Opinion
FSTCV136018500S
07-05-2017
The Bank of New York, Mellon fka the Bank of New York, as Trustee for the Certificateholders of the Cwalt, Inc., Alternative Loan Trust 2006-OA10 Mortgage Pass-Through Certificates, Series 2006-OA10 v. Orlando Donald aka Orlando Donald A. aka Donald A. Orlando, Jr. et al
UNPUBLISHED OPINION
MEMORANDUM OF DECISION
A. William Mottolese, Judge Trial Referee.
In this residential mortgage foreclosure proceeding the defendant has asserted nineteen special defenses but at trial relied on none of them. To the extent that they have not been briefed nor raised at trial they are deemed to have been abandoned. Connecticut Light & Power Company v. Department of Public Utility Control, 266 Conn. 108, 120, 830 A.2d 1121 (2003). Instead, the defendant based his defense on two claims. First, he argues that the promissory note which the mortgage secures is not negotiable because it does not contain a promise to pay a fixed amount and thus the plaintiff is not a person entitled to enforce the note pursuant to § 42a-3-301 of the General Statutes. Secondly, he contends that the plaintiff has not proven the debt.
Standard of Proof
Preliminary to consideration of these claims it is necessary for the court to determine whether the plaintiff has proved a prima facie case. This means that " [the foreclosing party has] to prove by a preponderance of the evidence that it [is] the owner of the note and that [the mortgagor has] defaulted on the note, " Franklin Credit Management Corp. v. Nicholas, 73 Conn.App. 830, 812 A.2d 51 (2002) or is the person entitled to enforce the note, § 42a-3-301. The plaintiff has proved its prima facie case introducing into evidence the promissory note, a loan modification agreement, an assignment of the mortgage to the plaintiff and notice of acceleration and default. The defendant bears the burden of proving facts which limit or change the plaintiff's rights. RMS Residential Properties, LLC v. Miller, 303 Conn. 224, 232, 32 A.3d 307 (2011).
Negotiability of Note
C.G.S. § 42a-3-104(a) in pertinent part defines a negotiable instrument as " an unconditional promise or order to pay a fixed amount of money." The defendant reads the note executed on May 23, 2006 as not containing a promise to pay a fixed amount of money because pursuant to sections 3(F) and 3(H) of the note the principal balance is subject to variation from the original amount of the loan of $650,000 up to $747,500. On July 1, 2009 the parties entered into a modification agreement in which the principal balance under the note was set at $720,746.31 which included accrued interest and escrow advances for property taxes and insurance. At trial, the total debt was fixed at $942,000.10 by the plaintiff which included principal of $718,709.86, accrued interest of $164,740.91 and the remainder in escrow advances and periodic broker's price opinions (BPOs). The defendant's premise is based on the fact that by the terms of the note the borrower was given an option to pay less than the accrued monthly interest and as a result the unpaid interest would be added to the principal balance, thus creating negative amortization which ultimately causes the borrower to owe more money. The defendant states at page nine of his post-trial brief that " prior to February 2009, defendant Orlando's monthly payment schedule under the terms of the note was insufficient to cover the accrued interest" and therefore " negative amortization was not a possibility but an absolute certainty." The defendant's analysis is faulty for two reasons. First, the payment option to pay interest only (Sec. 3(c)) did not go into effect until July 1, 2007 while the note was signed May 23, 2006. Second, Sec. 3(H) gave the defendant three payment options, two of which permitted either an interest only payment or an amortized payment containing principal and interest. Thus, negative amortization was not inevitable but dependent upon the defendant's voluntary choice. All of this is presented by the defendant in an effort to demonstrate that the loan documents " gave no indication as to what the ultimate principal balance or interest rate would be."
