Opinion
No. CV 08 5003138 S
July 15, 2009
MEMORANDUM OF DECISION
This is an action for strict foreclosure. The plaintiff, Deutsche Bank National Trust Company, commenced this action by service of writ, summons and complaint on the defendant, Marian Gregory-Boutot, on June 20, 2008. The plaintiff filed a revised complaint on August 15, 2008, alleging that it is the holder of the defendant's mortgage and note, the defendant is in default and the plaintiff has exercised its option to declare the entire balance of the note due. The defendant filed an answer and seven special defenses on November 21, 2008. The plaintiff filed a motion for summary judgment and a memorandum of law in support of the motion on March 4, 2009. The defendant filed a memorandum of law in opposition to the motion for summary judgment on April 6, 2009. The parties were heard at short calendar on April 6, 2009.
The plaintiff's full name on the summons is "Deutsche Bank National Trust Company, as trustee in trust for the registered holders of Ameriquest Mortgage Securities, Inc., Asset-Backed Pass-Through Certificates, Series 2005-R11, C/O Citi Residential Lending, Inc."
"In seeking summary judgment, it is the movant who has the burden of showing the nonexistence of any issue of fact. The courts are in entire agreement that the moving party for summary judgment has the burden of showing the absence of any genuine issue as to all the material facts, which, under applicable principles of substantive law, entitle him to a judgment as a matter of law. The courts hold the movant to a strict standard. To satisfy his burden the movant must make a showing that it is quite clear what the truth is, and that excludes any real doubt as to the existence of any genuine issue of material fact . . . As the burden of proof is on the movant, the evidence must be viewed in the light most favorable to the opponent . . . When documents submitted in support of a motion for summary judgment fail to establish that there is no genuine issue of material fact, the nonmoving party has no obligation to submit documents establishing the existence of such an issue . . . Once the moving party has met its burden, however, the opposing party must present evidence that demonstrates the existence of some disputed factual issue . . . It is not enough, however, for the opposing party merely to assert the existence of such a disputed issue. Mere assertions of fact . . . are insufficient to establish the existence of a material fact and, therefore, cannot refute evidence properly presented to the court under Practice Book § [17-45]." (Internal quotation marks omitted.) Zielinski v. Kotsoris, 279 Conn. 312, 318-19, 901 A.2d 1207 (2006).
"In a mortgage foreclosure action, [t]o make out its prima facie case, [the foreclosing party] ha[s] to prove by a preponderance of the evidence that it [is] the owner of the note and mortgage and that [the mortgagee] ha[s] defaulted on the note." (Internal quotation marks omitted.) Franklin Credit Management Corp. v. Nicholas, 73 Conn.App. 830, 838, 812 A.2d 51 (2002), cert. denied, 262 Conn. 937, 815 A.2d 136 (2003). Furthermore, the foreclosing party must demonstrate that any conditions precedent to foreclosure, as mandated by the note and mortgage, have been satisfied. See Bank of America, FSB v. Hanlon, 65 Conn.App. 577, 581, 783 A.2d 88 (2001).
In this matter the plaintiff has established a prima facie case. In support of its motion for summary judgment, the plaintiff has submitted the affidavits of John Cook, a title searcher, and Cindi Ellis, an assistant vice president employed by American Home Mortgage Servicing, Inc., along with copies of documents related to the mortgage. This evidence shows that the plaintiff is the owner of the note and mortgage and that the defendant has defaulted on the note. On October 22, 2005, the defendant owed Ameriquest Mortgage Company (assignor) $270,000, as evidence by a promissory note payable to the assignor. (Ellis Affidavit, ¶ 2; Exhibit C.) To secure this note, the defendant mortgaged to the assignor the property known as 19 Windy Hill Road, Hampton, Connecticut, which was recorded in the Hampton land records on November 1, 2005. (Cook Affidavit, ¶ 2.) The plaintiff became the holder of the note on May 22, 2008. (Ellis Affidavit, ¶ 3.) The mortgage was assigned to the plaintiff on June 9, 2008, and recorded on July 17, 2008. (Cook Affidavit, ¶ 3; Exhibit F.) The defendant received its first notice of default on May 5, 2006; (Exhibit H); and received subsequent notices of default on November 2, 2006, July 9, 2007, September 5, 2007, and January 8, 2008. (Exhibits I, J, K, and L.) The plaintiff has exercised its option to declare the entire balance of the note due and payable. (Ellis Affidavit, ¶ 4.) Any encumbrances on the property are not affected by this action. (Cook Affidavit, ¶ 4.) No interests are subsequent to the plaintiff's mortgage. (Cook Affidavit, ¶ 5.) Thus, the plaintiff has met its burden of proving a prima facie case.
