When a deed of trust and the note it secures have been lost, and the original trustee is missing or has become incompetent, can the secured party (the beneficiary or 'cestui que trust' under the deed of trust) acknowledge satisfaction of the deed of trust under N.C.G.S. § 45-37(a)(1) to clear the title from the public records?

Plain-English summary

The Register of Deeds of Union County asked the AG a procedural property-law question that came up when secured parties under deeds of trust tried to clear satisfied debts from the public records, especially when the original deed of trust and note had been lost and the trustee was missing or incompetent. Under N.C.G.S. § 45-37(a)(1), an acknowledgment of satisfaction is the standard way to discharge a recorded security instrument. The question: could the secured party (the beneficiary of the deed of trust) execute the acknowledgment when the trustee was unavailable?

The 1978 AG said no.

The reasoning rests on a distinction that is fundamental in North Carolina property law but easy to overlook.

A deed of trust is not a mortgage; the secured party is not the mortgagee. Real estate financing in North Carolina is typically done by deed of trust rather than by mortgage. A mortgage has two parties (mortgagor and mortgagee); the mortgagee is both the lender and the holder of legal title to the security. A deed of trust has three parties: the grantor or trustor (borrower), the trustee (who holds legal title for security purposes), and the cestui que trust or beneficiary (the lender). In a deed of trust, the secured party is the beneficiary, not the trustee, and not the holder of legal title.

The AG cited the technical sources directly: 7 Strong's N.C. Index 2d, Statutes, § 5 (1968) (technical terms must be given their technical connotation); Osborne, Mortgages, § 17 (2nd ed 1970) (cestui que trust is the third party in a deed of trust); Webster, Real Estate Law in North Carolina, §§ 228-230 (1971) (secured party in deed of trust does not hold legal title); and Simms v. Hawkins, 1 N.C. App. 168, 160 S.E. 2d 514 (1968) ("Upon the execution of a mortgage or deed of trust on real estate, legal title to the land vests in the mortgagee or trustee, as the case may be").

Section 45-37(a)(1) lists four categories of permitted acknowledgers. The trustee, the mortgagee, the legal representative of a trustee or mortgagee, or a duly authorized agent of any of the above. The secured party in a deed of trust falls into none of these categories. The secured party is not the trustee (different role). The secured party is not the mortgagee (different transaction structure). And on the facts presented to the AG, the secured party was not a legal representative or duly authorized agent.

Strict compliance is required. Mills v. Kemp, 196 N.C. 309, 145 S.E. 557 (1928), is the cited authority for strict compliance with the satisfaction-acknowledgment statute. The Register of Deeds cannot improvise on the categories of permitted acknowledgers.

Section 45-37.1 confirms the AG's reading. N.C.G.S. § 45-37.1 is a validating statute enacted to cure pre-1930 cases where the secured party (rather than the trustee or mortgagee) had acknowledged satisfaction. The existence of the validating statute is itself evidence that the secured party lacks acknowledgment authority going forward; if the secured party already had that authority, no validating statute would have been necessary.

The proper procedure. Since the deed of trust and note were missing and the trustee was absent or incompetent, the path forward is to appoint a substitute trustee. N.C.G.S. § 45-10 and N.C.G.S. § 45-11 are the substitute-trustee mechanisms. Once a substitute trustee is in place, that trustee can acknowledge satisfaction under N.C.G.S. § 45-37(a)(1).

Currency note

This opinion was issued in 1978. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here. N.C.G.S. § 45-37 and the substitute-trustee provisions in Chapter 45 have been amended since 1978, including the addition of new mechanisms for clearing satisfied deeds of trust. Anyone facing a current lien-discharge problem should consult current Chapter 45 text and the current Register of Deeds standards.

Historical context: what the AG concluded

The opinion is a clean exercise in technical statutory and conveyancing distinction. North Carolina, like most southern and southwestern states, uses deed-of-trust financing rather than mortgage financing as the dominant residential and commercial security structure. The deed of trust has practical advantages (non-judicial power-of-sale foreclosure under proper conditions; substitute-trustee mechanisms), but it requires careful attention to the three-party structure.

