June 18, 2010
INVESTORS SAVINGS BANK, INC., PLAINTIFF-RESPONDENT,
GLORIA SITZMAN, AS ADMINISTRATOR OF THE ESTATE OF PETER SITZMAN; GLORIA SITZMAN, INDIVIDUALLY; STEVEN SITZMAN, AS ADMINISTRATOR OF THE ESTATE OF PETER SITZMAN; AND STEVEN SITZMAN, INDIVIDUALLY, DEFENDANTS-APPELLANTS.
On appeal from the Superior Court of New Jersey, Chancery Division, Probate Part, Sussex County, Docket No. F-4225-08.
NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
Submitted March 23, 2010
Before Judges Grall and Messano.
Peter Sitzman died intestate on July 19, 2007, while owning and residing in a home located at 62 Conestoga Trail, Sparta (the property). He purchased the property in 2004 after securing a purchase money mortgage from Princeton Mortgage Corporation, which in turn assigned the mortgage to plaintiff Investors Savings Bank. Defendants, Gloria and Steven Sitzman, Peter's parents, were appointed co-administrators of his estate.*fn1
In January 2008, with the mortgage loan having gone into default, plaintiff filed a foreclosure action. Defendants answered and counterclaimed, seeking, among other things, declaratory relief permitting them to sell the property.
Defendants also alleged that the estate was insolvent and sought an order determining the reasonable funeral costs and other costs of administration, as well as an order permitting them to make these payments prior to any payment to plaintiff.
Defendants also asserted a cross-claim against GMAC Mortgage LLC, the second mortgagee on the property, and the State of New Jersey seeking the same relief. The foreclosure action was deemed "contested" by the Foreclosure Unit as a result. While the foreclosure action was pending, defendants listed the property for sale, and secured an offer and proposed contract from Thomas Schneider in the amount of $210,000.
Defendants also commenced a probate action by way of verified complaint and order to show cause seeking to declare the estate insolvent, to approve the contract for sale, and to consolidate the two actions.*fn2
Plaintiff moved for summary judgment in the foreclosure action on July 16, 2008, returnable August 15. Plaintiff alleged that as of the date of its motion, the balance due on its mortgage was $262,149.45. It contended that defendants lacked "any basis in law or equity . . . to halt [its] foreclosure to allow for a private short sale of the collateral so they can claim the proceeds as assets of the Estate . . . and pay themselves off the top . . . ." It further noted that the proposed sale would leave "insufficient funds to satisfy the delinquent [m]ortgage."
Defendants cross-moved for summary judgment and sought consolidation of the foreclosure action with the probate litigation. They argued that if Peter's estate was insolvent, N.J.S.A. 3B:22-2 established a priority scheme for payments to all outstanding creditors, and, pursuant to that statute, "the costs and expenses of administration are paid and given priority over all other claims except for reasonable funeral expenses and medical expenses, including the claims of [plaintiff]" as foreclosing mortgagee.
During oral argument on the motions, the judge noted that Peter maintained only "an equitable interest in th[e] property[,]" subject to plaintiff's secured mortgage lien. She further observed that "a foreclosure action is an in rem action on the property." The judge concluded that the priority scheme established by N.J.S.A. 3B:22-2, which did not differentiate between secured and unsecured creditors of an insolvent estate, did not apply because the property was not an asset of the estate. She reasoned:
We disagree on what the asset is. The asset is not the entire property. The asset . . . according to the structure of a secured creditor in a purchase money mortgage . . . is that amount of money which is the equity in the property of the title holder. It is not the entire property.
. . . The only asset to this estate that is then distributed to creditors, secured or unsecured is that portion of the proceeds, be it sold, that don't go to paying the mortgage.
