The New Jersey Supreme Court has, again,missed the opportunity to overrule, or distinguish, existing law which puts purchasers of new construction which isbuilt to order (as opposed to built on “speculation” new housing) at great risk.The case, which will be briefly discussedbelow, is Harry W. Cox, et al. v. RKACorporation, et al. (A-81-98).

Briefly stated, the facts in the Cox case areas follows: The Coxes (“Cox”) entered intoa contract (for $106,880) with RKACorporation (“RKA”), a contractor, to purchase property and construct a homethereon. They paid a deposit in the amountof $12,000 with the balance of the contractdue on closing. RKA then went to RoeblingSavings and Loan Association (“Bank”) and obtained a (mortgage secured) constructionloan. Bank was furnished with a copy of thecontract and – in fact – relied, in making theloan, on the property being “pre-sold). Bankand Cox never communicated with eachother and Cox was not aware of the con-struction loan. Bank advanced a total of$74,231. Cox then made additional pay-ments to RKA in the amount of $71,225.53,which were not then due under the contract. Then RKA defaulted under thecontract and Cox sued for specific performance – followed by default on theconstruction mortgage and a suit to fore-close the mortgage. Cox then amended itssuit to ask the court to void the construc-tion mortgage or to rule that their paymentshad priority over the construction loanmortgage.

The trial court ruled that Bank knew of theCox interest and that, therefore, Cox had an

equitable lien for the full amount of theirpayments with priority over the bank’sinterest. The Appellate Division (with minorcomments) affirmed the trial Court.

The Supreme Court, after much discussion,upheld the Cox priority, in full, in spite of(as the Court noted) prior law in this stateon which Cox would have been held to nothave priority as to the “non-obligatory”advances. The court stated that “Prior tothis appeal, there was little precedent on which the parties could definitively rely andno direct authority in New Jersey.” [and thisis after they cited numerous cases for theproposition they adopted!] It then ruled toapply its ruling as to the lack of priority fornon-obligatory advances prospectively. Thethrust of the opinion is that this was neces-sary to uphold the “sanctity” of the record-ing statutes.

Justice Stein, in a dissenting opinion, got it right. He stated that, in his opinion, the contract purchaser should not lack priorityfor non-obligatory advances. His well-found-ed argument is based on the ancient doctrine of equitable conversion and the concepts of notice and bona fidepurchaser.

The Court of course totally disregarded the fact that the Bank knew of the Cox equitable title and could have insisted thatthe Cox interest be subordinated to its construction loan mortgage. The issue ofthe non-obligatory nature of the advancebecame the focus of the decision but totallydisregarded the practical manner in which

Supreme Court Strikes Out!

By Frank A. Melchior Vice President and Associate Regional Counsel, First American TItle Insurance Company

TheThe

New Jersey Land Title Association

IN THIS ISSUE:

September 2000Volume XII, Issue 3

Supreme Court StrikesOut! . . . . . . . . . . . . . .1

Competitor & Friend . . . . . . . . . . . .3

An Unrecorded Non-MoneyJudgement ThatAffects Title to RealProperty . . . . . . . . . .4

Tenants in Common:Uncommon Problems . . . . . . . . . . . . . . . . . .5

NJATA VisitsCooperstown . . . . . .6

A publication of the New Jersey Land Title Association, Monmouth Executive Center, 100 Willowbrook Road,Building 1, Freehold, New Jersey 07728

“The views and opinions expressed by the authors of the published articles are those of the authors or his/her employer. Consult your underwriter for specific guidelines.” Editor Kevin Cairns, Esq.

continued on page 3

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“Everyone is this room is a competitor ofmine; everyone in this room is also a friendof mine”, this statement was made byLorraine Newman-Davis at our conventionin South Carolina. That it has stayed withme all these years demonstrates a basictenet of every solid professional organiza-tion, namely competitors can also befriends. Also, as all good friends, we needeach other and must cooperate with oneanother.

The diversity of the talents among titleagents is amazing. Some are great sales people, others great business managers,while others are title mavens. It is this mixthat is essential to our Association. No oneperson can be all things: title reader, con-troller, purchasing agent, forecaster, person-nel manager, IS department head, sales manager, etc. We must be willing to sharein order to guaranty an effective organiza-tion. Please do not take this sharing of ourexpertise as giving away our business. Ifthere is legislation being considered thathas an effect on the industry do we not askthose politically connected to contact theirlegislators? If we are seeking a new produc-tion system, don’t we contact those whohave a potential new system? We cannotaddress all of the common problems on ourown.

