Opinion
FBTCV166057088S
03-12-2019
WELLS FARGO BANK, N.A. v. Izabela UZNASKA
UNPUBLISHED OPINION
OPINION
Alfred J. Jennings, Jr., Judge Trial Referee
Procedural/Factual Background
This is a contested foreclosure action of a $ 551, 200 mortgage held and serviced by the plaintiff Wells Fargo Bank N.A. on the residence and property at 125 Sturges Ridge Road, Wilton, CT. ("Property"). The defendant Izabela Uznanska is the record owner of the Property and was the record owner at the time this mortgage transaction with plaintiff’s predecessor World Savings Bank, FSB was closed on July 26, 2007. It is undisputed that World Savings Bank, FSB with the permission of the United States Treasury Office of Thrift Supervision changed its name to Wachovia Mortgage FSB effective December 31, 2007 (Plaintiff Ex. 9) and that Wachovia Mortgage, FSB was granted permission effective November 1, 2009 by the Comptroller of the Currency, Administrator of National Banks to convert to a national bank with the name Wells Fargo Bank Southwest, National Association which merged with and into the plaintiff Wells Fargo Bank, National Association also effective November 1, 2009. (Id.) The Mortgage transaction now at issue was a refinance of an earlier mortgage from a different lender taken out in 2005 when the Property was purchased by the defendant.
The present mortgage loan is structured as an "Adjustable Rate Mortgage Pick a Payment Loan." The promissory note dated July 26, 2007 and signed by the defendant Izabela Uznanska as maker in favor of World Savings Bank, FSB, a Federal Savings Bank, is in evidence as Plaintiff’s Exhibit 1. The Note identifies World Savings Bank, FSB as the lender and the defendant as the borrower. The principal amount of the loan is stated to be $ 551, 200 which the defendant promises to repay together with interest by making biweekly payments every other Monday commencing September 3, 2007 through a maturity date of August 20, 2037. The initial interest rate is set at 7.910% subject to adjustment on each Interest Rate Change Date defined as "the 17th day of September 2007 and on every other Monday thereafter" with each interest rate change taking effect as of each Interest Rate Change Date. The interest rate change formula is an "Index" rate plus a "margin" of 3.000 percentage points. The Index is the "Cost of Savings Index" as published by the Wachovia Corporation which is defined as "The weighted average of interest rates in effect as of the last business day of each calendar month on the U.S. dollar denominated personal time deposits (as defined by the Board of Governors of the Federal Reserve System for purposes of reporting deposits on FR 2900 commercial banks) held by the U.S. branches and non-U.S. Branches located on U.S. military facilities of the depository institution subsidiaries of Wachovia Corporation that hold federally insured deposits." The Index is to be published monthly by Wachovia Corporation on the fifteenth day of each month (Plaintiff’s Ex. 1, Section 2(D)). There are also provisions in the Note for an Alternate Index if the foregoing Index is no longer available. The rate adjustments are limited by a "lifetime maximum interest rate limit of 11.950% (Section 2(C)). The initial biweekly mortgage payment is set in the Note (Section 3(B)) at $ 886.44 which is an amount "... selected by me from a range of initial payment amounts approved by Lender and may not be sufficient to pay the entire amount of interest accruing on the unpaid Principal Balance." (Id.). The biweekly payment amount is subject to change on the 1st day of September 2008 and every 52 weeks thereafter (Section 3(C)) with calculation of payment changes made pursuant to Section 3(D) which provides:
The original signed Note was produced at trial on March 29, 2018 and accepted into evidence as a plaintiff’s exhibit. By agreement of the parties an exact photocopy of the original note was then made by court personnel and marked as Plaintiff’s Exhibit 1 in lieu of the original Note which was returned to counsel for the plaintiff.
Subject to Section 3(F) and 3(G), on the Payment Change Date my biweekly payments may be changed to an amount sufficient to pay the unpaid Principal balance, including any deferred interest as described in Section 3(E) below, together with interest at the interest rate in effect on the day of calculation by the "Modified Maturity Date." The Modified Maturity Date is the date on which this Note will be paid after accounting for acceleration of the payment schedule resulting from biweekly payments rather than the monthly payment schedule used to calculate the Maturity Date described in Section 3(A) above. However, the amount by which my payment can be increased will not be more than 7-1/2% of the then existing Principal and Interest payment. This 7-1/2% limitation is called the "Payment Cap." The Lender will perform this Payment Change Calculation at least 50 but not more than 90 days before the Payment Change Date.
The Note also contains provisions for Payment Cap Limitation Exceptions, Maximum Principal Balance, Borrower’s Right to Prepay, Late Charges, Default, Notice of Default, Conversion to a Monthly Payment Loan, and Payment of Lender’s Costs and Expenses, among others. The Note is accompanied by a three-page Loan Program Disclosure Pick-a-Payment Equity Builder Loan, Biweekly Adjustable Rate Mortgage, Wachovia Average Deposit Account Rate Cost of Savings Index (Cosi) (Plaintiff’s Ex 7) acknowledged as received by the defendant’ signature on July 26, 2007. The Disclosure explains in Question and Answer format, among other things, the biweekly payment, adjustable rate interest and limits, the Index, Borrower selection of initial biweekly payment, biweekly payment changes and limits, and changes to principal balance. The Disclosure Form specifically advises:
The initial payment amount you select may not be sufficient to pay the full amount of interest due or fully amortize the loan. This will cause the loan amount to increase described below ... (Page 1, under "How is the Initial Payment Amount Established ?"); and
At various times during the life of your loan the biweekly payment may not be sufficient to pay the full amount of interest due. This can occur if the initial payment amount that you select is less than the full amount of interest due. This can also result from increases in the interest rate prior to the Payment Change Date or from a biweekly payment that did not increase sufficiently to pay the full amount of interest due because of the 7-1/2% Payment Cap.
If the biweekly payment is not sufficient to pay the full amount of interest due, World adds this accrued but unpaid interest called Deferred Interest to the unpaid principal balance of the loan until repaid. Deferred Interest bears interest at the interest rate of the loan. (Page 2, under "How Does the Principal Balance Change?")
