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Assembly Ratifies Notice Of Settlement Act

The hotly debated Notice of Settlement Act is now law.

The Act, which had the backing of the NCBA’s Real Property Section, was ratified June 11. The effective date of HB 868 is July 1, 1992.

The intent of the Act is to hasten real estate transactions and allow the disbursement of funds at closing even though the final title document is not yet recorded.

The bill’s primary impact will likely be felt in residential closings by expediting multiple, interrelated closings on the same day, according to Raleigh attorney William S. Cherry Jr., past president of the Real Property Section.

‘One residential closing is often tied to another closing in the sense that the seller needs the money from [one] closing to purchase a home in another closing,’ he said. ‘Under currently accepted closing practices this is extremely difficult to accomplish in one day, especially if one of the homes is in another community. The Act permits this to be accomplished with relative ease.’

Cherry said the Act is a response to marketplace demands.

‘The real estate community ‘ the sellers, the purchasers and the realtors ‘ want proceeds disbursed at the closing table,’ he told Lawyers Weekly.

But detractors say the notice will mean more paperwork for title examiners and place undue time pressures on closing transactions.

Priority Over Tax Liens

Under the Act, a notice document is filed with the register of deeds prior to a real estate closing. The property settlement must take place within three days of the filing. Only one notice may be filed for each settlement. Use of the settlement notice is voluntary.

According to Cherry, the Act gives priority over intervening federal tax liens to persons or institutions with an interest in the property at the time of filing. In standard residential transactions, that is normally the purchaser and lender, whose property interest is created by the purchase contract.

The purchaser and lender will also have priority over intervening judgments and other persons who acquire interest in the property after the notice has been filed.

The Act does not extinguish the right of the judgment creditor to attach the sale proceeds or take other available measures. Nor does it affect mechanics and materialman’s liens where labor or materials were provided before the notice filing.


Though praised by some, the Act has drawn criticism from some legislators and real property lawyers.

In a Lawyers Weekly guest column last June, Sen. Roy A. Cooper III, who at the time was chairman of the House Judiciary Committee, leveled criticism at several possible effects of the legislation (See June 25, 1990 Lawyers Weekly).

Cooper said the additional entries in the grantor index would clutter the record books and over the years place a significant burden on title examiners. And he said lawyers might be pressured to rush through closing preparations in order to meet the artificial three-day deadline imposed by the Act. He also objected to yet another filing fee that would be required of lawyers.

Cooper said he voted against the bill in the Senate.

‘I agree with 99 percent of legislation proposed by the NCBA but I’m disappointed that this one passed,’ he told Lawyers Weekly. ‘Since its use is voluntary, I hope lawyers will use it sparingly.

Keeping Lawyers In Practice

Cherry acknowledged that the Act would create more paperwork but said it would be insignificant given the fact that most title examinations are limited updates. He predicted the Act would draw more lawyers into the area of residential real estate closings.

‘It is my view if it doesn’t bring more into the practice it may keep some from leaving,’ he said. ‘In the past, if you were going to follow the currently accepted practice of recording documents and then disbursing funds, that created problems with the realty community. Realtors, buyers and purchasers wanted funds disbursed at the closing table. If attorneys followed the accepted practice, the business was often shifted to lawyers who followed non-accepted practices.’

Although lawyers could conceivably expand their real estate practices into neighboring towns, Cherry said it was unlikely that lawyers would do so.

‘Even with the Act, it will not be economical for a lawyer to handle transactions in a community in which he or she does not regularly practice,’ he said.

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