Solomon v. Gilmore

Decision Date25 May 1999
Docket Number(SC 15914)
Citation731 A.2d 280,248 Conn. 769
CourtConnecticut Supreme Court

Callahan, C. J., and Borden, Norcott, Katz and Palmer, Js. Lori Welch-Rubin, for the appellant (named defendant).

Kevin E. Dehghani, with whom, on the brief, were Frank S. Marcucci and Scott A. Carta, law student intern, for the appellee (named plaintiff).



The sole issue in this certified appeal is whether a secondary mortgage issued by an unlicensed lender in violation of General Statutes § 36a-5111 is enforceable in a foreclosure action. Following our grant of certification to appeal,2 the named defendant, William C. Gilmore,3 appeals from the Appellate Court's judgment affirming the trial court's judgment of strict foreclosure in favor of the plaintiffs, Alan M. Solomon and Mary Ellen Tomeo. The defendant claims that a secondary mortgage loan issued by a lender in violation of the licensing requirements of § 36a-511 is not enforceable in a foreclosure action. We agree.4 Accordingly, we reverse the judgment of the Appellate Court.

The Appellate Court opinion provides the following facts and procedural history relevant to this certified appeal. "The plaintiffs commenced this action by a complaint alleging that they had loaned the defendants $55,000, which loan was memorialized by a promissory note dated May 30, 1989, and was secured by a second mortgage encumbering property known as 44 Bradford Corner Road in the town of Woodstock. The plaintiffs alleged that the defendants failed (1) to pay monthly installments on the loan after May 5, 1993, (2) to keep the property insured, and (3) to pay property taxes. As a result of these alleged breaches of the mortgage agreement, the plaintiffs accelerated payment of the debt.

"The defendants filed an answer denying that any money was owed to the plaintiffs. The defendants also filed seven special defenses5 and a six count counterclaim.6 Pursuant to General Statutes § 52-97,7 the trial court granted a motion to bifurcate the trial. Thereafter, the plaintiffs filed separate motions for summary judgment. Solomon submitted a supplemental affidavit in support of his motion for summary judgment.8 On April 26, 1996, the trial court, Sferrazza, J., issued a memorandum of decision granting, in part, both plaintiffs' motions. On June 3, 1996, the issues not disposed of by way of summary judgment were tried to the court, Loiselle, J., and a judgment of strict foreclosure was rendered." Solomon v. Gilmore, 48 Conn. App. 80, 82-83, 707 A.2d 746 (1998).

The defendant appealed from the judgment to the Appellate Court. The Appellate Court affirmed the judgments of the trial courts granting the plaintiffs' motions for summary judgment and rendering a judgment of strict foreclosure against the defendants; id., 81-82; and decided each of the defendant's remaining claims adversely to him.9 Id., 87. This appeal followed.

The defendant claims that the Appellate Court improperly concluded that a secondary mortgage issued by a lender in violation of the licensing requirements of § 36a-511 is enforceable against a mortgagor in a foreclosure action. We agree. In concluding that the only material fact that existed was "whether the defendants [had] paid or tendered payment of the mortgage debt in full upon demand," the trial court implicitly rejected the defendants' claim that, as a matter of law, the mortgage was illegal because the plaintiffs' were not licensed secondary mortgage lenders.10 The Appellate Court agreed, stating that "[s]ince the absence of a license on the part of the plaintiffs would make no difference in the result of the case, it is not a material fact for purposes of summary judgment." Solomon v. Gilmore, supra, 48 Conn. App. 86.

General Statutes §§ 36a-510 through 36a-524, the secondary mortgage act, regulate the conduct of persons engaging in certain secondary mortgage loan transactions. This court has not previously considered the issue of whether a mortgage taken by a lender who is unlicensed in contravention of the secondary mortgage act is enforceable. Our approach to this question, however, is guided by three well settled principles of law. First, in light of the fact that § 36a-511 does not expressly address the enforceability of a contract entered into by an unlicensed lender, we undertake our consideration of this question bearing in mind that in construing statutes, "our fundamental objective [is to ascertain and give effect] to the apparent intent of the legislature." (Internal quotation marks omitted.) Packer v. Board of Education, 246 Conn. 89, 115, 717 A.2d 117 (1998). Second, it is well established that contracts that violate public policy are unenforceable. Konover Development Corp. v. Zeller, 228 Conn. 206, 231, 635 A.2d 798 (1994). Third, the secondary mortgage act is a remedial statute that is intended to protect the consumer. Thus, because "remedial statutes should be construed liberally in favor of those whom the law is intended to protect"; Dysart Corp. v. Seaboard Surety Co., 240 Conn. 10, 18, 688 A.2d 306 (1997); we liberally construe the secondary mortgage act in favor of the defendant.

