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NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE APPELLATE DIVISION
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, ...