Washington Mutual Bank fka Washington Mutual Bank F.A. v. Linda S. Coughlin et al.
MEMORANDUM OF DECISION
This vigorously contested matter is a mortgage foreclosure case which came to this court by original Complaint filed on behalf of Washington Mutual Bank FA (WAMU) dated June 30, 2008 in which the plaintiff requested a foreclosure of a mortgage given on property at 848–850 Noank Road, Mystic, Connecticut (the property) to secure the payment of a loan in the original principal amount of $1,700,000. In addition the complaint claims possession of the mortgaged premises, attorney fees and other relief. The complaint alleges that Linda S. Coughlin (Linda) and Daniel F. Coughlin (defendants) on June 15, 2004 signed an Adjustable Rate Note and mortgage and are in default. The complaint listed others who were either prior in right or subsequent in right to the plaintiff.
The defendants filed an answer on August 26, 2008 and thereafter on March 2, 2009 filed seven Special Defenses. In the Answer the defendants admit they mortgaged the property to secure the payment of said adjustable rate note. The Special Defenses allege Misrepresentation, Fraudulent Inducement, Equitable Estoppel, CUTPA violation, Breach of Fiduciary Duty, Unclean Hands and a seventh defense which denies the allegations as to the debt and reserves the right to challenge evidence of value.
JP Morgan Chase Bank, National Association (plaintiff) was substituted as the plaintiff by Motion filed December 18, 2008.
It would serve no useful purpose in this memorandum at this juncture of the matter to list or elaborate on the many and varied interlocutory motions and other activities which has brought the case from 2008 to this point. Suffice it to say that a trial to the court was had on the matter at New London on October 21 and 22, 2014. Briefs were filed by both parties on December 10, 2014. On that date the defendants moved the court to “reopen” the trial for additional evidence. After careful consideration of the motion and other material filed, that request was denied. Both parties were represented by counsel at trial. No subsequent encumbrancer participated at trial.
At the trial the court heard from an appraiser and a bank representative on behalf of the plaintiff. Plaintiff also introduced several exhibits. The defendant offered the testimony of Linda and Patty Stout. The defendant also submitted several exhibits.
From the evidence produced at trial, including the reasonable and logical inferences from the same, and taking into account the court's evaluation of the credibility of the witnesses, the following facts are found. Additional facts may be found later in this decision.
Daniel F. Coughlin (Daniel) is a well educated man having received his undergraduate degree from Bridgewater State University, a Ph D. from the University of Connecticut and a J.D. from IIT Chicago Kent College of Law in Chicago, Illinois. He taught school, was a college professor, practiced law and is currently employed with the U.S. Patent and Trademark Office in Washington, D.C. He and his wife Linda have owned several properties over the years.
Linda S. Coughlin (Linda) is also well educated, having received a bachelor's degree from the University of Arizona in 1979. She has until recently been operating a company named “Metro Homes” in New York City. Her business leased furnished homes to customers. In that endeavor she was required to negotiate lease agreements involving the terms of the rentals. The original forms used for the agreements were derived from a man from whom she bought a majority stake in another company in 2003. Metro Home had “ 20 or so” employees. Linda owned that company from 1998 to 2006. More recently she has been involved with consulting work in the vintage jewelry and diamond business where she gets buyers and sellers together and is paid on commission.
Sometime in late 2003, while they were still residing in a home she owned in Norwalk, Connecticut, the defendants became interested in acquiring “the property” as a summer residence. After negotiations with the seller they entered into an agreement as to a price of approximately $2.75 million and terms and made a substantial deposit of about $230,000. There was a mortgage contingency provision which allowed the return of the deposit if a mortgage was not available, but it was required to be exercised within a limited time.
To secure financing for the purchase the defendants engaged a Patty Stout, (Patty) a mortgage broker, who they had used on prior real estate mortgages. Patty worked as a mortgage originator for Capstone Mortgage Company. She was not an agent of the mortgagee/bank but was an independent contractor being supervised by the owner of Capstone Mortgage Company. In their selection process the defendants also contacted at least one other mortgage broker but determined that they would use Patty.
There were some delays in the process of putting the financing together while the bank obtained additional information about Linda's business income. In that process the bank reduced the amount they would loan, requiring the defendants to raise additional funds themselves. Ultimately a closing was scheduled for June 15, 2004. The defendants engaged a lawyer to represent them in the transaction, Attorney Johnstone. The terms of the adjustable rate note which the defendants each signed provided for the payment of interest only payments at the rate of 2.250% with some exceptions. The note provided for annual adjustments in the rate with a particular cap and provided for the right of prepayment of principal without penalty. The note made clear that, depending upon the amount of payments of interest during the term, the principal could increase if the payments did not equal the actual interest on the loan. It also made clear there could be a balloon payment at maturity which was July 1, 2034. The note referred to the fact that a mortgage was given to secure the note payment.
