Falk v. Fannie Mae

IN THE SUPREME COURT OF NORTH CAROLINA
No. 197PA13
Filed 19 December 2014
MICHAEL A. FALK, as Trustee of the Trust dated 10-26-1989 having the Tax ID
Number XX-XXXXXXX (a/k/a “The Charlotte Falk Irrevocable Trust”)
v.
FANNIE MAE (a/k/a FEDERAL NATIONAL MORTGAGE ASSOCIATION);
GLASSRATNER MANAGEMENT & REALTY ADVISORS, LLC; IDELL
FLOURNEY; SONYA PETIT; LIBA MEIERE; SHAWNEQUA DODSON;
ADOLFO ZARATE; TISHAUN WHITEHEAD; and JOHN DOES #1 - #160,
BEING THE UNIDENTIFIED LESSEES OF THE APARTMENT UNITS AT
THE PROPERTY KNOWN AS “RIDGEWOOD APARTMENTS”
___________________________________________________________________________
FANNIE MAE (a/k/a FEDERAL NATIONAL MORTGAGE ASSOCIATION),
Third-Party Plaintiff
v.
MICHAEL A. FALK, as Trustee of the Trust dated 10-26-1989 having the Tax ID
Number XX-XXXXXXX (a/k/a “The Charlotte Falk Irrevocable Trust”) and
QUICKSILVER, LLC,
Third-Party Defendants
On discretionary review pursuant to N.C.G.S. § 7A-31 and on appeal of right
of a constitutional question pursuant to N.C.G.S. § 7A-30(1) to review a unanimous
decision of the Court of Appeals, ___ N.C. App. ___, 738 S.E.2d 404 (2013), reversing
and remanding an order entered on 9 March 2012 by Judge Lindsay R. Davis, Jr. in
Superior Court, Guilford County. Heard in the Supreme Court on 6 October 2014.
Rossabi Black Slaughter, P.A., by Gavin J. Reardon and Amiel J. Rossabi, for
plaintiff/third-party defendant-appellee Michael A. Falk and third-party
defendant-appellee Quicksilver, LLC.
FALK V. FANNIE MAE
Opinion of the Court
Horack, Talley, Pharr & Lowndes, P.A., by Zipporah B. Edwards and Robert
B. McNeill; and Carruthers & Roth, P.A., by Rachel S. Decker and J. Patrick
Haywood, for defendant/third-party plaintiff-appellant Fannie Mae and
defendant-appellant GlassRatner Management and Realty Advisors, LLC.
HUNTER, Justice.
The case before us involves a dispute between Michael Falk, Trustee of the
Charlotte Falk Irrevocable Trust (Trust), and the Federal National Mortgage
Association (Fannie Mae), concerning which party’s mortgage lien on the Ridgewood
Apartments, located in Guilford County, has priority status. The solution to the
dispute involves application of our State’s “life of lien” statute, N.C.G.S. § 45-37(b).1
Subsection 45-37(b) establishes a conclusive presumption that the conditions
of prior liens are satisfied after fifteen years from the later of either of two dates:
the date on which the instrument requires performance, or the date of maturity of
the last installment of debt (maturity date). Because in Smith v. Davis, 228 N.C.
172, 45 S.E.2d 51 (1947), this Court established that the 1923 version of this statute
did not apply the presumption to lienholders who acquired and recorded their liens
before the expiration of senior mortgage indebtedness, the Court of Appeals applied
that interpretation to the current version of the statute. We hold this application
was erroneous because the unique legislative language in the 1923 Act was not
1N.C.G.S. § 45-37(b) (2013) applies to security instruments recorded and subject to
the conclusive presumption provided by that statute before 1 October 2011. Security
instruments recorded after that date are subject to the “life of lien” requirements of
N.C.G.S. § 45-36.24 (2013).
