Dec282025
Probate Q&A Series

What happens if the buyer’s attorney insists on writing the closing check directly to the lender instead of the estate? – North Carolina

Short Answer

In North Carolina, the closing attorney (as the settlement agent) must disburse closing funds exactly as the signed settlement statement and closing instructions require. If the payoff is a lien on the property being sold, it is normal for the closing attorney to send a payoff directly to the lender and then send only the net proceeds to the estate or other entitled owners. If the buyer’s attorney insists on bypassing the estate for money that is not a property lien payoff, that can create probate accounting problems and may not match the parties’ written agreement.

Understanding the Problem

In a North Carolina probate real estate closing, can the buyer’s closing attorney send part of the sale money straight to a lender instead of making the check payable to the estate, when the transaction also requires paying an estate creditor at closing and then dividing the remaining net proceeds between two co-owners under a settlement agreement? The decision point is whether the lender payment is a true payoff of a lien that must be cleared to deliver good title, or whether it is a distribution decision that belongs in the estate administration and settlement accounting.

Apply the Law

North Carolina treats the closing attorney as a “settlement agent” who holds closing funds in a fiduciary trust/escrow capacity and must disburse funds only to the parties/entities identified for payment under the settlement agreement approved by the parties. In probate sales, sale proceeds are typically applied first to liens on the property in their order of priority, and only the remaining residue becomes available for estate debts and then distribution under the estate plan or a settlement agreement.

Key Requirements

  • Pay liens before distributing proceeds: If the lender has a recorded deed of trust or other lien on the property, the closing normally pays that lender directly to clear title, and the estate (or owners) receives only the net proceeds.
  • Follow the signed settlement statement/closing instructions: The settlement agent must account for and pay closing funds to the parties/entities listed for payment in the approved settlement agreement for that closing.
  • Keep probate accounting clean: Even when a lender is paid directly at closing, the estate’s personal representative still needs documentation showing the gross sale price, each payoff/charge, and the net amount that actually came into the estate (and any required deductions before distributions).

What the Statutes Say

Analysis

Apply the Rule to the Facts: The facts describe a probate closing where proceeds are intended to be payable to the estate and held in trust pending distribution, while also paying a debt at closing and making post-closing adjustments (splitting proceeds 50/50 under a settlement agreement and deducting one heir’s taxes from that heir’s share). If the “lender” is being paid to satisfy a lien secured by the property being sold, a direct payoff from the closing trust account is consistent with how lien payoffs are handled and leaves the estate to receive only the net proceeds. If the payment is not tied to a property lien (for example, it is a personal loan or unsecured debt), paying the lender directly can conflict with the estate’s plan to receive and hold proceeds, complicate the personal representative’s accounting, and bypass the agreed method for paying estate claims and making deductions before distributions.

Process & Timing

  1. Who files: Usually no separate “filing” is required to decide payee lines on checks; the key is the closing package. Where: The buyer’s closing attorney’s trust/escrow account and the Register of Deeds for recording. What: Written closing instructions, payoff statements, and a signed settlement statement showing every payee and amount. When: Before disbursement, after the deed and other required documents are recorded and the settlement agent confirms deposited/collected funds.
  2. If there is disagreement, the parties typically resolve it by revising written closing instructions and the settlement statement so the settlement agent has a clear, signed direction (for example, listing the lender payoff as a line item and listing the estate as payee for the remaining net proceeds to be held in trust).
  3. After closing, the personal representative should keep the settlement statement and proof of each payoff/disbursement to support the estate’s inventory/accountings and to document that lien payoffs and approved closing disbursements reduced the “net proceeds” before the 50/50 split and any tax deductions.

Exceptions & Pitfalls

  • If the lender payoff is not a recorded lien on the property, treating it like a “payoff” can improperly bypass probate administration controls and the estate’s plan to hold proceeds pending distribution.
  • Mixing “estate creditor claim” payments with “property lien” payments without clear labels on the settlement statement can create disputes later over whether proceeds were truly “net” before the required 50/50 split.
  • If the settlement agreement requires the net sale proceeds to be split equally and also requires a tax deduction from only one heir’s share, unclear closing disbursements can accidentally apply deductions unevenly or at the wrong step (before vs. after lien payoff and closing costs).
  • If the closing attorney disburses to a party not identified on the approved settlement statement/closing instructions, the closing attorney can face compliance and fiduciary problems, and the estate can be left with an accounting gap.

Conclusion

In North Carolina, it is common for the closing attorney to pay a property’s secured lender directly at closing to clear title, and then deliver only the remaining net proceeds to the estate or other entitled owners. The closing attorney should not bypass the estate for payments that are not true lien payoffs unless the written settlement statement and closing instructions authorize that payee and amount. The next step is to require a revised, written settlement statement and closing instructions that list the lender payoff and show the estate as the payee for the remaining net proceeds to be held pending distribution.

Talk to a Probate Attorney

If a probate real estate closing is getting held up because the buyer’s attorney wants to change who receives the sale proceeds (or who gets paid at closing), our firm has experienced attorneys who can help clarify the proper payees, document the closing instructions, and protect the estate’s accounting. Call us today at (919) 341-7055.

Disclaimer: This article provides general information about North Carolina law based on the single question stated above. It is not legal advice for your specific situation and does not create an attorney-client relationship. Laws, procedures, and local practice can change and may vary by county. If you have a deadline, act promptly and speak with a licensed North Carolina attorney.

Category: Probate Q&A Series

Author: jpierce

Attorney Jared Pierce is the founder of Pierce Law Group in Raleigh, North Carolina, a firm he established with a dedicated focus on probate administration and estate planning across North Carolina. Born and raised in the Republic of South Africa, Jared moved to Durham with his family in 2001, bringing with him a rich cultural background and a distinctive accent that often serves as a conversation starter.