The other loan closing document in evidence is the Open End Mortgage Deed of the Property from defendant Izabela Uznanska to plaintiff’s predecessor World Savings Bank, FSB, Its Successors and Assigns, executed and acknowledged by the defendant as mortgagor and recorded in the Land Records of the Town of Wilton on August 3, 2007 in Volume 1958 Page 265 (Plaintiff’s Exhibit 2). The Mortgage bears a prominent legend just beneath the title "Open End Mortgage":
THIS IS A FIRST OPEN-END MORTGAGE WHICH SECURES A NOTE WHICH CONTAINS PROVISIONS ALLOWING FOR CHANGES IN MY INTEREST RATE, FREQUENCY AND AMOUNT OF PAYMENTS AND PRINCIPAL BALANCE, (INCLUDING FUTURE ADVANCES AND DEFERRED INTEREST) AT LENDER’S OPTION THE SECURED NOTE MAY BE RENEWED OR RENEGOTIATED. THE SECURED NOTE PROVIDES FOR BIWEEKLY PAYMENTS OF PRINCIPAL AND INTEREST.
THE MAXIMUM AGGREGATE PRINCIPAL BALANCE SECURED BY THIS OPEN-END MORTGAGE IS $ 689, 000 WHICH IS 125% OF THE ORIGINAL PRINCIPAL NOTE AMOUNT.
The Mortgage Note went into default for defendant’s failure to make the installment payment of principal and interest due on October 13, 2008. Plaintiff’s predecessor Wachovia Mortgage, FSB, formerly known as World Savings Bank, FSB, commenced a foreclosure action in the Superior Court for the Judicial District of Stamford-Norwalk at Stamford, served on the defendant Izabela Uznanska on December 18, 2008 styled as Wachovia Mortgage, FSB v. Izabela Uznanska, Docket No FST CV08-5009725S (the "Stamford Case"). The defendant appeared by counsel in the Stamford Case and filed her Amended Answer, Set-Off, Special Defenses, Counterclaim, and Cross Complaint. As amended there were Three Special Defenses: Unclean Hands, Fraud and Misrepresentation, and Equitable Estoppel, all based on the factual allegations of the Three Counts of Counterclaims: First Count— Connecticut Unfair Trade Practices ("CUTPA") (42 numbered paragraphs); Second Count— Negligence (45 numbered paragraphs, adopting the first 42 from the First Count); Third Count— Misrepresentation and Fraud (48 numbered paragraphs, adopting the first 45 from the Second Count). The Stamford Case never went to trial or judgment on the merits because, on March 21, 2014 the court, Mintz, J., on its own motion, entered a dormancy dismissal of the case under Practice Book Section 14-3 for failure to prosecute with reasonable diligence. Neither party appealed that judgment. Plaintiff moved to open that judgment of dismissal on July 15, 2014 but there is no record of that motion ever being heard or acted on. The electronic file shows no further activity on the case since July 15, 2014, more than four and one-half years ago. Both parties have checked at the clerk’s office in Stamford and have been advised that most of the pleadings have been expunged from the file and are no longer available.
No further mortgage payment having been made by the defendant, the plaintiff, who by name change and merger is now Wells Fargo Bank, recommenced the foreclosure case against the defendant by serving the summons and foreclosure complaint in this case upon the defendant Izabela Uznaska on May 18, 2016 returnable to the Superior Court here at Bridgeport. The pleadings in this case have become very complicated. On August 1, 2016 the defendant, through the same counsel who had represented her in the Stamford Case, filed her Answer, Set-Off Special Defenses, Counterclaim, and Cross Complaint (No. 113). The First, Second, and Third special defenses are the very same special defenses that had been filed in the Stamford Case: Unclean Hands, Fraud and Misrepresentation, and Equitable Estoppel. The new Fourth Special Defense of unconscionability/predatory lending claims that the mortgage loan which is the subject of this action is substantively and procedurally unconscionable because it had been originated without regard to whether the defendant could pay, because World Savings Bank knew or should have known that the defendant did not have the ability to make the payments based on her income at the time of origination, and because the defendant lacked sufficient income to pay the mortgage according to its terms after taking into account her other necessary and reasonable expenses, and, as a result went into default. The pleading finally alleges three counts of Counterclaim, being the same Counterclaims she had filed in the Stamford Case: CUTPA violation, Negligence, and Misrepresentation and Fraud. As in the Stamford Case, the first three Special Defenses in this 2016 case do not allege directly the facts relied upon but rather incorporate the allegations of the simultaneous counterclaims, particularly the 48 paragraphs of the First Counterclaim in each case. The court has reviewed the 48 paragraphs filed in the Stamford Case on September 16, 2010 with the 48 paragraphs filed in this Bridgeport case on August 1, 2016 and finds that they are identical.
The Cross Claim was brought by defendant Izabela Uznanska against co-defendant National City Bank alleging violations of the Connecticut Unfair Trade Practices Act, Conn. Gen. Stat. § 42-110a et seq. Cross Claim defendant National City Bank was defaulted for failure to appear on July 21, 2016. Counsel for the defendant stated at trial that "And we pled a cross claim, but it never went anywhere. We never withdrew it" (TR 4/26/18, p. 13). The Cross claim is therefore deemed abandoned and plays no role in the decision of this case.
