Wells Fargo Bank, N.A. v. Lorson

• Decision Date: 03 December 2021
• Docket Number: SC 20194
• Citation: 341 Conn. 430,267 A.3d 1
• Parties: WELLS FARGO BANK, N.A. v. Eric LORSON et al.
• Court: Connecticut Supreme Court

341 Conn. 430

267 A.3d 1

WELLS FARGO BANK, N.A.

v.Eric LORSON et al.

SC 20194

Supreme Court of Connecticut.

Argued February 26, 2020

Officially released December 3, 2021^*

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

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

J.L. Pottenger, Jr., Jeffrey Gentes, and Stephanie Garlock and Keith Woolridge, law student interns, filed a brief for the Housing Clinic of the Jerome N. Frank Legal Services Organization as amicus curiae.

Robinson, C. J., and Palmer, McDonald, D'Auria, Mullins, Kahn and Ecker, Js.^**

McDONALD, J.

The issue that we must resolve in this appeal is whether compliance with federal Department of Housing and Urban Development (HUD) regulatory requirements applicable to mortgage loans guaranteed or insured by the Federal Housing Administration (FHA) is a condition precedent to acceleration of the debt, enforcement of the note, and foreclosure of the mortgage, such that the burden is on mortgagees to plead and prove compliance. The defendants, Eric Lorson and Laurin Maday, executed a mortgage note in favor of The McCue Mortgage Company (McCue) and a mortgage deed to secure payment of the note. The note and mortgage deed, which were guaranteed and/or insured by the FHA, were ultimately assigned to the plaintiff, Wells Fargo Bank, N.A. Under the terms of the note and mortgage deed, the plaintiff was not authorized to accelerate payment of the debt or to initiate foreclosure proceedings unless permitted by HUD regulations. The defendants defaulted on the note and mortgage, and the plaintiff accelerated payment of the debt and commenced a foreclosure action. After a trial, the trial court found that the plaintiff had met its burden proving its case and that the defendants had failed to prove their special defenses of equitable estoppel and unclean hands. Accordingly, the court rendered a judgment of strict foreclosure. The defendants then appealed to the Appellate Court, claiming, among other things, that the trial court's finding that the plaintiff had proved its case was clearly erroneous because compliance with applicable HUD regulations is a condition precedent to acceleration of the debt and the initiation of foreclosure proceedings, and, therefore, the plaintiff was required to prove compliance, which it had not done. The Appellate Court affirmed the judgment of the trial court; Wells Fargo Bank, N.A. v. Lorson , 183 Conn. App. 200, 224, 192 A.3d 439 (2018) ; concluding that the burden was on the defendants to plead and prove noncompliance and that, "by failing to assert that special defense, [they had] waived it." Id. at 216, 192 A.3d 439. We then granted the defendants’ petition for certification on the following issue: "Did the Appellate Court correctly hold that noncompliance with [HUD] regulations is a special defense that the defendant must plead and prove?" Wells Fargo Bank, N.A. v. Lorson , 330 Conn. 920, 193 A.3d 1214 (2018). We conclude that compliance with applicable HUD regulations is a condition precedent to enforcement of the note and foreclosure of the mortgage, and must be pleaded and ultimately proved by the mortgagee. Because the trial court did not require the plaintiff to establish compliance with HUD regulations at trial, we further conclude that the case must be remanded to the trial court for a trial on that issue. Accordingly, we reverse the judgment of the Appellate Court affirming the trial court's judgment of strict foreclosure.

The opinion of the Appellate Court sets forth the following facts and procedural history, which we supplement with additional facts as necessary. "The defendants and [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." Wells Fargo Bank, N.A. v. Lorson , supra, 183 Conn. App. at 202, 192 A.3d 439.

"The defendants’ mortgage was guaranteed and insured by the [FHA and, therefore, was subject to certain] ... HUD regulations. Section 6 (b) of the note provides in relevant part that, ‘[i]f [the] [b]orrower defaults by failing to pay in full any monthly payment, then [the] [l]ender may, except as limited by regulations of the [s]ecretary [of HUD] in the case of payment defaults, require immediate payment in full of the principal balance remaining due and all accrued interest. [The] [l]ender may choose not to exercise this option without waiving its rights in the event of any subsequent default. In many circumstances regulations issued by the [s]ecretary [of HUD] will limit [the] [l]ender's rights to require immediate payment in full in the case of payment defaults. This [n]ote does not authorize acceleration when not permitted by HUD regulations.’ Section 9 (a) of the mortgage deed provides in relevant part: ‘[The] [l]ender may, except as limited by regulations issued by the [s]ecretary [of HUD] in the case of payment defaults, require immediate payment in full of all sums secured by this [s]ecurity [i]nstrument ....’ " (Footnote omitted.) Id. at 207–208, 192 A.3d 439. Section 9 (d) of the mortgage deed provides: "In many circumstances regulations issued by the [s]ecretary [of HUD] will limit [the] [l]ender's rights, in the case of payment defaults, to require immediate payment in full and foreclose if not paid. This [s]ecurity [i]nstrument does not authorize acceleration or foreclosure if not permitted by regulations of the [s]ecretary."

"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." Wells Fargo Bank, N.A. v. Lorson , supra, 183 Conn. App. at 202, 192 A.3d 439.

After failed foreclosure mediation proceedings that have no bearing on this appeal, "[t]he defendants filed an answer [to the foreclosure complaint] 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 [trial] 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." Id. at 204–205, 192 A.3d 439.

Eight days later, on October 30, 2015, "the defendants moved to amend their answer .... In the proposed amended answer, the defendants added a special defense titled ‘Breach of Contract,’ which alleged the plaintiff's noncompliance with various [HUD] regulations ... 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 [trial] 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 [appealed to the Appellate Court from the judgment of strict foreclosure]. 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: ‘[On the basis of] 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 [as] to the denial of the complaint, as well as the special defenses of unclean hands and equitable estoppel. Accordingly, judgment is [rendered] 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.’ "¹ Id. at 205–206, 192 A.3d 439.

On appeal to the Appellate Court...