While there is no appellate precedent governing the validity of a negative amortization loan, three trial court decisions have held that a negative amortization feature does not render the promise to pay not fixed. Wachovia Mortgage, FSB v. Toczek, 2016 WL 7134841 involved a note which contained a provision very similar to the first sentence of sec. 3(F) of the present note which provides as follows: " My unpaid principal can never exceed the Maximum Limit equal to one hundred fifteen percent (115%) of the principal amount I originally borrowed." In the present case this means that the Maximum Limit to principal during the life of the loan is $747,500. The Toczek court concluded that, although the amount of the principal may not be known at a point in time, the beginning amount is known as $880,000 and the highest possible amount is known as $1,100,000 and therefore those two terms comply with General Statutes § 42a-3-104(a) as they set forth a fixed amount of principal. Unlike the note in Wachovia, Sec. 3(F) contains the following additional provisions. " My unpaid Principal could exceed that Maximum Limit due to Minimum Payments and interest rate increases. In that event, on the date that my paying my Minimum Payment would cause me to exceed that limit, I will instead pay a new Minimum Payment. This means that my monthly payment may change more frequently than annually and such payment changes will not be limited by the Payment Cap . The new Minimum Payment will be in an amount that would be sufficient to repay my then unpaid Principal in full on the Maturity Date in substantially equal payments at the current interest rate." (Emphasis added.)
So under the defendant's note, the principal could exceed the 115% cap limit but that does not render the amount not fixed for the reasons that follow.
In Bank of New York v. Baldwin, 2009 WL 2662445 the court addressed the argument that because the note permitted a minimum payment of less than the interest due each month, with the balance to be added to principal, it did not contain a fixed amount as required by § 42a-3-104. The court rejected that argument concluding " that were the defendant's assertion that a fixed sum certain cannot exist in an option ARM, then the only way that a negotiable instrument would ever feasibly exist is when a borrower pays exactly the monthly interest accrued, not a penny more or less, so as to keep the principal exactly the same from month to month, as any other payment amount would change the principal, and thus, create a variable sum." [WL] at 3. Finally, in granting a motion to strike a special defense of nonnegotiability for failure to comply with § 42a-3-104 because the note provided for negative amortization, the court in Nationstar Mortgage, LLC v. Decormier, CV09-60016815, Jud. Dist. New London (Cosgrove, J. July 30, 2015) the court ruled that even though the terms of the note in question would add unpaid interest to the principal amount and therefore result in unpredictable monthly payments and an unpredictable principal amount, those allegations were not sufficient to allege that the note does not contain a fixed amount of money.
The defendant argues that these cases were wrongly decided and cites two law review articles which apparently he claims cast doubt on these decisions. The defendant has not provided the court with copies nor has he offered any analysis of how these articles impact the issue. Nevertheless, the court has reviewed both articles (48 Wake Forest L. Rev. 1205; 44 UCLA L. Rev. 951) and finds that neither article contains any discussion or even reference to the UCC requirement for negotiability that there be a promise to pay a fixed amount of money. In fact, the Wake Forest article, in footnote 116, concludes with the following statement. " Generally courts which have addressed foreclosure issues have not engaged in analysis of whether the promissory note at issue in the case is negotiable or nonnegotiable." And while the UCLA article states at page 970 that " the irrelevance of negotiability to home mortgage transactions is best demonstrated by the fact that the standard form of promissory note used for those transactions fails to satisfy the requirement of negotiability, " the author cites no authority for and offers no analysis of that sweeping statement. It is at best an unsupported opinion of an academic and carries no persuasive effect.
" Analysis rather than mere abstract assertion, is required in order to avoid abandoning an issue by failure to brief the issue properly." Connecticut Light & Power Company v. The Department of Public Utility Control, 266 Conn. at 120, supra .
