Opinion
No. CV 05-4008885
May 26, 2006
MEMORANDUM OF DECISION ON DEFENDANT'S MOTION FOR SUMMARY JUDGMENT
I. FACTS
This case involves a dispute over who is entitled to the surplus proceeds of a foreclosure sale. By way of background, the plaintiff, Anthony LaPenta, was the successful bidder at two separate foreclosure sales concerning property known as 42 Country Lane, Canton, Connecticut. The previous owner of the property, Thaddeus Cierocki, had executed a first and second mortgage to Zirmak Mortgage, Inc. (Zirmak). Zirmak later assigned the first mortgage to GE Capital Mortgage Services, Inc. (GE), and assigned the second mortgage to the defendant, Bank One, N.A. (Bank One). In January of 2002, GE brought an action against Cierocki to foreclose the first mortgage (GE suit). In June of 2002, Bank One brought an action against Cierocki to foreclose the second mortgage (Bank One suit). Both matters were filed in the Hartford judicial district.
See GE Capital Mortgage Services, Inc. v. Cierocki, Superior Court, judicial district of Hartford, Docket No. CV 02 0813326.
See Bank One, N.A. v. Cierocki, Superior Court, judicial district of Hartford, Docket No. CV 02 0817327.
On August 26, 2002, the court, Satter, J., rendered judgment of foreclosure by sale in the Bank One suit; Bank One's interest in the property was subsequently sold by committee to LaPenta for $9,800, and the court approved the sale on November 18, 2002. On April 3, 2003, the court, Freed, J., found the total amount due Bank One to be $37,127 (including counsel fees of $2,000 and costs of $875) and rendered supplemental judgment distributing the sale proceeds. The court awarded committee fees and expenses of $3,186 and awarded Bank One the $6,614 balance. This left Bank One with a deficiency of $30,513.
On October 21, 2002, the court, Freed, J., rendered judgment of foreclosure by sale in the GE suit; GE's interest in the property was subsequently sold by committee to LaPenta for $195,000, and the court approved the sale on February 3, 2003. On May 12, 2003, the court, Freed, J., rendered supplemental judgment in the GE suit. The court awarded GE $173,282 (in full payment of debt, interest, fees, and costs due GE), and awarded committee fees and expenses of $5,786, leaving surplus proceeds of $15,932 on deposit with the court. Bank One, as a party to the GE suit, made a claim for those surplus proceeds by filing a motion for determination of priorities and supplemental judgment, with an attached affidavit of debt indicating that as of April 16, 2003, Cierocki's note to Bank One had a balance due of $35,124. On October 1, 2003, the court, Freed, J., granted Bank One's motion and rendered a second supplemental judgment, awarding the surplus proceeds of the GE foreclosure sale to Bank One.
This amount consists of principal, interest, and late charges, but does not reflect the $6,614 awarded to Bank One thirteen days earlier in the Bank One suit.
LaPenta had also attempted to obtain the surplus proceeds of the GE foreclosure from the court, but he was never a party to the GE suit and therefore the court did not consider the merits of his claim. He filed two appearances in the GE suit — one as a defendant and the other as a "petitioner." On May 15, 2003, he filed a petition for payment of the surplus proceeds, which the court, Freed, J., denied on October 1, 2003 (the same day that the surplus proceeds were awarded to Bank One). On October 20, 2003, he filed a motion to open the October 1, 2003 supplemental judgment. The court did not consider the motion. LaPenta then appealed the October 1, 2003 supplemental judgment. Bank One filed a motion to dismiss the appeal on the ground of lack of standing, since LaPenta never intervened in the underlying matter. The Appellate Court granted the motion to dismiss.
LaPenta now seeks to obtain the surplus proceeds from Bank One. He commenced the present action by service of process on Bank One on January 31, 2005. The complaint consists of three counts. In the first count, LaPenta alleges that Bank One converted his property (the $15,932.14 surplus proceeds from the GE suit) to its own use without his authority. In the second count, he alleges that Bank One obtained those surplus proceeds under false pretenses, in violation of General Statutes § 53a-122. In the third count, LaPenta alleges that Bank One's conduct constitutes a violation of General Statutes § 42-110b (the Connecticut Unfair Trade Practices Act).
