Opinion
No. FST CV 06 5002704 S
July 13, 2011
ARTICULATED MEMORANDUM OF DECISION
What are the rights and obligations of the lender, lender's assignee, property owners and borrower when a mortgage company loaned money secured by a mortgage to the non-title holder borrower? The parties have proposed creative solutions to this situation.
This action was commenced by Acoustic Home Loans, Inc. against the three named defendants returnable November 21, 2006. There were three amended complaints filed. The Amended Complaint dated April 18, 2007 (#120.00) changed the name of the plaintiff from Acoustic Home Loans, Inc. to Deutsche Bank National Trust Company, as Trustee, Successor to Acoustic Home Loans, Inc (hereinafter Deutsche Bank). Also changed was the date of the loan from August 25, 2005 to May 25, 2005. The Corrected Second Amended Complaint dated May 7, 2010 (#162.00) corrected a typographical error changing the name of Acoustic Home Loans, Inc. to Acoustic Home Loans, LLC, (hereinafter Acoustic), which is consistent with the executed loan documents. The operative complaint is the Corrected Second Amended Complaint dated May 7, 2010 (#162.00) in four counts. Acoustic is no longer a party in this lawsuit, no longer a plaintiff and no longer the defendant in Marie Giliane Belizaire's counterclaim. The only plaintiff is Deutsche Bank National Trust Company, as Trustee, Successor to Acoustic Home Loans, LLC. The First Count seeks money damages against the defendant, Marie Giliane Belizaire, on the basis of a May 25, 2005 $425,000 promissory note signed only by Marie Giliane Belizaire (hereinafter Belizaire). The First Count makes no allegations as to a mortgage securing the $425,000 promissory note nor does the First Count seek foreclosure. The Second Count seeks foreclosure of the real property at 3 Godfrey Street, Norwalk, Connecticut against all three defendants alleging that the other two defendants, Marjorie B. Belizaire and Joziane Bejin a/k/a Joziane Belizaire Turnier, are the record title owners of 3 Godfrey Street, Norwalk, Connecticut but that the non-owner, Belizaire, alone executed the mortgage deed. The Third Count seeks equitable subrogation of the mortgage deed securing the $425,000 promissory note since the $425,000 was used to pay off two mortgages and a judgment lien on the real property at 3 Godfrey Street, Norwalk, Connecticut. The plaintiff seeks foreclosure of the equitably subrogated $425,000 mortgage. The Fourth Count seeks money damages against the two record title property owners, Marjorie B. Belizaire and Joziane Bejin, for unjust enrichment since the $425,000 was used to pay off two mortgages, a judgment lien, real estate taxes and the balance of the loan proceeds was used to pay for certain code correction work, renovations and other improvements to the real property at 3 Godfrey Street.
The two record title owner defendants, Marjorie B. Belizaire and Joziane Bejin, hired counsel, who filed May 24, 2010 Answer and Special Defenses to Second Amended Complaint dated May 7, 2010 (#165.00). These two defendants did not file a counterclaim. In their Answer they admitted that they are the record title owners of 3 Godfrey Street, Norwalk, Connecticut. Their two Special Defenses allege that these two defendants are "the record owners of the real estate located at 3 Godfrey Street, Norwalk, Connecticut which property is the subject of this foreclosure action" and that these two defendants "did not sign the Note or Mortgage that is the underlying cause of this action and are not obligated to the Plaintiff on the Note, or subject to the mortgage." The plaintiff filed a November 4, 2008 Reply (#138.00) to these two Special Defenses admitting that Marjorie B. Belizaire and Joziane Bejin are the only record title owners of the property at 3 Godfrey Street, Norwalk, Connecticut and that Marjorie B. Belizaire and Joziane Bejin did not sign the Note or the Mortgage. The balance of the two Special Defenses were denied by the plaintiff.
The defendant, Belizaire, is represented by separate counsel, who filed an Amended Answer, Third Revised Special Defenses and Second Revised Counterclaim dated May 18, 2010 (#163.00) containing five special defenses and a one-count counterclaim.
The Belizaire five Special Defenses are narrative in format and in some respects contain repetitive allegations. Without outlining each of the five Special Defenses, this court concludes that Belizaire is alleging that she was "either fraudulently induced, coerced, or the victim of the predecessor to Deutsche Bank National Trust Company, as Trustee's (hereinafter `Deutsche Bank') negligence in not ascertaining that she was not a record owner of the premises described in the Mortgage held by Deutsche Bank": that the predecessor in interest to Deutsche Bank "fraudulently misrepresented and attributed income to Beliziare that she did not have, represented incorrectly that she was the owner of the premises and accepted the appraisal of their agent, servant or employee which overvalued the premises, thereby inducing Beliziare to obligate herself for the repayment of the loan for which she did not have the ability to pay and satisfy"; "Deutsche Bank was aware or should have been aware that defenses existed to the enforcement of the note and mortgage in that at the time the loan was negotiated to Deutsche Bank it was already in default"; "Deutsche Bank is equitably estopped from enforcing the note or foreclosing the mortgage"; "The Note and Mortgage transaction was procedurally and substantially unconscionable"; "Belizaire can not read the English language and did not understand the nature or effect of the documents she signed." "There was no meeting of the minds between Belizaire and Acoustic. No contract was formed between those parties. Therefore, Deutsche Bank did not acquire the Promissory Note it seeks to enforce, in that no contract was ever formed between Belizaire and Acoustic, the predecessor to Deutsche Bank."
The Belizaire one-count counterclaim realleges certain facts contained within the five special defenses and seeks damages on the basis that the "Plaintiff is guilty of Unfair Trade Practices in violation of C.G.S. 42-110g et seq. by reason of its knowledge of its predecessor's unscrupulous, dishonest, fraudulent and coercive behavior in procuring a loan from Belizaire, a vulnerable, unwitting and naive victim of commercially outrageous practices which caused her to sign the Note and Mortgage which Plaintiff now seeks to enforce." The counterclaim's Demand for Relief seeks punitive damages, money damages, costs, interest and attorney fees.
Belizaire filed special defenses and counterclaims alleging violations of various federal statutes and regulations including but not limited to Truth in Lending (#136.00, #152.00, #161.00). Those special defenses and counterclaims were removed from the case by Belizaire's filing of her operative Amended Answer, Third Revised Special Defenses and Second Revised Counterclaim dated May 18, 2010 (#163.00).
The plaintiff filed a June 3, 2010 Reply (#166.00) to pleading #163.00. It admitted that "the Plaintiff is assignee of its predecessor, Acoustic Home Loans, LLC (hereinafter `Acoustic')." It admitted "that when Acoustic negotiated the loan to it, the Plaintiff knew the loan was in default." The other allegations of the five Special Defenses were denied. In answer to the one-count counterclaim filed by Belizaire, the plaintiff admitted "that at the time she signed the note and mortgage, Belizaire did not own 3 Godfrey Street, Norwalk, Connecticut." The plaintiff admitted "that at the time the note and mortgage were negotiated to it, the loan was in default and had been in default for a period of time." The plaintiff either denied or alleged insufficient knowledge as to the balance of Belizaire's counterclaim.
The evidence commenced on January 5, 2010. The pleadings were closed during trial. No party claimed the matter for the jury. The court trial concluded on September 30, 2010 after ten days of trial.
The court makes the following findings of fact and legal conclusions.
The three named defendants, Marie Giliane Belizaire, Marjorie B. Belizaire and Joziane Bejin, are sisters. Marjorie B. Belizaire and Joziane Bejin are the record title owners for the multi-family house located at 3 Godfrey Street, Norwalk, Connecticut and they have been the only owners continuously since 1992. Belizaire is not a record title owner to the house. The predecessor in title was their mother, Marie Eugene DeBardes Belizaire. Their mother vacated the house in 1990. The two record title owners occupied 3 Godfrey Street for a number of years but had not occupied for past ten years prior to trial: one living in Florida and the other in Stratford, Connecticut. For many years and from 1997 to the last date of trial, Belizaire occupied 3 Godfrey Street, Norwalk, Connecticut. She is 57 and unmarried. She is employed as a nurses' assistant. Her 2002 through 2005 income tax returns were offered as Exhibits 33, 34, 35 and 36. Her only source of income in these tax returns was her W-2 wages as a nurses' assistant. Her gross W-2 wages were: 2002, $17,101; 2003, $19,276; 2004, $20,295; and 2005, $20,665. No real estate rents were disclosed in these four income tax returns.
In March 2004 a notice was filed against the property at 3 Godfrey Street, Norwalk, Connecticut by agencies of the City of Norwalk alleging that the property contained an illegal apartment in the basement and an illegal apartment in the attic. Ex. 19 (Plaintiff's Exhibit J); Ex. 18, page 63. A cease and desist order for those two apartments was issued. There is no evidence that Marjorie B. Belizaire and Joziane Bejin knew of the cease and desist order. Compliance with that cease and desist order required certain repairs. Belizaire filed an Application for Zoning Approval and Zoning Compliance on July 8, 2004 and an Application for a Building Permit on August 2, 2004 in order to remove the basement dwelling unit, remove the attic unit and remove all related appliances. Ex. 25. At the time the defendants' mother, Marie Eugenie DeBordes Belizaire, purchased 3 Godfrey Street in 1985, it was a two-family house. The sisters occupied the house with their family members. Other relatives and friends occupied the house. To accommodate them the kitchens and other facilities were installed in the basement and attic. In addition 3 Godfrey Street was in need of other improvements including but not limited to certain repairs to reconvert the house back to a two-family house.
Belizaire undertook the repair project without the knowledge or consent of her sisters. She contacted Jules D. Pierre-Louis, a member of her church, who put her in contact with a loan arranger and contractors. Various meetings were held at the 3 Godfrey Street house with representatives of the mortgage lender's agents and contractors. Belizaire met with Barry Diamond, Jules D. Pierre-Louis, Michael Kahn, Jeffrey Dorfman and a notary public named Florence. All of these meetings occurred at 3 Godfrey Street. She thought one or more of them were loan arrangers. On May 25, 2005 at 3 Godfrey Street, Belizaire executed the promissory note and mortgage deed in the face amount of $425,000 to Acoustic Home Loans, LLC along with a loan application and other closing documents. Her two sisters, the record title owners, were unaware of this transaction and thus they did not and could not consent to the $425,000 loan and mortgage. The two sisters did not authorize Belizaire to obtain the $425,000 loan, engage in the loan transaction or perform construction work on their behalf. The two sisters did not sign the note, mortgage deed or any other related documents. Belizaire speaks limited English and cannot read English. No lawyer was present with her at the May 25, 2005 closing nor at any of the other meetings at 3 Godfrey Street. No one explained the terms and conditions of the various documents that were signed to obtain the $425,000 loan either in English or in her native language, Haitian Creole. She cannot read Haitian Creole.
The first three mortgage payments due July 1, 2005, August 1, 2005 and September 1, 2005 were paid from the $425,000 loan proceeds, not by Belizaire. The first payment was made directly to Acoustic. The remaining payments were made to Home Eq Services. Ex. 17 (Plaintiff's Exhibit BB). Belizaire made one principal and interest mortgage payment from her cousin's funds on November 14, 2005 in the amount of $3,575.53, the payment due October 1, 2005. Ex. 8. The $3,573.53 payment was $71.01 principal and $3,504.52 interest. That November 14, 2005 payment also included $541.97 for real estate tax and homeowner's insurance escrow. Thus the actual payment made by Belizaire with borrowed funds was $4,117.50. Ex. 8. No further payments were made.
The plaintiff produced only one witness, Pamela Keefe, a member of the title resolution department of Home Eq Services. She brought her entire file with her to the witness stand. It was in a blue binder and appeared to be about one inch thick. Her office is in Raleigh, North Carolina. Home Eq Services was the servicing company for this mortgage. The mortgage file was transferred to Home Eq Services on August 4, 2005. Although the loan date is May 25, 2005, the mortgage deed was not recorded in the Norwalk Land Records until August 2, 2005. Ex. 4. No testimony was furnished as to the reason for this 69-day delay in the mortgage deed's recordation. Home Eq Services prepared the Payment History, Ex. 8, and collected and disbursed all principal, interest, insurance and real estate taxes. On August 4, 2005 the loan was not in default. The first mortgage payment due July 1, 2005 was made directly to Acoustic. Home Eq Services collected and processed the next three monthly mortgage payments. The loan was in default after October 1, 2005. After November 2005 Home Eq Services continued to process the loan including the payment of insurance and real estate taxes out of its own funds. When Home Eq Services realized that the loan documents were not executed by the record title owners, the loan/mortgage file was referred to its title resolution department in January 2006. The title resolution department of Home Eq Services deals with loans in which there is a problem with the real estate title.
Deutsche Bank took assignment of this $425,000 loan on October 17, 2006 after the loan went into default in November 2005, after the title defect was known to the loan servicing company in January 2006, after the matter was referred to Connecticut counsel for the commencement of this lawsuit, after the four-count complaint dated October 16, 2006 was prepared and signed by Connecticut counsel, after this lawsuit was initially prepared in the name of Acoustic Home Loans, Inc., after Home Eq Services was advised that the foreclosure could not go forward due to the title defects and after Home Eq Services determined that there was no Belizaire income verification in the file. The mortgage was assigned to Deutsche Bank by an assignment dated October 17, 2006. Ex. 6. This assignment was recorded in the Norwalk Land Records on April 13, 2007. No testimony was furnished as to the reason for this 178-day delay in the mortgage assignment's recordation. On April 10, 2007 Acoustic Home Loans, LLC executed an Allonge to be attached to and made part of the May 25, 2005 $425,000 Adjustable Rate Note executed by Marie Giliane Belizaire to the order of Acoustic Home Loans, LLC. Ex. 5. The Allonge stated: "For Value Received, pay to the order of Deutsche Bank National Trust Company, as Trustee without recourse and without any representation or warranty, express or implied in fact or by law." "An allonge is defined as `[a] piece of paper annexed to a negotiable instrument or promissory note, on which to write endorsements for which there is no room on the instrument itself. Such must be so firmly affixed thereto as to become a part thereof.' Black's Law Dictionary (6th Ed. 1990)" SKW Real Estate Limited Partnership v. Gallicchio, 49 Conn.App. 563, 566, fn.3 (1998). Acoustic commenced this lawsuit by a four-count complaint dated October 16, 2006, the day before the assignment to Deutsche Bank.
The plaintiff commenced this foreclosure before it was assigned the mortgage. The mortgage follows the note. The rightful owner of the note has the right to enforce the mortgage by foreclosure. Gen. Stat. § 49-17. According to the allonge, it could be argued that the note was not conveyed to the plaintiff until April 10, 2007, well after this lawsuit was commenced. No further evidence on this subject was offered by any party. The defendants did not argue that the plaintiff had no standing to commence this litigation on October 16, 2006 because it did not record the mortgage until October 17, 2006 and obtain the allonge on the note until April 10, 2007. In a similar situation a trial court found the plaintiff had standing. U.S. Bank National Association v. Weigand, Superior Court, judicial district of Windham at Putnam, Docket Number CV 08-5003346 S (May 14, 2009, Riley, J.). Judge Riley presumed that the plaintiff was the owner of the note prior to the commencement of this action. This court therefore will also presume that the plaintiff, Deutsche Bank, was the owner of the note prior to the commencement of this action. Park National Bank v. 3333 Main, LLC, 127 Conn.App. 774, 777 fn.3, 780 (2011); SKW Real Estate Limited Partnership v. Gallicchio, supra, 49 Conn.App. 571
An even more recent case sums up the issue of standing by a holder of a note in a foreclosure action.
"We first address the defendant's claim that the plaintiff lacked standing to commence this foreclosure action because the claim presents a question as to the trial court's subject matter jurisdiction. See New Hartford v. Connecticut Resources Recovery Authority, 291 Conn. 511, 518, 970 A.2d 583 (2009) ("[t]he issue of standing implicates the trial court's subject matter jurisdiction and therefore presents a threshold issue for our determination"). The defendant specifically argues that the plaintiff did not have standing to bring this foreclosure action because it did not rightfully own the promissory note and mortgage until after it commenced the action. We conclude that the plaintiff did have standing to initiate this suit." HSBC Bank USA, N.A. v. Navin, 129 Conn.App. 707, 710 (2011).
The defendant's standing argument is controlled by this court's decision in Chase Home Finance, LLC v. Fequiere, 119 Conn.App. 570, 989 A.2d 606, cert. denied, 295 Conn. 922, 991 A.2d 564 (2010). In Chase Home Finance, LLC, this court stated: "General Statutes § 49-17 permits the holder of a negotiable instrument that is secured by a mortgage to foreclose on the mortgage even when the mortgage has not yet been assigned to him . . . The statute codifies the common-law principle of long standing that the mortgage follows the note, pursuant to which only the rightful owner of the note has the right to enforce the mortgage . . . Our legislature, by adopting § 49-17, has provided[d] an avenue for the holder of the note to foreclose on the property when the mortgage has not been assigned to him." (Citations omitted; internal quotation marks omitted.) Id. 576-77.
HSBC Bank USA, N.A. v. Navin, supra, 129 Conn.App. 711
"Therefore, having failed to present any evidence contesting that the plaintiff was the holder of the note at the time it commenced the foreclosure action, the defendant has failed to satisfy his burden "[providing] an evidentiary foundation to demonstrate the existence of a genuine issue of material fact." (Internal quotation marks omitted.) Liberty Mutual Ins. Co. v. Lone Star Industries, Inc., 290 Conn. 767, 787, 967 A.2d 1 (2009). Accordingly, we conclude that the court did not abuse its discretion by granting the plaintiff's motion for summary judgment." Id. 713.
The court will discuss the facts and the law in regards to each of the four counts as well as the facts and law as to the special defenses applicable to that count.
The First Count is against Belizaire. She is the only defendant in the First Count, which is a suit on the $425,000 promissory note dated May 25, 2005. Ex. 3. The First Count is not a suit on the mortgage deed. It seeks a judgment of money damages against Belizaire for her failure to pay the $425,000 promissory note. The promissory note provides for late fees, interest and attorney fees. Belizaire admits that she signed the $425,000 promissory note and its riders. The plaintiff has proven that Acoustic advanced the $425,000 to Belizaire. The plaintiff has proven that Belizaire made no monthly payments after November 14, 2005. The plaintiff has proven that the promissory note was assigned to Deutsche Bank and that Deutsche Bank is the current holder of the promissory note. The plaintiff has proven that the balance of the unpaid promissory note is due and payable. The court finds that the plaintiff has proven the allegations of its First Count against Belizaire. Unless Belizaire is successful in proving one of her Special Defenses, the plaintiff will be entitled to a judgment against Belizaire on the First Count.