The meaning of the words at issue requires the application of well-known rules of statutory construction. The words " fixed amount of money" are not defined in the statute. " When construing a statute our fundamental objective is to ascertain and give effect to the apparent intent of the legislature . . . In other words, we seek to determine, in a reasoned manner the meaning of the statutory language as applied to the facts of the case, including the question of whether the language actually does apply." . . . Friezo v. Friezo, 281 Conn. 166, 181, 914 A.2d 533 (2007). Words in a statute shall be construed according to the commonly approved usage of the language. Gen. Stat. § 1-1. Martone v. Lensink, 207 Conn. 296, 302, 541 A.2d 488 (1988). When the language used by the legislature is plain and unambiguous there is no room for statutory construction by the courts and the statute will be applied as its words direct. Verrastro v. Sivertsen, 188 Conn. 213, 220, 448 A.2d 1344 (1982); Kelemen v. Rim Rock Corporation, 207 Conn. 599, 606, 542 A.2d 720 (1988). " In construing a statute common sense must be used and the courts will assume that the legislature intended to accomplish a reasonable and rational result." " In the absence of a statutory definition, words and phrases in a particular statute are to be construed according to their common usage . . . To ascertain that usage, we look to the dictionary definition of the term." Considine v. Waterbury, 279 Conn. 830, 837, 905 A.2d 70 (2006). Webster's New World Dictionary 2d Coll. Ed.at 508 defines " fixed" as " established, settled; steady, unmoving, synonym: certain." Courts of other jurisdictions have equated the term " fixed" with " certain." " A sum certain contemplates a situation where there can be no dispute." Reynolds v. Underwriters, 44 N.Y.2d 568, 572, 378 N.E.2d 106, 406 N.Y.S.2d 743 (1978); an obligation is a sum certain when the note contains an express provision to pay a definitely ascertainable legal rate of interest. Woodhouse, Drake & Carey, Ltd. v. Anderson, 61 Misc.2d 951, 307 NYS.2d 113, 116 (1970).
In Goss v. Trinity Savings and Loan Ass., 1991 OK 19, 813 P.2d 492 (1991 Okla.) the negotiability of the note was challenged because it stated a principal with a variable interest rate and therefore did not contain a promise to pay a " sum certain" as then required by section 42a-3-104 of the UCC. The court acknowledged that " there exist meritable arguments on both sides of the question" and then resolved the issue on the basis of its understanding of the intent of the UCC. The court then quoted from the dissent in Taylor v. Roeder, 234 Va. 99, 360 S.E.2d 191, 195-96, 4 Va. Law Rep. 485 (Va. 1987). The court adopted the following statement from Roeder .
" If the intent of the Code was to aid in the continued expansion of commercial practices, then common sense would tell us that when faced with a widespread commercial practice, such as in the present case, this court should acknowledge it. The rule requiring certainty in commercial paper was a rule of commerce before it was a rule of law. It requires commercial, not mathematical, certainty. An uncertainty which does not impair the function of negotiable instruments in the judgment of business men ought not to be regarded by the courts . . . Tht whole question is, do [the provisions] render the instruments so uncertain as to destroy their fitness to pass current in the business world."
The Goss court quoted the then version of § 42a-1-103(a) of the UCC which at the time the defendant's note was executed in 2006 read as follows in pertinent part:
Sec. 42a-1-102. Purposes; rules of construction; variation by agreement.
(1) This title shall be liberally construed and applied to promote its underlying purposes and policies.
(2) Underlying purposes and policies of this title are (a) to simplify, clarify and modernize the law governing commercial transaction; (b) to permit the continued expansion of commercial practices through custom, usage and agreement of the parties; (c) to make uniform the law among the various jurisdictions.
(3) The effect of provisions of this title may be varied by agreement, except as otherwise provided in this title and except that the obligations of good faith, diligence, reasonableness and care prescribed by this title may not be disclaimed by agreement, but the parties may by agreement determine the standards by which the performance of such obligations is to be measured if such standards are not manifestly unreasonable.
Thus, the court held that a variable interest rate that was tied to the T-bill index plus a margin of 2 1/2% did not render the note nonnegotiable because the rate was readily ascertainable by consulting the source and to hold otherwise would be to thwart the basic mandate laid down by the drafters of the UCC. This court notes that it has been consistently held in this jurisdiction that the official commentary of the UCC is relevant to interpretation of its provisions. Deutsche Bank National Trust Company v. Pardo, 170 Conn.App. 642, 651, 155 A.3d 764, N.9 (2017). A fortiori therefore, the above quoted legislative expression of intent is relevant to an interpretation of " fixed amount of money." Therefore, the court is free to consider that interpretation as justification for the conclusion that as long as the amount of the note is readily ascertainable the note does not lose its negotiable character. Accord, Klehm v. Grecian Chalet, Ltd., 164 Ill.App.3d 610, 518 N.E.2d 187, 190, 115 Ill.Dec. 662 (Ill.App. 1987) (variable interest rate does not render a note nonnegotiable because it does not violate the " sum certain" requirement of the UCC even though it relies on the prime rate as published in the Wall Street Journal ); Great Western Bank v. Sierra Woods Group, 953 F.2d 1174, 1177 (9th Cir. 1992) (Negative amortization is not per se objectionable).