The plaintiff states in its motion for summary judgment that original or certified copies of these documents "will be available for production and inspection at the hearing on this [m]otion." (Pl's Mot. Summ. J., p. 2.)
The defendant raises seven special defenses to the foreclosure action, which the plaintiff argues are legally insufficient to permit the court to withhold foreclosure.
"Historically, defenses to a foreclosure action have been limited to payment, discharge, release or satisfaction . . . or, if there had never been a valid lien . . . The purpose of a special defense is to plead facts that are consistent with the allegations of the complaint but demonstrate, nonetheless, that the plaintiff has no cause of action . . . A valid special defense at law to a foreclosure proceeding must be legally sufficient and address the making, validity or enforcement of the mortgage, the note or both . . . Where the plaintiff's conduct is inequitable, a court may withhold foreclosure on equitable considerations and principles . . . [O]ur courts have permitted several equitable defenses to a foreclosure action. [I]f the mortgagor is prevented by accident, mistake or fraud, from fulfilling a condition of the mortgage, foreclosure cannot be had . . . Other equitable defenses that our Supreme Court has recognized in foreclosure actions include unconscionability . . . abandonment of security . . . and usury." (Internal quotation marks omitted.) Fidelity Bank v. Krenisky, 72 Conn.App. 700, 705-06, 807 A.2d 968, cert. denied, 262 Conn. 915, 811 A.2d 1291 (2002).
"A plaintiff in a foreclosure action can challenge a special defense by summary judgment in three ways. The first way to challenge a special defense is to argue that the special defense does not address the making, validity and enforcement of the mortgage . . . The second way to challenge a special defense is to challenge its legal sufficiency . . . The third way to challenge a special defense is to show that there is no genuine issue of material fact based on the evidence." WM Specialty Mortgage, LLC v. Brandt, Superior Court, judicial district of Ansonia-Milford, Docket No. CV 09 5001157 (February 10, 2009, Moran, J.T.R.).
The court notes a disagreement among trial courts as to the defendant's burden of proof in cases where the plaintiff challenges the legal sufficiency of the defendant's special defenses. Relying on Larobina v. McDonald, 274 Conn. 394, 401, 876 A.2d 522 (2005), some courts hold that if the defendant's special defenses would survive a challenge to their legal sufficiency given an opportunity to amend, then the plaintiff's motion for summary judgment should be denied. In Larobina, the Supreme Court held: "If it is clear on the face of the complaint that it is legally insufficient and that an opportunity to amend it would not help the [nonmoving party], [the court] can perceive no reason why the [moving party] should be prohibited from claiming that he is entitled to judgment as a matter of law . . ." Larobina v. McDonald, supra, 274 Conn. 401. Conversely, if a legally insufficient claim could be cured by amendment, then a moving party could be prohibited from claiming entitlement to judgment as a matter of law. Id. Thus, one judge of the Superior Court has held that "the rationale set forth in Larobina applies in circumstances where the defendants' special defenses would survive, given an opportunity to amend." Bank of New York Trust Co. v. Gbeh, Superior Court, judicial district of Litchfield, Docket No. CV 07 5002495 (February 26, 2008, Marano, J.). The relevant question is whether the defendant has any "further facts to allege that would have cured the legal defects in [its] special defenses to this mortgage foreclosure action." (Internal quotation marks omitted.) Bank of New York v. Conway, 50 Conn.Sup. 189, 201 n. 6 (2006).
In contrast, other judges of the Superior Court have held that "[i]f a plaintiff in a foreclosure action has shown that it is entitled to foreclose, then the burden is on the defendant to produce evidence supporting its special defenses in order to create a genuine issue of material fact; valid, legally sufficient special defenses alone do not." WM Specialty Mortgage, LLC v. Brandt, Superior Court, judicial district of Ansonia-Milford, Docket No. CV 09 5001157 (February 10, 2009, Moran, J.T.R.); see also Mechanics Savings Bank v. Walker, Superior Court, judicial district of Hartford, Docket No. CV 91 0500701 (March 9, 1995, Corradino, J.) ( 14 Conn. L. Rptr. 129).
