COVID-19 has significantly impacted real estate transactions in New Hampshire, with registry of deeds closures, financing delays, and challenges with notarizing documents. Due to the focus on social distancing and avoiding gatherings, many registries of reeds in New Hampshire have closed public access and allow only electronic recording. In addition, notarization of deeds, which is required, is difficult despite the emergency order, discussed below, providing for remote online notarization.
How do these challenges and limitations affect closing real estate transactions? Conveying title in New Hampshire is effective upon the proper execution and delivery of the deed to the grantee (the buyer). While a deed does not have to be recorded at the registry of deeds in order to be effective, failure to do so places the grantee at risk that the property could be conveyed to a third party because mere delivery of the deed does not put the public on notice of the conveyance. If that were to occur, the third party may have paramount claim to title so long as the third party was unaware of the prior unrecorded conveyance.
To address a delay in the recording of the deed, title companies developed what is known as a “gap closing.” In a gap closing, the transaction closes, the deed is delivered, and the buyer’s and lender’s (if a loan is involved) funds are released to be disbursed as agreed by the parties. This occurs despite a delay in recording the deed because a title insurance company has committed to issue title insurance to protect against intervening liens or defects that may arise between “delivery” and “recording.” The title company will assume this risk because the seller enters an agreement with the title company to indemnify the title company for any “intervening liens or encumbrances.” A seller unwilling to perform under a “gap closing” will incur delay in receipt of funds until the deed is recorded. Sellers not willing to wait for the sale proceeds will agree to a “gap closing.”
Since most New Hampshire closings are completed on the same day on which the deed is delivered, “gap closings” are not as common as in other states. And because most purchase and sale agreements require “acceptance and recording” of the deed, the parties agree that the funds required to close remain in escrow until title is confirmed to be free and clear of all intervening liens and encumbrances of record since the date that the title was searched. This common practice in New Hampshire typically avoids “gap closings.”
With the impact of COVID-19 on the Registries of Deed, delay in recording is inevitable. We should anticipate “gap closings” to become the temporary new normal.
With regard to notarial acts, on March 23, 2020, New Hampshire Governor, Christopher T. Sununu, issued Emergency Order #11 providing temporary (for the duration of the state of emergency) authority to perform secure, remote online notarization. See https://www.governor.nh.gov/news-media/emergency-orders/. While this order provides a temporary alternative to notarizing documents in person, it should be used as a last resort in real estate practice, since some lenders and title insurance companies are reluctant to accept documents that have been electronically notarized.