-2-
FALK V. FANNIE MAE
Opinion of the Court
present in subsequent revisions of the life of lien statute. We conclude therefore
that the General Assembly did not intend to continue this limitation and that the
limitation did apply to the transactions in this case. N.C.G.S. § 45-37(b) authorizes
a senior lienholder to extend the “life of the lien” by filing an affidavit with the
register of deeds containing the information required by the statute. We hold that,
absent the filing of such an affidavit, N.C.G.S. § 45-37(b) allows a court to
conclusively presume that prior liens are satisfied irrespective of whether a
subsequent lienholder obtained its interest before or after expiration of the fifteen
year period from the maturity date. Accordingly, we reverse the decision of the
Court of Appeals.
Ridgewood Apartments (the property) consists of a number of tracts
containing apartments for rent. In 1992 Michael Falk and his son Harry Falk, as
shareholder-directors of Quicksilver Corporation, purchased the property for
$5,200,000. The Falks subsequently converted Quicksilver Corporation into
Quicksilver, LLC (Quicksilver) and became the sole member-managers. On 27
October 1994, Quicksilver acquired the property by deed and on the following day,
28 October, secured the payment with a promissory note (Trust Note) in the amount
of $600,000 and a deed of trust (Trust Deed) “to evidence a debt incurred for the
purchase of [the property]” in 1992. The Trust Note established a 14% per annum
interest rate in the event of default. The Trust Deed was recorded in Guilford
County on 30 December 1994.
-3-
FALK V. FANNIE MAE
Opinion of the Court
In December 1994, Michael Falk issued an oral demand on behalf of the
Trust to Quicksilver for partial payments on the loan.2 The Trust contends that
Quicksilver’s failure to make payments placed Quicksilver in default, thus
triggering the 14% default interest rate as specified in the Trust Note. Despite
several partial payments to the Trust in later years, the Trust contends Quicksilver
never cured the default, and the Trust Note has accrued interest at the default rate
since 1995.
In 1999 Wachovia Bank, N.A. (Wachovia) loaned funds to Quicksilver to
make improvements to the property. To fulfill a condition Wachovia imposed on its
loan to Quicksilver, Michael Falk and a Co-Trustee signed an agreement
subordinating the Trust’s interest in the property to Wachovia. This subordination
agreement was recorded on 15 March 2000. Wachovia secured its loan through a
Deed of Trust, Assignment of Rents, and Security Agreement and Financing
Statement (Wachovia Deed) encumbering the property. The Wachovia Deed was
recorded in Guilford County on 7 July 1999.
To obtain a better interest rate, Quicksilver refinanced the Wachovia loan
with funds from Lend Lease Mortgage Capital, L.P. (Lend Lease). To secure this
loan, on 14 May 2001, Quicksilver executed and recorded a Multifamily Note
secured by a Multifamily Deed of Trust, Assignment of Rents, and Security
2 Unless otherwise noted, all references to Michael Falk or to the Trust’s activities
will be to Michael Falk’s activities as Trustee of the Trust.
-4-
FALK V. FANNIE MAE
Opinion of the Court
Agreement encumbering the property. Although the original deed of trust to the
Trust was still of record, no subordination agreement was signed for this
transaction. The Wachovia Note and Deed of Trust were satisfied of record.
Subsequently, Lend Lease sold and assigned its Note and Deed of Trust to Fannie
Mae (hereinafter the FNMA Note and FNMA Deed).
Quicksilver subsequently defaulted on the FNMA Note and Fannie Mae
foreclosed on the property in 2011. Fannie Mae was the highest bidder at the
foreclosure sale and received a Trustee’s Deed for the property dated 2 August 2011.
Following Fannie Mae’s foreclosure, Mr. Falk’s counsel sent a letter to Fannie Mae
stating that the Trust held a superior lien on the property and demanding
immediate payment of $3,525,977.05 to cover the principal and interest owing
under the Trust Note.