We begin with a review of the various provisions governing secondary mortgage lenders in this state. Secondary mortgage lenders are regulated through a comprehensive statutory scheme that includes, in addition to a licensing requirement, rules that impose certain obligations on secondary mortgage lenders, as well as rules that prohibit lenders from engaging in certain activities. Penalties are available to ensure compliance with these mandates.

As noted, § 36a-511 (a) prohibits persons from "engag[ing] in the secondary mortgage loan business in this state as a lender or a broker unless such person has obtained a license...." See footnote 1 of this opinion. General Statutes § 36a-513 details the specific requirements and steps of the license application process.11 General Statutes § 36a-512 sets forth the persons exempt from the license requirement.12 Our review of the secondary mortgage act indicates that § 36a-511 serves three purposes. First, because licensed lenders are required to comply with the remaining provisions of the secondary mortgage act, which we discuss in more detail later in this opinion, the licensing requirement generally aims to protect consumers by prohibiting certain unscrupulous lending practices. Second, because licensed lenders are subject to this comprehensive scheme of rules, § 36a-511 serves an integral role in the statutory scheme through which the legislature exercises control over the secondary mortgage industry in Connecticut. Third, by expressly authorizing statutory penalties for violations of the licensing requirement, § 36a-511 serves as a deterrent to persons who might otherwise avoid the licensing requirement in order more readily to engage in unscrupulous lending. The enforcement of mortgages taken by unlicensed lenders in foreclosure proceedings would thwart each of these purposes.

The secondary mortgage act places several affirmative obligations on secondary mortgage lenders. For example, General Statutes § 36a-516 (a)13 requires that each licensee "maintain adequate records of each loan transaction," and that these records be retained for specified periods of time. General Statutes §§ 36a-52214 and 36a-524,15 respectively, govern the information required in the headings of mortgage deeds securing secondary mortgage loans, and the content of advertisements by persons acting as brokers rather than lenders.

Other provisions prohibit secondary mortgage lenders from engaging in certain activities. For example, General Statutes § 36a-51916 prohibits a licensee from imposing "any charge as a penalty for the prepayment of principal of a second mortgage loan which exceeds five per cent of the balance prepaid," and prohibits the imposition of any penalty "for any prepayment occurring more than three years after the date of such loan." General Statutes § 36a-52117 limits the amount that a licensee can charge for the services related to the secondary mortgage transaction, and prescribes the monetary remedies available to a borrower who is charged in excess of the statutorily authorized amounts. Section 36a-521 (c) also provides that, in the absence of an agreement that meets certain statutorily specified criteria, "every advance fee shall be refundable." In addition, General Statutes § 36a-52318 prohibits secondary mortgage lenders from accepting applications or referrals from brokers whom the lender knows is operating in violation of the secondary mortgage lender licensing provisions.

The secondary mortgage act also authorizes the commissioner of banking (commissioner) to control the licensing of lenders and to bring injunctive or penal actions against lenders who violate the rules. For example, General Statutes § 36a-517 (a)19 grants the commissioner the power to "suspend, revoke or refuse to renew any license ... for any reason which would be sufficient grounds for the commissioner to deny an application... or if the commissioner finds that the licensee or any owner, director, officer, member, partner, shareholder, trustee, employee or agent of such licensee," has committed any of a number of specified violations, including fraud or the issuing of any material misrepresentations or misstatements. Section 36a-517 (b) also permits the commissioner to enforce penalties against a licensee "[w]henever it appears to the commissioner that any person has violated, is violating or is about to violate any of the provisions" of the secondary mortgage act. Moreover, the penalties available to the commissioner for violations of the secondary mortgage act are governed by General Statutes § 36a-50,20 and are the same as those available for any violation of the banking laws of this state. Pursuant to § 36a-50 (b), the...

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