Beneficial Mortgage Co. of Connecticut v. Michael Carbonaro et al. (2011)

MEMORANDUM OF DECISION

The plaintiff, Beneficial Mortgage Co. of Connecticut, commenced this action in a single count to foreclose a mortgage against property owned by the defendants, Michael Carbonaro and Maureen Carbonaro, by summons and complaint dated April 28, 2008.   The Carbonaros appeared and together with their answer filed special defenses of “procedural unconscionability” and unclean hands based on alleged misconduct of the plaintiff's agents or employees at the time of the closing.   The defendant, Danbury Hospital, holder of a judgment lien subsequent in right to the interest of the plaintiff, has not appeared in the action and has been defaulted.   This matter went to trial on March 24, 2011.   At the commencement of the trial, the Carbonaros admitted all of the allegations of the plaintiff's complaint and stipulated as to the debt and the value of the subject premises.   The matter was tried on the issue of the special defenses raised by the Carbonaros.

FACTS

The court makes the following findings of fact.   Beneficial is the holder of a promissory note and mortgage deed in the original principal amount of $302,180.84 from the Carbonaros dated June 26, 2007.   The mortgage deed is recorded in the land records of the town of New Fairfield on July 2, 2007, in volume 436 at page 420.   The note and deed are now in default by virtue of non-payment.   Beneficial has exercised its option to accelerate the note after the default.   The Carbonaros are in possession of the mortgaged property.   The defendant, Danbury Hospital, claims an interest in the premises by virtue of a judgment lien in the amount of $385 dated September 25, 2007, and recorded October 10, 2007, in volume 439, page 840, which is subsequent in right to the interest of the plaintiff.

At the trial the Carbonaros testified that they purchased the premises in 2003 and at the time of the transaction in question the premises was still encumbered by their original purchase money mortgage with a principal balance of $190,000 and a monthly payment of approximately $1,800.   The interest rate on the first mortgage was approximately 5.5 percent.   Because of financial difficulties the Carbonaros sought a second mortgage to consolidate their debt and to that end borrowed $57,000 from Beneficial in April 2007.   The closing was held on May 18, 2007, at the office of Beneficial in Danbury.   The monthly payment on the new loan was approximately $800 and it included a charge in the approximate amount of $100 for disability insurance.   The interest rate was 14.5 percent.

Shortly after the closing the sales manager with whom the Carbonaros had dealt, Francis Rowley, called them by phone and indicated that he could consolidate their first and second mortgages into a new loan at approximately 10.5 percent and advance them additional cash proceeds if they wished.   The Carbonaros indicated their interest and to that end Rowley had several more phone conversations with them.   The Carbonaros testified that Rowley called their home approximately three or four times during this process and called Mrs. Carbonaro at work two or three times.   There was no testimony that the calls were not welcome.   To the contrary the Carbonaros were interested in pursuing the new loan.   On June 26, 2007, the Carbonaros closed on the new mortgage at the office of Beneficial.   The Carbonaros testified that they were surprised to find at the closing that their new monthly payment was now $3,200 when they were led to believe it would be $2,700.   The difference in the amount was explained to them as including tax and insurance escrows.   They claim also to have been surprised that they were being charged a loan origination fee of $12,183.39.   Mr. Carbonaro claims that they were induced by Rowley to consummate the closing with a promise after they made two monthly payments on the loan he could refinance their mortgage yet again with a new loan for a lower interest rate and with no closing costs.   On cross-examination, Mr. Carbonaro testified that Rowley never made any promise as to the principal amount, interest rate or monthly payment amount of this newly promised loan.   The Carbonaros received the sum of $40,506.48 net proceeds of the closing after payment of the two existing mortgages and all closing costs and fees.   The interest rate on the new loan was 10.64 percent.   At the time of the closing, the Carbonaros had outstanding delinquent debt and judgment liens against them.   They did not have a favorable credit score.   There was no testimony as to the income or other expenses of the Carbonaros at the time the loan was made.

Mr. Carbonaro claims that he called Rowley two months after the closing to inquire about the promised refinance.   It is Carbonaro's testimony that he was told by Rowley during a subsequent conversation that he did not qualify for a further refinance because of his credit score and the amount of debt he was still carrying.   There was no testimony from the Carbonaros that they ever completed a loan application for this promised loan, nor were they ever given a commitment.   It is Carbonaro's testimony that he never made a further payment on the loan subject to the instant foreclosure.   The note and mortgage have remained in default for almost four years.

