Water Pollution Control Authority of the city of Bridgeport v. Ronald Johnson et al. (2010)

MEMORANDUM OF DECISION RE MOTION TO OPEN AND VACATE JUDGMENT.  (Motion # 136.00)

The issue before the court is whether to grant the defendant's motion to open and vacate the judgment of foreclosure by sale and all supplemental judgments on the equitable ground that prejudicial misrepresentations and mistakes occurred in connection with the foreclosure auction and sale.   For the reasons discussed hereinafter, the motion to open and vacate the judgment is denied.

FACTS & PROCEDURAL HISTORY

This action commenced on July 2, 2007, when the Water Pollution Control Authority of the city of Bridgeport (WPCA) brought an action seeking strict foreclosure of an unpaid lien on a property owned by Ronald Johnson, located at 230 Trumbull Avenue in Bridgeport, Connecticut (the property).   The complaint identified mortgages held by Fremont Investment & Loan (Fremont) and by Lawrence Lauder and Kathleen Lauder (the Lauders) as encumbrances subsequent in right to the WPCA.¹ The WPCA's motion for summary judgment as to liability only was granted on September 6, 2007, and a judgment of foreclosure by sale was entered on September 10, 2007.   The court also granted a motion for default for failure to appear against both Fremont and the Lauders on September 10, 2007.

The property was sold at a public auction on January 5, 2008, to JMP & Sons Property Management, LLC (JMP) for a sum of $99,100, after which a real estate contract was entered into between the court's representative (the committee) and JMP.² On February 5, 2008, the court, Blawie, J., issued an order granting the committee's motions to approve the sale, the committee report, committee deed and the committee fees and expenses.   On March 28, 2008, the committee filed a notice of compliance with the court's orders approving the sale and indicating the completion of the sale, delivery of the deed and the committee's reimbursement of all expenses from the court.

On April 14, 2008, Fremont filed an appearance with the court, and shortly thereafter filed a motion to open judgment and a motion to dismiss the complaint.   The motion to open judgment argued that the WPCA had failed to allege all encumbrances of record to the lien being foreclosed.   Although Fremont was named in the complaint as a subsequent interest holder and had issued a note loaning $192,000 to Johnson, Fremont was never the mortgagee of record on the property and the mortgage securing the note was held by Mortgage Electronic Registration Systems, Inc. (MERS).  Fremont further argued that the court lacked personal jurisdiction because process and service of process on Fremont were deficient, and that the court erred in approving the foreclosure sale because the property was sold at less than half the value assessed by the court-appointed appraiser.³  Fremont's motions were opposed by the WPCA and JMP, the latter of which filed an appearance and moved to be made a party defendant on May 23, 2008.⁴  The court, Pinkus, J., denied both motions on October 7, 2008, ruling that because Fremont was not a mortgagee it lacked any legal or equitable interest in the property and did not have standing to open the judgment.

On May 27, 2008, LaSalle Bank, NA, Trustee (LaSalle) filed a separate action (the LaSalle action) to foreclose the mortgage interest on the property originally held by MERS that secured the note issued by Fremont.⁵  In response, JMP moved to dismiss the LaSalle action on the ground that LaSalle lacked standing because the mortgage claim had been extinguished by a prior foreclosure action.   The court denied JMP's motion to dismiss and issued summary judgment in favor of LaSalle, finding that because the mortgage was omitted from the first foreclosure action it was not subject to that judgment.   LaSalle Bank, Trustee v. Johnson, Superior Court, judicial district of Fairfield, Docket No. CV 08 5016113 (August 10, 2009, Doherty, J).  JMP also attacked the foreclosure sale in this action, opposing the WPCA's motion for supplemental judgment on the ground that JMP had not received good title to the property due to an outstanding mortgage lien, and moving to consolidate this action with the LaSalle action.   Both of these motions were denied.

