Discharge of Mortgage by Affidavit
N.J.S.A. 46:18-11.5 et seq. (P.L. 1999, c.40)

I. Overview. The Legislature has enacted P.L. 1999, c.40, eff. ca. June 10, 1999, which provides for the discharge of certain mortgages by affidavit. The law, which will most likely be codified at N.J.S.A. 46:18-11.5 et seq., is intended to assist homeowners, attorneys and title companies by providing a relatively simple and expeditious means of removing mortgages from the record where the lender has failed to cause the same to be cancelled or discharged in a timely fashion. Originally introduced at the request of the New Jersey Land Title Association, ["NJLTA"], the final version of the Act represents a collaborative effort by the title insurance and lending communities. In addition, the bill also enjoyed the support of the New Jersey State Bar Association.

Some have suggested that the procedures outlined below may be abused by unscrupulous or dishonest persons. However, a party seeking to defraud others may currently do so simply by fabricating and recording a "discharge" with a forged execution and acknowledgment. In contrast, the statutory requirement of an affidavit (discussed below) should serve as a deterrent to such conduct, because an attorney or licensed title insurance producer is unlikely to put his or her license at risk by knowingly filing a false affidavit in violation of NJSA 41:3-1.

II. Operation and Effect. The Act permits an attorney-at-law or licensed title insurance producer who has caused a "residential mortgage" (as explained in Point IV below) to be paid to secure its discharge by submitting a detailed affidavit which sets forth the steps taken to obtain a discharge from the lender. Specifically, the person signing the affidavit (the form of which is set forth in §3a of the Act [N.J.S.A. 46:18-11.7a] must aver as follows:

1. payment was made to lender in accordance with a current, written pay-off letter, as defined in §1 of the Act’;
2. the affiant knows that the lender received the payment;
3. a notice was sent to the lender by certified mail at least 30 days after payment was received, advising it of the affiant’s intention to cause the mortgage to be discharged by affidavit;
4. a second notice was sent to lender at least 30 days after the first notice was received; and
5. at least 15 days have elapsed since the lender received the second notice.

The affidavit is to be attached to a discharge prepared by the affiant, and then recorded. [Sample forms are attached as Exhibits A, B, C & D.] Section 3b of the Act [N.J.S.A. 46:18-11.7b] appoints the affiant as the lender’s agent or attorney in-fact for the purpose of executing the discharge. Upon receipt of the discharge and affidavit, the county clerk or register is directed to record the same in an appropriate book and to cause the marginal notation "Discharge Recorded in Book ______, Page _______ to be made on the recorded mortgage.

Note that the Act is intended to supplement, rather than supersede, the existing statutory scheme regarding mortgage cancellations. Existing sections N.J.S.A. 46:18-11.2 et seq. have not been repealed by the Act. (In fact, the affidavit specifically refers to that statute.) Thus, a mortgagee is still required to cause a mortgage to be canceled in a timely fashion after receiving payment, and may be responsible for fines and attorneys’ fees if it fails to do so. Furthermore, an action may still be commenced under N.J.S.A. 2A:51-1 et seq. to secure a cancellation by court order.

III. Discharge by Servicer; Unrecorded Assignments. Section 2a of the Act [N.J.S.A. 46:18-11.6a] permits a servicer who receives a mortgage pay-off to execute a discharge, release, subordination or postponement on behalf of the actual owner of the mortgage, provided that the discharge contains the following recital:

________________________________is authorized to execute this instrument pur- suant to the terms of a written agreement dated _____________________________ (date the mortgage is being paid, and which contains a statement of all the sums due to satisfy the mortgage debt …...." [etc.].) between __________________________________________________________,,, a owner or holder of the mortgage,and ______________________, _______________________________________________as servicer thereof.

Section 2b of the Act [N.J.S.A. 46:18-11.6b] deals with the problem of unrecorded assignments, by allowing an assignee to execute a discharge, release, subordination or postponement where there is a break in the chain of recorded assignments. The discharge, etc., must contain a recital setting forth the particulars of all assignments, whether or not recorded. However, this provision does not apply if the party executing the discharge claims to hold the mortgage by an unrecorded assignment; it may only be used if a prior assignment is unrecorded.

IV. Scope of the Act. It is important to bear in mind that the legislation only applies to "residential mortgages", as defined by §1 of the Act [N.J.S.A. 46:18-11.5.]; i.e., those in which the loan is secured by a lien upon a one-to-four family dwelling (including a condominium unit) which is or was occupied by the mortgagor (or a member of his or her immediate family) as a residence. While this definition is arguably broad enough to include certain mortgages on residential property given as collateral for business loans, it clearly excludes most commercial loans. Furthermore, a mortgage placed upon a co-operative unit is apparently excluded.

As noted in Point I above, the Act becomes effective on or about June 10, 1999. However, it applies to all mortgages --which meet the definition set forth in the preceding paragraph --"whenever made". Thus, a mortgage recorded prior to the effective date of the Act may still be discharged using the procedures set forth in §§ 2 and 3 thereof [N.J.S.A. 46:18-11.6 & -11.7]. In the latter case, it is unclear what steps outlined in the statutory affidavit may be taken prior to the effective date of the Act. However, a reasonable interpretation suggests that one may perform all tasks necessary to secure the discharge prior to June 10, provided that the discharge and affidavit are not prepared and submitted for recording until after that date.

V. Underwriting Practices. A mortgage which has been discharged under the provisions of §2 or §3 of the Act [N.J.S.A. 46:18-11.6’ or 11.7] should be treated in the same fashion as any other mortgage which has been discharged. In other words, if it appears from the record that the statutory procedures have been complied with, and the examiner has no other reason to believe that the discharge should not be relied upon, the mortgage may be omitted as an exception to title.

As noted in Point II above, the Act does not repeal or supersede the existing statutory scheme. Every effort should therefore be made to compel lenders to comply with N.J.S.A. 46:18-11.2 et seq. The discharge-by-affidavit procedure should be reserved for those cases where it appears that the lender will simply not obey its statutory duty.

Furthermore, the Act does not apply to commercial mortgages (as discussed in Point IV above). Nor may it be used where the person seeking the discharge cannot otherwise meet the criteria set forth in the statutory affidavit. Thus, it will still be necessary on occasion to commence actions under N.J.S.A. 2A:51-1 et seq. to secure discharges by court order.

The following summary of the discharge-by-affidavit procedure may prove helpful:

1. Obtain current pay-off letter and pay all sums due to the lender under the pay-off letter.
2. Obtain advice from bank that the lender received and deposited the check or that the wire transfer was credited to its account.
3. After at least 30 days have passed from the date the lender received the pay-off, send the first notice" to lender by certified mail, return receipt requested.
4. When [another] 30 days have passed from the date the lender received the ‘first notice", send the "second notice" to the lender by certified mail.
5. Once [another] 15 days have passed from the date the lender received the ‘second notice", prepare statutory affidavit and discharge and send the same to the County Clerk or Register for recording.

Click the links below to view the following:

Example of First Notice to Holder of Mortgage || Example of Second Notice to Holder of Mortgage
Example Affidavit of Payment to Discharge Mortgage || Example of Discharge of Mortgage by Affidavit of Payment