Opinion
FSTCV136017120S
01-14-2016
JP Morgan Chase Bank, National Association v. Robert J. Virgulak et al
UNPUBLISHED OPINION
MEMORANDUM OF DECISION ON DEFENDANT, THERESA VIRGULAK'S MOTION FOR SUMMARY JUDGMENT DATED SEPTEMBER 25, 2015 (#138.00)
Hon. Kevin Tierney, Judge Trial Referee.
Can a lender foreclose on a note not signed, guaranteed or assumed by defendant, Theresa Virgulak, but signed by defendant, Robert J. Virgulak, which note is secured by a mortgage signed only by the defendant, Theresa Virgulak, the sole property owner? Can a foreclosure be maintained by a lender who has a mortgage deed executed by a named defendant, the sole property owner who has not executed the note?
The court has applied all the requisite standards for decisions by trial courts in motion for summary judgment without the need to restate those standards in this Memorandum of Decision. Covello v. Darien, Superior Court, judicial district of Stamford/Norwalk at Stamford, Docket No. FST CV 08-5008909 5 (October 22, 2010, Tierney, J.T.R.) ; Forrest v. Sothebys International Realty, Inc. et al., Superior Court, judicial district of Stamford/Norwalk at Stamford, Docket No. FST CV 11-6010200 S, (January 9, 2013, Tierney, J.T.R.)
The facts are not in dispute. The following usual rules surrounding foreclosures appear not to be relevant under the facts of this case. " In order to establish a prima facie case in a mortgage foreclosure action, the plaintiff must prove by a preponderance of the evidence that it is the owner of the note and mortgage, that the defendant mortgagor has defaulted on the note and that any conditions precedent to foreclosure, as established by the note and mortgage, have been satisfied . . ." Wells Fargo Bank, N.A. Trustee v. Strong, 149 Conn.App. 384, 392, 89 A.3d 392 (2014).
At issue is the residential premises at 14 Bayne Court, Norwalk, Connecticut and a December 11, 2006 loan made by JP Morgan Chase Bank, N.A. to Robert J. Virgulak in the amount of $533,000. Robert J. Virgulak conveyed all his right, title and interest in and to 14 Bayne Court, Norwalk, Connecticut on June 2, 1983 to Theresa Virgulak. From and after June 2, 1983 Theresa Virgulak has been the only owner of record of 14 Bayne Court, Norwalk, Connecticut. The December 11, 2006 Note to JP Morgan Chase Bank, N.A. was only signed by Robert J. Virgulak. Neither Theresa Virgulak's name nor her signature appears on the December 11, 2006 promissory note (#108.00, Exhibit A). The Open-End Mortgage Deed was also dated December 11, 2006 and was only signed by Theresa Virgulak. The legal description for 14 Bayne Court, Norwalk, Connecticut is contained in the Open-End Mortgage Deed (#108.00, Exhibit A). Theresa Virgulak concedes that she signed the Open-End Mortgage Deed.
On January 24, 2011 Robert J. Virgulak a.k.a. Robert John Virgulak filed for Chapter 7 bankruptcy protection in the United States Bankruptcy, District of Connecticut, Case No. 11-50098 (#140.00, Exhibit C). On April 26, 2011 Robert J. Virgulak was granted a discharge in bankruptcy (#140.00, Exhibit G). Prior to the discharge, the movant, Chase Home Finance, LLC filed a February 11, 2011 Motion for Relief from Stay directed to the December 11, 2006 $533,000 Note and the Theresa Virgulak December 11, 2006 Open-End Mortgage Deed (#140.00, Exhibit D). This foreclosure action had not yet been commenced. Robert J. Virgulak objected to the Relief from Stay arguing that the $533,000 promissory note is an unsecured debt properly listed in the unsecured debt portion of his bankruptcy petition. After a contested evidentiary hearing in the Bankruptcy Court, the Motion for Relief from Stay was denied on March 9, 2011. (#140.00, Exhibit F. The court's order was found on the edge of the Motion for Relief from Stay. " It is ORDERED that the motion is DENIED. Dated: March 9, 2011.") No Memorandum of Decision or transcript of the March 9, 2011 order was provided to this court.