At the closing the defendants also signed an Adjustable rate rider and a Second Home Rider. The Second Home Rider provided that the property would only be used as a second home. Testimony to the effect that the defendants did not discuss with their lawyer the terms of the loan or the content of the documentation at or before the closing was not credited by the court. Patty did not attend the closing.
The defendants had the understanding that Patty was to be paid her fee out of the proceeds of the closing. The HUD 1, closing statement provides that Capstone Mortgage Company was paid $8,500 from the proceeds of the closing and an additional amount of $34,000 paid outside of the closing by the lender, WAMU. On or about April 5, 2004 the defendants were provided with and each signed a Mortgage Broker Fee Disclosure. (Exh F.) Part of that disclosure seeks to make clear the nature of the relationship between the borrower and the broker. It says “While the mortgage broker seeks to assist you in meeting your financial needs, it does not distribute the products of all lenders or investors in the market and cannot guarantee the lowest price or best terms available in the market.” Section 2 of that disclosure deals with various methods of payment of the broker. That disclosure provided “you may work with the mortgage broker to select the method in which it receives its compensation depending on your financial needs ․” The disclosure provided that the defendants acknowledged, by signing, that they read and understood the disclosure statement. At the time of the closing no issue was raised by the defendants as to the amount of payment to Capstone Mortgage Company. The defendants did not discuss with Patty or Capstone their claim that they did not get satisfactory loan terms either before or after the closing. There was no evidence of what, if any, alternative loan terms may or may not have been available to the defendants. After the closing the defendants were on friendly terms with Patty.
At the closing WAMU advanced $1.7 million used by the defendants toward the purchase of the property with adjustments and expenses shown on the HUD 1. WAMU was represented by an attorney at the closing. There is no credible evidence that the defendants or either of them, were induced by either WAMU or Patty to enter into the loan arrangement by misrepresentation of the terms of the loan. While there was evidence that Patty, as an independent mortgage broker, had prior dealings with WAMU (some involving the defendants), there was no credible evidence that Patty was the agent or representative of WAMU in the loan transaction. Nor was their credible evidence that Patty or WAMU had a fiduciary relationship with the defendants. On the contrary, the defendants had considerable knowledge in matters involving real estate dealings.
Records of the bank indicate and it is found that payments by the defendants were made in the normal course on the note until March 1, 2008, when the defendants defaulted in their payment. During that time the defendants resided in Norwalk. Sometime in 2007 Daniel lost his job with the firm of Mark Dwyer where he was earning $215,000 per year. Also after 2008 Linda's real estate rental business in New York was sold because of the diminishing market. The defendants have not contested the fact that they are in default. No payments have been made since March 1, 2008. A notice of default was provided in April 2008. (Pl's Exh 6.) After the default, in 2009 the defendants moved to make the property in Noank their permanent residence when their Norwalk residence was foreclosed. Shortly after the default this suit was initiated by WAMU.
After the suit was pending, WAMU was taken over by the Federal Deposit Insurance Corporation and the plaintiff obtained its ownership of the note and mortgage by assignment dated October 3, 2013. (Pl's Exh. 5.)
The plaintiff is the holder of the above adjustable rate note signed by the defendants and is the assignee of the mortgage securing the same. The original signed copies of the same have been introduced into evidence at the trial.
From the testimony of the appraiser, Mr. Lerman, and a review of his appraisal report in evidence it is found that the fair market value of the property subject to this foreclosure is $2,100,000.00 broken down as $800,000 land and $1,300,000 improvements.
From the testimony of Mr. Dean, the plaintiff's representative and the exhibits introduced through him, it is found by the court that the debt as of October 19, 2014, $2,629,703.33 plus interest and late charges from that date. The per diem rate of interest thereafter is $177.75.
“In a mortgage foreclosure action, to make out its prima facie case, [the foreclosing party] ha[s] to prove by a preponderance of the evidence that it [is] the owner of the note and mortgage and that [the mortgagor] ha[s] defaulted on the note.” (Internal quotation marks omitted.) Franklin Credit Management Corp. v. Nicholas, 73 Conn.App. 830, 838, 812 A.2d 51 (2002), cert. denied, 262 Conn. 937, 815 A.2d 136 (2003).
