Opinion
FSTCV176030667S
01-11-2019
BANK OF AMERICA, N.A. v. William A. BARRERA
UNPUBLISHED OPINION
GENUARIO, J.
I. INTRODUCTION
By way of background the defendant borrowed $ 186, 000 from the plaintiff on August 20, 2007. The loan is evidenced by a promissory note of that date signed by the defendant and his then wife Diana E. Barrera (Diana). The plaintiff contends that the August 20, 2007 transaction was always intended to be a loan that was to be secured by a mortgage on 40 Myrtle Street, Norwalk, Connecticut but that for some reason the original mortgage deed was misplaced and never recorded. At trial, the plaintiff produced an unsigned copy of a mortgage deed (which copy does not contain a property description). The plaintiff seeks, inter alia, a declaratory judgment adjudging and decreeing that a copy of the mortgage be accepted for recording by the Norwalk Town clerk in the Norwalk Town land records as of August 20, 2007, nunc pro tunc, and a declaration adjudging and decreeing that the plaintiff is entitled to an equitable mortgage on the property as of August 20, 2007 to the extent of the alleged original mortgage and to the extent of any and all escrow or tax payments made by the plaintiff in accordance with its rights under the alleged mortgage. In his answer the defendant admitted that he borrowed the $ 186, 000, that he executed and delivered the subject promissory note but denies or pleads insufficient knowledge to admit or deny many of the substantive allegations of the complaint. In addition the defendant has pled three special defenses two of which have been stricken by the court. See Memorandum of Decision dated February 8, 2018 (# 106.02) . The remaining special defense, however, is still viable and was the subject of the defendant’s testimony at trial. The remaining special defense to the equitable relief sought by the plaintiff is the special defense of latches. The defendant alleges that he filed a Chapter 7 bankruptcy petition on July 18, 2011 and identified the mortgage as a liability in the bankruptcy petition. He further alleges that subsequent to the defendant’s discharge of his debts on October 26, 2011, the plaintiff made no attempts to collect any sums due from the defendant nor to have its alleged mortgage enforced until December 2016, five and a half years after the defendant filed for bankruptcy protection. The defendant alleges that the five and half years in which the plaintiff did not seek to enforce its now claimed rights under an equitable mortgage is an inexcusable delay which resulted in significant prejudice to the defendant in that he has changed his position in reliance on the plaintiff’s inactivity. Accordingly, the defendant asserts that the plaintiff should be barred from seeking equitable relief.
The defendant’s third special defense asserted that the recording of the mortgage at this time would be in violation of the bankruptcy discharge order, however the court struck this defense holding that "the equitable lien of the unrecorded [mortgage] passes through the debtor’s Chapter 7 bankruptcy unaffected, even though the debtor’s personal liability was extinguished by the discharge." In re Pecora, 297 B.R. 1 (United States Bankruptcy Court W.D. New York 2003); In re Williams, 490 B.R. 236 (W.D.Ky 2013); In re Isaacs, 569 B.R. 139, 149-50 (2070).
At the beginning of the evidence the parties stipulated that the defendant had quitclaimed all of his right title and interest in the property to Diana and introduced a copy of the quitclaim deed as Exhibit K. The stipulation included a statement that the defendant was no longer an owner of the property. The parties also stipulated that the defendant had filed a voluntary Chapter 7 bankruptcy petition and introduced Exhibit L which is a list of the docket entries pertinent to that bankruptcy case. The docket entries indicate a standard discharge of both the defendant and Diana on October 26, 2011. The parties also introduced as Exhibit A a copy of the promissory note and stipulated that the original promissory note was present in court for the court’s examination but that only the copy would be admitted into evidence.
II. FINDING OF FACTS
Besides the stipulations referenced above, the evidence consisted solely of the testimony of an assistant vice president of the plaintiff and the testimony of the defendant as well as various exhibits relating to the August 20, 2007 transaction. The court makes the following findings of fact. The defendant purchased the property known generally as 40 Myrtle Street, Norwalk, Connecticut in the early 2000s. He paid approximately $ 350, 000 for the property. The property consisted of a two-family house. The defendant and Diana resided in one of the units and they rented the second unit. There is a first mortgage on the property prior in right to any interest of the plaintiff’s claim relating to the subject transaction. On or about August 20, 2007 the defendant borrowed $ 186, 000 from the plaintiff and he and Diana signed the promissory note. The promissory note contained certain provisions which evidence an intent to have the loan secured by a mortgage including language at the beginning of the note stating "property serving as security (the "property"): 40 Myrtle Street, Norwalk, Connecticut 06855." Paragraph 9 of the promissory note states:
9. RELEASE OF LIEN. As permitted by applicable law, when I pay off my Note in full and request a satisfaction of mortgage, a full reconveyance, certificate of discharge or similar instrument denoting that my loan has been paid in full, I will pay the actual cost of recording a release/satisfaction of the Security Instrument (as defined below) as required by the recording office where the Security Instrument is located.