Think of the all the issues that we currentlyface: banks entering the title industry, more state regulations, forming a strategicalliance/joint venture, consolidation ofunderwriters, recording offices, e-commerce,title software, the list goes on. Unless wehave an effective organization it is impossi-ble for any one party to deal with all ofthese concerns. Of course, the biggestproblem facing all of us is the lack of time.Agents know that when they give of theirtime, they are taking away from ‘profitable’pursuits. However, if we are not willing tomake a commitment to our common causes,we may find that the ‘profitability’ of ourbusinesses disappears. Indeed our very businesses could disappear.

Further your Association Board must guaranty that when you share your ideas,they have a proper hearing; that when yougive of your time, it is not wasted; andwhen you make your commitment, it bears fruit. ■

Competitor & Friend

Mike Kehoe, Vice Chairpersonof the New Jersey Land TitleAssociation, Agency Section

parties purchasing new homes operate.Unless the purchaser buys a home built onspeculation it is highly unlikely that changework-orders will be issued during thecourse of construction and that the addedcost for custom work be paid for immedi-ately. Likewise, the court did not considerthe relative naivete of purchasers. Theywould not be likely know how to “police”payments and analyze construction budgetsas compared to the knowledge of lenders(whose business it is to know – and whoshould have “policed” the payments toassure there being enough money budgetedto complete the project.).

What does this mean to a title professional, whether insurer, titleagent, or attorney?

It would be simplistic – and dangerous – toignore this case. While every professionalwill have to draw his/her own opinion and,certainly, every title insurance underwriterwill have to make their own determinationas to how to deal with the questions raised,it appears that, minimally, a subordination(“postponement”) of the purchaser’s inter-est should be obtained and recorded inevery instance where the existence of suchan interest becomes known and, in theabsence of such a subordination, to express-ly except the rights of the purchasers in thecommitment and policy. Whether or not inquiry should be made of thelender, in the ordinary course of business,or whether the insurer wishes to rely on theExclusions from Coverage as to the mattersknown to the Insured but not disclosed in writing to the Insurer is a matter of company by company determination.Notwithstanding the Court’s opinion, Ibelieve it extremely hazardous to considergiving affirmative insurance (absent a subordination) limiting a purchaser’s priori-ty to the contractual obligatory advance. ■

Supreme Court StrikesOut! (continued)

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An Unrecorded Non-Money Judgment That Affects Title to Real Property — Who’s Going to Know?*

By: Dennis Gonski, Esq., Previously published in the June 19, 2000edition of the New Jersey Law Journal

4

Final Judgments that affect the ownershipto real estate, are recordable as a munimentof title. N.J.S.A. 46:16-1.1 states that judg-ments relating to, or in any way affectingtitle to real property:

[M]ay be recorded as deeds of conveyance in the office of the county recording officer of the county wherein the real estate is situate, and shall be indexed in the names of the parties to the cause as set forth in the . . . judgment . . . which when recorded shall from that time be notice to all subsequent judgment creditors, purchasers and mortgagees of the existence and contents thereof.

All too frequently however, such judgmentsare not recorded in the land records, as permitted by law. Attorneys who literallyspend hundreds of hours in winning a judg-ment that affects title to real property —thereafter fail to spend the relatively fewminutes necessary to send that judgment tothe County recording office for recording.

An attorney’s failure to record such a judgment, and the consequences of such inaction, were the subject of a recentlydecided malpractice action filed by aclient against her former attorney, alleging afailure to record a final judgment of divorce. The case is Gibau v. Klein, __ N.J. Super.__, __ A.2d __, 2000 WL 291426 (App. Div. March 20, 2000), reported in theMarch 27, 2000 edition of the New JerseyLaw Journal.

The “Gibau” Situation

In Gibau, the divorced wife’s legal malprac-tice action alleged that her former attorneyfailed to record a final judgment by whichthe wife was awarded exclusive fee title tothe former marital home. The house wasoriginally titled in the name of both spous-es, as a tenancy-by-the-entireties (N.J.S.A.46:3-17.2, et seq.).

The divorce judgment provided, among itsvarious provisions, that the defendant hus-band “shall forthwith transfer and conveyto plaintiff all of his right, title and interestin and to the former marital residence”.

The husband however, did not comply withthe judgment, and the attorney for the wifedid not record the final judgment in thedeed books of the County where the property was located.

Some years later, when the wife attemptedto sell the former marital home to a thirdparty, a judgment search revealed thatmoney judgments had been entered against the husband, after the entry of the finaljudgment of divorce. The title company engaged by the purchaser insisted that thejudgments against the husband were liens against the real property. So too, the titlecompany refused to insure the purchaser’s title, unless the money judgments againstthe husband were satisfied. In light of that development, the wife agreed to pay thejudgments out of the proceeds of the sale of the house.

