How do I draft a mutual release clause to prevent future claims on the property sale proceeds? – North Carolina

Short Answer

In North Carolina, a mutual release is a written contract. To prevent future claims about sale proceeds, the clause must be clear, mutual, and supported by consideration. State that all parties release each other from any claims related to the contract, closing, and disbursements through the closing date, and pair it with escrow instructions that seller charges (taxes, liens, assessments, mortgages) will be paid from the purchase price at closing. Make the release effective at closing and include narrow carve‑outs (for fraud or willful misconduct, if needed).

Understanding the Problem

You are a North Carolina seller negotiating a settlement addendum to an existing offer to purchase and want a mutual release that bars later disputes over how the closing attorney pays liens, taxes, special assessments, and mortgages from your sale proceeds. You also must deposit a fixed settlement sum in trust now, with funds held until closing, and you want the release to stop future claims if a later buyer pays less.

Apply the Law

Under North Carolina law, a release is a contract and must be in writing, clear, and supported by consideration. Settlement money or mutual promises work as consideration. For real estate closings, funds are handled by a settlement agent (usually a closing attorney) who must disburse collected funds and apply sale proceeds to pay off liens and other agreed charges at closing. A well‑drafted mutual release should: (1) identify who is releasing whom; (2) describe the released claims and time period; (3) tie the release to the closing and disbursement of funds; and (4) confirm that seller charges are paid from the purchase price, not out of pocket.

Key Requirements

• Clear, mutual scope: Each party releases the other and their affiliates from all claims “arising out of or relating to” the contract, closing, payoffs, and disbursements through the closing date.
• Consideration and timing: State the consideration (mutual promises and the fixed sum held in trust) and that the release becomes effective upon closing and disbursement.
• Escrow and payoff instructions: Direct the settlement agent to deduct and pay seller taxes, liens, special assessments, and mortgages from the purchase price at closing.
• Covenant not to sue and no admission: Add a promise not to sue over released matters and clarify that no one admits liability.
• Authority and carve‑outs: Have authorized signers (including entities) and reserve narrow exceptions (for example, fraud or willful misconduct) if appropriate.

What the Statutes Say

• North Carolina Gen. Stat. § 22-2 (Statute of Frauds) – Contracts for interests in land must be in writing and signed.
• North Carolina Gen. Stat. § 45A-4 (Good Funds Settlement Act) – Settlement agents may disburse only collected funds at closing.
• North Carolina Gen. Stat. § 47-18 (Recording; priority) – Recording protects priority; lien satisfactions tied to closing are recorded with the register of deeds.

Analysis

Apply the Rule to the Facts: Your mutual release should expressly cover claims about how the closing attorney allocates and disburses proceeds, and state that seller charges (taxes, liens, assessments, mortgages) will be paid from the purchase price at closing. Tie effectiveness of the release to closing and disbursement, and acknowledge the fixed settlement sum held in trust as part of the consideration. Include language that no party can later pursue claims if a future buyer pays less.

Process & Timing

1. Who files: No court filing. Where: Include the mutual release and escrow instructions in a written settlement addendum to the offer to purchase; closing documents are handled by the closing attorney. What: Settlement agreement/addendum with: mutual release; covenant not to sue; escrow/trust instructions; payoff directives; no‑admission; integration clause. When: Sign before wiring the fixed settlement sum to the closing attorney’s trust account and before closing; deposit the fixed sum within the agreed period.
2. Before closing, the settlement agent obtains payoff statements, confirms taxes/assessments, and holds your fixed sum in trust. On closing under the Good Funds Act, the attorney disburses collected funds and pays seller charges from the purchase price.
3. At closing, the deed and any lien satisfactions are recorded with the Register of Deeds. The mutual release becomes effective per its terms (typically upon closing and disbursement), and the trust funds are applied or released as agreed.

Exceptions & Pitfalls

• Ambiguous scope: If the release does not clearly cover proceeds, payoffs, and disbursements through the closing date, later disputes can arise.
• Missing parties or authority: Ensure all necessary parties (including entity affiliates and successors) sign and that signers have authority.
• Carve‑outs: Consider a narrow exception for fraud or willful misconduct; don’t unintentionally waive claims you need to preserve.
• Escrow clarity: State that seller charges will be paid from the purchase price; unclear language can lead to out‑of‑pocket disputes.
• Special capacities: If a party is an estate, trust, minor, or incompetent, additional approvals or representative signatures may be required before a release is enforceable.

Talk to a Real Estate Attorney

If you’re dealing with settlement terms and want a mutual release that truly closes the door on future claims over sale proceeds, our firm has experienced attorneys who can help you understand your options and timelines. 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.