Adverse Possession: J & M Land Co. v. First Union

The doctrine of adverse possession has once again claimed the attention of our courts. The New Jersey Supreme Court has attempted to reconcile the various (and apparently conflicting) statutes relating to this concept. Our readers will recall that N.J.S.k 2A:14-6 & -7 bar rights of entry onto land after twenty (20) years have elapsed, while N.J.S.A- 2A:14-30 & -31 provide that thirty (30) years' possession of real estate (except woodlands and uncultivated tracts) and sixty (60) years'possession of woodlands and uncultivated tracts are the relevant time periods. J & M Land v. First Union Bank, 166 N.J. 493 (2001), holds that an adverse possessor does not acquire title after 20 years, although one may defeat an action by the record owner to recover possession. In order to acquire title, one must show that one has been in possession for 30 or 60 years (as the case may be). The underlying facts were set forth in the Appellate Division's opinion in this case, 326 N.J. Super. 591 (App. Div. 1999), which was analyzed in Title Talk No. 46 (Winter, 2000). The suit arose from a dispute over the rents arising from a leasewhich permitted the erection of a billboard on land owned of record by First Union, but to which J & M claimed a prescriptive easement. The Chancery Division held (in an unreported decision by Judge Gibson) that the lands in question were"uncultivated tracts"forwhich the prescribed period under N.J.S.A2A:14-30 is sixty (60) years, and that J & M had failed to establish possession for that length of time. The Appellate Division affirmed the Chancery Division, in an opinion by Judge Skillman; it agreed with Judge Gibson that N.J.S.A. 2A:14-30 applied to the case at bar.
J & M argued that it was entitled to choose the applicable statutory period, relying on Spoffiswoode Y. Afords & Essex RR Co., 61 N.J.L. 322 (Supr. Ct 1898), aWd o.b. 63 N. J. L. 667 (E. & A. 1899) and Braue v. Fleck, 23 N.J. 1 (1956). However, the Appellate Division interpreted the holdings in Spottiswoode and Braue to apply to the record titleholder, and not to the adverse claimant. In other words, the court concluded that the choice of statutory period lies with the record owner, regardless if he is the plaintiff or the defendant.
The Supreme Court, while affirming (for the most part) the result reached by the Appellate Division, rejected both positions- After an exhaustive analysis of the various statutes and their predecessors, both in New Jersey and in England, Justice Coleman concluded that:
The twenty-year statutes [N.J.S.A. 2A:14-6 & -7] indicate that a person having a right of entry or a right to bring an action at law to recover possession of real estate must exercise that right within twenty years. Thus, those statutes set a time limit on when judicial authority may be invoked by a landowner to obtain possession. ... Hence, those are procedural statutes of limitations in which thejudidal remedy, as opposed to the right, to reclaim possession is lost after twenty years when viewed indepen dently of N.J.S.A. 2A:35-1 [the ejectment statute]. In contrast, the thirty/sixty-year statutes [N.J.S.A. 2A:14-30 & - 311 focus on what actions must be taken in order to acquire title. They are substantive statutes creating a cause of action for adverse possession that did not exist at common law. Those statutes state that when a person actually possesses real estate for thirty years. if not woodlands or uncultivated land, or thirty years, if possessed under color of law, or sixty years, if uncultivated land, that person shall be vested with title to the possessed real estate. Under N.J.S.A. 2A:14-30 and -31, when the thirty or sixty years expire, both the remedy and the right of the landowner are barred, and title vests in the adverse possessor. [1166 N.J. at 517-518.1 In otherwords, as noted above, an adverse possessor does not acquire title after twenty (20) years, although he may defeat an action by the record owner to recover possession. In order to acquire title, he must show that he has been in possession for 30 or 60 years (as the case may be). The court's conclusion is consistent with the holding in Stump v. YMibco, 314 N.J. Super. 560 (App. Div. 1998), discussed in Title Talk No. 44 (Summer, 1999), which the Supreme Court cited with approval. 166 N.J. at 612. Thus, Stump may be seen as a precursor to J & M Land. However, the decision does not address the problems discussed in Mannillo v. Gorski, 64 N.J.378 (1969) (minor encroachments) or Devins v. Bogota, 124 N.J. 570 (1991) (publicly-owned lands).
Note that the holding is to be applied prospectively only. Thus, titles derived from previously-entered judgments based upon 20 years' adverse possession prior to the date of the opinion are not affected thereby. 166 N.J. at 521-522.
While the court's conclusion may be historically correct, it somewhat unsatisfying from a practical standpoint, because the status of title is - in effect - left in doubt when more than 20 but less than 30 (or, in some cases, 60) years have passed. On the other hand, the opinion goes a long way towards clarifying the uncertainty caused by our statutory scheme. In fact, the court implied that legislative action may be appropriate. 166 N.J. at 521. In light of the modem tendency (in some jurisdictions) to reduce the time period needed for adverse possession, it is not inconceivable that such a bill will be introduced in our Legislature.
Because title companies generally do not insure titles based on adverse possession (in the absence of a judicial determination), the decision should have little or no effect on the industry's underwriting practices. Affirmative insurance against louster"may still be provided on a case-by- case basis, consistent with the guidelines set forth by the various underwriters. Since it appears that the adverse possessor may successfully assert a statute of limitations defense against the record owner after 20 years, it should not be necessary in all instances to establish that 30 (or 60) years have elapsed before affording some form of coverage.