The wife then instituted a lawsuit againsther “former” divorce attorney, alleging that the attorney negligently failed torecord the judgment of divorce in theCounty deed books (N.J.S.A. 46:16-1.1),thus allowing the subsequent money judg-ments against the husband to attach to thereal property as statutory liens.

The defense pleaded for the attorney,alleged that recording of the divorce judgment was, in theory, unnecessarybecause the transfer of title pursuant to the judgment occurred automatically by opera-tion of law, and the docketing of the judgment (and not the actual recording)was “notice to the world” of the transfer of title. The lower Court agreed, and the caseagainst the attorney was dismissed.

There was of course, an appeal. To the chagrin of the wife however, the AppellateDivision again ruled in favor of the attorney— but this time for a different and highlycontroversial reason. The AppellateDivision’s opinion (authored by Judge Keefe), affirmed the lower Court’s dismissalbut did so based upon what the Court deemed to be “the special nature of a

continued on page 6 5

judgment ordering the equitable distribution of property”. Judge Keefewrites:

Our holding here, which is limited to judgments entered for equitable distributionof property in dissolution cases, does no violence to the Recording Act.

(Emphasis supplied).

Gibau, supra, 2000 WL 291426 at *5.

What the Appellate Division seemingly didwas to create two separate classifications of unrecorded judgments: (a) judgmentsentered for “equitable distribution” of mari-tal property; and (b) all “other” unrecordedjudgments affecting title to real property.As to the second category — all “other”judgments — Judge Keefe made it clear that the failure to record under N.J.S.A.46:16-1.1 may well be legal malpractice:

Undoubtedly, the purpose of the statute [N.J.S.A. 46:16-1.1] is to provide a mechanism forrecording instruments affecting title to property that do not meet the formality of acknowledg-ment or proof as is required for the documents identified in N.J.S.A. 46:16-1a to f. We agree with plaintiff that the final divorce judgment could have been recorded pursuant to N.J.S.A. 46:16-1.1, and the recording would have provided notice to judgment creditors. Klein argues that the use of the permissive phrase “may be recorded” in N.J.S.A. 46:16-1.1 makes the choice of recording optional. The argument is, however, clearly without merit in light of the Supreme Court’s holding in Sonderman, supra, 127 N.J. at 110, 603 A.2d 1. Stated simply, if the judgment affecting title to real property is not recorded, it may not serve as notice to subsequent purchasers for value or judgment creditors.

“ ‘Generally speaking, and absent any unusual equity, a court should decide a question of titlesuch as this in the way that will best support and maintain the integrity of the recording system.’ ” Sonderman, supra, 127 N.J. at 108,603 A.2d 1 (quoting Palamarg Realty Co. v. Rehac, 80 N.J. 446, 453, 404 A.2d 21 (1979)).

Therefore, we would end the discussion at this point, as the parties’ briefs have done, and reverse the judgment in Klein’s favor, if the 1978 judgment was other than a judgment affecting the equitable distribu-tion of marital property.

(Emphasis supplied).

(Footnote omitted).

Gibau, supra, 2000 WL 291426, at *4.

However, it is the judicial creation of anexception to the application of the rules regarding the recording of judgments —

that gives pause to those familiar with the physical mechanics of a customary searchof real estate titles. Equally so, the Court’s willingness to favor “equitable distribution”judgments, based upon equitable considera-tions, is seemingly in sharp discord with theSupreme Court’s past assurances that ques-tions of title are to be generally decided “ina way that will best support and main-tain the integrity of the recording system”.

The StatutoryFramework of the Recording System

By statute (N.J.S.A. 46:20-1, et seq.), the various recording officers are obliged tomaintain a grantor/grantee system ofrecording conveyancing instruments. It has only been within the last decade that thealphabetical indices maintained by each County, have been judicially determined tobe an integral party of the recording system. Howard Savings Bank v. Brunson,244 N.J. Super. 571, 582 A.2d 1305 (Ch. Div. 1990). See also Manchester Fund,Ltd. v. First American Title Insurance Company, Superior Court, ChanceryDivision, Bergen County, Walsh, C., J.S.C., Docket No. L-2258-99 (decided October 22,1999, opinion yet unpublished).

So too, the real property statutes (compiled in Title 46 of N.J.S.A) provide a non-inclusive list of what instruments maybe recorded within the recording system (N.J.S.A. 46:16-1, et seq.), as well as the consequences of recording (N.J.S.A. 46:21-1):

Except as otherwise provided herein, . . . whenever any deed . . . shall have been or shall be duly recorded . . . such record shall, from that time, be notice to all subsequent . . . purchasers. . . of the execution of the deed . . . so recorded

and of the contents thereof.

