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Unconfirmed
Assessments are Now Liens!
The Legislature has enacted P.L. 2002, c. 15 (approved
April 9, 2002), which revises the statutes dealing with assessments for
municipal improvements. The new law amends (inter alia) N.J.S.A. 40:56-33
so that an [unconfirmed] assessment for municipal improvements is "...
upon authorization of the assessment by ordinance or resolution, a first
lien on the land
The act goes on to state that: "Confirmation of the assessment ...
shall be considered as determining the amount of the existing lien and
not as establishing the lien". Although the new law went into effect
on April 9, 2002, it applies retroactively to all assessments authorized
after January 1, 1996.
Under the previous statutory scheme, unconfirmed assessments were not
liens; they became liens only upon confirmation by the governing body
of the municipality. N.J.S.A. 40:5633; Farr v. First Camden Nat'l Bank,
4 N.J. Super. 89 (App. Div. 1949). Official searches for unconfirmed assessments
(usually entitled " Certificate as to Liability for Assessments for
Municipal Improvements") could be ordered pursuant to N.J.S.A. 54:5-18.1
at seq. In the past, many title companies followed the practice of reporting
the results of these searches for informational purposes only, because,
as noted above, unconfirmed assessments were not liens. Caravan Products
Co. v. Ritchie, 55 N.J. Super. 71 (1969). However, there is authority
to the effect that unconfirmed assessments are nevertheless defects or
encumbrances or clouds on title. Bel-Air Motel Corp. v. Title Ins. Corp.
of Pa., 183 N.J. Super. 551 (Law Div. 1971).
In the past, when the assessments were confirmed, they appeared on the
tax search, and were treated similarly to real estate taxes. But under
the new law, an assessment becomes a lien when it is authorized under
N.J.S.A. 40:56-1, and not when it is confirmed under N.J.S.A. 40:56-33.
Confirmation now serves to fix the exact amount of the lien; it no longer
creates the lien. To put it another way, when the exact amount of the
lien is fixed by confirmation, it "relates back" to the date
the assessment was originally authorized.
Thus, the new law will require a change in title company underwriting
practices. As a result of the enactment of P.L. 2002, c. 15, most title
companies will probably find it necessary to treat all assessments for
municipal improvements authorized after January 1, 1996, whether confirmed
or unconfirmed, as liens and require their satisfactory disposition. If
an assessment (whether confirmed or unconfirmed) remains unpaid after
closing, the title company will most likely take the position that it
must be excepted from coverage in Schedule B of the policy. Instances
where the amount of an assessment cannot be determined at the time of
closing (owing to its unconfirmed status) will have to be dealt with on
a case-by-case basis.
Note, however, that many real estate contracts provide that if the improvements
have been completed prior to closing, the seller is responsible for payment
of the assessment at closing even if it is unconfirmed at that time. Thus,
the attorney for 4, purchaser can protect his or her client by making
an appropriate adjustment at closing or establishing an escrow for the
estimated amount of the assessment. When the assessment is eventually
confirmed, the amount due can be paid from the escrow fund.
Expanded
Coverage Policy Approved
The
Commissioner of Banking and Insurance has approved the use of the ALTA
Expanded Coverage Residential Loan Policy (2001), effective March 4,2002.
The coverage afforded by this policy is similar to that provided by the
local ["Castle"] Enhanced Coverage Loan Policy (1998). It is
intended to be a loan policy counterpart to the ALTA Homeowner's Policy
(1998). Like the "Castle" policy, the ALTA version incorporates
by reference several endorsements (ALTA Nos. 4, 5, 6, 6.2, 8.1 and 9)
and contains numerous insuring clauses which expand the coverage beyond
that afforded by the ALTA Loan Policy (1992). For example, the policy's
twenty-eight (28) insuring clauses address certain issues relating to
zoning; subdivision; restrictive covenants; encroachments; etc.
Title companies will be able to continue to use the local enhanced coverage
policies until existing supplies are exhausted. Furthermore, Chicago and
Ticor intend to continue the use of the "Castle" policy (or
conversion endorsement) under a deviation filing. Pricing is governed
by NJLTIRB Rate Manual§4.8. There is a 20% premium surcharge for
the issuance of this (or any other) "enhanced coverage" policy.
However, the new policy may only be issued where the land insured is a
one-to-four family residence (including a condominium unit).