"Ordinarily an assignee of a contract takes it subject to all defenses which might have been asserted against the assignor." Fairfield Credit Corporation v. Donnelly, 158 Conn. 543, 548 (1969). [T]he general rule is that [t]he plaintiff, as assignee of the mortgage, [stands] "in the shoes of his assignor, with the same rights"; Reynolds, Trustee v. Ramos, 188 Conn. 316, 319, fn.5 (1982); Leonard v. Bailwitz, 148 Conn. 8, 13 (1960). The court finds that the special defenses filed by both parties are applicable to Deutsche Bank as the only plaintiff. Deutsche Bank National Trust Co. v. Medina, Superior Court, judicial district of Stamford/Norwalk at Stamford, Docket Number FST CV 08-5006907S (January 10, 2011, Mintz, J.) [ 51 Conn. L. Rptr. 270]. Plaintiff's counsel conceded that fact at oral argument.
The plaintiff has labeled some of Belizaire's Special Defense as a claim that a lender has a duty to determine that a borrower has the ability to repay the loan. In some reported trial court decisions these claims are couched in claims of unclean hands and breach of the covenant of good faith and fair dealing.
While the doctrine of unclean hands has been recognized as a special defense in foreclosure actions; Milford Bank v. Barbieri, Superior Court, Judicial District of Ansonia/Milford at Milford, Docket No. 043315 (August 30, 1994, Curran, J.); no court has recognized a duty to inquire into a borrower's ability to repay, even if the lender was a commercial bank. Dime Savings Bank v. Albir, Superior Court, Judicial District of Stamford/Norwalk at Stamford, Docket No. 132582 (February 7, 1995, D'Andrea, J.); Donza v. Depamphilis, Superior Court, Judicial District of Hartford/New Britain at Hartford, Docket No. 172776 (April 7, 1994, Aurigemma, J.); Connecticut National Bank v. Anderson, 5 Conn. L. Rptr. 60 (November 4, 1991 Pickett, J.). "Under Connecticut law there is no duty that a lender investigate the financial status of a borrower . . . The law assumes the lender will act to protect itself against a bad loan. Certainly, the borrower has no claim when the lender relies upon the borrower's representations and does not independently verify them." Cooper v. Burby, 7 CSCR 591, 593 (April 29, 1992, Satter, S.T.R.) [ 6 Conn. L. Rptr. 749]; see also Dime Savings Bank v. Albir, Superior Court, Judicial District of Stamford/Norwalk at Stamford, Docket No. 132582 (February 7, 1995, D'Andrea, J.). Likewise, a borrower also has no claim when the lender relies on the borrower's representations to indicate that the borrower is capable of repaying the mortgage, and later the borrower's situation changes.
Great County Bank v. Kiely, Superior Court, judicial district of Ansonia-Milford, Docket Number CV 94-047460 S (October 19, 1995, Curran, J.).
One Appellate Court has commented on this subject. "While it may well be a prudent business practice for a lender to verify the sources of all of a borrower's income, we see no compelling reason to transform such a practice into a rule of law." Cheshire Mortgage Services, Inc. v. Montes, 223 Conn. 80, 92, fn.15 (1992).
Belizaire counters this argument by stating that a foreclosure is an equitable proceeding. The court is entitled to consider all equitable factors in fashioning a decision. The false statement of Belizaire's income and Acoustic's failure to determine that fact considering the Acoustic documents produced at trial are equitable considerations. "Because a mortgage foreclosure is an equitable proceeding the court may consider all relevant circumstances to ensure that complete justice is done." Reynolds, Trustee v. Ramos, supra, 188 Conn. 320.
The defense of unconscionability has been raised by Belizaire in her Fourth Special Defense (#163.00). "The question of unconscionability is a matter of law to be decided by the court based on all the facts and circumstances of the case." Fairfield Lease Corporation v. Romano's Auto Service, 4 Conn.App. 495, 498 (1985); Iamartino v. Avallone, 2 Conn.App. 119, 125 (1984). ". . the test is whether, in light of the general commercial background and the commercial needs of the particular trade or case, the clauses involved are so one-sided as to be unconscionable under the circumstances existing at the time of the making of the contract." Emlee Equipment Leasing Corporation v. Waterbury Transmission, Inc., 31 Conn.App. 455, 464 (1993). "Unconscionability generally requires a demonstration of an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party." Id. 464. "The party claiming the unconscionability bears the burden of proof." Id. 464. "The purpose of the doctrine of unconscionability is to prevent oppression and unfair surprise." Cheshire Mortgage Service, Inc. v. Montes, supra, 223 Conn. 88. "The classic definition of an unconscionable contract is one which no man in his senses, not under delusion, would make, on one hand, and which no fair and honest man would accept, on the other." Smith v. Mitsubishi Motors Credit of America, Inc., 247 Conn. 342, 349 (1998).
It is generally accepted that there are two forms of unconscionability; substantively unconscionable and procedurally unconscionable. Substantively unconscionable is defined as whether the terms of the contract impose oppressive obligations on the contracting party. Smith v. Mitsubishi Motors Credit of America, Inc., supra, 247 Conn. 349; Cheshire Mortgage Service, Inc. v. Montes, supra, CT Page 15653 223 Conn. 91-92. Procedurally unconscionable is intended to prevent unfair surprise and may be found based upon factors concerning the circumstances of the making of the transaction which concern unequal bargaining power. Smith v. Mitsubishi Motors Credit Corporation of America, Inc., supra, 247 Conn. 351-52; Cheshire Mortgage Services, Inc. v. Montes, supra, 223 Conn. 89-90. "Substantive unconscionability focuses on the content of the contract as distinguished from procedural unconscionability, which focuses on the process by which the allegedly offensive terms found their way into the agreement." Cheshire Mortgage Services, Inc. v. Montes, supra, 223 Conn. 87, fn.14; R.F Daddario Sons, Inc. v. Shelansky et al., 123 Conn.App. 725, 741 (2010); Reizfield v. Reizfield, 125 Conn.App. 782, 799 (2011).
These two common-law doctrines of unconscionability look to the terms of the contract at the time that the parties entered into the agreement. Belizaire's Fourth Special Defense and Counterclaim of unconscionability do not clearly delineate whether the claims are substantive unconscionability or procedural unconscionability or both. The plaintiff did not file any requests to revise. Therefore the court is going to analyze the facts under both the substantively unconscionable standards and the procedurally unconscionable standards. Although Belizaire's pleadings outline certain of the underlying facts relating to unconscionability not all of the facts admitted at trial were alleged in the complaint. The plaintiff failed to file a request to revise. "The interpretation of pleadings is always a question of law for the court . . . The modern trend, which is followed in Connecticut, is to construe pleadings broadly and realistically, rather than narrowly and technically . . . Although essential allegations may not be supplied by conjecture or remote implication . . . the complaint (or counterclaim) must be read in its entirety in such a way as to give effect to the pleading with reference to the general theory upon which it proceeded." Wiele v. Board of Assessment Appeals, 119 Conn.App. 544, 555 (2010). "As long as the pleadings provide sufficient notice of the facts claimed and the issues to be tried and do not surprise or prejudice the opposing party, we will not conclude that the complaint is insufficient to allow recovery." Oxford House at Yale v. Gilligan, 125 Conn.App. 464, 470 (2010). Therefore, the court is going to consider all the facts, testimony and documents that were offered in evidence on the issues of substantive unconscionability and procedural unconscionability. Hamm v. Taylor, 180 Conn. 491, 493-94 (1980).
The court will now review the facts that support Belizaire's claim of procedural unconscionability and then in the next portion of this Memorandum of Decision the court will review the facts that support substantive unconscionability. Some facts contained in the next two sections of this Memorandum of Decision will apply to both procedural unconscionability and substantive unconscionability.
Beliziare was born in Haiti. Her native language is Haitian Creole. She is 57, d.o.b. January 16, 1953. She completed high school in Montreal, Canada with all classes conducted in French. She became a Canadian citizen after passing an examination given in French. She is not a U.S. citizen but has lived in the United States for twenty-one years. Beliziare is not fluent in the English language and that fact was known to the plaintiff, its agents and all persons who dealt with her. She cannot read English. She had a limited understanding of English but it is sufficient to give and receive instructions to her nursing assistant patients. She does not need to speak English at her job nor with her other day to day activities. She does not watch television. She passed the nursing assistant's licensing examination in 1998 in English after memorizing answers. An English speaking person was at the examination site to assist Belizaire. She took practice tests. The test was multiple choice. Ex. 40. In 2005 she did not understand what a borrower was and could not understand the English word, promise. She signed Ex. 38 at the closing but was not able to identify what the number $3,575.53 meant. She did not know what the form in evidence as Ex. 38 meant. Ex. 38 is a notice that $3,575.53 is the monthly mortgage payment of principal and interest. The total monthly payment including principal, interest, real estate taxes and homeowner's insurance is $4,117.50. She signed two notices of monthly payments: one dated May 16, 2005, Ex. 39, and one dated May 25, 2005, Ex. 38. The plaintiff offered no evidence why two such forms were signed nine days apart. Belizaire testified at trial and at her deposition with the assistance of a Haitian Creole interpreter. The court finds that Belizaire had a limited ability in the English language and that fact was known or should have been known to Acoustic. The court makes that finding based on the testimony of her sisters. The court did not give any weight to the fact that Belizaire had a Haitian Creole interpreter assisting her during her testimony.
Beliziare thought that she owned the house because her mother left the house to her and her two sisters. Her two sisters moved out of 3 Godfrey Street years before 2005. Belizaire thought that she alone owned the house. She wanted to call her sisters about this transaction but was told by a man not to do that until the construction was completed and then you can surprise your sisters.
In 2001 Belizaire needed to install new windows in the house. She made arrangements for the installation and in the process signed loan documents with Household Realty Corporation. Ex. 1 (Question 5, Exhibit G). After the windows were installed she started making the monthly payments. The prior first mortgage was not paid off when she obtained the Household Realty Corporation window loan. Belizaire thought that this transaction was of a similar nature. The contractors would do the work using the new loan proceeds and then when the work was completed she would make loan payments. She did not consider this transaction a mortgage.
She had no ability to read or understand mortgage documents in English. She knew what a loan was. She knew what a mortgage was. She knew that she needed money to comply with the cease and desist order and to repair other portions of the house that she occupied at 3 Godfrey Street, Norwalk, Connecticut. She only wanted a limited amount of money to do the repair work, not a new mortgage. During trial Belizaire was asked to look at a loan application, Ex. 24, to determine if it contained a number related to her income. After being directed to the second page, she spent over six minutes reading that page and answered: "I do not see it." The entire top of Ex. 24 second page contains various income figures. The court found Belizaire credible as to her inability to comprehend English and the subject of this question. On another occasion at trial using Ex. 24 Belizaire read a number as 400,000 when the number in the box on the loan application was 440,000. None of the loan and mortgage documents were in Haitian Creole. None of the loans and mortgage documents were translated to her in Haitian Creole. The only person involved in this transaction that spoke Haitian Creole was Jules D. Pierre-Louis. She referred to him as her friend from church. He sold her a Mutual of Omaha insurance policy. Jules D. Pierre-Louis introduced her to the Michael Kahn of Alliance for Affordable Housing, Inc., Jeffrey Dorfman and Barry S. Diamond. Other than the notary public who was present at the May 25, 2005 closing, Belizaire did not meet, speak or correspond with anyone else.
Michael Kahn is connected with Alliance for Affordable Housing, Inc. Ex. 19 (Plaintiff's Exhibit W). He did not testify and there was insufficient evidence to determine exactly what role Alliance for Affordable Housing, Inc. had in this transaction. Belizaire thought Barry Diamond was the loan arranger. The court is satisfied that Belizaire could not distinguish between a lender, mortgage broker or loan arranger. Jeffrey Dorfman is a contractor doing business as D D Management. He did not do any construction work on 3 Godfrey Street but he acted as the general contractor and hired the subcontractors and laborers who did the actual work. Barry S. Diamond received the net proceeds of the $425,000. Mr. Diamond does business as Arbitration International, LLC. The check was endorsed to Arbitration International, LLC. Ex 1 (Exhibit J). There was insufficient evidence to determine exactly what role Arbitration International, LLC had in this transaction. Mr. Diamond was in charge of disbursing the post-closing funds. He made three mortgage payments totaling $12,352.50 from the post-closing funds. Ex. 17 (Plaintiff's Exhibit BB marked "Exhibit B Belizaire Accounting"). Mr. Diamond was paid a fee from the loan proceeds. He also paid a fee to Jules D. Pierre-Louis in the amount of $10,500 from the loan proceeds. Ex. 17. (Plaintiff's Exhibit BB "Exhibit B, Belizaire Accounting Sales commission/Jules Pierre $10,500.") There was no evidence that Jules D. Pierre-Louis was a licensed mortgage broker or contractor or otherwise entitled to a fee or a "sales commission." From the evidence the court infers that Jules D. Pierre-Louis was paid a finder's fee for referring Belizaire to the contractors and lender. This fact and the finder's fee was not disclosed by anyone to Belizaire. This sales commission to Jules Pierre Louis of $10,500 was not disclosed on any HUD-1 statement or Federal Truth in Lending Disclosure Statement. Ex. 13, Ex. 14 and Ex. 32.
There was no construction contract signed. This was a home improvement project. No written statement of the work was ever furnished to Belizaire. The nature of the construction work to be performed and the work actually performed was never reduced to writing. Mr. Dorfman's records are woefully incomplete. Ex. 17. He testified that he brought all these documents to his deposition and no records of this transaction were destroyed. He was subpoenaed to bring "all contracts, correspondence, invoices, permits, estimates, bank records, photographs and all other documents of any kind pertaining to property at 3 Godfrey Street, Norwalk, Connecticut" from January 1, 2004 to his November 13, 2007 deposition. Ex. 17. It appears that the contractor's written records were all prepared at the same time. No contemporaneous prepared contractor's records were presented at trial. Mr. Dorfman is proficient with computers. Mr. Kahn, Mr. Dorfman and Mr. Diamond all had offices at the same address: 4 Daniel Farms Road, Trumbull, CT. Belizaire to this day has not received any documents that outline the work actually performed at 3 Godfrey Street. Mr. Dorfman incorrectly claimed that D D Management, Inc. of Trumbull was the owner of 3 Godfrey Street. Ex. 27. Mr. Dorfman was educated as a computer design engineer. He was employed in that field for most of his business career. He started D D Management, LLC in 2002 as a renovation and construction company. He did not do the construction work himself but hired subcontractors to do the work. D D Management, LLC became inactive in November 2006. D D stands for Jeffrey Dorfman and Barry Diamond. Mr. Diamond was Mr. Dorfman's business advisor. D D Management, LLC only had one employee, Mr. Dorfman.
Barry Diamond's business is Arbitration International, its office is 4 Daniel Farms Road, Trumbull, Connecticut. When Mr. Dorfman had a problem collecting his fees he would hire Arbitrators International to do the collection work. Arbitration International normally charges a fee of 40% of the amount collected. Arbitration International also arbitrates business disputes.
During its four years active construction life D D Management, LLC had four jobs; two of which were over $200,000, 3 Godfrey Street was one of these two jobs over $200,000. Two of these jobs were on property owned by Michael Kahn. Mr. Dorfman and Mr. Diamond are in business together with Michael Kahn is a business known as Alliance Consulting, LLC. That company represented a group from California that has a process of making electricity and clean fuels. Alliance Consulting also is located at 4 Daniel Farms Road, Trumbull, Connecticut. Michael Kahn is the CEO of Alliance Consulting.
Michael Kahn also has a business entitled Alliance for Affordable Housing, LLC. Alliance for Affordable Housing, LLC refers some construction business to D D Management, LLC. All four jobs done by D D Management, LLC during its four-year active existence all were referrals from Michael Kahn. Alliance for Affordable Housing, LLC has its offices at 4 Daniel Farms Road, Trumbull, Connecticut.
Mr. Kahn informed Mr. Dorfman that Belizaire was looking to have renovation work done at 3 Godfrey Street, Norwalk, Connecticut. Belizaire only met Kahn, Diamond and Dorfman at 3 Godfrey Street. Mr. Dorfman testified that the first time he met Belizaire was May 25, 2005 when she signed handwritten permission for D D Construction Management, LLC to pull a permit for 3 Godfrey Street. Ex. 17 (Plaintiff's Exhibit C). May 25, 2005 was the closing date. On May 25, Mr. Dorfman remembers Jules, Mr. Kahn, and Belizaire were there and maybe Mr. Diamond.
Mr. Dorfman produced a draft contract dated May 25, 2005 but it does not have Belizaire's signature. The "Work Type" was "Remove Violations/Renovate 2 Fam/Add 4 Car Garage." There was no price. Ex. 17 (Plaintiff's Exhibit D). Two representations were made to the Building Department of the City of Norwalk that D and D Management was the owner of 3 Godfrey Street. Those representations were false. Ex. 27, Ex. 29.
Mr. Dorfman testified that he prepared a list of what work had to be done in May 2005 yet he was only able to provide a document dated October 5, 2005, that contains phrases in the past tense. Ex. 17 (Plaintiff's Exhibit D). Belizaire's first lawyer wrote to Mr. Dorfman about her complaints, and the court infers that Ex. 17 (Plaintiff's Exhibit D) was prepared by Mr. Dorfman to respond to Belizaire's lawyer's inquiry. He testified the work started in May 2005 and continued daily. Ex. 17 (Plaintiff's Exhibit BB) purporting to be the same documents as Ex. 17 (Plaintiff's Exhibit D) but noted on examination they are different.
Mr. Dorfman prepared a three-page projected cost of the project using three different formatted spread sheets. (Ex. 17, Plaintiff's Exhibit G). These three documents do not appear to have been prepared on the date the services were rendered. For example, the first page has "30 salary 5.0 $150,000.00" The second page lists 30 weeks with two names, Edison and Frank, with no salary listed for the first name, Edison, and three zero weeks for Mill River. The salary on this second page totals $137,320. Garage framing and garage roof was charged on the first page but the photographs in evidence showed that only the garage foundation was built. Ex. 17 (Plaintiff's Exhibit H). The garage foundation was the last job done in the fall of 2005 yet the garage framing and roofing bills appear in the middle of the cost items. There are no dates on the first page disbursements. The first page and the third page are inconsistent and cannot be read together to obtain a coherent billing. Ex. 17 (Plaintiff's Exhibit J) prepared by Dorfman dated June 6, 2005 is inconsistent with the 2004 building permit and the three-page projected cost of the project. The $5,000 check issued by D D Management to S.A. Klein Plumbing Heating in Ex. 29 on June 21, 2005 does not appear in the three-page spreadsheet. Ex. 17 (Plaintiff's Exhibit G).