The plaintiff Wells Fargo Bank has filed in this case on July 13, 2017 its Plaintiff’s Reply to Defendant’s Special Defenses and Counterclaims (No. 115) in which it: (1) denies all the allegations of the four special defenses; (2) claims a First and Second Matter in Avoidance to each of defendant’s four Special Defenses, namely, first that the Special Defenses are "... preempted by the Home Owners’s Loan Act (‘HOLA’) 12 U.S.C. § 1461 et seq. and its implementing regulations, including 12 C.F.R. § 560.2 articulated by the Treasury Department’s Office of Thrift Supervision (‘OTS’)"; and second, that the Special Defense "is barred by laches and/or the applicable statute of limitations"; (3) answers defendant’s three counts of counterclaim, by denying all material allegations thereof; and (4) pleads 18 Special Defenses to defendant’s counterclaims. Those Special Defenses are: (1) HOLA preemption; (2) Statute of limitations or laches; (3) Merger by Deed; (4) Estoppel; estoppel by contract; (5) Assent; (6) Ratification; (7) Waiver; (8) Statute of Frauds; (9) Parol Evidence Rule; (10) Barred by Her or Her Agent’s Acts or Omissions; (11) Breach of the Loan Agreement; (12) No Legal Duty to Defendant; (13) Lack of Private Right of Action; (14) Failure to Mitigate Damages; (15) Damages Caused by Her Own Conduct or Conduct of a Third Party: (16) Offset by Value of Funds, Good(s); Facilities; and Services Provided by Wells Fargo; (17) Damages Must Be Offset Against All Sums Due and Owing Wells Fargo by Defendant; and (18) (As to Count One of the Counterclaim Only— CUTPA) Counterclaim Barred by Section 42-110c(1) of the Connecticut General Statutes Which Excepts "Transactions or Actions Otherwise Permitted by Law as Administered by Any Regulatory Board or Officer Acting Under Statutory Authority of the State or of The United States" Which Includes Wells Fargo’s Transactions or Actions Permitted by Law as Administered by the United States and Regulatory Boards and Officers Acting Under Statutory Authority under the Home Owners Loan Act.
On November 1, 2017 the defendant filed a strange pleading in response to Plaintiff’s Reply to Defendant’s Special Defenses and Counterclaims entitled Defendant’s Reply to Plaintiff’s July 13, 2017 Filing and Special Defenses on Counterclaim (No. 118) in which she says "Defendants are filing a Motion to Strike separately as to the following ..." and then recites all the Matters in Avoidance that plaintiff had pleaded in No. 115 and then states: "This separate Motion to Strike is because this is really a separate element of the plaintiff’s July 13, 2017 combined pleading of matters of avoidance and special defenses and answers to special defenses, etc. # 115. Defendant does not waive her right as to order a pleading because other elements of that plaintiff’s reply are answered herewith." The defendant’s Reply also states her Reply to Special Defenses to Counterclaim, in which the material allegations of those Special Defenses are denied. There is no record of any separate Motion to Strike Matters in Avoidance having been filed thereafter. Although the defendant’s pleading of November 1, 2017 is identified therein as "this separate motion to strike," it was not accompanied by the required memorandum of law and the court rightfully did not treat it as a motion to strike, and it will be treated herein as a denial of the Plaintiff’s Matters in Avoidance of Defendant’s Special Defenses. A Certificate of Closed Pleadings and Claim for the Trial List was filed by the Plaintiff on January 29, 2018, and the case went on trial on the merits before the undersigned without a jury with trial days on March 29, April 26, May 1, and May 2, 2018. The parties have filed post-trial memoranda.
Practice Book § 10-39(c) provides: "Each motion to Strike must be accompanied by a memorandum of law citing the legal authority upon which the motion relies."
I. Plaintiff’s Prima Facie Case for Foreclosure
The court finds that plaintiff Wells Fargo Bank has proved its prima facie case for foreclosure of its Mortgage on the defendant’s Property. "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. v. Strong, 149 Conn.App. 384, 392 (2014). Plaintiff must also prove its standing to foreclose.
The original note (Plaintiff’s Ex. 1) and a certified copy of the Open End Mortgage Deed (Plaintiff’s Ex. 2) signed by the defendant Izabela Uznanska and a Payment History of the loan (Plaintiff’s Ex. 3) have been received in evidence. Plaintiff’s foreclosure counsel made, and the court accepted, a representation pursuant to Equity One v. Shivers, 310 Conn, 119, 132-33 (2013 that the original Note had been in the possession of his firm, Bendett & McHugh as custodian for the plaintiff since 2014, prior to the commencement of this action. Plaintiff proved by the testimony of its Loan Verification Consultant Tanya Johnson and full exhibits verified by her: that the foregoing Note and Open End Mortgage Deed and Payment History are business records of the plaintiff as successor by name change and merger to the original lender World Savings Bank; that plaintiff Wells Fargo Bank is the holder of the Note and Mortgage and the owner and services of the loan; that the loan evidenced by the Note has been in default of payments since the payment due in October 2008; that a notice of default letter (Pl. Ex. 4) was sent to the defendant at the property address by the plaintiff on November 24, 2015 advising of a total delinquency of $ 306, 137.68 and giving her a period of thirty days (until December 29, 2015) to cure said delinquency to avoid acceleration and foreclosure; and that the delinquency was not cured. Plaintiff’s Affidavit of Debt signed on March 15, 2018 by Shea Smith as Vice President, Loan Documentation, of plaintiff Wells Fargo Bank was received in evidence as Plaintiff’s Ex 5. Based on that affidavit and no contrary evidence from the defendant the court finds pursuant to Practice Book § 23-18 that the debt owed to the plaintiff on the Note as of March 13, 2018 was $ 926, 820.51. By stipulation of the parties the court also finds the fair market value of the property at 125 Sturges Ridge Road, Wilton, CT to be $ 505, 000 per the February 23, 2018 appraisal report of Michele L. Wargo, of LM Sepso Appraisal Associates, LLC.
There is evidence from the plaintiff’s witness Ms. Johnson reading from the Payment History (Ex. 3) that the final payment was made on October 22, 2008 (TR 4/26/28, p. 28) but there is no evidence when that payment first became due.
The court therefore concludes that the plaintiff Wells Fargo Bank has proved by a preponderance of the evidence that it has standing to bring and maintain this action in foreclosure against the defendant Izabela Uznanska and has proved the prima facies elements of its case in foreclosure of mortgage. The plaintiff is therefore entitled to judgment of foreclosure unless barred by one or more of the defendant’s special defenses.
