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Phoenix Funding, Inc. v. Krute

October 10, 2008


On appeal from Superior Court of New Jersey, Chancery Division, Morris County, Docket No. C-46-07.

The opinion of the court was delivered by: Grall, J.A.D.



Argued September 9, 2008

Before Judges Skillman, Graves and Grall.

Plaintiff Phoenix Funding, Inc. owned a tax sale certificate that was redeemed by the property owner's heir, Reva Braun, after Phoenix filed a complaint to foreclose the right of redemption. Defendants Robert and Shartane Krute loaned Reva the money she used to avoid Phoenix's foreclosure by redeeming the certificate. Within three months of the redemption, the Krutes purchased the property from Reva. Phoenix filed a complaint for equitable relief alleging that defendants' indirect redemption of the tax sale certificate, without intervention in the action for foreclosure, violated the Tax Sale Law, N.J.S.A. 54:5-1 to-137. See Simon v. Cronecker, 189 N.J. 304, 335-38 (2007) (discussing the requirements imposed by N.J.S.A. 54:5-89.1, N.J.S.A. 54:5-98, and R. 4:64-6(b) and the remedy for violation).

Phoenix appeals from a final order denying its motion for summary judgment, granting defendants' cross motion and dismissing the complaint. Because the order is premised on the court's erroneous conclusion that defendants, as personal friends of Reva and her husband Kenneth Braun, were not required to intervene in the action, we reverse and remand for further proceedings consistent with this opinion.

Phoenix's tax sale certificate was for property owned by Robert M. Kline. The certificate was purchased in June 2002, and the complaint to foreclose Kline's right of redemption was filed on January 5, 2005. On November 18, 2005, while Phoenix's foreclosure action was still pending, Kline died.

Kline's sister, Reva, was the executor and sole beneficiary of Kline's will. The will was probated on December 2, 2005. On December 6, 2005, Robert Krute loaned Reva's husband Kenneth $19,478.84, interest free. On December 8, 2005, without intervening in the foreclosure action filed by Phoenix, Reva redeemed the tax sale certificate by paying the tax collector $19,484.84. On December 27, 2005, the tax collector mailed a check in the amount of $18,487.63 to Phoenix.

Within days of the redemption, the Brauns offered to sell the property to the Krutes. Robert Krute had shown interest in the property prior to the redemption. He first visited Kline's property in October 2005, after Phoenix filed the complaint for foreclosure. After that visit Krute retained a real estate attorney to check for judgments against Kline's property and ordered a "search for title insurance." Title to Kline's property was transferred from Reva, as executor of Kline's estate, to the Krutes by deed dated February 23, 2006. The Krutes paid $35,522 and waived repayment of the $19,478.84 loan.

In answers to interrogatories and certifications submitted on the motions for summary judgment, Robert Krute and the Brauns described their long-term friendship and the circumstances that led to defendants' acquisition of title to Kline's property. In 1986 Robert and Kenneth worked for the New York City Transit Police and were "patrol partners." Since that time, they and their families have been close. Over the years, Robert advised the Brauns and loaned them money.

In summer 2005, when Reva's brother told her that he had not been living in his home or paying his bills and asked her to help "straighten" things out, Kenneth sought Krute's advice. Krute told Kenneth to find out whether there were other liens or judgments against Kline's property before deciding whether to pay the taxes. By September, Reva obtained information about her brother's tax debt from the township.

In October, Krute visited Kline at his home. Although Kline had personal property in the house, he had been living elsewhere and the house was in disrepair. It was after that visit that Krute asked his real estate attorney to search for judgments and learned that there were liens in the total amount of approximately $16,000. At that point, Krute offered to loan the Brauns money to save Kline's property.

Krute also told Kline about the loan. According to Krute, Kline explained that he was considering accepting a friend's offer to purchase his property for $55,000. Krute suggested repairs and told Kline he would likely find a buyer who would pay more if the work was done. Krute promised Kline that he would buy the property for $55,000 himself if Kline lost his buyer. Krute then sought ...

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