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Judgment
Liens and Equitable Distribution
A recent decision of the Appellate Division has helped to resolve a troublesome
issue which often arises in connection with equitable distribution awards:
the status of judgments entered after the divorcejudgment, but prior to
the recording in the land records of the instrument memorializing same.
In many divorce cases, title to the marital residence is held by the husband
and wrife as tenants-by-the-entireties. At common law, a divorce judgment
converted this estate to a tenancy-mcommon. Lawrence v. Lawrence, 79 N.J.
Super. 25 (App. Div. 1963). However, the court may overcome the effect
of the common-law rule by entering an equitable distribution order. NJSA
2A:34-23. Such orders frequently (but not uniformly) award title to the
marital residence (or other realty) to the wife. The husband is generally
directed to confirm the award by executing and delivering a dead conveying
his interest in the realty to his wife.
Owing to the hostility attendant upon many matrimonial causes, it is a
common occurrencethatthe deed is not delivered promptly- In some cases,
it is not delivered at all. Therefore, some lawyers insertwording in the
judgment or order permitting the recording of a certified copy thereof
in the land records, pursuant to NJSA 46:16-1.1 or -2, if the deed is
not produced in a reasonable period of time. Even in the absence of such
a specific provision, many attorneys will obtain and record a certifiedcopyof
thejudgmentor order, reipgon NJSA2A:16-T:
When ajudgmerd.. shall be enteredfora conveyance.. of real estate or an
interest therein, and the party against whom the judgment shall be entered
shall not comply therewith by the time appointed, orwithin 15 days after
entry of the judgment if no time be appointed therein, the judgment shall
be considered and taken, in all courts of the state to have the same operation
and effect, _ as if the conveyance ... had been executed conformably to
thejudgment.
Although the statute quoted above does not require that the a copy of
the judg merit be recorded in the land records in order for it to be effective
(at least between the parties), it has been generally assumed by the bar
and by title companies that recording was necessary in order to affect
the rights of third parties. The Recording Act, NJSA 46:21-1 and 46:22-1,
provides [in pertinent part): --- whenever any deed... shallhave been
duly recorded- with the county recording officer ... such record shall,
from that time, be notice to all subsequent judgment creditors, purchasers
and mortgagees ... JNJSA 4621-1.1
Every deed ... shall, until duly recorded.. in the office of the county
recording officer ... be void and of no effect against subsequent judgment
creditors without notice, and againstall subsequent bonafide purchasers
and mortgagees.... [NJSA 4622-1.1 Moreover, NJSA 46:16-1.1 states that
a judgment, when recorded ... shall from that time be notice to all subsequent
judgment creditors, purchasers and mortgagees of the existence and contents
thereof.
This brings us to Gibau v. Klein, 329 N.J. Super. 227 (App. Div. 2000).
Eleanor Klein represented Joan Gibau in a divorce action which culminated
in a judgment of divorce entered on January 6, 1978. As part of the judgment,
the court directed Joan's husband, Frank Gibau, to "forthvvith transfer
and convey to plaintiff all of his right, title and interest in and to
the former marital residence, located at 106 Devon Road, Cinnaminson,
NewJersey". Frank did not comply with the court order, nor did Joan's
attorney cause a certified copy thereof to be recorded in the land records.
In 1995, Joan attempted to sell the property to a third party. The purchaser's
title company raised objections as tojudgments entered against Frank subsequent
to the divorce judgment. Joan's [new] attorney was successful in compromising
the judgments, for a total of about $22,500.00, which was paid from the
proceeds of sale. Joan then sued her former attorney for malpractice,
alleging that Klein's failure to record the divorce judgment was the proximate
cause of her loss.
The Appellate Division, in an opinion written by Judge Keefe, affirmed
the holding of trial court, which had dismissed the complaint. It found
that Klein was not negligent, because the judgmentsin question did notconstitute
liensagainstthe realty. The panel relied in part upon the wording of NJSA2A:16-7,
which, as noted above, does not require recordation of a judgmentfor conveyance
of land. Rather, its provisions are said to be "... self-operative,
without the need for further action". Thus, as between Joan and Frank,
it is clear that title to the premises in question was vested solely in
her as of the date of entry of the divorce judgment. 329 N.J. Super. at
232.
However, the Appellate Division recognized that this conclusion did not
wholly dispose of the issue, because the rights of third parties (ie.,
Frank's judgment creditors) were also involved. It noted that Sonderman
v. Remington Const. Co., Inc., 127 N.J. 96 (1992) held that an order vacating
an in rem foreclosurejudgment must be recorded in the land records so
as to impart constructive notice. Thus, "... if thejudgment affecting
title to real property is not recorded, it may not serve as notice to
subsequent purchasers for value orjudgment creditors". 329 N.J. Super.
at 235. However, this did not conclude the court's analysis. Because the
divorce judgment affected the equitable distribution of marital property,
it took note of the "special nature" of such a judgment, and
found that "...the equities it creates in the non-debtor spouse have
long been recognized in this State". Id.
