Opinion
291376.
Decided September 30, 2005.
Pollack Kotler, Esqs., 250 Old Country Road, Suite 505 Mineola, NY 11501, (Attorneys for Administrator).
Stock Carr, Esqs. 88 Second Street, Mineola, NY 11501, (Attorneys for Will Proponent and Judgment Creditor of John Krolick).
Howard E. Sayetta, Esq. 235 Southwood Circle, Syosset, NY 11791, (Guardian Ad Litem).
Miller, Rosado Algios, LLP, 200 Old Country Road, Suite 590, Mineola, NY 11501, (Attorney for Title Company/Stake Holder).
The instant motion presents issues regarding the scope and priority of a judgment lien on real property that is subject to the administration of a decedent's estate. The issue before the court is whether the judgment creditor of a distributee has an indefeasible claim to the proceeds of sale of the decedent's real property by virtue of the judgment lien that attached to the property even though the distributee, who took his interest in the property as a tenant in common, was found to have taken more than his distributive share of the estate before the judgment was entered.
Although called a motion to modify a decree under CPLR 5015(a), this application is in the nature of a defensive interpleader pursuant to CPLR 1006. Because all the parties have voluntarily submitted to the court's jurisdiction, the court will overlook any procedural defects and entertain the motion on its substance. The movants are non-parties, Commonwealth Land Title Company ("Commonwealth") and American Land Services ("American Land"), the title and abstract companies which retained in escrow a portion of the sales proceeds when the administrator sold the decedent's house. The escrow was required by the title companies because there was a judgment lien on the property. The lien arose from a judgment obtained and recorded by an attorney (hereafter "judgment creditor") based upon a fee for legal services owed by the proponent of a Will that was denied probate. The unsuccessful proponent, now judgment debtor, is also one of two distributees of the estate.
Laura Krolick died a resident of Nassau County on November 24, 1993. She was survived by two sons, John Krolick and Theodore Krolick. A probate proceeding was commenced by John on January 22, 1996, seeking to probate an instrument said to be the Will of his mother. The probate proceeding was hotly contested by Theodore. He alleged that his mother did not possess the requisite testamentary capacity and that John exercised undue influence over her. A jury trial was held over the course of seven days (March 24, 25, 26, 29, 30, 31 and April 5, 1999). The jury returned a verdict on April 5, 1999, which denied probate and made findings of fact that John exercised undue influence over his mother and that she was not competent to execute a Will.
Theodore Krolick next commenced an administration proceeding to obtain letters of administration for his mother's estate. Letters were issued to Theodore on August 20, 1999. In the meantime, once the Will was denied probate, John Krolick disappeared without paying his attorney. It was later determined that by the time of his disappearance John had transferred to himself a sum that represented more than his entire distributive share. John's attorney commenced an action against John Krolick in Supreme Court, Nassau County, to recover his fees and obtained a default judgment against John on October 27, 2000, in the amount of $25,472.59. Thereupon, the attorney judgment creditor commenced a compulsory accounting proceeding against Theodore, in his capacity as administrator of Laura's estate, in an effort to collect his fees. On February 7, 2002, this court rendered a decision that dismissed the compulsory accounting proceeding because it concluded that the judgment creditor of a distributee did not have standing to compel the accounting of the administrator of John's mother's estate, citing Matter of Lainez ( 55 NY2d 657, aff'g 79 AD2d 78).
On July 5, 2001, Theodore Krolick sold the house that belonged to his mother in order to satisfy outstanding administration expenses. The moving parties, Commonwealth and American Land, are the companies that agreed to insure title at the closing, agreeing to do so and omit the judgment as an exception to its coverage only if the administrator established an escrow deposit in the amount of $57,684.18. The administrator complied with this request and deposited $57,684.18 with Commonwealth and American Land.
The next step in this estate's administration was the voluntary accounting commenced by Theodore Krolick. On September 5, 2002, Theodore Krolick filed a voluntary petition to settle his account directing a request for a specific determination that John Krolick had no interest in the estate asserting that he had improperly appropriated to himself estate assets both during his mother's lifetime and after her death (but before the Will was denied probate) and that the amount taken exceeded his distributive share of the estate. Jurisdiction was obtained over John by publication and a guardian ad litem was appointed to represent his interests. The guardian ad litem thereafter submitted his report recommending against filing objections to the petition. The guardian ad litem concluded that John would have no defense to the charges that he improperly took more than his share of the estate's assets before the purported Will was denied probate on April 5, 1999. On December 11, 2003, this court issued its decision approving the recommendation of the guardian ad litem and holding that John Krolick had no interest in his mother's estate.