N.J.S.A. 46:21-1.

And the consequences of non-recording(N.J.S.A. 46:22-1):

Every deed . . . shall, until duly recorded . . ., be void and of no effect against . . . all subsequent bona fide purchasers . . . for valuable consideration, not having notice thereof, whose deed shall have been first duly recorded . . . .

N.J.S.A. 46:22-1.

Among the various instruments specificallydesignated as being “recordable” are finaljudgments affecting title to real property.N.J.S.A. 46:16-1.1.

6

New Jersey has been declared (by JudgeMountain of the Supreme Court of New Jersey) to be a notice/race jurisdic-tion, meaning that if a common grantor sells the same land to two persons, the first torecord - even though he may have been the second to purchase - will prevail, but onlyso long as he had no actual notice of the earlier sale. Palamarg Realty Co. v. Rehac,80 N.J. 446, 404 A.2d 21 (1979).

The “Art” of Title Searching Within the Recording System Has Developed Primarily Without the Aid of Statute

Title searching practice in New Jersey hasdeveloped, primarily through custom and practice among title searchers.Palamarg, supra, 80 N.J. at 461, 404 A.2dat 28 (“the art of title searching, uponwhich so much of our conveyancing practice rests, has been created in verylarge part without the aid of legislation….”);See also Sonderman v. RemingtonConstruction Co., Inc. 127 N.J. 96, 1100,603 A.2d 1, 8 (1992) (arguing there is “noreason to impose a greater responsibility ontitle searchers than is imposed by standardpractice.”); Cf. Donald B. Jones, The NewJersey Recording Act — A Study of itsPolicy, 12 Rutgers L. Rev. 328, 329 (1957)(“[T]he various New Jersey legislatureswhich have dealt with the Recording Acthave spelled out a broad policy and haveleft it to the searchers, conveyancers, andcourts to construct a system of title search-ing within the bounds delineated by thatpolicy, and to maintain that system in agood and workable order.”).

The Supreme Court, itself, in Palamarg,aptly refers to “the art of title searching”.

How a Title Search “Works”

The principal goal of a title search is to firstdevelop a chain-of-title. As with all chains, achain-of-title is comprised of “links”.

In real estate conveyancing, each “link” consists of the period of time during whichan owner holds his or her interest in thereal property.

The searcher puts together all of the “links” in chronological fashion so that they interconnect — the result being the“chain-of-title”. In order to assure the interconnection of each link with the next,Palamarg tells us that each “link” begins with the date on which the interest is conveyed to a specific individual in thechain and ends with the date in which aconveyance from that individual is record-ed. The end product of the chain is achronological succession of conveyances,all interconnected, which link the currenttitle holder to a “reliable” root title.

Under the “grantor/grantee” system created by statute, the search starts with the present owner and “granteeing” thatpresent owner’s name in order to discoverthe “predecessor” from whom the presentowner obtained his title. 13A Milton N. Lieberman, New Jersey Practice, Abstractsand Titles §1644 (1966), et seq.; 13A John A. Celentano, New Jersey Practice, RealEstate Law and Practice §31.16 (1991).

This search process is then repeated foreach prior holder of title (i.e. each “link” in the chain-of-title) until, hypothetically,the year 1664 when Charles II of England deeded all of New Jersey to the Duke ofYork. According to 2 Rufford G. Pattonand Carrol G. Patton, Land Titles §307 (2ded. 1957), there has been no successful challenge to the source of title of Charles II.

As a practical matter, however, the chain-of-title is “guaranteed” back only 60 years. SeeN.J.S.A. 2A:14-30; See also Pioneer TitleInsurance Co. v. Lucas, 155 N.J. Super.332, 382 A.2d 933 (App. Div. 1978), certif.granted 77 N.J. 472, 391 A.2d 487 (1978),aff’d 78 N.J. 320, 394 A.2d 360 (1978).

Although the “chain” may be consideredcomplete; the “search of the title” howeveris far from complete. A search must still bemade as to each title holder in the chain toascertain if any conveyances were made bysuch owner to other grantees or lienorsprior to the conveyance to the next person— or link — as developed in the chain oftitle.

An Unrecorded Non-Money Judgment That Affects Title to Real Property — Who’s Going to Know?* (continued)

continued on page 8

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A title searcher must confirm or prove thechain of title that has been assembled. This is done by a search of the chain of titlein a forward chronological order, through the “grantor” index, and by a search intoother areas, such as money judgments that may have acquired statutory lien status.