II. Defendant’s Special Defenses
The defendant has filed four Special Defenses to plaintiff’s foreclosure complaint, all of which draw upon the detailed factual allegations of her counterclaims. The Special Defenses are: (1) Unclean Hands, (2) Fraud and Misrepresentation, (3) Equitable Estoppel and (4) Unconscionability, all alleged to have occurred in the 2007 loan application and origination process. These are all equitable special defenses as opposed to a special defense at law, such as payment, discharge, release, satisfaction, or lack of a valid lien. See, Southbridge Associates, LLC v. Garafalo, 53 Conn.App. 11, 15-16 (1998), cert. denied, 249 Conn. 919 (1998). As defendant admits and argues in her post-trial memorandum, and plaintiff concurs, it is a fundamental tenet of equity jurisprudence that one who seeks equity must do equity and expect that equity will be done for all. As our Supreme Court has instructed in Thompson v. Orcutt, 257 Conn. 301, 310 (2001):
It is a fundamental principal of equity jurisprudence that 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 not by way of punishment but on considerations that make for the advancement of right and justice. (Internal quotation marks omitted.) Eldridge v. Eldridge, 244 Conn. 523, 536, 710 A.2d 757 (1998). "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. Unless the plaintiff’s conduct is of such a character as to be condemned and pronounced wrongful by honest and fair-minded people, the doctrine of unclean hands does not apply." (Citations omitted.) Bauer v. Waste Management of Connecticut., 239 Conn. 515, 525, 686 A.2d 481, 1996.
Because the doctrine of unclean hands exists to safeguard the integrity of the court, Eldridge v. Eldridge, supra, 244 Conn. 536; Pappas v. Pappas, 164 Conn. 242, 246, 320 A.2d 809 (1973); "[w]here a plaintiff’s claim grows out of or depends upon or is inseparably connected with his own prior fraud, a court of equity will, in general, deny him any relief and will leave him to whatever remedies and defenses at law that he may have." Samasko v. Davis, 135 Conn. 277, 383, 64 A.2d 682 (1949).
The doctrine, of course, is not limited to inequitable misconduct of a plaintiff. It applies equally to all parties seeking equitable relief. "The trial court must exercise ... its equitable powers with fairness not only to the foreclosing mortgagee, but also to subsequent encumbrancers and the owner." Farmers and Mechanics Savings Bank v. Sullivan, 216 Conn. 341, 354, 579 A.2d 1054 (1990). J.P. Morgan Chase Bank v. Essaghof, 177 Conn.App. 144, 162 (2017). "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." (Internal quotation marks omitted.) Id.
In this case the defendant has raised the issue of unclean hands. The court has heard the evidence in great detail over four days of trial upon which the court finds that the defendant has failed to prove inequitable misconduct or unclean hands on the part of the plaintiff but does find that the defendant has unclean hands in that she knowingly agreed to, and did, borrow this $ 551, 200 from the plaintiff’s predecessor as a sham borrower for another person, her then-husband’s employer Paul Toczek, on a deliberately fraudulent loan application signed by her which grossly overstated her earnings. Upon the balancing of the equities, the evidence strongly supports the plaintiff’s position and the defendant’s special defenses are rejected in that, in claiming the benefit of her equitable special defenses, defendant has failed to meet her burden of proving that her own conduct has been fair, equitable, and honest as to the particular controversy in issue. Each position will be reviewed in light of the evidence.
A. Inequitable Conduct of the Defendant
Defendant testified that she emigrated to the United States from Poland as a young woman in 2004 in order to marry her husband [now former husband] Josef Wawrzazz, an undocumented immigrant employed as a trim carpenter in the area of Wilton and Weston Connecticut. Although college educated in Europe, and having visited the United States on several occasions before moving here to visit her father who lived in New York, she claims that she had very little understanding or speaking ability of the English language when this loan was closed in 2007. At some point she and Josef, and Josefs’s employer Paul Toczek embarked upon a plan to purchase the home at 125 Sturges Ridge Road in Wilton which is the subject of this foreclosure case, for the purpose of tearing it down and building and selling a new larger home on the property. The group borrowed enough money in May of 2005 from a lender other than the plaintiff to purchase the home, which was acquired in the name of the defendant Izabela Uznanska as the owner. She and her husband and child moved into the house pending demolition (which, to this day, has not occurred). She has lived in the home ever since except for a brief period following her divorce from Josef. In 2007, needing more funding, a decision was made to refinance the first mortgage by borrowing $ 551, 200 from the plaintiff’s predecessor World Savings Bank. Mr. Toczek engaged the services of a mortgage broker, Chuck Uscilla, to help them get the new mortgage loan from World Savings Bank with the defendant as the nominal borrower. The loan was arranged and a closing took place on July 26, 2007 at the home of a relative of Paul Toczek. Toczek and his Attorney Jeanmarie Riccio were present as was Chuck Uscilla and the defendant. Uscilla had prepared all the loan documents, including the loan application, for the signature of the defendant. She claims that she did not understand what was going on because she did not understand English, but she signed all the documents as requested by Uscilla. The loan application which defendant signed at the loan closing (Def. Ex. D) listed her income as $ 16, 650 per month (which equates to $ 199, 800 per year) as a 2.25-year employee of a corporation known as IJ Construction, Inc. She admitted at trial that she was aware that Exhibit D was her application for a loan to be secured by a mortgage on her home, and that World Savings Bank was only going to lend her the money if it had an expectation that it was going to be paid back (TR 5/1/18, 84-86). She admitted and the court finds that her statement of income in the loan application was not true, and in fact she was on July 26, 2007 a stay-at-home mother with zero income, and had not ever been employed by IJ Construction which she explained was a corporation she had set up at Toczek’s request into which Toczek would pay Josef’s hourly wages as a "subcontractor" so as to avoid any immigration problems if wages were to be paid to Josef in his own name. The defendant testified that although she was the "owner" of IJ Construction, she was not employed by that corporation and took no income from that corporation (TR 5/1/18, 30-35). As defendant’s attorney said "He [Toczek] used her as a straw party, the true party [in] interest was Toczek" (TR Excerpt 5/2/18, p. 5).
After defendant gave that testimony and further admitted that she had similarly lied on a loan application for a second mortgage loan from National City Bank which closed four days after the World Savings Bank first mortgage loan closing, the court took a recess following which the court advised the defendant of her right under the Fifth Amendment to the United States Constitution not to answer questions which might incriminate her (TR 5/1/18, 42-43).