As recently as 2005, our Appellate Court enumerated the recognized defenses to foreclosure actions in Louis Gherlone Excavating, Inc. v. McLean Construction Co., 88 Conn.App. 775, 871 A.2d 1057, cert. granted, 274 Conn. 909, 876 A.2d 1201 (2005) (appeal withdrawn February 3, 2006).
“Historically, defenses to a foreclosure action have ben limited to payment, discharge, release or satisfaction ․ or, if there had never been a valid lien ․ The purpose of a special defense is to plead facts that are consistent with the allegations of the complaint but demonstrate, nonetheless, that the plaintiff has no cause of action ․ A valid special defense at law to a foreclosure proceeding must be legally sufficient and address the making, validity or enforcement of the mortgage, the note or both.” [ (emphasis in original, internal quotation marks omitted.) ] Id., at 781, quoting Fidelity Bank v. Krenisky, 72 Conn.App. 700, 705, 807 A.2d 968, cert. denied, 262 Conn. 915, 811 A.2d 1291 (2002).
However, it is also true that “[a]n action of foreclosure is peculiarly equitable and the court may entertain all questions which are necessary to be determined in order that complete justice may be done between the parties.” Glotzer v. Keyes, 125 Conn. 227, 231, A.2d 1 (1939); accord Renolds v. Ramos, 188 Conn. 316, 320, 449 A.2d 182 (1982); Hartford Federal Savings & Loan Ass'n v. Lenczyk, 153 Conn. 457, 463, 217 A.2d 694 (1966); see generally, Morgera v. Chiappardi, 74 Conn.App. 442, 456–58, 813 A.2d 89 (2003) (discussing general equitable principles that must be applied in a foreclosure action).
Agency is defined as a relationship which results from a manifestation of consent by one person or entity that another shall act on its behalf and subject to its control and consent by the other so to act. Thus, the three elements required to show the existence of an agency relationship include: (1) A manifestation by the principal that the agent will act for it. (2) acceptance by the agent of the undertaking and (3) an undertaking between the parties that the principal will be in control of the undertaking. Beckstein v. Potter & Carrier, Inc., 191 Conn. 120, (1983).
Section 49–17 of the Connecticut General Statutes (CGS) provides in part “When any mortgage is foreclosed by the person entitled to receive the money secured thereby but to whom the legal title ․ has never been conveyed ․” can get the benefit of the foreclosure. “Our legislature, by adopting Section 49–17, created a statutory right for the rightful owner of a note to foreclose on real property regardless of whether the mortgage has been assigned to him.” “As a matter of law the mortgage follows the note.” RMS Residential Properties, LLC v. Miller, 303 Conn. 224, 230 (2011).
“Fraud is an equitable defense to a foreclosure action.” Chase Manhattan Mortgage Corp. v. Machado, 83 Conn.App. 183, 188, 850 A.2d 260 (2004). “Fraud involves deception practiced in order to induce another to act to her detriment, and which causes that detrimental action ․ The four essential elements of fraud are (1) that a false representation of fact was made; (2) that the party making the representation knew it to be false; (3) that the representation was made to induce action by the other party; and (4) that the other party did so act to her detriment.” (internal quotation marks omitted.) Id. “Actions of agents of a lender may also give rise to a defense of fraud. See Barasso v. Rear Still Hill Road, LLC, 81 Conn.App. 798, [842 A.2d 1134] (2004). However, a court generally, will not invalidate a mortgage agreement against the lender ‘unless [it] in some way participated in or knew of the fraud.’ First Charter National Bank v. Ross, 29 Conn.App. 667, 672, 617 A.2d 909 (1992), [appeal dismissed, 228 Conn. 203, 635 A.2d 796 (1994) ].” FV–1, Inc. v. Forgey, Superior Court, judicial district of New London, Docket No. CV 07 5002447 (May 22, 2008, Martin, J.).
A party alleging fraudulent misrepresentation “must prove the existence of the first three of [the] elements by a standard higher than the usual fair preponderance of the evidence, which higher standard we have described as clear and satisfactory or clear, precise and unequivocal.” (Internal quotation marks omitted.) Citino v. Redevelopment Agency, 51 Conn.App. 262, 276, 721 A.2d 1197 (1998).
