* NOT FOR PUBLICATION WITHOUT THE APPROVAL OF THE TAX COURT COMMITTEE ON OPINIONS

**Date d**  **: July 2**  **9, 2021 Jeffery D. Gordon**  **for plaintiff ( Archer & Greiner**  **, PC, attorney).**

**Fred Semrau and Robert J. Rossmeissl for defendant (**  **Dorsey & Semrau , LLC,**  **attorney ).**  **BIANCO, J.T.C. This shall serve as the court’s formal opinion concerning a motion to dismiss for**  **lack of standing brought by defendant, Andover Township**  **(“Township”)**

**. The Township**  **initially filed**  **motion s**  **for summary judgment, but**  **after hearing arguments, the court, on the record,**  **more accurately characterized the**  **m as motion**  **s to dismiss**  **for lack of standing. This was not disputed by counsel.**  **The present matter s**  **arise out of several**  **New Jersey Property Tax appeal s**  **brought by plaintiff, Ian Kunesch (“**  **Mr . Kunesch”). T**  **he Township disputes that Mr.**  **Kunesch is an aggrieved**  **taxpayer within the meaning of N.J.S.A. 54:3**  **-21 , given that he executed a**  **d eed in**  **l ieu of** 
**f oreclosure to his bank, which stripped him of**  **standing to institute the**  **within tax appeal**  **s**
**. For** 

**reasons described more fully below, the court concludes that**  **the Township’s motion s are**  **without KUNESCH, IAN M.**  **,**

**Plaintiff,**

**v. ANDOVER**  **TWP. ,**  **Defendant. T**  **AX COURT OF NEW JERSEY D**  **OCKET NO s.**  **: 007226-2013; 007942-**  **2014; 003388**

**- 2015; 003298**  **-2016; 000657-**  **2017; 000823**

**- 2018; 002702** 

**- 2019** 

Approved for Publication

In the New Jersey Tax Court Reports2

**merit ,**  **and Mr. Kunesch**  **has standing to proceed in each tax appeal**  **. Accordingly, the**  **Township’s motion**  **s to dismiss**  **are denied.** 
PROCEDURAL HISTORY AND FACTS
**I n 2006,**  **Mr. Kunesch**  **was the owner of certain property**  **designated as Block 73, Lot 6 in**  **Andover Township, New Jersey (“Property”)**

**. That same year, he mortgaged the Property with**  **Sussex Bank (“Bank”) as security for a commercial loan.**  **On March 30, 2009**  **, Mr**  **. Kunesch entered into**  **various agreements**  **with the**  **Bank that included a Note, Mortgage, and Mortgage**  **Modification Agreement (“Agreement 1”)**  **that modified the prior agreement from 2006. Along**  **with these agreements, Mr. Kunesch provided**  **the Bank a Deed in L**  **ieu of Foreclosure (“1**  **st Deed**  **in Lieu” )**  **at the time of signing with the intent that, in the event he**  **defaulted on payment, the Bank could take title to the P**  **roperty by recording the Deed in Lieu**  **of Foreclosure without having to go**  **through the process of a foreclosure.**  **Under Agreement 1**  **, Mr. Kunesch would make**  **monthly payments to the Bank that would be comprised of principal, interest, and tax escrow whic**  **h was to be used for the payment of real estate taxes. In other words,**  **Mr. Kunesch would m**  **ake his tax**  **payments on the P**  **roperty to the**  **Bank which escrowed his payments and the**  **Bank then pa id**  **those taxes on his behalf to the Township when due.**  **In 2011, Mr.**  **Kunesch entered into another Mortgage Modification Agreement**  **(“Agreement 2”) with the Bank**  **and again**  **used the P roperty as collateral.**  **Like Agreement 1**  **, Mr.**  **Kunesch executed**  **a second**  **Deed in Lieu of Foreclosure**  **(“ 2**  **nd Deed in Lieu”)**  **similar to the first.** 
**T he intent of**  **Agreement 2 and the 2**  **nd Deed in Lieu is disputed by the Township** 

**. The Township**  **asserts that “the 2011 Deed in Lieu was valid and operative against Plaint iff, a mortgagor, as of**  **the date it was executed and notarized: March 9, 20 11.” However,**  **Mr. Kunesch**  **asserts he entered**  **into Agreement 2**  **and the 2 nd**  **Deed in Lieu with the understanding**  **that the Bank**  **would have**3

**security for its loa n,**  **and Mr.**  **Kunesch would continue to own the**  **Property until**  **he default ed** 

**. It**  **was his further**  **understanding that the portions of Agreement 1 that were not modified by**  **Agreement 2 would**  **remain in effect , and that the only way the Bank would be able to obtain**  **ownership of the Property was if he defaulted on the loan. If he defaulted, Mr. Kunesch was then**  **given 90 days to resolve the issue, and if unable to do so, the Bank would record the deed and take**  **ownership without needing to go through a foreclosure action.**
**From 2011-2019, Mr.**  **Kunesch maintained and operated the**  **P roperty as a golf course**  **. H e** 