After Fannie Mae refused to pay the amount demanded, the Trust filed a
verified complaint in Superior Court, Guilford County, against Fannie Mae and
others seeking both a declaratory judgment that the Trust Deed was a “valid and
enforceable lien” and an injunction to prevent Fannie Mae from collecting rents
from residents of the property. In a separate action, the Trust sought to foreclose
upon the property under its Trust Deed. After a foreclosure hearing before an
assistant clerk of superior court, the assistant clerk filed findings of fact and an
order permitting the Trust to proceed with foreclosure on the property.
-5-
FALK V. FANNIE MAE
Opinion of the Court
Fannie Mae appealed the foreclosure order and findings of fact to the
superior court. Fannie Mae also filed an answer to the Trust’s verified complaint, a
counterclaim and third-party complaint, and motions seeking a temporary
restraining order and preliminary injunction to stop the foreclosure action. The
superior court granted Fannie Mae’s motion for a temporary restraining order and
scheduled a hearing on all other matters for January 2012. Before the hearing
date, Fannie Mae and Mr. Falk filed cross motions for summary judgment.
The matter was heard during the 17 January 2012 civil session of Superior
Court, Guilford County. At the hearing, the Trust argued that the Trust Deed was
valid and enforceable and entitled it to foreclose upon the property because of
Quicksilver’s default under the Trust Note. Fannie Mae argued, inter alia, that the
Trust’s lien had expired by operation of law and, in the alternative, that the FNMA
Deed was superior to the Trust Deed “pursuant to subrogation.” The trial court
granted Fannie Mae’s motion for summary judgment, ruling that the version of
N.C.G.S. § 45-37(b) in effect when the Trust Note matured on 28 October 1994
operated to terminate the Trust’s lien on the property no later than 28 October
2009. See N.C.G.S. § 45-37(b) (1991). This termination of the Trust’s lien enabled
Fannie Mae to foreclose upon the property in 2011 without having the transaction
encumbered by a senior lien. The Trust appealed.
-6-
FALK V. FANNIE MAE
Opinion of the Court
At the Court of Appeals the Trust argued, inter alia, that the trial court erred
by granting Fannie Mae’s motion for summary judgment because N.C.G.S. § 45-
37(b)’s conclusive presumption that prior liens expire after fifteen years is only
available to a subsequent creditor who acquires an interest in the property after
that fifteen year period has expired. Fannie Mae’s brief before the Court of Appeals
conceded this point. The Court of Appeals analyzed the applicability of N.C.G.S. §
45-37(b) (2011) and concluded that Fannie Mae could not avail itself of the statute’s
conclusive presumption.3 The court cited this Court’s opinion in Smith v. Davis, 228
N.C. 172, 45 S.E.2d 51, for the proposition that subsection 45-37(b)’s conclusive
presumption is only available to creditors who rely on it when contracting for their
interest in the property. Falk v. Fannie Mae, ___ N.C. App. ___, ___, 738 S.E.2d
404, 408 (2013) (citing Smith, 228 N.C. at 180, 45 S.E.2d at 57). The court then
concluded that the trial court erred by giving Fannie Mae the benefit of subsection
45-37(b)’s conclusive presumption when the mortgage giant acquired its interest in
the property on 14 May 2001, only six and a half years after the Trust Deed was
recorded on 30 December 1994. Id at ___, 738 S.E.2d at 408.
The Court of Appeals then considered two additional grounds on which it
could possibly affirm the trial court’s order: (1) whether our State’s “new” life of lien
statute, N.C.G.S. § 45-36.24(b), operates to terminate the Trust’s lien to the benefit
3 The applicable version of N.C.G.S. 45-37(b) was effective 1 October 2011. N.C.G.S.
§ 45-37(b) has not been amended since 2011.
-7-
FALK V. FANNIE MAE
Opinion of the Court
of Fannie Mae, and (2) whether equitable subrogation entitles Fannie Mae to take
the status of senior lienholder.
On the first issue, the court determined that if subsection 45-36.24(b)—which
has an effective date of 1 October 2011—were retroactively applied to the Trust
Note and Deed, the Trust’s lien would terminate on 28 October 2009. The court
then concluded that such a retrospective application would be unconstitutional.