Leasehold Endorsements
Take Effect
The Commissioner of Ban king and Insurance has approved the use of ALTA
Endorsements Nos. 13 (Leasehold Owner's) and 13.1 (Leasehold Loan) effective
March 4,2002. These endorsements are intended to replace the ALTA Leasehold
Owner's and Loan Policies (1992). As a result, these ALTA policies will
be "decertified"; i.e., they will no longer be considered "off
icial" ALTA policies. Nevertheless, title companies will be able
to continue to use the ALTA policies until existing supplies are exhausted.
Furthermore, Chicago and Ticor intend to continue the use of the ALTA
policies under a deviation filing. If a request is received to insure
a leasehold interest, the appropriate endorsement will be attached to
the ALTA Owner's Policy (1992) or Loan Policy (11992), as the case may
be.
The coverage afforded by the ALTA 1992 Leasehold Owner's and Leasehold
Loan Policies is substantially similar to that provided by the non-leasehold
policies. However they were primarily designed to afford coverage to space
tenants (and their lenders) who had no significant investment in lease
hold improvements. Thus, these policies doe not provide compensation for
the value of improvements if they are lost. ALTA Endorsements Nos. 13
and 13.1 attempt to remedy this deficiency by including the value of the
improvements in the calculation of loss. Similarly, improvement value
is included if the insured is unable to use the demised premises for its
intended purpose. Furthermore, ALTA Endorsement No. 13 removes the coinsurance
clause from the owner's policy. Both endorsements increase to 100 miles
the distance for which certain costs of relocation are covered (under
the "additional items of loss" provisions).It is noteworthy
that the ALTA 1992 Leasehold Policies define leasehold estate as: the
right of possession for the term or terms described in Schedule A hereof,
subject to any provisions contained in the lease which limit such right
of possession.
In contrast, ALTA Endorsements Nos. 13 and 13.1 contain the following
definitions:
Lease: the lease agreement
described in Schedule A.
Leasehold Estate: the right of possession for the lease term.
Lease Term: the duration of the leasehold estate, including any renewal
or extended term if a valid option to renew or extend is contained in
the Lease.
In sum, ALTA Endorsements Nos. 13 and 13.1 are intended to provide the
insured with all of the protection afforded by the ALTA 1992 Leasehold
Policies, while covering certain additional matters as well.
Leasehold pricing is governed by NJLTIRB Rate Manual §3.2. The same
rate schedule applies, regardless of whether a leasehold policy or leasehold
endorsement is issued. In brief, the insured may elect to obtain a policy
in an amount equal to: (a) the aggregate of the total rent payable under
the lease; or (b) the aggregate of total rent payable for the first six
(6) years under the lease; or (c) the fair market value of the land and
improvements. When an assignment of a leasehold estate is insured, the
consideration paid for the assignment determines the policy amount. In
cases where (fee simple) owner's and leasehold policies are issued simultaneously,
Rate Manual §3.2.1 provides that the charge for the leasehold policy
will be 30% of the rate charged for the owner's policy.
Co-Insurance Provision
Amended
The Commissioner of Banking and Insurance has approved the Rating Bureau's
submission of a revised version of Rate Manual §3.5.2 ("Co-insurance-
Joint and Several Liability"), effective March 4, 2002. The revised
section states that where joint and several co-insurance is requested,
the premium charge for that portion of the risk shall be 120% of the applicable
underwriting charge. Consider the following example:
Assume that a transaction involves the acquisition of title to a parcel
of real estate for the sum of $10,000,000. The same is to be co- insured
by Companies A and B equally (i.e., each will assume $5,000,000 of the
total liability) at basic rate. Joint and several co-insurance is requested
as to the first $1,000,000 of liability assumed. Thus, the invoice will
reflect a 20% premium surcharge for the first $1,000,000, and no surcharge
for the remaining $9,000,000. The total premium is calculated as follows:
$10,000,000 (basic)
= $24,250 20%
surcharge on
1 1st $1,000,000
(basic)= $3,500 x 120%= $ 700
TOTAL = $24,950
[Each co-insurer receives 50% of the total, or $12,475.00.]
