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"Enhanced
Coverage" Policies Gain Approval
The Commissioner of
Banking and Insurance has approved the use of the "Enhanced Coverage"
policies and endorsements, effective January 5, 1998. As the name implies,
these forms supplement or "enhance" the coverage afforded by the ALTA
Residential owner's ["Plain Language"] Policy (1987) and the ALTA Loan
Policy (1992). In other words, the enhanced coverage policies are basically
the same as the ALTA policies mentioned above, but with certain additional
items of coverage added thereto. The Commissioner had originally approved
similar policies as deviations filed by certain title insurers. The Now
Jersey Land Title Insurance Rating Bureau ["NJLTIRB"] has now gained approval
for their use by all member companies. Therefore, virtually all title
insurers doing business in this State will be able to off er "enhanced
coverage" policies as of January 5, 1998. Some companies have chosen to
give special names to their forms; the Chicago and Ticor versions will
also be known as the "Castle" policies and endorsements. The "Castle"
designation will permit ease of product recognition. It will also help
to prevent confusion with the traditional policy forms. As suggested above,
the owner's "Castle" policy is an enhanced version of the ALTA Owner's
Residential ["Plain Language Policy (1987). The loan form enhances the
ALTA Loan Policy (1992), but it may only be used where the mortgage is
a lien on a one-to-four family dwelling (including a condominium unit).
A "short form" version of the loan policy is also available, which incorporates
by reference the terms of the full-length policy. Enhanced coverage is
not available for vacant land or commercial or industrial sites. Also
excluded are one-to-four family dwellings owned by a corporation or other
business entity, or those in which the owner does not reside (or intend
to reside) in one of the dwelling units. The Commissioner has also approved
the use of so-called conversion endorsements to the traditional policy
forms. These endorsements make the necessary changes to the policies,
so that the resulting policy is the equivalent of the "enhanced coverage"
version. The charge for the policy is 120% of the otherwise applicable
underwriting rate (in other words, a 20% premium surcharge). For example,
if, in a given transaction, the charge for issuance of the traditional
residential owner's policy is $1,000.00, the charge for enhanced coverage
is $1,200.00. Other charges, such as search and examination, simultaneous
policy fee, owner's policy endorsements, and loan policy endorsements
(other than those listed below), will continue to be imposed as set forth
in the NJLTIRB Rate Manual. The policies, or their conversion endorsement
equivalents, will be made available upon request by Chicago and Ticor
agents and branch offices, provided that the use of the property falls
within the parameters discussed above. In general, and unless Schedule
"A* of the commitment states otherwise, if no request is made for enhanced
coverage, the traditional policy forms will be issued. What additional
coverages do these policies provide? A general description follows.
"Enhanced Coverage" Owner's Policy
1. Availability. Use limited to owner-occupied one-to-four family dwellings
(including condominium units). 2. Amount of Coverage. Face amount of policy
increases by 5% every year for the first five (5) years, up to 125% of
face amount of policy.
3. Access. Both pedestrian and vehicular access are insured.
4. Forgery. Protection against future forgery.
5. Building Permit. Coverage against loss (up to $25,000.00) arising from
enforced removal of dwelling arising from failure to obtain a building
permit, subject to 1 %deductible.
6. Future Encroachments. Coverage for loss arising from future encroachments
caused by structures (other than boundary walls and fences) erected by
adjoining owners on the land insured.
7. Reversion of Title. Indemnification for loss if this reverts because
of a prior violation of a restrictive covenant.
8. Subdivision. Coverage against loss (up to $10,000.00) arising from
the insured's inability to obtain a building permit or to sell the property
or obtain a mortgage because of a violation of the subdivision law.
9. Mining Rights. Coverage for loss arising from damage to improvements
resulting from the exercise of the right to extract minerals.
10. Restrictions - Enforcement. Coverage for loss by reason of the enforcement
of restrictive covenants which were previously violated, subject to a
1 %deductible.
11. Restrictions- Marketability. Coverage for loss by reason of unmarketability
of title resulting from the prior violation of restrictive covenants.