The court finds that the defendant Izabela Uznanska who testified at length at trial speaking in perfect English without any need for a Polish translator, overstated her difficulties with the English Language as of July 26, 2007. She had been at that point a permanent resident of the United States for about three years. She clearly understood the demolish and flip arrangement with Toczek for the house at 125 Sturges Ridge Road, and she understood that she was signing a false mortgage loan application to help Toczek obtain additional funds for their joint demolish and flip project. She got none of the loan proceeds and made not a single loan payment. The loan payments were made by Paul Toczek until October 22, 2008 when he defaulted. And, to the extent that she claims that she could not understand what was going on at the closing, Paul Toczek, fluent in both English and Polish, was with her at the loan closing, and could have answered or assisted her in getting answers to any question she might have had. There were no questions.
B. Alleged Inequitable Conduct of the Plaintiff or its Predecessor World Savings Bank
The defendant’s four special defenses incorporate the factual allegations of her three August 1, 2016 counterclaims (file position 113): (1) Violation of the Connecticut Unfair Trade Practices Act ("CUTPA") 42 Conn. Gen. Stat. § 42-110a, et seq.; (2) Negligence; and (3) Misrepresentation and Fraud, which are factually alleged in a total of 48 numbered paragraphs which read as if they were the complaint in a class action on behalf of all mortgage loan borrowers from plaintiff Wells Fargo Bank, and/or its predecessors, Wachovia Mortgage, World Savings Bank or Golden West Financial Corporation who borrowed on terms involving an adjustable interest rate, "pick a payment" options, possible negative amortization, or payment of brokerage fees. The allegations of predatory loan practices encompass marketing practices, "no-doc" loans "liar loans" "hybrid adjustable rate mortgages" "teaser" interest rates, and "interest-only" loans made over an unspecified period of time, many of which have no relation to the single loan involved in the case. Paragraph 10 alleges that "Golden West [defined to include World Savings Bank] carried out its unlawful, unfair, or fraudulent predatory lending practices through World Savings Bank, F.N. Lending, Chuck Uscilla (identified as an employee of the counter-defendant’s and other presently unknown affiliates, divisions, and subsidiaries." Paragraph 11 continues "At all relevant times, F.N. Lending and Wachovia’s (then World Savings Bank’s) mortgage broker and employee, Chuck Uscilla and F.N. Lending, either acting as an agent or affiliate or employee of Wachovia (then World Savings Bank) acting within the course and scope of the employment and agency relationship, with Wachovia and its predecessors, or pleading in the alternative, either and/or/ or with the permission, and/or ratification, and/or acting in collusion with and/or acting in furtherance of a common scheme, and/or in furtherance of a civil conspiracy." Paragraph 24 alleges that "a substantial and material percentage of the home loans originated by Golden West during the relevant period involved significant variations from the company’s underwriting standards and were granted without consideration of the borrower’s ability to repay the loan in either violation of or not in conformance with the Home Ownership and Equity Protection Act," which declared, "A creditor shall not engage in a pattern or practice of extending credit to consumers under mortgages ... based on the consumers’ collateral without regard to the consumers’ repayment ability, including the consumers’ current and expected income, current obligations, and employment. 15 U.S.C. § 1639h and related legislation and sections." Paragraph 38 alleges: "Consumers were not protected from unfair, deceptive, and other predatory lending practices. Golden West failed to provide clear and balanced information about the risks and features of these loans to the detriment of its borrowers; the marketing was misleading to Uznanska, Uscilla’s misleading and fraudulent promises of affordability hyping the low teaser rate which fraudulently induced the counter claimant into buying this product, paying the charges of closing, including the yield spread premium, and signing the note and mortgage."
Defendant has the burden of proving the facts alleged in support of her special defenses, which are the very same facts alleged in the three counts of her counterclaim. There was no evidence in support of those wide-ranging claims. There is no evidence of Chuck Uscilla, Paul Toczek’s mortgage broker, having "hyped" or induced the defendant Izabela Uznanska to choose this adjustable rate "pick a payment" loan as opposed to any other mortgage program offered by World Savings Bank. It is highly improbable that he would have done so, since she was merely a straw borrower for Toczek who, as admitted by defendant’s counsel, was the "real party in interest" and the decision maker, and Uscilla’s client. Even had he done so, there is no competent evidence that Uscilla was an agent or employee of World Savings Bank. Defendant relies, on that point, on a statement at page three of the Loan Application (Def. Ex. D) entitled "To Be Completed by Interviewer" which had been partially filled in by computer indicating that the application was taken by telephone by Chuck Uscilla which lists his phone number and lists his employer as "World Savings, 4101 Wiseman Blvd., San Antonio TX 78251." Although there is a space for "Interviewer’s Signature" and "Date," there is no signature and no date. There is therefore no evidence that Uscilla made or adopted that statement, and, significantly, even if he had signed that box, it would be inadequate proof of any agency or employment relationship between himself and World Savings Bank. Connecticut law is clear that:
Ordinarily, agency must be proved independently of the declarations of the agent, and before his declarations can be admitted against the principal. Therefore, even if the named defendant had in express terms, held himself out as the agent of the defendant corporation, such a representation, in the absence of facts estopping the latter from denying it, would not be admissible to prove agency. Wright, Fitzgerald, and Ackerman, Connecticut Law of Torts, Third Edition, 1991, Section 63 page 164, citing multiple cases including Baptist v. Shanen, 145 Conn. 60; Nowak v. Capitol Motors, 158 Conn. 65, 69 (1969); and Robles v. Lavin, 176 Conn. 281 (1978).See, also Citimortgage, Inc. v. Coolbeth, 147 Conn.App. 183, 193 (2013). Nor is there any evidence that the World Savings Bank placed Uscilla in charge of the transaction or made him "the exclusive channel of communication" so as to confer apparent authority upon him. The actions or omissions of Uscillla cannot be attributed to the plaintiff on an agency theory.