In its answer filed on May 11, 2005, Bank One admits only the existence of a mortgage, and claims two special defenses: (1) The statutes on which LaPenta bases his suit (General Statutes §§ 49-26 and 49-28) apply to debtors, and LaPenta was never the debtor on either of the notes and mortgages, nor did he own any equity until after both foreclosures occurred and the sale proceeds were distributed, so he never had any rights to the sale proceeds at issue, and (2) LaPenta is barred by res judicata and collateral estoppel because this matter was already litigated in the GE suit.
On November 15, 2005, Bank One filed its motion for summary judgment on the grounds of (1) res judicata, (2) foreclosure law, and (3) operation of the lis pendens statute. LaPenta filed memoranda in opposition on January 4 and 9, 2006. For the following reasons, the motion for summary judgment on all counts of the complaint is granted.
II DISCUSSION
"Practice Book [§ 17-49] provides that summary judgment shall be rendered forthwith if the pleadings, affidavits and any other proof submitted show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law . . . In deciding a motion for summary judgment, the trial court must view the evidence in the light most favorable to the nonmoving party." (Internal quotation marks omitted.) Larobina v. McDonald, 274 Conn. 394, 399, 876 A.2d 522 (2005). "Because res judicata or collateral estoppel, if raised, may be dispositive of a claim, summary judgment [is] the appropriate method for resolving a claim of res judicata." Jackson v. R.G. Whipple, Inc., 225 Conn. 705, 712, 627 A.2d 374 (1993). Bank One has submitted pleadings and affidavits establishing the facts of the case. LaPenta has submitted additional affidavits in support of his legal arguments but has not disputed the facts set forth by Bank One. The issue before the court is whether Bank One is entitled to judgment as a matter of law on the ground of res judicata, foreclosure law, or the lis pendens statute.
A. Res Judicata
Bank One argues in its motion for summary judgment that LaPenta should not be able to litigate the same matter — whether LaPenta is entitled to the surplus proceeds of the GE sale — against Bank One for the third time. LaPenta argues in his memoranda in opposition that the doctrine of res judicata does not apply because, despite filing appearances and motions, he was never a party to the GE suit. Bank One's motion for determination of priorities asked the court to determine priority among the parties, which did not include LaPenta. The issue of who is entitled to the surplus funds has never been litigated between Bank One and LaPenta. Neither the Superior Court nor the Appellate Court considered the merits of LaPenta's claim, since he was not a party and therefore lacked standing.
The doctrine of res judicata is inapplicable where there has been no prior judgment on the merits. The Supreme Court addressed this issue in Cayer Enterprises, Inc. v. DiMasi, 84 Conn.App. 190, 852 A.2d 758 (2004). The court stated: "In the present case, the prior judgment was a dismissal merely for lack of standing. That is not a judgment on the merits. Furthermore, the plaintiff in the prior proceeding had no opportunity to litigate its claims fully and fairly. Application of the doctrine of res judicata, therefore, was improper.
"Res judicata requires, inter alia, a previous judgment on the merits in which the party had a full and fair opportunity to litigate the matter. Neither of those essential predicates existed here. For that reason, the court should not have granted the defendant's motion for summary judgment on the ground of res judicata." Id., 194-95. LaPenta never had an opportunity in the GE suit or his appeal thereof to litigate his claim to the surplus proceeds against Bank One. There is no prior judgment on the merits regarding LaPenta's claim. Therefore, Bank One's motion for summary judgment is denied on the ground of res judicata.
