New England Sav. Bank v. Lopez

• Decision Date: 24 August 1993
• Docket Number: No. 14558,14558
• Citation: 630 A.2d 1010,227 Conn. 270
• Court: Connecticut Supreme Court
• Parties: NEW ENGLAND SAVINGS BANK v. Mark LOPEZ et al.

Page 1010

630 A.2d 1010

227 Conn. 270

NEW ENGLAND SAVINGS BANK v. Mark LOPEZ et al.

No. 14558.

Supreme Court of Connecticut.

Argued Jan. 13, 1993.

Decided Aug. 24, 1993.

Raymond L. Baribeault, Jr., with whom was Andrew J. Brand, New London, for the appellants (named defendant et al.).

Jeffrey R. Godley, Norwich, with whom were Doreen A. West, Uncasville, and, on the brief, Jackson T. King, Jr., Norwich, for the appellee (plaintiff).

Before PETERS, C.J., and CALLAHAN, BORDEN, BERDON, NORCOTT, KATZ and FRANCIS X. HENNESSY, JJ. ¹

BORDEN, Associate Justice.

The principal issue of this appeal is whether General Statutes § 49-28, ² which establishes the procedures governing deficiency judgments following foreclosures by sale, is unconstitutional under the due process clause of the United States constitution because it does not provide an evidentiary hearing to determine the fair market value of the foreclosed property for purposes of calculating the amount of the deficiency. The defendants, Mark Lopez and Pauline J. Henson, ³ appeal ⁴ from the judgment of the trial court ordering a deficiency. They claim that following the foreclosure sale, the trial court, Koletsky, J., improperly failed: (1) to grant their request for an evidentiary hearing to establish the fair market value of the mortgaged property, which deprived them of due process of law, and of their rights under the statutes and the Practice Book; (2) to apply the equitable doctrine of appropriation so as to preclude a deficiency judgment; and (3) to exercise its discretion to set aside the foreclosure by sale and order a strict foreclosure in order to provide the defendants with a hearing on the fair market value of the property. We affirm the judgment of the trial court.

The facts are undisputed. In order to secure a promissory note in the amount of $350,000, the defendants executed a mortgage to the plaintiff, New England Savings Bank, on unimproved property located in Groton. Following the defendants' default on the note, the plaintiff brought this foreclosure action in April, 1991.

The plaintiff moved for a judgment of strict foreclosure, and the defendant Stephen B. Watrous Builder, Inc., a subsequent encumbrancer, and the defendant Melanie Watrous, to whom the property had been transferred (Watrous), moved for a judgment of foreclosure by sale. At the hearing on these motions on August 12, 1991, the plaintiff's appraiser, Christopher S. Buckley, testified that the value of the property was $274,000, and the Watrous' appraiser, F. Jerome Silverstein, testified that the value was $563,000. The trial court, Teller, J., found the value to be $490,000, found the amount of the debt to be $385,157.59, and granted Watrous' motion for a judgment of foreclosure by sale. Pursuant to General Statutes (Rev. to 1991) § 49-25, ⁵ the trial court appointed three appraisers to appraise the property. ⁶

The plaintiff was the only bidder at the foreclosure sale. Subject to the approval of the sale by the court, the plaintiff purchased the property for $260,000, free and clear of all liens except for a tax lien to the town of Groton in the amount of approximately $23,000. Thereafter, the defendants moved to set aside the sale and for a judgment of strict foreclosure. The trial court, Koletsky, J., denied these motions and approved the sale.

The plaintiff thereafter moved for a deficiency judgment pursuant to General Statutes § 49-28. The defendants objected to the motion claiming that the value of the property was $490,000, as previously found by Judge Teller, which was more than the amount of the debt. The defendants, relying on Practice Book § 528, ⁷ also requested an evidentiary hearing regarding the fair market value of the property. The trial court, Koletsky, J., denied the defendants' request for such a hearing, and rendered a deficiency judgment against the defendants, based on the difference between the amount of the debt and the sale proceeds, in the amount of $155,905.30. This appeal followed.

I

A

The defendants first claim that General Statutes § 49-28, as applied by the trial court in this case, is unconstitutional under the due process clause of the fourteenth amendment to the United States constitution. ⁸ Specifically, they argue that "the calculation of a deficiency in a foreclosure by sale by merely subtracting the sales price from the debt ... without providing a hearing to establish the actual value of the property sold ... is unconstitutional because it does not provide the mortgagor, who does not request a foreclosure sale, with any meaningful hearing during which he can give testimony or present evidence ... as to the true fair market value of the property sold at the forced sale." (Emphasis added.) We disagree.