**was also**  **listed as the owner**  **of the Property on the Township’s records and**  **applied for various permits related to the**  **Property, which were**  **grante d.**  **Mr. Kunesch filed local**  **property tax appeals**  **for the years 2013-2019**  **. In 2019 , Mr. Kunesch**  **defaulted on his mortgage payments**

**. Consequently, the**  **Bank recorded the 2**  **nd D**  **eed in Lieu**  **on April 5, 2019.**
**Mr. Kunesch filed for**  **Chapter 7 b ankruptcy in May of 2019**  **. His bankruptcy petition did**  **not list the 2013-**  **2019 local property tax appeals as an asset on his list of assets and claims. H**  **is stated reason for the omission was because he**  **did not realize that he was supposed to list the tax appeal**  **s in the**  **b ankruptcy filin**  **g with his list of a ssets**  **. Furthermore, when asked if anyone owed him money at**  **Mr. Kunesch’s 341 Meeting of Creditors (“341 Meeting”)**  **1 , Mr.**  **Kunesch testified that everything he owned and owed was included in the petition and that no one owed him money.**  **The Bankruptcy Court issued its Order on August 30, 2019 discharging $1,177,215.19 of Mr.**  **Kunesch’s debts, and as of September 6, 2019, the bankruptcy matter was**  **closed. Mr.**  **Kunesch then**  **realized his omission of the 2013** 

**- 2019 local property tax appeals from his bankruptcy petition** 

**1 A 341 Meeting is mandated by Section 341 of**  **the federal Bankruptcy Code. The meeting permits**  **the bankruptcy trustee to review the**  **debtor’s petition and schedules with the debtor, and then requires the debtor to answer questions under penalty of perjury about the debtor’s conduct,**  **property, liabilities, financial condition, and any other matter that may affec t the administration of**  **the case or the debtor’s right to discharge. See**  **11 U.S.C. § 341 (2018 ).** 4

**after the fact and notified his b**  **ankruptcy attorney who then**  **informed the Bankruptcy Trustee (“Trustee”)**  **of the omission**  **. The Trustee investigated th e**  **matter and decided**  **not to reopen the bankruptcy proceeding to administer the tax appeal**  **s as an asset**

**. The Township filed its motion**  **s for summary judgment in March of 2021**  **on the basis that**
**Mr. Kunesch did not have standing as an aggrieved taxpayer to bring the**  **appeals. The court**  **subsequently heard oral arguments after**  **which the court stated on the record that the motion s w**  **ere more accurately characterized as motion**  **s to dismiss for lack of standing and would enter its**  **decision accordingly.**
APPLICABLE LAW
I. Standing
**An aggrieved taxpayer**  **within the meaning of N.J.S.A. 54:3**  **-21 has**  **standing to file a tax**  **appeal**

**. “There is no question that an**  **owner can challenge the local**  **property assessment on his,**  **her, or its property.” Savage Mills Enters v. Borough of Lit**  **tle Silver , 29 N.J. Tax 295, 303 (2016)**  **(referencing N.J.S.A**

. **54:3-21) . “The sole**  **owner of a**  **property in fee simple who pays the entirety**  **of the property**  **taxes is clearly an aggrieved taxpayer**  **pursuant to the statute.” Prime Accounting**  **Dept. v. Township of Carney ’**  **s Point , 212 N.J. 493, 506 (2013)**  **(citing N.J.S.A. 54:4**  **-23; 54:3-21).**
**I t is also well**  **settled**

**“ that one need not be the owner of real property to be an aggrieved taxpayer.**  **”**
**B&D Assoc. v T ownship of Franklin, 32 N.J. Tax 81, 86 (2020).**  **Rather, the plaintiff must**  **“ have**  **a sufficient financial interest affected by the challenged assessment in order to have standing to**  **file a complaint. ”**  **Ibid**

**. I**  **t is of note that an aggrieved taxpayer “**  **is a status designated for the purpose of expanding or extending an affected litigants’ rights**  **beyond just**  **the property owner .”**  **Id. at**  **89 (emphas i**  **s added). The designation was not created to exclude the actual property owner** 5

**from his or her right to appeal, regardless of whether the property owner directly o r indirectly paid**  **the property taxes.**
II. Transfer of Property Ownership **“Ownership of real property**  **is transferred**  **by deed.” N.J.S.A**