The acknowledgment-of-satisfaction statute is one of the places where the three-party distinction matters. N.C.G.S. § 45-37(a)(1) is drafted with both deed-of-trust and mortgage parties in mind: the "trustee" reference is for deeds of trust, the "mortgagee" reference is for mortgages, and "legal representative" and "duly authorized agent" cover both. The drafter did not include the cestui que trust because the trustee is the appropriate acknowledger in a deed of trust.

In practice, real estate practitioners sometimes had the secured party execute satisfaction acknowledgments when the trustee was unavailable, especially if the loan was old and the original trustee had died or moved. The 1930 validating statute (N.C.G.S. § 45-37.1) was the General Assembly's cleanup of widespread practice that did not conform to the statutory framework. By validating only pre-1930 cases, the legislature implicitly affirmed that the practice was not authorized for the future.

For the Register of Deeds in 1978, the takeaway was administrative: an acknowledgment of satisfaction submitted by the secured party rather than the trustee should be rejected as not in statutory compliance. The Register can require that a substitute trustee be appointed under § 45-10 or § 45-11 before accepting the acknowledgment.

For a creditor with a lost note and missing trustee, the takeaway was procedural: do not try to acknowledge satisfaction yourself. Petition for substitute trustee under § 45-10 or § 45-11, then have the substitute trustee acknowledge.

The AG flags an alternative: § 45-37 contains other methods to discharge the instrument. The substitute-trustee path through § 45-37(a)(1) is the cleanest, but the chapter provides additional discharge mechanisms for cases where the simple acknowledgment route does not fit.

Common questions

Can a lender acknowledge satisfaction of a North Carolina deed of trust?

Not directly. Under N.C.G.S. § 45-37(a)(1), only the trustee, the mortgagee, the legal representative of either, or a duly authorized agent of any of them can acknowledge satisfaction. A lender in a deed of trust is the beneficiary, not the trustee, and is not a mortgagee. The lender has to go through the trustee or, if the trustee is unavailable, through a substitute trustee appointed under § 45-10 or § 45-11.

Why is a deed of trust treated differently from a mortgage here?

Because they are structurally different transactions. A mortgage is two-party: legal title and security interest are both in the mortgagee. A deed of trust is three-party: legal title is in the trustee, security beneficial interest is in the cestui que trust, ownership is in the trustor. The statute names the categories of persons who can act on behalf of each party in the satisfaction acknowledgment, and the beneficiary of a deed of trust is not among them.

What if the original trustee has died or is incapacitated?

Appoint a substitute trustee under N.C.G.S. § 45-10 or § 45-11. Those statutes provide the procedure. Once the substitute trustee is in place, that trustee can acknowledge satisfaction under N.C.G.S. § 45-37(a)(1).

What if the deed of trust and note are lost?

That alone does not authorize the secured party to acknowledge satisfaction. The substitute-trustee path is still available. Additional documentation (an affidavit of lost note, indemnification, copies) may be needed for the substitute trustee or the Register of Deeds to be satisfied that the debt has actually been paid.

Why did the General Assembly enact § 45-37.1?

To validate the satisfaction acknowledgments that secured parties had improperly given before 1930. The AG read the existence of the validating statute as confirmation that the practice was not authorized for the future: if the secured party already had the authority, no validating statute would have been needed.

What other methods of discharge are available under N.C.G.S. § 45-37?

The opinion mentions that "the secured party may not acknowledge satisfaction but must use some other method under N.C.G.S. 45-37 to discharge the instrument of record." The statute contains other discharge mechanisms beyond simple acknowledgment. The opinion does not detail them, but Chapter 45 provides procedures for cases where the acknowledgment route is not available.

Background and statutory framework

The North Carolina lien-clearing statutes. N.C.G.S. § 45-37 governs discharge of mortgages and deeds of trust from the public records. Subsection (a)(1) lists the persons authorized to acknowledge satisfaction.

The substitute-trustee statutes. N.C.G.S. §§ 45-10 and 45-11 provide procedures for appointing a substitute trustee when the original trustee is unavailable.

The validating statute. N.C.G.S. § 45-37.1 validates pre-1930 satisfaction acknowledgments executed by secured parties who lacked authority under § 45-37(a)(1). The implicit corollary is that post-1930 acknowledgments by secured parties without authority are not validated and remain ineffective.