Specifically, the court determined that retroactive application of subsection 45-
36.24(b) to the Trust Deed would impair the Trust’s vested rights in the property in
violation of one or more of these provisions: Article I, Section 19 of the North
Carolina Constitution, Article I, Section 10 of the United States Constitution, and
Amendment XIV, Section 1 to the United States Constitution. Id. at ___, 738
S.E.2d at 410.
The Court of Appeals also rejected Fannie Mae’s argument that the doctrine
of equitable subrogation entitled it to senior lienholder status. The court concluded
that under this Court’s precedent in Peek v. Wachovia Bank & Trust Co., 242 N.C.
1, 86 S.E.2d 745 (1955), a creditor could only benefit from equitable subrogation if it
was “excusably ignorant” of an intervening lien. Falk, ___ N.C. App. at ___, 738
S.E.2d at 411 (citing Peek, 242 N.C. at 15, 86 S.E.2d at 755). In this case Fannie
Mae had record notice of the Trust’s lien on the property and therefore could not
claim to be excusably ignorant for purposes of equitable subrogation. Id at ___, 738
-8-
FALK V. FANNIE MAE
Opinion of the Court
S.E. 2d at 411. For this and the foregoing reasons, the Court of Appeals reversed
the trial court order and remanded for further proceedings.
Fannie Mae4 sought discretionary review, which we allowed; we also retained
Fannie Mae’s notice of appeal based upon a constitutional question. In our order
allowing review, we directed the parties to address the applicability of N.C.G.S. §
45-37(b) (1991) and N.C.G.S. § 45-37(b) (2011) because the trial court’s order
granting summary judgment to Fannie Mae applied section 45-37(b) (1991) to
support its ruling.
Summary judgment is appropriate when “the pleadings, depositions, answers
to interrogatories, and admissions on file, together with the affidavits, if any, show
that there is no genuine issue as to any material fact and that any party is entitled
to a judgment as a matter of law.” N.C.G.S. § 1A-1, Rule 56(c) (2013). We review de
novo an order granting summary judgment. Howerton v. Arai Helmet, Ltd., 358
N.C. 440, 470, 597 S.E.2d 674, 693 (2004) (citation omitted).
Since 1923 our State has limited the life of security liens in order to reduce
the number of unsatisfied deeds of trust and other encumbrances hampering the
marketability of property. In their current forms, our “life of lien” statutes—
4 GlassRatner Management & Realty Advisors, LLC—Fannie Mae’s agent for the
collection of rents on the property—and various lessees of the apartment units in
Ridgewood Apartments are also parties to this action. For simplicity, we will refer only to
Fannie Mae.
-9-
FALK V. FANNIE MAE
Opinion of the Court
N.C.G.S. §§ 45-37(b) and 45-36.24 (2013)—impose a fifteen year period on the life of
any lien on real property that was not extended through the filing of an affidavit or
other instrument. After this period, these statutes allow a subsequent creditor of
the grantor to transfer the subject property free of the prior lienholder’s
encumbrances.
In the present case the Trust executed and recorded the Trust Deed on 30
December 1994 to secure repayment of an earlier loan. Considered under our
state’s “race recording” statute alone, the Trust’s act of recording its deed
established its superior interest in the property relative to the FNMA Deed, which
was recorded on 14 May 2001. Falk, ___ N.C. App. at ___, 738 S.E.2d at 408; see
N.C.G.S. §§ 47-18, -20 (2013). The issue before the Court is whether the Trust’s
failure to file an affidavit extending the life of its lien before Fannie Mae’s
foreclosure upon the property in 2011 undermined its security interest in the
property.
This issue presents two questions: (1) Whether the Trust Note and the Trust
Deed, executed in 1994, continued to impose a valid lien on the property in 2011
when Fannie Mae initiated foreclosure; and (2) Whether Fannie Mae, which
acquired its interest in the property less than seven years after the Trust Deed was
executed and recorded, could benefit from the statutorily imposed expiration of the
Trust’s lien.