None of the original employees or agents of Beneficial, including Rowley, are any longer available to testify as to the events surrounding the closing.   A representative of Beneficial testified that it was not the policy of Beneficial now, or at the time this loan was made, nor is it legal to make an agreement to extend credit for an amount greater than $50,000 for a term longer than one year without a written commitment and loan application.

DISCUSSION

The Carbonaros assert a first special defense of unconscionability based upon alleged aggressive telephone solicitation, an alleged promise of loan terms which were “switched at the closing,” excessive prepaid finance charges and extension of a loan to the Carbonaros that they could not afford to repay.   “The purpose of the doctrine of unconscionability is to prevent oppression and unfair surprise ․ As applied to real estate mortgages, the doctrine of unconscionability draws heavily on its counterpart in the Uniform Commercial Code which ․ furnishes a useful guide for real property transactions ․ Official Comment 1 to § 2–302 of the Uniform Commercial Code suggests, [t]he basic test [of unconscionability] is whether, in the light of the general commercial background and the commercial needs of the particular trade or case, the clauses involved are so one-sided as to be unconscionable under the circumstances existing at the time of the making of the contract.”  (Citations omitted;  internal quotation marks omitted.)  Family Financial Services, Inc. v. Spencer, 41 Conn.App. 754, 763, 677 A.2d 479 (1996).  “The classic definition of an unconscionable contract is one which no man in his senses, not under delusion, would make, on the one hand, and which no fair and honest man would accept, on the other ․ In practice, we have come to divide this definition into two aspects of unconscionability, one procedural and the other substantive, the first intended to prevent unfair surprise and the other intended to prevent oppression.”  (Citations omitted;  internal quotation marks omitted.)  Smith v. Mitsubishi Motors Credit of America, Inc., 247 Conn. 342, 349, 721 A.2d 1187 (1998).  “The element of unfair surprise has frequently been termed by commentators and courts as ‘procedural unconscionability’ and is implicated by bargaining improprieties in the contract formation process.”   Emlee Equipment Leasing Corp. v. Waterbury Transmission, 31 Conn.App. 455, 463 n.12, 626 A.2d 307 (1993).   The court finds the Carbonaros' assertion of a promise to extend credit in an uncertain amount, at an uncertain interest rate and for an uncertain monthly amount a mere two months the closing not credible.   The court finds the allegations of excessive telephone solicitation, excessive prepaid finance charges and other lending practices which may be characterized as predatory unsupported by the evidence.

The Carbonaros assert a second special defense of unclean hands.  “The doctrine of unclean hands expresses the principle that where a plaintiff seeks equitable relief, he must show that his conduct has been fair, equitable and honest as to the particular controversy in issue ․ Unless the plaintiff's conduct is of such a character as to be condemned and pronounced wrongful by honest and fair-minded people, the doctrine of unclean hands does not apply.”   (Internal quotation marks omitted.)  Thompson v. Orcutt, 257 Conn. 301, 310, 777 A.2d 670 (2001).  “The party seeking to invoke the clean hands doctrine to bar equitable relief must show that his opponent engaged in willful misconduct with regard to the matter in litigation.”  (Internal quotation marks omitted.)  Ridgefield v. Eppoliti Realty Co., Inc., 71 Conn.App. 321, 335, 801 A.2d 902, cert. denied, 261 Conn. 933, 806 A.2d 1070 (2002).  “Wilful misconduct requires intentional conduct with the design to injure either actually entertained or to be implied from the conduct and circumstances ․ Not only the action producing the injury but the resulting injury almost must be intentional.”  (Internal quotation marks omitted.)   TD Banknorth, N.A. v. Genesis Properties, LLC, Superior Court, judicial district of Danbury, Docket No. 085004597 (January 15, 2009, Sommer, J.);   see also Banknorth, N.A. v. Blackrock Realty, LLC, Superior Court, judicial district of Fairfield, Docket No. CV 09 6002566 (April 14, 2010, Hartmere, J).  The court finds the Carbonaros' reliance on the doctrine unavailing and the defense without merit.

FINDINGS AND ORDERS

For the foregoing reasons, the court enters judgment of strict foreclosure as follows.   The court finds the debt to be $434,951.22 through February 28, 2011.   The court finds the value of the subject property to be $345,000.00, divided $150,000.00 as to land and $195,000.00 as to buildings.   The court awards a title search fee of $225, an appraiser's fee of $640 and attorneys fees of $7,200.   Law days are set to commence on Tuesday, June 28, 2011, for the owners of the equity and succeeding days for subsequent encumbrances in inverse order of their priorities.

Michael G. Maronich, Judge

Maronich, Michael G., J.