North Carolina Closing Process Who, What, When, Where, How and Why?

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1 North Carolina Closing Process Who, What, When, Where, How and Why? Per your request, below are a very simple chart and some relevant statutes regarding NC legal requirements for closing real estate transactions and issuance of title insurance coverage. These are in addition to anything required by federal law or RESPA. Action Who & How Legal Cite (N.C.G.S. means North Carolina General Statutes) Preparation or aiding in the preparation of deeds, mortgages, legal docs 1. NC licensed attorney, not an employee (other than of a law firm), or legal assistant under their direct supervision,. 2. Actual party (lender, borrower, not a paid representative or even a corporate employee-attorney) N.C.G.S ; N.C.G.S State v. Pledger Abstracting or passing upon titles Title certification for title insurance Title update and certification at time of recording NC licensed attorney, or legal assistant under their direct supervision, not an employee (other than of a law firm) NC licensed attorney on title insurer s approved attorney list (though may use report of legal assistant under their direct supervision) NOT EMPLOYED BY, AN OWNER OF OR AFFILIATED WITH THE TITLE INSURANCE COMPANY OR AGENT NC licensed attorney on title insurer s approved attorney list (though may use report of legal assistant under their direct supervision) NOT EMPLOYED BY, AN OWNER OF OR AFFILIATED WITH THE TITLE INSURANCE COMPANY OR AGENT N.C.G.S N.C.G.S (a); N.C.G.S chicagobulls.asp#ethics N.C.G.S (a); N.C.G.S chicagobulls.asp#ethics Page 1 of 13

2 Present and identify the documents, direct the parties where to sign the documents, and ensure that the parties have properly executed the documents, without answering questions, explanation or analysis Receive and disburse the closing funds only (based on parties drafting & agreement on HUD-1 or comparable closing statement, and only after update of title and recording of closing documents) Underwriting & issuing title insurance commitments or policies Advise or give opinion upon the legal documents, rights of person, etc. Attorney closing is standard in North Carolina. A nonlawyer can do very limited functions (so long as providing no explanation or advice regarding nature or terms of documents being s igned) CAUTION: This is not the normal procedure in NC and the buyer/borrower s lack of representation is risky to anyone involved. So it is highly discouraged and should be accompanied with significant, clear disclosures to consumer about scope of representation (or lack thereof) and risks to them of failure to retain attorney instead as well as written waivers. No representation of saving money using nonlawyer should be made as this is highly unlikely to be true and may be a clear misrepresentation. No closing protection coverage is available to a nonattorney other than the actual agent/agency of the title underwriter. Attorney closing is standard in North Carolina. Nonlawyer may do this, but only after all legal documents are prepared by a NC attorney (or a party to the transaction) and after an attorney has updated title and recorded documents. By licensed title insurance underwriter, only upon receipt of title certification from NC licensed attorney, unaffiliated with the title company, on the underwriter s approved list NC licensed attorney only (not an employee of title insurer or company other than law firm, even if an attorney) Authorized Practice Advisory Opinion , estate_ethics.asp N.C.G.S Good Funds Settlement Act, N.C.G.S. Chapter 45A; Authorized Practice Advisory Opinion , estate_ethics.asp N.C.G.S N.C.G.S ; N.C.G.S Page 2 of 13

3 Closing Protection Coverage Issued by title insurance underwriter but only for: (1) NC Licensed attorney on their approved attorney list, not an employee of a company other than a law firm OR (2) Individual with active NC agency license, duly appointed as NC representative of title insurance company licensed in NC with NC Dept of Insurance (after compliance with examination and registration requirements) Form and rate must comply with NC Title Insurance Rating Bureau filing with the NC Department of Insurance. NO BLANKET LETTERS specific attorney, lender and borrower/buyer must be identified in each letter. N.C.G.S docs/pdf/bull_icl pdf Page 3 of 13