-10-
FALK V. FANNIE MAE
Opinion of the Court
The Court of Appeals considered two statutes under which the Trust Deed
could have expired. The court first considered N.C.G.S. § 45-37(b), our State’s “old”
life of lien statute which, in an earlier version, was in effect at the time the Trust
Deed was executed. The court also considered retroactive application of the “new”
life of lien statute, N.C.G.S. § 45-36.24, which applies to all security instruments
whenever recorded, except, inter alia, those “conclusively presumed to have been
fully paid and performed pursuant to . . . [subsection] 45-37(b) [before] October 1,
2011.” N.C.G.S. § 45-37(b).
We begin by considering subsection 45-37(b). It is a settled principle of
constitutional law that “any law affecting the validity, construction and
enforcement of a contract at the time of its making becomes a part of the contract as
fully as if incorporated therein.” Adair v. Orrell’s Mut. Burial Ass’n, Inc., 284 N.C.
534, 538, 201 S.E.2d 905, 908 (citations omitted), appeal dismissed, 417 U.S. 927
(1974). As a general matter, therefore, courts must apply the law that is in effect
when a contract is formed in any future dispute over the construction of that
contract. Consistent with this principle, the trial court applied the then-current
version of subsection 45-37(b) (codified at N.C.G.S. § 45-37(b) (1991)) to determine
whether the Trust Deed was valid and enforceable after Fannie Mae’s foreclosure in
2011. The 1991 version of N.C.G.S. § 45-37(b) was effective from 1 January 1992
until 1 October 2011, and was thus part of the “law of the contract” when the Trust
Note and Trust Deed were executed in 1994.
-11-
FALK V. FANNIE MAE
Opinion of the Court
It is also, however, “a generally accepted principle of statutory construction
that there is no constitutional limitation upon legislative power to enact retroactive
laws which do not impair the obligation of contracts or disturb vested rights.”
Piedmont Mem’l Hosp. v. Guilford Cnty., 221 N.C. 308, 311, 20 S.E.2d 332, 334
(1942) (citations omitted). When the General Assembly rewrote subsection 45-37(b)
in 2011, it made no substantive changes to the 1991 version of the statute. See Act
of June 18, 2011, ch. 312, sec. 12, 2011 N.C. Sess. Laws 1212, 1229-30. Other than
containing minor editorial revisions, N.C.G.S. § 45-37(b) (2011) merely established
that the statute would apply “only to security instruments . . . that were
conclusively presumed pursuant to this subsection to have been fully paid and
performed prior to October 2011” and that a new life of lien statute, N.C.G.S. § 45-
36.24 (2011), would apply to security instruments recorded after that date. It also
required that creditors file affidavits or a separate instrument postponing the date
of lien expiration on or before 1 October 2011.
Subsection 45-37(b) is “retroactive” in the limited sense that it applies to “any
security instrument recorded before October 1, 2011.” Because the current version
of subsection 45-37(b) does not include any changes that would “impair the
obligation of contracts or disturb vested rights” in relation to the security
instruments at issue in this case, id. at 311, 20 S.E.2d at 334, we conclude that the
Court of Appeals’ application of that statute to the Trust Deed was proper. This is
the version of the statute that we apply here.
-12-
FALK V. FANNIE MAE
Opinion of the Court
Subsection 45-37(b) states, in relevant part:
It shall be conclusively presumed that the
conditions of any security instrument recorded before
October 1, 2011, securing the payment of money or
securing the performance of any other obligation or
obligations have been complied with or the debts secured
thereby paid or obligations performed, as against
creditors or purchasers for valuable consideration from
the mortgagor or grantor, from and after the expiration of
15 years from whichever of the following occurs last:
(1) The date when the conditions of the security
instrument were required by its terms to have been
performed, or
(2) The date of maturity of the last installment of
debt or interest secured thereby;
provided that on or before October 1, 2011, and before the
lien has expired pursuant to this subsection, the holder of
the indebtedness secured by the security instrument or
party secured by any provision thereof may file an
affidavit with the register of deeds which affidavit shall
specifically state:
(1) The amount of debt unpaid, which is secured by
the security instrument; or
(2) In what respect any other condition thereof
shall not have been complied with; or
may record a separate instrument signed by the
secured creditor and witnessed by the register of
deeds stating:
(1) Any payments that have been made on the
indebtedness or other obligation secured by the
security instrument including the date and amount
of payments and
(2) The amount still due or obligations not
performed under the security instrument.