Defendant also failed to prove its claim that "Golden West failed to provide clear and balanced information about the risks and features of these loans to the detriment of its borrowers; the marketing was misleading to Uznanska." See above at pages 2-4 of this Memorandum of Decision the explicit provisions and warnings contained in the Note (Pl. Ex 1). The Mortgage Deed (Pl. Ex. 2) and especially the Loan Program Disclosure (Pl. Ex 7) which explain in detail the unique features of this mortgage loan including the "pick a payment" aspect, the adjustable rate of interest and limitations thereon, the Index, and the payment adjustments and limitations thereon. At page 2 of The Loan Program Disclosure in Response to the Question "HOW DOES THE PRINCIPAL BALANCE CHANGE?" there is a complete plain language disclosure (quoted in full at page 4 hereof) of the circumstances under which the biweekly payment may not be sufficient to pay the full amount of interest due, and that any such shortfall may be added to the principal balance of the loan (i.e., "negative amortization").
Defendant also failed to prove her allegation that his loan was one of "a substantial and material percentage of the home loans originated by Golden West during the relevant period [that] involved significant variations from the company’s underwriting standards." Defendant produced her expert witness Dan Morris, a career mortgage banker who had worked for a part of his career at Wells Fargo Bank, who had extensively interviewed the defendant Izabela Uznanska and reviewed all the relevant documentation of this loan who had been disclosed as prepared to opine that World Savings Bank had failed to follow its own underwriting standards in the origination of this loan but was not permitted by the court to give that opinion since he testified that he was not familiar with the underwriting standards in 2007 of a federal savings association such as World Savings Bank. There was no other evidence or proof to support that claim.
Finally, defendant failed to prove her claims that plaintiff’s loan to the defendant was "... granted without consideration of the borrower’s ability to repay the loan in either violation of or not in conformance with the Home Ownership and Equity Protection Act," which declared, "A creditor shall not engage in a pattern or practice of extending credit to consumers under mortgage ... based on the consumers’ collateral without regard to the consumers’ repayment ability, including the consumers’ current and expected income, current obligations, and employment. 15 U.S.C. § 1639h and related legislation and sections." and "Consumers were not protected from unfair, deceptive, and other predatory lending practices."
Defendant’s expert witness Dan Morris was quoted without objection as having testified at his deposition that this loan was not predatory ("None. Not going to claim the bank is— not going to claim the loan is predatory. Do you think its predatory; nope, no I don’t" (TR 5/2/18, 62), And, "Are you saying the loan is illegal or unenforceable; nope." (Id.) He confirmed at trial his deposition answer of no predatory loan practice: "I did take into account the— I did take into account the— amount of closing costs that were involved because that did seem high, though I— I— as I said at my deposition I did not seem it to be predatory. And I believe that’s about it" (TR Excerpt, 5/2/18, 14). Furthermore there was evidence that World Savings Bank included on its Loan Application (Ex. D) questions about the defendant’s income which she answered untruthfully, but there is no evidence that World Savings Bank did not consider those false answers in its underwriting of this loan. which precludes any finding of predatory lending.
In summary the evidence of inequitable, fraudulent conduct of the defendant is strong; but the evidence of inequitable conduct of the plaintiff in underwriting this loan is minimal at best. The balancing of the equities comes out in favor of the plaintiff and defendant is ineligible to rely on her special defenses grounded on the law of equity. The court therefore rules for the plaintiff on the defendant’s four special defenses.
III. Counterclaims
The three pleaded counts of counterclaim are: (1) CUTPA violations by the plaintiff; (2) negligence of the plaintiff in its marketing and mortgage brokerage practices and violation of underwriting standards; and (3) common-law misrepresentation and fraud. The defendant’s initial position on the counterclaims is that they are still pending in the Stamford case and should be litigated there. The court ruled at trial, however, that the March 21, 2014 order of Judge Mintz dismissing the Stamford Case under Practice Book § 14-3 for failure to prosecute with reasonable diligence applied to the entire case including both the complaint and the counterclaims in the absence of any indication to the contrary.
Judge Mintz’ Order of dismissal stated "[t ]his case is dismissed for failure to prosecute" (TR 4/26/18, p. 21). Section 14-3(a) provides: "If a party shall fail to prosecute an action with reasonable diligence, the judicial authority may, after hearing, on motion by any party to the action pursuant to Section 11-1, or on its own motion, render a judgment dismissing the action with costs." (Emphasis added.)
The underlying facts alleged in 48 paragraphs in support of the counterclaims are the very same facts alleged in support of defendant’s special defenses, which the court has previously reviewed in connection with the special defenses. For the very same reasons that the court has found the evidence inadequate to support the special defenses, the court also finds that the defendant has failed to prove her counterclaims by a preponderance of the evidence.
Even if it should be held that one or more of the counterclaims has been proved, the court finds that the plaintiff has proved its special defense of statute of limitations to the counterclaims. The CUTPA count is governed by Conn. Gen. Stat. § 42-110g(f) which provides: "Any action under this section may not be brought more than three years after the occurrence of a violation of this statute." the Second and Third Counts of Counterclaim are tort claims governed by Conn. Gen. Stat. § 52-577 which provides: "No action founded upon a tort shall be brought within three years from the date of the act or omission complained of."
Defendant raises a preliminary argument that the statute of limitations defense (Second Special Defense to all Counterclaims) is not adequately pleaded because it alleges only that "13. The statute of limitations on Defendant’s counterclaims began to accrue on July 26, 2007. 14. The defendant’s counterclaims were filed on August 1, 2016. 15. Defendant’s counterclaims are barred by the applicable statutes of limitation." without citing the title and section of the claimed applicable statutes of limitation. Defendant cites Cue Associates, LLC v. Cast Iron Associates, LLC, 111 Conn.App. 107 (2008) where the Appellate Court held, on authority of Ramomdetta v. Amenta, 97 Conn.App. 151, 161 (2006) that a pleading stating only that the defendant’s "claims are barred by the applicable statute of limitations" was inadequate and the statute of limitations defense was deemed to have been waived because,
At no point from the filing of defendant’s counterclaim to the rendering of judgment by the court did the plaintiffs identify the applicable statute of limitations on which they relied. That infirmity is fatal to the plaintiff’s claim . The underlying purpose of affirmative pleading is to apprise the court and the opposing party of the issue to be tried ... Consistent with that purpose, a party raising a statute of limitations defense must identify the statute that allegedly is applicable. In pleading such a defense, the bare assertion that "the applicable statute of limitations" bars a particular action is inadequate to apprise the court or the opposing party sufficiently of the nature of the defense . (Citations omitted.) Id. 163-64, ... We find the rationale of such a holding persuasive because if a particular statute of limitations is not pleaded, the plaintiff is not on notice to plead and prove matters in avoidance of the particular statute of limitations not pleaded. See Practice Book § 10-57. Where a particular statute of limitations like § 52-577 is not jurisdictional and has not been pleaded, a plaintiff is entitled to conclude that it was waived. (Italics added by Cue Associates court.) Cue Associates, supra, 111 Conn.App. at 114-15.
