construction of G.S. 29-30(g)(2) is not limited by the provisions of G.S. 45-21.38, the anti-deficiency judgement statute. The “instantaneous seisin” cases cited below are not necessary to this construction of G.S. 29-30(g)(2).
This construction of G.S. 29-30(g)(2) is particularly
helpful to a person who is married but is separated without a separation
agreement waiving spousal joinder as discussed in G.S. 39-13.4, or when a
spouse is overseas. In such
cases, the spouse who is not named in the deed need not to execute the
deed of trust.
EXAMPLE: A judgement in favor of J is docketed against B. Then A conveys title to the purchaser, B. At the time of B’s closing, B gives a deed of trust to T, trustee for L, a bank. B’s deed and L’s deed of trust are recorded one right after the other, virtually at the same time. L’s deed of trust secures B’s obligation to repay L the balance of the purchase price, which B is not paying out of B’s pocket. L’s deed of trust will have priority over J’s judgment lien under the “purchase money rule” or “instantaneous seisin.” See Smith Builders Supply, Inc. v. Rivernbark, 231 N.C. 213, 56 S.E.2d 431 (1949); E. Urban and G. Whitney, North Carolina Real Estate, Sec. 21-72 (Harrison Co., Atlanta, Ga. 1996).
The above rule pertains to a federal tax lien. E. Urban and G. Whitney, supra, Sec. 21-46. It pertains to a lien for labor, services and materials. Smith Builders Supply, Inc. supra; Carolina Builders Corp. v. Howard Veasey Homes, Inc., 72 N.C. App. 224, 324 S.E.2d 626, cert. Den., 313 N.C. 597, 330 S.E.2d 608 (1985). The rule arguably does not apply to a judgment lien securing the United States under a law becoming effective May 28, 1991. See E. Urban and G. Whitney, supra, Sec. 21-40(b) citing 28 U.S.C. Sec. 3201(b).
The rule does not apply if there is an undue delay in recording of the deed of trust. Pegram West, Inc. v. Hiatt Homes, Inc., 12 N.C. App. 514, 184 S.E.2d 65 (1971) (several days delay in recording deed of trust).
The rule did not apply where the deed to B was recorded and immediately thereafter there was recorded a construction loan deed of trust and then L’s purchase money deed of trust was recorded. Carolina Builders Corp., supra.In one case, the rule applied to L’s deed of trust to the extent it secured the obligation to repay purchase money, but not to the extent that the deed of trust secured construction loan proceeds. Dalton Moran Shook, Inc. v. Pitt Development Co., 113 N.C. App. 707, 440 S.E.2d 585 (1994).
HUSBAND AND WIFE – SITUATIONS INVOLVING WHETHER SPOUSE OF OWNER MUST JOIN IN CONVEYANCE
Vestiture of title in one spouse and marital rights of the other
G.S. 39-13.3 sets out the rules for vesting of title as a result of conveyances between husband and wife. G.S. 39-13.3(a) and (c) set forth situations where one spouse becomes vested with title as the sole grantee. G.S. 39-13.3(d) provides that joinder of the spouse of the grantor in any conveyance by a husband or wife pursuant to G.S. 39-13.3 is unnecessary. This statute does not deal with a subsequent conveyance by the grantee spouse acquiring title under G.S. 39-13(a) or (c).
Under what circumstances must a spouse holding title obtain the joinder of the souse not holding title in order to release G.S. 29-30 rights? Ordinarily, G.S.39-7(a) requires joinder, subject to G.S. 39-7(c).
G.S. 29-30 gives a non-owner spouse certain spousal
rights in a deceased owner spouse’s real property that is owned at death
or is conveyed prior to death without joinder of the non-owner spouse when
joinder is required. There
are several rules under which G.S. 29-30 rights do not exist under the
exceptions set out in G.S. 29-30(a)(1), (2), (3) and (4).
As a practical matter, if an unrecorded separation agreement contains a waiver of G.S. 29-30 marital rights, it can be relied on to dispense with joinder of the non-owner spouse if the person relying upon the separation agreement is convinced that the agreement has not been revoked by the “resumption of marital relations” as defined in G.S. 52-10.2. Your local office of The Title Company of North Carolina should be consulted since resumption of marital relations can revoke provisions of the separation agreement. See, for example, Jones v. Lewis, 243 N.C. 259, 905, S.E.2d 547 (1955).
G.S. 39-13.4 provides protection and should be utilized. When utilized, its provisions protect any conveyance of real property or an interest therein; a deed of trust, for example, is included. If a separation agreement authorizes the spouse owning the real property to convey without the joinder of the other spouse, and the agreement or a memorandum thereof reciting that fact is properly recorded in the register of deeds’ office, a subsequent conveyance by the owner will pass title free of the other spouse’s rights, including G.S. 29-30 rights Unless, prior to the conveyance, there is recorded in the register of deeds’ office an instrument canceling the separation agreement or memorandum thereof and the instrument of cancellation must comply with G.S. 52-10.1 or G.S. 52-10, as the case may be. E. Urban and G. Whitney, Real Estate Law in North Carolina, Sec. 21-106 (discussing separation agreements and G.S. 39-13.4), Sec. 13-26 (discussing G.S. 29-30) and Sec. 25-23 (discussing G.S. 39-13.3) (Harrison Co., Atlanta, Ga. 1996).
in the grantee spouse’s deed
Minors and certain
A married person owning title to real property solely
may convey, lease and mortgage that person’s real property without the
waiver or joinder of the other spouse where the other spouse is
incompetent and a guardian or trustee has been appointed as provided by
law and if the appropriate instrument is executed by the owner and the
guardian or trustee of the incompetent spouse and is recorded.
Title will pass free of the incompetent spouse’s G.S. 29-30 and
other marital rights. G.S.
Purchase money mortgages and
deeds of trust
Please see our other article in this issue.