B. Foreclosure Law
LaPenta argues in his memoranda in opposition that as the successful bidder at both foreclosure sales and the subsequent owner of the property, he currently owns the equity of redemption in the property and is legally and equitably entitled to the surplus proceeds. Bank One argues in its motion for summary judgment that it had a right to have its remaining debt paid from the surplus proceeds of the sale in the GE suit, and that right was not extinguished by its failure to pursue a deficiency judgment in the Bank One suit. The issue is whether, on these facts, current foreclosure law would support giving LaPenta a refund of part of the purchase price at the GE sale, or giving Bank One partial satisfaction of the debt owed to it on a note relating to the property.
Disposal of the proceeds of a foreclosure sale is addressed by General Statutes § 49-27, which provides: "The proceeds of each such sale shall be brought into court, there to be applied if the sale is ratified, in accordance with the provisions of a supplemental judgment then to be rendered in the cause, specifying the parties who are entitled to the same and the amount to which each is entitled. If any part of the debt or obligation secured by the mortgage or lien foreclosed or by any subsequent mortgage or lien was not payable at the date of the judgment of foreclosure, it shall nevertheless be paid as far as may be out of the proceeds of the sale as due and payable, with rebate of interest where the debt was payable without interest, provided, if the plaintiff is the purchaser at any such sale, he shall be required to bring into court only so much of the proceeds as exceed the amount due upon his judgment debt, interest and costs." (Emphasis added.)
Although § 49-27 does not specifically address whether a subsequent mortgage that has already been foreclosed may be paid from the proceeds of the sale, foreclosure proceedings are equitable in nature. "The distribution of a surplus from a foreclosure sale lies within the equity jurisdiction of the court." Bryson v. Newtown Real Estate Development Corp., 153 Conn. 267, 273, 216 A.2d 176 (1965). "Because the rights being determined in the supplemental judgment are the rights of the parties in the proceeds of the sale and not in the property, the role of the court at the time of the supplemental judgment is to determine priorities for the disbursement of funds . . ." National City Mortgage Co. v. Stoecker, 92 Conn.App. 787, 800, 888 A.2d 95 (2005). This case law supports Bank One's argument that it had a right to have its remaining debt paid from the surplus proceeds of the sale in the GE suit. In terms of equity, Bank One's interest in receiving partial payment of a debt outweighs LaPenta's interest in receiving a refund that amounts to a discount on the purchase price he agreed to pay.
Bank One argues further in its motion for summary judgment that its failure to pursue a deficiency judgment against Cierocki in the Bank One suit, in accordance with General Statutes § 49-28, does not impair its right to further relief. LaPenta argues in his memoranda in opposition that Bank One's only remedy was a deficiency judgment against Cierocki.
General Statutes § 49-28 provides: "If the proceeds of the sale are not sufficient to pay in full the amount secured by any mortgage or lien thereby foreclosed, the deficiency shall be determined, and thereupon judgment may be rendered in the cause for the deficiency against any party liable to pay the same who is a party to the cause and has been served with process or has appeared therein . . ." (Emphasis added.) The statute provides a remedy to mortgagors, but does not make that remedy exclusive. By virtue of § 49-28, Bank One had the option of pursuing a deficiency judgment against Cierocki in the Bank One suit, but its failure to do so did not extinguish its right to seek or receive the surplus funds in the GE suit.
Bank One correctly argues that the deficiency judgment procedures described in §§ 49-1 and 49-14 would only preclude Bank One from bringing a second foreclosure action against Cierocki. General Statutes § 49-14 provides: "At any time within thirty days after the time limited for redemption has expired, any party to a mortgage foreclosure may file a motion seeking a deficiency judgment. Such motion shall be placed on the short calendar for an evidentiary hearing . . . At such hearing the court shall hear the evidence, establish a valuation for the mortgaged property and shall render judgment for the plaintiff for the difference, if any, between such valuation and the plaintiff's claim. The plaintiff in any further action upon the debt, note or obligation, shall recover only the amount of such judgment." Thus, if Bank One had chosen to pursue a deficiency judgment in the Bank One suit, it could recover from Cierocki only the amount of the deficiency judgment.
