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Chicago Title Spin-Off
Takes Effect
Allegheny Corporation, the parent company of Chicago Title and Trust Company
("CT&T") announced in December, 1997 that 4 intended to
spin-off CT&T as an independent, publicly traded company, to be known
as Chicago Title Corporation ("CTC"), a Delaware corporation.
The spin-off became effective on June 17, 1998, and CTC has begun trading
on the Now York Stock Exchange under the symbol CTZ. John Rau is the President
and Chief Executive Officer of CTC.
Under the now corporate structure, Chicago Title Insurance Company and
TIcor Title Insurance Company remain as subsidiaries of CT&T; CTC
is the parent company of CT&T. The spinoff is designed to enhance
Chicago's position as the nation's foremost provider of title insurance
and real estate related services. In Now Jersey, Chicago and Ticor will
continue to serve our customers through our state-wide network of branch
offices and agents.
Mortgage Discharge Bill
Advances
A bill to expedite the discharge of mortgages has received the approval
of Assembly and Senate Committees. A-161 (Bateman and Cohen) was acted
upon favorably by the Assembly Banking and Insurance Committee on June
1, 1998. The corresponding Senate version, S-347 (inverse), received the
approbation of the State Government, Banking and Financial Institutions
Committee on May 21.
The bill, which was introduced at the request of the New Jersey Land Title
Association ("NJLTA"), and is supported by the New Jersey State
Bar Association ("NJSBAJ is intended to address the difficulty in
obtaining mortgage discharges or cancellations. A great deal of time and
effort is currently expended by attorneys and title companies after closing
to remove paid but uncancelled mortgages from the record. It is true that
NJSA 2A: 51 -1 et seq . provides a statutory basis for an action in Superior
Court to compel cancellation by judicial decree. In addition, NJSA 46:18-11.2
et seq. requires that a mortgage be cancelled within 45 days of payment,
and permits the recovery of certain fines and attorneys, fees against
a lender who refuses to comply. However, these remedies cannot be utilized
without the commencement of a suit. In addition, it is difficult to collect
on a judgment recovered against an out-ot-state lender.
The bill attempts to resolve the problem by permitting an attorney-at-law
or licensed title insurance producer who has caused a mortgage to be paid
to secure its discharge by submitting a detailed affidavit which sets
forth the steps taken to obtain a discharge from the lender. Specifically,
the person signing the affidavit (the form of which is set forth in the
legislation) must aver as follows:
payment was made to lender in accordance with a current, written pay-off
statement; (b) the all iant knows that the lender received the payment;
(c) a notice was sent to the lender at least 30 days after payment was
received by certified mail, advising it of the affiant's intention to
cause the mortgage to be discharged by affidavit; (d) a second notice
was sent to the lender at least 30 days after the first notice was received;
and (e) at least 15 dys have elapsed since the sander received the second
notice. The all idavit will be attached to a discharge prepared by the
affiant, and then recorded. The bill appoints the affiant as the lenders
agent or attorney-in-fact for the purpose of executing the discharge.
Note that the legislation only applies to residential mortgages.
Another section of the bill permits a servicer who receives a mortgage
pay-off to execute a discharge on behalf of the actual owner of the mortgage.
The bill deals also with the problem of unrecorded assignments, by allowing
an assignee to execute a discharge where there is a break in the chain
of recorded assignments.
Some have suggested that the procedure outlined above may be abused by
unscrupulous or dishonest persons. However, a party seeking to defraud
others may currently do so simply by manufacturing and recording a "discharge"
with a forged execution and acknowledgement. In contrast, the bill's requirement
of an affidavit should serve as a deterrent to such conduct, because an
attorney or licensed title insurance producer is unlikely to put his or
her license at risk by knowingly filing a false aff idavit in violation
of NJSA 41:3-1.