"Enhanced
Coverage" Loan Policy
1. Availability. Use limited to mortgages secured by owner occupied one-to-four
family dwellings (including condom iniu rn units).
2. Amount of Coverage. Policy limit is increased by 25% above stated amount
to provide indemnif ication for accrued interest, etc.
3. Access. Both pedestrian and vehicular access are insured.
4. Usury. Claims that the mortgage is invalid because the interest rate
is usurious under New Jersey law.
5. Construction lions. coverage is given regardless of whether or not
the work commences before or after the recording of the mortgage and regardless
of whether the mortgage proceeds are used to finance the construction.
6. Street Improvements. Loss arising from assessments for street improvements.
(See ALTA Endorsement No. 1.)
7. Street Address. Loss arising from the failure of the land to have the
street address shown on Schedule A. 8. Type of Structure; zoning. Loss
arising from the failure of the land to contai n a one-to-fou r family
dwelling or condominium unit or to be zoned to permit same.
9. Subdivision. Loss arising from violation of subdivision laws.
10. Building Permit. Loss arising from the failure to obtain a building
permit.
11. Restrictions. Loss arising from inability to use the structure located
on the land because its use violates restrictions.
12. Future Encroachments. Loss arising from a structure erected by an
adjoining owner in the future which encroaches onto the land.
13. Mineral Rights. Loss arising from damage to improvements resulting
from the exercise of mining rights.
14.Forgery. Loss arising from forgery after the policy date of an assignment,
release or satisfaction of the insured mortgage.
15. Endorsements. The loan policy automatically includes the coverage
provided by the following endorsements: ALTA Nos. 6, 6.1,6.2,8.1,9, revolving
loan and "no survey" survey endorsement t The summary description is intended
only as a generalized summary of the policies' features. In the event
of a conflict between the summary and the actual text of the policies,
the latter will control. The decision to obtain or to forego enhanced
coverage should be made by the individual purchaser or lender, after consultation
with counsel.
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Federal
Estate Tax Exclusion Increased
As a result of the passage of the Taxpayer Relief Act of 1997, P.L. 105-34,
the amount of the Federal Estate Tax exclusion will be gradually increased,
as set forth in the following table: Year of Amount of Exclusion Death
(Size of Estate) 1998 $625,000 1999 650,000 2000 or 2001 675,000 2002
or2003 700,000 2004 850,000 2005 950,000 2006 (arid thereafter) 1,000,000
The Act amends 26 U.S.C. ¤2010 to provide for increases in the amount
of the exclusion over the current figure of $600,000. The Federal Estate
Tax is of concern to title insurers because the tax, if unpaid, constitutes
a lien on the decadent's real estate for a period of ten (10) years after
death. 26 U.S.C. ¤6324. But if the value of the estate is less than the
amount shown at the time of death, the estate is tax exempt. Therefore,
title insurers will not require proof of payment in such cases. It is
important to remember, however, that one must consider the size of the
decadent's entire estate, and not just the value of the really being conveyed.
The value of personal property (such as insurance proceeds, cash and securities)
can easily cause the size of the estate to exceed the exclusion.
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Construction
Liens Revisited: Mansion Supply Co. v Bapat
When is the correct time to file a construction lien claim ["CLC"] for
residential construction under ¤21 of the Construction Lien Law ["CLLI"]?
In Mansion Supply Co. v. Bapat, 293 N.J. Super. 253 (Law Div. 1996), the
Law Division attempted to clarity the somewhat confusing statutory scheme
which the Construction Lien Law, N.J.S.A. 2A:44A-1 at seq., sets forth
regarding residential construction. As originally drafted, the bill did
not distinguish between residential and commercial projects. However,
in an effort to obtain support from home builders, its sponsors agreed
to the insertion of ¤21, which set up special procedures regarding the
enforcement of liens against residential properties. This section, now
codified as N.J.S.A. 2A:"A-21 provides that a subcontractor or supplier
seeking to impose a lien against residential construction must file a
Notice of Unpaid Balance and Right to File A Lien ["NUBI"] When this is
done, the matter proceeds to mandatory arbitration. The arbitrator is
required to render his or her decision within 30 days of the date on which
the demand for arbitration was received. The NUB must then be perfected
by the filing of a Construction Lien Claim ["CLL"] within 10 days of receipt
of notice of the arbitrator's award. In a non-residential project, the
filing of the NUB is optional. But to be valid, it must be filed within
90 days of the last date work was done by the claimant. The CLL will "relate
back"to the NUB, but the CLL must be filed within the same 90-day period.