General Statutes § 49-1 provides: "The foreclosure of a mortgage is a bar to any further action upon the mortgage debt, note or obligation against the person or persons who are liable for the payment thereof who are made parties to the foreclosure and also against any person or persons upon whom service of process to constitute an action in personam could have been made within this state at the commencement of the foreclosre . . ." (Emphasis added.) Thus, once Bank One foreclosed against Cierocki, it could no longer seek the balance due on the note from Cierocki except through a deficiency judgment. The statute doesn't prevent Bank One from seeking payment of that debt from other proceedings such as another mortgagee's subsequent foreclosure.
In New Milford Savings Bank v. Jajer, 244 Conn. 251, 266, 708 A.2d 1378, on remand, 52 Conn.App. 69, 726 A.2d 604 (1998), the Supreme Court rejected the Appellate Court's holding that in accordance with § 49-1, "a judgment of strict foreclosure extinguishes all rights of the foreclosing mortgagee on the underlying note, with the exception of rights enforceable through the use of the deficiency judgment procedure under General Statutes § 49-14." (Internal quotation marks omitted.) Id., 264, citing New Milford Savings Bank v. Jajer, 44 Conn.App. 588, 595-96, 691 A.2d 598 (1997). The Supreme Court stated: "[General Statutes § 49-1] addresses the mortgagee's right to pursue personal remedies against the mortgagors with respect to their personal obligations on the underlying instrument of debt. It does not address the mortgagee's right to pursue, instead, its in rem remedies against the mortgaged property. See Hodge v. Hodge, 178 Conn. 308, 313, 422 A.2d 280 (1979) ('an action in rem is an action brought to enforce or protect a pre-existing interest in particular property' . . .). Whether the statute should be construed as impliedly barring an in rem remedy depends on whether, in expressly barring an in personam remedy, the statute has extinguished the mortgage debt itself." (Emphasis in original.) New Milford Savings Bank v. Jajer, supra, 244 Conn. 265-66.
The Supreme Court went on to state: "Under our cases, a mortgagee's failure to pursue a deficiency judgment is not an election of remedies and does not, per se, extinguish the debt so as to preclude further equitable relief by way of foreclosure on the mortgaged property.
"We are not persuaded that the legislature intended § 49-1, by barring further action `against the person or persons who are liable for the payment thereof,' to extinguish the defendants' personal liability as well as their mortgage debt. Restatement (Third), supra, § 1.1, p. 8 ('[a] mortgage is enforceable whether or not any person is personally liable for that performance'). By barring action on the mortgage debt, § 49-1 proscribes a remedy, but does not eliminate the underlying debt. See, e.g., Markham v. Smith, 119 Conn. 355, 359, 176 A. 880 (1935) ('the statute of limitations does not destroy the debt but merely bars the remedy'). Because the statute does not speak to the continued existence of the mortgage debt, it does not supersede the bank's continuing access to equitable foreclosure proceedings." Id., 267. Bank One is correct that § 49-1 does not bar an action to obtain the surplus proceeds of the foreclosure sale in the GE suit.
Finally, LaPenta argues in his memoranda in opposition that (1) by virtue of § 49-26, Bank One took title to the property by strict foreclosure, and once the sale to LaPenta became final, Bank One's interest was extinguished. Section 49-26 provides:
"When a sale has been made pursuant to a judgment therefor and ratified by the court, a conveyance of the property sold shall be executed by the person appointed to make the sale, which conveyance shall vest in the purchaser the same estate that would have vested in the mortgagee or lienholder if the mortgage or lien had been foreclosed by strict foreclosure, and to this extent such conveyance shall be valid against all parties to the cause and their privies, but against no other persons." (Emphasis added.)
The statute as applied to this case does not indicate that Bank One took title by strict foreclosure. Rather, it indicates that the property interest LaPenta purchased at the sale in the Bank One suit is the same property interest that Bank One would have received if the mortgage had been foreclosed by strict foreclosure as opposed to foreclosure by sale. The statute does not address the remaining obligation on the note. As explained in New Milford Savings Bank v. Jajer, supra, 244 Conn. 267, the mortgage debt continues to exist even if the mortgagor is no longer personally liable on the debt. Thus, even though Bank One relinquished its rights in the property when the sale was finalized, a debt still existed on the mortgage note, and § 49-26 does not prohibit Bank One from recovering the surplus proceeds of the GE suit in order to satisfy part of that debt.
