Opinion
146045996S
11-15-2017
WELLS FARGO BANK, N.A. v. James R. FITZPATRICK et al.
UNPUBLISHED OPINION
OPINION
Alfred J. Jennings, Jr., Judge Trial Referee
This contested foreclosure case was tried to the court on July 18, 2017.
The complaint alleges that plaintiff Wells Fargo Bank is the holder and owner of a $315,000 promissory Note made by defendants James R. Fitzpatrick and Marsha A. Fitzpatrick in favor of World Savings Bank, FSB on January 31, 2003, which Note is secured by a Mortgage Deed of property known as 170 Morning Dew Lane, Stratford, Connecticut (" Property"). Plaintiff further alleges that the Note is in default, that plaintiff has provided written notice as provided in the Note and Mortgage to the defendants of their default under the Note and Mortgage but the defendants failed and neglected to cure the default and plaintiff has elected to accelerate the balance due on said Note, to declare said Note to be due in full, and to foreclose the Mortgage securing the Note. The defendants in their Answer have pled lack of knowledge to all the allegations of the plaintiff’s Complaint except that they admit that the plaintiff has declared the Note to be in default and has accelerated the unpaid balance of the Note, and they deny that monies are owed to the plaintiff. Defendants have filed three Special Defenses with their Answer: unclean hands, laches, and failure to mitigate damages, all premised on the claim that: " Plaintiff is barred ... In that it failed to pursue and/or commence the action, in a timely manner." Defendants also filed a Counterclaim seeking a discharge of the Mortgage under Conn. Gen. Stat. § 49-13. The Counterclaim was dismissed prior to trial by this court’s Memorandum of Decision dated June 20, 2017. (A Corrected Memorandum of Decision was filed on September 21, 2017 correcting errors in the names of the defendants.) The Plaintiff filed a Reply denying the allegations of the three Special Defenses and asserting a First and Second Matter in Avoidance to the Special Defenses in that they " do not relate to the making, validity or enforcement of the Note and Mortgage" and they are preempted by federal law (the Home Owners’ Loan Act, 12 U.S.C. § 1461 et seq. and implementing federal regulations including 12 C.F.R. § 560.2).
There was an earlier foreclosure action in this court against these defendants brought by Plaintiff’s predecessor, styled Wachovia Mortgage, FSB v. James Fitzpatrick et al., Docket No. FBT CV09-6003573S. The same loan documents, the same default of payment, and the same property were involved in that case. The Court took judicial notice of the electronic Docket Sheet of that earlier case as Defendant’s evidence in this case. The earlier case was served on July 27, 2009. The case was dismissed for dormancy on May 8, 2014.
Findings of Fact and Conclusions of Law
A. Plaintiff’s Case.
The plaintiff has proved by a preponderance of the evidence all the prima facie elements of an action for foreclosure of mortgage. The court finds that:
1. On January 31, 2003 the defendants James R. Fitzpatrick and Marsha A. Fitzpatrick signed a Promissory Note (Ex. 5) in the original principal amount of $315,000 payable to World Savings Bank, FSB payable by monthly installments of principal and interest in the amount of $2,022.19 commencing April 1, 2003 and continuing on the first day of each month thereafter until the Maturity Date of March 1, 2033.
2. The Note was secured by an Open-End Mortgage Deed (Ex 10) of the premises at 170 Morning Dew Lane Stratford, Connecticut owned by the defendants. Said Mortgage was signed by the defendants James R. Fitzpatrick and Marsha A. Fitzpatrick on January 31, 2003 in favor of the mortgagee World Savings Bank, FSB and was recorded in the Stratford land Records on February 13, 2003 at Volume 2064, Page 031.
3. Effective December 31, 2007 World Savings Bank, FSB amended its charter and bylaws to change its name to Wachovia Mortgage, FSB. (Ex. 11.)
4. Effective November 1, 2009 the Office of the United States Comptroller of the Currency, Administrator of National Banks authorized the conversion of Wachovia Mortgage, FSB to a national bank with the name Wells Fargo Bank Southwest, National Association, and further authorized effective November 1, 2009 the merger of Wells Fargo Bank Southwest National Association with and into Wells Fargo Bank, National Association (Ex. 12.)