On August 28, 2009, JMP filed the current motion to open and vacate judgment of sale and all supplemental judgments in this matter and a supporting memorandum of law.   On September 1, 2009, the WPCA filed a memorandum of law in opposition to JMP's motion, to which JMP responded with a reply memorandum on September 11, 2009.   The court heard oral arguments at short calendar on the motion on March 23, 2010.

DISCUSSION

In its motion to open and vacate the judgment of sale, JMP argues that the court should set aside the confirmed judicial sale of the property on equitable grounds.   Specifically, JMP states that it relied on “representations made by the Committee” and “explicit language of the committee deed” when it bid on the property, and because of mistakes therein JMP will be foreclosed out of the property by a subsequent interest holder that was omitted from the first foreclosure proceeding.   JMP requests that the court vacate the foreclosure by sale, return all funds held by the court and fees paid and order the plaintiff to pay costs and expenses to JMP.

In response, the plaintiff filed a memorandum in opposition that argues JMP's motion is baseless and without merit and that the court is without jurisdiction to grant the relief sought therein.   The plaintiff claims that because the closing of the property took place on February 29, 2008, the statutory period to file a motion to open judgment has already passed.   The plaintiff further argues that because the court has already transferred title to JMP, it no longer has jurisdiction to rescind the transaction because the property is no longer under its control.

In JMP's memorandum in further support of its motion, it argues that the court has the power to reopen judgments after title has passed in instances where there has been a mistake or a misrepresentation.   JMP further argues that the motion to open judgment is not barred by untimeliness where equitable circumstances require it, and equitable circumstances apply here because JMP stands to lose both the property it bid upon and its purchase money due to its reliance on representations made by the committee.

General Statutes § 52-212a provides in relevant part:  “Civil judgment or decree opened or set aside within four months only.   Unless otherwise provided by law and except in such cases in which the court has continuing jurisdiction, a civil judgment or decree rendered in the Superior Court may not be opened or set aside unless a motion to open or set aside is filed within four months following the date on which it was rendered or passed.”   See also Practice Book § 17-4.⁶  “[T]he law governing [foreclosures] lies at the crossroads between the equitable remedies provided by the judiciary and the statutory remedies provided by the legislature.”  New Milford Savings Bank v. Jajer, 244 Conn. 251, 256, 708 A.2d 1378 (1998).  “[A] foreclosure action constitutes an equitable proceeding ․ In an equitable proceeding, the trial court may examine all relevant factors to ensure that complete justice is done ․ The determination of what equity requires in a particular case, the balancing of the equities, is a matter for the discretion of the trial court.”  (Internal quotation marks omitted.)  First Connecticut Capital, LLC v. Homes of Westport, LLC, 112 Conn.App. 750, 761, 966 A.2d 239 (2009).  “[T]he court must exercise its discretion and equitable powers with fairness not only to the foreclosing mortgagee, but also to subsequent encumbrancers and the owners ․ Most importantly, the court possesses the authority to refuse to confirm sales upon equitable grounds where they were found to be unfair or the price bid was inadequate.”  (Citations omitted;  internal quotation marks omitted.)  Id., 763.   In the context of a foreclosure by sale, “[w]hether to grant a motion to open rests in the discretion of the trial court.”  Union Trust Co. v. Roth, 58 Conn.App. 481, 481, 755 A.2d 239 (2000).

“A judicial sale is one made as a result of judicial proceedings by a [committee of sale] legally appointed by the court for [that] purpose ․ The court is the vendor, and the [committee] appointed to make the sale is the mere agent of the court ․ The court has the power to confirm the sale, although the terms of the decree may not have been strictly followed.   The matter of confirmation rests peculiarly upon the sound discretion of the court, to be judicially exercised in view of all the surrounding facts and circumstances, and in the interest of fairness, justice, and the legal rights of the respective parties.”  (Internal quotation marks omitted.)  Raymond v. Gilman, 111 Conn. 605, 613-14, 151 A. 248 (1930).  “Only after a sale has been confirmed and ratified by the court does it become complete ․ Following confirmation of the sale, a judicial sale generally will not be set aside in the absence of fraud, mistake or surprise.   The rule of caveat emptor is generally applicable to judicial sales ․ When relaxation of this rule is granted ․ it is on the theory that the purchaser bids on the assumption that there are no undisclosed defects.”  (Citations omitted;  internal quotation marks omitted.)  Citicorp Mortgage, Inc. v. Burgos, 227 Conn. 116, 120-21, 629 A.2d 410 (1993).

