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Connecticut: Court Rules that Plaintiff Need Not Plead it is the Owner of the Note

Posted By USFN, Tuesday, December 12, 2017
Updated: Tuesday, November 14, 2017

December 12, 2017

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

In CitiMortgage, Inc. v. Tanasi, 176 Conn. App. 829 (Oct. 3, 2017), the borrowers contended that the plaintiff committed fraud because it pled that it was the holder without disclosing to the court that another entity owned the note. In Connecticut, the holder of the note is presumed to be the owner of the debt. The defendants claimed that because of the presumption of ownership, the plaintiff was required to plead the identity of the owner of the note. The Connecticut appellate court did not agree and ruled in favor of the plaintiff, affirming the decision of the trial court.

Factual Background
The appellate court recited the following relevant facts:

“On August 2, 2007, the defendants executed and delivered a note in the principal amount of $656,250 to ABN AMRO Mortgage Group, Inc. (Mortgage Group), which was secured by a mortgage on real property . . . . In late August 2007, the plaintiff acquired Mortgage Group by merger. In November, 2007, the plaintiff entered into a ‘Master Mortgage Loan Purchase and Servicing Agreement’ (agreement) with Hudson City Savings Bank (Hudson). Under the agreement, Hudson purchased certain mortgage loans from the plaintiff, including the defendants’ loan. The agreement identifies Hudson as the ‘[i]nitial [p]urchaser’ and the plaintiff as the ‘[s]eller and [s]ervicer.’ The plaintiff possessed the original note, endorsed in blank, at the time of the commencement of the foreclosure action. When the defendants failed to make the required monthly payments on the loan, the plaintiff sent the defendants a notice of default. The defendants subsequently failed to cure their default, and the plaintiff accelerated the sums due under the note. The plaintiff commenced a foreclosure action in July, 2011, and alleged in its complaint that it ‘is the holder of [the defendants’] [n]ote and [m]ortgage.’

The parties proceeded to mediation. It is not disputed that, during mediation, the plaintiff provided the defendants with a copy of the agreement. After participating in fourteen court-annexed mediation sessions, the plaintiff filed a motion to terminate the mediation stay, which the court granted.” CitiMortgage, Inc. v. Tanasi, supra, 176 Conn. App. at 832.

From mediation, the borrowers were aware that the plaintiff was the holder of the note, but not the owner. Further, the borrowers knew that the plaintiff had authority from the owner to prosecute the foreclosure. Despite this, the borrowers attacked the foreclosure in three ways, claiming that the plaintiff “(1) lacked standing to commence foreclosure proceedings, (2) improperly relied on a document as a basis for standing, and (3) committed fraud warranting dismissal of the action with prejudice.” Id. at 832.

Court’s Review
The court found that the agreement between the owner of the note and the plaintiff stated that “the plaintiff ‘is hereby authorized and empowered by [Hudson] . . . when [the plaintiff] believes it is appropriate and reasonable in its judgment . . . to institute foreclosure proceedings . . . .’” Id., at 840. Thus, the court concluded that the plaintiff had standing.

The defendants next asserted that the plaintiff, by pleading it was the holder and not disclosing it did not own the loan, was precluded from obtaining foreclosure. The court pointed out that the defendant, not the plaintiff, had the burden to rebut the presumption once the plaintiff was afforded the presumption. Upon the presumption of ownership being rebutted, the plaintiff could then introduce the agreement between the owner and the plaintiff. While the defendant maintained that the introduction of the agreement was untimely, the court observed that the defendant had an opportunity to review the agreement at a prior hearing on a motion to dismiss, and at mediation three years earlier. Lastly, the court found that the plaintiff could plead that it was the holder without disclosing another owner, and that such a pleading was not fraud upon the court.

Conclusion
The Tanasi decision is confirmation that the longstanding method of pleading holder or entity entitled to enforce the note in Connecticut foreclosures may continue, despite creative arguments from borrowers that the plaintiff needs to plead ownership status of the loan. The case also underscores the importance of being transparent about the relationship between the owner of the note and holder of the note.

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