5. The Promissory Note was endorsed in blank by Wells Fargo Bank, N.A., successor by merger to Wachovia Mortgage, FSB, formerly known as World Savings Bank, FSB. The original Note was in possession of the plaintiff Wells Fargo Bank, N.A. prior to the commencement of this foreclosure action commenced by service of process on September 26, 2014. Wells Fargo Bank sent the original Note to the law firm formerly known as Hunt, Leibert Jacobson, P.C. on July 17 2009 for purposes of commencing foreclosure litigation. (Ex. 9.)
6. The defendants defaulted in making their monthly installment payments under the Note and Mortgage starting with the payment due on March 1, 2009 and continuing on the first day of each month thereafter.
7. Paragraph 22 of the Mortgage Deed requires that a written notice of default be given to the Borrowers prior to acceleration of the debt specifying (a) the default, (b) the action required to cure the default, (c) a date not less than 30 days from the notice date by which the default must be cured, (d) that failure to cure the default on or before the date specified in the notice may result in acceleration of the debt and foreclosure or sale of the Property; and further, that the Borrower has a right to reinstate after acceleration and the right to assert in court the non-existence of a default or any other defense to acceleration and foreclosure or sale.
8. Paragraph 15 of the Mortgage Deed provides that all notices to the Borrower shall be deemed to have been given to the Borrower when mailed by first class mail or when actually delivered to Borrower’s notice address which shall be the Property Address unless Borrower has designated a substitute notice address by notice to Lender.
9. Paragraph 6(c) of the Note provides: " If I am in default the Note Holder may send me a written notice telling me that if I do not pay the overdue amount by a certain date, the Note Holder may require me to pay immediately the full amount of Principal which has not been paid and all the interest that I owe on that amount. That date must be at least 30 days after the date on which the notice is mailed to me or delivered by other means."
10. On May 13, 2009 the then-holder of the Note and Mortgage, Wachovia Mortgage, LLC sent by First Class Mail and Certified Mail a Notice to Cure and Intent to Accelerate addressed to defendants James R. Fitzpatrick and Marsha A. Fitzpatrick at the Property Address. (Ex. 13.)
11. On June 19, 2014 the firm formerly known as Hunt Leibert Jacobson, P.C. as counsel to plaintiff Wells Fargo Bank, N.A. sent by Certified Mail, Return Receipt Requested, a letter addressed to Bercham, Moses & Devlin, P.C. at 75 Broad Street, Milford, CT 06460 as counsel for defendant Marsha A. Fitzpatrick, advising inter-alia that the Note was in default for failure to make installment payments of principal and interest. (Ex. 4, 14.) Section 15 of the Mortgage Deed provides that " Notice to any one Borrower shall constitute notice to all Borrowers unless Applicable Law expressly requires otherwise."
12. The foregoing letters, read together, constitute substantial compliance with the notice requirements of Paragraph 6(c) of the Note and Paragraphs 15 and 22 of the Mortgage Deed. Mortgage Electronic Registration Systems, Inc. v. Goduto, 110 Conn.App. 367 (2008).
After the Plaintiff rested its case at trial the defendants moved to dismiss under Practice Book § 15-8 (Failure to Make Out a Prima Facie Case) on the ground that plaintiff had failed to prove compliance with the Notice requirements of Paragraphs 22 and 15 of the Mortgage Deed. The court heard extensive argument from both counsel, and, after a recess for consideration, announced in detail on the record the reasons for court’s decision to deny defendant’s Motion to Dismiss, citing the Goduto case.
13. Thereafter the defendants failed to cure their default, and the plaintiff accelerated the balance due under the Note, which defendants have admitted in their Answer.
14. As the holder by merger of the Note and Mortgage, and as the possessor of the Original Note endorsed in blank prior to the commencement of this action the plaintiff has standing to bring and maintain this action in foreclosure. Conn. Gen. Stat. § 49-17; RMS Residential Properties v. Miller, 303 Conn. 224, 230 (2011).
