Citibank, N.A. v. Lindland

• Decision Date: 17 September 2013
• Docket Number: No. 18885.,18885.
• Citation: 75 A.3d 651,310 Conn. 147
• Court: Connecticut Supreme Court
• Parties: CITIBANK, N.A., Trustee (SACO 2007–2) v. Debra LINDLAND, Executrix (Estate of Madlyn Landin), et al.

310 Conn. 147

75 A.3d 651

CITIBANK, N.A., Trustee (SACO 2007–2)

v.Debra LINDLAND, Executrix (Estate of Madlyn Landin), et al.

No. 18885.

Supreme Court of Connecticut.

Argued March 19, 2013.

Decided Sept. 17, 2013.

Barbara M. Schellenberg, with whom were David A. Ball and, on the brief, Philip C. Pires, for the appellants (defendants Robert Olsen and 17 Ridge Road, LLC).

Peter A. Ventre, Hartford, for the appellee (plaintiff).

ROGERS, C.J., and ZARELLA, EVELEIGH, McDONALD and ESPINOSA, Js. ^*

ZARELLA, J.

The principal issue in this certified appeal is whether the trial court had authority to open a judgment of foreclosure by sale and related supplemental judgments after title had passed to the purchaser when a series of errors by the court and the parties caused the purchaser to buy a property that, unbeknownst to him but actually known by the second mortgagee, was in fact subject to a first mortgage that was to be foreclosed shortly thereafter. The defendant Robert Olsen, the purchaser, and the defendant 17 Ridge Road, LLC, a limited liability company in which Olsen has a 50 percent ownership interest, both of whom the trial court permitted to join this action,¹ claim that the AppellateCourt incorrectly concluded that the trial court lacked authority to open the judgments under the unique circumstances of the case. The plaintiff, Citibank, N.A., as trustee of SACO 2007–2, maintains that the Appellate Court correctly concluded that the trial court lacked authority to open the judgment of foreclosure and the supplemental judgments because title had vested in the purchaser. We reverse in part the judgment of the Appellate Court.

The record discloses the following facts and procedural history relevant to our resolution of the present appeal. The plaintiff, the mortgagee of the property at 17 Ridge Road in the town of Cromwell, initiated a foreclosure action against the named defendant, Debra Lindland, executrix of the estate of Madlyn Landin (estate), on May 5, 2008. In its complaint, the plaintiff alleged that the estate had defaulted on a mortgage loan secured by the subject property and disclosed that certain encumbrances, including a mortgage held by IndyMac Federal Bank, FSB (IndyMac), were prior in right to the plaintiff's mortgage. IndyMac, which was represented by the same counsel as the plaintiff, pursued a separate foreclosure action on its mortgage.

On July 10, 2008, the plaintiff filed a motion for judgment of strict foreclosure, along with a foreclosure worksheet in support of the motion. The plaintiff's foreclosure worksheet contained a significant computational error in that it represented that there was negative equity of $12,815.46. The actual amount of negative equity was, in fact, $72,815.46, a difference of $60,000.² Despite this error, the foreclosure worksheet accurately disclosed that (1) the property had a fair market value of $305,000, (2) encumbrances on the property ahead of the plaintiff's lien totaled $295,200, and (3) the debt arising out of the plaintiff's second mortgage was $82,615.46.

On August 4, 2008, the plaintiff's motion for judgment of strict foreclosure appeared on the short calendar. Citing a fair market value of $305,000 and an updated debt of $82,615.46, the trial court, Holzberg, J., determined that there was substantial equity in the property and rendered judgment of foreclosure by sale. The court failed to recognize the existence of the IndyMac priority debt of $295,200. The plaintiff's counsel, who also represented IndyMac with respect to its prior mortgage, failed to bring this error to the court's attention.

The court scheduled a foreclosure sale for October 4, 2008. John J. Carta, Jr., an attorney, was appointed as the committee for sale. In the course of his appointment, Carta posted a sign outside of the property, arranged for newspaper advertisements announcing the foreclosure sale, and prepared a notice to bidders to be read at the foreclosure sale. Although the notice to bidders purported to disclose the “encumbrances and restrictions ... prior in right to the mortgage being foreclosed,” it listed only outstanding taxes that might be owed to the town of Cromwell because Carta, relying on the court's foreclosure orders, had concluded that the mortgage subject to the foreclosure sale was a first mortgage. The posted sign, newspaper advertisement, and notice to bidders thus made no reference to the IndyMac mortgage. Carta later testified that, if he had known that the property was subject to a prior mortgage, he would have disclosed this information in the notice to bidders.

