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Connecticut: Note w/Prepayment Provision Requiring Notice Does Not Affect Negotiability

Posted By USFN, Wednesday, February 06, 2013
Updated: Monday, November 30, 2015

February 6, 2013


by Chris Picard
Hunt Leibert – USFN Member (Connecticut)

In Wells Fargo Bank N.A. v. Clegg, FBT-CV-11-6019620-S, the defendant, Laura Clegg, was non-appearing through the course of the foreclosure action until she filed a motion to open and vacate judgment.

Under Connecticut General Statute § 52-212, in order to be successful on a motion to open a default judgment rendered, a party must show: (1) that she had a viable defense to the action; and (2) a reasonable cause for non-appearance.

In the motion to open, the defendant claimed two defenses were available to her in support of the motion to open. The defendant first asserted that the note was not a negotiable instrument under Conn. Gen. St. § 42a-3-104(a) due to a provision instructing the defendant to notify the lender when she was going to make a prepayment. Next, the defendant raised an issue of standing by contending that Wells Fargo was merely the holder of the note and Fannie Mae was the owner.

In a case of first impression in Connecticut, the court reviewed a provision in the note instructing a borrower to notify his/her lender of any prepayment the party was going to tender. Specifically, the defendant claimed that the notification to the lender was an additional undertaking violating Conn. Gen. St. § 42a-3-104(a)(3), thereby removing the note’s negotiability. The court disagreed, holding that the defendant could elect to make a prepayment because such a prepayment was a voluntary action under the terms of the note rather than an additional undertaking.

Turning to the defendant’s second argument, she claimed Fannie Mae owned the note and, as a result, Wells Fargo did not have standing to bring the action. The note in this instance was endorsed in blank and presented in court during the hearing on the motion to open. Further, Wells Fargo executed an affidavit setting forth: (1) the Fannie Mae guidelines that temporarily relinquish possession of the note to the servicer; and (2) Wells Fargo was in possession of the note prior to the commencement of the action. Under the provisions of the UCC and Connecticut case law, the court found that Wells Fargo was the party in possession of a bearer instrument, was entitled to enforce the note and, accordingly, had standing to bring the action.

Finally, the court found no reasonable cause for the defendant’s non-appearance. The defendant maintained that she suffered from debilitating depression and could not defend herself in the action. The court determined that the defendant provided no evidence supporting this.

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