The Carolinas' Boundary Lines and Foreclosures

Boundary Line Clarification Laws Impact Foreclosure Proceedings in Border Counties of North and South Carolina

As a result of years of property development, and the passage of time, many of the original markers denoting the boundary line between North Carolina and South Carolina have been lost or destroyed.  There was much confusion among many property owners and state and local government agencies as to the exact location of the border between the two states.  This confusion created legal and practical consequences, such as whether property owners and residents along the border are citizens and residents of one state or the other for tax, property registration, school district, and other purposes.  In order to resolve these issues, the two states cooperated in performing new boundary surveys, and each state has now enacted complementary legislation to give the new boundary surveys the force of law in each state.  The North Carolina General Assembly enacted Session Law 2016-23, and it was signed into law on June 22, 2016.  The South Carolina General Assembly enacted Senate Bill 667, and it was signed into law on June 10, 2016.  These two laws certified or clarified the location of the boundary between North Carolina and South Carolina that had been surveyed or resurveyed several times between 1735 and 1928.  Both laws took effect on January 1, 2017, and could impact approximately 1,400 parcels of real property.

As a result of the boundary survey, certain properties previously believed to be in one state are in fact wholly or partially within the other state.  This memorandum will address how the foreclosure process will be impacted in both states, commencing at the beginning of the New Year.   

North Carolina

The law provides that the North Carolina Geodetic Survey (a state government agency) shall record the survey of the confirmed boundary in the register of deeds’ office for each affected county:  Cherokee, Clay, Macon, Jackson, Transylvania, Henderson, Polk, Rutherford, Cleveland, Gaston, Mecklenburg, Union, Anson, Richmond, Scotland, Robeson, Columbus and Brunswick (“affected counties”). The Geodetic Survey is also required to record a Notice of Affected Parcel for each parcel of real property affected by the boundary certification that is situated in whole or in part within the boundary of North Carolina.  From the effective date of the boundary certification (January 1, 2017) North Carolina will extend full faith and credit to all conveyances and instruments of title made in accordance with South Carolina law prior to the boundary certification with respect to parcels of property that will then be wholly or partially within the boundary of North Carolina.  Any liens recorded with any register of deeds or clerk of superior court prior to the boundary certification shall attach to the affected parcels as of the date of the boundary certification.  This class of liens will have priority with respect to other liens as of the date of boundary certification, but will retain the same priority among them as they had before certification.

The new law provides limited guidance with respect to the conduct of foreclosures beginning in January 1, 2017.  The law reminds that judicial foreclosure is an available option, and provides that a judgment or order of foreclosure obtained in North Carolina will be binding only with respect to property located in North Carolina. Additionally, if a noteholder seeks to foreclose a parcel that, following boundary certification is in North Carolina, but the parcel is secured by a South Carolina mortgage, prior to initiating foreclosure it will be necessary to record the mortgage, or a certified copy, in the office of the register of deeds for the county in which the property is deemed to be located.

Download PDF of NC Statute

South Carolina

The Act clarifies the boundary between South Carolina and North Carolina, effective January 1, 2017, and contains a detailed description of the clarified boundary line.  The affected counties are Cherokee, Chesterfield, Dillon, Greenville, Horry, Lancaster, Marlboro, Oconee, Pickens, Spartanburg and York (“affected counties”).  Prior to the effective date, the registers of deeds in the affected counties (or clerks of court in counties not having a register of deeds) are required to file the Notice of State Boundary Clarification (“Notice”) in the land records, properly indexed as with other instruments conveying title to real property.  This Notice is designed to alert title examiners of the boundary clarification for the affected lands.

Download PDF of SC Statute

Real Property Taxation

Any parcel of real property that, after the boundary clarification, is considered to be in South Carolina, must be placed on the South Carolina property tax rolls and must be valued based on the latest reassessment date for similar types of property in that location.

Foreclosure

S.C. Code § 29, dealing with foreclosure, is amended with respect to the affected counties.  Commencing January 1, 2017, when a mortgagee initiates a foreclosure proceeding with respect to “affected land” (defined as “real property of an owner whose perceived location has been clarified pursuant to the boundary clarification legislation”), the mortgagee’s attorney of record must file with the court a copy of the Notice of State Boundary Clarification (“Notice”) together with the attorney’s certification that title to the real property has been searched in the affected counties in both South Carolina and North Carolina, and that all parties having an interest in the real property have been served with notice of the foreclosure action.  The foreclosure proceedings are stayed until the attorney has filed the certification. The mortgagee’s attorney of record must also serve, along with the summons and complaint, a copy of the recorded Notice on all parties identified in the Notice or known to have an interest in the affected land.