If the claimant elects not to file a NUB, the CLC must be filed within
90 days of the last date work was done by the claimant. There is no statutory
provision for arbitration. N.J.S.A. 2A:44A-6; - 20. Unfortunately, the
last-minute inclusion of ¤21 in the final version of the law created inconsistencies
with the time limits prescribed in the preceding sections. In Mansion
Supply Co. v. Bapat plaintiff was alleged to be owed money for materials
supplied to a residential construction project, arising from a contract
between plaintiff and the general contractor. The claimant filed its NUB
on August 21, 1995, together with a demand for arbitration. It also filed
a CLC on the same date. The arbitration hearing was held on September
26, 1995. The arbitrator dismissed plaintiff's claim on the grounds that
the CLC had been improperly filed. Accordingly, no determination was made
as to the mark of plaintiff's claim for damages. On appeal, the Law Division
reversed the arbitrator's decision, and remanded the matter for further
proceedings. It framed the issue in the case and resolved it as follows:
The crux of the dispute in this matter is an interpretation of time requirements
for filing a lien claim based on a residential construction contract under
N.J.S.A. 2A:44A-1. ... The Construction Lien Law has stringent time requirements.
... The Legislature, however, has specially treated residential construction
contracts and the various parties involved in the construction or renovation
of a home. ... [N.J.S.A. 2A:44A-21] creates a different time frame for
residential construction contracts and the liens that result, as opposed
to all other types of lions covered by this statute. Under this analysis,
the court concludes that all lions need to be filed within the ninety
day window stated in N.J.S.A. 2A:44A-6, except those stemming from residential
construction contracts. In order to comply with the time limits under
residential construction contracts one must go beyond N.J.S.A. 2A:44A-6
and consider other sections of the statute, read together. 293 N.J. Super,
at 257 - 258. The trial court concluded that the following "time line"
applies to residential construction: First, the claim must be "Initiated"
within 90 days of the last date that work was performed or materials supplied
(presumably by the filing of a NUB). Second, the claimant must simultaneously
demand arbitration. Third, the decision of the arbitrator must be made
within 30 days of the demand for same. Fourth, the claimant must file
a CLC within 10 days after the arbitrator's decision is made. Thus, the
total "lion claim process may take up to, but not exceed 130 days". Kat
258. (The sum of 90 plus 30 plus 10 is 130.) Applying its analysis to
the case at bar, the trial court found that the arbiltrator's reasoning
was flawed. He should have taken into account the 10 day post-arbitration
award period in which a claimant may file a CLC. In the alternative, plaintiff's
prearbitration filing of the CLC could have been considered as valid within
the statute. In short, the plaintiff had complied with the statutory "time
line"set forth above; a claimant may validly file a CLC within 10 days
after the arbitrators decision is made. See "Tills Talk" No. 35 (Fall,
1996). On appeal, the Appellate Division reversed the Law Division, in
an opinion by Kimmelman, J. - N.J. Super. -(App. Div. 1997). It concluded
that the trial court had erred in its analysis of ¤21. After reviewing
what it considered to be the relevant statutory provisions, it stated:
"We discern no intendment by the Legislature that the ninetyday window
[of N.J.S.A. 2A:44A-6] within which a lion claim may be filed should be
extended when residential real estate is involved. As indicated, N.J.S.A.