B. Defendants’ Special Defenses
First Special Defense- Unclean Hands
The doctrine of unclean hands holds that one who seeks to prove that he is entitled to the benefit of equity must come before the court with clean hands. Cohen v. Cohen, 182 Conn. 193, 201 (1980); Sachs v. Sachs, 22 Conn.App. 410, 416, cert. denied, 216 Conn. 815 (1990). In the context of a case such as this where a foreclosure case has been brought and ultimately dismissed for dormancy, then followed by a second action which results in a judgment of foreclosure, the doctrine has been applied to the award of mortgage interest accruing during the lengthy period of litigation. In McKeever v. Fiore, Sr., 78 Conn.App. 783 (2003), the Appellate Court affirmed a reduced award of interest. Although the foreclosure process through two actions had taken approximately nine years, the court had awarded only one year of accrued interest because of its conclusion that an excessive amount of time was taken to reach a judgment of strict foreclosure which should have gone to judgment in about one year, and that the delay was caused by a lack of diligence, with the result that a full award of accrued interest would amount to a " windfall" for the plaintiff. Granted, there were some aggravated circumstances in that case not present here including the plaintiff’s failure to appear for trial on two occasions, but there are sufficient similarities with this case which call for the exercise of an equitable reduction to the full interest award the plaintiff is claiming at 6.65% per annum for the period between July 27, 2009 when the prior action was commenced and today’s date in 2017 when the 2014 second case is going to judgment- a litigation period spanning more than eight years. The court is especially focusing on a period of unexplained delay in the prior action. The final Mediation Report was filed on September 29, 2011. (File position 136.) Nothing further happened until plaintiff filed its Affidavit of Federal Loss Mitigation Programs (No. 137) on February 13, 2014- a time gap of more than 28 months or 868 days. Under the rationale of McKeever v. Fiore the court finds that the plaintiff acted with unclean hands in letting that lengthy hiatus occur without taking any action to move the litigation forward to judgment or other resolution. There is no evidence of ongoing settlement discussions or any effort to reopen mediation or any other justification for that delay during which interest continued to accrue. The per diem interest on the unpaid principal balance of $290,912.95 at a rate of 6.65% per annum comes to $53 per day. (Ex. 18.) Multiplied by 868 days, the interest credit allowed by the court on the First Special Defense is $46,004.
Second Special Defense- Laches
The elements of the equitable defense of Laches are that there has been an unreasonable, inexcusable, and prejudicial delay in bringing suit. Cummings v. Tripp, 204 Conn. 67, 88 (1987). Defendants’ only allegation is that the plaintiffs " failed to pursue and/or commence the action in a timely manner." The court construes " pursue" to mean the prosecution of the action after it is commenced. That type of delay does not amount to laches which is limited to delay in bringing suit. And the record does not support a finding of delay in commencing litigation against the Fitzpatricks for their payment default on their mortgage loan. The default occurred starting with the payment due on March 1, 2009. The Note at Paragraph 6(A) allows a fifteen-day payment period. And the default notice sent by Wachovia Mortgage on May 13, 2009 allowed a 60-day cure period (until July 13, 2009). The first foreclosure case was served fourteen days later on July 27, 2009 with a Return Date of August 11, 2009. There was hardly any delay at all in commencing that action.
The first foreclosure case was dismissed for dormancy on May 8, 2014. Wachovia’s Motion to Reopen the judgment of dismissal was denied on June 3, 2014. Hunt Leibert mailed another notice of default on June 19, 2014 with a cure period until July 19, 2014. This action was served slightly more than two months later on September 26, 2014, which the court does not consider to be an unreasonable delay. The Defendants have failed to prove their Second Special Defense.
