DOBI Approves Service and Closing Charge Revisions

The Commissioner of the Department of Banking and Insurance [DOBI] has approved a revision to the New Jersey Land Title Insurance Rating Bureau [NJLTIRB] Rate Manual §7.1 ("Recording Service Charge"), effective January 6, 2003. Under the revised version of this section, §7.1 a continues the practice of imposing a service charge of $5.00 for each instrument submitted for recording; §7.1b requires the imposition
of a $50.00 charge "when an insurer or agent is performing closing or settlement services and arranges for the satisfaction of existing mortgages". Note that the $50.00 charge includes both recording fees and the $5.00 per instrument recording service charge. On the other hand, if there are (for example) two mortgages to be satisfied, the charge to be imposed will be $50.00 x 2, or $100.00. As noted elsewhere in this issue, recording fees were recently increased by the Legislature. P.L. 2003, c. 117. Under [new] NJILTIRB Rate Manual §7.6 ("Other Miscellaneous Charges"), certain costs, "including but not limited to wire transfer fees, fees for payoff statements, statutory notary fees other photocopy charges, etc." may be charged to the applicant when a closing or settlement is conducted. In other words, notary (and other) fees may be collected in addition to the closing or settlement charges authorized by Rate Manual §§ 6.1 et seq. This section [§7.6] became effective on September 3, 2002.
As discussed in "Title Talk" No. 55 (Summer 2002), the Legislature has enacted a statute which increases the fees a notary public may charge for acknowledging a deed or mortgage. P.L. 2002, c. 34, § 48, amending N.J.S.A. 22A:4-14 (effective July 1, 2002), permits notaries to charge $15.00 for acknowledging a deed and $25.00 for acknowledging a mortgage. Thus, in a closing involving a purchase financed by a purchase-money mortgage, notary fees could be $40.00 ($15.00 + $25.00). The impact of these increases will principally be felt in southern New Jersey, where title company personnel conduct settlements. In northern New Jersey, most acknowledgments, recordings and mortgage satisfactions are handled by the attorneys representing the parties.
Furthermore, the Commissioner has approved the addition of [new] Rate Manual §7.2.2 ["Printing and Copying Electronically-Transmitted Documents"] (effective August 11, 2003). It was adopted largely in response to the practice of certain lenders of transmitting mortgage loan closing packages electronically. This section permits the title insurer or agent to impose a charge of $25-00 for the downloading or receiving and printing one set of documents, whether transmitted electronically or by fax.
Finally, the Commissioner has approved the revision of Rate Manual Article 6 ["Settlement and Closing Attendance Charges"], effective August 11, 2003. The basic settlement charge of $300.00, as defined in [revised] §11.10, remains unchanged. Additional charges are imposed in the event the settlement occurs outside the insurer's or agent's off ice and exceeds two hours in length, or if the settlement occurs outside of regular business hours. The basic closing attendance fee of $150, as defined in [new] §1.11, remains unchanged. Additional charges are provided for in the event the length of the closing exceeds 90 minutes. In the case of both settlements and closings, out-of-pocket expenses for tolls, parking, etc., are added to the charge. It is also noteworthy that under the revised definition of "settlement charge" in §11.110 and the [new] definition of "closing attendance charge" in §1.11, the respective charges for these services are applicable, "whether or not the settlement [or closing] takes place by mail or through electronic means, and regardless of the place the settlement [or closing] occurs.

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Realty Transfer Tax Increased

The Legislature has enacted P.L. 2003, c. 113, effective July 1, 2003, which amends the Realty Transfer Tax Act, N.J.S.A. 46:15-5 et seq. Although the statute is effective July 1, 2003, the new rate of taxation it imposes goes into effect on July 14, 2003, and it applies to all deeds submitted for recording on or after that date. The tax increase is referred to in the legislation as a "supplemental fee", because it supplements the socalled "additional fee", as the existing realty transfer tax is legislatively described. Under the new law, the preexisting two tier system is replaced by a three tier system. The second tier under the old system (all deeds in which the consideration was in excess of $150,000) is divided into the second and third tiers under the new system:

1st tier: Consideration of $1 to $150,000;
2nd tier: Consideration of $150,001 to $200,000;
3rd tier: Consideration of $200,001 or greater.