This case is easily distinguished from Cue Associates and Ramomdetta v. Amenta, however, in that the plaintiff Wells Fargo Bank gave notice to the defendant on March 28, 2018 (the day before the commencement of trial) and on April 6, 2018 (almost a month before the conclusion of trial evidence) that the two statutes of limitation relied upon are Sections 52-577 and 42-110g(f). See Plaintiff’s Trial Memorandum dated March 28, 2018 (No. 130) at pp 5-6 and Plaintiff’s Memorandum of Law Regarding Timeliness of Defendant’s Counterclaim dated April 6, 2018 (No.145) at page 3 and fn. 2 where both statues are cited. Defendant therefore had adequate notice of the particular statutes of limitation at issue.
Both statutes of limitation cited by the plaintiff are "occurrence" statutes. "Section 52-577 is an occurrence statute, meaning that the time period within which a plaintiff must commence an action begins to run at the moment the act or omission complained of occurs." S.M.S. Textile Mills, Inc. v. Brown, Jacobson, Tillinghast, Lahan and King, P.C., 32 Conn.App. 786, 791 (1993). "The three-year limitation period of § 52-577, therefore, begins with the date of the act or omission complained of, not the date when the plaintiff first discovers an injury ... The relevant date of the act or omission complained of, as that phrase is used in § 52-577, is the date when the [tortious] conduct occurs and not the date when the plaintiffs first sustain damage ... Ignorance of his rights on the part of the person against whom the statute has begun to run, will not suspend its operation ... When conducting an analysis under § 52-577 the only facts material to the trial court’s decision ... are the dates of the wrongful conduct in the complaint and the date the action was filed." Geiger v. Cary, 170 Conn.App. 459, 491 (2017). See also S.M.S. Textile Mills, supra, 32 Conn.App. at 791.
Likewise, "CUTPA is an ‘occurrence’ (as opposed to a ‘discovery’) statute, meaning that limitation period accrues when the violative conduct occurs rather than upon the manifestation of the concomitant harm from that conduct." CSL Silicones, Inc. v. Midsun Group, Inc., 170 F.Supp.3d 304, (D.Conn. 2016, citing Fichera v. Mine Hill Corp., 207 Conn. 204, 212-13 (1988). Thus, for both tort and CUTPA claims, the date that the injury occurred and the plaintiff’s discovery of the injury are entirely irrelevant to the limitation analysis, Geiger, supra; Fichera, supra; Collum v. Chapin, 40 Conn.App. 499, 451 (1996).
Defendant’s Counterclaims only attack the manner or terms of the loan’s origination. The statutes of limitation on defendant’s counterclaims therefore began to run (at the latest) on the date that the defendant executed the Note and Mortgage. It is undisputed that defendant executed the Note and Mortgage on July 26, 2007. Defendant’s Counterclaims accordingly became time-barred three years later on July 26, 2010.
Plaintiff’s predecessor World Savings Bank commenced the Stamford Case for foreclosure against the defendant, served on December 18, 2008. Defendant asserted her counterclaims (identical to the counterclaims filed in this Bridgeport case) on July 8, 2009, and the action was dismissed for dormancy on March 21, 2014. Even if the entire time the Stamford case was pending, from December 18, 2008 through March 21, 2014 (63 months), is considered to have tolled the three-year statutes of limitation, the statutes ran before this Bridgeport action (in which the same counterclaims have been filed) was commenced by service of process on May 19, 2016. The period from the July 26, 2007 loan closing to the commencement of this action on May 19, 2016 is very nearly 106 months. 106 months less the 63 months that the Stamford Case was pending comes to 43 months which is three years and 7 months which is more than three years.
Defendant has not pleaded that the running of the statutes of limitation as to her counterclaims is saved by application of the accidental failure of suit statute, Conn. Gen. Stat. § 52-592. But even if that claim had been made, it would not apply to save the running of the statutes of limitation as to defendant’s counterclaims. Section 52-592(a) provides in relevant part:
If any action, commenced within the time limited by law, has failed one or more times to be tried on its merits ... for any matter or form ... the plaintiff ... may commence a new action ... for the same cause of action at any time within one year after the determination of the original action or after the reversal of judgment."Section 52-592(a) ... may be used only in a situation where a plaintiff files a subsequent action within one year of the dismissal ... of the first action." Rogozinski v. American Food Service Equipment Corp., 34 Conn.App. 732, 737-38 (1994). "Thus, a plaintiff has a one-year window of opportunity to bring a new action for the same cause as a prior action if the prior action failed to be tried on its merits due to a matter of form." Traylor v. Town of Waterford, No. 3:13 CV116011049, (AWT) 2014 WL 806391, at *7 (D.Conn., Feb. 28, 2014). "The plaintiff clearly is incorrect because to enjoy the protection of § 52-592(a), a plaintiff must file an action for the same cause at any time within one year after the determination of the original action. [T]he record is plain that more than one year elapsed between the date the court dismissed the original action, September 3, 1997, and September 8, 1999 when this action was brought ... The record leaves no doubt that on September 3, 1997, the court dismissed the action leaving no life ring for survival of the plaintiff’s claims other than the one-year grace period provided in § 52-592." Caffrey v. Stillman, 79 Conn.App. 192, 195-96 (2003).