Paragraph 11 of the promissory note states:
11. NOTE SECURED BY COLLATERAL. All amounts due under this Note are secured by a mortgage, deed of trust or other security instrument ("Security Instrument") on the Property identified on the first page of this Note. The Security Instrument and this Note are related agreements, and a default under either document will be treated as a default under both documents.
Paragraph 26 which states:
26. TRANSFER AND ASSIGNMENT. You may transfer or assign this Note, the Security Instrument or any other loan document relating to the loan evidenced by the Note to any person or entity without notice to me ...
The plaintiff also produced other documents that were executed on August 20, 2017 including a "NOTICE OF RIGHT TO CANCEL" which states "You are entering into a transaction that will result in a mortgage, lien or security interest on or in your home." Also produced was a "BORROWERS LIMITED TITLE: AGREEMENT" which stated in pertinent part "In consideration of the Lien Protection Insurance Carrier ("Carrier") issuing lien protection insurance insuring your mortgage for the purpose of enabling the financing, and recognizing Carrier’s reliance upon these agreements, I/we agrees as follows:" The limited title agreement was signed by the defendant and Diana. Diana and the defendant also signed a United States Department of Housing and Urban Development Settlement Statement (HUD Statement) which indicated that the lender had paid for recording fees, appraisal of the property and flood certification fees. The HUD statement indicated that of the mortgage proceeds $ 153, 432.81 was being dispersed to "Chase." A transmittal letter, indicting that the same amount was being forwarded to "Chase" out of the closing proceeds and instructing Chase to close out that account, was also introduced. According to the HUD Statement, the balance of the loan proceeds in the amount of $ 32, 567.19 was paid to the borrower at closing. The evidence also indicates that between the date of closing of the loan the defendant and/or Diana made regular monthly mortgage payments through September 2010. No further payments were made after September 3, 2010. On July 8, 2011 the defendant and Diana filed a voluntary petition for Chapter 7 bankruptcy and both obtained a discharge in October 2011.
The plaintiff made no attempt to enforce a mortgage or to seek equitable relief similar to that requested in this litigation from the date of the discharge of the bankruptcy in October 2011 until this action, which was returnable to the Superior Court on January 3, 2017, was initiated.
Between the date of the bankruptcy discharge and the initiation of this action the defendant testified that he considered selling the property but chose not to do so. He continued to occupy the property with his wife and child. He testified that he made improvements to his home including improvements to the basement, attic, plumbing and electrical systems and that he expended approximately $ 100, 000 to improve the property. He testified that he would not have done all of this work and continue to pay down the first mortgage if he knew the property was further encumbered by the plaintiff’s mortgage. He also paid off another encumbrance on the subject property in the approximate amount of $ 50, 000. He testified that he would not have put this money into the house, paid off the mortgage and made the improvements had he known that the plaintiff was going to claim an equitable mortgage on the property.
His testimony with regard to the improvements was noteworthy for its lack of detail. The defendant offered no receipts for expenses, no pictures of improvements, no contracts with suppliers or contractors and very little in the way of specifics about the improvements that were done. While the court does find that the plaintiff paid off the $ 50, 000 encumbrance and continued to live at the property and paid down the first mortgage, the lack of specificity causes the court to have some doubt as to the extent, timing and significance of the improvements made by the defendant.
