7.3 The Closing Process: Recordation, Settlement Procedures & Home and New-Construction Warranties

When Ownership Actually Transfers

Two moments matter and they are not the same.

• Title passes when the deed is delivered by the grantor and accepted by the grantee. That is a private act between two people.
• Priority is secured when the deed is recorded. Under N.J.S.A. 46:26A-12, a recorded document is notice to all subsequent purchasers, mortgagees, and judgment creditors, and an unrecorded deed "shall be of no effect against subsequent bona fide purchasers and mortgagees for valuable consideration without notice" whose instrument is recorded first.

New Jersey is a race-notice jurisdiction: a later purchaser defeats an earlier one only by (a) paying value, (b) taking without notice of the earlier claim, and (c) recording first. All three conditions must be met. Notice can be actual (you were told), constructive (it was properly recorded), or inquiry (a visible occupant, a worn path, or a fence line that a reasonable person would have investigated).

Recording is performed by the county clerk or, in Essex and Hudson counties, the register of deeds and mortgages, in the county where the land lies. The clerk will not accept the deed without the Realty Transfer Fee and, where applicable, the Affidavit of Consideration.

---

The New Jersey Settlement

New Jersey is an attorney state by custom, and settlement is usually conducted by the title company as settlement agent under attorney supervision. Buyer and seller frequently never meet — separate rooms, separate days, or a mail-away closing are all routine.

Sequence of a residential closing

1. Final walk-through — normally within 24 hours of closing. The buyer verifies condition, agreed repairs, and that included fixtures and personalty remain. The walk-through is not a new inspection contingency; it verifies the property is in the condition the contract requires.
2. Municipal deliverables — the seller obtains the certificate of occupancy or continued occupancy where the municipality requires one, plus smoke detector, carbon monoxide alarm, and fire extinguisher certification, which in New Jersey is mandatory for a residential resale.
3. Settlement statement review — the settlement agent reconciles debits and credits.
4. Signing and funding — the seller signs the deed and affidavit of title; the buyer signs the note, mortgage, and disclosures; funds are wired.
5. Disbursement and recording — the settlement agent pays off existing liens, disburses proceeds, and records the deed and mortgage.

Who Is at the Table

The Settlement Statement

Debits and credits fall into predictable patterns. The seller is debited for the payoff, the Realty Transfer Fee, the Graduated Percent Fee where consideration exceeds $1,000,000, brokerage commission, and their share of prorated items already paid by the buyer. The buyer is debited for the balance of the purchase price, loan costs, title premiums, recording fees, and prepaid escrows. Prorations of property taxes, municipal utilities, and any rents follow the contract's convention; the mechanics are worked in Chapter 9.

---

TRID: The Three-Business-Day Closing Disclosure Rule

For most closed-end consumer mortgages, the TILA-RESPA Integrated Disclosure rule controls timing:

• The Loan Estimate must be delivered or placed in the mail within three business days of a completed application, and no later than seven business days before consummation.
• The Closing Disclosure must be received by the borrower at least three business days before consummation. Mailed disclosures are presumed received three business days after mailing.

Only three changes retrigger a new three-day waiting period:

1. The APR becomes inaccurate (more than 1/8 of 1% on a fixed-rate loan, 1/4 of 1% on an irregular loan);
2. The loan product changes (for example, fixed to adjustable); or
3. A prepayment penalty is added.

Everything else — a last-minute seller credit, a repair adjustment, a corrected commission split — is handled with a revised Closing Disclosure at or before consummation and does not reset the clock. Brokers who understand this stop panicking clients unnecessarily and stop promising closings that cannot legally occur.

---

Home Warranties and New-Construction Warranties

Resale Home Warranty Contracts

A home warranty on a resale is a private service contract covering mechanical breakdown of systems and appliances for a term, usually one year, subject to a service call fee. It is not insurance against title or structural defects. Under N.J.A.C. 11:5-6.1(l), a New Jersey licensee who advertises a warranty must state whether coverage depends on inspection or non-inspection of the premises, whether the warranty is mandatory, and who pays for it — and may not advertise a warranty that is not actually available for the property being advertised.

The New Home Warranty and Builders' Registration Act

New construction is governed by statute. Under the New Home Warranty and Builders' Registration Act, N.J.S.A. 46:3B-1 et seq., administered by the Department of Community Affairs (DCA):

• Registration is mandatory. Any individual or organization in the business of constructing new homes — single-family, townhouse, duplex, condominium, cooperative, or modular — must register with the DCA before beginning construction and before offering a warranty. Registration certificates run two years and are renewable. A person building solely for their own use is not covered.
• Warranty enrollment is mandatory. The builder enrolls each home either in the State Plan, funded through the New Home Warranty Security Fund, or in a DCA-approved private plan offering equivalent coverage.

The three warranty tiers

Claims under the State Plan proceed through a defined path: the homeowner notifies the builder, the builder is given an opportunity to repair, and unresolved disputes move to conciliation and then to binding arbitration, with the Fund standing behind a builder who refuses to comply and the DCA able to suspend or revoke the builder's registration.

Broker exam point: New-construction buyers in New Jersey receive three distinct protections that resale buyers do not — the statutory tiered warranty, the New Residential Construction Off-Site Conditions Disclosure Act notice with its five-business-day cancellation right, and, where the project is a planned real estate development, the PREDFDA public offering statement with its seven-day rescission period. Confusing the three cancellation windows is a predictable exam trap.