As to what efforts a searcher must expendto check for liens, grants and encumbrancesconcerning a “grantor” in the chain-of-title— that too has been left to “custom andusage”. In Security Pacific Finance Corp.v. Taylor, 193 N.J. Super. 434, 474 A.2d1096 (Ch. Div. 1984) Judge Perskie wrote:

The usual method of examining a title is to search against the party who holds the record title up until the time he parts with the title and then search against the person who holds the title so long as he has the title [at 255, 168 A. 639].

The significance of the determination . . . of the “usual method of examining a title” is that such a methodology has established the standard of “reasonableness” for purposes of construction of the Recording Act.

As to the . . . conclusion. . . that a purchaser be charged only with such notice from the records as can be ascertained by a reason-able search of those records, our courts have taken a very practical approach which has produced favorable results. They have limited the record notice to conform with the existing mechanics and methods of search. When a question has arisen as to what constitutes record notice, they have first looked to the practice of the searchers and conveyancers to draw their conclusions, in much the same manner as the earlier courts of England had looked to the custom of merchants to establish the commercial law, and had looked to the practices and opinions of the conveyancersas the best evidence of the existing state of the land law. [Jones, supra at 335].

Security Pacific, supra, 139 N.J. Super. at 441, 474 A.2d at 1100 (quoting Wack v. CollingswoodExtension Realty, Co., 114 N.J. Eq. 253, 168 A. 639 (E. & A. 1933) and Donald B. Jones, supra).

(Emphasis supplied).

Recognizing the “notice/race” implicationsof the New Jersey recording system, thejudicially accepted standard as to what additional inquires need be made is thatwhich is “reasonable” under the circum-stances of each case. Palamarg, supra; Sonderman, supra.; Donald B. Jones, supra.

A Judgment Lien Search is Required

Judgment liens are creations of statute.Brescher v. Gern, Dunetz, Davison & Weinstein, P.C., 245 N.J. Super. 365, 585A.2d 961 (App. Div. 1991). A money lien automatically attaches to the lands of a judg-ment debtor. N.J.S.A. 2A:16-1.

This statute states that a money judgmentlien affects and binds real estate from the time it is entered upon the judgmentroll of the Superior Court:

No judgment of the superior court shall affect or bind the real estate, but from the time of the actual entry of such judgment on the minutes or records of the Court.

(Emphasis supplied).

Accordingly, it is no surprise that the custom and practice of a title searchrequires that judgment searches for theentry of money judgments (the so called “Charles Jones” searches ordered fromCharles Jones, Inc.) must be obtainedagainst each successive owner in the chain-of-title for the previous twenty years (thestatute of limitations on Judgments,N.J.S.A. 2A:14-5). These judgment searcheshowever, only disclose the existence of“money judgments”, bankruptcies and attimes other miscellaneous information. See2 Lawrence J. Fineberg, Handbook of NewJersey Title Practice, New Jersey Land TitleInstitute §7113 (1997):

Judgment searches must be obtained against eachsuccessive owner is the chain of title for the previous twenty (20) years. While a party is usually not searched after the date he conveys hisinterest, if a conveyance made for nominal consideration (or which otherwise appears to be fraudulent) is found, the grantor’s name should be searched until the date of the next bona fidetransaction. County Court judgments must still be searched because the County Court was abolished less than twenty (20) years ago. In addition, the County search will reveal miscella-neous liens such as Reimbursement Agreements.

As to non-money judgments however,those will not ordinarily be entered into theSuperior Court’s judgment roll, and there-fore will not appear in the customary judgment search. To locate and report theeffect of an unrecorded non-money

An Unrecorded Non-Money Judgment That Affects Title to Real Property — Who’s Going to Know?* (continued)

9

judgment upon a real property tile, a titlesearcher would be required to (a) obtain independent knowledge that such a judgment exists; (b) be given privy to thejudgment itself (which may prove difficultin cases where the Court record has beensealed); and (c) determine whether any contingencies set forth in the judgmenthave been complied with by the parties, or otherwise.

Because a title searcher is constrained by the Supreme Court to make only a “reasonable” search of the title (seePalamarg, supra), the addition of these“new” searching burdens seem anythingbut “reasonable” given the recordingstatutes (N.J.S.A. 46:21-1 and N.J.S.A. 46:22-1)and the Supreme Court’s stated willingness to enforce these statutes absent trulyunusual equities.

To now hold as the Appellate Court hasdone in Gibau, that an unrecorded divorcejudgment (in violation of the statute permit-ting its recording) is deemed to acquire anequitable priority over other properlyperfected liens — seems to indeed do violence to both the Recording Act, and tothe standard and customary title searching practices that are based thereupon.