. **46:3-13. The transfer**  **of a real**  **property interest by**  **deed is complete only upon execution and**  **delivery of the**  **deed by the**  **grantor, and acceptance of the deed**  **by the grantee. See**  **In re Estate of Lillis , 123 N.J. Super. 280,**  **285 (App. Div. 1973). “In other words, a deed transfers a**  **property interest ‘upon delivery.’” H.K.**  **v. State, 184 N.J. 367, 382 (2005) (citing Tobar Constr. Co. v. R.C.P. Assoc s.**  **, 293 N.J. Super. 409, 413 (App. Div. 1996).**  **“Whether delivery**  **and acceptance have taken place . . . is a matter of intention.”**  **Dautel Builders v. Borough of Franklin, 11 N.J. Tax 353, 357 (1990). “**  **If there is a physical**  **delivery without the requisite intent that the**  **deed be**  **presently effective as a conveyance**  **of the grantor’s title, there is, in legal contemplation, no delivery.”**  **Ibid (emphasis added)** 

**.**

**“ Delivery**  **can be shown by ‘**  **[a]nything that clearly manifests the grantor’s intention that the**  **deed become immediately operative and that the grantee become the owner of the estate**  **purportedly conveyed .”**  **H.K. , 184 N.J** 

**. at**  **382 (quoting Dautel Builders, 11 N.J. Tax at 357)** 

**. In**  **other words, the transfer of a property interest is dependent on the efficacious deliver y and**  **acceptance of a deed, and because delivery is based on the intent of the grantor a nd grantee, the**  **deed does not need to be recorded in order to pass title if it is what the parties intended** 

**.** III. Deed in Lieu of Foreclosure
“ **A deed in lieu of foreclosure**  **is a contractual undertaking by the mortgagor and the mortgagee which avoids the formal foreclosure procedure and accordingly is not gove**  **rned by the foreclosure statutes.”**  **New Jersey Hotel Holdings, Inc. v. Dir. Div. of Taxation, 15 N.J. Tax 428, 434 (1996).**  **It operates similar to a traditional deed and is effective between the grantor and grantee** 6

**although void against subsequent judgment creditors. See**  **Lieberman v. Arzee Mid**

**- State Supply**  **Corp. , 306 N.J. Super. 335, 341 (App. Div. 1997). It is defined as “a voluntary, knowing and**  **uncoerced conveyance by the residential mortgage debtor to the residential mortgage lender of all**  **claim, interest and estate in the property subject to the mortgage.” N.J.S.A. 2A: 50** 

**- 55.**  **“[T]he mortgagor’s ordinary expectation in giving a deed in lieu of foreclosure (unless otherwis**  **e provided for by agreement**  **) is that the mortgagee is taking the deed in satisfaction of the debt and to save**  **the expenses of a judicial foreclosure.” 29**  **New Jersey Practice, Law of Mortgages § 13.14, at 971**  **(Myron C. Weinstein) (2d ed. 2001) (emphasis added). Meaning, all rights in the property are**  **supposed to transfer to the mortgage lender at the time the deed in lieu of foreclosure is executed**  **, unless otherwise provided for by agreement between the parties.**  **Although at times advantageous, because a deed in lieu of foreclosure is so agreement**

  ** based, it lends itself to risk.** **For example, a deed**  **in lieu of foreclosure can be recharacterized as** 

**an equitable mortgage**  **instead of a true conveyance of title. The**  **equitable m ortgage**  **doctrine has been long**  **recognized by New Jersey courts of equity and**  **stands for the principle that “a conveyance, whatever its form, if in fact given to secure a debt, is neither an absolute nor**  **conditional sale, but a mortgage, and that the grantor and grantee have merely the rights , and are**  **subject only to the obligations, of the mortgagor and mortgagee.” J.W. Pierson Co. v. Freeman**  **, 113 N.J. Eq. 268, 271 (E. & A. 1933).**  **“Courts apply principles of equity to ‘look beyond the plain terms’ of an agreement between the parties, and thereby determine whether the agreem**  **ent is in effect a mortgage.”**  **Zaman v. Felton, 219 N.J. 199, 217 (2014) (citing Johnson v. NovaStar**  **Mortg., Inc**

. **, 698 F. Supp. 2d 463, 468 (D.N.J. 2010)). The name of the instrument itself is not**  **material, and inste ad, the analysis focuses on the intention of the parties.**  **See J.W. Pierson**  **, 113 N.J. Eq.**  **at 270-**  **71 (“If a deed or contract, lacking the characteristics of a common law mortgage,**7

**is used for the purpose of pledging real property, or some interest therein, as security for a debt or**  **obligation, and with the intention that it shall have effect as a mortgage, equity will give effect to**  **the intention of the parties.”). If the transaction is recharacterized as an equitable mortgage, the**  **transferee lacks indefeasible title to the property, and the transferor retain**  **s his or her**  **equity of redemption.**  **See id**  **. at 270. New Jersey’s Supreme Court has adopted these principles and**  **the eight- factor framework**  **articulated by O’Brien**  **v. Cleveland**

**. 423 B.R. 477, 491**  **(Bankr. D.N.J. 2010 )** 

**. S**  **ee Zaman**  **, 219**
**N.J. at**  **218 (adopting the Federal District Court ruling and analysis of**  **O’Brien from**  **Johnson v. NovaStar Mortg., Inc.**  **, 698 F. Supp. 2d 463, 468 (D.N.J. 2010))**