2A:44A- 20e makes it clear that the filing of a NUB does not extend the
time for the filing of a lien claim on a residential project, as prescribed
by N.J.S.A. 2A:44A-21 b(l), must be satisfied in a sufficient time to
comply with the ninety day window set by N.J.S.A. 2A:44A-6. Significantly,
NA.S.A. 2A:44A-5 requires that, where a residential construction contract
is involved, "strict compliance with sections 20 and 21" must be had."_
N.J. Super. at - ; Slip Op. at 5-6. ... "We respectfully disagree with
the trial court's interpretation of the Act ... Nowhere in the Act is
the ninety- day window extended under any circumstance. Consequently,
we determine that the legislature intended that the arbitration ... be
completed in time for the lien claim to be filed within the ninety-day
window. See N.J.S.A. 2A:44A- 5;-6;21b(6). It behooves a residential claimant
to file both a NUB and a demand for arbitration sufficiently in advance
of the expiration of the ninety-day window to allow a fi net determ ination
to be made by the arbitrator ... before that deadline expires." ... "Accordingly,
we conclude that the trial court's interpretation of the Act contravenes
its plain language and the clearly expressed legislative intent. The initial
decision of the arbitrator, that plaintiff's lien claim was improperly
filed, was correct. The trial court's reversal of the arbitrator ... was
in error." N.J. Super. at Slip Op. at 7-8. Without expressing a view as
to which judicial opinion more closely discerned the legislative intent,
it may be helpful to conclude by repeating the last sentence from the
discussion of the trial court's opinion which appeared in "Title Talk"
No. 35: "All parties in interest should have the benefit of a clearly-written
statute." Perhaps the Legislature should take this opportunity to clarify
¤21 of the Act in the immediate future.
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Successors
& Transferees Coverage Approved
The Commissioner of Banking and Insurance has given approval to Chicago
and Ticor Title Insurance Companies for the use of the Successors and
Transferees Coverage Endorsement. This form is a so-called "deviation"
filing; Le., it is not one submitted by the New Jersey Land Title Insurance
Rating Bureau ["NJLTIRB"] Thus, only Chicago and Ticor may issue the endorsement
at this time. What is the purpose of the endorsement? Under the definition
of "insured" found in the ALTA Owner's Policy If 992), Conditions & Stipulations,
11, coverage is restricted (in general) to the insured named in Schedule
A of the policy, and to those who succeed to its interest by operation
of law, but not by voluntary conveyance. In other words, if corporation
A is the named insured, and it merges with Corporation B, the letter corporation
(B) is now the insured, as of the policy's original effective date. This
is because the surviving corporation following a merger (B) automatically
becomes the owner of all of the assets of the merged corporalion (A).
But if A is a wholly-owned subsidiary of B, and A's accountants or lawyers
suggest that title be transferred to B by deed, B will not be insured.
Why? Because B did not acquire title from A by operation of law; rather,
it took title by Inter vivos conveyance. The endorsement expands the definition
of "insured" found in the policy. For example, it adds 11 (a)(iii), which
states: transferees for no or nominal consideration, provided that that
the named insured and the transferee are related by blood or marriage,
or (if the transferee is other than a natural person) or the transferor
is the owner of all or substantially all of the stock or other interests
in the transferee or vice verse, or all or substantially all of the stock
or other interests in both the transferor and transferee are owner by
the same person(s) or entity (ies). Thus, returning to the examples given
above, B would be covered (by the endorsement), regardless of whether
'a took title from A by deed or by merger. Furthermore, if A and B were
both owned by C, policy coverage would remain eff active. In addition,
the endorsement would cover a conveyance by the owner of property to his
or her trustee and by the trustee to beneficiaries of the trustee. The
endorsement may be affixed to policies insuring commercial or income-producing
properties, whether owned by individuals, corporations or other business
entities (such as partnerships), for which the ALTA Owners Policy (1992)
is currently used. It may not be used with owner's policies insuring title
to one-to-four family dwellings. The form is not intended for use with
loan policies, because the assignee or "successor in ownership of the
indebtedness" secured by the insured mortgage is already included within
the definition of "insured" found in the ALTA Loan Policy (1992). Thus,
it is not needed in the context of loan policies. The endorsement does
not change the effective date of the policy; it simply places the insured's
successor or transferee in the position of being considered an "insured"
under the original policy. As suggested above, the endorsement in some
cases simply confirms the existence of coverage (e.g., where a merger
occurs) and in others expands it (e.g., related-entity deeds). Therefore,
a premium surcharge is appropriate, because in some cases (such as a conveyance
by deed), coverage would cease in the absence of the endorsement, and
the grantee (if it wished to be insured) would be compelled to purchase
a now policy and pay a premium therefor. If the insured contemplates,
for example, a future corporate restructuring at the time of policy issuance,
it may obtain the endorsement by paying a 10% premium surcharge. If it
chooses to wait and needs to obtain coverage in the future, it may do
so, but at a higher cost (a 20% premium surcharge). The premium surcharges
are significantly less than the cost of a new policy.