JP Morgan Chase Bank, N.A. was the lender and the original plaintiff having commenced this foreclosure action by a January 30, 2013 one-count complaint against both Robert J. Virgulak and Theresa Virgulak. Counsel for these two individual defendants immediately filed an appearance for both individual defendants. On September 3, 2014 the plaintiff withdrew the foreclosure action against Robert J. Virgulak (#117.00). The operative complaint is the January 7, 2015 Amended Complaint (#118.00). Thereafter on March 12, 2015 the plaintiff filed another withdrawal form confirming the continued withdrawal of Robert J. Virgulak as a defendant (#121.01). Hudson City Savings Bank was substituted as the plaintiff by order of this court on August 18, 2015 (#124.01). On September 23, 2015 Theresa Virgulak, as the only remaining individual defendant, filed her Answer and Special Defenses (#130.00). She filed seven Special Defenses: (1) misapplication of funds; (2) failure to give proper notice; (3) subsequent parol agreement; (4) plaintiff acted in a commercially unreasonable manner; (5) bad faith and breach of the implied covenant of good faith and fair dealing; (6) discharge of unsecured debt in the bankruptcy proceeding of the former defendant, Robert J. Virgulak; and (7) estoppel by a decision of the United States Bankruptcy Court. The plaintiff did not amend its complaint after the January 7, 2015 Amended Complaint to reflect the withdrawal of Robert J. Virgulak as a defendant in this foreclosure, the substitution of Hudson City Savings Bank as the plaintiff or in response to any of Theresa Virgulak's seven Special Defenses. The plaintiff has not filed a responsive pleading to Theresa Virgulak's seven Special Defenses (#130.00).
On September 25, 2015 the defendant, Theresa Virgulak, filed this instant Motion for Summary Judgment (#138.00). She is claiming that the plaintiff is precluded from foreclosing the instant mortgage due to the fact that the Defendant never borrowed any money, never received any money, never had any obligation to repay any money, is therefore, not in default under the mortgage, and the underlying $533,000 note was discharged in bankruptcy. The pleadings submitted for this court's consideration in this Motion for Summary Judgment are: ##s 118.00, 130.00, 138.00, 139.00, 140.00, 141.00, 144.00, 146.00 and 147.00 and consists of 172pages. The parties agreed that there was no bankruptcy stay in effect.
This court has presided over a number of foreclosure matters, both uncontested and contested, in which two individual defendants were joined with one signing the note and both signing the deed or both signing the note and one signing the deed. This is the first case presented to this court where two individual defendants were involved with one signing only the note and the other signing only the mortgage deed. The parties' brief and oral arguments failed to disclose to this court any trial or appellate court decision in Connecticut involving this exact scenario. Neither party furnished the deposition transcript or affidavit from the December 11, 2006 closing attorney. It is with this tabula rasa that this court addresses the issues in this Motion for Summary Judgment.
With respect to mortgages, 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 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. (Internal quotation marks omitted.) Mortgage Electronic Registration Systems, Inc. v. White, 278 Conn. 219, 231, 896 A.2d 797 (2006).Castro v. Mortgage Lenders Network USA, Inc., 158 Conn.App. 371, 376, 119 A.3d 639 (2015).
The mortgagee's legal title is a defeasible fee subject to an equitable right of redemption that persists until it is foreclosed. New Milford Savings Bank v. Jajer, 244 Conn. 251, 258, 708 A.2d 1378 (1998). Thus a foreclosure is a process needed to extinguish the right of redemption in the mortgagor, the equitable owner's right to redeem the properties. Madison Hill Limited Partnership II v. Madison Hills, Inc., 35 Conn.App. 81, 90, 644 A.2d 363, cert. denied, 231 Conn. 913, 648 A.2d 153 (1994); National City Mortgage Company v. Stoecker, 92 Conn.App. 787, 792-95, 888 A.2d 95 (2006). " By reason of the failure of the defendants to redeem, their rights in the property had ceased, and the qualified title which the plaintiff had previously held under his mortgage had become an absolute one." Ferguson v. Sabo, 115 Conn. 619, 622, 162 A. 844 (1932); City Lumber Company of Bridgeport, Inc. v. Murphy, 120 Conn. 16, 20, 179 A. 339 (1935).
Our legislature by adopting § 49-17 has provided an avenue for the holder of the note to foreclose on the property when the mortgage has not been assigned to him. Fleet National Bank v. Nazareth, 75 Conn.App. 791, 795, 818 A.2d 69 (2003). " 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." Chase Home Finance, LLC v. Fequiere, 119 Conn.App. 570, 989 A.2d 606, 610-11 (2010); Deutsche Bank, National Trust Company v. Bialobrzeski, 123 Conn.App. 791, 797, 3 A.3d 183 (2010); J.E. Robert Company, Inc. v. Signature Properties, Inc., 309 Conn. 307, 319, 71 A.3d 492 (2013). " A note and mortgage are separate instruments, executed for different purposes." Mechanics' Bank of New Haven v. Johnson, 104 Conn. 696, 701, 134 A. 231 (1926).