The effect of the filing of the affidavit or the recording of a
separate instrument made as herein provided shall be to
postpone the effective date of the conclusive presumption
of satisfaction to a date 15 years from the filing of the
affidavit or from the recording of the separate instrument.
-13-
FALK V. FANNIE MAE
Opinion of the Court
In interpreting this statute, we are guided by our obligation to give effect to
the plain meaning of its terms. “‘When the language of a statute is clear and
without ambiguity, it is the duty of this Court to give effect to the plain meaning of
the statute, and judicial construction of legislative intent is not required. However,
when the language of a statute is ambiguous, this Court will determine the purpose
of the statute and the intent of the legislature in its enactment.’” N.C. Dep’t of Corr.
v. N.C. Med. Bd., 363 N.C. 189, 201, 675 S.E.2d 641, 649 (2009) (citations omitted).
By its plain terms, subsection 45-37(b) establishes a conclusive presumption
that, as against subsequent creditors or purchasers for value from the grantor, the
terms of a deed of trust have been satisfied from and after the expiration of fifteen
years from the latter of “(1) [t]he date when the conditions of the security
instrument were required by its terms to have been performed, or (2) [t]he date of
maturity of the last installment of debt or interest secured thereby.” A lienholder
may file an affidavit or record a separate instrument with the register of deeds
containing the required information and thus postpone expiration of its lien beyond
the fifteen year period; however, if the lienholder does not file such an additional
instrument, this statute directs that a senior lienholder will no longer be able to
assert his lien against the interests of a subsequent creditor after fifteen years have
expired.
-14-
FALK V. FANNIE MAE
Opinion of the Court
Here the Trust does not contend that it filed an affidavit or other instrument
with the Guilford County Register of Deeds to extend its lien on the property.
Therefore, the only question we must resolve is the date on which subsection 45-
37(b)’s fifteen year expiration period began in relation to the Trust’s lien.
Our State has long recognized that “a promissory note, payable on demand, is
a present debt . . . and the statute [of limitations] begins to run from the date of it.”
Caldwell v. Rodman, 50 N.C. (5 Jones) 139, 140 (1857) (citation and quotation
marks omitted). The trial court noted that this rule “has clear application in
determining when a claim for breach of the obligation to pay according to the
instrument accrues for statute of limitations purposes, but no reason exists why it
should not apply as well where the issue is when a lien expires.” We agree.
Here the Trust Note was payable on demand. Accordingly, the Trust Note
matured on the date of its execution, 28 October 1994. For the purposes of N.C.G.S.
§ 45-37(b), therefore, the Trust Note—and the Trust Deed that was executed to
secure repayment under the note—expired on 28 October 2009, fifteen years after
the date of the Note’s execution. This expiration prevented the Trust from being
able to assert its interest in the property “against creditors or purchasers for
valuable consideration from the mortgagor or grantor” after that date. N.C.G.S. §
45-37(b) (2011).
-15-
FALK V. FANNIE MAE
Opinion of the Court
The remaining question is whether Fannie Mae qualifies as a creditor or
purchaser for value who can claim the benefit of subsection 45-37(b)’s conclusive
presumption. By its plain terms, subsection 45-37(b) does not limit the creditors or
purchasers for value from the mortgagor who may claim the benefit of the
conclusive presumption in relation to prior liens. The statute says nothing about
when a subsequent creditor must obtain its interest from the grantor. The only
time limitation imposed by the statute concerns when the conclusive presumption
can be claimed at all: “from and after the expiration of 15 years.” Id.
