Eastern Savings Bank v. Cynthia Cortese et al. (2013)

SUPPLEMENTAL MEMORANDUM OF DECISION

At the hearing on June 11, 2013 Cynthia Cortese raised three issues which the court requested that the parties address by memoranda of law.   Without filing a motion to dismiss the defendant has asserted a lack of subject matter jurisdiction on the sole grounds that the plaintiff's complaint fails to contain an allegation that it is the owner or “holder of the note being foreclosed.”   It is well settled that the holder of a note secured by a mortgage has standing to commence a foreclosure action.  RMS Residential Properties, LLC v. Miller 303 Conn. 324–29 (2011).   There was ample evidence at trial, which was never challenged, that the plaintiff was indeed the holder of the notes in question.   These notes have never been assigned or endorsed to a third party.   In fact, each of the notes and mortgages was introduced into evidence at the outset of the trial.   What is missing is the essential allegation in the complaint that the plaintiff was the holder of these notes.   A familiar maxim is applicable here, viz:  “[W]hat is necessarily implied [in an allegation] need not be expressly alleged.”  Violano v. Fernandez, 280 Conn. 310, 318 (2006).   The court holds that the allegations of the complaint necessarily imply that the plaintiff was the holder of the notes.   Moreover, the plaintiff has filed a post-trial motion to amend the complaint so as to include such an allegation, arguing that the amendment conforms the complaint to the proof.   Because that is all that the amendment accomplishes and the defendant could not possibly be prejudiced the motion is granted.  Town of New Hartford v. CRRA, 91 Conn. 433, 486 (2009).   The present case is similar to GMAC Mortgage, LLC v. Ford, 144 Conn.App. 165, 174 (2012), in that “the defendant never asserted ․ that the plaintiff was not the holder of the note or that it did not hold the note at the time that the action was commenced.   Under those circumstances, it was entirely proper for the court to have relied on the uncontested factual assertion in the complaint as the basis for denying the motion to dismiss to the extent that it alleged lack of standing.”   While in the present case there was no such allegation at the commencement of the action, the allegation has been made in the amended complaint which initially failed to conform to the uncontested proof.   The court's subject matter jurisdiction is affirmed.

The defendant next argues that the plaintiff's failure to credit $95,000 on the $2,500,000 loan constitutes a breach of contract.   Apparently the defendant is not seeking to reopen the liability aspect of the case which has already been determined but seeks to have the $95,000 amount credited against the debt.   The plaintiff disagrees that the defendant is entitled to any such credit and explains why at page three of its memorandum of law as follows:

“Paragraph 4.B of the Deed Agreement does provide for an interest credit, but states that the credit would be “in accordance with the terms and conditions of the Cindy Licata Note” (the “Cindy Licata Note” is defined in the recitals of the Deed Agreement as the $2.5 million note).   Per Section 14.1 of the Cindy Licata Note (Exhibit 1), captioned “Interest Deferral and Credit,” the interest attributable to the $727,627.00 of funds used to purchase the Pomona Second Mortgage was being deferred until the Pomona Sale could close.   Since it did not close, Section 14.2 provides that Eastern would “waive the collection of the Deferred Interest and no interest [would] be charged on the Deferred Interest Bearing Sum until the Maturity Date”. After the Maturity Date, interest would then accrue on that portion of the principal at the interest rate or default rate provided for in the Note.

That is exactly what happened.   Abby Kaminski testified that interest that would have otherwise accrued on the Deferred Interest Bearing Sum through the date of maturity—totaling “in excess of $157,000”—was not charged (Trial Transcript, Abby Kaminski Direct, Day One, 130:3, and Abby Kaminski Rebuttal, Day Two, 102:9).   That is the “credit” that Defendant was due per the loan documents and that is the credit she received.”

This is an accurate explanation of the transaction.   By not charging the $157,000 in interest the defendant not only gave the equivalent of the $95,000 credit but the plaintiff received in excess of that sum in the form of the plaintiff's election not to charge.   But more importantly, the issue has already been litigated because the court found in the liability phase that the defendant offered no evidence in support of its claims to “financial benefits” which included the claimed $95,000 credit.

Finally, the defendant seeks to conflate default interest with a late charge which is uncollectible after notice of default has been given.   Such a claim is without merit.   As explained by the Court in Cadle Co. v. D'Adarrio, 131 Conn.App. 223, 248–51 (2012), default interest is not the equivalent of a late charge because they are separate charges that are designed for different purposes.   A late charge is designed to compensate for an untimely or missed payment while default interest is supposed to compensate for a borrower's delinquency.

The defendant also challenges the application of the default interest rate which was applied to the so called “negative escrow” which the plaintiff was forced to advance on behalf of the borrower to cover municipal real property taxes and homeowner's insurance.   The plaintiff has correctly explained the basis of such charge in its memorandum.  “The charging of default interest on negative escrow is expressly provided for in the two subject mortgages in Section 1.10 which provides that if the Defendant fails to “perform any of the covenants contained in Sections 1.01, 1.03, 1.04, 1.07 [pertaining to real property taxes], 1.08, 1.09 [pertaining to insurance] or 1.12 hereof, Mortgagee may make advances to perform the same on Mortgagor's behalf ․ The Mortgagor shall repay on demand by Mortgagee all such sums so advanced by Mortgagee on Mortgagor's behalf with interest at the Involuntary Rate.” The term “Involuntary Rate” is defined in the Definitions Section of the mortgages as “the Default Rate as set forth in the Note.”

Having now affirmed the propriety of these charges, a final hearing must be held for the court to find the updated debt, appraised value,” ¹ determine the form of judgment, fix a law/sale date and approve attorneys fees based upon a current affidavit.   Hearing:  August 14 at 9:30 a.m.

A. WILLIAM MOTTOLESE, J.T.R.

FOOTNOTES

FN1. The appraisal on file must be sworn to..  FN1. The appraisal on file must be sworn to.

Mottolese, A. William, J.T.R.