**. I**  **n determining whether a transaction gives rise to an equitable mortgage,**  **the O’Brien**  **framework asks judges to consider**  **and then weigh together:**

**(1 )**  **Statements by the homeowner or representations by the purchaser indicating an intention that the homeowner c**  **ontinue ownership; (2) A substantial disparity between the value received**  **by the homeowner and the actual value of the property; (3) Existence**  **of an option to repurchase; (4) The homeowner's continued possession of the property; (5) The homeowner's continuing duty to**  **bear ownership responsibilities, such as paying real estate taxes or**  **performing property maintenance; (6) Disparity in bargaining power and sophistication, including the homeowner's lack of**  **representation by counsel; (7) Evidence showing an irr egular**  **purchase process, including the fact that the property was not listed for sale or that the parties did not conduct an appraisal or investigate**  **title; (8) Financial distress of the homeowner, including the imminence of foreclosure and prior unsuccess**  **ful attempts to obtain loans.**  **[ Zaman**  **, 219 N.J. at**  **218.] After weighing**  **all of these factors together**  **, along with the intention of the parties, the court may**  **then decide whether the deed in lieu of foreclosure is more accurately charact erized as an**  **equitable mortgage** 

**. The court must also be mindful of the directive prescribed by**  **New Jersey ’s**  **law of equitable mortgage**  **, to look at substance over form.**  **See Zaman**  **, 219 N.J. at**  **216; see also**  **Humble**8

**Oil & Ref. Co. v. Doerr, 123 N.J. Super. 530, 551 (Ch. Div. 1973). “The**  **O’Brien factors are**  **meant as guidance for a court and need not all be present for the court to find an equitab le**  **mortgage ,”**  **but all must be analyzed and then weighed together with the understanding that some factors will be given more weig**  **ht than others. Reibman v. Myers, 451 N.J. Super. 32, 50 ( App.**  **Div. 2017).**
IV. Judicial Estoppel **“The doctrine of judicial estoppel operates to ‘bar a party to a legal proceeding f rom**  **arguing a position inconsistent with one previously asserted.’” Cummings v. Bahr**  **, 295 N.J. Super. 374, 385 (App. Div. 1996) (**  **quoting N.M. v. J.G., 255 N.J. Super. 423,**  **429 (App. Div.**  **1992)). The**  **court in Cummings**  **explained that**  **“judicial estoppel most often arises when a party takes inconsistent positions in different litigation.”**  **Ibid. Essentially, it helps prevent manipulation of**  **the judicial process. “**  **A threat to the integrity of the judicial system sufficient to invoke the judicial**  **estoppel doctrine only arises when a party advocates a**  **position contrary to a**  **position it**  **successfully asserted in the same or a prior proceeding.”**  **Kimball Int ’l**  **, Inc. v. Northfield Metal Products**  **, 334 N.J. Super. 596, 606 (App. Div. 2000).**  **“[T]o be estopped [a party must] have**  **convinced the court to accept its position**  **in the earlier litigation. A party**  **is not bound to a position**  **it unsuccessfully maintained.” Id.**  **at 606**  **-07 (quoting In re Cassidy**  **, 892 F.2d 637, 641 (7th**  **Cir. 1987)). It should also be noted that “**  **judicial estoppel is an extraordinary remedy, which should be invoked only when a party**  **’ s**  **inconsistent behavior will otherwise result in a miscarriage of justice.”**  **Id**

**. at**  **608 ( citation**  **s and internal quotation marks omitted)** 

**. “Thus, as with other claim**  **and issue preclusion doctrines, judicial estoppel**  **should be invoked only in those circumstan ces**  **required to serve its stated purpose, which is to protect the integrity of the judicial pr ocess.”**  **Ibid**

**.**9 ANALYSIS **The Township’s argument can be summarized to**  **two points :**  **(1) that**  **Mr. Kunesch**  **does not have standing to bring his complaint**  **s because he was not the owner of the**  **Property for the years**  **in question, and therefore ,**  **not an aggrieved taxpayer ;**  **and (2) even if Mr.**  **Kunesch might have**  **standing, he is judicial ly**  **estopped from bringing th ese**  **claim s**  **due to inconsistent statements made** 
**in his bankruptcy**  **filing**