4 APPLICABLE TITLE INSURANCE STATUTES N.C.G.S Purpose of organization; formation; insuring closing services; premium rates; combined premiums for lenders' coverages (a) Companies may be formed in the manner provided in this Article for the purpose of furnishing information in relation to titles to real estate and of insuring owners and others interested therein against loss by reason of encumbrances and defective title; provided, however, that no such information shall be so furnished nor shall such insurance be so issued as to North Carolina real property unless and until the title insurance company has obtained the opinion of an attorney, licensed to practice law in North Carolina and not an employee or agent of the company, who has conducted or caused to be conducted under the attorney's direct supervision a reasonable examination of the title. The company shall cause to be made a determination of insurability of title in accordance with sound underwriting practices for title insurance companies. A company may also insure the proper performance of services necessary to conduct a real estate closing performed by an approved attorney licensed to practice in North Carolina. Provided, however, nothing in this section shall be construed to prohibit or preclude a title insurance company from insuring proper performance by its issuing agents. (b) Repealed by Session Laws , s (b1) Domestic and foreign title insurance companies are subject to the same capital, surplus, and investment requirements that govern the formation and operation of domestic stock casualty companies. Domestic title insurance companies are subject to the same deposit requirements that govern the operation of other domestic casualty companies in this State. Foreign or alien title insurance companies are subject to an initial deposit pursuant to G.S (b), based on the forecasted statutory premium reserve and the supplemental reserve for the first full year of operation in this State, but not less than two hundred thousand dollars ($ 200,000). (c) This Article shall not be interpreted so as to imply the repeal or amendment of any of the provisions of Chapter 84 of the General Statutes of North Carolina nor of any other provisions of common law or statutory law governing the practice of law. (d) The premium rates charged for insuring against loss by reason of encumbrances and defective title and for insuring real estate closing services shall be based on the purchase price of the real estate being conveyed or the loan amount and shall 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 shall charge one undivided premium for the combination of the title insurance and the closing services insurance. (e) If the premium stated upon a policy of title insurance has been understated or overstated due to inadvertence, mistake, or miscalculation of the closing attorney or his employees, and the incident is not purposeful or part of a pattern, the Commissioner of Insurance shall not be required to impose a civil penalty or other sanction for the inadvertence, mistake, or miscalculation. ********************************************** Page 4 of 13

5 APPLICABLE PRACTICE OF LAW STATUTES & AUTHORIZED PRACTICE OPINION "Practice law" defined The phrase "practice law" as used in this Chapter is defined to be performing any legal service for any other person, firm or corporation, with or without compensation, specifically including the preparation or aiding in the preparation of deeds, mortgages, wills, trust instruments, inventories, accounts or reports of guardians, trustees, administrators or executors, or preparing or aiding in the preparation of any petitions or orders in any probate or court proceeding; abstracting or passing upon titles, the preparation and filing of petitions for use in any court, including administrative tribunals and other judicial or quasi-judicial bodies, or assisting by advice, counsel, or otherwise in any legal work; and to advise or give opinion upon the legal rights of any person, firm or corporation: Provided, that the above reference to particular acts which are specifically included within the definition of the phrase "practice law" shall not be construed to limit the foregoing general definition of the term, but shall be construed to include the foregoing particular acts, as well as all other acts within the general definition. The phrase "practice law" does not encompass the writing of memoranda of understanding or other mediation summaries by mediators at community mediation centers authorized by G.S. 7A Persons other than members of State Bar prohibited from practicing law Except as otherwise permitted by law, it shall be unlawful for any person or association of persons, except active members of the Bar of the State of North Carolina admitted and licensed to practice as attorneys-atlaw, to appear as attorney or counselor at law in any action or proceeding before any judicial body, including the North Carolina Industrial Commission, or the Utilities Commission; to maintain, conduct, or defend the same, except in his own behalf as a party thereto; or, by word, sign, letter, or advertisement, to hold out himself, or themselves, as competent or qualified to give legal advice or counsel, or to prepare legal documents, or as being engaged in advising or counseling in law or acting as attorney or counselor-atlaw, or in furnishing the services of a lawyer or lawyers; and it shall be unlawful for any person or association of persons except active members of the Bar, for or without a fee or consideration, to give legal advice or counsel, perform for or furnish to another legal services, or to prepare directly or through another for another person, firm or corporation, any will or testamentary disposition, or instrument of trust, or to organize corporations or prepare for another person, firm or corporation, any other legal document. Provided, that nothing herein shall prohibit any person from drawing a will for another in an emergency wherein the imminence of death leaves insufficient time to have the same drawn and its execution supervised by a licensed attorney-at-law. The provisions of this section shall be in addition to and not in lieu of any other provisions of this Chapter. Provided, however, this section shall not apply to corporations authorized to practice law under the provisions of Chapter 55B [Professional Corporations Act] of the General Statutes of North Carolina Prohibition as to practice of law by corporation (a) It shall be unlawful for any corporation to practice law or appear as an attorney for any person in any court in this State, or before any judicial body or the North Carolina Industrial Commission, Utilities Commission, or the Employment Security Commission, or hold itself out to the public or advertise as being entitled to practice law; and no corporation shall organize corporations, or draw agreements, or other legal documents, or draw wills, or practice law, or give legal advice, or hold itself out in any manner as being entitled to do any of the foregoing acts, by or through any person orally or by advertisement, letter or circular. The provisions of this section shall be in addition to and not in lieu of any other provisions of Chapter 84. Provided, that nothing in this section shall be construed to prohibit a banking corporation authorized and licensed to act in a fiduciary capacity [such as named trustee of a trust or executor under a duly-probated Last Will and Testament of a decedent] from performing any clerical, accounting, financial or business acts required of it in the performance of its duties as a fiduciary or from performing ministerial and clerical acts in the preparation and filing of such tax returns as are so required, or from discussing the business and financial aspects of fiduciary relationships. Provided, however, this section shall not apply to corporations authorized to practice law under the provisions of Chapter 55B [Professional Corporations Act] of the General Statutes of North Carolina. Page 5 of 13