a. It is hoped that the Legislature will enact A-161/S-347 in the near
future. Its passage will help to ease the chronic problems caused by the
failure of lenders to timely cancel mortgages, thereby clouding the title
to many parcels of real estate in this State
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New counsel named for Roseland, Iselin offices
Chicago Title is pleased to announce the addition of two attorneys to
our New Jersey legal staff. Karen T. Fiorello recently joined the company
as counsel in the Roseland branch off ice. Ms. Fiorello is a 1991 magna
cum laude graduate of Kean College, where she received a B.A. in Economics
as well as a B.S. in Management Science. She obtained a Juris Doctor degree
from Seton Hall Law School in 1995 and was admitted to the New Jersey
Bar later that same year. After graduation from law school, Ms. Fiorello
served as law clerk to the Hon. Richard C. Camp in Superior Court, Essex
County. Thereafter, she was associated with the Nutley firm of Piro, Zinna,
Cifelli & Paris.
Dorothy Brown Duncan has been appointed agency counsel in the state headquarters
office in Iselin. She was graduated from Tufts University with a B.A.
in Political Science in 1988, and was graduated from Brooklyn Law School
in 1992, where she earned a Juris Doctor degree. Ms. Brown Duncan was
admitted to the New Jersey Bar in 1992, and to the Bars of Now York and
Connecticut in 1993. She has extensive experience in lending and real
estate transactions, and was formerly associated with Lawyers Title and
with Chicago Title's Manhattan office.
Karen Fiorello is responsible for the underwriting of signif icant transactions
in the Roseland off ice while Dorothy Brown Duncan provides underwriting
and other assistance for our Now Jersey agency network. We join with the
Roseland and Iselin staff s in welcoming these attorneys to Chicago Title.
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Perpetuities Statute
Construed
In the second reported decision to construe the Uniform Statutory Rule
Against Perpetulties ["USRAP"], N.J.S.A. 46:2FI et seq., since
its enactment in 1991, the Chancery Division has dealt with Its effect
on powers of appointment. Matter of Wold, 310 N.J. Super. 382 (Ch. Div.
1998), Involved a petition for instructions by trustees under a trust
created in 1944 by J. Seward Johnson. Elaine Johnson Wold, J. Seward's
daughter and life beneficiary under the 1944 trust, notified the trustees
that she intended to create a testamentary trust to benefit her husband,
children and grandchildren. The testamentary trust would be funded with
assets of the 1944 trust, utilizing a power of appointment granted to
Wald therein. However, this scheme would create property interests which
might vest too remotely, in violation of the common-law rule against perpetuities.
The trustees therefore sought direction from Judge Hamlin in the Chancery
Division. The primary question before the court was whether USRAP could
be applied to the post-USRAP exercise of a power of appointment created
pre-USRAP. If USRAP governed the exercise of the power of appointment,
the devises which could vest too remotely might be saved, because N.J.S.A.
46:2F-1 states:
a. A non-vested property Interest Is Invalid unless:
(1) When the Interest Is created, It Is certain to vest or terminate no
later than 21 years after the death of an
Individual then alive; or
(2) The Interest either vests or terminates within 90 years
after Its creation.
Thus, USRAP enacts a ninety (90) year"wait-and-see" period which
can be used to preserve otherwise invalid dispositions of property. N.J.S.A.
46:2F-1(a)(2). As explained by the court:
Under the common law approach, if an interest was not certain to vest
within the specified period, then the disposition was considered invalid.
Under the Act, an interest that would have been invalid at common law,
is nevertheless valid if It does in fact vest within 90 years of its creation,
310 N.J. Super. at 391-392.
In order to appreciate fully the implications of the preceding statement,
it may be helpful to review briefly the nature and effect of this legal
principle. The rule against peripetuities is a common law doctrine which
was first articulated in the Duke of Norfolk's Case (1682). It seeks to
protect the system of land ownership against interests which vest too
remotely. The classic formulation of the rule is:
No interest is good unless it must vest, If at all, not later than twenty-one
(21)years after some life in being at the creation of the interest.
Gray on Perpetuities §201 (4th Ed. 1942).