It is important to distinguish joint and several co-insurance from several
co-insurance (which is usually referred to simply as co-insurance). In
the latter, which is governed by Rate Manual§3.5.1, "...the
aggregate liability is divided severally among two or more insurers from
the first dollar". The premium charge is calculated based on the
total liability assumed, and it is then distributed to each co-insurer
in proportion to its respective share of liability assumed. In the example
given above, assume that several (rather than joint and several) co-insurance
has been requested. The premium would be calculated as follows:
Company A = $5,000,000
Company B = 5,000,000
TOTAL = $10,000,000 (basic) = $24,250
[Each co insurer receives 50% of the total, or $12,125.1
One must also bear in mind the distinction between [several] co-insurance
and reinsurance. In the former, each insurer issues a policy in an amount
equal to its total share of liability assumed. In the event of the loss,
the co-insurers share the loss proportionally from the first dollar. Thus,
if the insured suffers a $2,000,000 loss, Companies A and B will each
pay
50%, or $1,000,000. In the latter, one policy is issued in the face amount
of the total liability assumed. The company issuing the policy, known
as the ceder, cedes ("lays off") a portion of the risk to the
reinsurer. If a loss occurs, the insured is entitled to recover the full
amount from the insurer. If the amount exceeds the ceded portion of the
risk, the insurer may seek reimbursement from the reinsurer.
Assume that the total liability assumed is $10,000,000, and that Company
A issues a policy in that amount. Company A cedes the risk in excess of
$4,000,000 to Company B. If the loss is less than $2,000,000, Company
A must bear the entire loss. If the loss is $5,000,000, Company A is entitled
to be reimbursed by Company B for the last $1,000,000; e.g., the amount
of loss exceeding $4,000,000
TOP
The Fair Foreclosure
Act Construed
The Fair Foreclosure Act, N.J.S.A. 2A:50-53 at seq., changed certain procedures
with respect to residential mortgage foreclosures. The Act applies to
owner-occupied one-to-four family residences, including condominium units
(but not co-operative apartment units). N.J.S.A. 2A:50-56 states that
in the event of a default, the mortgagee must notify the mortgagor by
registered or certified mail of its intention to institute a foreclosure
suit "or other legal action to take possession of the ... property",
at least thirty (30) days prior thereto. (The form of the notice is set
forth in the statute.) The mortgagor is given the right to redeem by curing
the default and reinstating the mortgage loan at any time prior to the
entry of final judgment. N.J.S.A. 2A:50- 57; Fed. Nat'i Mtge. v. Bracero,
297 N.J. Super. 105 (Ch. Div. 1996).
What happens if the mortgagee fails to send to send the notice, or fails
to send it by registered or certified mail? Must the action be dismissed,
or is some other remedy appropriate?
That question has been answered by GE Cap. Mtge. Services v. Weissman,
339 N.J. Super. 590 (Ch. Div. 2000). The plaintiff moved to strike defendant
mortgagor's defenses, and defendant cross-moved to dismiss the complaint
because of lack of compliance with N.J.S.A. 2A:50-56. The lender was unable
to prove that it had sent the notice by producing a postal service receipt
or similar documentation.
Because the only other reported decision construing the Fair Foreclosure
Act is Fed. Nat'l Mtge. v. Bracero (cited above), which does not address
this issue, the court was unable to find any New Jersey precedents which
would assist it in making its decision. However, Pennsylvania has adopted
a similar statute, and the Chancery Division was therefore able to turn
to reported decisions from that jurisdiction for guidance. The courts
of Pennsylvania have decided that a failure to comply can be cured by
staying the foreclosure action for a period of time and granting the mortgagor
an opportunity to cure the default.
Accordingly, the Chancery Division determined that the plaintiff lender
in the case at bar must send a new notice of intention to the defendant
mortgagor, in accordance with the statute, following which the defendant
would have 30 days to cure the default. If he failed to do so, the foreclosure
action could proceed to judgment and sale. The court concluded by observing
that: "This procedure provides the defendants that which they are
entitled to prior to the commencement of the foreclosure action without
unduly prejudicing plaintiff by requiring that the foreclosure action
be re-commenced." 339 N.J. Super. at 595.
Private Well Testing
Act Adopted
The Legislature has enacted the Private Well Testing Act, P.L. 2001, c.
40. The Act, which will be codified as N.J.S.A. 58:12A-26 et seq., became
effective on March 23, 2001, with the exception of sections 2 and 7 [N.J.S.A.