Belizaire did not have a lawyer representing her at any stage of the transaction and she was not advised by anyone that she should or could have an attorney. Acoustic's lawyer in this transaction was Eliana Leal, Esq. Ex. 4. The mortgage documents were prepared by Acoustic's attorney, Eliana Leal, Esq. Ex. 4. Belizaire did not hire the mortgage broker, Escrow Title Escrow, Inc. or Old Republic Title. Those entities were acting as agents of Acoustic Home Loan, LLC. Belizaire did not meet with or speak to or correspond with the lender or a mortgage broker about the information necessary to complete the loan application.
Belizaire only saw and signed the completed loan application at the May 25, 2005 closing. Ex. 12. The heading of the Uniform Residential Loan Application stated: "This application is designed to be completed by the applicant(s) with the Lenders' assistance." Ex. 12. No assistance was furnished to Belizaire by Acoustic in completing the loan application. This loan application is entitled: "Acoustic Home Loan, LLC Uniform Residential Loan Application." Ex. 12 There was no co-borrower for this loan. Her friend, Jules D. Pierre-Louis, attended the closing and she trusted him and thought that he was helping her as a friend. She was told repeatedly by Jules at the May 25, 2005 closing to sign here, just sign here. Belizaire did sign all the closing documents offered in evidence that contain a signature. She signed the loan application at the closing. She did not read this loan application. She did not fill out or provide any information for this loan application. The lender did not have a loan application from Belizaire until the closing. On certain documents she changed the misspelling of her middle name to her correct middle name, Giliane, and she initialed those changes.
She was not informed by any one that the title search conducted for this transaction disclosed that Belizaire was not the record title owner of 3 Godfrey Street. The initial title report was dated April 18, 2005. Despite the issuance of the initial title report over one month before the closing, the title error was not corrected. The "Place of Settlement" shown in the HUD-1 Settlement Statement is a non-existent address. Ex. 14. The names of the title insurance company, the escrow company and mortgage broker were inconsistent in the various loan documents. Due to these inconsistencies and non-existent addresses Belizaire could not contact any of these entities.
The income stated in both loan applications were false. There was no support in the loan file that Belizaire had $8,400 per month income. Ex. 12, paragraph V; Ex. 24, paragraph V. The lender and/or its agents did not obtain copies of Belizaire's 2002, 2003 and 2004 income tax returns. Ex. 34, 35 and 36. There are no income tax returns in the lender's file. Had they obtained Belizaire's last three years' income tax returns, the lender and/or its agents would have been aware that the income stated in the loan application was false. The lender had Belizaire sign at the May 25, 2005 closing an IRS form to Request for Transcript of Tax Return. Ex. 10. The lender had the ability to use this type of IRS form before the closing in order to verify Belizaire's income. There was no evidence that the lender used this type of form to verify Belizaire's income. No income verification information was in the loan file. The plaintiff took Belizaire's pretrial deposition and cross-examined her at trial. The plaintiff did not ask Belizaire any questions concerning her income.
The Proof Sheet prepared by the lender and/or its agent on May 2, 2005 stated: "AHL to verbally verify min 2 years employment from all wage earners." Ex. 11. AHL is the lender, Acoustic Home Loans, LLC. Acoustic knew more than three weeks before the May 25, 2005 closing that Belizaire's income needed to be verified. Acoustic did not verify Belizaire's employment or earnings before the May 25, 2005 closing. There is no evidence in this case that Acoustic ever verified Belizaire's employment or earnings. Belizaire testified credibly that she did not tell anyone she made $8,400 a month nor was she even asked what her earnings were. The plaintiff did not speak to the two mortgage brokers who allegedly interviewed Beliziarie. Ex. 12, Ex. 24. Acoustic charged Belizaire an underwriting fee of $999. Ex. 14, line 812; Ex. 32, line 809. There was no evidence of what underwriting efforts were undertaken by Acoustic in order to verify Belizaire's income. Income verification would appear to be an important underwriting function.
The Proof Sheet only mentions the "Loan Type: Conventional." It would appear verification of income would be necessary to support a conventional loan on a house valued at $500,000 for a new $425,000 mortgage. There is no mortgage insurance or PMI/MMI issued. Ex. 11, page 3. The Proof Sheet requires a "Final Acoustic 1003 signed by broker and all borrowers." Ex. 11, page 3. No such document entitled Final Acoustic 1003 was offered in evidence or testified to. It is noted that the two loan applications in evidence have reference at the bottom of each page to "Freddie Mac Form 1003." Ex. 12, Ex. 24.
The two loan applications place certain figures within a parenthesis and others marked with an asterisk. Ex. 12, Ex. 24 There is no explanation or reference within the loan applications for these two markings. The debts in the loan application do not include the payments made at the closing as reflected in the two HUD-1 Settlement Statements. The mathematical calculations in the two loan applications appear to be inaccurate and misleading. The estimated closing costs of $13,296 was not explained to Belizaire and is misleading. Ex. 12. Both loan applications fail to state at the top that this is a thirty-year mortgage with a forty-year payment schedule. The purpose of the loan was for construction yet Ex. 12 and Ex. 24 did not check off that box. Both loan applications misrepresented the purpose of the refinance.
Ex. 11, the Proof Sheet, identified the mortgage broker as Quik Fund, Inc. and the loan representative at Quik Fund, Inc. is Ryan Raven. Ex. 11 was prepared by an entity entitled Docmagic. No evidence was offered as to who Docmagic is nor what duties were performed by Docmagic. The loan application signed on May 25, 2005 stated that the information contained in the loan application was obtained by an interviewer employed by Quik Fund, Inc. of Sunrise, Florida. Ex. 12. The interviewer's name, signature and signature date is blank on Ex. 12. The interviewer's telephone number is 866-226-8784. No telephone number for Quik Fund, Inc. is on the Proof Sheet. Ex. 11. A second loan application was offered in evidence with Quik Fund, Inc., identified as the interviewer's employer. Ex. 24. The interviewer was identified as Gary DeLeon and the interviewer's telephone number is different than the other loan application: 954-878-2212 or 954-578-2212. The date of the interview is blank. Two different loan applications were offered into evidence, each with a different date. Ex. 12, Ex. 24. One loan application is labeled as an Acoustic form. Ex. 12.
There were two HUD-1 Settlement Statements in evidence, each with a different date. Ex. 14 and Ex. 32. The HUD-1 dated May 25, 2005 contains the incorrect amount on line 303 Cash to Borrower, $301,920.15, the broker is unnamed and the title charges including the title examination and title insurance entities are unnamed. Ex. 14. Ex. 14 was signed by Junior Perrin as the Settlement Agent with the inked in date of "5/25/05" in different ink than the signature. Belizaire signed Ex. 14 but the inked in date of "5/25/05" is in different ink then the signature. The HUD-1 dated May 24, 2005 contains the correct amount in line 303 Cash to Borrower, $298,947.15, the broker is named as Quik Fund in three places and the Title Charges were incurred by Old Republic for title insurance and the title search and Encore Title for title examination and closing fee. Ex. 32. Junior Perrin signed Ex. 32 on behalf of Encore Title Escrow, Inc. on May 24, 2005. Encore's address on Ex. 32 is 7515 W. Oakland Park Boulevard, Suite 100, Fort Lauderdale, Florida 33319. Junior Perrin, Ryan Raven and Gary DeLeon did not testify. Belizaire testified credibly that she never met or spoke to Junior Perrin, Ryan Raven, Gary DeLeon or Eliana Leal, Esq. The plaintiff took four depositions and offered those depositions at trial. The plaintiff did not offer the depositions of Junior Perrin, Ryan Raven, Gary DeLeon or Eliana Leal, Esq., nor was there any evidence that their depositions were taken.
There appear to be three different closing dates: May 16, 2005, Ex. 38; May 24, 2005, Ex. 14 and May 25, 2005, Ex. 32. These three documents were prepared on behalf of Acoustic, with some dates that appear to be added at another time in different ink.
The plaintiff filed a Request for Admissions marked at trial as Exhibit 1 and attached one of the two HUD-1 Settlement Statements to the Request for Admissions, Ex. 1 (Plaintiff's Exhibit I). The plaintiff used that Request for Admissions and the May 25, 2005 HUD-1 to inquire of each of the three defendants at their depositions, Ex. 18, Ex. 20, Ex. 22. Ex. 1 (Plaintiff's Exhibit I) is identical to the May 25, 2005 HUD-1 Statement marked as Exhibit 14. The plaintiff could have but did not file a Request for Admissions on the second HUD-1 Settlement Statement dated May 24, 2005 that contained the cash to borrower in the amount of $298,947.15 that was consistent with the disbursement check in Ex. 1 (Question 8, Exhibit J). Ex. 32. The plaintiff submitted two inconsistent documents in its Request for Admissions: Ex. 1 (Question 7, Exhibit I), a HUD-1 Statement requiring cash to borrower of $301,920.15 and Ex. 1 (Question 1, Exhibit J), a net loan check of $298,947.15. This inconsistency was not explained by plaintiff's counsel. The use of the HUD-1 statement with the incorrect cash to borrower amount only perpetuated the plaintiff's pre-trial errors.
The promissory note is eight pages and was signed by Belizaire to Acoustic Home Loans, LLC on May 25, 2005 for $425,000. Ex. 3. The note claims to have been made in Orange, California. It is an Adjustable Rate Note on a printed form stating: "LIBOR SIX-MONTH INDEX." Attached to the note is a two-page Prepayment Addendum to Note and a one-page Balloon Addendum. The initial interest rate is 9.9% with the first payment of principal and interest due on July 1, 2005 in the amount of $3,575.53 payable to an Orange, California address. After the first two years the interest rate could adjust every six months thereafter. The index used to adjust the interest rate every six months is described in detail and provides that the resulting adjusted annual rate of interest would not exceed 15.9% nor be less than 9.9%. Notice of the index rate change must be sent to Borrower. Ex. 15. The first change date is June 1, 2007 with the new payment due July 1, 2007 since interest is charged in arrears. As of May 25, 2005 the index was 3.51% and together with the 6.99% margin would have resulted in an increased interest rate on July 1, 2007 of 10.50%. Ex. 11, page 2. All circumstances and indexes remaining the same, the 9.9% interest rate would have increased to 10.50% per annum on June 1, 2007. This probability of a rate increase built into the loan documents was never discussed with Belizaire. Ex. 3, Ex. 11.
There was no evidence that the initial loan rate of 9.9% or the initial computed loan rate of 10.5%, based on the 3.51% index and 6.99% margin was excessive. Expert testimony was not offered on this subject. Historical loan rates for residential mortgages could have been offered into evidence but were not. www.mortgagenewsdaily.com/612005_Mortgage_Rates_Drop.asp; www.money.cnn/com/2005/05/05/real_estate/weekly_rates/index.htm; www.freddiemac.com/pmms/pmmsarm.htm; www.hsh.com/natmo2005.htl; www.wsjprimerate.us/libor/libor-rates-history.htm; www.wsiprimerate.us/libor/libor_rates_history.htm. The court could take judicial notice of the above rates provided advance notice to the parties along with an opportunity for a hearing was granted. Moore v. Moore, 173 Conn. 120, 122 (1977); Izard v. Izard, 88 Conn.App. 506, 509-10 (2005). Since no evidence was offered that the 9.9% and/or the resulting 10.5% interest rate was excessive and no request was made that the court take judicial notice of residential first mortgage rates on May 2005, the court will not discuss this matter further.
The Prepayment Addendum to Note also dated May 25, 2005 provided that if a payment of more than 20% of the original note was made in the first year, there would be a 2% prepayment penalty. The prepayment penalty was reduced to 1% if the 20% or more prepayment was made in the second year. The Balloon Addendum did not require the lender to refinance the loan. The note was due on June 2035. A late fee of 5% would be charged for a payment that is 15 days late. None of these facts were discussed with Belizaire by anybody at any time either in English or in Haitian Creole. There was no evidence that she was provided with copies of these documents before the closing so she could have an opportunity to review them. There is no mention of Deutsche Bank, MERS or Mortgage Electronic Registration Systems, Inc. in the promissory note.
The mortgage deed is twenty-one pages. Ex. 4. The mortgage deed describes Belizaire as the Borrower and the "Borrower is the mortgagor under this Security Instrument." The mortgage deed also stated; "MERS is the mortgagee under this Security Instrument." MERS is Mortgage Electronic Registration Systems, Inc. "MERS is a separate corporation that is acting solely as a nominee for Lender and Lender's successors and assignees." "Lender is Acoustic Home Loans, LLC." The lender's address is in Orange, California. Attached to this mortgage deed was a three-page Adjustable Rate Rider, a two-page Prepayment Rider and a two-page Balloon Rider. The mortgage deed states the following in the upper left corner: "Prepared By: Eliana Leal, Esq. as Agent for Acoustic Home Loans, LLC."
There was no evidence that Belizaire traveled to Acoustic's California office or to the mortgage broker's Florida office or to the Settlement Agent's Florida office. Each loan document was signed by Beliziare on May 25, 2005 in her Norwalk, Connecticut home. No one explained the terms of Ex. 4 to her either in English or in Haitian Creole nor was there any evidence that she was provided with copies of the mortgage deed before the closing so she could have an opportunity to review them.
The mortgage deed was witnessed by Barry S. Diamond, who Belizaire testified was the loan arranger. The other witness was Jules D. Pierre-Louis, the church friend of Belizaire who introduced her to the loan arranger, mortgage broker, lender's agent and contractors. The acknowledgment was taken by Florence Otto-McDonald, a Connecticut Notary Public. Neither party called Barry S. Diamond, Jules D. Pierre-Louis, Florence Otto-McDonald as a witness. Junior Perrin, Ryan Raven, Gary DeLeon or Eliana Leal, Esq., did not attend the May 25, 2005 closing. They were not called as witnesses. Only the three defendants and Jeffrey Dorfman were deposed. No lawyer was present at the May 25, 2005 closing.
The promissory note and mortgage deed all were typed with the name "Marie Julianne Belizaire." Belizaire's correct middle name is "Giliane." She noted that error in a number of places on the loan documents. Ex. 3, Ex. 4, Ex. 10, Ex. 12, Ex. 14, Ex. 24 and Ex. 32. In each of those places the word "Julianne" was crossed out in ink, a darker ink than used by Belizaire to sign her name, and the name "Giliane" was printed underneath in a handwriting that is not similar to Belizaire's. Then Belizaire initialed both of those changes: the crossing out of Julianne and the printing of Giliane underneath. On most occasions the date of "5/25/05" appears next to Belizaire's signature. It too is in ink different than used by Belizaire to sign or initial her name. It may be that the promissory note and mortgage deed were undated at the closing and undated when the documents were returned to Acoustic, Eliana Leal, Esq., Encore Title and Escrow, LLC or to whomever the loan documents were returned to after May 25, 2005. The ink used by Florence Otto-McDonald as Notary Public to take the acknowledgment is consistent with the ink in the acknowledgment date. The handwriting on the right side of the acknowledgment page appears to be from the same person. There appears to be no inconsistency with the Notary Public's signature, handwriting and dating as there is with the corrections of Belizaire's middle name and the dating of Belizaire's signature.
A stamp was placed on the upper left corner of the mortgage deed, which stated: "When Recorded Return To: Old Republic Title, 320 Springside Dr., Suite 320, Akron, OH 44333." Ex. 4. No title insurance policy was offered into evidence. Neither the actual title examination, title search nor title abstract was offered was in evidence. Despite the existence of a title insurance policy and title examination, Belizaire as a non-owner was permitted to execute the mortgage deed. Although the mortgage deed was dated and acknowledged on May 25, 2005 it was not recorded in the Norwalk Land Records until August 2, 2005. No explanation for this 69-day recording delay was offered. The two prior mortgages and judgment lien were all released and these releases were recorded in the Norwalk Land Records in June 2005. Therefore for almost two months, there were no recorded liens or mortgages on 3 Godfrey Street, Norwalk, Connecticut.
The Adjustable Rate Note provides for a $425,000 loan at the initial yearly rate of 9.9% with initial monthly payments of $3,575.53. The maturity date was June 1, 2035. Thus on the face of the note this was a thirty-year loan amortized by monthly payments of principal and interest. Ex. 3. Assuming a 9.9% interest rate and a $425,000 mortgage amortized over thirty years with equal monthly payments of principal and interest of $3,575.53, the loan would not be paid off on June 1, 2035. In fact the proper mortgage payment of principal and interest for a 9.9% $425,000 thirty-year mortgage would be $3,698.31 per month in order to pay off the entire $425,000 principal in thirty years in equal monthly amortized payments. A $425,000 loan with an interest rate of 9.9% payable in equal monthly amortized payments of $3,575.53 would be paid off in forty years, not thirty years as stated in the note. The monthly payment of principal and interest on a $425,000 loan of 9.9% interest for forty years would be $3,575.53, which would pay off the entire $425,000 principal in forty years. According to HSH Associates Financial Publishers, a well known publisher of mortgage loan information and amortization schedules a $425,000 mortgage for thirty years with a monthly payment of $3,575.53 per month would have $271,701.53 still due at the end of thirty years. www.hsh.com/calc_amort.html. Nowhere in the Promissory Note or Mortgage deed is that fact disclosed. Ex. 3, Ex. 4. The note contains a Balloon Addendum and the mortgage deed contains a Balloon Rider. The language of both is identical. The Balloon Addendum and Balloon Rider are silent that a substantial portion of the $425,000 principal would still be due at the thirty-year maturity on June 1, 2035. This court only discovered this omission when it reread the Proof Sheet second page at the top. Ex. 11.
The top of the second page of Ex. 11, the Proof Sheet, contains thirty-three lines of information in very small font on the top two inches of the page. One phrase states: "Term/Amortization: 360/480 Months." None of the thirty-three lines contain a reference to a large balloon payment being due at the end of the thirty-year term nor the amount of that balloon payment. The two loan applications both state in the box "No. of months" either "480/480" in Ex. 24 or "480" in Ex. 12, yet the Adjustable Rate Note and the Open-end Mortgage Deed contain a thirty-year maturity date of June 1, 2035. No one testified as to the large balloon payment due in June 2035. None of the lawyers pointed out this fact to the court. No one ever explained this massive balloon payment due on June 1, 2035 to Belizaire.
