Bulletin: NJ000050

Dear Associates:

On August 14, 2000, Governor Whitman signed into law N.J.S.A. 2A:17-56.23b, which law is intended to aid in the collection of child support judgments. The new law creates a "lien", in favor of the beneficiary of child support judgment, on "the net proceeds of any settlement negotiated prior or subsequent to the filing of a lawsuit, civil judgment, civil arbitration award, inheritance or worker's compensation award".

"Net proceeds," as defined in the Act means any amount of money in excess of $2,000.00 payable to the prevailing party (i.e. judgment creditor).

For purposes of this Statute, the term "agent" is defined as an authorized representative of the prevailing party or beneficiary, a union representative, an executor or administrator of a decedent's estate, an arbitrator or any other person or entity if such person or entity is responsible for the distribution of net proceeds to a prevailing party or beneficiary.

The Act requires that before distributing any net proceeds of a judgment, the judgment creditor must provide: his/her full name, address, date of birth and Social Security number to the "agent". The "agent" must then obtain a certification from a judgment search company (i.e. Charles Jones) identifying whether or not the judgment creditor is a child support judgment debtor. If so, and the net proceeds due to him/her exceed $2,000.00, then any amounts due under the child support judgment must be satisfied prior to paying the judgment creditor.

It is not clear that a title agency, which is seeking a release or warrant to satisfy a judgment in order to clear title, relative to a title settlement, is an "agent" as contemplated by this new law.

Standard underwriting practice requires that a release or warrant be obtained for all judgment liens affecting the insured property at or prior to settlement. A judgment creditor may be reluctant to execute this voluntary release without receiving the full amount of the judgment lien.

One possible resolution may be to require a warrant to satisfy the judgment executed by the attorney of record in the law suit who represents the judgment creditor and pay the funds into the attorney's trust account for proper distribution under the statute.

In other transactions, it may be prudent to follow the statute, by conducting the child support search required by the statute. In the event the judgment creditor is a child support debtor, request the judgment creditor to voluntarily consent to the disbursement to the probation department of all or a portion of the proceeds and the execution of the release of judgment of the insured property.

In any event, until further clarification of the statute can be obtained, either by judicial determination or amendatory legislation, you need to keep the new law in mind when paying off judgments of more than $2,000.00 held by individual judgment creditors.

When such cases do arise please call our office for underwriting assistance.

A copy of the statute is available through the New Jersey District Office.