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Silicon Valley Bank v. Miracle Faith World Outreach, Inc.
MEMORANDUM OF DECISION
On or about September 21, 2009, the plaintiff, Silicon Valley Bank, filed a two-count complaint against the defendant, Miracle Faith World Outreach, Inc., seeking judgment on a promissory note (first count) and to foreclose a mortgage (second count). On December 1, 2009 the defendant filed its answer and thereafter, nine affirmative defenses. The matter was tried to the court on three days commencing December 8, 2010 and concluding February 25, 2011, subsequent to which the parties submitted post-trial memoranda and replies. Based on the evidence presented, the court makes the following findings.
Findings of Fact
The plaintiff, Silicon Valley Bank (hereinafter “plaintiff”), is a California banking corporation with its principal place of business in Santa Clara, California. The defendant, Miracle Faith World Outreach, Inc. (hereinafter “defendant” or “MFWO”), is a Connecticut religious corporation with its principal place of business at 754 Main Street, Monroe, Connecticut. The defendant is the owner of a certain parcel of land with a building, structures, and improvements thereon, located at 754 Main Street, Monroe, Connecticut (hereinafter “the property”). The property was built in stages between 1993 and 1998 and consists of a two-story masonry church building and fellowship hail with a total square footage of approximately 20,648 square feet, all of which sits on 20.2 acres.
The defendant executed and delivered to plaintiff a certain Promissory Note Secured By Mortgage dated May 14, 2002 in the original principal amount of one million nine hundred sixty-two thousand dollars ($1,962,000.00) (hereinafter the “note” or “promissory note”). In order to secure repayment of the promissory note also on or about May 14, 2002, the defendant duly made, executed and delivered to the plaintiff an Amended and Restated Mortgage, Assignment of Leases and Rents and Security Agreement dated May 14, 2002. The plaintiff and defendant also entered into a Term Loan Agreement dated May 14, 2002. The term on the promissory note is for a period of ten years, maturing on May 14, 2012. On or about April 15, 2002, the plaintiff filed in the Connecticut Secretary of State's Office a UCC Financing Statement listing the plaintiff as the secured party and the defendant as the debtor. Thereafter, on or about August 27, 2008, the mortgage was amended pursuant to a modification agreement entered into by the defendant and the plaintiff. The plaintiff is the owner and holder of the promissory note, the term loan agreement, the mortgage as amended by the modification agreement and the original financing statement as amended by the amended financing statement.
The promissory note provided for an original interest rate of seven and one-half percent until May 14, 2007. The note also provided that the interest rate increased after May 14, 2007 to eleven percent. The promissory note also provided that the defendant would be charged a default interest rate of six percent on top of the regular interest rate that would otherwise be payable under the terms of the note. While the note provided for a ten-day grace period, the note also provided for a late charge in a sum equal to five percent of each payment which becomes delinquent.
The loan modification agreement executed between the parties on August 27, 2008, modified the note by: (1) reducing the interest rate of eleven percent in effect at the time to seven and one-half percent; (2) lowering the monthly payments to interest-only payments for the period of June 1, 2008 through October 1, 2008; (3) eliminating the late fees incurred between May 12, 2008 until August 31, 2008; and (4) voiding any default that had occurred prior thereto.
Subsequent to the loan modification the defendant made the following payments:
1. September 1, 2008—$10,786.40;
2. September 4, 2008—$1,480.09;
3. October 10, 2008—$10,438.46;
4. November, 12, 2008—$10,000.00;
5. December 15, 2008—$16,100.00;
6. March 5, 2009—$8,000.00;
7. March 6, 2009—$8,000.00.
However, the defendant failed to pay in full the monthly installment of principal and interest due to the plaintiff under the note on December 1, 2008 and the subsequent payments of January 1, February 1, March 1, April 1, and May 1, 2009 as required by the note.
On May 6, 2009, the plaintiff sent a notice of default to the defendant notifying it that it was in default under the note, mortgage, and other loan documents because of its failure to pay all amounts due as provided in the note. The default notice informed the defendant that it could cure the default by making a payment to the plaintiff in the amount of $81,109.28 on or before May 18, 2009.1 The defendant did not pay that amount. However, subsequent to the notice of default, the plaintiff did accept payments from the defendant as follows:
A) $10,000.00 on May 20, 2009;
B) $9,491.56 on June 6, 2009;
C) $9,594.72 on July 10, 2009;
D) $9,878.67 on August 28, 2009.
The notice of default was sent on May 6, 2009, despite the fact that the defendant at that time had been making some payments under the loan modification agreement, and the plaintiff was accepting those payments. The plaintiff had been trying to work out a further loan modification with the defendant. On September 4, 2009, the plaintiff filed a lis pendens on the land records in the Town of Monroe in connection with the default of the note and mortgage.
