In New Jersey, the status of title and real estate liens is officially established by the recording of documents in the County Clerk’s Office. For example, a home purchaser will record her deed, meaning that the deed is submitted with the required fee to the Clerk’s Office, which then places a copy of the deed within the real property record books for that county. The original deed is then returned to the purchaser.
A mortgage lender will require that a borrower provide a title search prior to the loan closing. The title search should reflect the complete state of title to the property, including the owner’s deed, all liens and any restrictions on the property.
Conflict can arise when two or more real estate documents are submitted for recording around the same time. What is to prevent a property owner from taking out two mortgages on consecutive days, without the lenders knowing of each other? Or what if the County Clerk is experiencing delays in the recording of such documents?
New Jersey law permits the recording of a document called a notice of settlement to tell the world that an owner is about to sell or mortgage their property. Lenders will require borrowers (usually through their title companies) to file a notice of settlement prior to the loan closing. The notice of settlement will include the name and address of the borrower, an identification of the property and the name and address of the lender.
Thus, if a notice of settlement for Lender A is recorded on June 1, from that date forward, Lender B is considered to have notice of the borrower’s intention to take a loan from Lender A. The recording of the notice of settlement helps to establish priority of recorded documents and to advise interested parties of ongoing transactions with respect to a particular property.
A notice of settlement is effective for a period of 45 days from date of recording, which means that the deed or mortgage mentioned in the notice of settlement must be recorded during that time period in order to enjoy the protection of this procedure.