Conclusion

In Gibau, the title insurance company tooka seemingly logical position, based uponJudge Mountain’s decision in the Palamargcase. The title company reasoned thatunder a notice/race determination, a credi-tor with no notice of a prior Court orderedconveyance of title by the husband —should not be bound by such an unrecord-ed conveyance. Logically, the title company’s position seems to be the result that would “best support and maintain theintegrity of the recording system”.

Judge Keefe in Gibau however, said no!The Appellate Court ruled that the title company was wrong as to these particularjudgments. Because of the Court’s differentiation between (a) judgmentsentered for “equitable distribution” and (b)all other judgments affecting title to realproperty — the wife (said Judge Keefe)paid off judgments that she need not havepaid. (Query: does the wife now have anew claim for malpractice against the attor-ney representing her in the sale of the realproperty?).

Gibau v. Klein, is (at least until the issue ispresented to the Supreme Court) the present status of the law on an attorney’sobligation to record a non-money judgment that affects the ownership of real property.Title searching practices will no doubt need to be adjusted, and the art of title searchingwill continue to develop as it has in thepast, to accommodate new rules created bythe Courts.

The message to the bar, however, is one ofcaution. There is peril in failing to do whatis permitted by N.J.S.A. 46:16-1.1. Careshould be taken to avoid the “snare” pre-sented by N.J.S.A. 46:16-1.1(and the litiga-tion inevitably caused thereby). Prudencedictates the spending of the few extra minutes it may take to achieve the protec-tion of recording a judgment under N.J.S.A.46:16-1.1.

Record a judgment where you can, other-wise — who is going to know? ■

* The author, a member of Dollinger, Gonski &Grossman, has acted as defense counsel to the titleinsurance industry for more than 25 years.

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One of the difficulties in addressing realestate and title issues is that so much variesfrom state to state or even locally withinone state. One topic illustrating this isestates of co-ownership. It is completelybeyond the scope of this article and the ability of the author to fathom the depths ofthese differences, nor will this article evenattempt to broach the quagmire of maritalinterests (particularly that notion of commu-nity property which is completely alien tothis neck of the woods in New Jersey).

However, the past year has seen courts invarious states render decisions about thenature and extent of tenancies in common.Three of these cases, from three jurisdic-tions, will be briefly examined. Even if thespecific principles of law do not apply toyour particular jurisdiction, the principlesof statutory construction and judicial inter-pretation utilized illustrate that the Courtscan surprise us even when dealing withseemingly well established principles andthe care which must be taken when dealingwith co-ownership.

Starting in New Jersey, Burbach and Beckv. Sussex County Municipal UtilitiesAuthority1 : Burbach and Beck were tenants in common owning an undevelopedcommercial tract of land. A judgment wasentered against Burbach by the SussexCounty Municipal Utilities Authority(SCMUA). Beck was not a co defendant norin any way a party to the cause of actiongiving rise to the judgment. SCMUA execut-ed on the judgment, a Sheriff’s sale was conducted and SCMUA was the successfulbidder at the sale, receiving a Sheriff’s Deed.

The first Beck knew of the judgment, or hisnew co-tenant, was when he saw a legalnotice by SCMUA seeking bids for purchaseof land being sold by a public entity. Beck’sattorney immediately contacted SCMUA’sattorney and the litigation ensued.

Beck claimed that the Sheriff’s sale hadbeen improper because no notice of thesale was given to him. SCMUA maintainedthat it was not required to give notice asBeck was not being divested of any interestin the premises and his ownership of anundivided one-half interest remained the

Tenants in Common: Uncommon ProblemsJohn A. Cannito, Title officer with Century/Intercounty Title Agency

same. The Appellate Division voided thesale, holding that Beck as co-owner wasentitled to notice.

No quibble with the Court’s result.Although the holding represents an expan-sion of notice requirements in a judicialsale, it is a logical extension of the trend ofthe due process cases in NJ. If the Courthad limited its reasoning to this aspect thiscase would not be in this article. But theCourt went beyond this in examining thenature of the tenancy in common estate, in general and the relationship of these co-owners in particular.

The Court recognizes that tenants in common are free to alienate their respectiveinterests without the consent of their co-tenants, then attempts to distinguishsuch voluntary alienation from the situationat hand involving an execution sale. Two ofthe factors it cited are particularly disturbing.

First, it imputed a “partnership-type” relationship to the two original co-owners.While the unique circumstances of the casemay support such a notion, it ignores thefact that one of the co-owners had previous-ly conveyed his interest to his wife; andthat the parties had owned the property forapproximately 20 years and had more thanample opportunity to create a partnership,if such had been their intent.

