Wells Fargo Bank, N.A. v. Lorson

• Decision Date: 10 July 2018
• Docket Number: AC 38806
• Citation: 192 A.3d 439,183 Conn.App. 200
• Court: Connecticut Court of Appeals
• Parties: WELLS FARGO BANK, N.A. v. Eric LORSON et al.

183 Conn.App. 200

192 A.3d 439

WELLS FARGO BANK, N.A.

v.Eric LORSON et al.

AC 38806

Appellate Court of Connecticut.

Argued January 18, 2018

Officially released July 10, 2018

Ridgely Whitmore Brown, with whom was Benjamin E. Gershberg, for the appellants (defendants).

David M. Bizar, for the appellee (plaintiff).

Elgo, Bright and Beach, Js.

ELGO, J.

The defendants, Eric Lorson and Laurin Maday, appeal from the judgment of strict foreclosure rendered by the trial court in favor of the plaintiff, Wells Fargo Bank, N.A. On appeal, the defendants claim that the court improperly found that the plaintiff met its burden of proving its prima facie case and that the defendants failed to prove their special defenses of equitable estoppel and unclean hands. We affirm the judgment of the trial court.

The following facts are relevant to this appeal. The defendants and the McCue Mortgage Company (McCue) executed a promissory note on December 1, 2008 (note). The note was secured by a mortgage on the defendants' property at 40 McGuire Road in Trumbull (property), in favor of Mortgage Electronic Registration Systems, Inc., as nominee for McCue. The mortgage was recorded on the Trumbull land records on December 1, 2008. The mortgage was assigned to the plaintiff on December 16, 2011, and the assignment was recorded on the Trumbull land records on December 21, 2011. It is undisputed that the plaintiff is the holder of both the note and the mortgage.

The plaintiff filed this foreclosure action on October 19, 2011. The complaint alleged that the note and mortgage were in default by virtue of nonpayment of the installments of principal and interest due on November 1, 2010, and each and every month thereafter. The complaint further alleged that the plaintiff is entitled to collect the debt evidenced by the note and to enforce the terms of the mortgage, that the plaintiff had elected to accelerate the balance of the note, and that the plaintiff requested a foreclosure of the mortgaged premises.

The court referred the parties to a foreclosure mediation program on December 1, 2011. During that program, the parties entered into a special forbearance agreement (agreement) dated August 23, 2012, which identified twenty-two consecutive months of nonpayment. According to the terms of the agreement, the plaintiff agreed to "temporarily [accept] reduced installments" in the amount of $3009.07 per month for a period of three months.¹ Section 2 of the agreement provides in relevant part: "Upon successful completion of the [a]greement, your loan will not be contractually current. Since the installments may be less than the total amount due you may still have outstanding payments and fees. Any outstanding payments and fees will be reviewed for an option to bring the loan current. If approved for an option, based on investor guidelines, this will satisfy the remaining past due payments on your loan and we will send you a plan agreement. An additional payment may be required." Section 3 of the agreement provides: "The lender is under no obligation to enter into any further agreement, and this [a]greement shall not constitute a waiver of the lender's right to insist upon strict performance in the future."

The defendants made the first payment of $3009.07 in accordance with the agreement prior to September 22, 2012. On October 8, 2012, the plaintiff sent the defendants a letter requesting a "Notice of Release of Mortgage or Discharge of Judgment/Lien" and stating that the plaintiff is "unable to complete the final modification" of the loan until the title issue is resolved. A property title report was enclosed with the letter. The lien at issue was a judgment lien on the property from a dispute with an insurance company about the value of a vehicle Lorson owned that had been declared a total loss (judgment lien).²

On October 19, 2012, the foreclosure mediator issued a final report that indicated that the final mediation was held on July 31, 2012, the mediation period expired on September 1, 2012, and the mediation was terminated.

The defendants did not provide the plaintiff with information in response to the October 8, 2012 letter, but instead continued to make monthly payments to the plaintiff for the amount specified in the agreement beyond November, 2012, and through May, 2013. On March 4, 2013, the plaintiff sent the defendants a follow-up letter requesting documentation to resolve the title issue regarding the judgment lien on the property.³ On April 10, 2013, the plaintiff sent the defendants another letter, stating that "[t]here are additional liens on [the defendants'] property that prevent [the plaintiff] from completing [the defendants'] request for mortgage assistance." On April 30, 2013, the plaintiff sent yet another letter to the defendants requesting documentation of the remaining lien balance. The letter specified that the requested documentation must be received by May 30, 2013. The defendants did not resolve the judgment lien.

