LLC v. Edward J. Carney et al (2010)

MEMORANDUM OF DECISION

On November 8, 2007 the plaintiff loaned $200,000.00 to the defendants, secured by a promissory note and mortgage deed on 1196 West Lake Avenue, real property located in Guilford, Connecticut, Trial.   Ex. 2 & 3. The defendants have failed, neglected and refused to pay the principal and accumulated interest in accordance with the terms and conditions described in the promissory note.   The plaintiffs have moved for strict foreclosure on the mortgage deed.

The plaintiffs proved:  that the defendants executed the above-described note and mortgage deed, failed to pay the plaintiff in accordance with the terms and conditions of the promissory note, the existence of encumbrances of record upon the real property owned by the defendants that are prior in right to the plaintiff's subject mortgage deed rights and that the defendants are record owners of the premises in question and in possession thereof and that the outstanding indebtedness of record is far greater than the fair market value of the subject real estate and improvements thereon.

In their March 11, 2009 answer to the complaint the defendants raised a number of special defenses and a counterclaim.   On November 10, 2009 the defendants amended their counterclaim by withdrawing the previous counterclaim and asserting a different counterclaim.

At all times relevant hereto, the defendants were the owners of a real property known as 1196 West Lake Avenue in Guilford Connecticut.   The defendants testified that a house they occupied was located on said property and was destroyed by fire in March of 2007.   The house had been insured for fire loss, the defendants received the insurance proceeds after the loss and thereafter the defendants decided to knock down the existing fire-damaged remnants of said house and build a new “green,” environmentally friendly, house on 1196 West Lake Avenue for re-sale purposes.   The defendants represented to the plaintiff and others that they planned to use the profits from the hoped-for sale of the ‘to be completed new home’ at 1196 West Lake Avenue and to purchase a different piece of real estate, see testimony of Edward Carney, Danielle Carney, Joseph Nuzzo, Amanda Tiernan, and Robin Sandler.

During the period of construction of the new home at 1196 West Lake Avenue the defendants calculated that they would not have sufficient funds to complete the construction of the house, were unable to obtain traditional financing and began to seek alternate sources of financing, see testimony of Edward Carney, Danielle Carney and Joseph Nuzzo.

The Carneys felt that they would lose the house, because they had been unable to borrow from a bank sufficient funds with which to complete the construction of the new house and simultaneously to pay the existing mortgages associated with the house, if they were not able to secure financing from a source other than a bank.   The defendants contacted Joseph Nuzzo who worked for the Mortgage Store of Connecticut and sought his assistance in obtaining alternative financing, see testimony of Edward Carney and Jos. Nuzzo.

At the time Mr. Nuzzo was contacted the subject property, still in the construction process and unoccupied, was listed for sale and being actively marketed on the Real Estate Multiple Listing Service (MLS) covering the town of Guilford, see Edward Carney and Jos. Nuzzo trial testimony.

At said time Danielle Carney was a licensed real estate agent and was acting as the listing agent for the subject property actively marketing the same thru the MLS at the same time the defendants were applying for, negotiating and finalizing the subject loan, see plaintiffs trial exhibit 13, 14 and 17.

Nuzzo produced the plaintiff as a potential lender.   The defendants, through Nuzzo, submitted proposals and documentation to the plaintiff seeking a loan.   The plaintiff offered a loan, in an amount less than the defendants sought, on various terms and conditions.   The defendants were represented by an attorney of their choice, Amanda W. Tiernan in the negotiations with the plaintiff and during the execution of all loan documents surrounding the subject transaction that gives rise to this case.   Attorney Tiernan testified that she was a long time friend of the defendants, had previously represented the defendants in other real estate transactions and fully explained the note and mortgage, as well as all associated documents executed concurrently with the note and mortgage deed, to the defendants prior to the defendants executing the same.   Attorney Tiernan acknowledged the signatures of the defendants and witnessed their signatures.   Attorney Tiernan testified that there was not a second witness present at the time the defendants executed the subject mortgage deed, but rather that her father thereafter, out of the presence of the defendants signed the mortgage as a second witness.   The defendants readily admit that they signed the subject promissory note and mortgage deed.

The subject promissory note, plaintiff's exhibit 2, executed on November 6, 2007 was due and payable on November 7, 2008.   The defendants admit they have not paid the plaintiff in accordance with the terms of the Note.

The defendants were not occupying said property between the date of the fire, March 2007, and the date of the certificate of occupancy, March 2009, Trial Ex 16.   The defendants were residing at a different property during the period after the house fire in March of 2007 and during the period when the subject loan was applied for and eventually secured, see testimony of Danielle Carney, as well as defendant's exhibit B, plaintiff's exhibit 18 and 19.

Attorney Robin Sandler, a principal in the plaintiff limited liability company, creditably testified that his understanding that the property was not going to be owner occupied and that, when the plaintiff extended the subject loan, he relied upon the statements in the various application, appraisal and loan documents that the subject loan note and mortgage constituted a commercial transaction.

The defendants received the net proceeds of the closing, $156,132.00, see plaintiff's trial exhibit number 9 and testimony of Edward and Danielle Carney.   Edward Carney testified that all such funds were used by the defendants to make improvements to said real property.   See testimony of Edward Carney.

