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Tax
Sale Certificates: Who May Redeem
Following
publication of "Tax Sale Certificates: Who May Redeem?" in Title
Talk" No. 59 (Winter 2004), the Appellate Division decided Caput
Mortuum v. S & S Crown Services, 366 N.J. Super. 323 (App. Div. 2004),
which has an impact on the issue under discussion. As noted in the previous
article, the concept of procedural due process requires that all parties
having a lien or other interest of record in the land being foreclosed
be joined as parties defendant (in a foreclosure in personam) or receive
notice of the suit under R. 4:64-7(c) (in a foreclosure in rem). Yet a
statute, N.J.S.A. 54:5-54 (as amended), restricts those parties who may
redeem a tax sale certificate, most notably by excluding judgment creditors
from the class of entities entitled to redeem. Thus, an apparent inconsistency
exists between the procedural rules which require joinder of or notice
to judgment creditors (and others) and the statute which denies them the
right to redeem.
This
anomaly was discussed by the Appellate Division in Caput Mortuum, but
the court held that a judgment creditor is barred from redemption in a
tax foreclosure in personam by virtue of the statute. (However, the issue
was actually moot in that case (as the court noted) because the judgment
creditor had - during the pendancy of the tax foreclosure suit-acquired
title to the realty by execution sale, and it was therefore entitled to
redeem under the statute.) The Appellate Division rejected the constitutional
argument advanced by the judgment creditor; i.e., that the amendment to
N.J.S.A. 54:5-54 unconstitutionally deprives judgment creditors of a property
right by denying them the right to redeem., 336 N.J. Super. At 339-341.
Some
attorneys representing tax sale certificate holders have interpreted (or
misinterpreted) this decision to mean that it is unnecessary to join judgment
creditors as parties defendant in foreclosures in personam or to provide
notice under R. 4:64-7(c) to judgment creditors in foreclosures in rem.
They reason that judgment creditors (and others) are joined or given notice
of tax sale foreclosures so that they can exercise the right of redemption
by satisfying the tax sale certificate being foreclosed. So if the right
of redemption does not exist, joinder or notice is meaningless, and may
therefore be dispensed with. While this analysis is superficially attractive,
it is-unfortunately-flawed, and it must be rejected.
Procedural
due process is a constitutional principle which requires proper notice
in order to divest the interest of an entity claiming a lien or other
interest in the realty which is the subject of the suit. The fact that
a judgment creditor is denied the statutory right to redeem does not relieve
the plaintiff from the duty of complying with procedural due process requirements.
In other words, a judicial proceeding cannot constitutionally divest someone
of his or her lien or interest in real estate unless he or she is joined
as a party defendant or otherwise given proper notice. Mennonite Bd. Of
Missions v. Adams, 462 U.S. 791 (1983); see also New Brunswick Sav. Bank
v. Markouski,123 N.J. (1991). The decision in Caput Mortuum does not hold
to the contrary. The case discusses only whether a judgment creditor has
a right to redeem a tax sale certificate, and not whether the lienholder
must be joined in or given notice of a suit to foreclose it. At no point
does the court state (or even suggest) that judgment creditors are not
entitled to be joined in-or to receive notice of -a tax foreclosure suit.
What
happens if an entity holding a lien or other interest in real estate is
deprived of proper notice of the suit? The answer must be that the final
judgment cannot-and does not-serve to debar and foreclose his or her lien
or interest therein. Mennonite Bd. Of Missions, supra. Thus, the plaintiff
acquires the title subject to the outstanding lien or interest, and the
title will remain so encumbered when it is conveyed or mortgaged in the
future. This is analogous to the result obtained when a junior lienor
is [inadvertently] omitted as a party defendant in a mortgage foreclosure
suit. Accordingly, when insuring titles derived from tax sale certificate
foreclosures-whether in rem or in personarn - many title companies will
continue to require proof that judgment creditors (and all other parties
holding a lien or other interest in the realty) were given proper notice
of the suit.