The purpose of the rule is clearly a laudable one, for without it, property
could be kept out of the stream of commerce for an indefinite period of
time. On the other hand, the rule's inflexibility and highly technical
nature have plagued lawyers for centuries. Cases involving the validity
of a devise or conveyance vis-a-vis the rule usually turn on the problem
of the so-called "measuring lives"; i.e., the life (or lives)
in being at the creation of the Interest.
For example, a bequest made to "my descendants who shall be living
twenty-one (21) years after the death of all lineal descendants of Queen
Victoria now living" is valid. In re VIIlar [1929],1Ch. 243. But
if the scrivener had omitted the phrase "now living", the gift
would not be valid, because some of the descendants of Queen Victoria
might be born after the testator's death, and would therefore fail to
be in existence at the creation of the interest (i.e., the time of death
of the testator). Thus, an inadvertent error in draftsmanship may cause
the intent of a testator or settlor to be frustrated. For more information,
see Leach, "Perpetuities In a Nutshell", Harvard Law Rev., Vol.
LI, No. 4 (Feb. 1938).
Various solutions have been proposed to the rule's many pitfalls. However,
the most obvious (its outright abolition) is not desirable, because it
would then become too easy to restrain the free transferability of property,
which would in turn have a negative impact on our socioeconomic system.
Another alternative is the enactment of legislation (such as USRAP) which
attempts to "reform" or otherwise modify the common-law rule.
Prior to 1991, the rule was in force in New Jersey because our various
state Constitutions have accepted the common law of England (as it stood
in 1776) as part of our legal system. N.J. Const., Art. XXII (1776); Art.
X (1844); Art. XI, §1, 13 (1947); Loudon v. Loudon, 114 N.J. Eq.
242 (E. & A. 1933). But in that year, USRAP was enacted in this State.
Under the statute, the general common law formulation of the rule was
retained, subject to certain modifications, which permit the "saving"
of some transactions which would otherwise be violative of the rule. Although
a detailed analysis of USRAP is beyond the scope of this article, several
sign if icant sections of the statute should be kept in mind.
First, subject to certain narrow exceptions, USRAP does not apply to nondonative
transfers. In other words, it applies only to donative transfers. such
as wills or trusts, but not to commercial transactions, such as options.
Second, USRAP does not apply, in general, to interests created before
it took effect (July 3, 1991). Third, USRAP "supersedes"the
common-law rule against perpetuities
The first (and only previous) reported New Jersey decision construing
the rule against perpetuities is Juliano & Sons v. Chevron, U.S.A.,
250 N.J. Super. 148(App. Div. 1991), which was decided on July 13,1991,
shortly after USRAP became off ective. In Juliano, the Appellate Division
was called upon to determine the validity of a right of first refusal
(created in 1974 as part of a commercial transaction), which contained
no limitation on the time in which it could be exercised.
The court began its analysis by acknowledging that rights of first refusal
were embraced with the common-law rule against pertpetuities citing, inter
alia, Mazzoo v. Kartman, 234 N.J. Super. 223 (App. Div. 1991). However,
it distinguished Mazzoo factually, holding that the language of the instrument
creating the right in this case would not permit aconstruction which would
"save"it underthe common law rule.
The panel then turned its attention to USRAP, noting that the text excludes
nonclonative transfers (such as a commercial option or right of first
refusal) from the operation of the Act. N.J.S.A.46:2F4 (a). However, the
Appellate Division went on to hold that USRAP "...embodies the entire
law of the State of Now Jersey, as of its off active date, with respect
to the rule against perpetuities". Therefore, the intent of N.J.S.A.
46:2F-8 (which "supersedes" the common-law rule) was to cause
the common-law rule to be repealed in its entirety by USRAP, even as to
transactions (such as commercial ones) to which the Act, by its terms,
Is Inapplicable! 250 N.J. Super. at 155.