The only document that reflects the large balloon payment due on June 1, 2035 is the Federal Truth-in-Lending Disclosure Statement. Ex. 13. That form was presented to Belizaire at the May 25, 2005 closing without any explanation to her nor without any opportunity for Belizaire to read Ex. 13. The balloon amount is $283,445.89. Ex. 13. This amount conflicts with the court's calculation of a lesser sum in accordance with the hsh.com website. The reason for this balloon payment difference in Ex. 13 is that the Federal Truth-in-Lending Disclosure Statement contains an increase in the monthly payment commencing July 1, 2007 no doubt reflecting the 10.50% interest rate. The balance of the amortized payments in Ex. 13 are probably calculated using the 10.50% interest rate, not the 9.9% used by this court. There is no language within Ex. 13 explaining that the $283,445.89 is the principal balance that Belizaire must pay on June 1, 2035 although there is ample room on that document for that fact to be more clearly spelled out. RESPA requires that the lender shall provide "specific information concerning, at a minimum — (A) balloon payments"; 12 U.S.C. § 2604(b)(1)(A). This statute does not require general information about balloon payments, but specific information about balloon payments. There was no line in Ex. 13 entitled "Balloon Payment Feature" but there are entries for "Demand Feature" and "Variable Rate Feature." This Federal Truth-In Lending Disclosure Statement is not accurate since the "Loan Proceeds to: Encore Title $301,920.15" was not the check payable to Belizaire by Encore Title, it was $298,947.15. Ex. 1, (Question 8, Exhibit J): The lines referenced in the Federal Truth-in-Lending Disclosure Statement Ex. 13 do not match lines and numbers in the two HUD-1 statements. Ex. 14, Ex. 32. The Federal Truth-in-Lending Disclosure Statement states: "The undersigned acknowledge receiving and reading a completed copy of this disclosure." Belizaire did not read Ex. 13. She could not read it. It was not read to her in Haitian Creole. She did not have a copy beforehand so she could review it and she did not receive a completed copy of the Federal Truth-in-Lending Disclosure Statement. Ex. 13 is incomplete. The second page states: "Payoff: See Attached Schedule 109,125.00." No schedule is attached. No figures that total $109,125.00 are contained in Ex. 13. Ex. 13 is incomplete and contains very similar inconsistencies and inaccuracies as the other closing documents. Belizaire's signature on Ex. 13 is in different ink than the "5/25/05" date.
Belizaire never had any of the $425,000 funds on deposit in her name or in her possession after the May 25, 2005 closing. She was unaware of what expenses, bills, debts, claims or contracts were paid from the $425,000. During the first week of June 2005, Belizaire received a $298,947.15 check in the mail issued by Encore Title Escrow, Inc. at 7515 W. Oakland Park Blvd., Ste. 100, Sunrise, FL 33319. Ex. 1 (Question 8, Exhibit J). Belizaire called Barry S. Diamond and possibly Jules Pierre Louis as soon as she received this check. She did not know what this check was. "They told me they want the check in order to pay off my bill." Ex. 18, page 79. They both went to her house and she gave them the $298,947.15 check. The signature on the back of the check is not her signature. Ex. 19 (Plaintiff's Exhibit R). She did not sign or endorse the check. In handwriting on the back of the check, (Ex. 1 (Question 8, Exhibit J), appears: "Marie Julianne Belizaire POA Arbitration International, LLC." She did not deposit the check to any bank account. She never had possession of any of the $425,000 loans funds thereafter. She had no knowledge who Arbitration International, LLC is. Pamela Keefe did not have a copy of this $298,947.15 check in her file. Despite Belizaire's extensive efforts to notify Acoustic of her correct middle name, the $298,947.15 check was not issued in Belizaire's correct name.
The plaintiffs' Request for Admissions February 20, 2007, Ex. 1 (Question 8, Exhibit J), asked if she received the net loan proceeds, "a copy of which check is attached" to Ex. 11 as Exhibit J. She was not asked in this Request for Admissions whether she endorsed the check and whether the signature on the back of Exhibit J check was her signature. Despite that limited inquiry, Belizaire's attorney of record volunteered the following answer to Ex. 1 (Question 8, Exhibit J). "Ms. Belizaire recognizes signature. She signed over the same to Arbitration International because she was told it would be used to pay the mortgage. She can not admit or deny that it is genuine because it purports to give funds to her which she did not receive." Ex. 2 (Question 8). At trial Belizaire testified that the endorsement on Exhibit J was not her signature. A lay person and the trier of fact can determine the genuineness of signatures provided sufficient trustworthy exemplars are available. Chernick v. Johnston, 100 Conn.App. 276, 281, cert denied, 282 Conn. 919 (2007).
The endorsement used a middle name "Julianne" that Belizaire previously rejected and initialed in other documents. The endorsement also states "POA," and thus it would appear that Arbitration International, LLC signed "Marie Julianne Belizaire" under a power of attorney. A power of attorney was not offered into evidence, was not required by the closing and was not testified to by any witness. The check was endorsed to Arbitration International, LLC. No representative from that entity testified. The $298,947.15 was deposited and then funds were withdrawn until the funds were exhausted. Belizaire never knew of this procedure and did not authorize this use of the net closing proceeds.
The court has compared the endorsement on Ex. 1 (Question 8, Exhibit J) with the signatures on Ex. 3, Ex. 4, Ex. 12, Ex. 14, Ex. 24 and Ex. 32. All of these are trustworthy exemplars of Belizaire's signature. All these signatures are similar except for the endorsement on Ex. 1 (Question 8, J) check. The court finds that the endorsement on Ex. 1 (Question 8, Exhibit J) is not the signature of Belizaire. The court also finds credible Belizaire's testimony at trial that Exhibit J does not contain her signature. These two findings can be made since the Ex. 1 (Question 8, Exhibit J) Request for Admissions did not ask whether Belizaire endorsed the attached Exhibit J and her counsel's voluntary cryptic compliance with Question 8 does not so unequivocally concede.
This Proof Sheet granted a loan originator fee to the mortgage broker of $8,500 and a further Yield Spread Premium of 1.5% to the broker. These two fees total $14,875. The anticipated debts, mortgages and liens to be paid off at the closing were Washington Mutual $78,966; HFC-USA $9,822; HSBC/RS $12,997; THD/CBUSA $5,340 and WFS Financial $2,000. Title Insurance was to be issued by "Encore Title of 7515 Oak Park Boulevard, Ste 100, Stanford, Connecticut." The court notes there is no such municipality in Connecticut. All counsel agreed that there is no street in Stamford, Connecticut known as Oak Park Boulevard. The telephone number of Encore Title is a 954 area code, which all counsel agreed is in Fort Lauderdale, Florida. That street address contains no mention of the Florida city: Fort Lauderdale or Sunrise. The Proof Sheet was prepared by Document Systems, Inc. and was printed from a website, www.documagic.com. There was no evidence as to who Document Systems, Inc. and/or documagic were.
The court has grave concern about the accuracy of the various federal forms. HUD-1 Settlement Statements are required to be completed accurately and signed by the settlement agent. A copy is filed with the Department of Housing and Urban Affairs (HUD). "The HUD-1 Settlement Statement shows the actual settlement costs of the loan transaction." U.S. Department of Housing and Urban Development (HUD) website www.hud.gov. The HUD-1 form states: "This form is furnished to give you a statement of the actual settlement costs." Ex. 14, Ex. 32. HUD is charged with the administration and enforcement at the Real Estate Settlement Procedures Act, (RESPA) 12 U.S.C. § 2601 et seq., and implementing its regulations, 24 C.F.R. Part 3500. The HUD-1 Settlement Statement was prepared by the Secretary at HUD to comply with the RESPA statute. ". . . shall develop and prescribe a standard form for the statement of settlement costs which shall be used . . . as the standard real estate settlement form in all transactions in the United States which involve federally related mortgage loans. Such form shall conspicuously and clearly itemize all charges imposed upon the borrower and all charges imposed upon the seller in connection with the settlement and shall indicate whether any title insurance premium included in such charges covers or insures the lender's interest in the property, the borrower's interest, or both . . ."; 12 U.S.C. § 2603(a).
"RESPA is a consumer protection statute. See 12 U.S.C. § 2601 ("[t]he Congress finds that significant reforms in the real estate settlement process are needed to insure that consumers throughout the Nation are provided with greater and more timely information on the nature and costs of the settlement process and are protected from unnecessarily high settlement charges caused by certain abusive practices that have developed in some areas of the country"). EMC Mortgage Corporation v. Shamber, Superior Court, judicial district of Tolland at Rockville, Docket Number CV 07-5001252 S (November 12, 2009, Sferrazza, J.).
The Settlement Agent is required to sign the HUD-1 Settlement Statement, which contains the following admonitions surrounding the signature of the Settlement Agent. "The HUD-1 Settlement Statement which I have prepared is a true and accurate account of this transaction. I have caused or will cause the funds to be disbursed in accordance with this statement." "WARNING. It is a crime to knowingly make false statements to the United States on this or any other similar form. Penalties upon conviction can include a fine and imprisonment. For details see: Title 18 U.S. Code Section 1001 and Section 1010." Both HUD-1 Settlement Statements contain the same admonitions and both were signed by the same settlement entity, Encore Title Escrow, Inc. and by the same settlement agent, Junior Perrin. One HUD-1 was dated May 24, 2005. Ex. 32. One HUD-1 was dated May 25, 2005. Ex. 14.
The two HUD-1 Settlement Statements contain conflicting entries and numbers. The format of both HUD-1 statements are different: Ex. 14 is four pages. Ex. 32 is three pages. There is no signature line on the bottom of the second page of Ex. 14 as there is on Ex. 32. The HUD-1 Addendum in Ex. 32 has no signature line as there is on the Addendum to HUD-1 in Ex. 14. Ex. 32 names the entities receiving payment and Ex. 14 cites no names using generic terms such as "other." The May 24, 2005 HUD-1 required "Cash to Borrower." $298,947.15. Ex. 32, line 303. The May 25, 2005 HUD-1 required "Cash to Borrower" $301,920.15. Ex. 14, line 303. One HUD-1 described the "Place of Settlement: 7515 W. Oakland Park Boulevard, Suite 100, Ft. Lauderdale, FL 33319" and the "Settlement Date: 5/24/05," when the closing in fact took place at 3 Godfrey Street, Norwalk, CT on May 25, 2005. Ex. 32. The other HUD-1 described the: "Place of Settlement: 7515 Oak Park Blvd, Ste 100, Stanford, CT 99999," a non-existent city, street, zip code and incorrect street even if located in Ft. Lauderdale, FL. and the "Settlement Date 05/25/2005." Ex. 14. The loan documents were dated "5/25/05" in ink at a date and time different than Belizaire's signature and in fact may have been placed on the loan documents when the documents arrived in Junior Perrin's possession much later than May 25, 2005. No explanation was given by the plaintiff why there were two different HUD-1 Settlement Statements executed by Belizaire and the Settlement Agent. Such an explanation should have been forthcoming due to the major differences and mistakes in both HUD-1 Settlement Statements.
The two HUD-1 Statements are also inconsistent with the Proof Sheet. Ex. 11, Ex. 14, Ex. 32 in the following regards: settlement dates 5/24/08 and 5/25/08; name Marie Giliane Belizaire and Marie Julianne Belizaire; zip code of 3 Godfrey Street 06852 and 06851; Title Insurance Encore Title and Old Republic; place of settlement, Stanford, CT and Ft. Lauderdale, FL; administration fee $400 and $350; processing fee $400 and zero; escrow fee $350 referred to HUD-1 as settlement and closing fee $350; title examination $300 and $415; signer fee $175 referred to HUD-1 as notary fee; title insurance $1,355 and $1,314; Rec/Filing fee $187 and Recording fees $205; Washington Mutual $78,966 and $75,612.93; HFC-USA $9,822 and $11,604.16; Norwalk Hospital $426.91 and zero; and Ford Motor Credit $1,855 and zero.
There was no testimony why no mortgage insurance was obtained by Acoustic considering the nature of the transaction.
No title insurance policy or any endorsement of a title policy was offered at trial. No title search or title statement was offered at trial. No representative of the title insurance company, title company or escrow company testified at trial. Two title companies were involved in this transaction: Old Republic Title of Akron Ohio, Ex. 4, Ex. 32 and Encore Title and Escrow, Inc. Ex. 11, Ex. 32 of Ft. Lauderdale, Florida. The plaintiff's witness, Pamela Keefe, could not find a copy of the title report, title statement, title examination, title search or title insurance policy in the loan file. The Proof Sheet required four endorsements to the proposed title insurance policy: 100, 116, 8.1 and 6. Ex. 11. There was no testimony to what these endorsements required. Belizaire was not informed of any information on the title insurance policy and its endorsements. Belizaire paid the following four title services: Abstract or title search $140, title examination $300 to $415 and title insurance $1,314 to $1,355. Despite these payments of $1,754 to $1,910 no one advised her that she did not own 3 Godfrey Street, Norwalk, Connecticut. Ex. 14, Ex. 32.
Throughout the documents signed by Belizaire are the apparent use of a different ink to date her signature. In the main the number "5/25/05" that appears after Belizaire's signature is in a darker ink than Belizaire's signature. With the 69 days delay in the recordation of the documents along with the requirement of certain documents being required to be sent to either Ohio or Florida or both, these discrepancies could lead a person to conclude that Belizaire's signature did not occur on May 25, 2005. Ex. 3, Balloon Addendum; Ex. 4, Balloon Rider; Ex. 4, Prepayment Rider; Ex. 10, Request for Transcript of Tax Return; Ex. 12, Uniform Residential Loan Application on two different pages; Ex. 13 Federal Truth-in-Lending Disclosure Statement on two different pages; Ex. 14, HUD-1 Settlement Statement, Ex. 24; Uniform Residential Loan Application on two different pages with a date of "4/19/05," Ex. 37. Request for Taxpayer's Identification Number and Certification and Ex. 39. Payment Letter to Borrower. Although Junior Perrin, the settlement agent from Florida was not at the May 25, 2005 closing he signed the HUD-1 Settlement Statement and the same date in numbers "5/25/05" appears next to Junior Perrin's signature. Ex. 14. Those numbers "5/25/05" next to Junior Perrin's name appears to be in the same handwriting as the "5/25/05" numbers next to Belizaire's signatures.
This concludes the court's finding on procedural unconscionability. The court now turns to substantive unconscionability.
Belizaire intended to use the loan funds to perform various construction tasks at 3 Godfrey Street. Despite that fact which was known or should have been known to Acoustic both Uniform Residential Loan Applications in the "Purpose of Loan" section, only checked off the box "Refinance." The amount needed to refinance the two existing mortgage and the judgment lien was less than $90,000. The box "Construction" was left blank on both loan applications. Ex. 12, Ex. 24.
Belizaire's earnings came from her employment as a nurses' assistant serving individual patients in their homes. Her annual earnings were, 2002 $17,100.50 less 401(k) to $16,074.42; 2003 $19,275.50 less 401(k) to $18,118.83; and 2004 $21,590.50 less 401(k) to $20,295.07. Ex. 34, 35 and 36. These three income tax returns were prepared by a professional income tax preparer. The $425,000 loan contained an initial interest rate of 9.9% and required monthly payments of principal and interest amortized over thirty years. The monthly payments of principal would continue to be made, but the amount would change every six months due to the index rate but in no event would the annual interest rate be less than 9.9% or higher than 15.9%.
The first monthly payment of principal and interest was due on July 1, 2005 in the amount of $3,575.53. Belizaire's gross monthly income in July 2005 was $1,620.00. Ex. 33. It was impossible for Belizaire to pay the $3,575.53 each month from her income. Acoustic and its agents knew or should have known that fact. The plaintiff's witness, Pamela Keefe, admitted that a person with $20,000 a year income could not make monthly loan payments of $3,575.53. Belizaire was employed as a nurse's assistant by Norwalk Rehabilitation Services, Inc., 37 North Avenue, Norwalk, CT 06851. That fact is verified by her 2002, 2003, 2004 and 2005 income tax returns. Ex. 33, 34, 35 and 36. All W-2s were issued by Norwalk Rehabilitation Services, Inc. The loan applications contained that information along with her employers name, address and telephone number (203) 845-8000. No one called to verify her earnings. One simple telephone call to her long-standing employer could have verified her income. The two loan applications demonstrate $2,000 in assets other than the claimed interest in 3 Godfrey Street, an asset that Belizaire did not own. There was no evidence that Belizaire had any other assets with which to pay the monthly principal and interest.
The two loan applications both state that Beliziare's gross monthly employment income was $8,400. Belizaire testified credibly that is not true and she never told anyone that she made $8,400 a month. In the spring of 2005 she had only one tenant who paid $1,300 per month rent. She never told anybody any other rent numbers. When shown the HUD-1, line 202 "Principle amount of new loan $425,000" Belizaire testified that if she had know she was borrowing $425,000 she never would have done it. The court finds this testimony credible. The court further finds Belizaire credible that her gross income was approximately $20,000 in 2003, 2004 and 2005.
Prior to the closing a three-page Proof Sheet was prepared. Ex. 11. Within the Proof Sheet were the results of three credit reports on Beliziare from Experian, Trans Union and Equifax. These credit reports noted her "serious delinquency, derogatory public record or collection, number of accounts with delinquency, time since delinquency too recent or unknown, proportion of balance to credit limits is too high on bank revolving or other revolving accounts," "length of time since derogatory public record or collection is too short, number of accounts delinquent," and "serious delinquency and public record or collection filed." Her credit scores were: Experian 547 in a range of 340-820; Trans Union 506 in a range of 300-850 and Equifax 545 in a range of 300-850.
These credit scores could be used by the lender and/or mortgage broker to determine the credit worthiness of Belizaire. "Studies have shown scores to be predictive of risk in the underwriting of both credit and insurance." hhtp://en.wikipedia.org/wiki/credit-score. No expert testified as to the meaning of the three numbered scores. No expert would be needed to classify Belizaire as a poor credit risk based on the comments next to the scores. "FICO scores below 600 indicate high risk to lenders and could lead to charge you much higher rates or turn down your credit application." www.pueblo.gsa.gov/cic_text/money/creditscores/your.htm. Since no expert testified this court cannot draw any conclusions or inferences based on the numbers. The court does conclude, based on the language next to the scores, that Belizaire was a credit risk on May 25, 2005 and that Acoustic knew or should have known that fact on May 25, 2005.
