Opinion
No. CV-04-4002598
April 4, 2007
MEMORANDUM OF DECISION
The plaintiff brings the present action seeking to foreclose a mortgage on certain real property owned by the defendants, Beth Wesley Ghiloni and Matthew William Wage, and located at 408-410 Midland Street in Bridgeport, Connecticut. The plaintiff alleges in its complaint that the defendants signed a promissory note on June 3, 2002, and secured the note by giving the plaintiff's predecessor in interest, National Future Mortgage, a mortgage interest in the property. The plaintiff further alleges that the defendants are in default because they have failed to make payments as required by the note and mortgage, and have been duly notified of the default and subsequent acceleration.
The plaintiff alleges in its complaint that the note and mortgage at issue were assigned by National Future Mortgage to the plaintiff by an assignment of mortgage dated June 3, 2002, and recorded on the land records on June 11, 2002.
The defendants filed an answer, special defenses and counterclaims to the plaintiff's complaint. The court, Richards, J., granted the plaintiff's motion to strike six of the eleven special defenses filed by the defendants, and struck the defendants' counterclaims in their entirety. The following special defenses remain in the case: (a) third special defense alleging negligent misrepresentation; (b) fifth special defense alleging payment; (c) sixth special defense alleging breach of the implied covenant of good faith and fair dealing; (d) tenth special defense alleging waiver of acceleration; and (5) eleventh special defense alleging violation of the federal Truth in Lending Act. The plaintiff denies each of the remaining special defenses.
The plaintiff moves for summary judgment on the issue of liability. In support of the motion, the plaintiff has submitted: the affidavit of Gail Datlenko, who is employed as a foreclosure specialist with the plaintiff; a copy of the note, mortgage and assignment of mortgage; a copy of a closing form concerning hazard insurance: and various documents relating to the hazard insurance issue and the alleged default. The defendants have filed memoranda in opposition to summary judgment. In support of their objection, the defendants have submitted an affidavit of Wage, a copy of the same closing form involving hazard insurance as submitted by the plaintiff, and various documents relating to the hazard insurance issue and the alleged default.
I FACTS
Wage sets forth the following relevant facts in his affidavit opposing summary judgment. In February 2002, the defendants were considering a refinance of their property in order to pay for their wedding that was to take place the following June. They discussed a possible refinance with Todd Routzahn of National Future Mortgage, the original mortgagee, and informed him of certain terms and conditions required by them that included the following: a ten-year note at a fixed rate and without penalties; escrowed taxes; the defendants would provide the proof of insurance at the closing because at that time they were in the process of transferring their insurance to Metropolitan Group Property Casualty Insurance Company (MetLife) to take advantage of discounts; and a May closing date. For ten years preceding the refinance, the defendants paid their insurance premiums relating to the property directly to the insurer. In discussing the refinance, the defendants were informed that it was common practice to escrow property insurance payments and to have borrowers prepay the first year of premiums. Among other responses, Routzahn stated to the defendants that if they provided proof of a one-year hazard insurance policy with six months of paid premiums, then payment of the premiums going forward would be paid out of the escrow account. Wage also attests that Routzahn's representation concerning the requirement of only six months of paid premiums was significant because it effectively meant more moneys were available to pay for the upcoming wedding. National Future Mortgage dealt directly with the insurer, MetLife, concerning the payment of the premiums. The closing took place on June 3, 2002. The attorney for the mortgage company also represented the defendants at the closing.
The plaintiff sets forth the following relevant facts in its affidavit. The defendants signed the note and mortgage at issue on June 3, 2002. The mortgagee was National Future Mortgage and the mortgaged property was located at 408-410 Midland Street in Bridgeport, Connecticut. National Future Mortgage assigned the mortgage on that same day to the plaintiff. The assignment was recorded on the land records of the city of Bridgeport on June 11, 2002. The plaintiff acknowledges that the defendants provided at the closing an insurance policy with MetLife, which was the company to which the defendants transferred their insurance for purposes of obtaining discounts. The plaintiff states that the defendants defaulted on the loan because they failed to make the monthly mortgage payment due June 1, 2004, and due each successive month thereafter.
