Opinion
KNLCV186036084
02-22-2019
LIBERTY BANK v. Edward J. HEFFERNAN, III
UNPUBLISHED OPINION
OPINION
Cosgrove, JTR
Mary Ann Landry, the successful bidder at a judicial sale held pursuant to a judgment of foreclosure by sale, moves to vacate the court’s approval of the sale for a return of her deposit. The homeowner, Edward J. Heffernan, III, moves that the bidder’s deposit be forfeited.
Procedural posture. The plaintiff Liberty Bank seeks in this action to foreclose a mortgage given to it by Edward J. Heffernan, III to secure its loan of $ 90, 000 to Mr. Heffernan. The defendant defaulted on the note in January of 2018 and this action was commenced in July of 2018.
A judgment of foreclosure by sale was entered by the court, Koletsky, J., on October 9, 2018. The debt was found to be $ 50, 577.40 including attorneys fees. The subject property, known as 7 Albacore Drive in Waterford, was found to have a fair market value of $ 245, 000 ($ 90, 000 for the land and $ 155, 000 for the improvements). The sale was ordered to take place on December 8, 2018. The committee’s appraisal concluded that the property had a fair market value of $ 185, 000 ($ 80, 000 for the land and $ 105, 000 for the improvements).
The sale of the property was conducted on December 8, 2018. A representative of the defendant was present at the time of the sale and denied access to the interior. The sale produced a final bid of $ 167, 000 and a bond for deed was executed by the successful bidder. On January 2, 2019 the court, Cosgrove, J., approved the committee’s report and signed the committee’s deed.
On January 29, 2019, the successful bidder Landry filed this motion seeking to have the sale price modified based upon the fact that the power to the property had been cut off, water was in the basement, mold was growing on interior surfaces and there was concern that pipes or a heating system had been damaged. This motion was subsequently amended and in the amendment Landry seeks to vacate the court’s approval of the sale as the subject property suffered extensive damage, its market value has decreased and equitable principles require that the sale be set aside.
The homeowner Heffernan filed an objection to the Landry motion to decrease the price. Heffernan argues that pursuant to the standing orders for foreclosure sales, the property was sold "as is" and was not subject to any contingencies. He requests that the deposit be forfeited if the successful bidder does not close.
The plaintiff did not object to the adjustment of the price but opposes the vacating of the order approving the sale. It would appear that the plaintiff’s position is protected by the land alone without any reference to the value of the improvements on the property.
The homeowner has taken a number of actions during this foreclosure action. The bidders were not allowed to access the property at the time of the sale and the homeowner argues that therefore the bidder could not have known of the condition prior to the auction. The homeowner further complains that on at least two occasions after the sale, the bidder entered the property without permission. First, the bidder left a note on the kitchen counter that requested the homeowner, "please have the water shut off before the pipes freeze ... much appreciated, Mary Landry." Further, the homeowner complains that after the note from the bidder was discovered, the property was winterized, presumably by the bidder, without the knowledge or consent of the homeowner. The homeowner further asserts he ran a generator to remove any excess water in the property.
The bidder had concerns about whether the homeowner or the plaintiff had taken steps to protect the property after the December 8, 2018 auction. In response to an email from the plaintiff’s attorney, the homeowner’s counsel stated, "I have also instructed them (the homeowner) to make sure there’s enough oil in the tank to keep the heat at a reasonable level so the pipes do not freeze." The plaintiff’s attorney forwarded this email to the bidder’s attorney stating, "I am informed that the property is secured and winterized."
On February 4, 2019, the court heard testimony from the son of the successful purchaser, Christopher Landry. Mr. Landry went to the property on January 13, 2019 and found the Bilco door to the basement open. He looked into the basement and saw water on the floor and mold on the walls. There was no active electrical service for the structure so the basement sump pump did not operate. Based upon these observations of the conditions, the bidder’s family took steps to obtain an estimate for cleanup of the property and to evaluate the condition of the furnace and heating system. The cleanup had an estimated cost of $ 31, 163 and the heating system repairs would cost $ 14, 990.
