First Bank v. Simpson

• Decision Date: 15 April 1986
• Citation: 507 A.2d 997,199 Conn. 368
• Court: Connecticut Supreme Court
• Parties: FIRST BANK v. David A. SIMPSON et al.

Page 997

507 A.2d 997

199 Conn. 368

FIRST BANK v. David A. SIMPSON et al.

Supreme Court of Connecticut.

Argued Feb. 4, 1986.

Decided April 15, 1986.

Donn A. Swift, New Haven, for appellants (defendants).

David R. Sirois, New Haven, for appellee (plaintiff).

Before HEALEY, SHEA, DANNEHY, CALLAHAN and BARALL, JJ.

SHEA, Associate Justice.

The sole issue on this appeal is whether the holder of a second mortgage is barred from instituting an action on the underlying obligation where it did not pursue a deficiency judgment in a foreclosure action instituted by the first mortgagee. The plaintiff, First Bank, brought this action against the defendants, David A. Simpson, Helen D. Simpson, and D. Bruce Simpson, for collection of a promissory note that had been secured by five second mortgages. On cross motions for summary judgment, the trial court found in favor of the plaintiff. The defendants appealed to this court. We find no error.

On March 17, 1983, the defendants executed a promissory note in favor of the plaintiff in the amount of $73,100. As security for the note, the defendants gave the plaintiff second mortgages on each of five condominium units they owned in North Branford. On December 23, 1982, the first mortgagee of each of the five condominium units, Branford Savings Bank, instituted a series of foreclosure actions against the defendants. Branford Savings Bank joined First Bank, the second mortgagee, as a codefendant in each of the actions. Branford Savings Bank obtained a judgment of strict foreclosure and law days for redemption were established. Neither First Bank nor any of the other defendants exercised a right to redeem the property and title to the mortgaged premises became absolute in Branford Savings Bank. On September 16, 1983, First Bank instituted the present action.

Because none of the facts was in dispute, the plaintiff and the defendants filed motions for summary judgment. The defendants conceded that the note was genuine and admitted that they had declined to tender payment to the plaintiff after demand had been made. Nevertheless, the defendants claimed that they were entitled to judgment as a matter of law under General Statutes §§ 49-1 ¹ and 49-14, ² which, they argued, require that the judgment of strict foreclosure in favor of Branford Savings Bank operate as a bar to any further action on the debts owed to any party to the foreclosure proceedings. The trial court denied the defendants' motion for summary judgment and found in favor of the plaintiff. The defendants have appealed, claiming that the trial court erred in concluding that the provisions of General Statutes §§ 49-1 and 49-14 do not bar the plaintiff's action on the underlying note.

Under General Statutes § 49-1, a judgment of strict foreclosure extinguishes all rights of the foreclosing mortgagee on the underlying note, except those enforceable through the use of the deficiency judgment procedure delineated in General Statutes § 49-14. General Statutes § 49-14 provides, in relevant part, that "[a]t any time within thirty days after the time limited for redemption has expired, any party to a mortgage foreclosure may file a motion seeking a deficiency judgment." Public Acts 1979, No. 79-110. ³ Under the statute a hearing must be held on the motion where the court "shall hear the evidence, establish a valuation for the mortgaged property and shall render judgment for the plaintiff for the difference, if any, between such valuation and the plaintiff's claim." Practice Book § 528. Such a deficiency judgment, in light of § 49-1, is, therefore, the only available means of satisfying a mortgage debt when the security is inadequate to make the foreclosing plaintiff whole. Simsbury Bank & Trust Co. v. Ray Carlson Lumber Co., 154 Conn. 216, 219, 224 A.2d 544 (1966); see generally note, "Connecticut Mortgage Foreclosure: Deficiency Judgment and Problems of Subsequent Encumbrancers," 2 Conn.L.Rev. 413 (1969); note, "An Act Concerning the Foreclosure of Mortgages," 32 Conn.B.J. 200 (1958).

We agree with the defendants' interpretation of the statutes to the extent that § 49-1 would prohibit a foreclosing first-mortgagee, such as Branford Savings Bank, which had failed to avail itself of the deficiency judgment procedure of § 49-14, from instituting any further action against the defendants. We cannot, however, construe these statutes to have the same effect with reference to further action on the underlying obligation by a nonforeclosing second mortgagee, such as First Bank.