As a preliminary matter, the legal standards set forth above make clear that this court has the discretion to grant a motion open the judgment, even after the time period provided in § 52-212a and Practice Book § 17-4 have run, in circumstances where equity demands it such as a judicial sale involving fraud, mistake or surprise.  Citicorp Mortgage, Inc. v. Burgos, supra, 227 Conn. 120-21.   JMP has pleaded sufficient facts to demonstrate that neither party to the foreclosure sales contract was aware that interests subsequent in right to the foreclosed lien had not been foreclosed.   Accordingly, the court finds it has jurisdiction to hear and rule on the motion to open judgment.

In order to evaluate the equities of JMP's motion to open judgment, the court shall first examine several documents pertaining to the foreclosure sale and then review relevant aspects of this action's procedural history.   The documents include several exhibits submitted to the court as part of the committee's motion to approve the foreclosure sale, filed on January 10, 2008 and granted on February 4, 2008.⁷  The “committee report” indicates that the committee posted notice of the foreclosure sale in a newspaper advertisement on December 14, 2007 in the Connecticut Post, a copy of which was attached to the motion as Exhibit B. The notice specifically states:  “The property will be sold as a whole, ‘as is,’ without representations of any kind, free and clear of interests of the parties bound by said judgment but subject to taxes and such other liens not foreclosed by said judgment ․” (Emphasis added.)

Exhibit C, entitled “fact sheet-notice to bidders” likewise states:  “The property is being sold ‘as is,’ subject to no contingencies whatsoever.   The Committee makes no warranties, either express or implied, concerning the property's condition, and no adjustments will be made for any defects that may be discovered after this date ․ All bids are to be made on the bidder's own information and knowledge of the property, learned through his or her own efforts, and not on any representations or comments made by the Committee. ”  (Emphasis in original.)   The next line of the document states:  “The property is being sold free and clear of the lien(s) being foreclosed, and of all interests subsequent in right to that lien.   The property is being sold subject to ․ D.) All building liens, easements, restrictions and all other matters concerning this property which appear of record ․ G.) Any other liens on this property which have not been foreclosed by this action.”   Exhibit C also includes a notice to bidders as attachment B, which states in item three:  “The property is being sold free and clear of the WPCA liens being foreclosed and of all interests subsequent in right thereto.”   Attachment B also restates that the property is sold “as is” and all bids are based on information acquired by the bidder and not from any representation made by the committee.

Exhibit F, the real estate contract, provides in relevant part:  “Said premises are to be sold further subject to ․ any and all provisions of any public or private law, easements and encumbrances of record.   Said premises will be sold free and clear of the WPCA liens being foreclosed and all claims subsequent in right thereto, but subject to all liens, choate or inchoate, which are prior in right to the WPCA liens being foreclosed ․” The contract later repeats:  “The sale is to be free and clear of the WPCA liens being foreclosed and of all claims subsequent thereto.”

While some of these exhibits contain language that, taken in isolation, might lead a purchaser to believe the property was being sold entirely free from interests subsequent in right to the WPCA lien, when read in their entirety, these documents include clear language stating that the sale is subject to any unforeclosed liens and other encumbrances of record.   In addition, prospective bidders are repeatedly cautioned to undertake their own investigation of the property and expressly warned not to rely on any representations of the committee as a basis upon which to enter a bid.