Finally the Juliano tribunal addressed the issueof theprospective application
of USRAP, based upon the wording of N.J.S.A. 46:2F-5,which states that
the Act does not to interests created prior to its effective date. Although
the right in that case was created in 1974, the court determined that
N.J.S.A. 46:2F-5 was not controlling, because the transaction in question
was outside the scope of the Act. On the other hand, the abrogation of
the commonlaw rule by N.J.S.A. 46:2F-8 is applicable to all transactions,
whether or not pre- or post-USRAP. 260 N.J. Super. at 156-157. For more
information, see "Title Talk" No. 25 (Winter 1993/94). Given
the holding of the Appellate Division in Juliano, could USRAP apply in
the circumstances present in Wold? As noted above, the Chancery Division
conceded that Juliano held that the statute was not retroactive and was
intended to apply only to property interests created on or after its effective
date (July 3, 1991). However, Judge Hamlin distinguished Juliano an this
point finding that: " ... while the statute may not apply retroactively
as a general matter, for purposes of determining the applicability of
the new statutory period the law specifically provides that an interest
created pursuant to a power of appointment is deemed to be created upon
the exercise of [the] power. N.J.S.A.46:2F-5(a). Therefore, even if created
under a pre-existing power of appointment, [USRAP] would apply to an interest
created under that power, whether general or specific, 9 exercised after
July 3, 1991." 310 N.J. Super. at 361.
The decision of the Chancery Division is Wold seems consistent with the
legislative intent behind the enactment of USRAP. An opposite conclusion
would have frustrated the parties' ability to take advantage of the"wait-and-see',
provisions of the Act. Thus, to the extent USRAP is viewed as remedial
legislation, it is hard to quarrel with the result achieved.
On the other hand, the interpretation given to N.J.SA. 46:8F8 by the Appellate
Division in Juliano is difficult to accept. It is hard to imagine that
the Legislature believed that it was repeating the common-law rule against
perpetuities as to transactions not covered by USRAP! Until Juliano is
legislatively orjudicially over-ruled, it will be possible to keep commercial
properties out of the stream of commerce for indefinite periods of time.
As suggested above, this is not a desirable result, because it will ultimately
have a negative impact on our socia-economic system.
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Electronic Registration
of Mortgages will begin soon
by Joseph M. Clayton, Jr
Real estate practitioners and title companies conducting closings in New
Jersey and elsewhere will soon begin to see references to Mortgage Electronic
Registrations Systems Inc. ["MERS"] as the assignee of mortgages
on residential real estate. This signif ies that the mortgage in question
has been electronically registered in the secondary mortgage market. Payoffs
and discharges will be obtained through MERS on behalf of the mortgage
owner and/or servicer.
The idea for an electronic mortgage registration system began in 1991
when FNMA FHLMC, the Mortgage Bankers Association ['MBA"] and others
jointly began to look at ways to eliminate the burdensome flow of paper
in the secondary market. One area where improvements were obviously necessary
was in the transfer of the ownership of mortgages. The servicing of an
average mortgage is transferred four to five times during the life of
the loan, and each transfer should be accompanied by an assignment, which
must be recorded locally. Delays in recording and variations in assignment
and recording practices in 50 states, combined with bank and thrift institution
insolvencies (and subsequent RTC/FDIC takeovers) made the process of tracing
mortgage ownership, obtaining payoff statements and discharges a nightmare.
In 1995 FNMA, FHLMC, MBA and a number of national lenders formed MERS
- Mortgage Electronic Registration Systems, Inc. - as the vehicle for
the creation of an electronic registry for mortgages. MERS is a non-profft,
non- stock corporation, with a Board of Directors composed of those who
contributed substantially to the start-up costs. As it now begins operations,
MERS will electronically track ownership and servicing rights of mortgages
within the system, providing a platform for those rights to be traded
among members without the need to record a mortgage assignment with each
such change.
Each mortgage to be registered in the system will he given a Mortgage
Identification Number ("MINI, which it will retain for the life of
the loan. A traditional mortgage and note naming the lender as mortgagee
will be executed and recorded as provided by state law, and an assignment
from the lender to MERS will also be executed and recorded. All subsequent
transfers of ownership or servicing rights will be executed electronically
between members through MERS, using the MIN to track such transfers. MERS
will remain the mortgages of record and will act as the nominee for the
servicing company and investor associated with a particular loan. There
will be no further assignments in the public record.
