MICHAEL NATALE v. RICARDO R. SANTOS and MICHELLE A. SANTOS

 

NOT FOR PUBLICATION WITHOUT THE

APPROVAL OF THE APPELLATE DIVISION

SUPERIOR COURT OF NEW JERSEY

APPELLATE DIVISION

DOCKET NO. A-5865-04T25865-04T2

MICHAEL NATALE,

Plaintiff/Appellant,

v.

RICARDO R. SANTOS and MICHELLE

A. SANTOS,

Defendants

and

EQUITY ONE, INC. and POPULAR

FINANCIAL SERVICES, LLC.

Defendants/Respondents.

_______________________________________

 

Submitted March 21, 2006 - Decided May 19, 2006

Before Judges Skillman and Sabatino.

On appeal from the Superior Court of New Jersey, Chancery Division, Burlington County, C-0170-03.

Madden, Madden & Del Duca, attorneys for appellant (James J. Madden and Patrick J. Madden, on the brief).

Drinker Biddle & Reath, attorneys for respondents (Walter J. Fleisher, Jr. and Marita E. Cammarano, on the brief).

PER CURIAM

This real estate matter involves the application of the Notice of Settlement Act, N.J.S.A. 46:16A-1 to -5. Plaintiff, a purchaser of residential property, appeals the Chancery Division's denial of his application to enjoin a mortgage lender from foreclosing on the property. The mortgage company had extended a loan to the sellers and had placed a lien on the property in the interim between plaintiff's filing of a Notice of Settlement with the County Clerk and the closing on his purchase. The trial court held that plaintiff was ineligible for the Act's protections against intervening lienors because he had failed to record his deed of purchase within forty-five days after filing the Notice of Settlement. We affirm.

I.

The pertinent facts are undisputed. In June 2000 Ricardo and Michelle Santos acquired residential property in Voorhees, New Jersey. To finance their purchase, the Santos' obtained a mortgage loan in the amount of $425,000 from Equity One, Inc. ("Equity One"). In June 2001, the Santos' refinanced their debt with a new mortgage loan for $437,000 extended by Popular Financial Services, LLC ("Popular Financial") a company related to Equity One. Although it is not documented in the record before us, the parties agree that the $437,000 mortgage was recorded on July 24, 2001.

On September 10, 2001, the Santos' entered into a contract to sell the premises to Michael Natale for $750,000, with a closing on that sale scheduled for October 26, 2001. On October 3, 2001, Natale, through Affiliated Title of South Jersey, filed with the Clerk's Office in Camden County a Notice of Settlement for the property detailing the anticipated sale. The Notice conformed with the form prescribed by N.J.S.A. 46:16A-3.

Two days later, without Natale's knowledge, the Santos' obtained on October 5, 2001 a second mortgage loan on the subject property from Popular Financial in the amount of $180,000. That second mortgage was recorded on October 24, 2001 in Mortgage Book 5661 at page 0793. The record does not indicate why Popular Financial extended this second mortgage to the Santos' on the brink of their sale of the premises to Natale.

As scheduled, the Santos-to-Natale closing took place on October 26, 2001. The HUD settlement statement itemizing the funds involved in that transaction only listed the Santos' first mortgage to Popular Financial and did not include the second mortgage. The first mortgage loan was satisfied in full out of the sale proceeds. As part of the closing documents, the Santos' provided to Natale an Affidavit of Title, which failed to disclose the existence of the second mortgage. The second mortgage loan was not satisfied out of the closing proceeds. According to the HUD statement, the Santos' received $260,124.42 in cash at the closing, a sum which would have been more than sufficient to pay off the $180,000 second mortgage plus interest.

For reasons that are undisclosed in the record, Natale delayed recording the deed conveying the property to him until February 12, 2002, nearly four months after the October 26, 2001 closing. In the interim, Natale took possession of the premises as his residence.

In October 2003, Natale received a letter from Equity One advising him that it held a $180,000 mortgage on the property, and that the mortgage was in default. The default letter prompted Natale to file an Order to Show Cause and Verified Complaint in the Chancery Division in Burlington County. The Verified Complaint named as defendants the Santos', Equity One, Popular Financial, and Commonwealth Title. The complaint pleaded claims of fraud, misrepresentation and breach of contract, and sought, among other things, to enjoin Popular Financial and Equity One from foreclosing on the $180,000 mortgage.