C. Lis Pendens
Bank One argues in its motion for summary judgment that although LaPenta obtained some interest in the property by purchasing at the foreclosure sale in the Bank One suit, the lis pendens filed at the outset of the GE suit operates to extinguish any of LaPenta's claims that are based on this interest acquired after the notice of lis pendens was recorded, unless LaPenta had been made a party to the foreclosure action, which never occurred. General Statutes § 52-325 provides: "In any action in a court of this state or in a court of the United States (1) the plaintiff or his attorney, at the time the action is commenced or afterwards, or (2) a defendant . . . if the action is intended to affect real property, may cause to be recorded in the office of the town clerk of each town in which the property is situated a notice of lis pendens, containing the names of the parties, the nature and object of the action, the court to which it is returnable and the term, session or return day thereof, the date of the process and the description of the property . . . Such notice shall, from the time of the recording only, be notice to any person thereafter acquiring any interest in such property of the pendency of the action; and each person whose conveyance or encumbrance is subsequently executed or subsequently recorded or whose interest is thereafter obtained . . . shall be deemed to be a subsequent purchaser or encumbrancer, and shall be bound by all proceedings taken after the recording of such notice, to the same extent as if he were made a party to the action . . . [I]n suits to foreclose mortgages or other liens, the persons whose conveyances or encumbrances are subsequently executed or subsequently recorded shall forfeit their rights thereunder, unless they apply to the court in which such action is brought to be made parties thereto, prior to the date when the judgment or decree in such action is rendered." (Emphasis added.)
The issue here is whether LaPenta obtained his interest in the property before or after the lis pendens was filed in the GE suit. If a lis pendens had already been filed by the time of LaPenta's purchase in the Bank One suit, then he took subject to the outcome of the GE litigation, including the award of the surplus proceeds to Bank One. LaPenta's Bank One foreclosure purchase became absolute upon the approval of the court (Freed, J.) on November 18, 2002. "The [judicial] sale is not absolute until confirmed. The order of confirmation gives the judicial sanction of the court, and when made it relates back to the time of the sale." (Internal quotation marks omitted.) Washington Trust Co. v. Smith, 241 Conn. 734, 742, 699 A.2d 73 (1997). The date of the Bank One sale is October 26, 2002.
This is the date according to (1) the certified copy of the September 10, 2002 judicial notice of foreclosure by sale in the Bank One suit, (2) LaPenta's complaint in the present case, and (3) the court's file for the Bank One suit.
Neither party has presented evidence as to when the lis pendens for the GE suit was recorded in the Canton Land Records. Bank One, in its motion for summary judgment, refers to "[t]he lis pendens filed at the outset of the suit." The GE suit contains a certified copy of the lis pendens dated December 19, 2001. The court takes judicial notice of the certified copy, and concludes that the date of the lis pendens in the GE suit precedes LaPenta's acquisition of any interest in the property. Therefore, when LaPenta purchased an interest in the property at the Bank One foreclosure sale, he took that interest subject to the outcome of the GE suit, including the supplemental judgment disbursing the surplus proceeds to Bank One.
CONCLUSION
In sum, foreclosure law is equitable in nature and it supports Bank One's right to the surplus proceeds of the GE suit. Bank One legitimately acquired the surplus proceeds through appropriate legal means. There is no factual basis for plaintiff's assertions of statutory theft, conversion or any CUTPA violation. LaPenta has not presented any sound arguments as to why he, rather than Bank One, is entitled to the surplus proceeds. Furthermore, by virtue of the lis pendens filed at the beginning of the GE suit, LaPenta took his interest in the property subject to the outcome of the GE suit, including the award of the surplus proceeds to Bank One. Accordingly, Bank One's motion for summary judgment is hereby granted.