The rate of taxation for the first tier is increased from $3.50 per $1,000.00 ($1.75 per $500.00) by $0.50 per $1,000 ($0.25 per $500.00) to a total of $4.00 per $1,000.00 ($2.00 per $500.00). The second tier rate is increased from $5.00 per $1,000 ($2.50 per $500.00) by $1.70 per $1,000.00 ($0.85 per $500.00) to a total of $6.70 per $1,000 ($3.35 per $500.00). The third tier rate is increased from $5.00 per $1,000 ($2.50 per $500.00) by $2.80 per $1,000.00 ($1.40 per $500.00) to a total of $7.80 per $1,000 ($3.90 per $500.00):

Old Bate / Increase / New Rate (Total)
1st tier $3.50 / $1,000 ($1.75 / $500) + $0.50 / $1,000 = $4.00 / $1,000 ($2.00 / $500)

2nd tier $5.00 / $1,000 ($2.50 / $500) + $1.70 / $1,000 = $6.70 / $1,000 ($3.35 / $500)

3rd tier $5.00 / $1,000 ($2.50 / $500) + $ 2.80 /$ 1, 000 =$7.80 / $1,000 ($3.90 / $500)

Example: The consideration is $250,000.00, and no complete or partial exemptions apply.

Old Rate/ New Rate
1st tier ($0 - $150,000) $525.00 ($3.50 x 150) $600.00 ($4.00 x 150)
2nd tier ($150,001 - $200,000) $250.00 ($5.00 x 50) $335.00 ($6.70 x 50)
3rd tier (above $200,000) $250.00 ($5.00 x 50) $390.00 ($7.80 x 50)
TOTAL $1,025.00 /$1325.00

[As noted above, the second and third tiers were combined under the old system.]
Complete exemptions remain unchanged. In the event the property is subject to a partial exemption, the following rules apply. If a one- or two-family residence which is owned and occupied by a senior citizen, blind or disabled person is sold, or if low or moderate incomehousing is sold, the existing partial exemption remains unchanged. These transfers are beyond the scope of the tax increase. In the case of new construction, a literal reading of the statute suggests that a partial exemption is retained for the first tier. However, the Treasury Department has adopted the position that the new construction discount has been completely eliminated. Accordingly, when calculating the transfer tax, there is no difference in rates between new construction and other transactions. For more information, you may contact the Treasury Department at 609-292-1793 or visit http://www. state.nj.us/treasury/taxation/transferfees. htm.

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Predatory Lending Law Enacted

The Legislature has enacted the so-called Predatory Lending Law, formally known as the New Jersey Home Ownership Security Act, P.L. 2003, c. 64 (A75). Its provisions will generally take effect 210 days from its enactment on May 1, 2003, or on about November 27, 2003 (Thanksgiving Day), and it will be codified as N.J.S.A. 46:10B-22 to -35. The law seeks to prevent so-called "predatory" or "abusive" mortgage lending. Unfortunately, predatory or abusive lending practices are difficult to define objectively. A "background paper" prepared by the Department of Banking and Insurance ["DOBI"l in connection with the passage of the law states that:
The term "predatory lending" covers a potentially broad range of behavior and does not lend itself to a concise or comprehensive definition. However, predatory lending typically involves at least one, and perhaps all three, of the following elements:

- making unaffordable loans based on the assets of the borrower, rather than on the borrower's ability to repay an obligation ("asset-based lending");

- inducing a borrower to refinance a loan repeatedly in order to charge high points and fees each time the loan is refinanced ("loan flipping");

- engaging in fraud or deception to conceal the true nature of the loan obligation from an unsuspecting or unsophisticated borrower.

In furtherance of the goal of ending predatory lending, the statute prohibits certain practices in the making of home mortgage loans. Sanctions for violation of the Act include fines and penalties imposed by DOBI. A lender's license may also be suspended or revoked. Furthermore, an aggrieved borrower may maintain a cause of action against a lender who allegedly failed to comply. The Act will be supplemented by a set of administrative regulations to be promulgated by DOBI. The law's definition of "creditor" [N.J.S.A. 46:1OB-24) includes the following language:
... provided that creditor shall not include a person who is an attorney providing legal services to the borrower or a person or entity holding an individual or organization insurance producer license in the line of title insurance or a title insurance company ... or any officer, director or employee thereof, providing services in the closing of a home loan who is not also funding the home loan and is not an affiliate of the creditor... .
The quoted language should normally insulate title companies from liability for lender misconduct. However, it is possible that a lender-controlled title company or agency could be held responsible if it closes a loan which fails to meet the statutory criteria.