Equity One and Popular Financial answered the complaint and filed cross-claims against the Santos' demanding judgment on the unpaid balance of the mortgage. The Santos' failed to respond to the complaint, and plaintiff obtained a default judgment against them for $197,865.24, representing the principal and interest owed on the second mortgage. During the pendency of this litigation, plaintiff voluntarily dismissed his claims against Commonwealth Title.

Equity One and Popular Financial moved for summary judgment, contending that plaintiff had failed to comply with the Notice of Settlement Act by delaying the recording of his deed. They argued, accordingly, that the Act did not protect Natale from foreclosure on the second mortgage, which had been recorded two days before Natale's closing. The Chancery Division granted the summary judgment motion on July 13, 2004, interpreting the Act consistent with the arguments of defense counsel. Plaintiff appealed, raising in his brief the following arguments:

POINT I

THE MOTION JUDGE COMMITTED AN ERROR OF LAW SUBJECT TO THIS COURT'S PLENARY REVIEW IN CONCLUDING THAT DEFENDANT'S MORTGAGE ON THE PROPERTY WAS VALID, NOTWITHSTANDING ITS CONSTRUCTIVE NOTICE OF THE IMPENDING SALE AND PLAINTIFF'S STATUS AS THE EQUITABLE OWNER OF THE PROPERTY

POINT II

DEFENDANT EQUITY ONE'S MORTGAGE WAS VOID AB INITIO INSOFAR AS THE VENDORS OF THE PROPERTY DID NOT HAVE THE CAPACITY TO GRANT A MORTGAGE SUBSEQUENT TO THE EXECUTION OF THE AGREEMENT OF SALE

POINT III

THE MOTION JUDGE IMPROPERLY GRANTED DEFENDANT EQUITY ONE'S MOTION FOR SUMMARY JUDGMENT PRIOR TO THE COMPLETION OF DISCOVERY

We find none of these arguments persuasive and sustain the entry of summary judgment in favor of Equity One and Popular Financial.

II.

The Notice of Settlement Act, N.J.S.A. 46:16A-1 to -5, was enacted in 1979 as a means to address problems arising when liens on real property appear during the time interval between the closing of title and the recording of the deed or mortgage from that closing. See L. 1979, c. 406; see also Mezey v. United Jersey Bank, 254 N.J. Super. 19, 26 (App. Div. 1992). The legislative history of the Act consistently indicates that it was intended to protect prospective buyers or mortgagees from obtaining deficient title as a result of intervening liens imposed "between the 'closing of title' and the 'recording of the deed or mortgage.'" Senate Judiciary Committee, Statement on Senate Bill No. 3169 (Sept. 10, 1979)("September 10, 1979 Committee Statement") (emphasis added). As the Senate Committee specifically noted in an earlier statement on the bill:

[t]he purpose of this bill is to facilitate the sale and mortgaging of real estate . . . by barring the conveyance of specific land or the imposition of any State lien thereon for a limited period, except as to the parties named in the notice. This will prevent the attaching of intervening interests during the "gap" in time between the closing of title and the recording of the instruments from the closing.

[Senate Judiciary Committee, Statement on Senate Bill No. 3169 (April 23, 1979) (emphasis added).]

As envisioned by the Legislature, the filing of a notice of settlement was designed to "insulate a proposed conveyance or lien against intervening conveyances much in the manner of a 'Lis Pendens' or "Notice of suit'" for a specified period of time. September 10, 1979 Committee Statement, supra (emphasis added). Originally, the bill contemplated that this insulation period would be twenty days, but the final version of the Act extended the period to forty-five days. "If the closing instruments [were] not recorded within the stated period, the notice would be void and any lien filed during that time would attach immediately upon the expiration of that period in its legal priority." Ibid. (emphasis added).

As enacted, N.J.S.A. 46:16A-1 provides, in pertinent part:

Any party, or his legal representative, to a settlement which will convey legal or equitable title to real estate or any interest therein or create any lien thereon by way of a mortgage, may file an instrument to be designated a "notice of settlement" with the county recording officer of the county in which the real estate is situated.

[N.J.S.A. 46:16A-1.]

There is no doubt that plaintiff Natale complied with this particular requirement of the statute by filing a notice of settlement for the subject property on October 3, 2001. However, the statute goes on to qualify the protections that a prospective buyer or mortgagee obtains through the filing of such a notice of settlement.

