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Connecticut Supreme Court Reversal Will Affect Foreclosure Disputes

Posted By USFN, Monday, August 12, 2019

by Robert J. Wichowski, Esq.
Bendett & McHugh, P.C.
USFN Member (CT, MA, ME, NH, RI, VT)

In United States Bank National Assn. v Blowers, Supreme Court Docket No. 20067, 2019 WL 3558862, 2019 Conn. LEXIS 213, at *5 (Aug. 1, 2019), the Supreme Court of Connecticut reversed the decision of the Appellate Court upholding the trial court’s granting of the Plaintiff’s Motion to Strike Special Defenses and Counterclaims, Motion for Judgment on Counterclaims, Motion for Summary Judgment as to liability, and Motion for Strict Foreclosure, and in so doing eliminated the most common legal theory used by plaintiffs' attorneys to dispose of contests to foreclosures in the State of Connecticut—that any defenses to foreclosure that do not go to the “making, validity or enforcement” of the note and mortgage are not defenses to a foreclosure action.

Plaintiff brought this action to foreclose a residential mortgage in 2014.  During the course of the case, the Defendant, in response, made the following allegations as defenses and counterclaims:

Defendant applied for and the Plaintiff offered and allegedly reneged on at least four modification offers after accepting the required number of trial payments from the Defendant. The Plaintiff later increased the payments from an initial $1950 to $3445 a month. In April of 2012, the Defendant contacted the State’s Department of Banking, which intervened on the Defendant’s behalf, resulting in an immediate modification being received. Within months of that modification, Defendant alleged that the Plaintiff notified the Defendant that his monthly payments were increasing nearly twenty percent from the modified payment. The Defendant was unable to afford these payments, but continued to make the monthly payments set by the April 2012 Modification until October of 2012 when the Plaintiff rejected them as “partial” payments.  The Defendant further alleged that the Plaintiff erroneously informed the Defendant’s insurance company that the property was no longer being used as the Defendant’s residence. As a result, the Defendant’s insurance policy was cancelled and the Defendant was forced to replace coverage and his rate increased from $900 to $4000 per year.

After the commencement of the foreclosure action in 2014, and after participation in the Court supervised foreclosure mediation program, the Defendant further alleged that during the course of said mediation, the Plaintiff regularly ignored agreed upon deadlines, arrived late to mediations sessions, made duplicative, exhaustive, and ever changing requests, or did not provide Defendant with complete information. This resulted in an increase of the Defendant’s debt, fees and costs due to Plaintiff.

The Defendant claimed that the Plaintiff should be equitably estopped from collecting the damages it caused by its own misconduct and that the Plaintiff’s attempt to foreclose should be barred by the doctrine of unclean hands as alleged by his counterclaims and special defenses. The Defendant also sought compensatory and punitive damages, injunctive relief, and attorney’s fees.

The Plaintiff moved to strike[1] all of the defenses and counter claims contending that they were insufficient as a matter of law because the defenses and counterclaims did not relate to the making, validity, or enforcement of the note or mortgage, and also failed to state a claim upon which relief may be granted. Plaintiff was successful at the Trial Court and the Defendant appealed. The Appellate Court (with one judge dissenting) affirmed the Trial Court’s decision of granting the Plaintiff’s Motion to Strike reasoning that "automatically allowing counterclaims and special defenses in foreclosure actions that are based on conduct of the mortgagee arising during mediation and loan modification negotiations would serve to deter mortgagees from participating in these crucial mitigating processes.” U.S. Bank National Assn. Trustee v. Blowers, 177 Conn. App. 622, 634, 172 A.3d 837 (2017). The Defendant again appealed, the Connecticut Supreme Court certified the appeal, and reversed the opinion of the Appellate Court. 

In reversing the opinion of the Appellate Court, the Supreme Court eliminated perhaps the most successful argument utilized by mortgage servicers in Connecticut to defeat contests to foreclosures. Connecticut Superior Courts (trial court) and Appellate Courts have long held in foreclosure proceedings that defenses that did not go to the making, validity or enforcement of the note or mortgage were not defenses to a foreclosure action.  In this case the Defendant contended that, due to the equitable nature of a foreclosure action, a mortgagee’s misconduct that hinders the mortgagor’s attempts at curing the default and adds to the mortgagor’s debt while the mortgagor is making good faith efforts, is a proper basis for special defenses or counterclaims, even if that conduct occurs after the mortgagor’s default, or even after judgment.

In making its ruling the Supreme Court initially observed “…that the ’making, validity, or enforcement test’ is a legal creation of uncertain origin, but it has taken root as the accepted general rule in Superior and Appellate Courts over the past two decades.” After examining the facts and related case law, the court ultimately ruled: “These equitable and practical considerations inexorably lead to the conclusion that allegations that the mortgagee has engaged in conduct that wrongly and substantially increased the mortgagor’s overall indebtedness, caused the mortgagor to incur costs that impeded the mortgagor from curing the default, or reneged upon modifications are the types of misconduct  that are ‘directly and inseparably connected’ (citation omitted) to enforcement of the note and mortgage.”   Accordingly, the court held that the Defendant’s allegations provided a legally sufficient basis for special defenses in the foreclosure action.  In remanding the case to the Appellate Court, the Supreme Court was very clear to point out that it was not opining as to whether or not the defenses and claims were legally sufficient, or whether foreclosure should be withheld even if Defendant was successful in proving his case, and it reminded the trial court that its equitable powers do have limits. 

This case signifies a sea of change in how foreclosure and litigation firms will be dealing with challenges to foreclosures in the State of Connecticut going forward.  As most defenses to foreclosures in Connecticut were previously resolved by relying upon the making, validity or enforcement test, without that standard, additional motion practice and discovery will likely be required to resolve contested foreclosures.  It will also likely lead to more cases going to trial, rather than being resolved by Motions to Strike and/or Motions for Summary Judgment.

This case also underscores the importance of proper documentation and procedures in relation to loss mitigation reviews.  Even though the conduct that occurred in this case took place prior to the CFPB’s amendments to the mortgage servicing rules, the lesson here is that any unfounded delay due to “wrongful conduct” by the mortgagee in loss mitigation may result in a curtailment, sanction or withholding of a foreclosure. 


[1] A motion to Strike in Connecticut is allowed by Connecticut Practice Book §10-39 and challenges the legal or factual sufficiency of a complaint or defense and is similar, though not identical to a F.R.C.P 12(b)(6) or F.R.C.P 12(f). motion

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