There is an additional and significant procedural oddity which impacts the resolution of this case. At the time this action was instituted the defendant was the sole title holder of the property though Diana was an occupant of the property. The plaintiff initiated this action against the defendant only. On October 5, 2018 Diana, represented by counsel, filed a motion to be made a party defendant asserting that she is an interested person. She asserted in that motion that she and the defendant were married at the time of the alleged mortgage transaction and that a judgment dissolving the marriage and incorporating the terms of a settlement agreement had been entered in Superior Court at Stamford on February 15, 2018. The motion further asserted that Section 6 of the settlement agreement required the defendant to quitclaim his interest in the property to her. The motion states the movant (Diana) is the owner of the subject premises and that she has an interest in the controversy adverse to the plaintiff. The motion further asserts that she is a necessary party for a full and complete determination of the issues involved in the present action. Because the trial was scheduled for April 17, 2018 Diana also sought a continuance of that trial. Of course these assertions are consistent with the quitclaim deed that was introduced pursuant to the stipulation of the parties and the stipulation that the defendant is no longer the owner of the premises. According to the evidence Diana was grantee under the quit claim deed dated April 7, 2018 and recorded May 1, 2018 in the Norwalk land records. Notably, the plaintiff filed an objection to Diana’s request to be added as a party defendant and a memorandum of law in support of that objection. On October 10, 2018 prior to a court decision on Diana’s motion or the plaintiff’s objection, Diana withdrew her motion to be added as a party defendant.
III. DISCUSSION
The plaintiff seeks a declaration that it is entitled to an equitable mortgage on the property as of August 20, 2007.
The concept of an equitable mortgage has been recognized in Connecticut since at least 1882. In Hall v. Hall, 50 Conn. 104, the Supreme Court of Errors recognized the maxim that "equity looks upon that as done which ought to have been done." Id. At 111. "All agreements are considered as performed, which were made for a valuable consideration, in favor of persons entitled to insist on their performance. They are considered as done at the time when, according to the tenor thereof, they ought to have been performed." Id. (Internal quotations and citations omitted.) In Hall the Supreme Court recognized these maxims and consistent therewith required the Superior Court to pass a decree declaring the subject real estate to be encumbered by a mortgage that the parties to a transaction intended notwithstanding the failure to execute such a document.
Other Connecticut courts have recognized this concept as have had various legal treatises.
In determining whether an equitable mortgage exists, a court must find: (1) the existence of a definite debt, obligation or other liability to be secured by the property in question; (2) that the mortgagor had the legal power (i.e. legal title to the property) to execute a mortgage on the property; and (3) that the parties intended at the time of the transaction to create a mortgage, lien or a charge on property specifically described or identified to secure an obligation.JP Morgan Chase Bank, National Association v. Tak Wah Kan, 2015 WL 1086880 quoting 59 C.J.S. § 47-53, Mortgages sections 32-39 (2009).
The evidence in this case is more than adequate to demonstrate the essential elements necessary for an equitable mortgage. The promissory note sets up a definite debt. The defendant was the title holder of the property legally empowered to execute a mortgage on the property. And the documentation surrounding the loan transaction clearly evidences an intent to have the debt secured by a mortgage or security interest encumbering the subject property. Not only does the promissory note in multiple locations clearly indicate that it is to be secured by a mortgage but the associated transaction documents, including the title agreement, the HUD settlement form and the notice of the right to rescind, all clearly set forth an intention of the parties that the debt be secured by a mortgage on the subject property.
The evidence is not sufficient to persuade the court that a mortgage deed was actually executed. Indeed there is little or no evidence indicating that the deed was executed. But the execution of the deed is not an essential element of an equitable mortgage. The intent to create a mortgage combined with the definitiveness of the debt and the ability of the defendant to execute such mortgage are the critical components.
The court finds that the plaintiff has sustained its burden of proof to support a declaration that an equitable mortgage exists based on all three counts of the complaint.
The more difficult question to answer is whether or not the defendant can prevail on his claim of laches.
At the outset the plaintiff argues that the defendant by virtue of the fact that he is no longer an owner of the property has no standing to raise the special defense of laches.
The court is troubled to some extent by the fact that this position would appear to be inconsistent with the position that the plaintiff took in objecting to Diana’s motion to intervene. In arguing that Diana should not be allowed to intervene, the plaintiff stated that Diana’s interest would be adequately represented by the defendant and her addition as a party is unnecessary. Of course such a statement is inconsistent with the plaintiff’s present position that the defendant has no standing to raise the issue of laches, since if correct, his lack of standing would deprive him of the right to adequately represent Diana’s interest. It would seem that the better practice in seeking the declaration and equitable orders that the plaintiff now seeks would be to have all interested parties present in the action.