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New
ALTA Endorsements Approved
The New Jersey Land Title Insurance
Rating Bureau ["NJLTIRB"] has secured the approval of the Commissioner
of Banking and Insurance ["DOBI"] for the use of ALTA Endorsements
Nos. 14 through 19.1, effective March 8,2004. Some of the new endorsements
correspond to previously-approved forms, while others do not. It should
noted that DOBI's approval permits the exhaustion of existing supplies
of the previously-approved versions of the forms (where applicable). Furthermore,
Chicago and Ticor have preserved the use of the original versions of these
forms as deviation filings. So the NJLTIRB Revolving Loan Endorsement
may be substituted for Nos. 14,14.1 or 14.2; the Non-imputation Endorsement
for Nos. 15,15.1 or 15.2; and the Mezzanine Financing Endorsement for
No. 16. However, Endorsements Nos. 17,18, 18.1,19 and 19.1 have no counterparts
in previously-approved NJLTIRB endorsements (although the coverage they
afford was sometimes provided in the form of affirmative insurance).
An
explanation of each of the new forms is set forth below.
- -
ALTA Nos. 14,14.1
and 14.2 (Future Advance). These correspond to the NJLTIRB Revolving
Loan Endorsement. No. 14 insures the priority of future [ie., post-policy]
advances made under a revolving loan agreement. No. 14.1 affords similar
coverage, but excludes advances made after the insured lender obtains
knowledge of intervening liens or other matters. In so doing, it follows
more closely the wording of the NJLTIRB form (which contains a similar
exclusion). The use of No. 14.1 is thus preferable from the under -writer's
standpoint to No. 14. ALTA No. 14.2 is intended to be used in cases
where the revolving loan is secured by a letter of credit. Each of these
endorsements necessarily modifies the policy's exclusion for post-policy
advances (ALTA Loan Policy (11992), Conditions & Stipulations, ¶
9], as well as other sections. The charge for the issuance of each endorsement
is $50.00.
- -
ALTA Nos. 15,15.1 and 15.2 (Non-imputation). These correspond
to the NJLTIRB Non-Imputation Endorsement. ALTA No. 15 addresses the
situation where there will be a change in the beneficial ownership of
the insured entity (e.g., existing partners A, B and C are replaced
by partners D, E and F, or partner A assigns his interest to incoming
partner D, so that the partnership is now composed of B, C and D). Issuance
of No. 15.1 is appropriate where a new or incoming arty will acquire
a beneficial interest in the insured entity, an that party seeks to
be added as an additional insured under the existing policy. For this
reason, the insured entity must execute the endorsement to indicate
its consent thereto. Finally, No. 15.2 is used where a policy is to
be issued naming the new or incoming party as the "insured",
although record title is vested in the entity. The cost of each endorsement
is a 20% premium surcharge.
- -
ALTA No. 16 (Mezzanine Financing). This endorsement replaces
the NJLTIRB Mezzanine Financing Endorsement. Although it protects the
mezzanine lender, it does so by adding the lender as an additional insured
in the owner's policy. The cost of the endorsement is a 30% premium
surcharge.
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ALTA No. 17 (Access and Entry). Although there is no previously-existing
NJLTIRB endorsement corresponding to this form, the coverage afforded
was sometimes provided by affirmative insurance or by issuance of certain
CLTA or non-standard endorsements. The form insures against loss in
the event:
(a)
the insured land does not abut and enjoy physical access over a specific
street (to be inserted in the endorsement);
(b)
the street is not physically open and publicly main-
tained; or
(c)
the insured has no right to use existing curb cuts or entries along
that part of the street which abuts the insured land. Issuance of
this endorsement generally requires that a current survey be supplied
for "reading-in" to the policy. The charge for the issuance
of the endorsement is $50.00.
-
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- ALTA Nos. 18 and 18.1 (Tax Parcel) Although there are no previously-existing
NJLTIRB endorsements corresponding to these forms, the coverage afforded
was sometimes provided by affirmative insurance or by issuance of non-standard
endorsements. These forms insure against loss in the event the insured
land does not constitute one separate real estate tax parcel (No. 18],
or (if the insured land is comprised of two or more tracts) two or more
separate real estate tax parcels [No. 18.1]. The latter endorsement
also provides insurance that - with respect to easements appurtenant
described in Schedule A (if any) - the same wilI not be divested by
a tax foreclosure of the servient estate. In order to issue either endorsement,
the tax assessment map and tax search must be compared to the record
and survey descriptions. With respect to the additional coverage afforded
by No. 18.1, it is important that a search be made of the servient estate
to confirm that the easement was properly created, and that there were
no tax arrearages at the time of its creation. The charge for the issuance
of each endorsement is $50.00.
