April 4, 2013
by Kim Hunt and Geoff Milne
Hunt Leibert – USFN Member (Connecticut)
The title of the proposed legislation and the bill number are: “An Act Concerning Homeowner Protection Rights (Governor’s Bill No. 6355) proposed in the 2013 Connecticut General Assembly.”
Re-Altering of Existing Foreclosure Practice
Stripped of histrionics and simply put, the changes within this proposed legislation are sweeping and radically alter existing foreclosure practice. Section 6 of the proposed bill serves vivid illustration. Section 6 authorizes new defenses and counterclaims to foreclosure complaints. Long-established case law has limited those defenses that can be posed to attacking the making, validity, and enforcement of the note and mortgage. This limitation has traditionally barred the assertion of events arising subsequent to the execution of the mortgage. Section 6, by contrast, would permit a borrower to assert as a defense or counterclaim “any other pleading arising out of facts that occurred after the making of the note or mortgage, or after any alleged default on the note or mortgage, that the [borrower] alleges the court should, in law or in equity, consider.”
Issue of Retroactivity
The authorization to plead new defenses and counterclaims to foreclosure complaints permits assertion “from the date of passage.” This immediately raises a question concerning retroactive application. The creation of what are clearly “new substantive rights” would not be permitted under C.G.S. § 55-3.
Expansive Delegation of “Locked on Lender” Discretion to Mediators
The governor’s proposed bill requires a mediator to “file with the court a report indicating the extent to which the parties complied with the requirements set forth in this subdivision, including … whether the mediator recommends that sanctions be imposed on [a lender] due to such party’s conduct in any mediation session.” A mediator, it should be kept in mind, does not have to be a licensed lawyer. A mediator is not required to have passed the bar. A mediator is not required to even have been trained as a lawyer.
The available sanctions that may be recommended by a mediator include “imposing fines payable to the court or aggrieved party, dismissing the foreclosure action, barring interest accrual with regard to the underlying loan, [and] awarding attorney fees.” Due process is an anathema. There is no requirement of a record or a meaningful opportunity to be heard between the submission of a mediator’s recommendation and the response by a judge.
Although there is a section that defines “good faith” there is no requirement that a mediator, in recommending sanctions against a lender, must predicate it upon an articulated breach of the legislatively defined good faith.
The fact that “good faith” is defined does not mean that a lender, accused of failing to exhibit good faith, has any notion of how it may have failed. The definition of good faith “includes but is not limited to (A) complying with the requirements of (i) any applicable guidance or rule issued by the federal government and its agencies or a government- sponsored enterprise, …” [Query: Is anyone out there cognizant of the reach suggested by “any applicable guidance”?] Although emerging case law has recognized, subsequent to Dodd-Frank, that state law enforcement authorities can bring suits against national banks to enforce certain rights as private litigants, this does not empower supervising compliance by national banks with federal law. Cuomo v. Clearing House Association, LLC, 557 U.S. 519 (2009). One cannot help but wonder whether a mediator, not necessarily required to have been legally trained, would competently distinguish between enforcement of, versus supervising compliance with, federal law.
A failure to mediate in good faith “does not require a showing that such party or attorney acted with malice, intent to injure, or an otherwise affirmative showing of bad faith.” Simple mistake, inadvertence, and misunderstanding, are now grist for a finding of bad faith.
Lenders concerned with mounting litigation expenses and the efficacy of the foreclosure process in Connecticut need to become engaged regarding the proposed legislation.
© Copyright 2013 USFN. All rights reserved.