The defendants' claim is one of procedural due process: the right to a meaningful hearing at a meaningful time. The essential premise of their claim, however, is that they have a protected substantive due process interest in the "fair market value" of the property sold. This must be the premise of the defendants' argument; otherwise, there would be no reason to determine the fair market value of the property at the hearing that the defendants seek. On the basis of this premise, they argue that in the calculation of a deficiency judgment following a foreclosure by sale, they are entitled to a credit of the "fair market value" of the property sold. Put another way, their argument rests on the premise that, as a matter of constitutional law, a deficiency judgment must be calculated, not by subtracting the amount of the sale proceeds from the amount of the debt, but by subtracting the fair market value of the property from the amount of the debt. Their premise is unsound.

The defendants do not dispute, and we agree, that an entitlement to procedural due process requires an underlying substantive entitlement or protected property interest. See, e.g., Mathews v. Eldridge, 424 U.S. 319, 332, 96 S.Ct. 893, 901, 47 L.Ed.2d 18 (1976). We also agree, as a general matter, that the defendants have a protected property interest in the proper measurement of any deficiency judgment that may be rendered against them. We disagree with the defendants, however, that this interest must be measured by the fair market value of the property foreclosed.

The substantive due process entitlement that the defendants claim, namely, an interest in the fair market value of the property, must have a basis in some source of state law. See, e.g., Brady v. Colchester, 863 F.2d 205, 211-12 (2d Cir.1988) (to determine whether an interest rises to the level of a right protected by the fourteenth amendment, courts must look to " 'existing rules or understandings that stem from an independent source such as state law--rules or understandings that secure certain benefits and that support claims of entitlement to those benefits' "); Fusco v. Connecticut, 815 F.2d 201, 205-206 (2d Cir.1987) ("The opportunity [under Connecticut's zoning statute] grant[ing] abutting landowners and aggrieved persons to appeal decisions of planning and zoning commissions and zoning boards of appeal is purely procedural and does not give rise to an independent interest protected by the fourteenth amendment.").

We can find no basis, however, in our state law or understandings regarding foreclosure by sale for the proposition that a debtor is legally entitled to a credit for the fair market value of the property sold. A debtor's legal entitlement is, instead, to a credit for the amount of the sale proceeds. "While an evidentiary hearing is required to determine the value of the mortgaged property and thus the amount of any deficiency following a strict foreclosure, such a valuation would be superfluous following a foreclosure by sale. In the latter action the price realized upon the sale of the property fixes the amount for which a deficiency may be entered pursuant to General Statutes § 49-28. Fairfield Plumbing & Heating Supply Corporation v. Kosa, 220 Conn. 643, 646 n. 8, 600 A.2d 1 (1991); see also Cronin v. Gager-Crawford Co., 128 Conn. 688, 692-93, 25 A.2d 652 (1942); D. Caron, Connecticut Foreclosures (2d Ed.1989) § 9.05B, p. 161." (Internal quotation marks omitted.) Baybank Connecticut, N.A. v. Thumlert, 222 Conn. 784, 788-89, 610 A.2d 658 (1992). The deficiency is determined by subtracting the sale proceeds from the amount of the debt. Id., at 786, 610 A.2d 658; Cronin v. Gager-Crawford Co., supra, 128 Conn. at 692, 25 A.2d 652.

Furthermore, General Statutes § 49-14(a), ⁹ which does provide for an evidentiary hearing to determine the fair market value of property under foreclosure, "applies only to deficiency judgments in strict foreclosure actions." Fairfield Plumbing & Heating Supply Corporation v. Kosa, supra, 220 Conn. at 646 n. 8, 600 A.2d 1. ¹⁰ Nor does the appraisal procedure provided by § 49-25 supply a basis for the defendants' premise that they are entitled to a credit of the property's fair market value, as opposed to the foreclosure sale proceeds, for purposes of determining a deficiency judgment. ¹¹ That procedure performs two different functions: (1) it gives the trial court guidance on the subsequent question of whether to approve the sale; and (2) it provides the basis for the reduction in the amount of a deficiency judgment permitted to the party who moved for the foreclosure by sale, required under § 49-28. ¹² Cronin v. Gager-Crawford Co., supra, 128 Conn. at 692, 25 A.2d 652.

Indeed, the usual notion of fair market value is inconsistent with the notion of a foreclosure sale. "[F]air market value is generally said to be the value that would be fixed in fair negotiations between a desirous buyer and a willing seller, neither under any undue compulsion to make a deal." (Internal quotation marks omitted.) Uniroyal, Inc. v. Board of Tax Review, 174 Conn. 380, 390, 389 A.2d 734 (1978); New Haven Savings Bank v. West Haven Sound Development, 190 Conn....