The judge granted plaintiff summary judgment, and this appeal ensued.*fn3 Defendants contend that the motion judge "misconstrued the nature and character of decedent's interest in the property," and they reiterate before us the argument raised below that the order of payments to be made from an insolvent estate is governed by N.J.S.A. 3B:22-2. We have considered these contentions in light of the record and applicable legal standards. We affirm for reasons other than those expressed by the motion judge. See El-Sioufi v. St. Peter's Univ. Hosp., 382 N.J. Super. 145, 169 (App. Div. 2005).
N.J.S.A. 3B:22-2 provides:
If the applicable assets of the estate are insufficient to pay all claims in full, the personal representative shall make payment in the following order:
a. Reasonable funeral expenses;
b. Costs and expenses of administration;
c. Debts for the reasonable value of services rendered to the decedent by the Office of the Public Guardian for Elderly Adults;
d. Debts and taxes with preference under federal law or the laws of this State;
e. Reasonable medical and hospital expenses of the last illness of the decedent, including compensation of persons attending him;
f. Judgments entered against the decedent according to the priorities of their entries respectively;
g. All other claims.
No preference shall be given in the payment of any claim over any other claim of the same class, and a claim due and payable shall not be entitled to a preference over claims not due. The commencement of an action against the personal representative for the recovery of a debt or claim or the entry of a judgment thereon against the personal representative shall not entitle such debt or claim to preference over others of the same class.
Succinctly stated, defendants argue that since Peter's estate is insolvent, the statute provides that the costs of reasonable funeral expenses and administration are entitled to priority payments before any payment is made to satisfy other debts, including plaintiff's mortgage.
While we agree with the motion judge's conclusion, we reach that result based upon another specific provision of the Probate Code. Defendants have failed to cite this provision in their brief, and it was not specifically referenced by the motion judge in rendering her decision on plaintiff's summary judgment motion.
N.J.S.A. 3B:25-1 provides in pertinent part:
When property subject to a mortgage or security interest descends to an heir or passes to a devisee, the heir or devisee shall not be entitled to have the mortgage or security interest discharged out of any other property of the ancestor or testator, but the property so descending or passing to the person shall be primarily liable for the mortgage or secured debt, unless the will of the testator shall direct that the mortgage or security interest be otherwise paid. A general direction in the will to pay debts shall not be deemed a direction to pay the mortgage or security interest.
This provision, along with N.J.S.A. 3B:22-2, was enacted by the Legislature when it comprehensively revised the Probate Code, Pub. L. 1981 c. 405 (effective May 1, 1982), and subsequently both provisions were amended together when the Legislature made further revisions. Pub. L. 2004, c. 132 (effective February 27, 2005).*fn4
Interpreting N.J.S.A. 3B:25-1 before its most recent amendment, but when the operative language we emphasized above was already part of the statutory scheme, we noted,
According to N.J.S.A. 3B:25-1, when an heir or devisee takes property that is subject to a mortgage or security interest, that heir or devisee is not entitled to have the encumbrance discharged out of the ancestor or testator's estate. Instead, under N.J.S.A. 2A:50-2, it is the property that is primarily liable for the mortgage or secured debt, unless, as stated in N.J.S.A. 3B:25-1, the will of the testator expressly or impliedly directs payment of such debt.
[Matter of Estate of Zahn, 305 N.J. Super. 260, 267 (App. Div. 1997).]*fn5
Although it is unclear from the record whether defendants are Peter's sole heirs, that ambiguity does not matter since "the common law . . ., after adoption of N.J.S.A. 3B:25-1, only recognizes exoneration for widows claiming their right to dower without mortgage encumbrances." Ibid.*fn6
Thus, it is clear that the legislative scheme intends to insure that whether an estate is insolvent or not, payment of the mortgage debt on real property is to be satisfied primarily from the property itself, not from the assets of the estate. The mortgage can be exonerated and discharged from the assets of the estate only if the testator clearly directs that the debt be paid in some other manner. Thus, under the facts presented, defendants cannot invoke the provisions of N.J.S.A. 3B:22-2 to defeat plaintiff's foreclosure action.