The first interest rate adjustment occurred on June 1, 2007 with the new payment of principal and interest due on July 1, 2007. That adjusted interest rate on the promissory note, according to its terms was 12.375% annually for the payment due July 1, 2007 and remained at 12.375% for the next five payments until the payment due January 1, 2008 when the interest rate changed to 11.75% annually. Ex. 9. ("Adjustable Rate Information, Change Date 07/01/07 Interest Rate 12.375%.") Only four monthly mortgage payments were made. Belizaire made only one payment of principal and interest using her cousin's money, the payment due on October 1, 2005 made by Belizaire on November 14, 2005. Ex. 8. Ex. 17 (Plaintiff's Exhibit BB "Exhibit B, Belizaire Accounting"). Belizaire made that one payment using her cousin's money since Jules D. Pierre-Louis came to her and told her that she had to make this payment. The mortgage payments for July 1, 2005, August 1, 2005 and September 1, 2005 were made from the $425,000 loan proceeds. Ex. 8. Beliziare was not informed that those first three payments were due nor that those first three payments were made from the $425,000.
At the May 25, 2005 closing Belizaire was told by the agents for Acoustic that no payments on this mortgage will have to be made by you until after the construction is completed. The construction was never completed. The contractors walked off the job in the fall of 2005 when the contractors told Belizaire that the $425,000 ran out. Some of the construction was defective and these defects were never corrected by the contractors. No final inspections of the building permits was requested by the contractors at any time after May 25, 2005. Ex. 28.
Belizaire was not aware that the following sums were paid from the $425,000 at the closing: Loan Origination Fee to Broker/Quik Fund, Inc. $8,500, 1 1/2% Yield Spread Premium 1.5% to Broker/Quik Fund, Inc. $6,375 (P.O.C. paid outside closing); Administrative Fee to Broker/Quik Fund, Inc. $350/$400, Processing Fee to Broker $400, Tax Service Fee to Lender/Acoustic $75, Underwriting Fees to Lender/Acoustic $999, Flood Determination to Lender/Acoustic $10; Document fees to Lender/Acoustic $125, Signer Fee to Other / 24-7 National Notary Network $175, Abstract Title Search to Other/Old Republic $140, Title insurance to Other/Old Republic $1,314/$1,355, Settlement or closing fee to Other/Encore Title $350, Title examination to Other/Encore Title $300/$415, Courier Fee to Other/Encore Title $150, Cover copies/P/Over/Copies/Rec. Svc to Other/Encore Title $100, wires to Other/Encore Title $50, and Doc storage to Other/Pagestream $30. Ex. 14, Ex. 32. The different names of the entities and the differing amount of the payments reflect inconsistencies within the two HUD-1 Settlement Statements. The total of these closing costs paid from the $425,000 loan proceeds is as follows: Mortgage Broker Other/Quik Fund $15,275 to $15,625; Title search and title insurance to Other/Old Republic $1,454 to $1,495; Fees to Lender/Acoustic $1,209; Fees for title examination and settlement or closing to Other/Encore Title $950 to $1,065; Notary fee to Other/24-7 National Notary Network $175; and Doc Storage to Other/Pagestream $30. The above closing fees total $19,093 to $19,599. Belizaire was not informed of these fees before the closing, was not given time to review the two HUD-1 Settlement Statements that contained these fees and was not advised by anybody at anytime the need, requirement and/or appropriateness of these fees. These fees were in addition to the advance payment of real estate taxes, the reserve for future insurance and real estate taxes to be paid by lender out of the escrow fund and the preexisting mortgages, liens and debts that were paid off with the $425,000 closing funds.
No one reviewed with Belizaire the payoff statements for the Norwalk Hospital judgment lien and the first and second mortgages that were encumbrances on the Norwalk Land Records. The two HUD-1 forms contain conflicting amounts for these payoff: first mortgage to Dime/Washington Mutual $78,966 (Ex. 14) and $75,612.93 (Ex. 32); second mortgage to HFC-USA $9,822 (Ex. 14) and $11,604.16 (Ex. 32) and the Norwalk Hospital not mentioned (Ex. 14) and $426.91 (Ex. 32). No one reviewed with Belizaire the payoffs of the other debts which were not recorded on the Norwalk Land Records. The above payoffs appear in different lines in each of the HUD-1 Settlement Statements: lines 1307 and 1308 in Ex. 14 and lines 104 and 105 in Ex. 32. The two HUD-1 Settlement Statements contain conflicting amounts. One of these payoffs, Ford Motor Credit, is not mentioned in Ex. 14 and is $1,855 in Ex. 32. In addition three other debts paid off at the closing using the $425,000 loan proceeds were consistent in descriptions and amount in Ex. 14 and Ex. 32 but were not discussed with Belizaire before they paid: HSBC/RS $12,997, THD/CBUSA $5,340 and WFS Financial $2,000. The HUD-1 Settlement Statements do not contain any reference to a "Chrysler Financial $14,459" that appears in the May 25, 2005 loan application signed by Belizaire at the closing. Ex. 12. See Ex. 24 ("Chrysler Financial $18,725").
The interest terms of the promissory note were unconscionable. The plaintiff offered in its direct case on January 7, 2010 a payoff statement on the $425,000 note with a projected payoff through January 31, 2010 of $645,032.79. Ex. 9. Although this payoff statement claimed $715.12 accrued late charges, plaintiffs' counsel waived these fees along with $2,929.19 in Corporate Advance Balance and $6,934.82 in Escrow Advance. These fees, advances and balances are stated in Ex. 9. The plaintiff is claiming unpaid principal of $424,719.43, interest of 9.9% from October 1, 2005 and $16,008.73 in real taxes paid. Ex. 8, Ex. 9.
Gen. Stat. § 37-4 prohibits loans made at a greater rate than twelve percent. "No person and no firm or corporation or agent thereof, other than a pawnbroker as provided in section 21-44, shall, as guarantor or otherwise, directly or indirectly, loan money to any persons and, directly or indirectly, charge, demand, accept or make any agreement to receive therefor any interest at a rate greater than twelve per cent per annum." Gen. Stat. § 37-4.
There was no evidence that Acoustic was a "pawnbroker" as provided in Gen. Stat. § 21-44. Acoustic is a "firm" as defined in Gen. Stat. § 37-4. Although Acoustic is a limited liability company, Connecticut applies the law of corporations to limited liability companies. LLCs are governed by Connecticut corporate law. Ward v. Gamble, Superior Court, judicial district of Hartford at Hartford, Docket Number CV 08-5017829 S (July 23, 2009, Prescott, J.) [ 48 Conn. L. Rptr. 286]. Thus Acoustic is a "corporation" as defined in Gen. Stat. § 37-4. Acoustic loaned $425,000 to Belizaire. Ex. 3. Belizaire is "any person" as defined by Gen. Stat. § 37-4. By entering into the loan transaction in Ex. 3, Acoustic made an "agreement to receive therefor interest." By establishing the adjustable interest index rate at 9.9% with a cap of 15.9%, Acoustic did "charge . . . interest." By notifying Belizaire that the interest rate would increase as of July 1, 2007 to 12.375% in accordance with the adjustable index rate, Acoustic and its agents made a "demand . . . therefor." As of July 1, 2007 the note provided for interest at 12.375% which is "interest at a rate greater than twelve per cent per annum." Ex. 9. The court concludes that Acoustic must comply with Gen. Stat. § 37-4. "The prohibition against usury is based on the principle that it is unconscionable to charge excessive interest on loans of money to those who are forced by necessity to borrow it." Scientific Products v. Cyto Medical Laboratory, Inc., 457 F.Sup. 1373, 1379 (D.Conn. 1978). Our courts have held that a defense based on the loan being unconscionable due to the interest rate provided for in the note is permissible. Hamm v. Taylor, 180 Conn. 491, 495, 429 A.2d 946 (1980); Iamartino v. Avallone, 2 Conn.App. 119, 124-26, 477 A.2d 124 (1984). Knights of Columbus v. Salisbury, 3 Conn.App. 201, 209 (1985).
Acoustic and/or its agents on its behalf prepared the closing documents including the promissory note and mortgage deed along with the riders. Acoustic provided the terms and conditions of the note, including the initial interest rate of 9.9%, the index rate, the index formula, the 15.9% cap interest rate and the terms that the interest rate would adjust every six months on the first day of January and the first day of July of each year for the life of the loan. Acoustic voluntarily established these interest rates and the adjusted interest rates. Thus Acoustic committed "the voluntary taking or reservation of more than the rate of legal interest." A specific intent to violate the usury statute is not essential: "The voluntary taking or reservation of more than the legal rate of interest is per se usurious, and the offense is not condoned by want of intent to violate the law." Atlas Realty Corp. v. House, 123 Conn. 94, 100 (1937); Bridgeport Mortgage and Realty Corp. v. Whitlock, 8 Conn.Sup. 241, 244 (1940).
Deutsche Bank took the assignment of the underlying Belizaire to Acoustic $425,000 note and mortgage on October 17, 2006. Ex. 6. The $425,000 note was in default many months before October 17, 2006. The plaintiff knew of the default when it took the assignment. In its June 3, 2010 Reply (#166.00) the plaintiff admitted that Deutsche Bank is the assignee of its predecessor Acoustic. It also admitted in that Reply; "that when Acoustic negotiated the loan to it, the Plaintiff knew that the loan was in default." The court finds the above two sentences to be true because the plaintiff has judicially admitted those facts. The court finds that Deutsche Bank is subject to the unconscionability defenses, including but not limited to the usurious rate of interest on a promissory note not secured by a bona fide mortgage. Hamm v. Taylor, supra, 180 Conn. 495-96; Bizzoco v. Chinitz, 193 Conn. 304, 307 (1984); RAL Management, Inc. v. Valley View Associates et al., 102 Conn.App. 678, 684-85 (2007).
The predecessor to Gen. Stat. § 37-4 is Gen. Stat. § 4798 and the predecessor to Gen. Stat § 37-7, the criminal penalty for a violation of Gen. Stat. § 37-4, is Gen. Stat. § 4802. "The statute, § 4798, when first enacted, radically changed our law against usury. Its terms are broad; it would be difficult to conceive of a more inclusive statute . . . When the plaintiff payee made demand of this indorser for the face of this note, he was demanding the usurious interest which is prohibited by these statutes, and he cannot maintain an action upon such demand." Contino v. Turello, 101 Conn. 555, 561 (1924). "The statute, which determines the plaintiff's right of action, is plain. It provides that no action shall be brought on any usurious loan or upon any cause arising from the negotiation of such loan. The statute makes no distinction between the rights of an accommodation party who has participated in the usurious transaction and one who has not. As stated above, it provides that no action shall be brought on a usurious loan." Finance Discount Corporation v. Hurwitz, 138 Conn. 636, 640 (1952).
Even if the note, which contains more than twelve per cent per annum interest, is secured by a mortgage, the note cannot be enforced by a suit on the note against Belizaire. The bona fide mortgage exemption does not apply in a lawsuit on the note, which is the first count in this complaint against Belizaire only. Gen. Stat. § 37-9(3); Atlas Realty Corporation v. House, 120 Conn. 661, 670 (1936). "To include within the exception an action on the note alone would enable a usurer, by taking a mortgage securing his loan and then ignoring it and bringing action on the note alone, to defeat the predominant purpose of these statutes. Such a result clearly is beyond any reasonable conception of the intent of the Legislature in providing the exception, and a limitation of it to a mortgage above the specified amount ($500) [now $5000], and action upon it as such is justified by the language of the statute, as well as in reason and justice." Id. 670; Brauman v. Oplinger, Superior Court, judicial district of Norwich, Docket Number 107492 (June 26, 1996, Hurley, J.) [ 17 Conn. L. Rptr. 239]. (Judgment for the defendant who defended a note with 19% interest, secured by a mortgage, in a suit by the plaintiff on the note alone.)
Earlier cases on usury required the proof of two elements: a note which contains an interest rate higher than permitted by statutes and an intent thereby to violate the usury statutes. "Not only the acceptance of a note which on its face appears to be usurious, but also an intent thereby to evade the provisions of § 4732 and obtain interest or its equivalent in excess of the statutory limit, is required in order to bring the action under the ban of § 4736. Therefore the question of fact as to the existence of such intent is an essential element for consideration in determining whether or not the action is maintainable." Mutual Protective Corporation v. Palatnick, 118 Conn. 1, 4 (1934). Later cases have changed the intent requirement. Three years after Mutual Protective Corporation the Supreme Court adopted a new rule. The court took the opportunity to review the law of usury and stated: "The remaining question which we have not before passed upon, is as to whether this usurious intent is merely the intent to exact payment which in fact and law is usurious, or is the intent to exact such payment with specific knowledge that it is prohibited by law." Atlas Realty Corporation v. House, supra, 123 Conn. 100. The 1937 Atlas Realty court supported its conclusion.
The overwhelming weight of authority supports the defendant's contention and is well summed up in these words: "The voluntary taking or reservation of more than the legal rate of interest is per se usurious, and the offense is not condoned by want of intent to violate the law. Though the lender may not intend to be guilty of usury, yet he is nevertheless guilty, for he intends to do what he does, but mistakes the law." 27 R.C.L. p. 222, § 23. And again: "The intent which enters into and is essential to constitute usury is simply the intent to take and reserve more than permitted by law for the loan . . . By the weight of authority usurious intent is implied if excessive interest is intentionally taken or reserved . . . If the mistake be as to the legal right to require the excessive payment, which is received in good faith, there is nevertheless usury. Ignorance of the law excuses no one, not even an honest money lender." 66 C.J. pp. 177, 178, 179. And further: "When the existence of the agreement for payment of unlawful interest is proved, it is not necessary to further prove an actual intention to violate the law. The parties may have been in fact ignorant of the law; but generally the rule ignorantia legis neminem excusat." Webb, Usury p. 35, § 35. "The intent of the lender was to do exactly what he did. His mistake, if any, was one of law not one of fact. This is no excuse for the violation of the statute. To hold otherwise would violate an established principle of law and would furnish to avaricious lenders a convenient excuse for an evasion of the law." Burdon v. Unrath, 47 R.I. 227, 231, 132 Atl. 728, 730. See also Maine Bank v. Butts, 9 Mass. 49, 55; Bank of Salina v. Alvord, 31 N.Y. 473, 475; Cotton v. Commonwealth Loan Co., 206 Ind. 626, 190 N.E. 853, 856; Teshner v. Roome, 106 Ore. 382, 212 Pac. 473, 475; Sylvester v. Swan, 87 Mass. (5 Allen) 134; 3 Williston, Contracts (1920 Ed.) p. 2981, § 1698; Note, 46 Am.St.Rep. 179-82.
Atlas Realty Corporation v. House, supra, 123 Conn. 100-01.
"It is our conclusion that the sound and the better rule is that where the intent to exact payment of interest which is in fact and law usurious exists, a specific intent to violate 4732 is not essential." Id. 101-02.
The court finds that Acoustic intended to charge more than twelve per cent interest and voluntarily established a limit of interest no lower than 9.9% per annum and no higher than 15.9% per annum. Acoustic provided an index formula that actually did exceed twelve per cent on the very first change date, July 1, 2007, when the interest rate on the $425,000 loan for the next six payments was 12.375%. Ex. 9. This was not an inadvertent act on Acoustic's part. Even if intent to violate the usury statute is an element of usury, the court finds that Acoustic intended to charge more than twelve percent per annum interest and in fact did charge and demand more than twelve per cent per annum interest.
"No action shall be brought to recover principal or interest, or any part thereof, on any loan prohibited by sections 37-4, 37-5 and 37-6, or upon any cause arising from the negotiation of such loan." Gen. Stat. § 37-8. Under Gen. Stat. § 37-8 a loan with interest over twelve percent is usurious and unenforceable. Bridgeport Mortgage and Realty Corp. v. Whitlock, supra, 8 Conn.Sup. 245. In addition the violation of Gen. Stat. § 37-4 can subject the entity to criminal penalties of a fine "not more than one thousand dollars or imprisoned not more than six months or both." Gen. Stat. § 37-7.
The closing on the $425,000 loan occurred on May 25, 2005. According to the note, the first payment of principal and interest was due on July 1, 2005 in the amount of $3,575.53. Ex. 3. This payment of $3,575.53 was based on the principal due of $425,000, together with the prior month's accrued interest at the annual rate of 9.9%. The interest rate then adjusts according to the index formula for payments due on the first day of January and first day of July. The note provides notification of the new adjusted interest rate and new monthly payment principal and interest prior to the change date. The lender provided notice to Belizaire that the interest rate for the six-month period commencing July 1, 2007 was 12.375%. Ex. 9. The plaintiff offered Ex. 9 into evidence in its case in chief on the January 7, 2010 trial date. The payoff statement contained a projected payoff through January 31, 2010 of $645,032.79. Ex. 9. According to the plaintiff's payoff statement, the initial interest of 9.9% was charged throughout the default period from October 2005 to January 2010. Despite the fact that Ex. 9 lists interest rates in excess of 9.9% after the index rate was calculated, the plaintiff is only claiming 9.9% interest. The adjusted interest rates over 9.9% were: 7/1/2007 — 12.375%; 1/1/2008 — 11.75%; 7/1/2008 — 10.75%; 1/1/2008 — 10.125%. The plaintiff provided no legal authority nor do any of the closing documents including the promissory note contain the right of the plaintiff to select an interest rate less than established by its adjustable rate index formula. The court finds that on July 1, 2007 Acoustic did "charge, demand . . . and made any agreement to receive therefor interest at a rate greater than twelve percent per annum." Gen. Stat. § 37-4.
Gen. Stat. § 37-9 lists loans for which the usury statutes, including Gen. Stat. § 37-4, do not apply. Acoustic is a California lending institution and there was no evidence that they are a bank as defined in Gen. Stat. § 36a-2 or that they are an out-of-state bank with a branch in Connecticut as defined in Gen. Stat. § 36a-410. Thus the bank exemption does not apply. Gen. Stat. § 37-9(2). Since Belizaire was not the owner of the real property and the two record title owners of the real property did not make, execute or approve the loan and mortgage deed, the $425,000 transaction was not a "bona fide mortgage of real property for a sum in excess of five thousand dollars." Gen. Stat. § 37-9(3). Camp v. Bates, 11 Conn. 487, 505 (1836); Bridgeport Mortgage and Realty Corp. v. Whitlock, supra, 8 Conn.Sup. 243-44. This was a loan utilizing Freddie Mac/Fannie Mae approved forms designed for owner occupied residential premises. The use of the HUD-1 Settlement Statement in compliance with RESPA (Real Estate Settlement Procedures Act 12 U.S.C. 2604 et seq.) confirms the fact that the loan was not a commercial loan but related to a borrower's residence. Connecticut National Bank v. Zuckerman, 29 Conn.App. 541, 546 (1992). Belizaire is a nurse's assistant. She is not an individual who "is engaged primarily in commercial, manufacturing, industrial or nonconsumer pursuits." Gen. Stat. § 37-9(4). Christensen v. Cutaia, 211 Conn. 613, 621, fn. 11 (1989). This was not a vehicle or boat loan. Gen. Stat. § 37-9(7). This was not a higher education loan. Gen. Stat. § 37-9(8). The loan is not subject to the other statutory exemptions by the plain language of the statute. Gen. Stat. § 37-9(1)(5), (6), (8)(9).