The strict-compliance rule. Mills v. Kemp, 196 N.C. 309, 145 S.E. 557 (1928), establishes that statutes governing satisfaction acknowledgments must be strictly complied with.

Conveyancing doctrine. 7 Strong's N.C. Index 2d, Statutes, § 5 (1968), supplies the canon that technical terms in statutes get their technical meaning. Osborne, Mortgages, § 17 (2nd ed 1970), and Webster, Real Estate Law in North Carolina, §§ 228-230 (1971), supply the substantive distinction between mortgage and deed of trust parties. Simms v. Hawkins, 1 N.C. App. 168 (1968), is the appellate-level recognition of the same distinction.

Citations

• N.C.G.S. § 45-10
• N.C.G.S. § 45-11
• N.C.G.S. § 45-37
• N.C.G.S. § 45-37(a)(1)
• N.C.G.S. § 45-37.1
• Mills v. Kemp, 196 N.C. 309, 145 S.E. 557 (1928)
• Simms v. Hawkins, 1 N.C. App. 168, 160 S.E. 2d 514 (1968)
• 7 Strong's N.C. Index 2d, Statutes, § 5 (1968)
• Osborne, Mortgages, § 17 (2nd ed 1970)
• Webster, Real Estate Law in North Carolina, §§ 228-230 (1971)

Source

• Landing page: https://ncdoj.gov/opinions/mortgages-and-deeds-of-trust-discharge-of-instrument-by-acknowledgment/

Original opinion text

Requested By: Mrs. Mary B. Carriker Register of Deeds Union County

Question: Where a deed of trust and note secured thereby have been lost and the trustee is absent or has otherwise been rendered incompetent, may the party secured by that deed of trust acknowledge satisfaction of the instrument under N.C.G.S. 45-37-(a)(1)?

Conclusion: No.

N.C.G.S. 45-37(a)(1) provides that acknowledgement of satisfaction of a deed of trust, mortgage or other instrument may be made by (a) the trustee, (b) the mortgagee, (c) the legal representative of a trustee or mortgagee or (d) a duly authorized agent of any of the above.

Unless the secured party falls into one of the above listed categories, he may not acknowledge satisfaction but must use some other method under N.C.G.S. 45-37 to discharge the instrument of record. The statute must be strictly complied with. Mills v. Kemp, 196 N.C. 309, 145 S.E. 557 (1928).

The secured party in a deed of trust is generally not the trustee. Nor is there anything in the question asked to indicate that the secured party is a legal representative of the trustee or a duly authorized agent or attorney. The question then is whether the secured party in a deed of trust is a mortgagee?

"In costruing a statute it will be presumed that the legislature comprehended the import of the words employed by it to express its intent. Accordingly, technical terms must ordinarily be given their technical connotation." 7 Strong's N.C. Index 2d, Statutes, § 5 (1968).

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

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

The Courts clearly recognize a difference between the true mortgage and a deed of trust as evidenced by the following statement, "Upon the execution of a mortgage or deed or trust on real estate, legal title to the land vests in the mortgagee or trustee, as the case may be." Simms v. Hawkins, 1 N.C. App. 168, 160 S.E. 2d 514 (1968). (Emphasis added).

Unlike the trustee or mortgagee, the secured party does not hold legal title. Webster, Real Estate Law in North Carolina, § 228-230 (1971). Thus, the secured party in a deed of trust is not synonymous with a mortgagee.

As a further indication that the Legislature did not intend for the secured party to have authority to acknowledge satisfaction of a deed of trust, N.C.G.S. 45-37.1 was enacted to validate cases (prior to 1930) where the secured party/beneficiary had made the acknowledgment. If the secured party had such authority there would be no reason or need for the validating statute.

In conclusion, the secured party in a deed of trust must not acknowledge satisfaction of that instrument under N.C.G.S. 45-37(a)(1).

Since the instruments are missing and since the trustee is absent or otherwise incompetent the appropriate procedure would be to appoint a substitute trustee under N.C.G.S. 45-10 or 45-11. That person could then acknowledge satisfaction of the note and deed of trust in accordance with those provisions and N.C.G.S. 45-37(a)(1).

Rufus L. Edmisten
Attorney General

Lucien Capone, III
Associate Attorney General