Opinion
No. CV 07-5010881
August 14, 2008
MEMORANDUM OF DECISION ON PLAINTIFF'S MOTION TO DEFENDANT'S CERTAIN OBJECTIONS TO PLAINTIFF'S MOTION FOR DEFICIENCY JUDGMENT
Plaintiff moves to preclude certain objections asserted by defendant, Jonathan W. Burke to plaintiff's pending motion for deficiency judgment. The essential facts are as follows:
Plaintiff sued defendant Spring Time #1, LLC, maker of a certain note and leasehold mortgage and security agreement on property at 87-101 Spring Street, Hartford, Connecticut, and defendant Jonathan W. Burke, as guarantor of the note, seeking foreclosure of the Spring Street property and a deficiency judgment against the defendants. The defendants were defaulted for failure to appear and a judgment of strict foreclosure was entered on January 22, 2008 with the first law day on March 17, 2008. The judgment debt was found to be $1,692,565.20, to which was added title fee of $225, appraisal fee of $2,500, and counsel fee of $5,000, making the total amount of the debt $1,700,292.20. Subsequently, on March 10, 2008, on motion of the plaintiff, the court increased the foreclosure debt by adding a defeasance fee, making the debt $2,066,644.00, but did not change the law day. Title vested in the plaintiff on March 19, 2008. Plaintiff timely moved for a deficiency judgment against the defendants on April 16, 2008.
Defendant Burke first appeared in this case through his present attorney on April 30, 2008. He filed four objections to the motion for deficiency judgment on May 1, 2008 which plaintiff seeks to preclude. The First objection that Burke asserts is that he did not sign the guaranty and so cannot be held liable under the guaranty.
The law is clear that when a complaint alleges personal liability against the named defendants based on the note and the guaranty, the defendants must assert any defenses they have to liability in the foreclosure action and cannot raise those defenses in the motion for deficiency judgment. In the instant case, plaintiff did allege the personal liability of Burke under the guaranty in the second count of the complaint. Burke was defaulted for failing to appear and has never sought to set aside that default.
As stated in Bank of Stamford v. Alaimo, 31 Conn.App. 1, 9 (1993), "Any claims by the defendant that were made or could have been made in the foreclosure proceeding cannot be relitigated in the deficiency hearing." In Vignot v. Bank of Mystic, 32 Conn.App. 309, 313 (1993), the court said, "The defendant in the subsequent deficiency judgment, however, cannot assert defenses properly addressed to the actual judgment of foreclosure."
Burke's assertion that he did not sign the guaranty amounts to a defense of fraud. Since there is a written signature over the name of Burke on the guaranty, Burke, in effect, claims that signature is a forgery. Fraud is recognized as an equitable defense in a foreclosure action. Chase Manhattan Mortgage Corp. v. Machado, 83 Conn.App. 183, 188 (2004); Gestay v. Ehalt, 45 Conn. L. Rptr. No. 10, 363 (June 16, 2008, Taylor, J.).
However, while that defense could have been asserted in the underlying foreclosure action, the authority of Bank of Stamford v. Alaimo, supra, and Vignot v. Bank of Mystic, supra, is that it cannot be asserted in this deficiency judgment proceeding.
Burke's Second objection is that his obligation under the guaranty is of a limited nature, is conditional on other misconduct than default of payment of the mortgage note, and is not necessarily equal to the debt established in the foreclosure judgment. When the guarantor is the partner or officer of the maker of the note, the guarantor usually guarantees to pay the entire debt of the maker. The amount of the debt determined by the foreclosure judgment cannot be challenged in the motion for deficiency judgment. As the court said in First Bank v. Simpson, 199 Conn. 368, 373 (1986), "In the hearing contemplated under § 49-14 to obtain a deficiency judgment, the court, after hearing the party's appraisers, determines the value of the property and determines any deficiency. This deficiency judgment procedure presumes the amount of the debt that is established by the foreclosure judgment and merely provides for a hearing on the value of the property." See also Vignot v. Bank of Mystic, 32 Conn.App. 309, 313 (1983).
In the instant case, the guaranty is not directly of the debt owed by the maker of the note and mortgage. Paragraph four of the "Guaranty of Recourse Obligations of Borrower" defines the guaranty as "all obligations and liabilities of Borrower for which Borrower shall be personally liable pursuant to Article 11 of the note." That Article 11(b) provides that the borrower shall be personally liable to the lender for losses due to fraud or misrepresentation by the borrower; misapplication, misappropriation, or conversion of tenant's security deposits or rents, or of insurance proceeds; or for similar types of malfeasance.
