What is the difference between a deed of trust and a promissory note, and what does each one do? – North Carolina

Short Answer

In North Carolina, a promissory note is the borrower’s written promise to repay the loan, including key terms like the amount owed and interest. A deed of trust is the real-estate document that secures that promise by placing a lien on the property and naming a trustee who can carry out a foreclosure under a power of sale if the loan is not paid. The note is the debt; the deed of trust is the collateral and enforcement tool tied to the land records.

Understanding the Problem

Under North Carolina real estate law, the key question is: when a lender makes a loan connected to real property, what document creates the duty to repay, and what document gives the lender rights against the property if the loan is not repaid. This issue often comes up when reviewing closing paperwork, trying to understand who has authority to enforce a loan, or sorting out what happens if payments stop and a foreclosure is threatened.

Apply the Law

In a typical North Carolina real estate loan, the promissory note and the deed of trust work together but do different jobs. The promissory note is the contract that creates the repayment obligation. The deed of trust is recorded in the county land records and creates a lien on the property to secure that obligation, usually including a power of sale that allows a nonjudicial foreclosure process when the loan is in default.

Key Requirements

The note states the debt: It typically identifies the borrower and lender, the principal amount, interest, payment schedule, late charges, and what counts as default.
The deed of trust secures the note with real property: It ties the loan to a specific parcel of real estate and gives the secured creditor a lien that can be enforced against that property.
A trustee is part of the deed of trust structure: The deed of trust names a trustee (or a substitute trustee can be appointed) who has a defined role, especially in foreclosure under a power of sale.

What the Statutes Say

N.C. Gen. Stat. § 45-45.3 (Trustee in a deed of trust) – Defines key roles (including “secured creditor”) and explains that, outside foreclosure/power-of-sale matters, the trustee is generally not a necessary party in many disputes involving the property or lien.
N.C. Gen. Stat. § 45-10 (Substitution of trustees) – Allows the noteholders to substitute a trustee by a properly recorded document and sets limits on an attorney-trustee representing parties in the same foreclosure.
N.C. Gen. Stat. § 45-21.01 (Foreclosure under power of sale; general provisions) – Recognizes foreclosure under a power of sale contained in a deed of trust and points to North Carolina’s statutory framework for that process.

Analysis

Apply the Rule to the Facts: Here, the goal is to understand what each document does in a North Carolina loan. The promissory note is the paper that shows the repayment obligation and the terms of the debt. The deed of trust is the paper recorded against the property that secures that debt and sets up the trustee/power-of-sale structure used if the loan goes into default.

Process & Timing

Who signs: The borrower signs the promissory note and the deed of trust. Where: The deed of trust is recorded with the Register of Deeds in the North Carolina county where the property is located. What: The recorded deed of trust creates a public record lien tied to the property’s legal description.
If payments stop: The lender (or other secured creditor) typically relies on the note to show the debt and relies on the deed of trust to enforce rights against the property, often through a power-of-sale foreclosure process handled by a trustee or substitute trustee. Timing and notices can vary by the loan documents and the statutory foreclosure steps.
If the loan is paid off: The secured creditor typically records a satisfaction/release so the deed of trust no longer clouds title. If the lien is not cleared, it can create problems in a sale or refinance until corrected.

Exceptions & Pitfalls

Mixing up “debt” vs. “lien”: Paying off or disputing the note is about the debt; clearing the deed of trust is about the lien in the land records. Both often must be addressed to fully resolve the issue.
Assuming the trustee is “the lender”: In North Carolina, the trustee’s role is limited and is often most important in the foreclosure/power-of-sale process, not in day-to-day loan administration.
Not tracking substitutions of trustee: A substitute trustee can be appointed by a recorded document, which can change who is sending notices and conducting a foreclosure sale.

Conclusion

In North Carolina, the promissory note is the written promise to repay the loan, while the deed of trust is the recorded real-estate instrument that secures that promise with a lien on the property and sets up the trustee/power-of-sale foreclosure mechanism. When questions come up, the practical next step is to gather the signed note, the recorded deed of trust, and any recorded substitutions of trustee from the Register of Deeds and review them together before responding to any default or foreclosure notices.

Talk to a Real Estate Attorney

If there are questions about a deed of trust, a promissory note, or what a lender can do under North Carolina law, our firm has experienced attorneys who can help explain the documents, the land-records impact, and any timelines that may apply. 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.