The panel then analyzed several previous decisions which dealt with the
effect of equitable distribution awards upon lienholders, such as Sisco
v. New Jersey Bank, 158 N.J. Super. I 11 (App. Div. 1978); Vander Weert
v. Vander Weert, 304 N.J. Super. 339 (App. Div. 1997); and Freda v. Comm
7 Trust Co., 118 N. J. 36 (1990). Although the cou rt d i d not refe r
to Daeschier v. Daeschler, 214 N.J. Super. 645 (App. Div. 1986), it is
more-or-less in accord with Sisco and Vander Weert, supra. On the other
hand, Interchange State Bank v. Riegel, 190 N.J. Super. 139 (App. Div.
1963) was not mentioned, presumably because itwas decided in favor of
the lienholder. Furthennore, although Freda v. Comm'! TrustCo., supra,
could be read to support the plaintiffs position, its holding was distinguished.
While conceding that there are no reported decisions directly on point,
the court concluded that the cases it relied upon stood forthegeneral
proposition that the rights of a lienholder must give way to those of
a non-debtor spousewho is the beneficiary of an equitable distribution
award. Accordingly, it determined that
It is abundantly clear, therefore, that the judgments in this case, whichwere
not even docketed beforethe divorcejudgment was entered, did not constitute
a lien on the marital home since the property was not held by Frank at
the time the judgments were taken. Our holding here, which islimited tojudgments
entered for equftble distribution ofproperty in dissolution cases, does
no violence to the Recording Act.
329 N.J. Super. at 237 (emphasis added). It is hard to reconcile the last
sentence quoted above with the court's own analysis of NJSA 46:16-1.1.
On the other hand, there is precedent for the idea thatjudgment creditors,
although mentioned together with purchasers and mortgagees in the Recording
Act, do not enjoy the same status when equitable principles are involved.
Thisjudicial interpretation of the statute may stem from the idea that
a judgment creditor, unlike a purchaseror mortgagee, does not bargain
fore specific interest in or lien upon a given parcel of real estate.
Rather, he enjoys a general, statutory lien upon the debtor's real estate
(if any). NJSA 2A:16-1. If the debtor owns no real estate when the judgment
is entered, and never acquires any, the creditor has no lien against which
his judgment may be enforced. 329 N.J. Super. at 231.
Thus, ajudge may conrludethat equitypermits (orrequires) the court to
give precedence to the holder of an equitable interest. See, e.g., Rutherfordilat'l
Bank v. Bogle, 114 N.J. Eq. 571 (Ch. 1933) (judgment lien lost priority
to unrecorded equitable mortgage); Zwaska v. Irwin, 62 N.J. Super. 27
(Ch. Div. 1968) (although deed did not disclose that grantee acquired
title on behalf of others, Federal Tax Lien did not attach to interests
of beneficial owners); Harneyv. Firstilat'lBankof JerseyCity, 52 N.J.
Eq. 697 (Ch. 1894) (although deed did not disclose that title was acquired
on behalf of partnership judgment creditor of individual partner was restrained
from levying upon realty); Michalski v. U.S., 49 N.J. Super. 104 (Ch.
Div. 1958) (lien ofjudgment entered against grantors was unenforceable
against interest of grantees in possession under unrecorded deed). In
other words, despite what one may concludefrom a literal reading of the
Recording Act, ajudgment creditor may not simply rely upon the state of
record title where equitable interests are involved.
Viewed in the light of the foregoing, Gibau v. Klein may be seen as the
next logical step in a series of decisions (such as Sisco and Daeschler)
which have limited the rights of lienholders in equitable distribution
cases. These may in turn be regarded as extensions of the doctrine applied
in the earlier opinions (such as Rutherford Natl Bank, Zwaska, Harney
and Michalski), underwhich equitable interests were held to take precedence
over judgment creditors' statutory liens. In fact, the decision is helpful
to attorneys and title companies, because (as noted above), thefactpattern
in this case is notan unusual one. Now it appears that post-equitable
distribution judgments against the spouse who is directed to convey may
be waived as objections to title.
The court was apparently motivated as well by a desire to avoid the entry
of a malpractice judgment against the wife's former attorney. While this
may be a laudable goal, it must be observed that the result was somewhat
less than satisfactory when viewed from the plaintiff s perspective. The
panel suggests that her loss was not the caused by her attorney's conduct,
but rather "... from the fact that plaintiff unfortunately chose
to sati
those judgments rather than contest the title company's position".