Prior to the sale, Olsen contacted his attorney, Stephen Small, to inquire about the property. Small, in turn, contacted Carta for additional information. On the basis of his discussion with Carta, Small reported to Olsen that the mortgage being foreclosed was a first mortgage. Small did not perform a title search or inspect the court file, land, or probate court records.

With a bid of $216,000, Olsen was the successful bidder at the foreclosure sale on October 4, 2008, and delivered a deposit of $30,500. Carta prepared a bond for deed, executed by Olsen, which disclosed that taxes owed to the town of Cromwell were prior in right to the plaintiff's mortgage. The bond for deed, however, failed to disclose the existence of the prior IndyMac mortgage. The trial court, Jones, J., approved the sale on December 10, 2008.

On December 22, 2008, in the separate foreclosure action brought by IndyMac relating to IndyMac's first mortgage on the property, a judgment of strict foreclosure was rendered. Law days were set for March 23, 2009, and subsequent days. Nevertheless, the plaintiff's counsel, who concurrently represented IndyMac and the plaintiff in their respective foreclosure actions involving the same property, did not bring this development to the attention of the court, the committee, or Olsen or his attorney.

Meanwhile, Small prepared for the closing by performing a title search, which revealed the existence of the IndyMac mortgage and lis pendens. Small did not contact the parties or the court to clarify this situation, or request that the sale be set aside or postponed. Instead, Small reviewed an entry on the Judicial Branch website, which, due to a clerical error, incorrectly reported that the IndyMac mortgage had been satisfied. Small did not review the official court or land records, which would have revealed that the online entry was incorrect. Small thereafter issued a title insurance policy to Olsen that failed to except the IndyMac mortgage.

The closing took place on January 21, 2009. Olsen testified that he relied on Small's assurances of title in closing the sale. Olsen tendered the balance of the purchase price to Carta, who delivered the committee deed to Olsen. Olsen immediately transferred his interest in the property to 17 Ridge Road, LLC, by quitclaim deed.

Following the closing, on February 2, 2009, the plaintiff filed a motion for determination of priorities and for supplemental judgment. In support of the motion, the plaintiff submitted an affidavit of debt, which incorrectly represented that the plaintiff was “the holder and owner of the first mortgage ” on the property, even though the plaintiff's counsel also represented IndyMac, the actual holder of the first mortgage, and therefore knew that IndyMac had obtained a judgment of strict foreclosure on December 22, 2008. (Emphasis added.) Thereafter, on February 26, 2009, the trial court ordered a disbursement of $91,854.27, which was paid to the plaintiff. ³ The estate filed a similar motion several weeks later, which the court granted. Disbursement was stayed on April 14, 2009, and the court continues to hold the balance of the proceeds.

In the weeks following the closing, the defendants cleaned and restored the property, and paid the outstanding municipal taxes. On April 12, 2009, however, Olsen attempted to enter the property but discovered that a lock box had been installed, which prevented his access. Shortly thereafter, Olsen learned that IndyMac had a prior mortgage on the property and had obtained a judgment of strict foreclosure in December, 2008, several weeks before the closing took place. Consequently, 17 Ridge Road, LLC's interest in the property, for which Olsen had paid $216,000, had been foreclosed.

In response, the defendants filed separate motions to be joined as parties in the present case, which the court, M. Taylor, J., granted. On April 23, 2009, Olsen filed a motion to open and to vacate the judgment of foreclosure by sale and the supplemental judgments (motion to open) that had allocated his purchase moneys between the plaintiff and the estate. Counsel for 17 Ridge Road, LLC, indicated to the trial court that it was joining Olsen's motion to open.

The trial court conducted an evidentiary hearing on the motion to open before issuing a memorandum of decision on August 5, 2010. Among those testifying was the plaintiff's expert witness, Dennis Anderson, an attorney with significant real estate and foreclosure experience, who opined that Small's representation of Olsen fell below the standard of care. Anderson acknowledged, however, that the plaintiff could not reasonably have expected to receive $91,854.27 in proceeds from the foreclosure sale and that such amount effectively constituted a windfall.

In its memorandum of decision, the court, Holzberg, J., concluded that “the combination of Olsen's $216,000 loss and the undeserved windfall of approximately $100,000 each to the plaintiff and the ... estate require equity to intervene,” and therefore granted the motion to open. The trial court underscored the sui generis nature of this case, describing the “series of cascading mistakes” involved and predicting that such a “calamity” would never be repeated. With respect to the conduct of the plaintiff's counsel, which it found “highly relevant to the disposition of this matter,” the...