National Future Mortgage prepared the note, mortgage and other closing documents.
The following post-closing facts in the defendants' affidavit are relevant to determination of the present motion. The defendants' hazard insurance with MetLife was cancelled on December 15, 2002, because the plaintiff, as assignee of the loan, failed to pay from the defendants' escrow account the hazard insurance premiums due and owing after the first six months of the loan in accordance with the agreement made by Routzahn. Wage contacted the plaintiff, was informed that the plaintiff would pay the hazard insurance and, thereafter, received a notice from the insurer that the premium had been paid.
In April 2003, the plaintiff notified the defendants that its records showed that the defendants failed to provide "acceptable evidence of continuous insurance coverage" on the property. Consequently, the plaintiff forced placed insurance coverage on the property for the cost of $4,394. Wage called the plaintiff to remind it of the agreement at the time of closing concerning the premium payments. The defendants received a letter from the plaintiff, dated May 23, 2003, indicating that the cost of the forced placed insurance would be included in their monthly mortgage statement resulting in an increase. On June 10, 2003, the plaintiff contacted Wage and stated that it would cancel the forced placed insurance and pay the premiums from the escrow account as previously agreed. Further, Wage was advised to continue to make his regular monthly mortgage payment in the amount of $2,331.92. The defendants received a letter from the plaintiff, dated June 11, 2003, confirming the discussion.
Notwithstanding, the defendants received a mortgage statement dated June 17, 2003, concerning the payment due on July 1 that indicated a payment due in the amount of $3,194.56. On June 28, the defendants sent their regular monthly mortgage payment as they were advised to do, ignoring the payment due in the mortgage statement. As a result, the defendants received a letter from the plaintiff indicating that the payment was "insufficient" and indicated an amount to make current the account. The plaintiff initially applied the payment to "unapplied funds" and subsequently to the escrow account.
Wage called the plaintiff on August 27, 2003 to have, among other things, the prior months transactions corrected. The plaintiff advised him that the defendants' account would be corrected and account statements would be reissued. Specifically, he was told the following: (1) the plaintiff would credit the cost of the forced placed insurance; (2) the transfer of the July mortgage payment would be corrected; and (3) the July mortgage payment would be accepted and properly applied, and any late charges and penalties would be credited. The plaintiff never made the corrections to the defendants' account. Rather, the plaintiff rejected the defendants' further payments, gave notice of default, accelerated the note and commenced the present action.
II SUMMARY JUDGMENT LAW
"The law governing summary judgment and the accompanying standard of review are well settled. Practice Book § [17-49] requires that judgment shall be rendered forthwith if the pleadings, affidavits and any other proof submitted show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. A material fact is a fact that will make a difference in the result of the case . . . The facts at issue are those alleged in the pleadings . . .
"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 . . .
"It is frequently stated in Connecticut's case law that, pursuant to Practice Book §§ 17-45 and 17-46, a party opposing a summary judgment must provide an evidentiary foundation to demonstrate the existence of a genuine issue of material fact . . . [T]ypically [d]emonstrating a genuine issue requires a showing of evidentiary facts or substantial evidence outside the pleadings from which material facts alleged in the pleadings can be warrantably inferred . . . Moreover, [t]o establish the existence of a material fact, it is not enough for the party opposing summary judgment merely to assert the existence of a disputed issue . . . Such assertions are insufficient regardless of whether they are contained in a complaint or a brief . . . Further, unadmitted allegations in the pleadings do not constitute proof of the existence of a genuine issue as to any material fact . . .
"An important exception exists, however, to the general rule that a party opposing summary judgment must provide evidentiary support for its opposition, and that exception has been articulated in our jurisprudence with less frequency than has the general rule. On a motion by [the] defendant for summary judgment the burden is on [the] defendant to negate each claim as framed by the complaint . . . It necessarily follows that it is only [o]nce [the] defendant's burden in establishing his entitlement to summary judgment is met [that] the burden shifts to [the] plaintiff to show that a genuine issue of fact exists justifying a trial . . . Accordingly, [w]hen 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." (Internal quotation marks omitted.) Gianetti v. United Healthcare, 99 Conn.App. 136, 140-41, 912 A.2d 1093 (2007); Rockwell v. Quintner, 96 Conn.App. 221, 227-30, 899 A.2d 738, cert. denied, 280 Conn. 917, 908 A.2d 538 (2006).
