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BY RYAN SRNIK, ESQ. 
BROCK & SCOTT, PLLC^∗   
USFN MEMBER (CT, NC, RI, AL, FL, GA, KY, ME, MD, MA, MI, NH, NJ, OH, PA, SC, TN, VT, VA)

As published in the Summer 2024 USFN Report

North Carolina General Statute § 45-91: A Small Statute with Big Implications

A seldom mentioned, oft important, unique statute in North Carolina establishes certain noticing procedures for mortgage servicers, regardless of whether the loan is in default or bankruptcy. Originally enacted in 2007, North Carolina General Statute § 45-91 provides, in pertinent part, that any fee incurred by the servicer shall be assessed within 45 days from the date the fee was incurred, and then, within 30 days of assessment, clearly and conspicuously notice the fee to the borrower in a statement at their last known address.

Borrowers who have been injured by a servicer’s noncompliance with N.C. Gen. Stat. § 45-91 may bring an action for recovery of actual damages, including attorneys’ fees. N.C. Gen. Stat. § 45-94. Prior to bringing an action against the servicer, the borrower shall, at least 30 days before instituting the action, notify the servicer of any alleged violations in writing at the address listed for servicer on any correspondence sent to borrower by servicer. Id.

Servicers can avoid liability for a violation of N.C. Gen. Stat. § 45-91 by (1) showing that the violation was not intentional or as a result of bad faith, and (2) within 30 days of being notified of the violations, and before the borrower instituted an action, correct the error and compensate the borrower for fees or charges incurred by the borrower as a result of the violation. N.C. Gen. Stat. § 45-94(1)-(2).

Rarely do courts handle litigation related to N.C. Gen. Stat. §45-91, as N.C. Gen. Stat § 45-94 provides an avenue for a resolution prior to the dispute entering the court’s purview. The lack of litigation can lead to servicers and borrowers unable to ascertain what a “fee” is and leave the parties with conflicting interpretations on whether a servicer has “clearly and conspicuously” noticed the borrower.

One important instance where a Court provided some guidance is In re Paylor. The United States Bankruptcy Court for the Middle District of North Carolina denied the borrower’s objection to the servicer’s post-petition fee notice, holding that the servicer’s force-placed hazard insurance on the property did not constitute a “fee” under N.C. Gen. Stat. § 45-91. In re Paylor, 604 B.R. 222 (M.D.N.C. 2019).

The Court reasoned that in the absence of legislative guidance and state law, the terms of a statute are afforded their natural and ordinary meaning. Id. at 227. Since the requirement to provide hazard insurance is not a cost related to labor or another personal service, the hazard insurance cost was not a “fee” that required the notice N.C. Gen Stat. § 45-91 demands. Id. at 232.

Another example of guidance for servicers and borrowers comes from In re Saeed. The United States Bankruptcy Court for the Middle District of North Carolina determined, in pertinent part, that “explanatory notes contained in the proof of claim neither clearly nor conspicuously explain the fees assessed.” In re Saeed, No. 10-10303, 2010 WL 3745641 (Bankr. M.D.N.C. Sept. 17, 2010). Although the Debtor received notice of the fees from the servicer’s proof of claim, the Court ultimately sustained the borrower’s objection to the servicer’s proof of claim, holding that the failure to mail a statement that clearly and conspicuously explained the fees, did not provide sufficient notice to the borrower. Id. at ^∗3.

With minimal guidance and stringent deadlines, servicers should discuss any concerns with counsel to ensure that the servicer is in full compliance with unique state law statutes, such as North Carolina General Statute § 45-91.