The defendants' argument is refuted by the express language of §§ 49-1 and 49-14. General Statutes § 49-1 provides that "the foreclosure of a mortgage is a bar to any further action upon the mortgage debt, note or obligation...." (Emphasis added.) We construe the term "mortgage debt" to refer to the mortgage of the plaintiff who initiated the foreclosure action. The defendants urge us, however, to interpret this provision as barring First Bank from bringing suit on its underlying obligation merely because it was joined as a party to the foreclosure proceedings. The judgment of strict foreclosure clearly vested absolute title in the foreclosing first mortgagee and extinguished any interest of the plaintiff in the foreclosed property. City Lumber Co. of Bridgeport, Inc. v. Murphy, 120 Conn. 16, 25, 179 A. 339 (1935). A note and the mortgage securing it are, however, separate instruments executed for different purposes. Little v. United Investors Corporation, 157 Conn. 44, 48, 245 A.2d 567 (1968). Although First Bank's interest in the property was extinguished by the judgment of foreclosure, it did not initiate the foreclosure proceedings, and, therefore, is not prevented from proceeding independently against the defendants on the underlying note. "[T]he provisions of § 49-1, by which a foreclosure is made to bar any further action on the note, clearly are applicable only to foreclosing plaintiffs and have no effect upon the debts of nonforeclosing subsequent encumbrancers." Caron, Connecticut Foreclosures (Sup.1984) p. 37.

In the hearing contemplated under § 49-14 to obtain a deficiency judgment, the court, after hearing the party's appraisers, determines the value of the property and calculates any deficiency. This deficiency judgment procedure presumes the amount of the debt as established by the foreclosure judgment and merely provides for a hearing on the value of the property. The terms of the statute provide that if a deficiency is established, the court shall render "judgment for the plaintiff" and that the "plaintiff in any further action upon the debt, note or obligation, shall recover only the amount of such judgment." (Emphasis added.) We must construe "plaintiff" to refer to the plaintiff in the foreclosure action, and not, as the defendants contend, to be merely a reference to "any party" seeking a deficiency judgment. "[General Statutes s] 49-14 is ... by its terms applicable only to claims by foreclosing plaintiffs." Caron, Connecticut Foreclosures (1981) p. 138. The deficiency judgment procedure of § 49-14 is, therefore, inapplicable to First Bank.

The defendants claim that by interpreting § 49-14 as inapplicable to nonforeclosing second mortgagees, undue prejudice can result to mortgagors in a situation where there is sufficient equity in the property to satisfy the second mortgage, as well as all prior encumbrances. They assert that had First Bank sought a deficiency judgment it would have enabled the defendants to realize a greater price on the subsequent sale of the property. The defendants misconstrue the nature of a strict foreclosure. A judgment of strict foreclosure vests absolute title in the foreclosing plaintiff, upon the failure of the other parties to redeem the property. When title becomes vested it is free and clear of all foreclosed interests and, therefore, the foreclosing plaintiff can sell the property completely for its own benefit. Any price received by the mortgagee is not subject to claims by parties whose interests had been foreclosed. Even if our statutes provided some sort of procedure for a nonforeclosing second mortgagee to seek a deficiency judgment within the same proceeding as the first mortgagee's foreclosure action, the deficiency would always be the entire amount of the second mortgage debt where title had become absolute in the first mortgagee as in this case. Such a procedure would not result in a "deficiency judgment" in the sense the legislature contemplated in § 49-14. Further, the right to redeem the property or to move for a foreclosure by sale under § 49-24 both provide protection to a mortgagor or subsequent encumbrancer who believes the property has sufficient value to satisfy claims beyond that of the foreclosing plaintiff.

The defendants find the primary support for their position in the provision of § 49-14 that "any party to a mortgage foreclosure may file a motion seeking a deficiency judgment." The defendant argues that in order to give meaning to the word "any," the deficiency judgment procedure must be available to parties other than the foreclosing plaintiff. An examination into the history of the statute discloses the origin of the term "any party." Prior to 1957, ⁴ a foreclosing mortgagee could recover the difference between the value of the foreclosed property and the debt either by seeking a deficiency judgment in the same proceeding under what is now § 49-14 or by a separate action on the mortgage debt, note or obligation against anyone who had been made a party to the foreclosure action. General Statutes (1949 Rev.) § 7191; General Statutes (1902 Rev.) § 4124; Bugg v. Guilford-Chester Water Co., 141 Conn. 179, 182, 104 A.2d 543 (1954); Cronin v. Gager-Crawford Co., 128 Conn. 688, 695, 25 A.2d 652 (1942); Atlas Realty Co. v. House, 120 Conn. 661, 670, 183 A. 9 (1936); Cion v. Schupack, 102 Conn. 644, 648, 129 A. 854 (1925); Acampora v. Warner, 91 Conn. 586, 588, 101 A....