-
- ALTA Nos.19 and 19.1 (Contiguity). Although there are no previously-existing
NJLTIRB endorsements corresponding to these forms, the coverage afforded
was sometimes provided by affirmative insurance or by issuance of non-standard
endorsements. No. 19 is used where the insured land consists of two
or more adjacent parcels, and it insures against loss in the event the
parcels are not contiguous. No. 19.1 is used where the insured land
consists of only one parcel, and it insures against loss in the event
the insured parcel is not contiguous to a non-insured adjacent parcel.
Note that the endorsement does not insure title to the adjacent [non-insured]
land, so no search of the same is necessary, except to the extent needed
to confirm the location of the common boundary. Contiguity insurance
generally requires that a current survey be supplied for "reading-in"
to the policy. The survey should indicate that the adjacent parcels
are in fact contiguous. The charge for the issuance of each endorsement
is $50.00.
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"Good
Funds" Law Amended
Under
a statute known as the Good Funds Law, the Title Insurance Act was amended
to require title insurers and their agents to disburse settlement proceeds
only against good funds- They are required to deposit settlement proceeds
in a separate trust account and to keep records of their receipts and
disbursements. Good Funds are statutorily defined as cash, wire transfer,
or certified cashier's, teller's or bank checks, or other collected funds.
However, the law permits disbursement of up to $1,000.00 against other
funds. N.J.S.A. 17:46B-10.1. (Note that so-called official checks have
no statutorilydefined meaning, and frequently do not fall within one of
the acceptable categories set forth above.) The Good Funds Law also amends
the Licensed Lenders Act to require lenders to disburse [first] mortgage
loan proceeds to the "closing agent" in the form of certified
checks, wire transfers, etc. N.J.S.A. 17:11 C-22(k).
After
the statute was enacted, a question arose over the proceeds available
when two closings or settlements are conducted "back-to-back",
e.g., A sells his home to B in the morning, and purchases a new home from
C in the afternoon. In these cases, A may arrive at the afternoon settlement
with the proceeds check drawn on the law firm or title company which conducted
the morning closing. May the title company conducting the afternoon settlement
accept the check? In order to resolve this problem, NJLTA was successful
in having the Legislature enact an amendment to the law. P.L. 2003, c.
234, eff. ca. January 9, 2004, amends N.J.S.A. 17:4613-10. 1 to state
the following:
"A
New Jersey licensed attorney's trust account check and a trust or escrow
account check from a New Jersey licensed title insurance producer shall
be considered "collected funds" for the purpose of this section."
Thus,
it is now clear the title company conducting the later closing may accept
the check from the earlier closing. The statutory amendment will serve
to facilitate real estate transactions, especially where-as in the example
given above-they are scheduled to occur in close proximity to one another.
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Cemetary
Act Revised
The
Legislature has enacted P.L. 2003, c. 261, effective ca. April 13, 2004.
Known as the New Jersey Cemetery Act, 2003, the law will be codified as
NJSA 45:27-1 et seq. The Act repeals NJSA 8A:1-1 et seq., the current
Cemetery Act. Although the old law is substantially rewritten, its provisions
are largely similar from a conveyancing or title insurance standpoint.
The Cemetery Board will continue to regulate cemeteries. NJSA 45:27-3
et seq. Cemetery companies must be organized as Title 15A [non-prof it]
corporations, except for those created prior to 1971. Municipal consent
must be obtained for the establishment or enlargement of a cemetery. NJSA
45:27-25. Each cemetery company must file a survey or map with the Cemetery
Board, which filing constitutes a dedication of lands for cemetery purposes.
NJSA 45:27-17. Cemetery lands are exempt from real estate taxes (but not
from water and sewer rents). NJSA 45:27-20. Neither the rule against perpetuities
nor the rule against the suspension of the power of alienation applies
to cemetery lands. NJSA 45:20-21 a.