With respect to foreclosure actions already pending as of January 1, 2017, before any hearing on the merits, or if an order for sale has already been entered, then before sale, the mortgagee’s attorney of record must serve (by certified mail or overnight delivery) a copy of the Notice and all filed pleadings on any party identified in the Notice or known to have an interest in the affected land who is not already a party to the action.  Such additional parties shall have 30 days from the date the mortgagee’s attorney mails the Notice to file an answer or other response to the foreclosure complaint.

If any party served with the Notice (in a pre-2017 or post-2016 foreclosure, as described above) does not file a response within 30 days of service, the mortgagee’s attorney shall certify that fact to the court.  The case will proceed as with any other foreclosure case.  However, the mortgagee must continue to serve all parties with notice of any hearing and of the sale.

Practical Considerations

What does this mean in practice?  

Proper implementation of both statutes is initially dependent on the Geodetic Survey (in North Carolina) and the registers of deeds for the affected counties (in South Carolina) preparing and recording the statutory notices in the affected counties of the two states.  Without those notices being recorded and properly indexed, title examiners will likely not be placed on notice that parcels of real property are affected by the boundary clarification.

  1. There are serious doubts that the South Carolina registers of deeds in the affected counties will have filed and indexed the Notice of State Boundary Clarification for most of the affected properties by the effective date of the statute.  Until the Notices are registered it is unlikely a foreclosure sale of an affected parcel will result in the delivery of insurable title to the purchaser.  This may result in delays to foreclosure referrals for properties along the border, until the Notices are filed and indexed.
  2. Assuming the timely and accurate filing of the notices, described above, foreclosure proceedings of affected properties commenced after 2016 (and those already in progress as described above) will be more complicated, costly and time-consuming than an ordinary foreclosure proceeding.
  • For a parcel that is wholly secured by a South Carolina mortgage, but after boundary certification is wholly within North Carolina, the parcel must be foreclosed judicially in North Carolina.
  • For a parcel that is wholly secured by a South Carolina mortgage, but after boundary certification is partially in North Carolina and partially in South Carolina, the North Carolina portion must be foreclosed judicially in North Carolina, and the South Carolina portion must be foreclosed judicially in South Carolina.
  • For a parcel that is wholly secured by a North Carolina deed of trust, but after boundary certification is wholly within South Carolina, the parcel must be foreclosed judicially in South Carolina.
  • For a parcel that is wholly secured by a North Carolina deed of trust, but after boundary certification is partially in South Carolina and partially in North Carolina, the South Carolina portion must be foreclosed judicially in South Carolina and the North Carolina portion may be foreclosed by power of sale or judicially in North Carolina.
  • Such dual foreclosure proceedings are not unprecedented.  While uncommon, sometimes a servicer must initiate two separate foreclosure proceedings when a parcel of property straddles a county line within a state, or (more rarely) even straddles the state line.
  • There are differences in fundamental property law concepts between North Carolina and South Carolina that may impact parties’ claims and interests in affected parcels.  For example:
  • North Carolina recognizes the tenancy by the entirety, whereas South Carolina does not.
  • North Carolina recognizes inchoate marital rights of a non-owner spouse, whereas South Carolina does not.
  • There are differences between the two states with respect to intestate distribution.
  • Notarized instruments in North Carolina do not require witness signatures, whereas two such signatures are required on South Carolina notarized instruments.
  • The title insurance companies will dictate “best practices” with respect to the conduct of foreclosure and REO sales, because failing to follow such practices will usually mean that title commitments and policies will be declined, making the sale of affected REO practically impossible.
  • For example, First American Title Company has already stated that, as of the effective date of the statutes, with respect to a parcel of property in South Carolina previously believed to be, and secured by an instrument recorded, in North Carolina, the following will be required: (i) recordation of the Notice of State Boundary Clarification, (ii) title opinion from a First American-approved North Carolina attorney, and (iii) South Carolina title examination.  First American highly recommends a new survey, and may likely require one for the affected parcel.
  • Similar requirements can be expected in order to obtain title insurance coverage for real property transactions in North Carolina.
  • Servicers should recognize the likelihood of increased costs associated with foreclosures of properties affected by the boundary line clarification, including that there may be additional fees and costs associated with the title examination, the foreclosure processes (in particular obtaining and filing additional documents and, when necessary, to proceed with judicial foreclosure in North Carolina), in deed preparation and in subsequent REO marketing and sale activities.
  • Servicers should also be prepared to encounter judicial and administrative inertia and confusion, as courts and county officials educate themselves on the new laws.
  • There will also be additional opportunities for borrowers and third parties to seek to frustrate the foreclosure process.

Published by Hutchens Law Firm on November 15, 2016