**. The court finds that neither of the Township’s arguments have merit.** 
I. Ownership of the Property **Ownership of the P**  **roperty is of critical importance in th ese**  **matter s.**  **If Mr. Kunesch**  **was the owner of the**  **Property for the years in question**  **, he is an aggrieved taxpayer pursuant to N.J.S.A.**  **54:3-21, and therefore, has standing to bring th ese**  **tax appeals. See**  **Prime Accounting Dept., 212** 
**N.J. at**  **506. As noted above, t**  **he status of an aggrieved taxpayer was not created to exclude actual**  **property owners from his or her right to appeal. The court is satisfied that**  **Mr. Kunesch wa**  **s the owner of the P**  **roperty for the years**  **in question and**  **maintains his right to appeal. The Township argues that**  **Mr. Kunesch neither owned nor paid taxes in connection with**  **the P roperty for any of the tax years**  **at issue , and that he ceased being the owner of the**  **P roperty**  **when he granted ownership of it to the Bank by the**  **2 nd**  **Deed in Lieu in conjunction with the**  **execution of Agreement 2 on March 9, 2011.**  **The Township maintains**  **that there was no evidence**  **that the portions of Agreement 1 that were not modified by Agreement 2 survived. The focus of**  **its argument is on the provision granting the Bank the ability to obtain ownership of th e Property**  only **after Mr. Kunesch defaulted on the loan. While explicitly written in Agreement 1, the**  **provision was not written in Agreement 2; however, the provision was also not modified by Agreement 2.**  **Mr. Kunesch asserts**  **that the parties**  **intended for all portions of Agreement 1**  not **modified by Agreem ent 2**  **to remain in full force and effect** 

**. This is critical because if the portions** 10

**of Agreement 1 not modified by Agreement 2 survived, the Bank would only**  **be able to obtain ownership of the Property if**  **Mr. Kunesch defaulted on the loan**  **rather than when the 2**  **nd Deed in**  **Lieu and Agreement 2 were execute d.**  **The key issue**  **s here are**  **(a) the intent of**  **the parties when**  **they entered into Agreement 2**  **, and (b)**  **the characterization of the 2**  **nd Deed**  **in Lieu as**  **an effective transfer of the title to the Property to the Bank,**  **or simply**  **an equitable mortgage.**

a. Intent of the Parties **The court is satisfied that the**  **re was no delivery of the 2**  **nd Deed**  **in Lieu because it**  **was not intended to be presently effective**  **, but ra ther, it**  **was only**  **intended to be effective upon the**  **occurrence of a later condition. “ I**  **f there is a physical delivery**  **without the requisite intent that the**  **deed be**  **presently effective as a conveyance of the grantor’s title, there is, in legal**  **contemplation, no delivery.”**  **Dautel Builders , 11 N.J. Tax at 357**  **(emphasis added)**

**. Here, the**  **court finds that the parties intended that the**  **2 nd**  **Deed in Lieu**  **only be effective upon reco**  **r ding after**  **default, and not presently effective** 

**. Accordingly,**  **delivery did not take place until the default occurred**  and

**the Bank recorded the 2 nd**  **Deed in Lieu**  **in 2019. The Township**  **concedes that while this might be the case for Agreement 1**  **, with**  **which there was a side agreement accompanying the**  **1 st**  **Deed in Lieu specifically**  **stating that ownership**  **would not transfer until default and**  **the subsequent recording of that deed, there was no**  **such side**  **agreement that**  **accompanied Agreement 2 and the 2**  **nd Dee**  **d in Lieu . The court**  **is not persuaded by this argument**  **based on the circumstances surrounding Agreement 2, the actions of the parties, and**  **the intentions of the parties as set forth in their certifications**

**. While it is true that deeds may**  **transfer title even if unrecorded, the transfer is still dependent on the intent of the parties i**  **n order for the delivery of that title to take place.**  **See H.K.**  **, 184 N.J.**  **at 382.**  **The court finds**  **no clear intention**  **here that title**  **to the Property**  **was to pass**  **upon the exe**  **cution of Agreement 2**

**. However,** 11

**it is clear**  **to the court based upon the actions of the parties, that the**  **arrangement where by Mr.**  **Kunesch would continue to own, maintain, and operate the Property as a golf course**  **, as provided for in Agreement 1,**  **continue d after the parties entered into Agreement 2**  **and executed the 2 nd**  **Deed in Lieu**  **. The court arrives at this conclusion because Mr.**  **Kunesch w as**  **still listed as**  **the owner**  **of the Property in the**  **Township’s records, he**  **applied for various permits related to the Property which**  **were granted , and**  **he paid taxes**  **in to an escrow**  **account which the Bank**  **later paid to the Township**  **when due. Finally, it was**  **only upon Mr.**  **Kunesch’s default that**  **the Bank record ed**  **the 2**  **nd Deed**  **in Lieu , specifically**  **as provided**  **for in the side agreement to**  **Agreement 1. Moreover, the Bank**  **’s Senior Vice** 