In the present case, and as discussed below, the affidavits and documents submitted by the plaintiff in support of its summary judgment motion fail to establish that there are no genuine issues of material fact relating to the allegations of the defendants' third and fifth special defense. The plaintiff has sustained its burden, however, with respect to the sixth, tenth and eleventh special defense.
III DISCUSSION OF SPECIAL DEFENSES
The plaintiff broadly challenges each of the defendants' special defenses to the foreclosure action on various factual and legal grounds. The defendants counter that they have set forth facts in their affidavit in opposition to the plaintiff's summary judgment motion that demonstrate that they have not defaulted on the note and mortgage, and therefore, the plaintiff has failed to establish a prima facie case. Further, the defendants assert that their affidavit provides the evidentiary foundation necessary to establish genuine issues of material fact as to each of their remaining special defenses.
"[A] foreclosure action constitutes an equitable proceeding . . . In an equitable proceeding, the trial court may examine all relevant factors to ensure that complete justice is done . . . The determination of what equity requires in a particular case, the balancing of the equities, is a matter for the discretion of the trial court . . . 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 . . . Furthermore, if the mortgagor is prevented by accident, mistake or fraud, from fulfilling a condition of the mortgage, foreclosure cannot be had . . ." (Citations omitted; internal quotation marks omitted.) LaSalle National Bank v. Shook, 67 Conn.App. 93, 96-97, 787 A.2d 32 (2001).
"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 was 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 all conditions precedent to foreclosure, as mandated by the note and mortgage, has been satisfied. See Bank of America, FSB v. Hanlon, 65 Conn.App. 577, 581, 783 A.2d 88 (2001).
A NEGLIGENT MISREPRESENTATION SPECIAL DEFENSE
The plaintiff moves for summary judgment on the defendants' third special defense alleging negligent misrepresentation. The defense is premised on the allegation that a representative of the plaintiff's predecessor in interest, National Future Mortgage, represented to the defendants that the mortgage company would pay the hazard insurance premiums from escrow if the defendants prepaid the first six months of the premiums. The plaintiff claims that it is entitled to summary judgment for the reasons that the special defense violates the parol evidence rule, the statute of frauds and the defense is not supported by any facts.
The plaintiff has failed to establish the absence of any issue of material fact relating to this special defense. The defendants' affidavits filed in opposition to summary judgment raises clear issues of fact relating to the claimed misrepresentation.
The plaintiff claims that the enforcement of the alleged oral agreement concerning the payment of the hazard insurance is barred by the statute of frauds. General Statutes § 52-550(a) provides in relevant part: "No civil action may be maintained in the following cases unless the agreement, or a memorandum of the agreement, is made in writing and signed by the party, or the agent of the party, to be charged: . . . (6) upon any agreement for a loan in an amount which exceeds fifty thousand dollars." In this case, the purported oral agreement related to a loan transaction in the amount of $160,000.
"A party that invokes a court's equitable jurisdiction by filing an action for foreclosure necessarily invites the court to undertake such an inquiry." Willow Funding Co., L.P. v. Grenconi Associates, 63 Conn.App. 832, 849, 779 A.2d 174 (2001). In this regard, the court in Willow Funding held "that the statute of frauds, in equity, may in proper circumstances be converted into a more flexible inquiry into an equitable remedy that reflects a weighing of the rights of the parties." Id., 850. Under the circumstances of this case embodied in the pleadings, affidavits and documents submitted by the parties, the statute of frauds does not preclude the court's consideration of whether the defendants are entitled to the equitable relief that they seek to obtain. The facts asserted by the defendants in support of their special defense of negligent misrepresentation, including the facts concerning the plaintiff's acts and omissions relating to the claimed misrepresentation, raise questions of fact to be equitably considered by the trier of fact.