MERS will operate a state-of-the-art electronic mailroom, Notices or service
of legal process relating to the property will be made upon MERS. When
such mail is received, it is imaged and immediately forwarded electronically
to the companies shown on the MERS registry as having some relationship
to the loan. The servicer will then respond as required by Its contract
with the investor or owner of the loan. MERS may also be the named plaintiff
in any foreclosure action involving a registered loan.
Access to the MERS electronic registry depends on the relationship to
the particular loan. Servicers and investors may update their own loan
files. Other members and the general public may see information about
the servicer, such as name, address and telephone number, but will not
be entitled to information about the investor or other proprietary data.
Access may be had through a modem and a computer, using MERS proprietary
desktop software. It is also anticipated that a MERS WEB she will be "on
line"In the fall. In addition, a toll-free telephone number for voice
inquiries will be established. Attorneys and title insurers will be able
to obtain the name, address and telephone number of the current servicer
in order to request pay-off information.
As MERS will be the holder of record of the mortgages, discharges will
come directly from MERS. Representatives will be appointed in each state
who will be responsible for executing discharges. The goal is to provide
prompt execution and delivery of a discharge once MERS has been notified
by the servicer that a loan has been paid off .
It will, of course, take time for the use of MERS to spread. However,
the system is attractive to lenders and investors in mortgages, and we
can anticipate that over the course of several years, assignments to MERS
will show up with increasing frequency. If the system works as planned,
it will simplify one aspect of title searching, and it should eliminate
the recent difficulties experienced in obtaining cancellations or discharges.
Joseph M. Clayton, Jr., Esq. is Executive Director and General Counsel
of the Now Jersey Land Title Association in Princeton. This article previously
appeared in the NJSBA Rest Property, Probate & Trust Law Section Newsletter('Vol.
XXV111, No. 2) and in the NJLTA Advocate (Vol. V11, No. 1) and is reprinted
here with the permission of the author.
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Map Filing Law Amended
Again'
The Map Filing Law, N.J.S.A- 46:23-9.9 et seq., was amended by P.L. 1997,
a 211, to require, Inter ails, that condominium regime surveys and plans,
submitted for filing as part of a master deed under N.J.SA. 46:8B- 9,
meet the requirements of the law. See "Title Talk" No. 40 (Spring,
1998) for more information.
Now, the Legislature has further amended the Map Filing Law by the enactment
of P.L. 1998, c. 23, effective June 4, 199% which is to be codified [in
part] as N.J.S.A. 46:23-9.17. The now section states, Inter &Ile,
that P.L. 1997, c. 211 does not apply to highway right-of-way maps created
prior to July 1, 2001.
Uniform Federal Lien
Registration Act Passed
The Legislature has adopted the Uniform Federal Lien Registration Act,
P.L. 1 1997,c. 412 (off. Jan. 19,1998). The Act permits the filing in
the county land records of liens arising in favor of the United States
under the Comprehensive Environmental Response, Compensation and Liability
Act, commonly known as "CERCLA" ' 42 U.S.C. §§9601
at seq. It will be codified at N.J.S.A. 46:16-15 of seq.
CERCLA is also known as the "Superfund Law". It requires the
EPA to compile a list of sites requiring environmental clean-up owing
to the presence of toxic waste, ate. There are many so-called "superfund"
sites in Now Jersey. The EPA enjoys a lion against these properties to
the extent it has expended funds for remediation of harmful conditions.
Prior to the enactment of the Uniform Act in Now Jersey, there was no
specific statutory authority for the filing of such liens in the county
clerks' or registers, offices. Thus, a prospective purchaser, lessee or
mortgages of realty was frequently unable to determine from an examination
of title if such a lien had arisen against the property.
Although the Act is also applicable by its terms to "other federal
liens", it does not affect the filing of Federal Tax Liens under
the Internal Revenue Code and NA.S.A. 46:16-13. The Act also amends N.J.S.A.
22A:4-4.1 to impose a recording charge of $8.00 for each lien filed.
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"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.) Now Jersey 08830
(732) 205-0055 o Fax: (732) 205-0330
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