The court continued the matter for a week, to February 11, 2019, and asked the parties to determine if there was insurance coverage for the loss. The plaintiff bank’s forced placement coverage did not provide coverage for the loss and the homeowner had let the homeowner’s insurance coverage and the utilities lapse. The homeowner again refused to allow the successful bidder access to the property between February 4 and February 11, 2019.
The court has the power to set aside a sale after confirmation if equitable principles so demand. See Citicorp Mortgage, Inc. v. Burgos, 227 Conn. 116 (1993). As an equitable action, equitable principles should apply. Although the homeowner’s right to redeem the mortgage was extinguished by the court’s approval of the sale, he continued to have a right to a distribution from the proceeds of the sale if those proceeds were sufficient to compensate all those prior in right. See Washington Trust Co. v. Smith, 241 Conn. 734, 742-43 (1997). In Litton Loan Services, LP v. Casiano, 2004 WL 1489566 , the court, Satter, J., noted that a mortgagee’s right to participate in the distribution of the proceeds through a supplemental judgment was a substantial insurable interest. If the mortgagee’s right to participate in a distribution from the proceeds is insurable, the mortgagor’s right to participate in a distribution is also likely insurable. Although the court has not inspected the bank’s forced placement insurance, it relies upon counsels’ representation that no coverage was afforded for these losses. Since the coverage is likely limited to the balance of the mortgage, here the land alone is likely to provide adequate security.
The court is aware of the standing orders of the court regarding foreclosures by sale and that bidders have been advised that they are bidding on property in an "as is" condition. It further is aware that it can order the forfeiture of the deposit if a successful bidder does not participate in a closing with the committee of sale.
The court finds that the subject property suffered water and mold damage that most probably occurred between the date of the sale, December 8, 2018, and the time for the closing on the sale after the court approval. The note that the bidder left for the homeowner on the kitchen counter after sale expressed concerns about the pipes freezing. The homeowner’s attorney stated in an email dated January 8, 2019 that the homeowner had been going in and out of the house at that time to retrieve his personal property. The bidder’s son inspected the property on January 11, 2019 and discovered the water, mold and condition of the furnace.
In Citifinancial Mortgage Co., Inc. v. Skyers, 2001 WL 1227638 (2003), the court, Thim, J., vacated a confirmation of a foreclosure sale and ordered a return of the bidder’s deposit. It found that the subject property, after court approval of the sale, had suffered water damage from frozen pipes that substantially diminished its value. The court held that prior to the time that the Committee transferred title, the court continued to have the right to set aside a confirmed sale. Using equitable principles that looked at the diminution of value, the lack of fault and that the parties had not changed their position in reliance on the confirmation of the sale, the court equitably ordered the confirmation of the sale vacated and the return of the deposit.
Here, the value of the property has been substantially diminished by the development of mold and damage to the furnace and heating system. The bidder took steps to advise the plaintiff and the homeowner of her concerns about the lack of winterization of the property. She was advised that the property had been winterized. The homeowners’ attorney advised the homeowners to keep the property heated to avoid the risk of the pipes freezing. The homeowner rightfully maintained control over access to the property and refused to allow access for winterization. The homeowner was thus aware of the risks and chose not to act to protect against the risk of water damage to the property.
Reluctantly, in these circumstances, the court finds that equity requires it to vacate its order approving the sale and to order the committee expenses and fees ($ 5, 803.74) to be paid from the deposit held by the court. The balance of the deposit is to be returned to the bidder, Mary Ann Landry.
The court orders a hearing on setting a new date for a foreclosure by sale and the conditions of the sale on March 22, 2019. The successful bidder may petition the court for a return of that portion of the deposit used to pay committee fees and expenses at a later date.