Based on the same reasoning, the plaintiff's claim that the allegations in support of the special defense violate the parol evidence rule fails. Moreover, the allegations of the defense do not implicate the rule.
"The parol evidence rule prohibits the use of extrinsic evidence to vary or contradict the terms of an integrated written contract." (Internal quotation marks omitted.) Scinto v. Sosin, 51 Conn.App. 222, 242, 721 A.2d 552 (1998), cert. denied, 247 Conn. 963, 724 A.2d 1125 (1999). "The parol evidence rule does not of itself, therefore, forbid the presentation of parol evidence, that is, evidence outside the four corners of the contract concerning matters governed by an integrated contract, but forbids only the use of such evidence to vary or contradict the terms of such a contract. Parol evidence offered solely to vary or contradict the written terms of an integrated contract is, therefore, legally irrelevant. When offered for that purpose, it is inadmissible not because it is parol evidence, but because it is irrelevant. By implication, such evidence may still be admissible if relevant (1) to explain an ambiguity appearing in the instrument; (2) to prove a collateral oral agreement which does not vary the terms of the writing; (3) to add a missing term in a writing which indicates on its face that it does not set forth the complete agreement; or (4) to show mistake or fraud . . . These recognized exceptions are, of course, only examples of situations where the evidence (1) does not vary or contradict the contract's terms, or (2) may be considered because the contract has been shown not to be integrated; or (3) tends to show that the contract should be defeated or altered on the equitable ground that relief can be had against any deed or contract in writing founded in mistake or fraud." (Internal quotation marks omitted.) Alstom Power, Inc. v. Balcke-Durr, Inc., 269 Conn. 599, 609-10, 849 A.2d 804 (2004).
The negligent representation alleged in support of the third special defense is not evidence that the defendants offer to vary or contradict the terms and conditions of the note or mortgage. Contrarily, the evidence is consistent with those terms and conditions, and is relevant as to the escrow account and forced placed insurance. Even if the evidence was contradictory in nature, under the existing circumstances in this case, it would fall into the equitable exception to application of the rule.
In view of the foregoing, the plaintiff's motion for summary judgment on the third special defense alleging negligent misrepresentation is denied.
B PAYMENT SPECIAL DEFENSE
The plaintiff moves for summary judgment on the defendants' fifth special defense alleging payment. The plaintiff claims that the defense is devoid of any factual support and that the defense is not legally valid.The plaintiff has failed to establish the absence of any issue of material fact relating to this special defense. The defendants' affidavits filed in opposition to summary judgment raise clear issues of fact concerning payment.
"[T]he defense of payment is a legally sufficient defense in a foreclosure action, and whether payment was tendered is a question of fact appropriately decided by the trier of fact." Homecomings Financial Network, Inc. v. Starbala, 85 Conn.App. 284, 289, 85 Conn.App. 284 (2004).
The defendants' special defense, and affidavit in support thereof, sets forth sufficient facts to allege the defense of payment. The plaintiff has failed to meet his burden to show the absence of any genuine issue of material fact concerning the defendants' fifth special defense alleging payment. Therefore, the plaintiff's motion for summary judgment on the fifth special defense is denied.
C BREACH OF IMPLIED COVENANT OF GOOD FAITH SPECIAL DEFENSE
The plaintiff moves for summary judgment on the defendants' sixth special defense alleging breach of the covenant of good faith and fair dealing. In that defense, the defendants assert that the plaintiff breached the covenant in failing to pay the hazard insurance premiums in accordance with the alleged agreement to do so, in failing to credit the defendants' account for the cost of the alleged improper forced placed insurance and in failing to properly investigate and address the alleged irregularities pertaining to the defendants' account.
The doctrine of the implied covenant of good faith and fair dealing is a valid defense to a foreclosure action. Hudson United Bank v. Cinnamon Ridge Corp., 81 Conn.App. 557, 568-69, 845 A.2d 417 (2004) (affirming jury verdict excusing payment of $400,000 note based on breach of implied covenant of good faith and fair dealing). But see Fidelity Bank v. Krenisky, 72 Conn.App. 700, 716, 807 A.2d 968 , cert. denied, 262 Conn. 915, 811 A.2d 1291 (2002) ("[S]pecial 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).