The majority rule among the Superior Courts appears to favor the first approach. After all, "[t]he decisions of the Connecticut Superior Court are almost in unanimous agreement that a [plaintiff's] motion for summary judgment as to a special defense is improper. Such a motion is improper because Practice Book § 17-44 does not provide for summary judgment on special defenses . . . Summary judgment on a special defense is also improper because [e]ven if the special defenses were all to fail . . . the plaintiffs' motion and supporting documents do not remove from dispute facts relevant to determining whether they are entitled to judgment as a matter of law on the complaint itself . . ." (Citation omitted; internal quotation marks omitted.) Sound Post, LLC v. New Harvest Coffee Roasters Inc., Superior Court, Housing Session at Bridgeport, Docket No. BRSP 056336 (May 6, 2005, Skolnick, J.); see also Wyatt Energy, Inc. v. Motiva Enterprises, LLC, 104 Conn.App. 685, 692 n. 7, 936 A.2d 280 (2007), cert denied, 286 Conn. 901, 943 A.2d 1103 (2008). Furthermore, "[o]nly one of [a defendant's] defenses needs to be valid in order to overcome [a] motion for summary judgment. [S]ince a single valid defense may defeat recovery, [a movant's] motion for summary judgment should be denied when any defense presents significant fact issues that should be tried." (Internal quotation marks omitted.) Union Trust Co. v. Jackson, 42 Conn.App. 413, 417, 679 A.2d 421 (1996).
The plaintiff's first special defense is that: "Plaintiff did not follow the proper requirements under the Truth in Lending Act at the time of the processing of this loan transaction." The defendant does not indicate whether the plaintiff violated the state or federal truth-in-lending acts.
"Although neither our Supreme Court nor the Appellate Court has addressed the validity of TILA violations as a special defense in mortgage foreclosure actions, several judges of the Superior Court have noted that [a] mortgage holder's failure to comply with state and/or federal truth-in-lending requirements has been held not to constitute a legally sufficient special defense in mortgage foreclosure actions . . . These courts reasoned that TILA violations do not present a legal attack on the validity of the note or mortgage, but rather relate to the conduct of the lienholder." (Citations omitted; internal quotation marks omitted.) Bank of New York v. Conway, supra, 50 Conn.Sup. 201.
"A valid special defense at law to a foreclosure proceeding must be legally sufficient and address the making, validity or enforcement of the mortgage, the note or both." Fidelity Bank v. Krenisky, supra, 72 Conn.App. 705. Because the alleged TILA violations do not relate to the validity of the note, but rather to the alleged conduct of the assignor and its successor assignee, the defendant's first special defense is legally insufficient.
Furthermore, an assignee is only liable for statutory damages regarding TILA violations that are apparent on the face of the loan documents. See 15 U.S.C. § 1641(a); General Statutes § 36a-683(k). Here, there is no allegation that TILA violations are apparent on the face of the loan documents, and even if violations existed, the defendant's only remedy would be statutory damages.
15 U.S.C. § 1641(a) provides: "Prerequisites — Except as otherwise specifically provided in this subchapter, any civil action for a violation of this subchapter or proceeding under section 1607 of this title which may be brought against a creditor may be maintained against any assignee of such creditor only if the violation for which such action or proceeding is brought is apparent on the face of the disclosure statement, except where the assignment was involuntary. For the purpose of this section, a violation apparent on the face of the disclosure statement includes, but is not limited to (1) a disclosure which can be determined to be incomplete or inaccurate from the face of the disclosure statement or other documents assigned, or (2) a disclosure which does not use the terms required to be used by this subchapter."
General Statutes § 36a-683(k) provides in relevant part: "Action against assignee. (1) Except as otherwise specifically provided in sections 36a-675 to 36a-685, inclusive, any civil action for a violation of said sections or proceeding by the commissioner which may be brought against a creditor may be maintained against any assignee of that creditor only if the violation for which such action or proceeding is brought is apparent on the face of the disclosure statement, except where the assignment was involuntary. For the purpose of this subdivision, a violation apparent on the face of the disclosure statement includes, but is not limited to, (A) a disclosure which can be determined to be incomplete or inaccurate from the face of the disclosure statement or other documents assigned, or (B) a disclosure not made in the terms required to be used by said sections . . ."