The defendants filed an answer on July 19, 2013, in which they effectively denied each allegation and left the plaintiff to its proof. The defendants also filed two special defenses alleging unclean hands and equitable estoppel. The plaintiff filed a motion for summary judgment on November 12, 2013. The defendants filed an amended answer and special defenses along with their objection to the plaintiff's summary judgment motion on February 19, 2014. In the amended answer, the defendants alleged a third special defense titled "Mortgage Modification Agreement," claiming that the plaintiff refused to issue a permanent modification and "breached the terms of the agreement" by requiring payment of the judgment lien.

The court denied the plaintiff's motion for summary judgment on March 21, 2014, ruling that "the counteraffidavit submitted by the defendants in opposition to the motion raises issues of fact relating to the defendants' special defenses of unclean hands and equitable estoppel to be resolved at trial." The plaintiff filed a reply to the defendants' special defenses and a certificate of closed pleadings on October 22, 2015.

After the plaintiff filed a certificate of closed pleadings, the defendants moved to amend their answer on October 30, 2015. In the proposed amended answer, the defendants added a special defense titled "breach of contract," which alleged the plaintiff's noncompliance with various regulations of the United States Department of Housing and Urban Development as set forth in 24 C.F.R. § 203.500 et. seq. (HUD regulations). The plaintiff filed an objection to the defendants' request to amend on November 9, 2015, and the court sustained the plaintiff's objection on December 1, 2015, the first day of trial.

Following a two day bench trial, the court rendered judgment of strict foreclosure in favor of the plaintiff on January 6, 2016. On January 20, 2016, the defendants filed this appeal. The defendants filed a motion for articulation on August 4, 2016, requesting an explanation for the judgment of strict foreclosure. On November 25, 2016, the court issued a written response "to the allegations contained in the defendants' motion [for] articulation and, specifically, the defendants' misrepresentations and failure to disclose necessary evidence within their knowledge." In that response, the court stated: "Based on the factual history of this litigation, it is the finding of this court that the plaintiff has established [its] burden of proof with respect to the allegations of the complaint. The court further finds that the defendants failed to submit sufficient evidence with respect to their burden of proof with respect to the denial of the complaint, as well as the special defenses of unclean hands and equitable estoppel. Accordingly, judgment is entered in favor of the plaintiff with respect to the complaint and special defenses." The court denied the motion for articulation and stated as follows: "With respect to the motion for articulation, it is the finding of the court that the motion is based on the misrepresentations and intentional omissions of necessary evidence. The docket sufficiently provides the basis for the rulings by the court. Accordingly, the motion for articulation is denied."

On April 4, 2017, the defendants filed a motion for review of the court's articulation with this court, which we denied as untimely. Additional facts will be set forth as necessary.

I

The defendants challenge the court's determination that the plaintiff had proven its prima facie case, which was based on their claim that the plaintiff failed to present sufficient evidence that it had complied with all applicable HUD regulations that are prerequisites to bringing a foreclosure action. In response, the plaintiff contends that noncompliance with HUD regulations must be raised as a special defense and that the defendants failed to do so. Alternatively, the plaintiff argues that even if it had the burden of proving compliance with HUD regulations in the absence of a special defense, there is sufficient evidence of the plaintiff's compliance, and, therefore, the court's finding that the plaintiff established its prima facie case was not clearly erroneous. We conclude that the defendants had the affirmative duty to plead noncompliance with HUD regulations as a special defense and that their failure to do so is fatal to their claim.

The following additional facts are relevant to the defendants' claim. The defendants' mortgage was guaranteed and insured by the Federal Housing Administration (FHA). The note and mortgage reference HUD regulations.⁴ Section 6 (b) of the note provides in relevant part that "[i]f Borrower defaults by failing to pay in full any monthly payment, then Lender may, except as limited by regulations of the Secretary [of HUD] in the case of payment defaults, require immediate payment in full of the principal balance remaining due and all accrued interest. Lender may choose not to exercise this option without...