“Connecticut case law firmly establishes that fraud must be proven by a standard more exacting than ‘a fair preponderance of the evidence.’ This court has most recently formulated the proper standard as ‘clear and satisfactory evidence.’ Miller v. Appleby, 183 Conn. 51, 55, 438 A.2d 811 (1981); see Bruneau v. W & W Transportation Co., 138 Conn. 179, 182, 82 A.2d 923 (1951); Hathaway v. Bornmann, 137 Conn. 322, 325, 77 A.2d 91 (1950). A second line of cases prefers the language of the trial court, ‘clear precise and unequivocal evidence.’ DeLuca v. C.W. Blakeslee & Sons, Inc., 174 Conn. 535, 546, 391 A.2d 170 (1978); Busker v. United Illuminating Co., 156 Conn. 456, 458–59, 242 A.2d 708 (1968); Creelman v. Rogowski, 152 Conn. 382, 384, 207 A.2d 272 (1965); Basak v. Damutz, 105 Conn. 378, 382–83, 135 A.2d 453 (1926); see Lopito v. Haines, 185 Conn. 527, 534, 441 A.2d 151 (1981). Under either formulation, a plaintiff's burden cannot be equated with the fair preponderance standard of proof for ordinary civil actions.” Alaimo v. Royer, 188 Conn. 36, 39, 448 A.2d 207 (1982).
“ ‘Clear and satisfactory’ evidence is the equivalent to ‘clear and convincing’ evidence.” Dalia v. Lawrence, 226 Conn. 51, 78, 627, A.2d 392 (1993) (Berdon, J., dissenting); Parker v. Slosberg, 73 Conn.App. 254, 263, 808 A.2d 351 (2002). “This standard of proof is sustained only if the evidence induces in the mind of the trier a reasonable belief that the facts asserted are highly probably true, that the probability that they are true exist is substantially greater than the probability that they are false or do not exist.” (Emphasis in original; internal quotation marks omitted.) Dalia v. Lawrence, supra, 78–79 (Berdon, J., dissenting).
In determining whether a practice violates CUTPA, we use the following criteria: “(1) [W]hether the practice, without necessarily having been previously considered unlawful, offends public policy as it has been established by statutes, the common law, or otherwise-whether, in other words, it is within at least the penumbra of some common law, statutory, or other established concept of unfairness; (2) whether it is immoral, unethical, oppressive, or unscrupulous; (3) whether it causes substantial injury to consumers ['] competitors or other businessmen.” Williams Ford, Inc. v. Hartford Courant Co., 232 Conn. 559, 591 (1995).
In order to plead equitable estoppel as a special defense, a defendant has the burden of pleading and eventually proving the following two elements: “ ․ the party against whom estoppel is claimed must do or say something calculated or intended to induce another party to believe that certain facts exist and to act on that belief;  and the other party must change its position in reliance on those facts, thereby incurring some injury ․ It is fundamental that a person who claims an estoppel must show that he has exercised due diligence to know the truth, and that he not only did not know the true state of things but also lacked any reasonably available means of acquiring knowledge.” Connecticut National Bank v. Voog, 233 Conn. 352, 367 (1995) (citations omitted; internal quotation marks omitted).
The factor to be considered in determining whether a fiduciary relationship exists is: “characterized by a unique degree of trust and confidence between the parties, one of whom has superior knowledge, skill or expertise and is under a duty to represent the other.” Albuquerque v. Albuquerque, 42 Conn.App. 284, 287 (1996); Konover Development Corp. v. Zeller, 228 Conn. 206, 219 (1994).
Where an issue is not adequately briefed courts are not required to consider it. “We are not obligated to consider issues that are not adequately briefed ․ When an issue is merely mentioned, but not briefed beyond a bare assertion of the claim, it is deemed to have been waived ․” Connecticut Coalition Against Millstone v. Connecticut Siting Council, 286 Conn. 57, 87 (2008).
The plaintiff has satisfied its burden of proof, by a preponderance of the evidence, that it is the owner and holder of the $1,700,000.00 Adjustable Rate Note and the Mortgage securing the payment both signed by the defendants and that the defendants are in default with respect to the obligations contained in the note. Notice of default has been provided the defendants. Accordingly, as a matter of law the plaintiff is entitled to a judgment of strict foreclosure unless the defendant's Special Defenses are sufficient to defeat its right to the same.
The defendant's post-trial brief, dated December 10, 2014, seems to be addressing both the first and second special defenses together, (page 1), but goes on to spend the majority of the brief (pages 3, 4, 5 and 6) discussing the question as to the assignment of the mortgage by the FDIC. The original note in evidence has an endorsement in blank and the plaintiff has possession of the note. The law is that the mortgage follows the note. Sec. 47–17 C.G.S. The court found from the evidence that the plaintiff owns the note and mortgage. There was no evidence to the contrary. The defendant's claims as to the assignment are not persuasive but even if the assignment of the mortgage is somehow deficient that fact without more is not sufficient to defeat the right to a judgment of foreclosure.