6 To further clarify the foregoing provisions of this section as they apply to corporations which are authorized and licensed to act in a fiduciary capacity: (1) A corporation authorized and licensed to act in a fiduciary capacity shall not: a. Draw wills or trust instruments; provided that this shall not be construed to prohibit an employee of such corporation from conferring and cooperating with an attorney who is not a salaried employee of the corporation, at the request of such attorney, in connection with the attorney's performance of services for a client who desires to appoint the corporation executor or trustee or otherwise to utilize the fiduciary services of the corporation. b. Give legal advice or legal counsel, orally or written, to any customer or prospective customer or to any person who is considering renunciation of the right to qualify as executor or administrator or who proposes to resign as guardian or trustee, or to any other person, firm or corporation. Advertise to perform any of the acts prohibited herein; solicit to perform any of the acts prohibited herein; or offer to perform any of the acts prohibited herein. (2) Except as provided in subsection (b) of this section, when any of the following acts are to be performed in connection with the fiduciary activities of such a corporation, said acts shall be performed for the corporation by a duly licensed attorney, not a salaried employee of the corporation, retained to perform legal services required in connection with the particular estate, trust or other fiduciary matter: a. Offering wills for probate. b. Preparing and publishing notice of administration to creditors. c. Handling formal court proceedings. d. Drafting legal papers or giving legal advice to spouses concerning rights to an elective share under Article 1A of Chapter 30 of the General Statutes. e. Resolving questions of domicile and residence of a decedent. f. Handling proceedings involving year's allowances of widows and children. g. Drafting deeds, notes, deeds of trust, leases, options and other contracts. h. Drafting instruments releasing deeds of trust. i. Drafting assignments of rent. j. Drafting any formal legal document to be used in the discharge of the corporate fiduciary's duty. k. In matters involving estate and inheritance taxes, gift taxes, and federal and State income taxes: 1. Preparing and filing protests or claims for refund, except requests for a refund based on mathematical or clerical errors in tax returns filed by it as a fiduciary. 2. Conferring with tax authorities regarding protests or claims for refund, except those based on mathematical or clerical errors in tax returns filed by it as a fiduciary. 3. Handling petitions to the tax court. l. Performing legal services in insolvency proceedings or before a referee in bankruptcy or in court. m. In connection with the administration of an estate or trust: 1. Making application for letters testamentary or letters of administration. 2. Abstracting or passing upon title to property. 3. Handling litigation relating to claims by or against the estate or trust. 4. Handling foreclosure proceedings of deeds of trust or other security instruments which are in default. (3) When any of the following acts are to be performed in connection with the fiduciary activities of such a corporation, the corporation shall comply with the following: a. The initial opening and inventorying of safe deposit boxes in connection with the administration of an estate for which the corporation is executor or administrator shall be handled by, or with the advice of, an attorney, not a salaried employee of the corporation, retained by the corporation to perform legal services required in connection with that particular estate. b. The furnishing of a beneficiary with applicable portions of a testator's will relating to such beneficiary Page 6 of 13