Commonwealth and American Land, not being parties to the accounting proceeding, brought the instant motion seeking an order pursuant to SCPA 601 and CPLR 5015(a) modifying this court's decree dated January 27, 2004, to declare and make explicit that John Krolick had no interest in the house at the time of the sale in 2001.
The issue requires the court to weigh two valid but competing interests, the judgment lien that attaches to any judgment debtor's interest in real property under CPLR 5201 and the power of the Surrogate to supervise the administration of a decedent's estate and to declare a distributee's interest satisfied or vacated by virtue of his wrongful conduct. As the title report showed, at the date of the closing, John Krolick held title as a tenant in common in the decedent's house with his brother. Therefore, the judgment lien attached as a matter of law to the property pursuant to CPLR 5201. The issue here is whether John's wrongful acts prior to the date of the judgment has the effect of extinguishing his share of the estate, and therefore, precluding any claim on his part or the part of his creditors to any rights in the real property which formed part of the decedent's estate.
It is the judgment creditor's position that a judgment lien attached to the decedent's house once he obtained his default judgment against John Krolick since, as a distributee, John succeeded to an interest in the property as a tenant in common. The judgment creditor argues that the court's vacatur of John Krolick's interest in the estate (in its December 11, 2003, decision and order) did not divest John of his tenancy in common in the decedent's house when the judgment was entered against him in 2000 or when the house was sold in 2001.
As noted, this case involves the interplay of the rights of creditors and the right and duties of the administrator of a decedent's estate. The amount in escrow, $57,684.18, is subject to three possible recipients: the judgment creditor in the amount of $25,472.59 plus interest; Pollock Kotler, in the amount of $38,000.00 in attorney's fees for services rendered during the administration of the estate and previously approved by the court; and, finally, to Theodore Krolick as his distributive share.
When a tenancy in common arises from intestate succession, that property interest possessed by the distributee/tenant in common is subordinate to the demands of the administration of the decedent's estate ( see EPTL 11-1.1 [the fiduciary's power of sale] and EPTL 13-1.3 [assets chargeable with payment of estate obligations; order in which assets appropriated]). For example, if Laura Krolick died owing more than she owned, then her creditors, and not her distributees' creditors, have first priority on her assets, regardless of any debt of the distributee or any judgment obtained against a distributee who ostensibly became an owner of the decedent's real property at the time of death by operation of law (SCPA 1811). It is for this reason that an administrator is given the power, indeed has the duty, to liquidate estate assets in order to satisfy debts of the decedent and administration expenses of the estate, even if this acts to the detriment of tenants in common who are specific devisees or intestate distributees of the estate (EPTL 13-1.3(a)(1) and (c)(4), 11-1.1(b)(5)(B), SCPA 1902, 4 Warren's Heaton on Surrogate's Court Practice § 68.01 [6th ed. 2005], Matter of Maron, 49 AD2d 244). In fact, the reasonable administration expenses of a decedent's estate take priority even over the decedent's debts (SCPA 1811) to promote the efficient administration of estates. Therefore, even if John Krolick had any right to the proceeds of the sale of his mother's house, that right, and by extension the right of his judgment creditor, would be subordinate to the administration expenses of his mother's estate.
Based upon the foregoing, it is clear that the assets of the decedent must first satisfy the administration expenses of the decedent's estate before they can be used to satisfy the interests of the distributees or their creditors. The $38,000.00 owed to Pollock Kotler must be satisfied out of first moneys from the escrow as there is nothing else to satisfy the debt.
The next issue is entitlement to the excess of the proceeds of the sale, $19,684.18. This raises the question of the qualified nature of the tenancy in common under circumstances that demonstrate that the tenant has taken more in other assets from the estate than his distributive share.
($57,684.18-$38,000.00 = $19,684.18).
The court has already made a finding that John Krolick improperly took a sum of money from his mother and her estate that exceeded his distributive share. John Krolick's defalcations against the estate ended when the Will was denied probate and he disappeared with his ill-gotten gains. This improper taking, which preceded the judgment obtained by the judgment creditor has an impact on the tenancy in common created by the mother's death. Parenthetically, the court would like to note that the relationship of tenants in common who hold their estate through descent or under a will is a quasi-trust relationship ( Goergen v. Maar, 2 AD2d 276 (3rd Dep't [1956]). Each tenant in common is bound not to make any assault, direct or indirect, upon the interest of the other co-tenant ( Fleischer v. Terker, 259 NY 60). John Krolick certainly violated this obligation to his brother as a co-tenant prior to incurring any obligation to the judgment creditor. Indeed, the record reflects that one of Theodore Krolick's first acts as an administrator was to settle a mortgage foreclosure action commenced against the property based on a mortgage obtained by John when he represented himself to the mortgagee as the sole owner of the house. Moreover, John has been held to have violated his fiduciary obligations to the estate in several other ways, all of which add up to his taking more than his distributive of the estate. As noted, in the voluntary accounting proceeding, the guardian ad litem conducted an exhaustive investigation and concluded that John would have no defense to the charges made against him in the accounting petition and acquiesced in the prayer in the petition that John's interest in the estate be declared null and void at least as of the date the Will was denied probate.