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Restrictive Covenant Construed: Steiger v. Lenoci

Restrictive covenants are a common part of real property transactions.. Some restrictive covenants are imposed for the purpose of creating a neighborhood scheme; ie., a set of restrictions which affects numerous lots, title to which is derived from a common grantor. In order to be effective and enforceable, a neighborhood scheme must be: (a) universal (applying to all lots of like character brought within the tract); and (b) reciprocal (benefitting and burdening all lots involved); and (c) reasonably uniform (as to the nature of the restrictions imposed). Weinstein v. Swartz, 3 N.J. 80 (1949). The existence of the neighborhood scheme imposes an equitable servitude on each lot burdened thereby, for the benefit of the other lots. Tulk v. Moxhay, 2 Phillips 774, 41 Eng. Rep. 1143 (Ct. Ch. 1848); Homann v. Torchinsky, 296 N.J. Super. 326 (App. Div. 1997).
Commonly imposed restrictions in a neighborhood scheme include set-back lines, so-called "nuisance" restrictions and restrictions as to the quality and nature of the homes which are to be built. See Olsen v. Janfausch, 44 N.J. Super. 380 (App. Div. 1980).
Steiger v. Lenoci, which involved litigation over the enforcement of a neighborhood scheme type of restriction, has led to two reported decisions: Steiger v. Lenoci, 323 N.J. Super. 529 (App. Div. 1999) ["Steiger I"] and Steiger v. Lenoci, 352 N.J. Super. 44 (App. Div. 2002) ["Steiger 11"]. In Steiger 1, the plaintiff sought to enjoin the defendant from construction of a large (600 square foot) pool cabana, allegedly in violation of a neighborhood scheme restriction. The restriction stated that "no outbuildings of any kind or character ... shall be erected upon any lot". (However, it is important to note that the restrictive covenant did not prohibit the construction of a "garage".) Following a trial, the Chancery Division dismissed the complaint on the grounds that the restriction had been abandoned or modified in the vicinity of defendant's home. The trial court reached this conclusion primarily because small storage sheds had been erected on eight lots within the immediate area.
On appeal, the Appellate Division reversed the trial court. It found that the "... law imposes a heavy burden on a party who seeks to establish an abandonment or modification of a reciprocal restrictive deed covenant based on past violations". 323 N.J. Super. at 534. Since only 15 of the 118 homes affected by the restriction contained ancillary structures, all of which were small sheds, it held that the defendant did not meet the burden imposed upon him by law. Furthermore, abandonment or modification must be determined in the context of all lots affected by the neighborhood scheme, and not just those close to the defendant's home. Id. at 535. The cause was remanded to the Chancery Division with instructions to enter a judgment requiring removal of the cabana.
Steiger 11 arose because the defendant, after removing the cabana, attempted to construct a structure which was referred to as a "garage", but which was to contain a large storage area and bathroom facilities. As might have been expected, when the plaintiff in Steiger I found out about the "garage", he applied to the court for injunctive relief. The trial court denied his application. It determined that the structure was indeed a "garage" and dismissed the complaint. On appeal, the Appellate Division reversed. It found that the structure was not solely a "garage", and thus violated the restrictive covenant. However, it also pointed out that a "garage" did not fall within the prohibition on "outbuildings". 352
N.J. at 94 - 95. Thus, the defendant was enjoined from construction of the "garage" as originally conceived, but the court suggested that he could lawfully erect a structure which was, in fact, a garage. The cause was remanded to the trial court with instructions to formulate "... a remedy that enforces the restrictive covenant in conformity with [the Appellate Division's] opinion". Id. at 96.
Steiger I and Steiger 11 stand for the proposition that our courts take seriously the enforcement of restrictive covenants, particularly where they are found in the context of neighborhood schemes. A heavy burden is cast upon the party who seeks to avoid the restriction on the grounds of abandonment or modification. Furthermore, each case must necessarily turn on its own facts. There is no hard-and-fast rule as to how many lots must have previously violated a restriction for a court to conclude that the same is no longer enforceable. The holdings in these cases contradict the widespread belief that our courts disfavor the enforcement of restrictive covenants, and that they will rely upon minor violations as evidence of abandonment.

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Recording Fees Increased

The Legislature has enacted P.L. 2003, c. 117. amending N.J.S.A. 22A:4-4.1, etc., which increases the fees for recording and filing of many instruments in the county clerks' and registers' offices. Although the statute became effective "immediately" (i.e., July 1, 2003 ), the Govenor directed county clerks and registers to delay collction of the incresed fees until July 21, 2003. The most signigicant changes are set forth below; this list is not intented to be exhaustive.

Example: Assume a four (4) page deed is presented for recording. The total fee will be $70.00, calculated as follws: 1st Page=$30.00; 2nd, 3rd &4th Pages (@$10.00) = $30.00; Abstract for Assessor = $10.00.]

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