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Connecticut Supreme Court Allows Foreclosure of Mortgage on an Unapproved Subdivision

Posted By USFN, Wednesday, March 22, 2017
Updated: Monday, March 20, 2017

March 22, 2017

by Nicole M. FitzGerald
Bendett & McHugh, P.C. – USFN Member (Connecticut, Maine, Vermont)

The Connecticut Supreme Court recently held in ARS Investors II 2012-1 HVB, LLC v. Crystal, LLC, 324 Conn. 42 (Feb. 28, 2017), that a mortgagee may foreclose on property that consists of parcels of land within a subdivision that has not been approved by municipal zoning authorities. While an owner of a parcel in an unapproved subdivision might be prevented from certain uses of the property as a result of its unapproved status, nothing prohibits the sale of an unapproved parcel. Zoning is related directly to the use of property and not necessarily with its ownership.

The Supreme Court upheld the trial court’s finding: “[t]he fact that the land described in the mortgage deed may not constitute a legal lot under local zoning regulations is not relevant to the plaintiff’s right to foreclose.” To bolster the Court’s decision, the Court relied on two different state statutes. First, Conn. Gen. Stat. Sec. 8-25, which expressly contemplates that lots in an unapproved subdivision might nevertheless be transferred; and, second, Conn. Gen. Stat. Sec. 47-36aa, which validates — amongst other defects & omissions — the conveyance of an interest in a lot or parcel of land in a subdivision that was not approved. The Court also touched on the concept of reformation in response to one of the defendant-appellant’s arguments and found that “[r]eformation is appropriate only when the deed executed by the parties does not reflect the agreement the parties actually intended.”

This decision in ARS Investors II 2012-1 HVB is favorable for foreclosing lenders and takes away the possible title risk associated with lending to owners of unapproved subdivisions.

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