The court concludes that none of the exempt loans mentioned in Gen. Stat. § 37-9 are applicable. Thus usury is a defense under Gen. Stat. § 37-4. Bizzocco v. Chinitz, supra, 193 Conn. 309. The court finds that the $425,000 Acoustic to Belizaire loan was not a bona fide mortgage, was usurious and that no action may be brought by the plaintiff to recover "principal or interest, or any part thereof" as stated in the promissory note. Ex. 3. The plaintiff as the assignee is subject to the usury defense that Belizaire has invoked against Acoustic.
"Every contract made for or about any matter or thing which is prohibited and made unlawful by statute is a void contract, though the statute does not mention that it shall be so, but only inflicts a penalty upon the offender." Sagal v. Fylar, 89 Conn. 293, 295 (1915); DiBiase v. Garnsey, 103 Conn. 21, 27 (1925). "A usurious mortgage, which is declared to be void, can no more be enforced for the benefit of the mortgagee, upon his petition to foreclose, than the usurious debt for which the mortgage was given as security, can be collected, by means of a suit at law instituted for that purpose." Camp. v. Bates, supra, 11 Conn. 502; Cowles v. Woodruff, 8 Conn. 34, 36 (1830); Atlas Realty Corp. v. House, supra, 120 Conn. 666.
This concludes the court's discussion of substantive unconsionability.
The court finds that this loan and mortgage transaction by Acoustic and its agents was both substantively and procedurally unconscionable. The conduct of the lender and its agents which agents include the attorney, loan arranger, mortgage broker, title insurance company, escrow company, and closing entities were egregiously unconscionable. The court concludes that the $425,000 transaction was a predatory loan. Nowasleska v. Steele, 400 N.J.Super 297, 304 fn.3, 946 A.2d 107 (App.Div. 2008); Monetary Funding Group, Inc. v. Pluchino, Superior Court, judicial district of Fairfield at Bridgeport, Docket Number CV01-0383851 S (September 3, 2003, Stevens, J.) (see footnote 5 for definition of predatory lending contained in 118 Banking Law Journal 541 (2001)), Trial court decision affirmed 87 Conn.App. 401 (2005); Commonwealth of Massachusetts v. Fremont Investment and Loan, 452 Mass. 733, 745 fn.20, 748 (2008); National City Mortgage Co. v. Lederma, Superior Court, judicial district of Fairfield of Bridgeport, Docket Number CV 09-5021616 S (March 2, 2011, Hartmere, J.) (see footnote 6 discussing definition of predatory lending).
The conduct found in this case is significantly more one-sided for the lender than that found in the leading case of Cheshire Mortgage Service, Inc. v. Montes, supra, 223 Conn. 91. In Cheshire the defendants claimed "illiteracy in English and their lack of business acumen." Id. 89. The court found that the defendants testified without the aid of a Spanish interpreter. Id. 90. Although Belizaire had a Haitian Creole interpreter present to assist her throughout the trial including during her testimony, the court draws no inference from the fact that Belizaire's understanding of English was limited. The court has reached the conclusion that Belizaire had limited use English language ability from testimony, facts and evidence presented in court including but not limited to the testimony of her family members.
The court finds that this case is significantly more one-sided for the lender than found in the more recent case of Monetary Funding Group, Inc. v. Pluchino, 87 Conn.App. 401 (2005). The Pluchino case is extensively cited in the leading treatise; Connecticut Foreclosures, An Attorney's Manual of Practice and Procedure (4th Ed. 2004, and 2008 Supplement. Denis R. Caron and Geoffrey K. Milne in Chapter 28.05D, Defenses to Foreclosure Unconscionability. In Pluchino the defendant was a businessman who needed a loan in order to purchase two businesses; a convenience store and a laundromat. After being turned down by a commercial bank due to the instability of his income, the defendant turned to Monetary Funding Group, Inc. for the loan. The trial court found that the loan was unconscionable regardless of its commercial nature. Attorney Caron summoned up the court's five findings of unconscionability as follows:
The factual finding supporting the conclusion of unconscionability were: (1) the borrower was unsophisticated and unrepresented by legal counsel; (2) the borrower could not repay the loan and the lender knew this when the loan was made; (3) the borrower was misled about the up front fees; (4) the borrower was not informed until the second closing that the loan would increase from $25,000 to $80,000; (5) the transaction was unreasonably designed to benefit the plaintiff.
Connecticut Foreclosures, Section 25.05D Unconscionability, page 614.
A recent trial court found sufficient facts of unconscionability and denied the foreclosing lender's Motion for Summary Judgment. The facts alleged that would support a claim of unconscionability were: "She was not represented by an attorney, that the bank would refinance the loan in 12 months, that although she spoke Spanish, none of the documents were read or explained to her in Spanish and as a result she only learned CT Page 15682 inter alia, that the application stated her monthly income was $12,000 when the bank's representative knew her only income was social security." Deutsche Bank National Trust Company as Trustee under the Pooling and Servicing Agreement dated as of September 1, 2006, GSAMP Trust 2006-FM 2 v. Delarosa, Superior Court, judicial district of Stamford/Norwalk at Stamford, Docket Number FST CV 09-5010958S (July 30, 2010 (Sommer, J.) [ 50 Conn. L. Rptr. 421].
The court having found that the $425,000 loan and mortgage was both procedurally and substantively unconscionable, the court finds that the $425,000 promissory note, Ex. 3, and the mortgage deed, Ex. 4, are both unenforceable. Belizaire has proven the allegations of unconscionablity in her Fourth Special Defense of procedural of procedural and substantive unconscionability. This court finds that the $425,000 transaction is one "which no man in his senses, not under delusion, would make, on one hand, and which no fair and honest man would accept, on the other." Smith v. Mitsubishi Motors Credit of America, Inc., supra, 247 Conn. 349. The court will not enforce either the promissory note or the mortgage deed against any of the three defendants. Ex. 3, Ex. 4. The court will not permit the plaintiff Deutsche Bank to profit from the wrongdoing of Acoustic. Thompson v. Orcutt, 257 Conn. 301, 318 (2001). The court finds the issues for the defendants, Belizaire, on the First Count.
The Second Count is against Marjorie B. Belizaire and Joziane Bejin a/k/a Joziane Belizaire Turnier, the two record title owners of 3 Godfrey Street, Norwalk, Connecticut. Belizaire is also a defendant in this Second Count even though Belizaire was the only defendant that executed the $425,000 promissory note and the mortgage deed. Belizaire was not a record title owner. The Second Count seeks foreclosure for failure to pay the $425,000 promissory note. The facts found in this court's recitation regarding the First Count are restated and the plaintiff has proven these facts. The plaintiff has proven that the mortgage deed was assigned to Deutsche Bank and that Deutsche Bank is the current holder of the promissory note and the mortgage deed. Unless one of the Special Defenses has been proven, the plaintiff will be entitled to a judgment of foreclosure on the Second Count.
The defendants, Marjorie B. Belizaire and Joziane Bejin, filed two Special Defenses: (1) they "are the record title owners of the real estate located at 3 Godfrey Street, Norwalk, Connecticut which property is the subject of this foreclosure action" and (2) they "did not sign the Note or Mortgage that is the underlying cause of this action and are not obligated to the Plaintiff on the Note, or subject to the mortgage." (#165.00.)
Gen. Stat. § 47-5 governs the conveyance of land. "(a) All conveyances of land shall be: (1) In writing; (2) if the grantor is a natural person, subscribed, with or without a seal, by the grantor with his own hand or with his mark with his name annexed to it or by his attorney authorized for that purpose by a power executed, acknowledged and witnessed in the manner provided for conveyances or, if the grantor is a corporation, limited liability company or partnership, subscribed by a duly authorized person; (3) acknowledged by the grantor, his attorney or such duly authorized person to be his free act and deed; and (4) attested to by two witnesses with their own hands." Gen. Stat. § 47-5.
"A foreclosure action, is an equitable proceeding." New Haven Savings Bank v. LaPlace, 66 Conn.App. 1, 9, cert. denied, 258 Conn. 942 (2001). "Foreclosure is peculiarly an equitable action, and the court may entertain such questions as are necessary to be determined in order that complete justice may be done." Hartford Federal Savings and Loan Associations v. Lenczyk, 153 Conn. 457, 463 (1966). "Generally, foreclosure means to cut off the equity of redemption, the equitable owner's right to redeem the property . . ." Mortgage Electronic Registration Systems, Inc. v. White, 278 Conn. 219, 229 (2006).
Connecticut follows the title theory of mortgages, which provides that on the execution of a mortgage on real property, the mortgagee holds legal title and the mortgagor holds equitable title to the property . . . In a title theory state such as Connecticut, a mortgage is a vested fee simple interest subject to complete defeasance by the timely payment of the mortgage debt . . . The mortgagor has the right to redeem the legal title previously conveyed by performing the conditions specified in the mortgage document.
The mortgagee's legal title is a defeasible fee subject to an equitable right of redemption that persists until it is foreclosed. (Citations omitted; internal quotation marks omitted.) National City Mortgage Co. v. Stoecker, supra, 92 Conn.App. 792-93. It has long been established that when there is a "mortgage, having been duly recorded . . . every subsequent purchaser of any interest in the land took with constructive notice of its existence. The defendants who are now in possession cannot defeat [the] lien on the ground that they had no actual knowledge of the [e]ncumbrance, because the attorney at law, whom they employed to search the title, failed to discover or to disclose it . . . Whatever in fact appeared upon the records, they were, so far as [the] legal title is concerned, conclusively presumed to know." (Citation omitted.) Ensign v. Batterson, 68 Conn. 298, 305, 36 A. 51 (1896).
Thus, at common law, when a party with a valid encumbrance on the property had been omitted from, or received defective notice of, a foreclosure action, that party's right of redemption was not extinguished. See Washington Trust Co. v. Norwich Westerly Traction Co., 89 Conn. 59, 64-65, 92 A. 880 (1915).
Mortgage Electronic Registration Systems, Inc. v. White, supra, 278 Conn. 231.
"A critical component of any foreclosure action is the existence of a valid, legally enforceable mortgage instrument." Deutsche Bank National Trust Company as Trustee v. Gue, Superior Court, judicial district of Fairfield at Bridgeport, Docket Number CV 08-5015120 (November 5, 2008, Doherty, J.) [ 46 Conn. L. Rptr. 581]. An imperfectly executed document is a nullity. Homeamerican Credit, Inc. v. Weiss, Superior Court, judicial district of Hartford, Docket Number CV99-0591183 S (March 16, 2000, Beach, J.). The court concludes that the mortgage deed signed by Marie Giliane Belizaire is in fact not a mortgage. Connecticut National Bank v. Lorenzato, 221 Conn. 77, 82 (1992); Christiano, Trustee v. Bonesteel, Superior Court, judicial district of Stamford/Norwalk of Stamford, Docket Number CV 89-0104622 (August 16, 1991, Lewis, J.) [ 4 Conn. L. Rptr. 757] (Female imposter signing mortgage documents at a closing was held not to be a valid mortgage against the defendant female co-owner).
The mortgage deed was not executed by the record title owners of 3 Godfrey Street. Ex. 4. The mortgage deed executed only by Belizaire did not comply with Gen. Stat. § 47-5. Belizaire did not act under a power of attorney from her two sisters, the record title owners. The sisters did not authorize Belizaire to obtain the $425,000 loan. The two sisters did not ratify this transaction. There is no evidence that the two sisters are equitably estopped from contesting the validity of this mortgage. Truglia v. Zanesky, 67 Conn.App. 447, 455 (2001). The court finds that the two Special Defenses filed by the two record title owners have been proven. The court finds that Belizaire did not have title to 3 Godfrey Street when she signed the mortgage deed or any time thereafter. The court finds that the mortgage deed is void as to the two sisters. Ex. 4. The plaintiff has failed to prove the elements of a foreclosure against Belizaire. In addition the finding by this court that the $425,000 loan and mortgage transaction was both procedurally and substantively unconscionable and the $425,000 loan was usurious prevents the plaintiff from prevailing on its Second Count. The court finds the issues for the defendants on the Second Count sounding in foreclosure.
The Third Count is against Marjorie B. Belizaire and Joziane Bejin a/k/a Joziane Belizaire Turnier, the two record title owners of 3 Godfrey Street, Norwalk, Connecticut seeking the relief of equitable subrogation. Belizaire is not a defendant in this Third Count. If the plaintiff is successful in this equitable subrogation Third Count, the plaintiff requests that the court transfer this case to the regular foreclosure docket so the plaintiff can proceed with the routine foreclosure proceedings.
The plaintiff's Third Count claims that although the promissory note and the mortgage deed were not signed by the two real property record title owners, the plaintiff is entitled to foreclose under the legal theory of equitable subrogation. The plaintiff alleges that the $425,000 mortgage funds were utilized to benefit the record title owners of the real property by reason of paying off the existing first mortgage, the existing second mortgage and a recorded judgment lien; all recorded encumbrances on the real property at 3 Godfrey Street, Norwalk, Connecticut. This court has not been able to find any equitable subrogation case that imposes a new mortgage on the grounds of equitable subrogation and then forecloses that equitably subrogated mortgage, where the lender's documents contained only the signature of a person who was not the property owner. Counsel has not furnished the court with any authority to create, in effect a new mortgage.
In seeking equitable subrogation, the plaintiff wishes to step into the position occupied by the then recorded first mortgage holder, Washington Mutual. This Washington Mutual first mortgage was originally issued by the Dime Savings Bank of New York FSB, on April 22, 1986 in the amount of $126,500. Ex. 45. Ex. 1. (Question 1, Exhibit C.) The Dime's $126,500 loan was a thirty-year loan due and payable in full on May 1, 2016 at an initial interest rate of 9.9% adjustable every month with the first adjustment occurring on November 1, 1986. This note was secured by a mortgage deed signed by the defendant's mother and Joziane Bejin, the then record title owners of 3 Godfrey Street. There was no evidence offered as to what the interest rate was after its adjustments in the Dime/Washington Mutual Mortgage on or after May 25, 2005. Acoustic paid off this Dime/Washington Mutual Mortgage with the $425,000 funds from the Belizaire May 25, 2005 promissory note and that first mortgage was released on the Norwalk Land Records on June 15, 2005. Ex. 1 (Question 2: Exhibit D). The Dime/Washington Mutual payoff was either $78,966 in Ex. 14, line 1307 or $75,612.93 in Ex. 32, line 104. The two HUD-1 Settlement Statements disclose inconsistent payoff figures. Ex. 14, Ex 32. The plaintiff did not offer the payoff check, the Dime/Washington Mutual payoff statement or any other proof of the amount Acoustic paid off to obtain the release of the Dime/Washington Mutual first mortgage. The court finds that Ex. 32, a HUD-1 Settlement Statement, appears to be more accurate since it contains "CASH TO BORROWER" amount on line 303 of $298,947.15, which is the exact amount shown on a Loan Proceeds check dated May 31, 2005 payable to Belizaire. Ex. 1 (Question 8, Exhibit J). The court finds that Acoustic paid $75,612.93 to pay off the first mortgage to Dime/Washington Mutual using the $425,000 Belizaire loan proceeds.
In addition the plaintiff paid off the second mortgage to Household Realty Corporation. This second mortgage was in the original amount of $10,742.43 and was dated May 25, 2001. The second mortgage was released on the Norwalk Land Records on June 17, 2005. Ex. 1 (Question 3, Exhibit E). The two HUD-1 Settlement Statements disclose inconsistent payoff figures and inconsistent payoff entities. Ex. 1 (Questions 5 and 6, Exhibit G and H). No evidence of the interest rate for the second mortgage was produced at trial. Ex. 14, Ex. 32. The two HUD-1 Settlement Statements in evidence disclose that Acoustic paid HFC-USA $9,822, (Ex. 14), and paid HFC $11,604.16 (Ex. 32). The plaintiff did not offer the payoff check, the Household Realty Corporation HFC or HFC-USA payoff statement or any other proof of the amount Acoustic paid off to obtain the release of the Household Realty Corporation second mortgage. The court assumes that Household Realty Corporation is one and the same as HFC and HFC-USA. Due to the conflicting second mortgage payoff figures in the two executed HUD-1 Settlement Statements, the court finds that the lower number is the amount Acoustic paid off. The plaintiff had the sole ability to produce accurate records of the second mortgage payoff and it failed to do so. Thus the court finds that Acoustic paid off the second mortgage to Household Realty Corporation in the amount of $9,822.00 using the $425,000 Belizaire loan proceeds.
The third encumbrance recorded on the Norwalk Land Records was a judgment lien to the Norwalk Hospital Association in the amount of $511.01 dated April 25, 1997. Acoustic paid off that judgment lien and a release was recorded in the Norwalk Land Records on June 6, 2005. Ex. 1 (Questions 3 and 4, Exhibits E and F). One executed HUD-1 statement contains no reference to this judgment lien payoff. Ex. 14. The other executed HUD-1 statement states that Norwalk Hospital judgment lien was paid $426.91. Ex. 32. The court finds that Acoustic paid the Norwalk Hospital $426.91 judgment lien using the $425,000 Belizaire loan proceeds.
No title search was offered at trial. The plaintiff filed a Request for Admission dated February 20, 1997. Ex. 1. The plaintiff asked six questions about prior encumbrances recorded on the Norwalk Land Records, all of which have been mentioned in the previous paragraphs hereof. No other liens, encumbrances or attachments recorded in the Norwalk Land Records were contained in Plaintiff's Request for Admission. Ex. 1. The two executed HUD-1 forms reflect other debts that were paid off using the $425,000 loan proceeds. These debts were not encumbrances on the land records. The HUD-1 forms are inconsistent as to the entities and amounts paid off. Ex. 14, Ex. 32. In Ex. 14 these other debts are: HSBC/RS $12,997.00, THD/CBUSA $5,340 and WFS Financial $2,000. In Ex. 32, these other debts are Ford Motor Credit $1,855, HSBC/RS $12,997, THD/CBUSA $5,340 and WFS Financial $2,000. These debts appear personal to Belizaire and are not obligations of the two record title owners defendants. The plaintiff only filed its Request for Admissions for the three recorded encumbrances and no Requests for Admissions were addressed to the above debts. The plaintiff did not offer its title search in evidence, yet the HUD-1 Settlement Statements disclose title searches and examinations were performed by Acoustic.