The defendants executed a number of documents in connection with this closing including an affidavit of no usury or unconscionability.   See plaintiff's exhibit number 7. A waiver of prior notice and hearing for prejudgment remedy waiver of jury trial and waiver of homestead exemption, see plaintiff's exhibit number 8, and a listing of costs in connection with said loan, see plaintiff's exhibit number 9.

Plaintiff's counsel, Amanda W. Tiernan, executed a November 8, 2007 letter directed to the plaintiff indicating, inter alia, proper execution of the promissory note and mortgage and an opinion that performance of the borrower's obligations therewith do not violate any provision of any laws applicable to the borrowers, including without limitation, applicable usury laws or principles of unconscionability and that said legal opinion letter was rendered with the intention that it benefited the lender and that the plaintiff/lender was relying upon the conclusions in the opinion letter when making same loan to the defendants.   See plaintiff's trial exhibit 10.

The defendants admit that there were two encumbrances of record upon the property known as 1196 West Lake Avenue, in addition to the aforementioned mortgage deed executed by the defendants in favor of the plaintiff, that are prior in right to the plaintiff's lien and are not affected by this action including a January 19, 2006 open end mortgage to the Nationwide Lending to MERS, as nominee of the Nationwide Lending Corporation in the amount of $248,000.00 an additional mortgage to the same entity in the amount of $62,000.00 both executed on January 19, 2006 and recorded January 20, 2006 in the Guilford land records.   See defendants' March 11, 2009 answer to paragraph 5 of the plaintiff's December 1, 2008 complaint.

The affidavit of debt as of January indicated debt was $247,546.44 as of January 13, 2009, plaintiff's trial exhibit number 6, in connection with the subject matter.   The parties agreed the fair market value of the subject property is $420,000.00.   Therefore there is no equity in the subject property for the defendants.

Conclusions of law

The defendants executed a note in the principal amount of $200,000.00 on November 8, 2007 in favor of the plaintiff, secured by a mortgage deed on a property known as 1196 West Lake Avenue, Guilford, Connecticut, which is now in default for non-payment and the plaintiff is entitled to a judgment of strict foreclosure due non-payment of the aforementioned note as the defendants have no equity in the property.

The defendants assert special defenses and a counter claim, but those matters are resolved in favor of the plaintiff.

The defendants have failed to sustain their burden of proof with respect to the special defenses asserted.   Specifically the defendants have failed to prove that the collateral for the aforementioned loan was to be used for primarily personal, family, or household purposes as required by Connecticut General Statutes 36a-485(14) formerly Connecticut General Statutes 36a-510(9) as alleged in paragraph 3 in the defendant's special defenses.   On the contrary, the credible evidence established that the loan in the instant case was made for commercial purposes.   The loan documents were knowingly and willingly executed by the real estate savvy defendants, the defendants represented by competent counsel of their choice, the credible evidence demonstrated the defendants' oral and written representations to their counsel, their mortgage broker and the plaintiff's representative, of the defendants' contemplated use of the subject property as described in the trial exhibits and factual findings recited above.   Therefore the Court finds the allegations of the special defense paragraphs 1-5 are not proved.

The defendants asserted a counter claim dated November 10, 2009, in which they allege that the mortgage deed, plaintiff's exhibit number 3, was invalid and unenforceable because of the failure of the presence of a second witness at the execution of said mortgage deed.

This counter claim fails for two reasons, first while Connecticut General Statutes 47-5 does require the attestation of a deed by two witnesses, Connecticut General Statutes 47-36aaa provides in pertinent part that a mortgage containing a defective acknowledgement or no acknowledgement or is attested by one witness only (as in the instant case, ed.) or by no witnesses is “as valid as if it had been executed without defect or omission unless an action challenging the validity of that incident is commenced and a notice of lis pendens is recorded in the land records of the town or towns where the instruments is recorded within two years after the instrument is recorded.”

In the instant case the facts established that the mortgage deed was attested by one witness.   However, the savings statute, 47a-36aaa is applicable because the defendants failed to establish that a notice of lis pendens was recorded in the land records of the town where the mortgage deed was recorded within two years after the mortgage deed was recorded.

Equally significantly the Court finds the holding of the case of Providence Bank v. Robert Francis, CV00-0801554, Satter J., is applicable.   The court in Providence Bank noted “while a defect in a mortgage, such as failure to state with reasonable certainty the nature and the amount of the debt may be asserted to attack the validity of the mortgage as against subsequent encumbrances, it can not be used to defeat a foreclosure action as between the original mortgagee and mortgagor.”   The court went on to note “a mortgage deed not properly witnessed and acknowledged is never the less valid as between the parties to the instrument.”  (Citations omitted.)

For those reasons the Court finds that the defendants have failed to sustain the burden of proof on the counterclaim and finds the issues on the counterclaim in favor of Thirteen, LLC.

Therefore, judgment of strict foreclosure will enter on behalf of the plaintiff against the defendants with the following findings:  Judgment debt through 1/13/2010 $246,546.44 with interest at the per diem rate of $125.61, fair market value of the subject property $425,000.00, Attorneys fees $12,622.50, appraisal fee $450.00, law day May 10, 2010.

Zemetis, J.

Zemetis, Terence A., J.