Here, the Stamford Case was dismissed for dormancy on March 21, 2014. Assuming that the dismissal was for "a matter of form"— which plaintiff disputes— the defendant had under § 52-592(a) grace period until March 21, 2015 to bring another case (by way of counterclaim in any pending case brought by the plaintiff or by way of a separate lawsuit against the plaintiff). No separate action was commenced by that statutory deadline and there was no plaintiff’s action in which to file a counterclaim. The grace period was lost. This plaintiff’s case was not commenced until May 19, 2016 and defendant’s counterclaims in this case were served on August 1, 2016— more than 2 years and four months after the dismissal of the Stamford Case.
Defendant argues that the statute of limitations should be tolled by the plaintiff’s "continuing course of conduct" in failing to prosecute the initial foreclosure action with reasonable diligence resulting in the accrual of substantial interest on the debt and in bringing this action seeking to enforce the full amount of that accrued debt. Defendant cites Sanboard v. Greenwald, 39 Conn.App. 289, cert. denied, 235 Conn. 925 (1995), a legal malpractice case where an attorney who had represented a client in a divorce case had drafted a stipulation in 1985 meant to eliminate from the divorce judgment the client’s obligation to fund a certain trust, but the client was thereafter ordered in a contempt proceeding in the family court to fund that very trust on the ground that the stipulation had been poorly drafted and did not preclude that result. The legal malpractice action was brought in 1992 beyond the three-year limitation period of § 52-577. The client argued that the statute of limitations was tolled by a continuing duty of the lawyer after 1985 into 1989 and 1990 to warn her of the legal consequences of the stipulation he had drafted. The trial court disagreed and entered summary judgment for the defendant attorney, which was affirmed on appeal, the Appellate Court saying:
It is axiomatic that "[w]hen the wrong sued upon consists of a continuing course of conduct the statute does not begin to run until that course of conduct is completed ... [I]n order to support a finding of a continuous course of conduct that may toll the statute of limitations there must be evidence of a breach of a duty that remained in existence after the commission of the original wrong related thereto ... Where [our Supreme Court has] has upheld a finding that a duty continued to exist after the cessation of the act or omission relied upon, there has been evidence of either a special relationship between the parties giving rise to such a continuing duty or some later wrongful conduct related to the prior act ..." (emphasis in original) 39 Conn.App. at 297-98.
In finding that there was no continuing course of conduct the court held that there was no special relationship between the attorney and client after 1985 and he had not performed any subsequent wrongful conduct related to his representation in 1985: "The defendant here did not engage in any affirmative conduct initiated by him after 1985, made no promise after the initial drafting of the stipulation, that he would do something else in the future, had no fiduciary or contractual relationship with the plaintiff in 1989 or 1990, and committed no fraud." 39 Conn.App. at 297.
The same concepts apply here. There is no evidence of a continuing special relationship between the plaintiff lender and its borrower the defendant after the July 26, 2007 loan closing. Defendant has cited no authority that a lender bank has an ongoing fiduciary relationship with its borrower. The defendant has pleaded in her counterclaims alleged wrongful acts and omissions, but the court has found that those acts or omissions have not been proved by a preponderance of the evidence. In any event any wrongful conduct that would give rise to a continuing course of conduct must "relate to the prior act." The prior acts (prior to loan closing) alleged by defendant in this case all have to do with the loan origination. There is no allegation of any post-closing conduct relating to loan origination. The claim seems to be that the initiation of the Stamford case and then this foreclosure case have amounted to a continuing course of conduct. The court disagrees, and defendant cites no authority that a lender’s collection efforts have a sufficient relationship to the earlier loan origination to amount to a continuing course of conduct that would extend the statute of limitations. The continuing course conduct argument is rejected.
The counterclaims in this case are therefore time-barred under Conn. Gen. Stat. § § 52-577 and 42-110g(f).
Having ruled for the plaintiff on defendant’s Special Defenses and Counterclaims on other grounds, it is not necessary for the court to consider plaintiff’s Matter in Avoidance claiming that the "Special Defenses and Counterclaims are preempted by the Home Owners’ Loan Act (‘HOLA’) 12 U.S.C. § 1461 et seq. and its implementing regulations, including 12 C.F.R. § 560.2 articulated by the Treasury Department’s Office of Thrift Supervision (‘OTS’)."
IV. Equitable Adjustments
The defendant asks the court to exercise its equitable powers under Southbridge Associates, LLC v. Garafalo, 53 Conn.App. 11, 15, cert denied 249 Conn. 919 (1999) and Hamm v. Taylor, 180 Conn. 491 (1980). The court agrees that certain reductions of indebtedness by disallowing accruals of interest are called for.
The Stamford Case was commenced returnable on December 30 2008 and remained pending for five and one-quarter years until it was dismissed for dormancy on March 21, 2014 without even closing the pleadings. Interest accrued on a principal balance of $ 572, 044.84 during that entire period at rates ranging from 3.94% to 6.78% per annum (Affidavit of Debt). The court disallows all interest accrued from 1/06/2009 through 3/10/2014.
After the Stamford Case was dismissed this case not commenced in the Judicial District of Fairfield at Bridgeport until May 31, 2016 (Return Date), more than two years after the Stamford Case had been dismissed. During that period of about 26 months interest continued to accrue at rates ranging from 3.28% to 3.94% per annum (Affidavit of Debt). The interval of 26 months to recommence the foreclosure case was excessive and it would be inequitable to assess all that interest against the defendant. The case should have been recommenced no later that six months after the dismissal of the Stamford Case. The Court therefore disallows all interest accruing from 9/9/14 through 5/30/16, when this case was commenced.
The plaintiff shall file an updated Affidavit of Debt reflecting the foregoing interest adjustments.
V. ORDER
The plaintiff is entitled to a judgment of foreclosure. Because the United States of America is a defendant, federal law (28 U.S.C. § 2410(c)) mandates a foreclosure by sale. Plaintiff shall file with its updated Affidavit of Debt a Motion for Judgment of Foreclosure which shall be assigned for a hearing before the undersigned to determine and make findings as to the amount of the debt, amount of equity, the fair market value of the Property (in accordance with the parties’ stipulation), an award of attorneys fees and cost, and the date of sale. Defendant may be heard on the foregoing matters.