The plaintiff can only claim equitable subrogation of liens, mortgages and encumbrances duly recorded on the Norwalk Land Records prior to May 25, 2005. The plaintiff failed to offer any proof that the above mentioned debts were recorded encumbrances. The court, therefore will not grant any equitable subrogation relief to the unrecorded debts mentioned in the previous paragraph.
The plaintiff wants to have an equitable subrogation remedy for $16,008.73 for real estate taxes paid by the Acoustic and Deutsche Bank after the May 25, 2005 closing. The last payment of principal, interest, insurance escrow and real estate tax escrow was made on November 14, 2005 in the amount of $4,117.50. Ex. 8. The plaintiff has used the Ex. 8 payment history in order to calculate the $16,008.73 real estate taxes paid. The plaintiff has furnished no legal authority that future advances after default of real estate taxes paid by a lender, entitles the lender to equitable subrogation relief.
The court finds that the only payments made by the plaintiff and/or Acoustic that would be entitled to equitable subrogation relief would be: Dime/Washington Mutual first mortgage $75,612.93, Household Realty Corporation second mortgage $9,822.00 and the Norwalk Hospital judgment lien $426.91 for a total of $85,861.84.
The plaintiff is requesting that this court order in the Third Count seeking equitable subrogation that the plaintiff's $425,000 mortgage be declared a valid first mortgage on 3 Godfrey Street, Norwalk, Connecticut binding on the two record title owners and that this $425,000 mortgage be placed in first priority, to the recorded position formerly occupied by Dime/Washington Mutual in an amount calculated by this court for all payments made by Acoustic and the plaintiff. The plaintiff then asks that this court defer a decision on the Second Count seeking foreclosure against the two record title owners, and refer the matter back to the regular foreclosure docket for further processing. Although not delineated in writing the plaintiff claims that the further processing on the regular foreclosure docket would be to determine the debt, ascertain the fair market value of 3 Godfrey Street, order attorney fees and disbursements, and determine whether strict foreclosure or foreclosure by sale should be ordered.
Under the plaintiff's proposal the record title owners would not be given an opportunity to pay off the newly equitable subrogated mortgage by periodic amortized payments of principal and interest. The plaintiff has not furnished to the court evidence of what rate or rates of interest would be imposed on the newly subrogated mortgage. Would it be the rate contained in the Dime/Washington Mutual first mortgage? If so, the Dime Savings Bank of New York FSB $126,500 mortgage contains an adjustable rate using the "Monthly Median Cost of Funds Ratio (annualized) (percent) as made available by The Federal Home Loan Bank Board." Ex. 1 (Exhibit C). Is this index still available or is this a failed index case? Central Bank v. Colonial Romanelli Associates, 38 Conn.App. 575, 578 (1995). No evidence was offered on what the interest rate or rates would be under that index. The plaintiff has not furnished to the court evidence of what the monthly payment would be on the newly subrogated mortgage. Would it be based on the due date of the Dime/Washington Mutual first mortgage? If so, the Dime Savings Bank of New York, FSB $126,500 mortgage is due on May 1, 2016, leaving a very short period for the full amortization of the claimed $75,612.93 on the Dime mortgage. The monthly payments necessary to amortize the $75,612.93 in the five years up to May 2016 would be considerably higher than the payments called for in the Dime adjustable rate mortgage notes. Would the newly equitably subrogated mortgage contain the limits on rate changes set forth in the Dime $126,500 mortgage? These same questions can be asked of the plaintiff in regards to the other two recorded encumbrances: Household Realty Corporation recorded mortgage of $9,822 and the Norwalk Hospital recorded judgment lien. The plaintiff offered no evidence on these issues. Plaintiff's equitable subrogation claims, under the circumstances of this case, creates a multitude of calculation issues, that once asked, are better answered by denying the equitable subrogation relief requested.
The plaintiffs claim interest on the unpaid balance of the $425,000 Adjustable Rate Loan at 9.9%. Ex. 3. Outside of Ex. 11, the plaintiff did not offer any evidence on what the adjustable interest rates were or are based on the promissory note. Ex. 3. The plaintiff is claiming a flat 9.9% per annum. The plaintiff has not stated nor proven what the appropriate rate of interest is or would be on the equitable subrogation for the two mortgages, judgment lien and real estate taxes.
The theory of equitable subrogation has been applied to mortgage lending situations, usually where the existing first mortgage has been paid off by the encumbrancer third in line. Our courts have stated that one who advances money to discharge a prior lien on real or personal property and takes a new mortgage as security is entitled to be subrogated to the rights under the prior lien against a holder of the intervening lien of which he was ignorant. The usual factual pattern for invoking equitable subrogation is found in Rosenblit, Trustee v. Williams, 57 Conn.App. 788, 793, cert. denied 254 Conn. 906 (2000). (Forged releases of mortgages of which plaintiff was ignorant and had no ability to determine.) Equitable subrogation has also been applied to the issue of allocating attorney fees. Warning Lights Scaffold Service, Inc. v. O and G Industries, Inc., 102 Conn.App. 267, 274 (2007). The theory is applicable to allocating liability for a fire damage claim under a homeowner's insurance policy between an owner and occupant. Allstate Insurance Company v. Palumbo, 296 Conn. 253, 275 (2010). It has been held applicable to insurance coverage in multi-vehicle personal injury litigation. Klingensmith v. Denomme, Superior Court, judicial district of New London at New London, Docket Number KNL CV09-5013448 (September 29, 2010, Martin, J.) [ 50 Conn. L. Rptr. 698]. The doctrine of equitable subrogation is not intended as a means of circumventing the rights of existing lien holders who have properly recorded their mortgage instruments. Independence One Mortgage Corporation v. Katsaros, 43 Conn.App. 73-74 (1996).
The most recently reported Connecticut appellate decision outlines the law on equitable subrogation of a mortgage. In an action for declaratory judgment the plaintiff, sought to claim priority for a 1997 loan over a 1998 mortgage to the defendants, Kasper. The plaintiff invoked the doctrine of equitable subrogation. The defendants sold real property in Pomfret, Connecticut to John Carpenter on April 10, 1996 and the plaintiffs loaned John Carpenter $243,750 secured by a first mortgage on the real property, which mortgage was recorded on December 26, 1996. On March 10, 1997 John Carpenter granted the defendants, Kasper, a $93,000 mortgage recorded on March 11, 1997. On September 16, 1998 the plaintiffs loaned John Carpenter another $265,000 secured by a mortgage on the same real property recorded on September 16, 1998. This $265,000 loan was used to pay off and release the $243,750 loan and mortgage. Thus as of September 16, 1998 Kasper's $93,000 second mortgage became a first mortgage and the plaintiff's $265,000 third mortgage became a second mortgage, second in priority to the Kasper's $93,000 mortgage. On August 2006 the plaintiff sought declaratory judgment pursuant to the doctrine of equitable subrogation seeking priority of the $265,000 1998 mortgage over the $93,000 1997 mortgage on the basis that this $265,000 loan paid off the existing $243,750 first mortgage. The plaintiff argued that it never intended to take a subordinate lien and it further argued that the proceeds of the $265,000 loan was intended to pay off all preexisting encumbrances. The plaintiff claimed that its mistake in failing to pay off the Kasper's $93,000 mortgage entitled it to equitable subrogation priority over the Kasper's $93,000 mortgage.
The law relating to the priority of interests has its roots in early Connecticut jurisprudence. A fundamental principle is that a mortgage that is recorded first is entitled to priority over subsequently recorded mortgages provided that every grantee has a reasonable time to get his deed recorded. Independence One Mortgage Corp. v. Katsaros, 43 Conn.App. 71, 73, 681 A.2d 1005 (1996). The doctrine of equitable subrogation provides an exception to the first in time, first in right rule and "has been applied in certain limited circumstances to rearrange the priorities of parties in a case." Id. "The object of equitable subrogation is the prevention of injustice." (Internal quotation marks omitted.) Rosenblit v. Williams, 57 Conn.App. 788, 793, 750 A.2d 1131, cert. denied, 254 Conn. 906, 755 A.2d 882 (2000). Where fairness and justice require, "one who advances money to discharge a prior lien on real or personal property and takes a new mortgage as security is entitled to be subrogated to the rights under the prior lien against the holder of an intervening lien of which he was ignorant." (Internal quotation marks omitted.) Id.
Equicredit Corporation of Connecticut v. Kasper et al., 122 Conn.App. 94, 97 (2010).
The Appellate Court affirmed the trial court's judgment denying equitable subrogation since the plaintiff was not ignorant of the defendant's prior mortgage and the plaintiff made a mistake in releasing its first mortgage. The Appellate Court reaffirmed the general rule on equitable subrogation of prior mortgages. "Our Supreme Court has stated that [i]n numerous cases it has been held that one who advances money to discharge a prior lien on real or personal property and takes a new mortgage as security is entitled to be subrogated to the rights under the prior lien against the holder of an intervening lien of which he was ignorant." Id. 97-98; Independence One Mortgage Corp. v. Katsaros, supra, 43 Conn.App. 73-74.
In the current case the plaintiff's predecessor in title failed to perform a title search or negligently performed the title search, thus failing to determine that Belizaire was not the owner of 3 Godfrey Street on May 25, 2005. No evidence was offered as to any claims being made against any title insurance company, escrow company or Eliana Leal, Acoustic's lawyer who prepared the mortgage documents. Despite that oversight or negligence the plaintiff seeks to invoke the equitable remedy of subrogation. Home Owner's Loan Corp. v. Sears, Roebuck Co., 123 Conn. 232, 242 (1937).
A trial court recently refused to invoke the doctrine of equitable subrogation where the title was defective and the lender offered no evidence of having conducted a title search to obtain the true facts. Flor v. R. Bourgeois Antiques et al., Superior Court, judicial district of Litchfield at Litchfield, Docket Number CV 08-5004882 S (January 21, 2010, Pickard, J.).
In reply, the plaintiff argues that equitable subrogation is a discretionary doctrine that is applied in certain limited circumstances. Although the plaintiff acknowledges that her mortgages were subsequent in priority to the Greenpoint mortgages, she alleges that she now has first priority because the Greenpoint mortgages were released on September 15, 2005. Finally, the plaintiff argues, inter alia, although Mortgage Electronic claims that it was ignorant of the plaintiff's lien on the property, it bases this allegation upon an affidavit from Barbara Bourgeois' attorney, her mortgage application and its own company records and not on the basis of a title search. Mortgage Electronic does not allege or produce evidence indicating that it conducted a title search of the property. If Mortgage Electronic completed a title search, the plaintiff claims, it would have discovered the plaintiff's recorded lien on the property and had notice of the lien.
Flor v. R. Bourgeois Antiques, et al., page 6
Mortgage Electronic Registration Systems, Inc. (MERS), the holder of a $750,000 1995 recorded mortgage, was denied summary judgment on the plaintiff's January 1, 2004 mortgage that claimed priority under the doctrine of equitable subrogation. The court's reasoning: MERS failed to conduct a title search which would have revealed the true status of the land records and the plaintiff's January 1, 2004 recorded mortgage. The court found that there is a presumption that one taking a mortgage upon land knows of all prior incumbrances of record affecting it. Home Owners Loan Corporation v. Sears, Roebuck Co., supra, 123 Conn. 242. The Flor trial court denied equitable subrogation because "Mortgage Electronic failed to establish that it lacked constructive knowledge of the plaintiff's lien, which the court may consider in determining whether Mortgage Electronic was ignorant."
Trial courts have denied the relief of equitable subrogation based on the actor's negligence. Equicredit Corporation v. Kasper, Superior Court, judicial district of Windham at Putnam, Docket Number CV 06-50000595 S (July 8, 2009, Potter, JTR) [ 48 Conn. L. Rptr. 181] (Mistake in releasing its first priority mortgage); Connecticut National Bank v. Higganum Supply, Inc., Superior Court, judicial district of Middlesex, Docket Number 65591 (January 11, 1993, Higgins, J.) [ 8 Conn. L. Rptr. 714] (Defendant lien holder negligently failed to disclose Connecticut National's mortgage); National City Bank v. Pecora, Superior Court, judicial district of Litchfield at Litchfield Docket Number LLI CV 08-5004474 S (May 26, 2009, Ginocchio, J.) [ 47 Conn. L. Rptr. 866] (Defendant failed to prove ignorance of the intervening lien and thus equitable subrogation relief was not warranted).
This court declines to invoke the remedy of equitable subrogation in favor of the plaintiff, Deutsche Bank. The following equitable reasons justify this conclusion: (1) Acoustic and its agents were negligent in searching the title and as such had constant notice that Belizaire did not have title; (2) Acoustic and its agents failed to verify Belizaire's income; (3) Belizaire was not given sufficient opportunity in her native language to read, review and consider this transaction; (4) the loan was purported to be for thirty years, yet was actually based on a forty-year amortization requiring a massive lump sum payment at the end of thirty years; (5) the plaintiff failed to establish the rate of interest on the claimed equitable subrogated mortgage; (6) the plaintiff failed to establish the applicable interest index rate; (7) Acoustic and its agents failed to determine that Belizaire had insufficient income and assets with which to pay off the $425,000 loan; (8) the defendants have not been given an opportunity to pay off the newly equitably subrogated mortgage in periodic amortized payments; (9) the defendants will not have received advance notice of the amount and terms of the newly subrogated mortgage before those terms would be determined in a foreclosing court's decision; (10) the Superior Court has no power to create a debt; (11) the Superior Court has no power to establish repayment terms of a debt; (12) the Superior Court has no power to rewrite a contract; and (13) the plaintiff has not established that Acoustic was ignorant of the actual recorded facts on May 25, 2005. The finding by this court that the $425,000 loan and mortgage transaction was both procedurally and substantively unconscionable by itself prevents the plaintiff from prevailing on its Third Count: "Relief by way of subrogation will not be granted where it would work an injustice or where innocent persons would suffer, or where the result would be inimical to public policy." Allstate Insurance Company v. Palumbo, supra, 296 Conn. 275. The court finds the issues for the defendants, Marjorie B. Belizaire and Joziane Bejin, on the Third Count seeking equitable subrogation.
The Fourth Count is against Marjorie B. Belizaire and Joziane Bejin, a/k/a Joziane Belizaire Turnier, the two record title owners of 3 Godfrey Street, Norwalk, Connecticut. Belizaire is not a defendant in this Fourth Count. The Fourth Count seeks an award of money damages in favor of the plaintiff on the basis of unjust enrichment. The plaintiff is not seeking a double recovery. The plaintiff is prosecuting this Fourth Count only if the plaintiff is not successful on the foreclosure remedies claimed in the Second Count and Third Count.
A right of recovery under the doctrine of unjust enrichment is essentially equitable . . . With no other test then what, under a given set of circumstances, is just or unjust, equitable or inequitable, conscionable or unconscionable, it becomes necessary in any case where the benefit of the doctrine is claimed, to examine the circumstances and the conduct of the parties and to apply this standard . . . Plaintiffs seeking recovery for unjust enrichment must prove (1) that the defendants were benefitted, (2) that the defendants unjustly did not pay the plaintiffs for the benefits, and (3) that the failure of payment was to the plaintiffs' detriment . . .
Equitable remedies are not bound by formula but are molded to the needs of justice . . . The court's determinations of whether a particular failure to pay was unjust and whether the defendant was benefitted are essentially factual findings . . . that are subject only to a limited scope of review on appeal . . . Those findings must stand, therefore, unless they are clearly erroneous or involve an abuse of discretion . . . This limited scope of review is consistent with the general proposition that equitable determinations that depend on the balancing of many factors are committed to the sound discretion of the trial court.
Waterview Site Services, Inc. v. Pay Day, Inc., 125 Conn.App. 561, 569, cert. denied, 300 Conn. 910 (2010).
This doctrine is based upon the principle that one should not be permitted unjustly to enrich himself at the expense of another but should be required to make restitution of or for property received, retained or appropriated. The obligation to do justice rests upon all persons, natural or artificial. 46 Am. Jur. 99. A right of recovery under the doctrine is essentially equitable, its basis being that in a given situation it is contrary to equity and good conscience for one to retain a benefit which has come to him at the expense of another.
Franks v. Lockwood, 146 Conn. 273, 278 (1959).
"The measure of recovery in this case focuses on the benefit to the defendant rather than on the loss to the plaintiff. The damages should be the benefit received." Monarch Accounting Supplies, Inc. v. Prezioso, 170 Conn. 659, 666-67 (1976).
The plaintiffs' Fourth Count of unjust enrichment claims that the two record title owners of the real property at 3 Godfrey Street were financially benefitted by the $425,000 in that the loan proceeds paid off the existing first mortgage, second mortgage and a recorded judgment lien. The loan file brought to trial by the plaintiff's witness, Pamela Keefe, contains no mention of Marjorie B. Belizaire or Joziane Bejin. In addition, the balance of the proceeds of the loan were used to pay for certain code correction work, renovations and other improvements to the real property at 3 Godfrey Street. There was no evidence of how much the plaintiff paid to acquire this $425,000 loan from Acoustic. No such information appeared in Pamela Keefe's file. In addition the plaintiff claims it paid real estate taxes for 3 Godfrey Street. The plaintiff claims that the total of these sums is $425,000. The plaintiff is claiming that the $298,947.15 balance of the loan proceeds were used to improve 3 Godfrey Street. The plaintiff argues that the purpose of the loan was to pay off existing debts, correct the cease and desist orders, remove the illegal kitchens and facilities in the attic and basement and construct certain improvements to the property including but not limited to the heating system and a new three-car garage. The plaintiff offered Jeffrey Dorfman's deposition to prove these claims. The court does not find Mr. Dorfman credible. The documents submitted at his deposition are incomplete, inaccurate and appear to have been prepared well after the events stated.