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Aggregation
or "Tie-in" Endorsement Approved
The Commissioner of
Banking and Insurance has approved the submission by the Now Jersey Land
Title Insurance Rating Bureau ["NJLTIRB"] of the Aggregation Endorsement
(ALTA Endorsement No. 12) for loan policies, off active January 5, 1998.
The endorsement is used to aggregate or 'lie-in" several loan policies
where a single debt is secured by mortgages upon several sites, usually
(but not necessarily) located in different states. The endorsement, which
was formerly known as the"tie-in"
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Foreign
Judgment Enforcement Simplified
The Legislature has
enacted the "Uniform Enforcement of Foreign Judgments Act", P.L. 1997,
c. 204, eff active August 14, 1997. The Act, which will be codified as
N.J.S.A. 2A:49A-25 at seq., simplifies the procedure for the enforcement
of judgments obtained in other States. "Foreign Judgment" is defined as
"any judgment, decree, or order of a court of the United States or of
any other court which is entitled to full faith and credit... ". N.J.S.A.
2A:49A-26. The law provides for the filing, with the Clerk of the Superior
Court, of an ..authenticated" copy of the judgment, whereupon the "clerk
shall treat the foreign judgment in the same manner as a judgment of the
Superior Court of this State". N.J.S.A. 2A:49A-27. The filing must be
accompanied by an affidavit settling forth certain information, including
the judgment creditor's and debtor's addresses. N.J.S.A.2A:49A-28. The
Clark is directed to mail to the debtor a notice of the filing of the
judgment. Id. Execution is stayed for a period of 14 days after the judgment
is filed. Id. Prior to the enactment of this statute, a creditor seeking
to enforce a judgment obtained in another State was required to file a
complaint in Superior Court. N.J.S.A. 2A:82-4.1. This more cumbersome
procedure is preserved by ¤7 of the new Act, N.J.S.A. 2A:49A-31, but it
will probably fall into disuse. this by modifying ¦7(a)(i) of the Conditions
& Stipulations portion of the ALTA Loan Policy (1992) to acknowledge that
the policy issued for a single site is pan of a larger transaction. The
NJLTIRB Rate Manual requires that a premium surcharge of ten (10%) be
obtained when issuing the endorsement. The charge is based upon the realty
located in Now Jersey. For example, if the premium for insuring a mortgage
encumbering the New Jersey site in a given transaction is $10,000., the
cost of the endorsement is 10% of $10,000., or $1,0OO.
Chicago Title and
Ticor Title extend their best wishes for a joyous holiday season to their
customers and friends. "Title Talk" is published periodically by the Chicago
Title and TICOR Title Insurance Companies, and is distributed free of
charge to their customers and friends. Steven G. Day, Esq., Area Manager,
Publisher Lawrence J. Fineberg, Esq., State Counsel, Editor Chicago Title
Insurance Company TICOR Title Insurance Company 111 Wood Avenue South
Iselin (Woodbridge Twp.) New Jersey 08830 (732) 205-0055 - Fax: (732)
205-0330
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