Ocwen Loan Servicing, LLC v. Sheldon

• Decision Date: 05 October 2021
• Docket Number: AC 43704
• Citation: 264 A.3d 106,208 Conn.App. 132
• Parties: OCWEN LOAN SERVICING, LLC v. Sandra A. SHELDON et al.
• Court: Connecticut Court of Appeals

208 Conn.App. 132

264 A.3d 106

OCWEN LOAN SERVICING, LLC

v.Sandra A. SHELDON et al.

AC 43704

Appellate Court of Connecticut.

Argued February 10, 2021

Officially released October 5, 2021

Jordan W. Schur, Westport, for the appellant (substitute plaintiff).

Bright, C.J., and Alexander and Suarez, Js.

ALEXANDER, J.

In this foreclosure action, the substitute plaintiff, PHH Mortgage Corporation, appeals from the judgment of the trial court rendered in favor of the defendants, Sandra A. Sheldon and James J. Sheldon. On appeal, the substitute plaintiff claims that, in concluding that the defendants prevailed on their special defense of unclean hands, the court (1) made a clearly erroneous factual finding that a predecessor of the substitute plaintiff failed to "restore" the defendants’ credit following its own error, and (2) improperly determined that the balancing of the equities prevented foreclosure. We disagree and, accordingly, affirm the judgment of the trial court.

The following facts, as found by the trial court, and procedural history are relevant. On September 24, 2007, the defendants signed a promissory note in which they promised to pay $182,000, plus interest, to GMAC Mortgage, LLC (GMAC). The note was secured by a mortgage to Mortgage Electronic Registration Systems, Inc. (MERS),¹ as nominee for GMAC. Part of the property that is the subject of the mortgage and this foreclosure action is located in Killingly (Killingly property). The other portion of the property is located in Foster, Rhode Island. Only a foreclosure on the Killingly property was sought in the present case.

Shortly after the note was executed, the defendants accepted GMAC's offer of a " ‘bisaver program’ " wherein payments would be made on the loan every two weeks by direct withdrawal from Sandra Sheldon's checking account. In or about August, 2008, for reasons that remain unexplained, GMAC ceased withdrawing the biweekly payments as the defendants had authorized it to do. The substitute plaintiff and GMAC admitted that the nonpayment of the loan was GMAC's fault. The court determined that there was no evidence that, had GMAC continued to withdraw the authorized biweekly payments, there would have been any interruption in the defendants’ payments. Although the missed payments were a result of GMAC's failure to withdraw those payments, GMAC, nevertheless, reported the absence of the payments to several credit reporting agencies. The court found that, as a result, the defendants’ credit was "damaged quickly" and eventually was "destroyed." Soon after GMAC stopped withdrawing the payments and began reporting the resultant missed payments as a default on the part of the defendants, James Sheldon's credit cards were cancelled. Because James Sheldon needed at least one open credit card account for travel related expenses in order to fulfill the duties of his employment in multistate construction management, he could not continue such work, and his income dropped dramatically.

The defendants filed complaints with the Rhode Island Department of Business Regulation, Division of Banking (department) in 2008 and 2009. An officer with the department told GMAC that it " ‘screwed up and you gotta fix it.’ " Bryan Duggan, a GMAC representative, acknowledged GMAC's error in failing to withdraw the loan payments, but GMAC continued to send regular reports to credit reporting agencies that the defendants were in default. On July 14, 2009, an oral agreement was reached between the defendants and GMAC, wherein the defendants agreed to bring the loan current and make three additional regular monthly payments, and GMAC agreed to restore the defendants’ credit. The defendants satisfied the October, 2008 through July, 2009 loan payments in July, 2009, and made three additional mortgage payments, with the last one being in December, 2009. James Sheldon testified that, because the defendants did not believe that GMAC had performed its obligation to restore their credit, they made no additional mortgage payments thereafter. As a result of the defendants’ refusal to make additional mortgage payments, GMAC resumed reporting to credit agencies by early 2010, that the defendants were delinquent in their mortgage payments.

On August 20, 2010, GMAC assigned the mortgage to Ocwen Loan Services, LLC (Ocwen). Although James Sheldon explained the situation to Ocwen, it refused to do anything to restore the defendants’ credit or to take into account the effect that GMAC's errors had on the defendants’ credit and income. Ocwen continued to send reports of the defendants’ nonpayment of the mortgage to credit reporting agencies. At least one credit reporting agency reported the defendants as having no credit rating at all, which fact prevented them from obtaining a Veterans Administration refinancing loan.