The court will find that the defendant is in default of its obligations to the plaintiff under the note, mortgage and loan documents by reason of its failure to timely and fully pay all amounts under those documents.
As a result of the default there is due and owing from the defendant to the plaintiff the principal sum of $1,655,177.94. There is due and owing from the defendant to the plaintiff under the note and related documents interest at the rate of seven and one-half percent from the date of default, March 11, 2009, to the date of acceleration, August 31, 2009, in the amount of $59,856.96. Additionally, there is due and owing from the defendant to the plaintiff under the note and related documents interest at the default rate of thirteen and one-half percent from the date of acceleration, September 1, 2009 to the day of trial, December 8, 2010 in the amount of $288,000.97, the plaintiff having sent a notice of acceleration letter to the defendant on September 1, 2009, notifying the defendant that the plaintiff accelerated and declared the entire unpaid debt due under the note to be immediately due and payable. The per diem interest charges are $620.70 from the trial date through the date of judgment, at the default rate of thirteen and one-half percent.
From May 1, 2008 through July 1, 2008 the defendant failed to pay the monthly payments due on the first of the month in full and on a timely basis. Although the payments due on August 1, 2008 and October 1, 2008 were made timely, the defendant did not pay the monthly installments due on November 1, 2008 through August 1, 2009 in timely fashion. Thus, there is now due and owing from the defendant to the plaintiff late charges in the amount of $9,428.57.
Under the note and related loan documents, the defendant agreed to pay all costs of collection when incurred by the plaintiff including, but not limited to attorneys fees and related costs. The plaintiff incurred pretrial appraisal fees, including updates, preparation and testimony at a pre-judgment remedy hearing in the amount of $9,300.00. Additionally, the plaintiff incurred a cost of $1,000.00 for trial appraisal fees. The plaintiff also incurred extensive attorneys fees. The plaintiff incurred attorneys fees in the amount of $65,282.50 in connection with Attorney Lisa Kelley Morgan's representation during the pre-trial proceedings, and $26,241.85 in connection with Attorney Gina M. Varano's representation in connection with the trial. The court finds these fees to be reasonable under all of the circumstances.
The defendant asserted nine affirmative or special defenses to the plaintiff's complaint. However, subsequent to trial the defendant withdrew its third, fourth and fifth affirmative defenses.
In its first affirmative defense, the defendant asserts that it is clear that the foreclosure action will cause an undue hardship on the church and seeks an equitable remedy to allow the church to relocate to its other facility in Bridgeport without the burden of a deficiency judgment. The defendant's claim was unsupported by evidence at trial and the issue of a deficiency judgment is not a defense to this proceeding. Accordingly, the defendant's first affirmative defense must fail. The defendant claims in its second affirmative defense that the loan modification was the result of overreaching and too ambiguous and vague to be enforceable. Again, the defendant's contention is belied by the evidence presented at trial including evidence that the defendant had the opportunity to negotiate the modification. Again, the evidence fails to support the defendant's contention. In its sixth affirmative defense the defendant asserts that the default interest rate in addition to late fees amounted to an unconscionable penalty that equity should not permit. The evidence disclosed that the plaintiff did not charge default interest in addition to late charges. Again, the evidence fails to support the defendant's contention.
As to the seventh, eighth and ninth affirmative defenses, the defendant argues in its post-trial brief that the plaintiff's accepting loan payments after the notice of default was sent was misleading and inconsistent. The defendant contends that because of this conduct it would be inequitable to allow the plaintiff to obtain a judgment of foreclosure. Again, the defendant offered no documentary or testimonial evidence at trial to support its claim. Moreover, the Connecticut Supreme Court has rejected this argument. See Christensen v. Cutaia, 211 Conn. 613, 620 (1989). Here, the plaintiff's decision to accept partial payments did not waive its legal right to accelerate the debt and enforce its collection rights under the note. The defendant's argument that there has been “substantial compliance” also fails because it fails to account for interest, late charges and the lack of full payments. Thus, the defendant's seventh, eighth and ninth affirmative defenses must fail.
Also, the defendant briefed an affirmative defense which it claims it proved at trial, but failed to plead, “waiver and/or estoppel.” The defendant did not plead waiver or estoppel in any of its nine affirmative defenses. Since this defense was not pled by the defendant, this court lacks authority to consider it. Wright v. Hutt, 50 Conn.App. 439, 449–50, cert. denied, 247 Conn. 939 (1998).
