Opinion
No. CV 09 5030750 S
February 7, 2011
MEMORANDUM OF DECISION
FACTS
On July 27, 2009, J.P. Morgan Chase Bank, N.A. (Chase), filed a two-count complaint to begin foreclosure proceedings against the defendants, State Rock Property, LLC (State Rock) and Joseph Jacob (Jacob). On January 5, 2010, North Properties (North) filed a motion to substitute itself as plaintiff in the place of Chase. The order was granted on January 25, 2010. North filed a substitute complaint on March 24, 2010, and a motion for a judgment of strict foreclosure on April 30, 2010.
In its substituted complaint, North alleges that the defendant, State Rock, originally executed a promissory note and mortgage in favor of Washington Mutual Bank, payment of which was guaranteed by a personal guaranty from Jacob. The plaintiff further alleges that the original plaintiff in this action, Chase, acquired the note and mortgage held by Washington Mutual Bank from the Federal Deposit Insurance Corporation; Chase subsequently assigned its rights to North. The plaintiff alleges that State Rock defaulted on the promissory note.
After the operative complaint had been filed, North assigned its rights to Migdal, LLC (Migdal), but retained the right to pursue Jacob, as guarantor. On June 16, 2010, Migdal filed a motion to substitute itself as a party to the action and a memorandum of law in support thereof. On June 18, 2010, Migdal filed a motion for a judgment of strict foreclosure against State Rock. On June 21, 2010, Migdal filed a supplemental motion, in conjunction with North, to substitute itself as a party to the action. The motion to substitute was granted on June 29, 2010, thereby making Migdal a co-plaintiff in this action. Also, after the operative complaint was filed, North settled its claim against Jacob for the sum of $25,000. On October 14, 2010, North withdrew its guaranty claim against Jacob. North's only interest in the case pertained to its claim against Jacob; therefore, by withdrawing the claim against Jacob, North no longer has a legal interest in the case. The only remaining parties to the strict foreclosure action are the plaintiff, Migdal, and the defendant, State Rock. On October 29, 2010, both parties submitted post-trial briefs arguing the amount of the defendant's liability on the note and mortgage. This court heard oral argument on this matter at a posttrial hearing in damages on October 15, 2010.
In their posttrial briefs and at oral argument, both parties agree that the amount due pursuant to the promissory note is $562,278.42, that the plaintiff paid $310,000 for an assignment of the promissory note, and that attorneys fees in the amount of $3,000 are due to the plaintiff.
DISCUSSION
When the plaintiff purchased the assignment from North, North retained the right to pursue the guarantor. From a practical standpoint, a guarantor's liability on a promissory note only becomes recoverable upon a deficiency judgment being entered. See TD Bank, NA. v. Northern Expansion, Superior Court, judicial district of Waterbury, Docket No. CV 09 6001534 (November 22, 2010, Matasavage, J.) (discussing a plaintiff seeking enforcement of a guaranty agreement in multiple counts and a single count). Therefore, a guarantor's liability is established by subtracting the amount of the proceeds from the sale of the property from the value of the promissory note. See Federal Deposit Ins. Corp. v. Fonte, 48 Conn.App. 531, 542-43, 712 A.2d 416, cert. denied, 245 Conn. 908, 718 A.2d 14 (1998).
The defendant argues that North's settlement with the guarantor in the amount of $25,000 reduces the amount due under the promissory note by $252,278.42, the difference between the total amount due under the note and the mortgage, and the amount that Migdal paid to North for the assignment, $310,000. The defendant argues that because North retained the ultimate right to recover any deficiency judgment, and because the deficiency would have been equal to the difference between the outstanding balance due and the amount paid by the plaintiff for the assignment of the note and mortgage without the guarantee, the plaintiff lost the right to collect anything beyond the amount that it paid to North.
A foreclosure judgment establishes the value of the promissory note to determine the amount the defaulting mortgagor must pay to redeem the property. Bank of Boston Connecticut v. Moniz, CT Page 4429 47 Conn.App. 234, 242 n. 6, 702 A.2d 655 (1997), appeal dismissed, 247 Conn. 394, 720 A.2d 1111 (1998) ("deficiency judgment procedure presumes the amount of the debt as established by the foreclosure judgment"). "A deficiency judgment proceeding is not a separate statutory cause of action, but [is] a statutory procedure that is part of, and complementary to, the traditional and equitable common law action of strict foreclosure." (Internal quotation marks omitted.) Ferrigno v. Cromwell Development Associates, 44 Conn.App. 439, 444, 689 A.2d 1150 (1997), rev'd on other grounds, 93 Conn.App. 799, 892 A.2d 291 (2006). "A deficiency judgment provides a means for a mortgagee to recover any balance due on the mortgage note that was not satisfied by the foreclosure judgment." Bank of Boston Connecticut v. Moniz, supra, 47 Conn.App. 242 n. 6.
At this stage of the proceedings, the court must determine the amount due under the note and mortgage, not the amount of any deficiency. The defendant's argument to reduce the amount due under the note and mortgage by $252,278.42 would have the court value the note and mortgage at $310,000. The defendant presumes that there will be a deficiency in the amount of $252,278.42 for which the guarantor would be liable, which is both premature and incorrect. Based on this presumption, the defendant asks the court to reduce the amount due under the note and mortgage by the amount of this presumed deficiency. This argument asks the court to rely on deficiency judgment principles to determine the value of the note and mortgage. Such principles, however, are not appropriate for determining the value of a note and mortgage. Therefore, the defendant's argument that the court should value the note and mortgage at $310,000 is without merit.
The defendant argues, in the alternative, that the amount due under the note and mortgage should be reduced by the $25,000 settlement amount paid by the guarantor to North. The defendant argues that this court should rely on equitable principles to reduce the amount due on the note and mortgage to prevent the defendant and the guarantor, as a collective, from paying an amount greater than the total value of note and mortgage. Courts may not allow the mortgagee to collect more than the full amount of the debt from the mortgagor and the guarantor. See Connecticut Bank Trust v. Boston Post Ltd., Superior Court, judicial district of New London, Docket No. CV 515294 (December 12, 1990, Leuba, J.).
The defendant's argument for a $25,000 reduction in the amount due on the promissory note is not based on deficiency judgment principles; rather, it is based on equitable principles. The defendant argues that failing to reduce the amount due on the debt would result in the plaintiff and North receiving $25,000 more than the amount allowed by the terms of the assignment. The plaintiff concedes this argument in its posttrial brief. Therefore, the amount due under the note and mortgage is reduced by $25,000.
CONCLUSION
The court determines the value of the promissory note to be $562,278.42. Based on equitable considerations, the court credits the defendant with the $25,000 paid by the guarantor against the value of the note, thereby making the total amount due $540,278.42, which includes $3,000 in attorneys fees.