329 N.J. Super. at 238. On what basis would the plaintiff have contested
the title company's position? Sinceno previous reported decision inthis
Statehad unequivocally held thatjudgments were not liens underthese circumstances,
the title company's (and, by extension, the plaintiffs) analysis seemed
to reflect accurately the lawof this State atthe time the
suit was commenced. in fact, the Appellate Division admitted that it would
have held for the plaintiff, ".. - if the 1978 [divorce] judgment
was other than a judgment affecting the equitable distribution of marital
property". Id. at 235.
The plaintiffs attorney could have caused the divorce judgmentto be recorded
in the land records under NJSA 2A:1 61.1. This isa relatively simple and
inexpensive procedure, which many lawyers handling divorce cases employ
on a regular basis. Had she done so, the issue would have been moot. In
short, it seems unfair to announce what is, in effect, a new rule of law
and thereby deprive the plaintiff of a recovery. In that regard, it is
unfortunate that Gibau v. Klein arose in the context of a malpractice
action, ratherthan a suit against thejudgment creditors for declaratory
or similar relief.
The opinion does notaddress another frequently-occurring problem: judgments
docketed prior to the entry of the divorce judgment. In many instances,
the interest of the spouse who is directed to convey (usually the husband)
is encumbered by liens. Unfortunately, the wife's counsel in the divorce
suit sometimes neglects to obtain a title search, so that the wife unknowingly
acquires title subject to these liens. See, e.g., Freda v. Comm'! Trust
Co., supra. The problem frequently does not come to the surface until
the wife is about to sell or mortgage the realty. Since it is axiomatic
that one many not convey a better title than one holds, most title companies
will presumably continue to take the position that, under these circumstances,
such liens must be disposed of. Although the Family Part, exercising the
equitable powers of the Chancery Division, may presumably direct that
property subject to equitable distribution be conveyed free and clear
of liens, due process requires that such ajudgment can only bind lienholders
who are given notice thereof. Unfortunately, it is not the prevailing
custom in divorce casesto give notice to lienholders of applications forequitable
distribution awards.
In conclusion, the holding in Gibau v. Kleinwill prove helpful to attorneys
and title companies in dealing with the recurring problem of post-divorce
judgment liens. However, it will not resolve the thorny problem ofpre-
divorcejudgment liens, which will continue to plague us.
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New Rate Manual
The New Jersey Land Title Insurance Rating Bureau ["NJLTIRB"]
has obtained the approval of the Commissioner of Banking and Insurance
for the use of a new Rate Manual, which became effective on Januaty 3,2000.
This version does not contain any substantive changes (except in a few
instances, which are discussed below); thus, it does not provide for an
increase in the existing rate schedules. Therefore, it is, in effect,
a revised version of the previous Manual adopted on August 1, 1997, rather
than an entirely new Manual.
The most significant changes may be summarized as follow& in §3.4
("Simultaneously Issued Policies"), a formula is provided for
use in cases where a traditional and an"enhanced coverage" policy
will be issued simultaneously- In §3.5 ("CoInsurance"),
§3.5.1 and §3.6.2 address ~Several Liability' and "Joint
and Several Liability", respectively. In §4.6.1 ("Refinance
Loans'), the requirement of a prior policy issued within the preceding
ten (10) years has been deleted- New §10.37 ("ALTA Endorsement
No, I I -) refers to [existing] §4,6.2 ("Mortgage or Leasehold
Modification Agreements"), and new §10.38 ("Special Construction
Loan Endorsement") refers to [existing] §4.5 Underwriting Rate
for Construction Loans"),
Following the introduction of the Manual in January, two additional changes
were made. In the first, §4.6.2 was revised to omit the previously-stated
requirement that the applicant provide the insurerwith a previously-issued
policy in order to be eligible for the modification rate. Therefore, a
mortgage modification transaction will be billed at the rate provided
in §4.6.2, even if no evidence is presented that the underlying mortgage
was insured. In the second, §10.22 was amended to eliminate the restriction
on the use of the ALTA 9.1 and 9.2 Endorsements to commercial property
In other words, these endorsements may now be issued in connection with
policies insuring residential or commercial sites.
As a result of the changes discussed above, the Rate Manualcurrently in
use by most (if not all) title insurers in New Jersey bears an effective
date of January 3, 2000, revised through April 3, 2000. Approval by the
Commissioner of title insurance rates and charges is provided for by NJSA
17:46B42. Failure to adhere to the filed rates and charges is a violation
of NJSA 17:46B-42d and -35.