In sum, the defendant failed to prove any of its affirmative defenses to the plaintiff's complaint. The plaintiff proved by a preponderance of the evidence that it was the owner of the note, the mortgage and the other loan documents. The plaintiff also proved by a preponderance of the evidence that the defendant defaulted on the promissory note, mortgage and other loan documents. Additionally, the plaintiff proved by a preponderance of the evidence the amount of debt due and owing under the note, the mortgage and other loan documents. The court will find that the plaintiff has proven by a preponderance of the evidence that the defendant is liable under the promissory note and therefore entitled to judgment on count one of the complaint.
As to count two of the complaint which seeks foreclosure of the property, the court will find that the plaintiff has met its burden of proving the essential elements by a preponderance of the evidence. The plaintiff contends that it is entitled to strict foreclosure, while the defendant argues for foreclosure by sale, if foreclosure is to enter. Each party relies upon the testimony of its appraiser in large part.
It is uncontested that the property is residentially zone acreage and it is in is above average condition. The building, which sits on 20.2 acres, is a two-story masonry church building and fellowship hall with a total square footage of approximately 20,648 square feet. The interior of the building is well maintained and is comprised of one essential room with high ceilings used as both a sanctuary and also a basketball court; ceramic tile; sheet rock walls; rubber multi-purpose floor; large commercial kitchen; multiple bathrooms; offices upstairs; and a day care area with room for expansion. The building is air-conditioned.
Both appraisers are members of the Appraisal Institute and hold the MAI designation. Both appraisers utilized the same two methodologies to determine the fair market value of the mortgaged property, the cost approach and the sales comparison approach. The appraisers testified that under the cost approach they had considered such factors as land value, replacement cost of the building, and the value of site improvements. The appraisers also testified that under the cost approach there are three types of depreciation adjustments to be made to determine fair market value:
1) physical deterioration;
2) functional obsolescence; and
3) external obsolescence.
The plaintiff's appraiser determined that the fair market value of the property using the cost approach was $1,760,000.00. The defendant's appraiser concluded that the fair market value as of May 20, 2010 was $2,680,000.00.
Each appraiser also used the sales approach analysis to determine the fair market value of the property. The sales approach compares similarly situated properties and then makes adjustment for each sale based upon dissimilar characteristics such as age, condition, land area, building size and style. The plaintiff's appraiser determined that the fair market value of the property was $1,700.000.00, while the defendant's appraiser concluded that the fair market value of the property was $2,270,000.00 based upon the sales approach.
Additionally, the defendant presented evidence at trial that the property was listed for sale at a price of $2,990,000.00. Moreover, the tax assessment for the property by the town of Monroe lists the property value at $2,896,500.00.
This court concludes, as a matter of discretion, that a judgment of foreclosure by sale is supported by the evidence. The court concludes that the testimony of the appraisers demonstrates that the cost approach is the more reliable method for determining the value of the property. This court makes its determination as to fair market value based upon the testimony of the defendant's appraiser and evidence submitted at trial, including the evidence of the tax assessor's assessment and the listing price. The defendant's appraiser concluded that at the time of trial the property had a fair market value of $2,546,000.00. Since the fair market value of the property exceeds the debt, a judgment of foreclosure by sale is appropriate.
In summary, judgment will enter in favor of the plaintiff on the first count in the amount of $2,324,355.15 itemized as follows:
PRINCIPAL: $1,655,177.94
LATE CHARGES: $ 9,428.57
INTEREST:
Note Interest: 3/11/09–8/31/09 @7.5% $ 59,856.96
Default Interest: 9/1/09–8/5/11 @13.5% $ 498,067.33
TOTAL (Principal, Interest & Late Charges) $2,222,530.80
ATTORNEYS FEES:
(Ruben, Morgan, Horan, P.C.) $ 65,282.50
ATTORNEYS FEES:
(Varano Law Firm, LLC) $ 26,241.85
APPRAISAL FEES (Italia & Lemp, PC) $ 10,300.00
TOTAL (Principal, Interest, Late Charges & Costs) $2,324,355.15
As to the second count (foreclosure) judgment will enter as follows:
Fair market value of property $2,546,000.00
Updated debt 8/5/11 $2,222,530.80
Attorneys Fees $ 91,524.35
Appraisal Fees $ 10,300.00
TOTAL (Principal, Interest, Late Charges & Costs) $2,324,355.15
Judgment of foreclosure by sale will enter; sale date is set at: Saturday, October 22, 2011.
HARTMERE, J.
FOOTNOTES
FN1. Any discrepancy between the amount stated in the default notice and the amount due stated at trial is “de minimis.”. FN1. Any discrepancy between the amount stated in the default notice and the amount due stated at trial is “de minimis.”
Hartmere, Michael, J.
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Docket No: CV095027608S
Decided: August 05, 2011
Court: Superior Court of Connecticut.
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