Even though the defendant seems to have waived the Special Defenses by declining to properly brief them in their post-trial brief, the plaintiff has addressed each in its post-trial brief and the court will address them in this memorandum to avoid any misunderstanding.
The First Special Defense alleges misrepresentation by the broker, the lender and the lender's attorney/settlement agent. During the trial there was no credible evidence of any misstatement of fact by any of them. There was no evidence of any attempt to renegotiate the loan before or after default. There was no evidence as to what other financing “products” would have been available either with better terms or lower payments. The documentation at the closing made clear the terms. No complaints were made by defendants as to the terms of the loan or the amount of payments to the broker. The defendant has not met their burden of proof with respect to this claim.
The Second Special Defense merely adds to the first special defense a claim that the lender provided financial incentives to the broker to close high volumes of loan “․ thereby ratified the conduct that induced Defendants to enter into the mortgage ․” No credible evidence was offered at trial by defendants of specific facts to support these claims. There was no credible evidence either that a fact was misrepresented or that there was reliance upon the same. Also there was no evidence to support a claim that Patty, the mortgage broker who was not at the closing, was the agent of WAMU or was in any way authorized to act on its behalf. The testimony that the defendants or either of them relied upon representations made by Patty is not credited by the court. Whichever standard of proof is considered with respect to this claim, the defendants have not satisfied their burden of proof with respect to this alleged defense.
The Third Special Defense is based on a claim of equitable estoppel. There was no credible evidence at the trial even suggesting that the plaintiff or the lender or broker misstated any facts causing reliance by the defendants. There was no showing at the trial that the defendants or either of them exercised due diligence to know the truth with respect to the areas of the transaction which they now claim to have been misstated. In fact the evidence is to the contrary if it is to be credited. Linda testified she simply did not read the documentation at the closing. This claim fails for lack of proof.
The Fourth Special Defense alleges a CUTPA violation. Again, the court finds no credible evidence to support this allegation. No evidence of unfair or deceptive acts or practices of the lender or broker were found. The credible evidence did not establish either of the two requirements of the “cigarette rule.” The mere assertion of unsupported claims as to purported misrepresentations regarding the terms of the Note and broker fees does not transform the actions of the plaintiff into violations of CUTPA. At trial there was no credible evidence indicative of a pattern of practices or actions required to support a CUTPA claim. The defendants have not sustained their burden of proof with respect to this allegation.
The Fifth Special Defense, without allegations of specific facts, claims that the lender breached a fiduciary duty to the defendants thus causing the default. No credible evidence was offered to establish a fiduciary relationship between the lender WAMU and the defendants. Moreover, in this State a mortgagor's claims regarding a breach of fiduciary duty will not be found to have arisen out of transactions that were the subject of a mortgagee's assignee's complaint for foreclosure of mortgages. See Southbridge Assoc., LLC v. Garofalo, 53 Conn.App. 11 (1999). This claim will not avail the defendants because they did not sustain their burden of proof.
The Sixth Special Defense or unclean hands is based upon the allegations of the First Special Defense. “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 ․ The trial court enjoys broad discretion in determining whether the promotion of public policy and the preservation of the court's integrity dictate that the clean hands doctrine is invoked ․” Funding Group Inc. v. Pluchino, 87 Conn.App. 401, 407 (2005). There were no facts proven at trial indicating that the lender or the plaintiff was in any way involved in willful misconduct. Considering the claims made by the defendants and the evidence at the trial, the circumstances of this case as found by the court do not make it inequitable to permit the foreclosure. The defendants have not sustained their burden of proof with regard to this special defense.
The Seventh Special Defense does not allege a defense and will not be addressed.
Judgment of strict foreclosure will enter. The court finds the debt to be $2,629,703.33 through October 19, 2014 with a per diem rate of interest thereafter of $177.75. The court finds the value of the subject property to be $2,100,000.00 divided $800,000.00 for land and $1,300,000.00 for improvements. Attorney fees are awarded to the plaintiff in the amount of $22,283.80. An appraisal fee of $750 is awarded. A title search fee of $118.00 is ordered.
Law Day is set to commence on February 24, 2015, for the owners of the equity and subsequent days for subsequent encumbrancers in the inverse order of their priority.
Robert C. Leuba, J.T.R.
Leuba, Robert C., J.T.R.