March 6, 2015
by Jeffrey M. Knickerbocker
Bendett & McHugh, P.C. – USFN Member (Connecticut, Maine, Vermont)
In a decision officially released on February 3, 2015, the Connecticut Appellate Court found that a trial court did not abuse its discretion when approving a foreclosure sale with a winning bid that was less than 43 percent of the appraised value. [National City Real Estate Services, LLC v. Tuttle, 155 Conn. App. 290 (2015)]. On appeal, the record showed that on January 22, 2013, a judgment of foreclosure by sale was entered. When entering judgment, the court found the property value was $490,000. At the auction on May 25, 2013, the opening bid was $157,639.63. There were forty-two bids made. The final winning bid was $210,500. The winning bid is only about 42.9 percent of the appraised value. On May 30, 2013, the committee filed a motion for approval of the sale. In an objection to that motion, the borrowers asserted that approval of the sale was inequitable. It appears that borrowers’ counsel was looking for the court to adopt a bright-line rule, which the court refused to do.
Prior to the trial court’s approval of the foreclosure sale, borrowers’ counsel had filed a written objection. The plaintiff filed a reply, citing to LaSalle Bank, N.A v. Randall, 125 Conn. App. 31 (2010). In LaSalle, the appellate court upheld a sale in which the winning bid was 40 percent of the appraised value, which is a larger difference than in the present case. Armed with the knowledge of this case law at a hearing on July 15, 2013, the trial court asked the borrowers’ counsel to distinguish the subject case facts from the facts in LaSalle. Borrowers’ counsel incorrectly answered that the disparity between the bid and the market value was larger in this case than in LaSalle. The appellate court pointed out that plaintiff’s counsel was able to correct that answer for the trial judge. This highlights the importance of the preparation for these types of hearings, including doing legal research and providing a memorandum for the court’s reference.
Also during oral argument on July 15, 2013, the trial judge asked, “what’s to say if there’s another sale that they’re going to get [a higher bid]?” In response, borrowers’ counsel stated that “that’s the chance that everybody’s going to take,” and then he returned to his argument that the final bid was well below fair market value.” National City Real Estate Services, LLC v. Tuttle, supra, 155 Conn. App. at 294. Thus, borrowers’ counsel had not provided any evidence, nor could he, that another sale would yield a different result. On November 15, 2013, the trial court granted the motion for approval of the sale over the borrowers’ objection.
The appellate court recognized that a trial court could, under certain circumstances, refuse to approve a sale. The appellate court cited to First National Bank of Chicago v. Maynard, 75 Conn. App. 355, 361; 815 A.2d 1244 (it is “generally recognized that the grounds [that] would warrant a court’s refusal to approve a [foreclosure] sale are fraud, misrepresentation, surprise or mistake” [internal quotation marks omitted]), cert. denied, 263 Conn. 914, 821 A.2d 768 (2003). In Tuttle, the borrowers could not argue that any of those grounds existed.
Further, the appellate court looked at the borrowers’ own actions. Specifically, the auction took place when it was raining heavily. Despite the heavy rain, the borrowers did not allow access to the property for either an inspection or to conduct the auction. On appeal, the court found that “it could fairly be argued that the defendants’ own actions may have contributed to a lower sale price.” National City Real Estate Services, LLC v. Tuttle, supra, 155 Conn. App. at 297.
This case demonstrates that unless there is a compelling reason, a servicer should not bid more than the debt merely because the property is valued much higher than the debt. In Connecticut, if a plaintiff does bid more than the debt, the difference must be deposited with the court for distribution to other lienholders or to the borrowers. Additionally, Tuttle shows the importance of doing extra work in certain circumstances, including providing a trial brief to assist the court.
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