Giving effect to the plain terms of this statute, therefore, we hold that the
Trust Deed expired on 28 October 2009 because the Trust did not file the required
documentation to extend the life of its security interest. We hold further that
Fannie Mae, as a qualifying creditor who took its interest in the property from the
mortgagor Quicksilver, could benefit from subsection 45-37(b)’s conclusive
presumption irrespective of the fact that its interest was recorded and assigned
before expiration of the statute’s fifteen year period.
The Court of Appeals arrived at a different conclusion. That court cited our
opinion in Smith to argue that “[i]n light of the primary purpose of the statute,”
subsection 45-37(b)’s conclusive presumption “arises only in favor of creditors and
purchasers for valuable consideration who rely on the presumption when
contracting.” Falk, ___ N.C. App. at ___, 738 S.E. 2d at 408 (citing Smith, 228 N.C.
-16-
FALK V. FANNIE MAE
Opinion of the Court
at 180, 45 S.E.2d at 57). Because Fannie Mae acquired the FMNA Deed less than
seven years after the Trust Deed was recorded, the court reasoned that Fannie Mae
could not have relied on the statutory presumption because it had not yet arisen.
Id. at ___, 738 S.E.2d at 408.
In Smith this Court addressed a situation in which a bank acquired a deed of
trust on property within fifteen years of an earlier lien. When the junior lienholder
foreclosed after the fifteen year period and attempted to transfer the property free
of the earlier encumbrance, the lower courts found the prior lien valid and
enforceable. The Court interpreted N.C.G.S. § 45-37(5) (1943),5 the predecessor
statute to subsection 45-37(b), and concluded the presumption was only available to
creditors who loaned funds to the mortgagor after the fifteen years had expired.
Smith, 228 N.C. at 178-79, 45 S.E.2d at 56-57.
The Court’s interpretation of the statute in Smith was not based on the
statutory language itself, but rather on the language of the caption appended to the
General Assembly’s original enactment in 1923: “An Act to Facilitate the
Examination of Titles and to Create a Presumption of Payment of Instruments
Securing the Payment of Money After Fifteen Years from the Date of the Maturity
of the Debts Secured Thereby.” Id. at 178, 45 S.E.2d at 56 (quoting Act of Mar. 6,
1923, ch. 192, sec. 1, 1923 N.C. Pub. [Sess.] Laws 508, 508 (codified at section 2594
5 N.C.G.S. § 45-37(5) was recodified in 1969 to the current numbering format of
subsection 45-37(b).
-17-
FALK V. FANNIE MAE
Opinion of the Court
of the Consolidated Statutes of North Carolina (1924) (amended 1935) (recodified at
N.C.G.S. § 45-37 (1943))). The Court looked to the caption of the original Act
because it believed the statute was ambiguous regarding the creditors the General
Assembly intended to benefit by creating the conclusive presumption on the life of
liens. Id. at 179-80, 45 S.E.2d at 57. The Court interpreted the caption’s use of the
verb “to facilitate” to render the statute’s provisions “prospective” in the sense of
making future transactions easier by removing the obstacle of “old and unsatisfied
mortgages.” Id. at 180, 45 S.E.2d at 57. The Court in Smith held that the General
Assembly’s intention was to protect only parties “who extend credit or purchase for
a valuable consideration ‘from and after’ the expiration of the fifteen year period.”
Id.
The Court’s interpretation of the statute in Smith was short-lived. In 1951
the General Assembly rejected that interpretation by enacting an amendment to
section 45-37 that permitted subsequent creditors to avail themselves of the
conclusive presumption that prior liens expire after fifteen years regardless of when
they extended credit. See Act of Mar. 20, 1951, ch. 292, sec. 1, 1951 N.C. Sess. Laws
243. When this amendment to the statute was codified, subsection 45-37(5)
included the statement that the conclusive presumption would protect subsequent
creditors “irrespective of whether the credit was extended or the purchase was made
before or after the expiration of said fifteen years.” Id.; N.C.G.S. § 45-37(5) (Supp.