A review of the procedural history of this action casts further doubt that the equities of this action lie with JMP. As discussed previously, prior to filing the instant motion to open judgment, JMP opposed a motion to open judgment brought by Fremont that sought to remedy the same mortgage interest subsequent in right to the WPCA lien that was not made a party to the foreclosure action.   It was only after Fremont's motion was filed that JMP joined the action as a party defendant and opposed Fremont's motion.⁸  Fremont's motion was denied and now JMP has filed its own motion to open for judgment for essentially the same purpose of addressing issues caused by the omission of the same subsequent interest-holder.   JMP changed its position on this issue only after discovering that the omitted subsequent interest holder could foreclose on the property in its own right regardless of the judicial sale to JMP.

The court notes that “[t]he rule of caveat emptor is generally applicable to judicial sales,” Citicorp Mortgage, Inc. v. Burgos, supra, 227 Conn. 120-21, and it is well established that parties to a transaction involving the transfer of real property should conduct a thorough title search on a property they intend to purchase.   In addition, the foreclosure documents contain warnings that purchasers should base their bids on their own investigation of the property, and several exhibits specifically state that the property would be sold subject to any other liens on this property which have not been foreclosed by this action.   The procedural history further reveals that not only was a prior motion to open the judgment filed for the specific purpose of resolving the issue of an omitted subsequent interest holder, but JMP actively opposed the motion.⁹  Equity does not require that JMP be allowed to rescind a transaction it now finds unfavorable, especially where the “mistake” complained of was due to JMP's own lack of diligence in investigating the property before its purchase.   As this court has already pointed out, our legislature has enacted General Statutes § 49-30 ¹⁰ as the means of resolving the claims of omitted subsequent interest holders in foreclosure actions.  Federal Deposit Ins. Corp. v. Bombero, 37 Conn.App. 764, 769, 657 A.2d 668 (1995), appeal dismissed, 236 Conn. 744, 674 A.2d 1324 (1996);  see also Mortgage Electronic Registraton Systems, Inc. v. White, 278 Conn. 219, 896 A.2d. 797 (2006).

For the foregoing reasons, JMP's motion to open and vacate the judgment of sale and all supplemental judgments is denied.

Hartmere, J.

FOOTNOTES

FN1. Fremont allegedly held a mortgage in the original principal amount of $192,000 and the Lauders held a mortgage in the original principal amount of $48,000..  FN1. Fremont allegedly held a mortgage in the original principal amount of $192,000 and the Lauders held a mortgage in the original principal amount of $48,000.

FN2. The appraisals filed with the court valued the property between $225,000 and $240,000..  FN2. The appraisals filed with the court valued the property between $225,000 and $240,000.

FN3. Fremont's motion to dismiss similarly alleged insufficiency of process, insufficiency of service of process, insufficiency of proof of service of process and lack of personal jurisdiction.   Both the motion to open judgment and the motion to dismiss were filed on May 14, 2008..  FN3. Fremont's motion to dismiss similarly alleged insufficiency of process, insufficiency of service of process, insufficiency of proof of service of process and lack of personal jurisdiction.   Both the motion to open judgment and the motion to dismiss were filed on May 14, 2008.

FN4. JMP filed a memorandum in opposition to Fremont's motion to open judgment on July 9, 2008.   The memorandum argued that the court was precluded from opening the judgment because absolute title had passed to the purchaser, and that there was no practical relief the court could offer the defendant.   In its motion to dismiss, JMP also argued that opening the judgment would result in extreme prejudice and “unfairly infringe” upon JMP's newly acquired interest in the property..  FN4. JMP filed a memorandum in opposition to Fremont's motion to open judgment on July 9, 2008.   The memorandum argued that the court was precluded from opening the judgment because absolute title had passed to the purchaser, and that there was no practical relief the court could offer the defendant.   In its motion to dismiss, JMP also argued that opening the judgment would result in extreme prejudice and “unfairly infringe” upon JMP's newly acquired interest in the property.