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Recent Decisions Affect Foreclosures
Three recent cases which involve the conduct of mortgage foreclosure suits
have been reported. In the first, Summit Bank v. Thiel, 162 N.J. 51 (1999),
the successful bidder at the sheriffs safe moved to be relieved of his
bid, pursuant to NJSA 2A:61 - 16, after a substanti all tax I ien was
discovered to encumber the realty. The existence and amount of the lien
were apparently not specifically referred to in the advertisement or customary
pre-sale announcement. The Supreme Court, in a brief per cunam opinion,
permitted the withdrawal of the bid, holding that a tax lien fell within
the definition of"lien or encumbrance" found inthestatute. However,
it announced the following prospective rule of practice:
... a mortgagee can give notice of any existing realty tax lien by inserting
the amount of the delinquent realty taxes due as of a specific date in
the notice and advertisements required by law. The mortgagee shall not
be obligated to update the tax lien information in the event the first
scheduled date of public sale is adjourned. ... this decision shall be
applied to ... cases in which the public sale was conducted after May
19,1998.
The second, Jacoby v. Eseo, 329 N.J. Super. 119 (App~ Div. 2000), arose
from a default by the successful bidderat the sheriff s sale- The successful
bidder at the subsequent sale sought to recover the deposit forfeited
by the high bidder at the first sale, less the sheriff s statutory commission,
which he claimed should be calculated according to the amount of the deposit.
Because the forfeited deposit from the first sale was $20,000, the sheriff
s commission, if based thereon, would have been only $575. However, the
sheriff contended that he was entitled to retain a commission of $4,726,
which he computed according to the amount of the successful bid at the
first sale, which was $186,000.
The Appellate Division affirmed the holding of the Chancery Division,
and found in favor of the bidder and against the sheriff. The court determined
that NJSA 22A:4-8 governed the amount of the commission due to the sheriff
. Although the text of the statute did not directly address the issue
before the court, the panel construed its wording to mean that the commission
must be based upon the sums actually realized by the sale. Since only
$20,000 was paid by the bidder (and not $186,000), it would be unfair,
and contrary to the presumed intent of the Legislature, to allow the sheriff
to base his commission on the higher number. Accordingly, the sheriff
was only entitled to recover a commission of $575.
The final case, Luciani v. Hill Wallack, 329 N.J. Super. 170 (Ch. Div.
1999), involved the method of calculating attorneys'fees in a foreclosure
suit. These fees are usually determined according to the provisions of
R. 4:42-9, which states that the same "shall" be calculated
using the formula set forth therein. Customarily, an application by plaintiff
s counsel for attorneys'fees in accordance with the Rule is usually granted.
Since the formula is based on the amount of the mortgage indebtedness
being foreclosed, rather than upon the actual value of the legal services
rendered, anomalies can result. In this case, the mortgagor argued that
an award of the maximum fee allowed under the Rule is not mandatory, and
that the same should have been substantially reduced, because the fee
allowable under the Rule was much greater than the reasonable value of
the work actually performed. Perhaps unsurprisingly, the mortgagee's attorneys
took the opposite view.
While conceding that the mortgagee's aftorneys'jnterpretation of the word
"shall" was "not unreasonable", the Chancery Division
held that"... a fairer reading of the language suggests that the
mandatory nature of the Rule relates to its upper limits"~ 329 N.J.
Super. at 176. The court also took note of the fact that the foreclosure
suit in question was governed by the Fair Foreclosure Act, NJSA 2A:60-53
et seq. Although nothing in the statute prevents an award of counsel fees,
"... the Act underscores the notion that the maximum allowable is
not mandatory". Id. at 177. Furthermore, given the disparity between
the fee calculation under the Rule and the actual value of the legal services
performed in this case, imposition of such a charge would also undermine
the public policy of the Act...". Id. Finally, the court pointed
out that even if the use of the formulafound in the Rulewas normally intended
to be mandatory thesame could be relaxed underR. 1:1-2 inthe interestof
justice. Id.
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Transfer Tax Act Amended
The Legislature has enacted P.L. 1999, c. 357, effective January 14,2000,
which amends NJSA 46:15-10 to add the following exemption from the payment
of realty transfer tax. (q) Issued by a co-operative corporation, as part
of a conversion of all of the assets of the co-operative corporation into
a condominium, to a shareholder upon the surrender by the shareholder
of all of the shareholder's stock in the cooperative corporation and the
proprietary lease entitling the shareholder toexclusive occupancy of a
portion of the property owned by the corporation.
"Title Talk" is published periodically by Chicago Title and
Ticor Title Insurance Companies, and is distributed free of
charge to their customers and friends.
Steven G. Day, Esq., Regional Manager, Publisher
Lawrence J. Fineberg, Esq., State Counsel, Editor
ChicagoTitle Insurance Company
71corTftle Insurance Company
111 Wood Avenue South
Iselin (Woodbridge Twp.), New Jersey 08830
(732) 205 - 0055 Fax (732) 205 - 0330
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