In particular, Section 4 of the Act, N.J.S.A. 46:16A-4, states:

After the filing of a notice of settlement, any person claiming title to, an interest in or a lien upon the real estate described in the notice through any party in the notice, shall be deemed to have acquired said title, interest or lien with knowledge of the anticipated settlement and shall be subject to the terms, conditions and provisions of the deed or mortgage between the parties filed within the period provided by section 5 of this act.

[N.J.S.A. 46:16A-4 (emphasis added).]

This provision insulates a party who files a notice of settlement from intervening liens, but only if the deed or mortgage reflecting the conveyance is actually "filed within the period provided by Section 5 of [the] [A]ct." Ibid. Under Section 5, that applicable filing period for the deed or mortgage expires forty-five days from the date of the notice of settlement:

The notice of settlement shall be effective for 45 days from the date of filing. Any lien filed during said 45 days shall attach to the premises described in the notice immediately upon the expiration of the 45 days, provided the premises have not been conveyed and notwithstanding the filing of a subsequent notice of settlement.

[N.J.S.A. 46:16A-5.]

Plaintiff argues that it was unnecessary for him to have filed or recorded his deed to the subject premises within forty-five days of his notice of settlement dated October 3, 2001. He contends that the conveyance of the deed from the Santos' at the October 26, 2001 closing suffices under the Act. In support of this argument, plaintiff cites to general case law holding that the delivery of a deed completes the conveyance of real property. See Tobar Construction Co. v. R.C.P. Assoc., 292 N.J.Super. 409, 413 (App. Div. 1996). Plaintiff also points to the second sentence of Section 5 of the Act, which states that an intervening lien attaches immediately upon the expiration of the forty-five day period, if the premises have not yet been "conveyed."

Although we appreciate the difficult circumstances encountered by plaintiff here upon learning of the Santos' second mortgage two years after the closing, we cannot alter the plain and legislatively-intended meaning of the Act or excuse plaintiff's non-compliance with the statute. The terms of Section 4 clearly require that the deed or mortgage not merely be conveyed, but that the conveying instrument must be "filed" (or recorded) within the forty-five day statutory period. This interpretation is buttressed by the strongly-worded Senate Committee statements associated with the Act, which unambiguously refer to the discrete interval between the closing of title and the "recording" of the deed or mortgage. See also Mezey, supra, 254 N.J. Super. at 26 ("the articulated objective of the Act is to protect prospective buyers or mortgagees from acquiring deficient title because of the appearance of an intervening lien between the time the search is completed and the conveyance documents are recorded.") (emphasis added). Thus, plaintiff was obligated to file his deed to the property on or before November 17, 2001 in order to receive the benefits of the statute. His unexplained failure to do so within that prescribed time frame deprives him of the qualified protections created by the Act.

We do not regard the filing or recording of the deed as a purely ministerial act. If we were to adopt plaintiff's interpretation of the statute, in spite of its conflict with the Act's terms and legislative history, a purchaser or mortgagee could wait indefinitely before placing potential lienors on notice, through the public registry of deeds, that the transaction contemplated by the original notice of settlement had, in fact, been consummated. The statute obviates that possibility by insisting that the relevant title documents be recorded within the limited period of protection it affords following the notice of settlement.

We further observe that plaintiff obtained a default judgment against the Santos for the full sum owed on the second mortgage, and that plaintiff also voluntarily dismissed his claims against his title company. Nothing in our analysis of the Act should be construed to preclude relief against such other potentially responsible parties if the factual circumstances here are repeated in the future.

We do not address plaintiff's separate contention that the Santos' did not have the capacity to grant a second mortgage on the premises after executing the contract of sale, as this issue was not raised in the trial court. See Nieder v. Royal Indemn. Ins. Co., 62 N.J. 229, 234 (1973). We also regard plaintiff's third argument, contending that the Chancery Division deprived him of an adequate opportunity for discovery, as lacking sufficient merit to warrant further discussion. R. 2:11-3(e)(1)(E).

Affirmed.

 

Affiliated Title was not a party to the litigation.

The record does not reflect whether Natale or his title insurer, Commonwealth Land Title Insurance Company of New Jersey ("Commonwealth Title"), conducted any updated title search on the premises before the closing.

It is undisclosed whether plaintiff obtained any settlement from Commonwealth Title, either in the form of a monetary payment or a promise to indemnify Natale if he were unsuccessful in this litigation.

The legislative history indicates that the bill was amended before its passage to substitute the verb "filed" for "recorded." We regard the terms as synonymous.

(continued)

(continued)

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A-5865-04T2

May 19, 2006