The mortgage deed at issue is labeled an " OPEN- END MORTGAGEE DEED." (#108.00) The terms and conditions of open end mortgages in Connecticut are described by statute. " Such mortgage shall be deemed to give sufficient notice of the nature of the obligation to secure the obligation of any person who is secondarily liable for an open-end loan . . ." Gen. Stat. § 49-4b(a). " The loan constituting the underlying obligation for which the mortgagor is secondarily liable, which secondary liability is secured by such open-end mortgage, shall be described in such open-end mortgage deed." Gen. Stat. § 49-4b(c). The statute also requires that the nature of the secondary liability be spelled out in the Open-End Mortgage deed as to the full amount of the obligation and the date in which the secondary liability of the mortgagor will terminate. Gen. Stat. § 49-4b(d).
The defendant, Theresa Virgulak, claims that the issues before this court in the Summary Judgment motion have already been heard and decided by litigation between the parties in the Robert J. Virgulak bankruptcy proceedings. This is a res judicata claim. " The doctrine of res judicata provides that a former judgment serves as an absolute bar to a subsequent action involving any claims relating to such cause of action which were actually made or which might have been made." McGee v. Commissioner of Corrections, 157 Conn.App. 863, 873, 118 A.3d 140, cert. denied 318 Conn. 903, 122 A.3d 633 (2015). The above transactional test is used to measure the preclusive effect of a prior judgment. C& H Management, LLC v. City of Shelton, 140 Conn.App. 608, 612-15, 59 A.3d 851 (2013).
This court after applying the transactional test finds: The defendant, Theresa Virgulak, was not a party to the bankruptcy proceedings. The Bankruptcy Court may not be a court of concurrent jurisdiction with Superior Court; The proceedings included in the Bankruptcy Court involved issues controlled by the bankruptcy statutes; The plaintiff, JP Morgan Chase Bank, NA, was not a party to the bankruptcy proceedings; The relationship between Chase Home Finance, LLC and JP Morgan Chase Bank, NA is not set forth in the records before this court or before the Bankruptcy Court; There was no Memorandum of Decision issued in the underlying bankruptcy decision of March 19, 2011; No transcript of the proceeding or the Bankruptcy Court's March 19, 2011 detailed order was before this court; and The underlying Motion to Terminate the Stay is not at issue in this Superior Court foreclosure litigation. For these reasons the court finds whether or not the March 19, 2011 decision in the Bankruptcy Court has preclusive effects in this litigation, is a material issue of fact. The March 19, 2011 decision is an insufficient reason to grant the defendant's Motion for Summary Judgment.
Although the Note was not signed by Theresa Virgulak and her name does not appear in the Note, paragraph 10 of the Note describes the loan as a " UNIFORM SECURED NOTE." (#108.00, Exhibit A.) Paragraph 10 of the Note states: " In addition to the protections given to the Note Holder under this Note, a Mortgage, Deed of Trust, or Security Deed (the 'Security Instrument'), dated the same date as this Note, protects the Note Holder from possible losses which might result if I do not keep the promises which I make in this Note." The top of the first page of the Note contains a blank space for " (Property Address)" above which is typed " 14 BAYNE COURT, NORWALK, CT 06851." The same address appears on Page 3 of 14 of the Open-End Mortgage Deed (#108.00, Exhibit A). Both are dated December 11, 2006. Both refer to a Note dated December 11, 2006 in an amount of $533,000.
The note and mortgage are on preprinted forms. The bottom of the first page of the Note states: " MULTISTATE FIXED RATE NOTE-Single Family-- Fannie Mae/Freddie Mac UNIFORM INSTRUMENT." A logo appears in the Note under that description which states: " VMP-5N (0005) Form 3200 1/01 VMP MORTGAGE FORMS--(800) 521-7291 Page 1 of 3." The bottom of the first page of the Open-End Mortgage Deed states: " CONNECTICUT--Single Family-Fannie Mae/Freddie Mac UNIFORM INSTRUMENT." To its immediate right appears: " Form 3007 1/01." A logo appears in the Open-End Mortgage Deed under that description, which states: " VMP-6(CT)(0005)." Then under that is " Page 1 of 14." Under the pagination number appears: " VMP MORTGAGE FORMS--(800)521-7291." From these notations in the two preprinted forms, the court concludes that the Note and Open-End Mortgage Deed were designed to be part of one single transaction to be executed with one another.
The Open-End Mortgage Deed described the lender as " JP MORGAN CHASE BANK, N.A." the exact description of the lender in the Note. The " Borrower" in the Open-End Mortgage Deed is defined as " THERESA VIRGULAK, MARRIED" on Page 1 of 14, The signature page of the Open-End Mortgage Deed contains the signature of Theresa Virgulak above her printed name on Page 14 of 14. Just above the signature is stated: " BY SIGNING BELOW, Borrower accepts and agrees to the terms and covenants contained in this Security Instrument and in any Rider executed by Borrower and recorded with it." (#108.00, Exhibit A.)