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Reinsurance Limits Increased

The combined self-imposed retention limits f& the Chicago Title family of title insurers (Chicago, Ticor and Security Union) have risen from an aggregate of $150,000,000 to $235,000,000. When this is added to those of the other Fidelity National companies (which have also been increased) the grand total is $400,000,000. This may be broken down as follows:

Self-imposed retention limits represent the amount of risk a title insurer will retain before ceding reinsuranceto another company. Because of the size of the Fidelity National family, of which Chicago, Ticor and Security Union are a part, the aggregate limit of $400,000,000 is the highest in the industry. Thus, almost all large transactions can be insured without the need to cede reinsurance to companies outside the Fidelity National family.

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Municipal Mortgage Held Unenforceable

The special rules applicable to real estate transactions involving governmental agencies were highlighted by the recent decision in First Nat'l Bank of Chicago v. BMPA, 338 N.J. Super. 324 (App. Div. 2001). In that case, the Bridgeton Municipal Port Authority ["BMPA"], which was created under the Municipal Port Authorities Law, N.J.S.A. 40:68A-1 et seq., borrowed $800, 000. The loan was secured by a note and mortgage on real estate owned by the Authority. Thereafter, BMPA defaulted and the assignee of the mortgage, First National Bank of Chicago, commenced a foreclosure action. Following the entry of judgment of foreclosure and sale by the Chancery Division, BMPA appealed. It contended that the foreclosure action was contrary to the provisions of the Municipal Port Authorities Law.
The Appellate Division reversed the Chancery Division. It held that N.J.S.A. 40:68A-60 protects realty owned by municipal port authorities from execution: "All property of a municipal port authority shall be exempt from levy and sale by virtue of an execution and no execution or otherjudicial process shall issue against the same The lender argued that the statute was intended only to apply to non-consensual liens, such as money judgments. The court rejected this approach, finding that the purpose of the statute was to protect the public welfare. Id. at 327 - 328. In response to the argument that its interpretation of the statute would interfere with the ability of municipal port authorities to obtain bank loans, the court suggested that such lenders were not without a remedy. They could enforce the debts owed to them by filing actions in lieu of prerogative writs. Id. at. 329. In further support of its conclusion, the Appellate Division noted that another section of the statute, N.J.S.A. 40:68A-21, "...appears to prohibit the mortgaging of property by a municipal port authority". Id. at 329 (note 2).
This decision reminds us that when we are dealing with a real estate transaction involving a governmental body, the ability of the entity to dispose of or encumber its real estate is strictly defined by statute. For example, the Local Lands and Buildings Law, N.J.S.A. 4OA:12-1 et seg., governs most municipal real estate transactions. In general, municipallyowned lands must be sold at a public sale to highest bidder; the sale must be authorized by ordinance, and the meeting at which the ordinance is adopted must be held in accordance with the Open Public Meetings Act, N.J.S.A. 10:4-6 etseq. Municipalities generally lack the ability to mortgage municipal ly-owned real estate. ff a governmental body is not given specific statutoty authority to enter into a given transaction, one must presume that it may not lawfully do so. Th is is because the government holds title to property in trust for the public, and the public's welfare must be protected. Thus, many of the assumptions we make when dealing with business entities or individuals - such as the ability of a court to apply its equitable powers to prevent an "unjust" result - are simply inapplicable to transactions involving governmental bodies. This principle is vividly illustrated by the holding in First Nat'i Bank of Chicago v. BMPA