Secondly, it found that the value of thenon-debtor co-owner’s interest could be significantly (and negatively) affected byfinding himself with a stranger as a co-owner. This is almost a truism, but reallybegs the question. The same would be trueif a co-owner sold voluntarily or mortgaged.But the Court took pains to insist that it wasnot altering the fundamental nature of the tenancy in common. The fear is that it mayhave. Any examiner or underwriter in NewJersey now should consider, in any situationinvolving a dealing by an owner of an undivided interest, whether notice of suchtransaction needs to be made to the owners,whether voluntary or not; and in so doingthe question is raised whether the attributesof a co-ownership interest have beenaltered rather than preserved.

continued on page 12 11

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Tenants in Common: Uncommon Problems(continued)

Taking a southerly turn, Wright v. Wright ,is a case out of Georgia. In the early 1940’sHarvey and his son Aitchley took title a farmas tenants in common. Each paid a portionof the down payment and there was a twen-ty year note for the balance of the purchaseprice. Harvey did not contribute to eitherthe installment payments or to taxes on theproperty. When Harvey died the ProbateCourt gave his half interest to his wife andminor children. None of them ever madeany contribution towards the loan, taxes orupkeep.

Over the years, Aitchley and his wife occu-pied and worked the farm, made improve-ments, made all necessary payments; andeven sold off portions of the original tract,without consent of the co-owners, by warranty deed. Aitchley’s siblings wereaware that he claimed full ownership, butnever asserted a contrary claim. Fearing,they said, for their safety (since Aitchleywas reputed to be overbearing and tyrannical) they elected to wait for his deathto resolve the ownership issue. FollowingAitchley’s death, Aitchley’s wife and kidsasked the siblings to deed their outstandinginterest, which they declined to do. A quiettitle action by Aitchley’s wife and kids wasstarted.

In N.J. you can’t maintain a claim of adversepossession against a co-tenant. You can suefor partition, you can bring an action forwaste, but there is no statute allowing anclaim of adverse possession. In general,there is a fiduciary duty to do nothing toimpair your co-tenant’s interest. In Georgiathe law allows such an action.

In bringing an action for adverse possessionit must be shown that there has been anactual ouster, demand for and afterwardsexclusive possession of the premises, andnotice to the co-owners of the adverse possession. There is a presumption that atenant in common in exclusive possessionis holding for the common benefit. But it isa presumption, and can be overcome. TheCourt held that the actions of Aitchleycould meet the requisite elements and overcome the presumption; and that it wasa factual issue for a jury.

Could you get this result in N.J., or anotherjurisdiction that did not specifically providefor adverse possession of a co-tenant?. Itwould certainly be a tougher case to make,but after some thought , a resounding mental “no”, has become a maybe. Theargument would be that the siblings by failing to contribute to the maintenance andexpense of the premises had been the firstto breach their fiduciary duty. Whether onecould then characterize this as “waste” or ade facto partition, the door could be openfor the possessing co-tenant to assert itsclaim for adverse possession.

Finally, we head north again to Vermont forKIPP V. CHIPS ESTATE . At first blush thismay seem to be a case about poor drafts-manship rather than co-ownership. In 1987Ervin Chips and June Kipp acquired title toproperty together. The granting clause ofthe Deed identified the grantees as joint ten-ants, while the habendum clause identifiedthem as tenants in common. FollowingChips death, Kipp sought a declaratoryjudgment that the Deed created a JointTenancy and that Chips’ heirs had no interest in the premises.

The trial court ruled, and the VermontSupreme Court upheld, that the “four corners” of the Deed fully expressed thegrantor’s intent and that there was no needto look to extrinsic evidence. For a numberof enumerated reasons, the Court foundthat despite the apparent ambiguity, theDeed, through the habendum clause, andgiven the state’s statutory preference forestates in common rather than joint tenan-cies, manifested the grantor’s intent to convey a tenancy in common.

It is not the place of this commentary to critique Vermont’s rules of construction orjudicial interpretation. However, it strikesan outsider that the Court may have focusedincorrectly on the grantor’s intent ratherthan the grantee’s intent.

In a conveyance by a grantor for value tounrelated bona fide purchasers (as opposedto intrafamilial or other close transactions)it is generally a matter of indifference to thegrantor how the grantees hold title. Inpractice, it is routine for a draftsman to

honor a request by the contract purchasersto reflect the manner in which they want tohold title.

It is not difficult to imagine a scenario inwhich the drawer of a deed conforms theface or granting clause of a deed to the purchasers’ request, but fails to make thenecessary changes to all clauses or to “boilerplate” provisions. Chips and Kipp,or their representative, may not be blame-less in that a Deed that was facially ambigu-ous was accepted by them. However, itseems a stretch to impute intent to whatmay have been a drafting oversight of anapathetic seller.

