The Fourth Circuit Court of Appeals recently ruled in the case of In Re: McCormick that a recorded North Carolina deed of trust indexed in a county’s grantor/grantee index may nevertheless be avoided by a trustee in bankruptcy if such county has elected a Parcel Identification Number (“PIN”) indexing system and the recorded deed of trust does not appear in such PIN index.  This alert briefly describes the PIN system in North Carolina and the McCormick decision’s impact on the need for PINs in deeds of trust recorded in North Carolina counties that have adopted the PIN indexing system.

PINs are unique identification numbers assigned to each parcel of land in a particular North Carolina county.  They are primarily used by the taxing authority of the county to monitor particular parcels of land for real estate taxation purposes.  North Carolina law, however, permits counties to elect a PIN indexing system for the indexation of real estate records in lieu of the more traditional grantor/grantee indexing system.  Under the PIN indexing system, the PIN relating to a particular parcel of land is used as the basis for recording all instruments relating to that parcel.  When a county adopts the PIN index as its official index, an instrument must be indexed in the county’s PIN registry in order to be properly registered.  

In McCormick the lender’s deed of trust purportedly encumbered two separate contiguous parcels in Orange County, North Carolina, known as Tract I and Tract II.  When submitted for recordation, however, the deed of trust included only the PIN number of Tract II and not the PIN number for Tract I.  As a result, it was recorded in the PIN index only against Tract II, but was properly indexed as to both tracts in the unofficial grantor/grantee index that the county still maintained.  When the borrower later declared bankruptcy, the trustee in bankruptcy argued that the lien created by the deed of trust was invalid as to Tract I since it was not indexed in the PIN registry.  The lender argued that the trustee had knowledge of the lien because a search of Tract II would necessarily reveal the lien on Tract I since both liens were created by the same instrument.  Alternatively, the lender also argued that a prudent title examiner would have discovered the lien on Tract I through a search of the unofficial grantor/grantee index.

In rejecting the lender’s arguments, the Fourth Circuit relied on longstanding precedent in North Carolina that purchasers may rely exclusively on the real estate index in the county to determine whether a lien exists against a particular parcel of property in that county, and will purchase the property free and clear of any liens not properly noted in the real estate index, even if the purchaser has actual notice of a lien against the property.  Because under federal law the trustee in bankruptcy has the status of a bona fide purchaser, and the liens on Tract I were not indexed in the PIN registry, the court held that the trustee could avoid the lien on Tract I despite having actual knowledge of its existence.

The McCormick decision illustrates why attorneys preparing deeds of trust for recordation in North Carolina must ensure that the deed of trust is properly recorded in the correct official index.  When in doubt, a quick call to the register of deeds office prior to recording a deed of trust should confirm whether the grantor/grantee index or the PIN index is the official index for that particular county.  Where the PIN index serves as the official index, the PIN for each parcel of land encumbered by the deed of trust will need to be identified on the first page of the deed of trust to ensure proper indexing and registration of the deed of trust.  NCGS § 161-30(b).  This is one PIN that, if forgotten, may have very costly consequences.