September 13, 2016
by Robert J. Wichowski
Bendett & McHugh, P.C. – USFN Member (Connecticut, Maine, Vermont)
According to a recent decision of the Connecticut Appellate Court, predatory lending can be a special defense to a foreclosure. Moreover, for the first time in Connecticut appellate jurisprudence, the defense of predatory lending has been defined. [Bank of America, N.A. v. Aubut, 167 Conn. App 347 (Aug. 2, 2016)].
In May 2012, an action to foreclose a mortgage was instituted by the plaintiff. After court-annexed mediation and a stay of the case due to a bankruptcy filing, a new plaintiff was substituted into the action. Following the substitution, the defendants filed an answer and raised defenses claiming, inter alia, predatory lending. The defendants claimed that the loan originator knew or should have known that the loan was unaffordable, and that the defendants were insolvent at the time of origination. The defendants also alleged that the loan was destined to fail from its inception.
The plaintiff filed a motion for summary judgment to summarily resolve the defendants’ claims. In response, the defendants provided an affidavit and financial documents, evidencing that the monthly loan payment was in excess of 70 percent of their take-home income. The trial court granted summary judgment to the plaintiff, and the bank proceeded to final judgment shortly thereafter.
On appeal, the defendants contended that predatory lending is a valid defense to a foreclosure action. In the alternative, the defendants asserted that a defense sounding in predatory lending should fall within the ambit of other recognized defenses to foreclosure actions (such as fraud, unclean hands, unconscionability, and equitable estoppel). In response, the plaintiff maintained that the defendants’ reliance on predatory lending was legally unsound and that the defendants’ allegations were legally insufficient to withstand summary judgment. The appellate court ruled in favor of the defendants on this issue and, in doing so, referenced the particularized detail that the defendants provided in their allegations and proof in opposition to summary judgment.
The appellate decision confirms the defense of predatory lending in mortgage foreclosures in Connecticut, noting that, although some trial courts have done so, there has been no legal authority defining that defense. As defined by this decision, predatory lending can be validly raised in defense to a foreclosure where a defendant’s allegations assert that the facts known to the plaintiff concerning the financial situation of the defendant at the time the subject loan was entered were such that the plaintiff knew, or should have known, that the loan would fail. Significantly, the court points out that in prosecuting the motion for summary judgment, the plaintiff did not counter the defendants’ evidence by affidavit or other documentary evidence. As such, the appellate court held that, at the time of summary judgment, there existed a genuine issue of material fact regarding the affordability of the loan and the defendants’ ability to repay.
This case is important to general foreclosure actions in Connecticut. Aubut supports by appellate authority — for the first time in this state — a defense of predatory lending to a foreclosure action. This would seem to indicate that allegations of predatory lending can be anticipated to be raised more often as a defense in future foreclosure actions.
©Copyright 2016 USFN. All rights reserved.
Note for consideration of the USFN Award of Excellence: This article is not a "Feature."