It is clear that a judgment for the debt of any one tenant in common is enforceable against the property, but only up to the tenant's interest in the property (CPLR 5201(b), Viggiano v. Viggiano, 136 AD2d 630, Ptaszynski v. Flack, 263 AD 831). As a rule, title to real property vests in the distributee at the moment of the decedent's death, and a judgment against that distributee creates a lien on said real property under CPLR 5201. However, a lien cannot be elevated to a position superior to that of the judgment debtor at time it was entered ( Di Santo v. Wellcraft Marine Corp., 149 AD2d 560). For example, the fact that an estate beneficiary is a judgment debtor should not impede a sale of estate property for the payment of all the beneficiaries. In Matter of Freund ( 162 Misc 2d 965) the executor sought a judicially ordered sale of estate real property pursuant to SCPA 1902 in order to pay estate expenses and to effect distribution of the respective shares of the estate, free and clear of the liens of judgment creditors against a bankrupt residuary beneficiary. The court, in ordering the sale, held that the very purpose and intent of SCPA article 19 would be frustrated to the detriment of innocent parties if the Surrogate could not order the sale free and clear of judgment liens against an estate beneficiary, reasoning that any interest the debtor retained in the property after the payment of administration expenses and other estate obligations would be available to satisfy the debtor's obligations.
By the time his judgment creditor obtained his judgment against John Krolick, the estate had already been looted by John in an amount in excess of his distributive share. In New York, in the absence of fraud, a judgment takes effect only on the actual interest in land that the judgment debtor had, at the time of the recovery of the judgment ( Trenton Banking Co. v. Duncan, 86 NY 221, Beman v. Douglas, 1 A.D. 169). Therefore, although the judgment creditor had a lien on the property, it is equally clear that the lien could only be effective against an interest in the property possessed by the judgment debtor ( Trenton Banking Co. v. Duncan, 86 NY 221, Beman v. Douglas, 1 AD 169, Viggiano v. Viggiano, 136 AD2d 630, Ptaszynski v. Flack, 263 AD 831. There is no conceptual distinction between real and personal property in this regard (EPTL 6-2.1, 6-2.2), and the cases that arise from personal property are relevant to the analysis. For example, it has been held that even where a joint bank account is vulnerable to the levy of a money judgment as against one joint tenant, such a levy is effective only as to the actual interest of that judgment debtor in the account ( Ford Motor Credit Co. v. Astoria Fed., 189 Misc 2d 475, Olsahan v. East NY Sav Bank, 28 F Supp 727; Annotation, Attachment-Joint Bank Account, 11 ALR3d 1465, 1473). Therefore, it was within this court's authority to make a finding that John Krolick improperly took assets from this estate and to make the finding that such a taking extinguished his rights to both the real property and the other estate assets that were not taken by him.
CPLR 5239 (Proceeding to determine adverse claims) establishes a separate proceeding to make this very determination. The instant application is the functional equivalent of such a proceeding.
Theodore Krolick, as administrator, was vested with the power to sell the real property in order to satisfy the estate's obligation to him as distributee. Therefore, as the court recognized in its December 11, 2003, decision, by taking more than his distributive share at a time before the judgment creditor obtained his judgment, John forfeited any monetary interest he had in the tenancy in common in the real property. To rule otherwise would be to require Theodore to contribute to his own brother's wrongdoing and to allow the judgment creditor to accomplish indirectly what he could not do directly; that is to have his fees paid from the estate ( Matter of DiJurico, 134 Misc 2d 263.
The application is therefore granted. The judgment creditor has no claim to the escrowed funds because John Krolick had no interest in them, at least as of the date the Will was denied probate on April 5, 1999, and that date preceded the entry of judgment by the judgment creditor. The funds may be released to satisfy the unpaid administration expenses of the estate and the remainder distributed to Theodore Krolick. In its decision of December 11, 2003, the court approved the legal fees charged to the estate, as billed, in the amount of $38,000.00. Therefore, as suggested by the attorney for Theodore Krolick, Commonwealth and American Land, as required by the decree dated January 27, 2004, may make a check payable to Pollack and Kotler in the amount of $38,000.00 and may make a check with the balance payable directly to the estate of Laura Krolick.
This is the decision and order of the court.