1965).
-18-
FALK V. FANNIE MAE
Opinion of the Court
The 1951 amendment to the statute explicitly contradicted the Smith
interpretation of the statute. The change remained in place until 1969, when the
General Assembly acted (in the words of the new session law’s caption) “to recodify
and simplify the law concerning discharge of record of mortgages, deeds of trust and
other instruments.” Act of Jun. 9, 1969, ch. 746, 1969 N.C. Sess. Laws 762, 762.
The 1969 amendment reformatted the statute into its current form (subsection 45-
37(b)) and eliminated the clause inserted in 1951 stating “irrespective of whether
the credit was extended or the purchase was made before or after the expiration of
said fifteen years.” Id., sec. 1, at 764-65; see N.C.G.S. § 45-37(b) (Supp. 1969).
With only very minor changes, the law codified in 1969 remains today, resulting in
the statute that we have reproduced above.
We find the language in the version of subsection 45-37(b) that has existed
since 1969 unambiguous with respect to which creditors may avail themselves of
the conclusive presumption bearing on the expiration of prior liens. The statute
makes the presumption effective in relation to “creditors or purchasers for valuable
consideration from the mortgagor or grantor.” N.C.G.S. § 45-37(b). The
presumption is categorical—it imposes no limitation on when a creditor must obtain
its interest in the property to be able to avail itself of the statute’s protection after
the expiration of the fifteen year period.
-19-
FALK V. FANNIE MAE
Opinion of the Court
In its brief before this Court, the Trust argues that when the 1969 General
Assembly eliminated the language inserted in 1951, it effectively reenacted the
Smith decision’s understanding of the statutory language over the objections of an
earlier legislature. We reject this argument. The Court in Smith found the statute
ambiguous regarding which creditors could benefit from the presumption. For this
reason, the Court looked outside the statute to supply a meaning that it did not find
in the statutory language itself. Accordingly, if the 1969 General Assembly
intended to enact the Smith decision’s interpretation of language the Court found
ambiguous, the legislature would have introduced a clear statement of the rule
rather than allowing the original, purportedly ambiguous language to stand.
Because the language of the statute is unambiguous, we need not construe
the possible legislative intent behind it. N. C. Med. Bd., 363 N.C. at 201, 675 S.E.2d
at 649. Even if we look to evidence of legislative intent, however, we find nothing in
the history of the statute’s evolution since 1951 that suggests the legislature’s
intent to follow this Court’s decision in Smith by limiting the benefit of the statute
to creditors acquiring their interest after the fifteen year period. When the General
Assembly revised the statute in 1969 and eliminated the language explicitly making
the presumption applicable to subsequent creditors irrespective of when they
acquired their interest, it announced its intention as one of “simplify[ing]” the
statute. See Ch. 746, sec. 1, 1969 N.C. Sess. Laws at 762. If the General Assembly
intended to do more than clarify and streamline the statutory language, it could
-20-
FALK V. FANNIE MAE
Opinion of the Court
have inserted new terms. If it intended to enact the Smith decision’s limitation, it
could simply have said the conclusive presumption was available only to creditors
who rely on it when contracting for their interest.
We hold that N.C.G.S. § 45-37(b) allows creditors or purchasers for value
from a grantor to benefit from the conclusive presumption that prior liens expire
after fifteen years irrespective of when those creditors obtain their interest.
Accordingly, in this case the statute acted to terminate the Trust Deed and
permitted Fannie Mae to foreclose on the property unencumbered. The Court of
Appeals erred in overturning the trial court’s order granting summary judgment for
Fannie Mae on this basis. Because we find a proper interpretation of subsection 45-
37(b) dispositive of the controversy before us, we need not reach the other issues
addressed before the Court of Appeals. Accordingly, we reverse the decision of the
Court of Appeals.
REVERSED.
-21-