**- President and Chief**  **C redit Officer**  **(“Bank Officer”) certified that**  **it was the intention**  **of Agreements 1 and 2**  **that the Bank**  **“have security for its loan under this mortgage arrangement where Ian Kunesch continued to own the Property.”**  **The Bank Officer further certified that “[t]he**  **intent of the [2**  **nd Deed in Lieu**  **] was to provide Sussex Bank with the ability to obtain ownership**  **of the Property** only **upon the recording of the Deed in Lieu of Forclosure**  , if and only if **Ian Kunesch first defaulted on the loan agreement . . .,” and that “[t]he parties int**  **en ded that ownership**  **of the Property** would be retained by Ian Kunesch until the recording of the [2 nd Deed in Lieu] **.” (emphasis added).**  **The expressed intent of the parties for entering Agreements 1 and 2 support the conclus ion**  **that delivery of the 2**  **nd Deed in Lieu**  **did not take place until April 5, 2019, after**  **Mr. Kunesch defaulted**  **, and the**  **2 nd**  **Deed in Lieu was recorded in accord with**  **the surviving provisions of Agreement 1.**  **Therefore, the court finds that based on the record, certifications, and action s of the**  **parties, the side agreement to Agreement 1 remained in full force and effect**  **even though it was not explicitly written**  **again to accompany Agreement 2 and the 2**  **nd Deed in Lieu** 

**. Accordingly,**  **title did not transfer until the default**  **and subsequent recording of the 2**  **nd D**  **eed in Lieu occurred**  **,**12

**leaving Mr.**  **Kunesch the owner of the P**  **roperty and an aggrieved taxpayer for the years at issue**  **before this court**

**.**

b. Deed in Lieu of Foreclosure vs. Equitable Mortgage **Th is is**  **a novel issue**  **for the Tax Court**

**. 2**  **It has not been**  **addressed before**  **in the context of a tax appeal and**  **the status of an aggrieved taxpayer who executed**  **a deed in lieu of foreclosure** 

**. Accordingly**  **, the court is constrained to discern whether the 2**  **nd Deed in Lieu in these matters**  **is more appropriately an equitable mort**  **gage secured by a deed to the Property. New Jersey’s Supreme Court adopted the principles of the equitable mortgage**  **doctrine and the**  **O’Brien framework**  **in Zaman**  **in order to assist judges in determining whether a transaction gives rise to an equitable mortgage.**  **Under this framework, the court must**  **analyze the**  **substance of the transaction itself** 

**, the circumstances that mo**  **tivate d**  **the parties ,**  **and indications that both parties intend**  **ed for**

**the transferor**  **to retain ownership of the property.**  **See ibid.**  **The framework serves merely as a guide, but the court is asked to consider each factor in its analysis**  **. Moreover,**
**not all factors need be present or weigh in favor of finding an equitable mortgage**  **. The intention of the parties**  **, and which party actually**  **maintain s**  **possession and ownership of**  **the property ,**  **are paramount**  **in determining whether the 2**  **nd Deed in Lieu is more**  **accurately characterized as an equitable mortgage.**  **See J.W. Pierson, 113 N.J. Eq. at 270-71**  **; see also**  **Reibman , 451 N.J. Super.**  **at 50. In its analysis, the court is guided by the New Jersey law of equitable mortgage to look at**  **substance over form and whet her or not**  **Mr. Kunesch remained the owner of the Property.**  **See**
**Zaman , 219 N.J.**  **at 216;**  **see also Humble Oil**  **, 123 N.J. Super. at**  **551.**

**2 Courts in New Jersey have recognized other transactions, such as sale** 

**- leaseback arrangements**  **made to avoid foreclosure and simple land sales, as equitable mortgages when the tran saction is**  **actually a mortgage loan secured by a deed to the subject property**

**. See**  **Zaman 219 N.J.**  **at 217;**  **see also James Talcott, Inc. v. Roto Am. Corp., 123 N.J. Super. 183, 202 (Ch. Div. 1973).** 13

**T he first factor**  **addresses statements or representations made that indicate the owner would continue ownership.**  **It is clear to the court under the present facts that Mr.**  **Kunesch was to remain the owner of the Property until he**  **defaulted, only after which**  **the Bank would r ecord**  **the 2**  **nd Deed**  **in Lieu**

**. Mr.**  **Kunesch maintained and operated the Property as a golf course, was listed as property record owner**  **in the**  **Township’s records, applied**  **for various permits related to the Property, and was granted these permits until 2019.**  **These actions make it clear to the court**  **that Mr. Kunesch defaulting was the key condition for the Bank to take**  **ownership of the Property. Until that**  **event occurred**  **, t he parties**  **intended that**  **Mr. Kunesch would continue to**  **own and operate the Property**

**. Because the intention of the parties is given more weight in this analysis, and**  **because it was clearly intended that Mr. Kunesch remain the owner of the Property until default**  **, and he effectively remained the owner of the Property for the years in question**  **, this first factor weighs in favor of**  **finding that the**  **2 nd**  **Deed in Lieu is**  **more appropriately, an equitable mortgage** 

**. The second factor looks to a substantial disparity between the value received b**  **y the owner and the actual value of the property.**  **While Mr. Kunesch alleges that there**  **is a large disparity in the value of the property**  **, which is the reason for the present tax appeal**  **s ,**  **this claim alone**  **is not** 
**persua sive**  **as to whether the 2**  **nd Deed in Lieu was actually an**  **equitable mortgage. The second factor is more properly intended**  **for instances of disguised sales and is of little relevance here** 