This equitable defense is particularly applicable in this case as the allegations relate to, among other things, the making of note. Accordingly, the plaintiff's motion for summary judgment on the sixth special defense is denied.
D WAIVER OF ACCELERATION SPECIAL DEFENSE
The plaintiff moves for summary judgment on the defendants' tenth special defense alleging that the plaintiff waived its right to accelerate payments by accepting partial and late payments. The defendants oppose the motion challenging this defense claiming that the defense is valid since the plaintiff did not draft the loan documents and equity requires consideration of the defense.
"It is well established that the exercise of an acceleration clause is proper upon an event of default as provided for and controlled by the terms of the note and the mortgage deed." (Internal quotation marks omitted.) Bank of America, FSB v. Hanlon, supra, 65 Conn.App. 581. "While inconsistent conduct may, under certain circumstances, be deemed a waiver of a right to acceleration, the insertion of a nonwaiver clause is designed to avoid exactly such an inference." Christensen v. Cutaia, 211 Conn. 613, 619-20, 560 A.2d 456 (1989). The mortgage in the present case contains a nonwaiver clause that provides in relevant part: "Any forbearance by Lender in exercising any right or remedy including, without limitation, Lender's acceptance of payments from third persons, entities or Successors in Interest of Borrower or in amounts less than the amount due, shall not be a waiver of or preclude the exercise of any such right or remedy." Therefore, the plaintiff's earlier election to accept late payments rather than to enforce acceleration did not operate as a waiver of its contractual right to accelerate.
The defendants next claim that the facts in the present case are distinguishable from the facts in the Cutaia case in that the plaintiff in that case drafted the promissory notes at issue whereas the plaintiff in this case did not draft the note and mortgage. That, however, is a distinction without a difference under the circumstances of the present case.
"[I]t is hornbook law that the assignee . . . stands in the shoes of the assignor . . ." (Citation omitted; internal quotation marks omitted.) Wesley v. Schaller Subaru, Inc., 277 Conn. 526, 539 n. 15, 893 A.2d 389 (2006). "Indeed, [s]uccession by an assignee to exclusive ownership of all or part of the assignor's rights respecting the subject matter of the assignment, and a corresponding extinguishment of those rights in the assignor, is precisely the effect of a valid assignment." (Internal quotation marks omitted.) Schoonmaker v. Lawrence Brunoli, Inc., 265 Conn. 210, 228, 828 A.2d 64 (2003).
In the present case, the plaintiff, as assignee of the mortgage, stood in the shoes of his assignor, with the same rights. It is undisputed that the note and mortgage at issue were assigned by the original mortgagee, National Future Mortgage, to the plaintiff on the date of the closing. As a result, the plaintiff's predecessor conveyed all of its rights and interests in the note and mortgage to the plaintiff, which included the nonwaiver provision. In view of the foregoing, the plaintiff's motion for summary judgment on the defendants' tenth special defense alleging waiver of the right to acceleration is granted.
E TRUTH IN LENDING ACT SPECIAL DEFENSE
The plaintiff moves for summary judgment on the defendants' eleventh special defense, alleging that the plaintiff is precluded from enforcing the mortgage because certain of its conduct concerning the defendants violated the federal Truth in Lending Act, 18 U.S.C. § 1601 et seq. (TILA).
"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, 50 Conn.Sup. 189, 201 (2006) (granting mortagee bank's motion for summary judgment on special defense of TILA violation).
This court agrees with the rationale that TILA violations relate to the conduct of the lienholder, not the validity of the note or mortgage. The defendants' eleventh special defense is, therefore, inadequate as a matter of law, and the plaintiff's motion for summary judgment as to that special defense is granted.
IV CONCLUSION
In view of the foregoing, the plaintiff's motion for summary judgment on the defendants' third, fifth, sixth and tenth special defenses is denied. The plaintiff's motion for summary judgment on the defendants' eleventh special defense is granted.