The defendant's second special defense is that the "[p]laintiff engaged in predatory lending practices and misled the [d]efendant as to the key terms of the [m]ortgage such as the interest rate, and also inflated the appraised value of the property."
A claim of predatory lending would appear to be a valid special defense to foreclosure, as it relates to the making, validity or enforcement of the note. The plaintiff argues, however, that even if the second special defense is a recognized defense to foreclosure, a line of Superior Court case law holds "that an assignee is not responsible for the acts of an assignor." Deutsche Bank National Trust Ca v. Ganci, Superior Court, judicial district of Hartford, Docket No. CV 05 4017440 (April 5, 2006, Satter, J.). As one judge of the Superior Court has observed, "[w]hile Connecticut's appellate courts do not appear to have had an occasion to consider precisely the issue of the liability of an assignee for pre-assignment breaches by the assignor, numerous other courts have ruled that to be liable for the assignor's nonperformance of duties under a contract, the assignee must have expressly assumed liability for the prior breaches." SCP Corp. v. BankBoston, Superior Court, judicial district of Waterbury, Docket No. XCI CV 98 0116198 (March 18, 1999, Hodgson, J.) ( 24 Conn. L. Rptr. 304).
Predatory lending has been defined as "making unaffordable loans based on the assets of the borrower rather than on the borrower's ability to repay an obligation; inducing a borrower to refinance the loan repeatedly in order to charge high points and fees each time the loan is refinanced or flipped; or engaging in fraud or deception to conceal the true nature of the loan obligation or ancillary products from an unsuspecting or unsophisticated borrower." Monetary Funding Group, Inc. v. Pluchino, Superior Court, judicial district of Fairfield, Docket No. CV 01 0382851 (September 3, 2003, Stevens, J.).
Because the plaintiff is an assignee of the mortgage note, it is not responsible for the alleged wrongful conduct of its successor in interest. Therefore, the defendant may not assert the special defense of predatory lending or unclean hands because the allegations contained in this special defense relate to the conduct of the assignor when it allegedly misled the defendant into obtaining a mortgage.
The defendant's third special defense is that "[t]he defendant was not properly notified of the date that the interest rate had changed on this [m]ortgage. The [p]laintiff misled the [d]efendant as to its ability to bring the loan current per the new interest rate. Plaintiff's actions caused the [d]efendant's attempt to bring the mortgage current to fail."
"A valid special defense at law to a foreclosure proceeding must be legally sufficient and address the making, validity or enforcement of the mortgage, the note or both." Fidelity Bank v. Krenisky, supra, 72 Conn.App. 705. The third special defense alleges wrongful conduct that occurred after the mortgage transaction. This defense does not address the making, validity or enforcement of the mortgage or the note. Its legal insufficiency cannot be cured by amendment. This special defense is an insufficient basis for the court to withhold foreclosure.
The defendant's fourth special defense is that "[p]laintiff breached its covenant of good faith and fair dealing by improper dealing with the [d]efendant throughout this transaction."
Although one recent Appellate Court decision suggests that the special defense of a violation of the implied covenant of good faith and fair dealing is an equitable defense to foreclosure; Hudson United Bank v. Cinnamon Ridge Corp., 81 Conn.App. 557, 568-69, 845 A.2d 417 (2004); the rule appears to remain that "special defenses . . . alleging a breach of an implied covenant of good faith and fair dealing . . . are not equitable defenses to mortgage foreclosure." (Internal quotation marks omitted.) Monetary Funding Group, Inc. v. Pluchino, 87 Conn.App. 401, 404 n. 3, 867 A.2d 841 (2005). See also Fidelity Bank v. Krenisky, supra, 72 Conn.App. 716.
In Hudson United Bank v. Cinnamon Ridge Corp., 81 Conn.App. 557, 568-69, 845 A.2d 417 (2004), the Appellate Court affirmed a jury verdict excusing payment of $400,000 note based on breach of implied covenant of good faith and fair dealing.
The defendant's fifth special defense is that "[t]he [p]laintiff, through its appraiser, negligently represented the value of the property and the improvements of the property and caused the [d]efendant to purchase the property and obtain the subject mortgage loan. Therefore, the [p]laintiff breached the implied covenant of good faith and fair dealing at the time the loan was made."