On Page 2 of 14, in the Open-End Mortgage Deed the amount loaned is stated to be $533,000 under a loan date of December 11, 2006. It further states: " Borrower has promised to pay this debt in regular Periodic Payments and to pay the debt in full not later than January 1, 2037" Also on Page 2 of 14 in paragraph (F) is the following: " 'Loan' means the debt evidenced by the Note, plus interest, any prepayment charges and late charges due under the Note, and all sums due under this Security Instrument, plus interest." On page 3 of 14 Section 1. states: " Borrower shall pay when due the principal of, and interest on, the debt evidenced by the Note and any prepayment charges and late charges due under the Note. Borrower shall also pay funds for Escrow Items pursuant to Section 3." On Page 3 of 14 is the following: " For this purpose, Borrower in consideration of this debt does hereby grant and convey to Lender and Lender's successors and assigns, the following described property located in the COUNTY of FAIRFIELD: See Attached Legal Description Parcel ID. Number: 5-35-92 which currently has the address of 14 BAYNE COURT NORWALK, Connecticut 06851."
Consideration for mortgage may consist of a loan made to one other than the mortgager. " The parties agree that the mortgage must secure a debt and that there must be consideration for the debt. They obviously disagree as to whether the mortgagor also must be an obligor in order for the mortgage to be valid. There is nothing in either the common law standards (see Conn. National Bank v. Esposito, 210 Conn. 221, 223, 554 A.2d 735 (1989) or the relevant statutes (see Conn. Gen. Stats. § 49-1 et. seq.) that even hint at such a requirement." State Street Mortgage Company v. Matrix Development Corporation, Superior Court, judicial district of Fairfield at Bridgeport, Docket Number FBT CV 91-282654 S, (August 22, 1991, Katz, J.) (Although Matrix was decided on a Motion to Strike, the sole mortgager, Gail Lawrence, had not signed the underlying note although both the mortgage deed and note were both signed on August 14, 1987. The Motion to Strike filed by the defendant, Gail Lawrence, in the foreclosure action was denied.)
A mortgage deed must provide reasonable notice to third parties of the obligation that is being secured by the security instrument." It is not necessary, however, that a mortgage deed recite with particularity all of the details of the underlying transaction. The object of the mortgage is to identify the note or debt secured by the mortgage and give reasonable notice of the extent of the encumbrance. All the terms of the note are not essential to that object: hence all need not be stated." Dart and Bogue Company, Inc. v. Slosberg, 202 Conn. 566, 578-79, 522 A.2d 763 (1987).
Mary McDonald and Carol Sharpe both executed mortgage deeds on their residences at the time their husbands' $250,000 commercial note was executed. All documents were signed on July 5, 1988. Their respective husbands also executed the mortgage deeds. In opposing the lender's summary judgment, the wives claimed lack of consideration for their execution of the residential mortgage deed.
The defendants have presented no authority to support their claim that a mortgage deed is invalid if the consideration for the mortgage note did not flow to the mortgagor. In advancing their argument that the mortgage is invalid if the mortgagors are not liable on the note which is secured by the mortgage, the defendants seem to assume that the requirements for a valid note and mortgage deed are identical. This is certainly not the case. A note and a mortgage given to secure it are separate instruments, executed for different purposes . . ." Mechanics Bank v. Johnson, 104 Conn. 696, 701, 134 A. 231 (1926). A negotiable instrument is an unconditional promise or order to pay a fixed amount of money. Connecticut General Statutes § 42a-3-104 . Most mortgage notes, including the Note at issue here, are negotiable instruments. However, a mortgage deed is not invalid just because it fails to secure a negotiable instrument. The dispositive question in examining the validity of a mortgage is whether it provides reasonable notice to third parties of the obligation that is secured . . . Dart & Bogue Co. v. Slosberg, 202 Conn. 566, 578-79, 522 A.2d 763 (1987); Devlin v. Wiener, 232 Conn. 550, 555, 656 A.2d 664 (1995).First Commerce of America, Inc. v. McDonald, Superior Court, judicial district of Middlesex at Middletown, Docket Number CV 95-0075050 S (September 29, 1995, Aurigemma, J.) .
The court finds that, whether the terms of the Open-End Mortgage Deed provides reasonable notice, is a material issue of fact.
The language of both the Note and Open-End Mortgage Deed when read together, along with the relationship of the parties, the contemporaneous execution of both documents, and the recitation of the $533,000 loan terms in the Open-End Mortgage deed, satisfy this court's conclusion that the consideration for the execution of the Open-End Mortgage deed by the defendant, Theresa Virgulak, is a material issue of fact.
The September 25, 2015 Motion for Summary Judgment filed by the defendant, Theresa Virgulak, (#138.00) is denied.