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Vendee's Lien: Cox v. RKA Corp.

The vendee's lien has long been recognized in New Jersey It arises by operation of law when the vendee pays a portion of the purchase price (such as a down payment or earnest money deposit) to the vendor. Normally the vendee's lien does not present a conveyancing problem, because it is extinguished at the closing of title. But if the vendor later obtains a mortgage and the transaction does not close, which lien has priority: the mortgage lender's or the contract purchaser's? In a recent case, Cox v. RKA Corp., 164 N.J. 487 (2000), our Supreme Court determined that the vendee's lien enjoys priority if the mortgagee has knowledge thereof.
In Cox the purchasers, Mr. and Mrs. Cox, signed a contract with a builder to construct a home on a lotowned bythe builder, RKA, for a purchase price was $106,880. In connection with its application for a construction loan, RKA provided its proposed lender, Roebling Savings and Loan Association, with a copy of the contract. The contract stated that the purchaser had made a deposit of $12,000, and that the balance of the purchase price was due at closing, which was scheduled for October 31, 1994. RKA was successful in obtaining mortgage financing from Roebling in the amount of $80,250. The mortgage loan closed on October 21, 1994, and the mortgage was recorded in the Camden County Registers Office on December 14,1994.
Although the Coxes were not obligated to make any additional payments to the builder until closing, they voluntarily paid the builder a total of $71,225.53, exclusive of the initial $12,000 deposit, for a grand total of $83,225.53. RKA defaulted on its contract with the Coxes and on its construction mortgage. The Coxes filed suit against RKA and Roebling. With respect to the mortgagee, they argued that the advances they made to RKA constituted a vendee's lien which enjoyed priority over Roebling's mortgage. Id. at 491 - 493.
The trial court, in an unreported decision, concluded that the Coxes had a vendee's lien in the amount of the initial $12,000 deposit plus the additional, voluntary advances, all of which enjoyed priority over the mortgage. The Appellate Division affirmed in an unreported decision. One member of the panel, Judge Carchman, dissented. He believed that the priority of the vendee's lien should be limited to the amount of the initial $12,000 deposit. Id. at 493.
The Supreme Court, in an opinion by Vemiero, affirmed the decision below. The Court analyzed the equitable concept of the vendee's lien in the light of the Recording Act, specifically
N.J.S.A. 46:21-1 and 46:22-1. It noted that New Jersey is a "race-notice" jurisdiction, and that the courts should construe the statutory scheme in a manner designed to uphold the integrity of the recording system. The Justices had little difficulty in concluding, based on common-law precedents, that the Coxes were entitled to a vendee's lien. The question, however, was if, and to what extent, the vendee's lien was entitled to priority over the mortgage lien. Id. at 494 - 497.
After an exhaustive analysis, the Supreme Court held that the vendee's lien had priority over the mortgage lien, even though the contract was not recorded, because the lender had seen the contract, and thus it had knowledge of the initial $12,000 deposit made by the Coxes. In support of its conclusion, the Court pointed out that the Recording Act, N.J.S.A. 46:21-1 and 46:22-1, protects only bona fide purchasers (including mortgagees) for value and withoult notice of adverse claims or interests:
... Roebling had actual notice of the of the $12,000 deposit paid by the Coxes toward the purchase price when it granted RKA its construction loan and recorded its mortgage. ... [W]e conclude that that plaintiffs'vendee's lien in the amount of the $12,000 deposit should have priority over Roebling's later-recorded mortgage interest.
164 N.J. at 501. Of course, the irony is that if the builder had not provided the lender with a copy of the contract, it could not have obtained construction financing, andthus the homeoould not have been built. But what about the additional, voluntary payments made by the Coxes? If it is true that the lender had actual knowledge of the initial $12,000 deposit because it had seen the contract, it is equallytrue that the purchasers were chargeable with con structive notice of the recorded mortgage prior to making the extra payments. Id. at 502. The Court found that these sums also had priority, but limited this part of its holding to the case at bar. In the future, if a similar fact pattern is presented, the vendee's lien will not enjoy priority as to voluntary payments made subsequent to the recording of the mortgage:
