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Revisions to the Future Advance Provisions of the North Carolina General Statues Relating to Mortgages and Deeds of Trust

10.08.2009

 
The General Assembly recently enacted revisions to the future advance provisions of the North Carolina General Statutes. The revisions, while extensive, resulted in clarification rather than significant modification of the existing regime.

The concept of an “advance” was introduced to N.C.G.S. 45-67, which previously only contained a definition of “security instrument”. An “advance” under the revised statute is “a disbursement of funds or other action that increases the outstanding principal balance owing on an obligation for the payment of money”.

N.C.G.S. 45-68 was revised to clarify and identify the obligations and advances secured by a future advance security instrument. A properly drafted security instrument secures existing obligations identified in the security instrument and all advances made at or prior to the registration of the security instrument as well as future advances and future obligations incurred under the security instrument.

The General Assembly considers a security instrument properly drafted if it shows: 1) that it was given wholly or partly to secure future advances and/or future obligations made under the security instrument; 2) the maximum principal amount that may be secured by the security instrument at any one time; and 3) the time period within which such future advances may be made and future obligations incurred, which period may not exceed 30 years beyond the date of the security instrument, or, if undated, 30 years beyond the registration of the security instrument.

The revisions to N.C.G.S. 45-67 and N.C.G.S. 45-68 serve to distinguish between advances and obligations, and to extend the time period future advances may be made and future obligations may be incurred from 15 years to 30 years.

Assuming a security instrument is properly drafted and does not otherwise provide to the contrary, N.C.G.S. 45-69 confirms that all future advances made and future obligations incurred under a security instrument will be secured to the same extent as original advances and obligations secured by the security instrument so long as they do not exceed the maximum amount specified in the security instrument. If the aggregate outstanding principal balance of the obligations secured by the security instrument exceeds the maximum principal amount that may be secured, then the excess is not secured by the security instrument.

The General Assembly also revised the date of priority of advances and obligations secured by a future advance security instrument. Pursuant to the revised N.C.G.S. 45-70(a), priority dates from the time and date of registration of the security instrument rather than the date of execution of the security instrument, as was previously the case.

These revisions and others made to the future advance provisions of the North Carolina General Statutes are effective October 1, 2009 and apply to security instruments whether registered before, after or on October 1, 2009. Security instruments registered before October 1, 2009 are conclusively presumed to comply with the provisions of G.S. 45-68 as revised, if the security instrument complied with the provisions of G.S. 45-68 in effect prior to October 1, 2009.
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