The common thread of these cases, besideseach dealing with tenancies in common, isto expect (even if we can’t anticipate) theunexpected by following a few standards ofexamination and underwriting.

• Many title insurers’ guidelines frown on (if not actually prohibit) insuring on an owners’ policy that a particular estate or form of ownership has been validly established. The outcomes of each of the above cases show the wisdom of this rule.

• The Georgia case shows that issues of adverse possession are almost never clear cut. Even the favorable court ruling for Aitchley’s heirs meant that the facts couldgo before a jury, not that adverse posses-sion had been established. No matter how strong the case in favor of an adverse possessor appears to be, until a court enters judgment, facts alone do not provide a basis for insurance of an adverse interest.

• The Vermont case in particular should be an object lesson for all attorneys, closers, settlement agents, and title reps to carefully review even the most routine and standard documents for any discrep-ancies and ambiguities on their face. Also check instruments being recorded simultaneously (such as a Deed and Purchase Money Mortgage) for consistency. Even if no policy issued insuring that Chips and Kipp were joint tenants, if one had the responsibility to record this instrument a potential claim islurking if the inconsistency slips by.

• At the other end of the process, examin-ers should scrutinize the instruments of record for consistency and lack of ambiguity. At least initially, interpret

instruments of record cautiously and conservatively. If either the Georgia or Vermont situation was the chain of title being examined (and not a fact pattern before a court) consider calling for all parties in interest or potentially in interestto “sign off”. Any party having a possible interest or color of title is a potential source of a claim, unless that interest has been fully and unquestionably addressed.

• It is foolhardy to try and out guess a Courtas to what it might do with a particular fact pattern, and even with a particular fact pattern what holdings might have a wider precedential value. The New Jersey case, if not predictable, was, in part, a logical extension of existing law. Be aware of the trends in your jurisdic-tion. Identifying risks is the first step to managing them.

• Be careful when a customer calls you with a general question and then you learn that the situation being addressed is in another state. Most underwriters and agencies have policies against or limiting unofficial advice; but after all a customer is a customer and it is off-the-record. Avoid at all costs, however, speculating what holds in another jurisdiction based on your local expertise. An honest “I don’t know” probably won’t cost you a customer or client; the wrong answer will(and maybe more). ■

1. 318 N.J. Super. 228 (App. Div. 1999)

2. 512 S.E. 2d 618 (Ga. 1999)

3. 732 A.2d 127 (Vt. 1999)

13

New Jersey Land Title Institute Courses:

“Agency Accounting”Tuesday September 26, 2000 6-9PM

American Land Title Courses:

“Electronic Real Property Contracts, Will You be Ready?”

Wednesday September 27, 2000

CONTINUING EDUCATION COURSES

14

From June 4 through June 7 the New JerseyLand Title Association held its annual convention at the Otesaga Hotel and Resortin Cooperstown, New York. While Mother Nature denied the convention sunshine the convention program, along with the hospitality of the hotel staff and the fine dining and the Cooperstown museums,more than compensated for the poor weather.

The convention guest speaker was MayorEd Koch. His Honor addressed the groupon a wide range of topics including some ofhis public and private experiences as theMayor of New York City, the senatorial racein New York State, and his feeling towardMayor Guliani, the 2000 presidential race,and the noble calling to public service.

After his talk, Mayor Kochallowed time for the convention attendees tohave their picture takenwith him and he personallyautographed each photo.

NJATA Visits Cooperstown

By: Michael Grant

The convention committee thanks the following sponsors for their loyal and gener-ous financial support: Charles Jones LLC,Accu-Search Incorporated, Current StatusInc., NJLTA Agency Section, AKT Inc., TSSTitle Express, and Escrow Data.com. Wehope that all of our members will patronizethem with your business.

Congratulations to Maureen Crowley-Unsinn!She was bestowed the professional designa-tion of CERTIFIED TITLE PROFESSIONAL atthe Annual Convention Banquet.

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TheThe

New Jersey Land Title Association

Monmouth Executive Center100 Willowbrook Road, Building 1Freehold, New Jersey 07728

Fidelity National Title Insurance Companyof New York

takes great pleasure to welcome

Dorothy “Dede” Brown Duncan, Esq.Assistant State Agency Counsel

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Susan E. WenzelAgency Representative

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Fidelity National Title Insurance Company of New York106 Apple Street, Suite 300,Tinton Falls, New Jersey 07724

800-659-1801 • 732-219-6540 • Fax: 732-219-6542