The court finds that the reasonable value of the building improvements at 3 Godfrey Street is established by the testimony of William D. Ireland, Chief Building Official of Norwalk, Connecticut. He testified that the reasonable value of the improvements is established by the amounts set forth in the building permits issued by his office. Ex. 25, 26, 27, 29 and 31. Mr. Ireland verified these costs using the Means construction reference system. The court finds that the reasonable value for the construction work delineated in these exhibits is: remove two kitchens $5,000; plumbing $900; electric $1,000; HVAC $10,600; and garage foundation $3,000. The total value of the building improvements at 3 Godfrey Street for unjust enrichment purposes is found to be $20,500, the total of these five exhibits. Schirmer v. Souza, 126 Conn.App. 759, 768-69 (2011). No final inspection of any of these permits was requested by the contractors. A real estate appraisal taken before May 2005 and another after November 2005 would have been of some assistance, but no such evidence was offered.
The court finds the following sums have been proven for unjust enrichment purposes by the plaintiff against Marjorie B. Belizaire and Joziane Bejin: (1) $75,612.93 payoff of Dime/Washington Mutual mortgage; (2) $9,822 payoff of Household Realty Corporation mortgage; (3) $426.91 payoff of Norwalk Hospital judgment lien; (4) $16,008.73 payment of real estate taxes to the City of Norwalk, Ex. 8; and (5) $20,500 of building improvements made to 3 Godfrey Street. These five sums total $122,370.57. The two defendants Marjorie B. Belizaire and Joziane Bejin and the plaintiff stipulated that interest on the above amounts would accrue at 5% per annum pursuant to Gen. Stat. § 37-3a from May 25, 2005.
Unjust enrichment invokes equitable principles. Allstate Insurance Company v. Palumbo, supra, 296 Conn. 260. Marjorie B. Belizaire and Joziane Bejin had to defend this lawsuit when as owners of the real property they signed nothing, knew nothing of the transaction and were not informed of the transaction until the loan went into default. As such they have had to hire an attorney and expend considerable attorney fees of over $30,000. Ex. 43. Their attorney summed up the plaintiff's attitude as demonstrated by the testimony and documents in final argument as follows: "The bank did not care what it was doing. This is simply demonstrated by two different loan applications and two different HUD-1 settlement statements. The plaintiff, Deutsche Bank, took over this loan without batting an eye. As the new owner of the debt they should have looked more carefully since it was already in default. This loan was a ticking time bomb."
The court agrees with the record title owners defendants. The equities strongly favor these two defendants in any application of unjust enrichment. On equitable grounds the court hereby exercises its discretion and the court finds the issues for the defendants, Marjorie B. Belizaire and Joziane Bejin, on the Fourth Count sounding in unjust enrichment. These equitable grounds are stated in the previous section of this Memorandum of Decision discussing equitable subrogation.
The finding by this court that the $425,000 loan and mortgage transaction was both procedurally and substantively unconscionable prevents the plaintiff from prevailing on the Fourth Count. The $425,000 note has been found to be void as usurious. A void usurious transaction cannot support a claim for unjust enrichment. The court finds the issues for the defendants, Marjorie B. Beliziare and Joziane Bejin, on the Fourth Count sounding in unjust enrichment.
Although not in the pleadings, Belizaire argued for the first time at oral argument that the plaintiff is a holder in due course and those defenses that Belizaire has against Acoustic are valid against the plaintiff. Belizaire points to Gen. Stat. § 42a-3-302(a)(2) for support of this argument. In rebuttal the plaintiff in response to Belizaire's holder in due course argument, conceded that the plaintiff is subject to whatever defenses Belizaire has against Acoustic. The plaintiff's position is correct and is supported by case law. Reynolds, Trustee v. Ramos, supra, 188 Conn. 319, fn 5. The status of the plaintiff as a holder in due course has not been raised in the pleadings and was not the subject of any testimony or evidence at trial. Under the above circumstances and the concession by the plaintiff that Belizaire's defenses are applicable to the plaintiff, this court will not further discuss holder in due course. Funding Consultants v. Aetna Casualty Surety, 187 Conn. 637, 640-41 (1982); Deutsche Bank National Trust Co. v. Medina, Superior Court, judicial district of Stamford/Norwalk at Stamford, Docket Number, FST CV 08-5006907 S (January 10, 2011, Mintz, J.) [ 51 Conn. L. Rptr. 270]; SKW Real Estate Limited Partnership v. Gallicchio, supra, 49 Conn.App. 571.
"No provision of this section shall prevent any such bank, out-of-state bank, Connecticut credit union or federal credit union or other lender from recovering by an action at law the amount of the principal and the interest stipulated or interest at the legal rate, if interest is not stipulated, in any negotiable instrument which it has acquired for value and in good faith without notice of illegality in the consideration." Gen. Stat. § 37-9. This court has already found that the plaintiff acquired this loan after it was in default and after the title problems were known. The plaintiff knew or should have known of all the circumstances including the fact that the loan was not a mortgage and contained usurious terms. The plaintiff has ownership of the note on July 2007 when the 12.375% usurious interest rate was imposed. Belizaire's defenses are applicable to the plaintiff.
Belizaire has filed a one-count counterclaim against the plaintiff, Deutsche Bank, seeking money damages, punitive damages and attorney fees for violation of the Connecticut Unfair Trade Practice Act. Gen. Stat. § 42-110g(a). Belizaire has the burden of proof on the CUTPA allegation against the only plaintiff, Deutsche Bank, Belizaire is only seeking an award of CUTPA damages against the plaintiff, Deutsche Bank not against the former plaintiff, Acoustic.
On April 30, 2007 the court granted the plaintiff's Motion to Substitute Plaintiff and Amend Complaint requesting that the plaintiff, Deutsche Bank, be substituted for the then existing plaintiff, Acoustic. That motion was unopposed (#120.00). The Amended Complaint dated April 18, 2007 became the operative complaint, (#120.00). Belizaire filed her first Answer on August 17, 2007; Answer and Special Defenses and Counterclaim (#127.00). She since filed an Amended Counterclaim. Her operative CUTPA counterclaim is dated May 18, 2010 (#163.00). Belizaire has no right to counterclaim against Acoustic after Acoustic was removed from this case on April 30, 2007. Belizaire first counterclaim was filed on August 12, 2007 well after Deutsche Bank was substituted for Acoustic as the only plaintiff. Belizaire offered no evidence of any wrongdoing by Deutsche Bank nor did she plead any wrongdoing by Deutsche Bank. Her counterclaim allegations are directed against the pre-closing and closing actions of Acoustic and its agents.
Belizaire cites two Superior Court cases for the proposition that the plaintiff, Deutsche Bank, can be held liable for damages by reason of the unfair practices and acts of Acoustic. U.S. Bank National Association, as Trustee v. Garces, Superior Court, judicial district of New London at New London, Docket Number CV-07-5004536 (July 17, 2008, Martin, J.). Garces involved the plaintiff, as assignee of the note and mortgage from the original lender, who moved to strike nine special defenses and four counterclaims. The trial court found that misrepresentation, fraudulent inducement, equitable estoppel, unconscionabiity, CUTPA, and unclean hands were permitted special defenses. The CUTPA counterclaim was permitted to remain on the basis that "The assignee stands in the shoes of the assignor. Rumbin v. Utica Mutual Insurance Company, 254 Conn. 259, 277 (2000)." No extensive analysis of the CUTPA counterclaim is contained in the Garces three-page decision, which discussed thirteen separate legal issues. The court does not find the Garces case persuasive. The Rumbin case is a contested transfer of a personal injury annuity settlement contract and is not applicable to the facts herein. U.S. Bank National Association as Trustee v. Ascenzia, Superior Court, judicial district of New Haven at New Haven, Docket Number CV 08-5022527 S (July 30, 2009, Abrams, J.) [ 48 Conn. L. Rptr. 345], involved a motion to strike twelve special defenses filed by the plaintiff, the assignee of the original note and mortgage in a foreclosure action. There were no counterclaims. The court struck the four CUTPA special defenses. "The court acknowledges a split of authority on this issue at the Superior Court level, but agrees that since CUTPA claims by their very nature constitute claims for damages, they are properly brought as counterclaims rather than special defenses." This three-page decision discussing twelve legal issues including special defenses without any analysis is not persuasive. The above quoted comment is dicta and does not support the viability of a CUTPA counterclaim directed against the plaintiff as the assignee. Neither of these two cases stand for the proposition that a CUTPA claim is viable against the assignee of a note who has not committed any wrong.
This issue has been discussed and decided in a 2009 case.
"Here, the defendants filed the counterclaim after the court granted the unopposed motion to substitute Deutsche Bank for Ameriquest as the plaintiff. In the counterclaim, the defendants alleged no wrongdoing or made any claim against Deutsche Bank. Their allegations were directed solely at Ameriquest. Under these circumstances, we cannot say that the defendants' counterclaim, construed in a manner most favorable to sustaining its legal sufficiency, was an independent action existing in favor of the defendants against Deutsche Bank and on which the defendants might have secured affirmative relief had they sued Deutsche Bank. See JP Morgan Chase Bank, Trustee v. Rodrigues, supra, 109 Conn.App. 131; or, as such, that it stated a claim on which relief could be granted. The defendants, in their counterclaim, simply made no claim against Deutsche Bank." Ameriquest Mortgage Company v. Lax, 113 Conn.App. 646, 650, cert. denied 292 Conn. 907 (2009); Chamlink Corporation v. Merritt Extruder Corporation, 96 Conn.App. 183, 190 (2006). As such Belizaire's counterclaim against the only plaintiff, Deutsche Bank, must fail. Belizaire is still entitled to assert its Special Defenses against Deutsche Bank since the assignee stands in the shoes of the lender.
One of the essential allegations for the liability portion a Connecticut Unfair Trade Practices (CUTPA) claim must be proof of "any ascertainable loss of money or property." Gen. Stat. § 42-110g(a).
Even though § 42-110g(a) authorizes the award of compensatory and punitive damages for a CUTPA violation, the statute is not self-executing. Litigants who seek to recover damages under CUTPA must meet two threshold requirements. First, they must establish that the conduct at issue constitutes an unfair or deceptive trade practice. Second, they must present evidence providing a basis for a court to make a reasonable estimate of the damages that they have suffered. See Reader v. Cassarino, 51 Conn.App. 292, 299, 721 A.2d 911 (1998). There is no automatic entitlement to damages.
New England Custom Concrete, LLC v. Carbone, 102 Conn.App. 652, 666 (2007).
There may be per se CUTPA violations under certain circumstances but no CUTPA claim can be successful unless there is proof of an ascertainable loss of money or property. Reader v. Cassarino, 51 Conn.App. 292, 298-99 (1998); Hinchcliffe v. American Motors Corporation, 184 Conn. 607, 614-15 (1981). "The plaintiffs had the burden to prove, by a preponderance of the evidence, that they suffered an ascertainable loss of money or property as a result of the defendants' actions." Service Road Corporation v. Quinn, 241 Conn. 630, 639 (1997).
"The ascertainable loss requirement is a threshold barrier which limits the class of persons who may bring a CUTPA action seeking either actual damages or equitable relief . . . Thus, to be entitled to any relief under CUTPA, a plaintiff must first prove that he has suffered an ascertainable loss due to a CUTPA violation . . . An ascertainable loss is a loss that is capable of being discovered, observed or established . . . The term `loss' necessarily encompasses a broader meaning than the term `damage,' and `has been held synonymous with depravation, detriment and injury' . . . To establish an ascertainable loss, a plaintiff is `not required to prove actual damages of a specific dollar amount' . . .'A loss is ascertainable if it is measurable even though the precise amount of the loss is not known.'" Artie's Auto Body, Inc. v. Hartford Fire Insurance Co., 287 Conn. 208, 217-18 (2008).
Belizaire executed the second mortgage to Household Finance Corporation that was paid off with the $425,000 loan proceeds. Ex. 1 (Exhibit G), Ex. 19 Disclosure 8, Ex. 19 (Plaintiff's Exhibit H). Belizaire was thus ultimately awarded those funds by reason of the Household Finance Corporation debt being paid, extinguished and released. That Household Finance Corporation second mortgage payoff was no less than $9,822.00. Ex. 1 (Question 6, Exhibit H), Ex. 14, Ex. 32. Belizaire paid one mortgage payment of principal and interest in the amount of $3,575.53 on November 14, 2005 to Acoustic. Ex. 8. She did not use her own funds. She used her cousin's money. There was no evidence that her cousin loaned Belizaire this $3,575.53 and that Belizaire paid her cousin back or is obligated to pay her cousin. This was the only money paid to Acoustic or any successor to Acoustic or agent of Acoustic other than from the loan proceeds. Ex. 17 (Plaintiff's BB, "Exhibit B, Belizaire Accounting"). The entire $425,000 loan has been declared unenforceable by this Memorandum of Decision. Belizaire benefitted by that declaration of unenforceability by no longer being liable for the $9,822 Household Finance Corporation second mortgage. The $9,822 forgiveness far exceeds the $3,575.53 paid by Belizaire to Acoustic. Therefore Belizaire did not suffer an ascertainable loss of money or property by reason of the November 14, 2005 mortgage payment. Morgera v. Chiappardi, Superior Court, judicial district of Stamford/Norwalk at Stamford, Docket Number CV 99-0172388 S (October 28, 2003, D'Andrea, JTR).
Belizaire is claiming attorney fees an ascertainable loss of money or property under CUTPA. Her current attorney of record, Simon Sumberg, Esq., has been her only attorney. He was first hired on December 15, 2005 just over one month after Belizaire made her first, only and last mortgage payment. This lawsuit was commenced by an October 16, 2006 complaint. Attorney Simon Sumberg filed his appearance individually for Belizaire. Prior to representing Belizaire in this litigation, he prepared and filed a complaint with the Connecticut Banking Commission, conducted a title search, contacted the title insurance company listed in the HUD-1, Old Republic Title, notified the office of the Connecticut Attorney General, the State's Attorney's Office and the Commission of Consumer Protection. Ex. 41. Prior to filing his appearance for Belizaire in this lawsuit Attorney Sumberg spent $4,895 at a charge of $275 an hour from December 15, 2005 through October 23, 2006. The court finds the $275 an hour charge reasonable. He is continuing to bill Belizaire $275 an hour. Attorney Sumberg offered itemized contemporary billing records and testified, subjecting himself to cross-examination. Ex. 40, Ex. 42. Through the September 14, 2010 trial date Attorney Sumberg's attorney fees were $38,985.00 plus $172.00 for a title search and $43.00 for recording fees. Ex. 42. These two disbursements were necessary and are reasonable. Mr. Sumberg's contemporaneous detailed time records including disbursements through and including the September 14, 2010 trial date are $39,200. Ex. 42. In addition, the court held trial on September 29, 2010 and September 30, 2010. Two additional trial days at $2,200 each are claimed. The total attorney fees claimed by Belizaire include Truth-in-Lending efforts. Such Truth-in-Lending evidence was not presented at trial. The court therefore eliminates $1,000 in Attorney Sumberg's claimed attorney fees for the Truth-in-Lending issues. The court finds that Belizaire has proven reasonable attorney fees and disbursements from December 15, 2005 through and including September 30, 2010 of $42,600. Smith v. Snyder, 267 Conn. 456, 477, 479 (2004). The plaintiff has not provided any authority that attorney fees incurred in prosecuting a CUTPA action and defending the underlying lawsuit based on that CUTPA conduct, by themselves, satisfies the ascertainable loss element under the liability portion of CUTPA. The court finds that the attorney fees incurred by Belizaire, both before and after the commencement of this lawsuit, are not an ascertainable loss of money or property. Such attorney fees may support an award of attorney fees only if CUTPA liability is proven.
Belizaire testified that she felt humiliated about executing the documents and causing this lawsuit. This testimony apparently is a claim that Belizaire suffered emotional distress. No Appellate Court has found an ascertainable loss based solely on emotional distress without physical injury. Trial courts have uniformly dismissed or stricken CUTPA claims on the basis that emotional distress by itself is not an ascertainable loss sufficient to support a CUTPA claim. Ross v. Company Store, Superior Court, judicial district of Stamford/Norwalk at Stamford, Docket Number CV 91-0115710 S, (October 1, 1991, Ryan, J.) [ 5 Conn. L. Rptr. 62]; Burney v. Downer Funeral Home, Inc., Superior Court, judicial district of Stamford/Norwalk at Stamford, Docket Number CV 99-0175648 S (August 13, 2001, Lewis, JTR) ("A survey of case law reveals that there are no appellate decisions as to whether emotional distress or injury constitutes an ascertainable loss under CUTPA"); Lane v. First Union National Bank, Superior Court, judicial district of New Haven at New Haven, Docket Number CV 01-0446552 S (April 19, 2002, Thompson, J.); Murphy v. McNamara, 36 Conn.Sup. 183, 195-96 (1979).
Belizaire has not proven any CUTPA acts committed by the plaintiff, Deutsche Bank. Deutsche Bank, as assignee is not liable on the plaintiff's counterclaim for the wrongful CUTPA violations of Acoustic. Acoustic is not a party. Belizaire has not proven an ascertainable loss of money or property by reason of the November 14, 2005 mortgage payment, attorney fees incurred or emotional distress. The issues on the Belizaire counterclaim are found for the plaintiff.
The court finds the issues for the defendant, Marie Giliane Belizaire, on the First Count seeking money damages on the $425,000 promissory note.
The court finds the issues for all three defendants on the Second Count seeking foreclosure.
The court finds the issues for the two defendants, Marjorie B. Belizaire and Joziane Bejin, on the Third Count seeking equitable subrogation.
The court finds the issues for the two defendants, Marjorie B. Belizaire and Joziane Bejin, on the Fourth Count seeking money damages for unjust enrichment.
The court finds that the two defendants, Marjorie B. Belizaire and Joziane Bejin, have proven the allegations of their two May 7, 2010 Special Defenses.
The court finds that the defendant, Marie Giliane Belizaire, has proven the allegations of her First Special Defense and her Fourth Special Defense dated May 18, 2010.
The court finds that the Second, Third and Fifth Special Defenses dated May 18, 2010 filed by the defendant, Marie Giliane Belizaire, are repetition and finds that the defendant, Marie Giliane Belizaire has not sustained her burden of proof on those Special Defenses.
The court finds the issues on the Counterclaim filed by the defendant, Marie Giliane Belizaire, for the plaintiff, Deutsche Bank National Trust Company, as Trustee, Successor to Acoustic Home Loans, LLC.
Judgment enters in favor of the three defendants against the plaintiff. The clerk shall tax costs.
The court issued its Memorandum of Decision on February 4, 2011 (#171.00). In that February 4, 2011 Memorandum of Decision the court stated: "The court will file an articulated Memorandum of Decision in excess of twenty pages." This Articulated Memorandum of Decision dated July 6, 2011 is that "articulated Memorandum of Decision."