**. T**  **he third factor questions the existence of an option to repurchase.**  **It is similar to the**  **second factor in terms of relevance in the presen t matter**  **s and is**  **also intended to be analyzed in**  **the case of disguised sales. In the**  **present matters**  **, there was never an option to repurchase**  **presented because Mr. Kunesch believed he owned the Property until default.** 
**T he fourth factor**  **addresses the owner’s continued possession of the property. Mr.**  **Kunesch continued to possess and control the**  **P roperty until**  **April 5, 2019.**  **Much like ownership, possession**14

**is of great importance in this analysis because it illustrates the intention of the pa rties. Moreover,**  **it is actually suggested that lenders should never leave any indication that a borr ower will retain**  **ownership or possession of the property w hen executi**  **ng a deed in lieu of foreclosure, and in fact,**  **the documentation for the transaction should indicate that no rights of ownership, posse ssion of**  **the subject property, or purchase option will exist upon closing. 3**  **In hi s certification, the Bank**  **’s Officer**  **ma de it clear that Mr. Kunesch was to remain the owner and in possession of the**  **Property until he defaulted, as was agreed by the parties.**  **Th erefore, this**  **fourth factor also**  **weighs in favor of finding**  **that the 2**  **nd Deed in Lieu is more appropriately an equitable mortgage**  **because Mr.**  **Kunesch , and not the Bank, continued to possess the Property**  **until the title was recorded.**
**T he fifth factor**  **looks to the owner continuing to bear ownership responsibilities like paying**

**r eal estate taxes or performing property maintenance. This factor**  **also weighs in favor of finding an equitable mortgage.**  **Mr. Kunesch continued to pay property taxes**  **on the Property through the**  **escrow arrangement with the Bank , and**  **paid maintenance**  **expenses for the**  **P roperty**  **’s upkeep throughout the**  **tax years in question** 

**. This fifth**  **factor further illustrates that the Bank never**  **intended to maintain or bear any sort of ownership responsibilities of the Property**  **until Mr. Kunesch defaulted and the 2**  **nd Deed in Lieu was recorded** 

**. The sixth factor**  **addresses uneven bargaining power and whether the**  **property owner had**  **legal representation. Mr.**  **Kunesch had an attorney for Agreement 1 ,**  **but not for Agreement 2. The**

**court is satisfied that Mr. Kunesch was at no disadvantage for either of the**  **A greements as there is** 

**no evidence of**  **uneven bargaining power ,**  **deception , or heavy**  **-handedness on the Bank’s behalf** 

**.**

**3 See**  **Clint Kakstys & Gillian Kotlen, Deed in Lieu of Foreclosure or Equitable Mortgage? Pitfalls**  **for Lenders to Avoid , New**  **Jersey L. J. (July 29, 2020) available at https://www.law.com/njlawjournal/2020/07/29/deed-**  **in**

**- lieu**  **-of- foreclosure**  **-or- equitable** 

**** **mortgage**

**- pitfalls** 

**- that**  **-lenders-should- avoid (providing advice to lenders and borrowers on deeds**  **in lieu of foreclosure).**15

**The lack of legal**  **representation for Agreement 2 may**  **merely explain**  **why a second side agreement did not explicitly accompany Agreement 2 like with Agreement 1.**  **Accordingly , this**  **sixth factor**  **also weighs in favor of finding an equitable mortgage**  **even though it is not as definitive on the issue**  **as the factors pertaining to**  **ownership or possession of the P**  **roperty**

**. T**  **he seventh factor addresses an irregular purchase process. This factor**  **is irrelevant in**  **th ese**  **matter s**  **and is once again meant for those instances of disguised sales. Agreement**  **s 1 and**  **2 simply**  **restructured the mortgage and allowed the Bank to have security for its loan while**  **Mr. Kunesch**  **remained in possession of the**  **Property for the years in question. The eighth factor looks to financial distress of the owner, the imminence of**  **foreclosure, and prior unsuccessful attempts to obtain loans.**  **Mr. Kunesch asserts he was not in financial**  **distress when entering into Agreement 1 or Agreement 2. T here is**  **also nothing on the record that**  **suggests he was in financial distress when either agreement was executed , nor was there any**  **evidence he was ever denied a loan**

**. It was**  **not until 2019 when Mr. Kunesch was**  **clearly in**  **financial distress, demonstrated by filing a**  **Chapter 7 bankruptcy proceeding , eight years after**  **Agreement 2 was signed**  **and the 2 nd**  **Deed in Lieu w**  **as executed** 