In 2017, Ocwen commenced this foreclosure action against the defendants.² In its amended complaint, Ocwen alleged that the defendants had defaulted on their mortgage payment due on November 1, 2009, and every month thereafter. Ocwen alleged that, as a result, it had elected to accelerate the balance due on the note and to foreclose on the mortgage on the Killingly property. The defendants, who were self-represented throughout the proceedings in the trial court, filed an answer and asserted special defenses, including unclean hands.³ Ocwen assigned the note and mortgage to the substitute plaintiff and filed a motion to substitute PHH Mortgage Corporation as the plaintiff, which was granted by the court.⁴

Following trial, the court issued a memorandum of decision on October 18, 2019, in which it concluded that the defendants had satisfied their burden of proof of their special defense of unclean hands. The court credited James Sheldon's testimony. It determined that the defendants’ original default was GMAC's fault due to its failure to take biweekly mortgage payments and that GMAC reported, without justification, these nonpayments to credit reporting agencies as the defendants’ fault. The court further found that GMAC failed to restore the defendants’ credit, thereby causing the defendants’ credit to be destroyed, and rendering James Sheldon unable to continue his career in multistate construction management.

In balancing the equities, the court found for the defendants on the issue of liability and concluded that the substitute plaintiff's legal title to the property was unenforceable. It found that the defendants had equitable title subject to legal title being quieted in them by agreement or by a separate action. This appeal followed. ⁵

Following the filing of the present appeal, the substitute plaintiff filed a motion for articulation, which the trial court granted. Additional facts will be set forth as necessary.

Because the substitute plaintiff's claims on appeal center on the unclean hands doctrine, we note at the outset the following relevant legal principles. "Our jurisprudence has recognized that those seeking equitable redress in our courts must come with clean hands. The doctrine of unclean hands expresses the principle that where a plaintiff seeks equitable relief, he must show that his conduct has been fair, equitable and honest as to the particular controversy in issue. ... For a complainant to show that he is entitled to the benefit of equity he must establish that he comes into court with clean hands. ... The clean hands doctrine is applied not for the protection of the parties but for the protection of the court. ... It is applied ... for the advancement of right and justice. ... The party seeking to invoke the clean hands doctrine to bar equitable relief must show that his opponent engaged in wilful misconduct with regard to the matter in litigation. ... The trial court enjoys broad discretion in determining whether the promotion of public policy and the preservation of the courts’ integrity dictate that the clean hands doctrine be invoked." (Internal quotation marks omitted.) Monetary Funding Group, Inc. v. Pluchino , 87 Conn. App. 401, 407, 867 A.2d 841 (2005).

I

The substitute plaintiff first claims that the court's finding that GMAC did not restore the defendants’ credit is clearly erroneous. It argues that the defendants "presented no credible evidence that [the] credit reporting was not corrected as agreed." (Emphasis in original.) We are not persuaded.

"[W]hen reviewing findings of fact, we defer to the trial court's determination unless it is clearly erroneous. ... A finding of fact is clearly erroneous when there is no evidence in the record to support it ... or when although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed. ... Under the clearly erroneous standard of review, a finding of fact must stand if, on the basis of the evidence before the court and the reasonable inferences to be drawn from that evidence, a trier of fact reasonably could have found as it did." (Internal quotation marks omitted.) Wells Fargo Bank, N.A . v. Lorson , 183 Conn. App. 200, 210, 192 A.3d 439, cert. granted, 330 Conn. 920, 193 A.3d 1214 (2018).

The substitute plaintiff challenges the court's decision to credit James Sheldon's testimony that GMAC did not restore his credit. Specifically, it argues that James Sheldon did not testify as to what GMAC failed to do to restore his credit, but testified only that GMAC failed to fix his credit "to my satisfaction and my wife's satisfaction." James Sheldon did not, as the substitute plaintiff contends, testify that GMAC failed to restore his credit only because it did not fix his credit to his undefined "satisfaction." His testimony was that GMAC did not restore his credit at all because it did not send letters to credit reporting agencies in order to correct its mistake and restore the defendants’ credit. He testified that he brought the loan current and made the additional loan payments as requested by GMAC, but that...