Third Special Defense- Failure to Mitigate Damages
The duty to mitigate damages is a recognized defense under appropriate circumstances in breach of contract actions. (Connecticut Judicial Branch, Civil Jury Instructions § 4.5-14 and cases cited.) It also can be a defense to negligence actions in tort. (Id., § 3.4-8.) But no authority has been cited, nor has the court found any authority for allowing mitigation of damages as a special defense to a foreclosure action. Several Superior Court opinions have held that the failure to mitigate damages is not applicable to a mortgage foreclosure action where damages consist of a sum certain, the payment of which has been agreed to by the defendant maker of a promissory note. See Arch Bay Holdings, LLC v. Tompkins, Superior Court, Judicial District of New Britain, Docket No. CV10-6007605S (October 18, 2011, Tanzer, J.), 2011 WL 5531328; Rockville Bank v. Southern Hospitality Group, LLC, Superior Court, Judicial District of Hartford, Docket No. CV10-6012854S (May 12, 2011, Aurigemma, J.), 2011 WL 2417196; Bank of America v. Groton Estates, LLC, Superior Court, Judicial District of New London, Docket No. CV 09-6001697 (July 13, 2010, Devine, J.); Citibank Mortgage, Inc. v. Conant, Superior Court, Judicial District of Stamford/Norwalk at Stamford, Docket No, FST CV97-0156799S (March 13, 1998, Tobin, J.), affirmed, 54 Conn.App. 529, cert. denied, 251 Conn. 909 (1999); Fleet Bank, N.A. v. Arias, Superior Court, Judicial District of Hartford, Docket No. CV92-0518205 (June 28, 1994, Aurigemma, J.); 12 Conn.L.Rptr. 82; Citimortgage v. Speer, 2011 Ct.Sup. 5270 (February 17, 2011); and Great Western Bank v. McNulty, Superior Court, Judicial District of Stamford/Norwalk at Stamford, Docket No 139794 (March 16, 1995, D’Andrea, J.). This court concurs with the holding of those cases. The defendants’ Third Special Defense of mitigation of damages is legally insufficient.
Counsel for both parties chose to make oral argument at the close of evidence rather than submit trial briefs.
Matters in Avoidance
There is no need to discuss the Plaintiff’s First and Second Matters in Avoidance with respect to the Second and Third Special Defenses which the court has rejected. As to the First Special Defense the First Matter in Avoidance (unrelated to making, validity or enforcement of Note and Mortgage), the court finds that the unclean hands of the plaintiff under the circumstances alleged goes directly to the enforcement of the Note. The delay in litigation occurred during the pendency of an action seeking a foreclosure of the mortgage, possession of the Property, and deficiency judgment (Complaint, Prayer for Relief).
The Home Owners’ Loan Act Matter in Avoidance was not briefed, and no evidence was put forth as to applicability of that federal statute or its enabling regulations. The Second Matter in Avoidance is therefore rejected.
C. Judgment and Awards
Even though the Property is in a negative equity situation, the Judgment must be a foreclosure by sale as mandated by 28 U.S.C. § 2410(c) since the United States Internal Revenue Service is a defendant as the holder of a federal tax lien against the Property.
The court grants a judgment of foreclosure by sale, with a sale date of Saturday March 3, 2018. A committee shall be appointed and proceedings shall be in accordance with the Standing Order of this court.
The Court finds the fair market value of the Property at 170 Morning Dew Lane Stratford, Connecticut is $400,000 broken down as $125,000 on the land and $275,000 on the building, (Testimony and Report (Ex. 1) of licensed appraiser Susan C. Marra.)
The Court finds that the Plaintiff’s debt, without any deductions for the First Special Defense, is $572,233.83 as of June 30, 2017. (Ex. 18, less late charges plaintiff is not seeking.) Interest at $53 per diem from June 30, 2017 to November 15, 2017 (138 days) comes to $7,314. The Total Debt with no deductions is therefore $579,547.83. The court has allowed an interest credit of $46,004 under the First Special Defense of unclean hands. The net total debt for purposes of this judgment is therefore $533,543.83.
Defendant’s Ex. A which is a monthly statement sent by the plaintiff on June 16, 2017 to Beecham Moses & Devlin is not inconsistent with plaintiff’s debt as set forth in Exhibit 18, The " Balance Summary" of the monthly statement shows a principal balance of $290.912.45 and an escrow balance of $118,559.21, both of which are the same as Exhibit 18. The " Payment Summary" of Ex. A is not meant to be added to the " Balance Summary" numbers. The " Payment Summary" shows about 8 years of missing monthly payments each containing a principal component of $712.50. Adding those numbers to the principal balance shown in the Balance Summary would be double-counting the eight years of unpaid monthly payments of principal.
The court awards appraisers’ fees of $735 consisting of $335 for the appraisal and report and $400 for appearing in court to testify.
By agreement the issue of attorneys fees and costs was deferred to a post-trial hearing. The Plaintiff may file a Motion for Award of Attorneys Fees and Costs within 30 days of this judgment. Any such motion must be accompanied by an itemized affidavit.