7 shall, if accompanied by any legal advice or opinion, be handled by, or with the advice of, an attorney, not a salaried employee of the corporation, retained by the corporation to perform legal services required in connection with that particular estate or matter. c. In matters involving estate and inheritance taxes and federal and State income taxes, the corporation shall not execute waivers of statutes of limitations without the advice of an attorney, not a salaried employee of the corporation, retained by the corporation to perform legal services in connection with that particular estate or matter. d. An attorney, not a salaried employee of the corporation, retained by the corporation to perform legal services required in connection with an estate or trust shall be furnished copies of inventories and accounts proposed for filing with any court and proposed federal estate and North Carolina inheritance tax returns and, on request, copies of proposed income and intangibles tax returns, and shall be afforded an opportunity to advise and counsel the corporate fiduciary concerning them prior to filing. (b) Nothing in this section shall prohibit an attorney retained by a corporation, whether or not the attorney is also a salaried employee of the corporation, from representing the corporation or an affiliate, or from representing an officer, director, or employee of the corporation or an affiliate in any matter arising in connection with the course and scope of the employment of the officer, director, or employee. Notwithstanding the provisions of this subsection, the attorney providing such representation shall be governed by and subject to all of the Rules of Professional Conduct of the North Carolina State Bar to the same extent as all other attorneys licensed by this State. RELEVANT CASE NOTES: PRACTICE OF LAW EMBRACES THE PREPARATION OF LEGAL DOCUMENTS and contracts by which legal rights are secured.... NOT ALL ACTIVITIES WITHIN DEFINITION ARE UNLAWFUL FOR LAY PERSONS. --It was not the purpose and intent of this section to make unlawful all activities of lay persons which come within the general definition of practicing law... PERSONS HAVING PRIMARY INTEREST IN TRANSACTION MAY PREPARE NECESSARY PAPERS. --A person, firm or corporation having a primary interest, not merely an incidental interest, in a transaction, may prepare legal documents necessary to the furtherance and completion of the transaction without violating this section.... Automobile, furniture, and appliance dealers prepare conditional sale contracts. Banks prepare promissory notes, drafts and letters of credit. Many lending institutions prepare deeds of trust and chattel mortgages. Owner-vendors and purchasers of land prepare deeds. All such activities are legal and do not violate the statute so long as the actor has a primary interest in the transaction... PREPARATION OF DOCUMENTS BY EMPLOYEES OF CORPORATIONS. --A person who, in the course of his employment by a corporation, prepares a legal document in connection with a business transaction in which the corporation has a primary interest, the corporation being authorized by law and its charter to transact such business, does not violate the statute, for his act in so doing is the act of the corporation in the furtherance of its own business. A deed of trust is a legal document... THE GRANTOR OR THE BENEFICIARY IN A DEED OF TRUST MAY PREPARE THE INSTRUMENT with impunity if the latter is extending credit to the former; the named trustee may not do so, for his interest is only incidental. State v. Pledger, 257 N.C. 634, 127 S.E.2d 337 (1962), commented on in 41 N.C.L. Rev. 225 (1963). A LICENSED ATTORNEY WHO IS A FULL-TIME EMPLOYEE OF AN INSURANCE COMPANY may not ethically represent one of the company's insureds as counsel of record in an action brought by a third party for a claim covered by the terms of the insurance policy or appear as counsel of record for the insured in the prosecution of a subrogation claim for property damage. Gardner v. North Carolina State Bar, 316 N.C. 285, 341 S.E.2d 517 (1986) Punishment for violations Any person, corporation, or association of persons violating the provisions of G.S to 84-8 shall be guilty of a Class 1 misdemeanor. Page 7 of 13