**. The mere signing of the**  **2 nd**  **Deed in Lieu in connection with Agreement 2, does not, in and of itself, suggest that Mr. K**  **unesch was in financial distress**  **at the time Agreement 2 was entered into. There is clearly noth**  **ing in the record to suggest otherwise.**  **4 Rather, the court is satisfied that a**  **t the time of the execution of Agreements 1 and**  **2, Mr. Kunesch**  **simply needed a loan and did not contemplate foreclosure**  **or**

**4 It is**  **suggested that lenders should not consider accepting a deed in lieu of foreclos ure before**  **there is a default under the mortgage. At least some degree of financial distress an d the imminent**  **threat of foreclosure should exist in a deed in lieu of foreclosur e transaction.**  **See Kakstys &**  **Kotlen, Deed in Lieu of Foreclosure or Equitable Mortgage? Pitfalls for Lenders to Avoid**  **, New**  **Jersey L.J. (July 29, 2020).**16

**default. Both**  **Deed s**  **in Lieu w ere**  **entered into merely so that the Bank could have security for the**  **loan provided to Mr. Kunesch, enabling him to refinance, nothing more. Accordingly,**  **the court finds that**  **Mr. Kunesch was not in financial distress at the time he executed either**  **Deed in Lieu, and**  **only did so to secure a loan**  **, and supports**  **a finding that the 2**  **nd Deed in Lieu**  **was actually an equitable mortgage.**  **The above analysis leads**  **the court to**  **conclude that the 2**  **nd Deed**  **in Lieu ,**  **paired with Agreements 1 and 2**  **, is in fact**  **an equitable mortgage . T**  **he factors considered together weigh in support of the finding that**  **t he Bank**  **merely used the Property to serve as collateral for a loan**  **while Mr. Kunesch maintained ownership over the Property. This was**  **the clear intention of the parties**  **when entering into the Agreements 1 and 2, evidenced by the**  **parties’ actions and the agreements**  **themselves**

**. Accordingly,**  **because the 2**  **nd Deed in Lieu was actually an equitable mortgage,**  **Mr. Kunesch**  **remained the owner of the Property for the years in**  **question, and**  **therefore, has standing**  **to bring these appeals** 

**.** II. Judicial Estoppel **The Township also argues that Mr.**  **Kunesch is barred from prosecuting these tax appeals because of the doctrine of judicial**  **estoppel as it relates**  **to Mr. Kunesch’s**  **Chapter 7 bankruptcy**  **proceeding. In the present matters, Mr.**  **Kunesch asserts**  **that he is entitled to a tax refund for each**  **tax year at issue. However , in his bankruptcy filing, he omitted the potential tax**  **appeal s refund**  **from his list of assets and denied any money was owed to him**  **at his 341 Meeting**

**. According to**  **the Township, these positions are inconsistent**  **and a re barred under judicial estoppel.**  **The court rejects this argument**  **. “[T]o be estopped [a par**  **ty must] have convinced the court to accept its**  **position in the earlier litigation.” Kimball Int**  **’l , 334 N.J. Super.**  **at 606-07.**  **In th is** 

**matter ,**  **Mr. Kunesch immediately contacted the Trustee**  **when he realized his inadvertent omission**  **,**17

**and the Trustee determined**  **not to reopen the bankruptcy proceeding to administer the**  **tax appeals**

**as an asset**

**. D**  **ecisions of the Trustee are neither before, nor within the jurisdiction of, this cou rt.**  **By deciding not to act, the Trustee was**  **clearly satis**  **fied with Mr. Kunesch’s explanation and**  **saw no issue**  **with the New Jersey Tax Court proceed**  **ing with the determination of his pending tax**  **appeals**

**. As noted above, judicial estoppel is a remedy which must be sparingly used. Given the**  **Trustee’s determination to not pursue the issue**  **when these appeals were brought to the attention of the Bankruptcy Court, this**  **court fails to see how proceeding with these matters**  **would be “**  **a miscarriage of justice.**  **” Accordingly, Mr. Kunesch**  **is not barred from prosecuting these tax**  **appeals based on the doctrine of judicial estoppel.** 
CONCLUSION **For all the foregoing reasons, the Township ’**  **s motion s**  **to dismiss for lack of standing are**  **denied. Mr.**  **Kunesch has standing to proceed**  **as an aggrieved taxpayer**  **within the meaning of**  **N.J.S.A. 54:3 -21**  **and may bring these**  **appeal s as**  **the owner of the Property for the tax**  **years in question.**  **Both Mr. Kunesch**  **and the Bank intended for**  **Mr. Kunesch to remain the owner and in**  **possession of the Proper**  **ty unless he defaulted, at which point the 2**  **nd Deed**  **in Lieu would be**  **recorded . Furthermore, the**  **2 nd**  **Deed in Lieu**  **is more appropriately**  **characterized as an equitable mortgage because it was in essence**  **security for a loan. Finally, Mr.**  **Kunesch is not barred from bringing**  **these tax appeals based on the doctrine of judicial estoppel. The court**  **’ s order denying**  **the Township’s motion shall be uploaded to eCourts.**