FN5. An exhibit attached to Fremont's reply memorandum in support of its motion to open judgment, dated October 3, 2008, states that the beneficial interest in the MERS mortgage was assigned to LaSalle on May 2, 2008..  FN5. An exhibit attached to Fremont's reply memorandum in support of its motion to open judgment, dated October 3, 2008, states that the beneficial interest in the MERS mortgage was assigned to LaSalle on May 2, 2008.

FN6. Practice Book § 17-4(a) provides:  “Unless otherwise provided by law and except in such cases in which the court has continuing jurisdiction, any civil judgment or decree rendered in the superior court may not be opened or set aside unless a motion to open or set aside is filed within four months succeeding the date on which notice was sent.   The parties may waive the provisions of this subsection or otherwise submit to the jurisdiction of the court.”.  FN6. Practice Book § 17-4(a) provides:  “Unless otherwise provided by law and except in such cases in which the court has continuing jurisdiction, any civil judgment or decree rendered in the superior court may not be opened or set aside unless a motion to open or set aside is filed within four months succeeding the date on which notice was sent.   The parties may waive the provisions of this subsection or otherwise submit to the jurisdiction of the court.”

FN7. The foreclosure sale auction took place on January 5, 2008.   In its motion, the committee moved for approval of committee sale, approval of committee deed and acceptance of committee report, for allowance of fees and expenses, and for allowance of appraiser's fees..  FN7. The foreclosure sale auction took place on January 5, 2008.   In its motion, the committee moved for approval of committee sale, approval of committee deed and acceptance of committee report, for allowance of fees and expenses, and for allowance of appraiser's fees.

FN8. JMP filed its motion to be added as a party defendant on May 23, 2008, which was granted on June 16, 2008.   JMIP filed its opposition to Fremont's motion to open judgment on July 9, 2008..  FN8. JMP filed its motion to be added as a party defendant on May 23, 2008, which was granted on June 16, 2008.   JMIP filed its opposition to Fremont's motion to open judgment on July 9, 2008.

FN9. JMP presumably chose to oppose Fremont's motion in an attempt to protect its newly-acquired interest in the property that it had purchased for less than half of its appraised value.   See supra, note 5..  FN9. JMP presumably chose to oppose Fremont's motion in an attempt to protect its newly-acquired interest in the property that it had purchased for less than half of its appraised value.   See supra, note 5.

FN10. General Statutes § 49-30 provides:  “Omission of Parties in Foreclosure Actions.   When a mortgage or lien on real estate has been foreclosed and one or more parties owning any interest in or holding an encumbrance on such real estate subsequent or subordinate to such mortgage or lien has been omitted or has not been foreclosed of such interest or encumbrance because of improper service of process or for any other reason, all other parties foreclosed by the foreclosure judgment shall be bound thereby as fully as if no such omission or defect had occurred and shall not retain any equity or right to redeem such foreclosed real estate.   Such omission or failure to properly foreclose such party or parties may be completely cured and cleared by deed or foreclosure or other proper legal proceedings to which the only necessary parties shall be the party acquiring such foreclosure title, or his successor in title, and the party or parties thus not foreclosed, or their respective successors in title.”.  FN10. General Statutes § 49-30 provides:  “Omission of Parties in Foreclosure Actions.   When a mortgage or lien on real estate has been foreclosed and one or more parties owning any interest in or holding an encumbrance on such real estate subsequent or subordinate to such mortgage or lien has been omitted or has not been foreclosed of such interest or encumbrance because of improper service of process or for any other reason, all other parties foreclosed by the foreclosure judgment shall be bound thereby as fully as if no such omission or defect had occurred and shall not retain any equity or right to redeem such foreclosed real estate.   Such omission or failure to properly foreclose such party or parties may be completely cured and cleared by deed or foreclosure or other proper legal proceedings to which the only necessary parties shall be the party acquiring such foreclosure title, or his successor in title, and the party or parties thus not foreclosed, or their respective successors in title.”

Hartmere, Michael, J.