8 ********************************************** Authorized Practice Advisory Opinion January 24, 2003 On the Role of Laypersons in the Consummation of Residential Real Estate Transactions The North Carolina State Bar has been requested to interpret the North Carolina unauthorized practice of law statutes (N.C. Gen. Stat to 84-5) as they apply to residential real estate transactions. The State Bar issues the following authorized practice of law advisory opinion pursuant to N.C. Gen. Stat (f) after careful consideration and investigation. This opinion supersedes any prior opinions and decisions of any standing committee of the State Bar interpreting the unauthorized practice of law statutes to the extent those opinions and decisions are inconsistent with the conclusions expressed herein. Issue 1: May a nonlawyer handle a residential real estate closing for one or more of the parties to the transaction? Opinion 1: No. Residential real estate transactions typically involve several phases, including the following: abstraction of titles; application for title insurance policies, including title insurance policies that may incorporate tailored coverage; preparation of legal documents, such as deeds (in the case of a purchase transaction) and deeds of trust; explanation of documents implicating parties legal rights, obligations, and options; resolution of possible clouds on title and issues concerning the legal rights of parties to the transaction; execution and acknowledgement of documents in compliance with legal mandates; recordation and cancellation of documents in accordance with North Carolina law; and disbursement of proceeds after legally-recognized funds are available. These and other functions are sometimes called, collectively, the closing of the residential real estate transaction. As detailed below, the North Carolina General Assembly has determined specifically that only persons who are licensed to practice law in the state may handle many of these functions.1 A person who is not licensed to practice law in North Carolina and is not working under the direct supervision of an active member of the State Bar may not perform functions or services that constitute the practice of law.2 For example, under the express language of N.C. Gen. Stat and 84-4, a non-lawyer who is not working under the direct supervision of an active member of the State Bar would be engaged in the unauthorized practice of law if he or she performs any of the following functions for one or more of the parties to a residential real estate transaction: preparation or aiding in preparation of deeds, deeds of trust, or other legal documents; abstracting or passing upon titles; advising or giving an opinion upon the legal rights or obligations of any person, firm, or corporation; or holding himself or herself out as competent or qualified to give legal advice or counsel or as furnishing any services that constitute the practice of law. Accordingly, a non-lawyer is engaged in the unauthorized practice of law if he or she performs any of the following functions in connection with a residential real estate closing (identified only as examples): 1. Abstracts or provides an opinion on title to real property; 2. Explains the legal status of title to real estate, the legal effect of anything found in the chain of title, or the legal effect of an item reported as an exception in a title insurance commitment except as necessary to underwrite a policy of insurance and except that a licensed title insurer, agency, Page 8 of 13