We are persuaded ... that the priority of a vendee's lien should not extend to those payments voluntarily made y the vendee after the lender properly records its mortgage or the vendee acquires actual knowledge of that encumbrance. The essence of the vendee's lien is to achieve a fair and just result in consideration of all parties and circumstances. As between a vendee with an unrecorded lien and a mortgageewith a recorded lien, we believe that the equities run in favor of the mortgagee who has no knowiedge of the extent of sums to be advanced by the vendee and who has acted diligently and properly in recording the mortgage. In our view, a contrary conclusion would undermine the purposes of the recording statutes, which must be faithfully enforced to maintain the integrity of New
Jersey's system of conveyances. 164 N.J. at 506. Thus, the Court applied its decision only prospectively to that portion which upheld the priority of the Coxes' lien as to the voluntary advances. Id. at N.J. at 514 - 515.
Justice Stein filed a separate opinion in which he essentially concurred in the result. He believed that the majoritywas correct in granting priority to the Coxes'lien as to all advances made, but he would not have limited that part of the holding to the case at bar. Rather, he would afford complete priority to the all advances by a vendee's lien claimant in future cases as well. The issue presented in Cox most frequently occurs in connection with so-called "spot' builders, who construct a home on a single lot. (Builders who develop subdivisions are not usually expected to present contracts of sale for individual lots in order to obtain construction financing.) But the vendee's lien problem could conceivably arise as well in connection with a commercial building or in other situations.
if a contract of sale exists, it is probably unrecorded, and thus it may be difficult for a title insurer to establish whether or not the lender had knowledge thereof when it advanced the mortgage funds. Accordingly, when asked to insure a mortgage (including a construction loan), the borTower may be asked to submit proof that no contract has been entered into for the sale of all or a portion of the land, If a contract exists, the lender or the title insurer may require that the rights of the vendee, including any vendee's lien, be subordinated to the construction mortgage. This solution was alluded to in Cox. 164 N.J. at 606. In fact, it has been suggested that, as a result of this decision, builders' contracts may be revised to insert "boilerplate" subordination language. Of course, the willingness of a lender or title insurer to rely upon so-called automatic subordination clauses must be determined on a case-by-case basis.

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UCC Article 9 Revised

The Legislature is expected to enact shortly a revised version of Article 9 of the LIM which relates to secured transactions. The new law will be codified as N.J.S.A. 12A:9-101 of seq. Although the act makes significant changes to Article 9, those portions which are of interest to most real estate practitioners and title insurers are largely unaffected. The system of central and local filing is preserved by N.J. S.A. 12A:9-601 of seq. (replacing 12A:9401 of seq.), so that UCC financing statements affecting fixtures will continue to be filed in the county land records (rather than in Trenton). N.J. S.A. 1 2A:9-501. A mortgage may still serve as a fixture filing. N.J.S.A. 12A:9-602. In general, UCC financing statements will still be effective for a period of five (5) years from the date of filing. N.J.S.A. 12A:9-615.
As suggested above, those portions of the act which are of interest to most real estate practitioners and title insurers remain largely unaffected. Remember that requests for so-called Trenton UCC searches will be reported "for information ony, as fixture filings will continue to be made in the county land records.


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Steven G. Day, Esq., Regional Manager, Publisher
Lawrence J. Fineberg, Esq., State Counsel, Editor
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