Because a violation of the implied covenant of good faith and fair dealing is not a recognized defense to foreclosure, the defendant's fifth special defense is a legally insufficient ground for denying summary judgment. It cannot be cured by repleading.
Furthermore the Appellate Court has held that a potential lender does not have a duty to perform an accurate appraisal on behalf of a loan applicant. Dubinsky v. Citicorp Mortgage, Inc., 48 Conn.App. 52, 59, 708 A.2d 226 (1998). "[T]he plaintiff should be expected to know that the appraisal was intended to assist the defendant in determining whether to make the loan, and was not intended to ensure that the plaintiff had made a good investment." Id., 60.
The defendant's sixth special defense is that "[t]he [p]laintiff, through its appraiser, negligently represented the value of the property and the improvements and caused the [d]efendant to purchase the property and obtain the subject mortgage loan. Therefore, the [p]laintiff acted in an unconscionable manner in making the loan."
"The purpose of the doctrine of unconscionability is to prevent oppression and unfair surprise . . . As applied to real estate mortgages, the doctrine of unconscionability draws heavily on its counterpart in the Uniform Commercial Code which, although formally limited to transactions involving personal property, furnishes a useful guide for real property transactions As Official Comment 1 to § 2-302 of the Uniform Commercial Code suggests, [t]he basic test is whether, in the 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 . . . Unconscionability is determined on a case-by-case basis, taking into account all of the relevant facts and circumstances." (Internal quotation marks omitted.) Monetary Funding Group, Inc. v. Pluchino, supra, 87 Conn.App. 411.
The defendant's sixth special defense involves conduct allegedly performed by the plaintiff's predecessor in interest. As discussed herein, judges of the Superior Court hold that an assignee is not liable for the conduct of the assignor unless the assignee expressly assumes liability. Because the plaintiff has not assumed liability for its assignor's conduct, it cannot be held responsible for the alleged unconscionable conduct. The defendant's sixth special defense is legally insufficient and cannot be cured by repleading.
Furthermore, the Appellate Court has held that a potential lender does not have a duty to perform an accurate appraisal on behalf of a loan applicant. Dubinsky v. Citicorp Mortgage, Inc., supra, 48 Conn.App. 59.
The defendant's seventh special defense is that "[t]the [p]laintiff, through its appraiser, negligently represented the value of the property and its improvements and caused the [d]efendant to purchase the property and obtain the subject mortgage loan. Therefore, the [p]laintiff is guilty of unclean hands."
"Our jurisprudence has recognized that those seeking equitable redress in our courts must come with clean hands. The doctrine of unclean hands expresses the principle that where a plaintiff seeks equitable relief, he must show that his conduct has been fair, equitable and honest as to the particular controversy in issue . . . For a complainant to show that he is entitled to the benefit of equity he must establish that he comes into court with clean hands . . . The clean hands doctrine is applied not for the protection of the parties but for the protection of the court . . . It is applied . . . for the advancement of right and justice . . . The party seeking to invoke the clean hands doctrine to bar equitable relief must show that his opponent engaged in wilful misconduct with regard to the matter in litigation . . . The trial court enjoys broad discretion in determining whether the promotion of public policy and the preservation of the courts' integrity dictate that the clean hands doctrine be invoked." (Internal quotation marks omitted.) Monetary Funding Group, Inc. v. Pluchino, supra, 87 Conn.App. 407.
The defendant's seventh special defense involves conduct allegedly performed by the plaintiff's predecessor in interest. As discussed above, judges of the Superior Court hold that an assignee is not liable for the conduct of the assignor unless the assignee expressly assumes liability. Because the plaintiff has not assumed liability for its assignor's conduct, it cannot be held responsible for the assignor's unclean hands. The defendant's seventh special defense is legally insufficient and cannot be cured by repleading.
As in the discussion of the fifth and sixth special defenses, even if the plaintiff was liable for its assignor's conduct, the Appellate Court has held that a potential lender does not have a duty to perform an accurate appraisal on behalf of a loan applicant. Dubinsky v. Citicorp Mortgage, Inc., supra, 48 Conn.App. 59.
For the foregoing reasons, the plaintiff's motion for summary judgment is granted.