9 or agent may explain an underwriting decision to an insured or prospective insured, including providing the reason for such decision; 3. Explains or gives advice about the rights or responsibilities of parties concerning matters disclosed by a land survey under circumstances that require the exercise of legal judgment or that have implications with respect to a party s legal rights or obligations; 4. Provides a legal opinion or advice in response to inquiries by any of the parties regarding legal rights or obligations of any person, firm, or corporation, including but not limited to the rights and obligations created by a promissory note, the effect of a pre-payment penalty, the rights of parties under a right of rescission, and the rights of a lender under a deed of trust; 5. Advises or instructs a party to the transaction with respect to alternative ways for taking title to the property or the legal consequences of taking title in a particular manner; 6. Drafts a legal document for a party to the transaction or assists a party in the completion of a legal document, or selects or assists a party in selecting a form legal document among several forms having different legal implications; 7. Explains or recommends a course of action to a party to the transaction under circumstances that require the exercise of legal judgment or that have implications with respect to the party s legal rights or obligations; 8. Attempts to settle or resolve a dispute between the parties to the transaction that will have implications with respect to their respective legal rights or obligations. The foregoing list of examples of functions that constitute the practice of law is not exclusive, but reflects a range of responsibilities and duties that involve the following: the exercise of legal judgment; the preparation of legal documents such as deeds, deeds of trust, and title opinions; the explanation or interpretation of legal documents in circumstances that require the exercise of legal judgment; the provision of legal advice or opinions; and the performance of other services that constitute the practice of law. Issue 2: May a nonlawyer who is not acting under the supervision of a lawyer licensed in North Carolina (1) present and identify the documents necessary to complete a North Carolina residential real estate closing, direct the parties where to sign the documents, and ensure that the parties have properly executed the documents; and (2) receive and disburse the closing funds? Opinion 2: Yes. So long as a nonlawyer does not engage in any of the activities referenced in Opinion 1, or in other activities that likewise constitute the practice of law, a nonlawyer may: (1) present and identify the documents necessary to complete a North Carolina residential real estate closing, direct the parties where to sign the documents, and ensure that the parties have properly executed the documents; or (2) receive and disburse the closing funds. Notwithstanding this opinion, evidence considered by the State Bar with respect to this advisory opinion indicates that, at the time documents are presented to the parties for execution, a lawyer who is present may identify or be asked about important issues affecting the legal rights or obligations of the parties. A lawyer may provide important legal guidance about such issues, but a nonlawyer is not permitted to do so. Moreover, a consumer s retention of a licensed North Carolina lawyer provides financial protection to the consumer. The North Carolina Rules of Professional Conduct require a lawyer to properly handle all fiduciary funds, including residential real estate closing proceeds. In the event a lawyer mishandles the closing proceeds, the lawyer is Page 9 of 13

10 subject to professional discipline, and the State Bar Client Security Fund may provide financial assistance for a person injured by the lawyer s improper application of funds. On the whole, the evidence considered by the State Bar indicates that it is in the best interest of a consumer to be represented by a lawyer with respect to all aspects of a residential real estate transaction. The evidence the State Bar has considered suggests, however, that performing administrative or ministerial activities in connection with the execution of residential real estate closing documents and the receipt and disbursement of the closing proceeds does not necessarily require the exercise of legal judgment or the giving of legal advice or opinions. Indeed, the execution of closing documents and the disbursement of closing proceeds may be accomplished and often have been accomplished by mail, by , or by other electronic means, or by some other procedure that would not involve the lawyer and the parties being physically present at one place and time. The State Bar therefore concludes that it should not be presumed that performing the task of overseeing the execution of residential real estate closing documents and receiving and disbursing closing proceeds necessarily involves giving legal advice or opinions or otherwise engaging in activities that constitute the practice of law. Nonlawyers who undertake such responsibilities, and those who retain their services, should also be aware that (1) the North Carolina State Bar retains oversight authority concerning complaints about activities that constitute the unauthorized practice of law; and (2) the North Carolina criminal justice system may prosecute instances of the unauthorized practice of law. In addition, non-lawyers and consumers should bear in mind that other governmental authorities such as the Federal Trade Commission, the North Carolina Attorney General, district attorneys, and the banking commissioner, have jurisdiction over unfair trade practices and violations of requirements regarding lending practices. Endnotes 1. Except as permitted under State v. Pledger, 257 N.C. 634, 127 S.E.2d 337 (1962), which allows a party having a primary interest in a transaction to prepare deeds of trust and other documents to effectuate the transaction. 2. The State Bar notes that the North Carolina General Assembly and Supreme Court are the entities that have the power to make the ultimate determination whether an activity constitutes the practice of law. *********************************************** Page 10 of 13

11 APPLICABLE STATUTES RE: DISBURSEMENT OF FUNDS AT CLOSING GOOD FUNDS SETTLEMENT ACT (Some relevant provisions) 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. 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 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. Page 11 of 13

12 (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. 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) (Effective until July 1, 2002) 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 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. (7) (Effective July 1, 2002) 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 Page 12 of 13

13 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. 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. 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 amo unt is greater. Page 13 of 13