Real
estate transactions involving cemetery lands must be approved by the Cemetery
Board, subject to certain restrictions on the use thereof. If the realty
to be transferred includes graves in which burials have occurred, and
the remains are to be disinterred, the cemetery company must obtain consent
of the heirs of those buried or an order of the Superior Court. NJSA 45:27-34.
Although the statute does not appear to prohibit specifically the mortgaging
of cemetery lands, NJSA 45:20-21b states that lands so dedicated "...shall
[not) be affected by ... alienation of the property, by any encumbrances,
by sale under execution, or otherwise except as provided in this act and
by law". This wording implies that cemetery lands are immune from
execution sales to enforce a mortgage or judgment lien. A person who purchases
a grave may obtain "title to the interment space ... or only a right
of burial in it"....; ie., a fee simple or lesser estate. NJSA 45:27-28.
Thus, when insuring a transaction involving the sale or transfer of cemetery
lands, a title insurer may set up a requirement in its commitment similar
to the following: Proof is required that the consent of the New Jersey
Cemetery Board has been obtained to the proposed conveyance of the lands
described in Schedule A, pursuant to NJSA 45:20-34.
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Domestic
Partnership Act Adopted
The
Legislature has enacted P.L. 2003, c. 246, effective ca. July 10, 2004.
Known as the Domestic Partnership Act, the law will be codified as NJSA
26:8A-1 et seq. The Act permits persons of the same sex who are at least
18 years of age, or persons of different sexes who are at least 62 years
of age, to enter into a domestic partnership ["DP"]. A DP is
formed by the filing of an affidavit of domestic partnership with the
"local registrar'. NJSA 26:8A-4. Once the Affidavit creating the
DP has been filed, the local registrar may issue a certificate of domestic
partnership, copies of which shall be filed with the State registrar.
NJSA 26:8A-8 & -9. The obligations of domestic partners are set forth
in the statute. NJSA 26:8A-6. A person who is married, or who is already
a partner in a DP, may not enter into a DP prior to the termination of
his or her existing marriage or DR NJSA 26:8A-4. Termination of a DP is
accomplished by the filing of a suit in Superior Court (similar to an
action for divorce). However, the court is not required to effectuate
equitable distribution of the parties' property NJSA 26:8A-10.
In
general, the creation of a DIP does not affect real property interests.
A joint tenancy (in the absence of specific wording in the deed) is not
created when domestic partners acquire title to realty. Since they are
not married, domestic partners may not hold title as tenants-by-the-entireties.
For the same reason, neither dower nor curtesy nor the joint right of
possession apply to DPs. Nor is the surviving partner the heir of the
deceased partner under the laws of intestate descent. (Of course, if the
partners are otherwise related, then one may be
the heir of the other under the laws of intestacy.) Nor may he or she
exercise a right of election if omitted from the will of the deceased
partner. However, the Act [NJSA 26:BA-37] amends NJSA 54:34-2 to provide
that a surviving domestic partner is a Class A beneficiary for transfer
inheritance tax purposes. In short, it is important to bear in mind that
although domestic partners enjoy some of the rights, privileges and responsibilities
of married couples, a DP is not a marriage, and thus domestic partners
are not husband and wife.
As
suggested by the foregoing analysis, a deed to "A & B, domestic
partners", will create a tenancy-in-common, just as will a deed to
"A & B" (where A and B are not married to each other). If
a joint tenancy is to be created (whether or not the grantees are domestic
partners), the deed must specifically so state. NJSA 46:3-17. Because
domestic partners are not married, there is no need to require a non-title-holding
partner to execute (or consent to) the deed, mortgage or lease in order
to dispose of dower, curtesy or the right of joint possession.
Upon
the death of one partner, the survivor may acquire title to the realty
if he or she is a devisee under the deceased partner's will or if they
held as joint tenants. But one does not become the other's heir under
the intestacy laws simply on account of his or her status as a surviving
domestic partner. As suggested above, the requirement for an inheritance
tax waiver may be waived by some title insurers (upon receipt of an appropriate
affidavit of title), because the survivor is a Class A beneficiary. However,
proofs must still be obtained with respect to state and federal estate
tax (where applicable).
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