58:12A-27 and -32, respectively]. Those sections will not take eff effect
until 540 days (or approximately 18 months) after March 23, 2001. Section
2 requires every contract of sale for real property, for which the water
is supplied by a private well, or a well which serves only a limited number
of properties, to contain a provision for testing in accordance with parameters
set forth in sections 3 and 4 of the Act [N.J.S.A. 58:12A-28 and -29,
respectively]. These sections contain a detailed discussion of the scientific
requirements for testing. Section 5 [N.J.S.A. 58:12A-30] sets forth the
format in which the test results are to be reported. Section 6 [N.J.S.A.
58:12A-31] requires the DEP to give notice to local health officials if
a well has failed the test. Section 7 [N.J.S.A. 58:12A-32] requires landlords
to conduct well water tests for the benefit of their tenants. The remaining
sections discuss public health programs; hiring of employees by DEP to
implement the Act; appropriation of funds, etc,
TOP
Recent Cases Construe
Condominium Act
Two recent decisions have construed different portions of the Condominium
Act, N.J.S.A. 46:8B-1 et seq. In the first, Society Hill Condo Ass'n v.
Society Hill Assocs., 347 N.J. Super. 163 (App. Div. 2002), the condominium
association sued the developer for damages to common elements which allegedly
resulted from construction defects. The Appellate Division held that the
defects did not occur in areas which were part of the common elements,
but instead affected portions of certain condominium units. Thus, the
association had no standing to sue the developer. Such claims would have
to be brought by the unit owners affected. N.J.S.A. 46:8B-12 et seq. describe
the role of the association and its powers and duties. Under the statutory
scheme, the association administers the common elements for the benefit
of the unit owners, but it does not own the areas which are designated
as part of the condominium units. The court reviewed the definition of
"common elements" found in N.J.S.A. 46:813-3(d) and concluded
that the items complained of did not fit within the definition. Accordingly,
the Appellate Division held that the association lacked standing to sue
the developer.
In the second case, Davis v. Metuchen Gardens Condo Ass'n, 347 N.J. Super.
345 (App. Div. 2002), the association levied an assessment upon all unit
owners to pay for the replacement of balconies, which are found on some
(but not all) units. The plaintiff paid the assessment, but sued for a
refund. He contended that the cost of replacement should be borne only
by those whose units enjoyed balconies, and not by all unit owners. The
court agreed that the balconies fell within the definition of "limited
common elements" found in N.J.S.A. 46:8133(k): 'those common elements
which are for the use of one or more specified units to the exclusion
of other units". However, the panel noted that the Master Deed and
Declaration of Cov
enants (recorded along with the Master Deed) contained wording requiring
each unit owner to contribute to certain expenses, including those related
to maintenance of the limited common elements. Accordingly, the court
concluded that the Master Deed and Declaration of Covenants permitted
the association to assess all unit owners for the cost of replacement
of the balconies. It affirmed the trial court's entry of judgment in favor
of the association.
TOP
Electronic Transactions
Act Adopted
The Legislature has enacted the Uniform Electronic Transactions Act ["UETA"],
P.L. 2001, c. 116, to be codifiedas N.J.S.A.12A:12-1 et seq., which provides
for the recognition of electronic documents and signatures, although it
does not specify a methodology for the latter. It is conceivable that
a real estate transaction can now be consummated electronically, but it
is unclear under what circumstances (if any) the county clerks and registers
will accept electronic documents and (perhaps more importantly) electronic
signatures. The Legislature was motivated by Congress's enactment of the
Electronic Signatures in Global and National Commerce Act, P.L. 106-229,114
Stat. 464, effective October 1, 2000, which pre-empted the laws of states
which had not adopted UETA. In any event, it appears that electronic instruments
will not be accepted for recording in the immediate future.
"Title Talk- is published shad periodically by Chicago Title and
Ticor Title Insurance Companies, and is distributed free of
charge to the= customers and friends.
Steven G. Day, Esq., Regional Manager, Publisher
Lawrence J. Fineberg, Esq., State Counsel, Editor
Chicago Title Insurance Company
Ticor Title Insurance Company
ill Wood Avenue South
Iselin (Woodbridge Top.) ), New Jersey 08830
(732) 205 - 0055Fax (732) 205 - 0330
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