As indicated above, under Conn. Gen. Stat. § 49-14 a deficiency judgment is computed by establishing a valuation for the mortgage property and rendering judgment for the plaintiff for the difference, if any, between the judgment debt and such valuation. However, where a deficiency judgment is sought, not against the mortgagor but against a guarantor, that simple calculation may not apply. Rather, the clear, contractual terms of the guaranty must be enforced. Regency Savings Bank v. Westmart Partners, 70 Conn.App. 341, 347 (2002), holds that, where there is a limited guaranty, the deficiency judgment is the difference between the amount owed under the limited guaranty, not the judgment debt, and the appraised value of the subject property. The court justified its decision by stating, "our interpretation of § 49-14 permits the statute to achieve a reasonable and rational result, one that is not disallowed by the statute's plain language."
The implication of this case is that Burke is not barred from contesting his obligation under the guaranty, and Burke can require that the plaintiff prove Burke's specific wrongdoing under Article 11(b) and the amount owed as a consequence. Burke also asserts the right to question the additional attorneys fees, interest, payments to the landlord, and other expenses that are added to the judgment debt after the date of the original judgment of strict foreclosure. Clearly, Burke has a right to contest these items.
Burke's Third objection is that he was not providing meaningful notice of this action, so the court lacked personal jurisdiction over him, and the judgment of foreclosure is, therefore, not binding on him. Burke having defaulted and a default foreclosure judgment having been rendered, Burke nevertheless has the right to contest the personal jurisdiction over him. As stated in Jimenez v. DeRosa, 109 Conn.App. 332, 333 (2008), "A default judgment must be set aside if the defaulted defendant establishes that the court did not have personal jurisdiction to render the judgment against him." See also Commissioner of Environmental Protection v. Connecticut Building Wrecking Company, 227 Conn. 175, 195-96 (1993).
However, the proper way to challenge lack of personal jurisdiction is by way of a motion to dismiss. Moreover, the motion must be filed within thirty days of defendant entering a general appearance. Practice Book Section 10-30. In the instant case, Burke has failed to timely file a motion to dismiss. An objection to the deficiency judgment is not a proper way to raise the jurisdictional issue.
Burke also claims that he did not receive notice of the proceedings of this case in which the debt was increased by the defeasance fee. However, because he was defaulted for failure to appear, nothing in the Practice Book grants him the right to such notice. The standing orders for foreclosure by sale require that a non-appearing defendant be notified of the results of the foreclosure judgment and that he risks losing the equity in his property. In the instant case, a strict foreclosure judgment was entered so the standing orders do not apply.
Finally, Burke's Fourth objection relates to the valuation of the subject property. All the parties agree that Burke has a right to contest valuation at the deficiency judgment.
In a supplemental brief filed after oral argument on plaintiff's motion to preclude, Burke makes two additional arguments.
The first is that because the law day was within twenty days of entry of judgment, the law days were a legal nullity and there was no vesting of title in the plaintiff.
The period of running of the law day did occur during the automatic stay period for an appeal. In RAL Management, Inc. v. Valley View Associates, 278 Conn. 672, 683 (2006), the Supreme Court said, "In other words, the law days are ineffective pending the stay because to treat them otherwise would carry out the judgment in violation of the stay." However, a careful reading of this case makes it clear that law days set within the twenty-day appeal period are ineffective only when a timely motion to open the judgment or a timely appeal is filed. As stated, in Continental Capital Corp. v. Lazarte, 57 Conn.App. 271, 273 (2000), "Law days in a strict foreclosure cannot run if the motion to open is filed during the period but is yet to be ruled on." (Italics added). In Peoples Bank v. Lemdon, 23 Conn. L. Rptr. 683 (January 5, 1999, Nadeau, J.), the court held, "However, the defendants did not file the motion to reopen within twenty days from the judgment of strict foreclosure and, thus, the automatic stay provisions do not apply." Here, Burke failed to file a motion to reopen the judgment or to appeal the judgment, so the judgment is valid.
Burke's second argument is that because the judgment is a nullity, his filing an appearance automatically sets aside the default, pursuant to Practice Book § 17-20(c). However, the court does not find that the judgment is in nullity so his appearance filed after a judgment has entered does not set aside the judgment.
Thus, the court rules on plaintiff's motion to preclude defendant's objections to the deficiency judgment as follows:
Burke's First and Third objections are precluded.
Burke's Second and Fourth objections are not precluded.