When the issue of standing is raised, it is the party who needs to demonstrate his standing that bears the burden of proof. In this regard the defendant has failed to demonstrate that he has the standing to raise the issue of laches as an equitable defense. The quitclaim deed and stipulation clearly demonstrate that the defendant no longer has an interest in the subject property. A party who conveys or loses his interest in real property often loses his interest in litigation affecting that property. See e.g. Town of Southbury v. American Builders, Inc., 162 Conn. 633 (1972). This concept was recently affirmed in the case of Heinonen v. Gupton, 173 Conn.App. 54 (2017). In Heinonen the plaintiff who had conveyed a property to a trust for the benefit of his children subsequently sought to challenge a conveyance of the property to third parties on the grounds of fraud. The Superior Court dismissed the action which dismissal was affirmed by the Appellate Court noting that the trustee is the proper person to bring an action against anyone who wrongly interferes with the interest of a trust. The Heinonen court noted the longstanding principals that
Standing is established by showing that the party claiming it is authorized by statute to bring suit or is classically aggrieved ... The fundamental test for determining [classical] aggrievement encompasses a well settled twofold determination: first, the party claiming aggrievement must successfully demonstrate a specific personal and legal interest in the subject matter of the decision as distinguished from a general interest ... Second, the party claiming aggrievement must successfully establish that a specific personal and legal interest has been specifically and injuriously affected by the decision ... Aggrievement is established if there is a possibility, as distinguished from a certainty, that some legally protected interest ... has been adversely affected.Heinonen at 60, quoting Gold v. Rowland, 196 Conn. 186, 207 (2010). In the case at bar the defendant has not demonstrated any specific, personal or legal interest he currently holds in the subject matter. He has conveyed all of his interest, legal and personal, in the subject property by virtue of the quitclaim deed. He has been discharged with regard to any obligation for the debt beyond the property by virtue of the bankruptcy court orders. In short the defendant no longer has an interest in the property and has been discharged from the debt. If anyone has an interest in disputing the plaintiff’s claim that it has an equitable mortgage in the property it is not the defendant but Diana.
Standing is not a technical rule intended to keep aggrieved parties out of court; nor is it a test of substantive rights rather it is a practical concept designed to ensure that courts and parties are not vexed by suits brought to vindicate nonjusticiable interest and that judicial decisions which may affect the rights of others are forged in hot controversy with each view fairly and vigorously represented ...Heinonen at 60.
Practice Book § 17-56, regarding declaratory judgments, in subparagraph (d) states as follows:
Except as otherwise provided by law, no declaration shall be binding against any persons not joined as parties. If it appears to the court that the rights of nonparties will be prejudiced by its declaration, it shall order entry of a judgment in such form as to affect only the parties to the action.
Accordingly, while the defendant lacks standing to raise the issue of laches, the plaintiff cannot obtain a judgment that affects the rights of Diana and the court will not issue a declaration that will impact the rights of Diana. The claims or rights of the plaintiff vis-a-vis Diana, if there is a disagreement, will have to be decided on another day.
Neither party has asked the court to take judicial notice of the provisions of the divorce decree.
IV. CONCLUSION
For all the reasons set forth herein the court enters judgment in favor of the plaintiff and against the defendant as follows. The court declares that the plaintiff is entitled to an equitable mortgage on the property as of August 20, 2007 in accordance with the terms of the unexecuted mortgage introduced as Exhibit B (with the addition of a property description) encumbering the subject property to secure the amounts due under the August 20, 2007 promissory note. The mortgage will encumber any rights of the defendant as of August 20, 2017, will encumber any rights of any persons acquired subsequent to the date of the lis pendens, but which mortgage will not affect by virtue of this declaration and this judgment the rights of Diana Barrera. By excluding from the encumbrance ordered pursuant to this judgment any interference with the rights of Diana, the court does not hold or rule that the rights of Diana vis-a-vis the plaintiff cannot be affected by an equitable mortgage, or that her rights are not affected by the fact that the quitclaim deed was recorded after the recording of the plaintiff’s lis pendens, but simply that they are not affected by this judgment by virtue of the fact that she is not a party to the case and is not adequately represented by the defendant herein since the defendant lacks standing to present his defense.
The plaintiff may provide the court with a draft order for the court’s review consistent with this judgment suitable for recording in the Norwalk land records.