In Connecticut, a negative amortization mortgage is expressly authorized by statute. Section 49-2 contains in its title the subject matter of " negative amortization." Subsection (e) expressly authorizes negative amortization mortgage loans. The statute reads as follows:
(e) Any mortgagee of real property located in this state may contract with the mortgagor in connection with the mortgage loan for interest to be paid currently or to accrue and, if such interest is to accrue, for such accrued interest to be added to the principal mortgage debt on which interest may be charged and collected. Such accrued interest which is added to the principal mortgage debt shall be secured by the mortgage to the same extent as the original principal of such mortgage debt.
It is noted that this provision was on the books and in effect as of the date of the present note and mortgage. See General Statutes of Connecticut, Revised to 2005, and the legislature is presumed to know the state of the law when it enacts a statute. Lynn v. Haybuster Mfg., Inc., 226 Conn. 282, 291, 627 A.2d 1288 (1993).
Although the statute appears in Chapter 849 whose subject matter is " mortgages and liens" rather than in Title 42a (UCC), the statute clearly refers to the mortgage debt which of course is evidenced by the promissory note. Taking the defendant's argument to its logical conclusion it would mean that property taxes and fire insurance escrows on which the borrower defaults could never be added to the principal debt because a) they vary in amount from year to year and b) the principal balance would be made limitless and could only be ascertained by consulting the mortgage servicer, tax collector or the insurance agent. Such a result not only is not in accord with common sense but runs counter to § 49-2(a) and (b) which expressly permit adding such payments to the mortgage debt. See also, Jocobs v. Kupperstein, 112 Conn. 607, 153 A. 656 (1931). Thus, the court concludes that the negative amortization feature of the loan does not destroy its negotiability.
Proof of Debt
The defendant argues that the plaintiff has not proved the debt as required by Webster Bank v. Flanagan, 51 Conn.App. 733, 749, 725 A.2d 975 (1999) because in attempting to do so the plaintiff relied solely on the affidavit of debt, did not introduce into evidence business records to support the amount of the debt and did not present a witness with " demonstrable personal knowledge" of the records. The court rejects this argument.
As an initial matter, the court notes that of the nineteen special defenses none interposes a defense challenging the amount of the mortgage debt. Webster Bank v. Flanagan, 51 Conn.App. at 749. Thus, pursuant to P.B. § 23-18(a) the debt may be proved by use of an affidavit of debt. It is not insignificant that unlike the defendant in National City Mortgage Co. v. Stoeker, 92 Conn.App. 787, 888 A.2d 95 (2006) who objected to introduction of the affidavit of debt, in the present case, not only was there no objection but the affidavit was introduced by the defendant himself and not the plaintiff. See defendant's exhibit A. Therefore, he cannot be heard to object to use of the document post-trial. Relevant to the defendant's claim is that reliance on an affidavit of debt to prove the amount owed was expressly approved by the court in Webster Bank v. Flanagan . The court determined that the affidavit was reliable for two reasons. First, it was sworn and second, the plaintiff frequently prepared such affidavits for foreclosure proceedings thus giving it indicia of reliability.
The plaintiff called as its sole witness, Loretta Poch who testified on behalf of the loan servicer. From her testimony it was clearly apparent that the mortgage servicer, Specialized Loan Servicing, LLC regularly prepares affidavits of debt for use in foreclosure proceedings. But the affidavit of debt was not the only document offered to establish the amount of the debt. Without objection the plaintiff offered exhibit 2, the modification agreement in which the defendant acknowledged the amount of the debt as of the date of the agreement of July 20, 2009 to be $720,746.31 by signing his name to the document. Again, without objection the plaintiff introduced exhibit 6 as a business record evidencing the debt, the contents of which were derived from computer data. As such, exhibit 6 consists of summaries of the computer data and are admissible pursuant § 10-5 of the Connecticut Code of Evidence. In Customers Bank v. Tomonto Industries, 156 Conn.App. 441, 446, 112 A.3d 853 (1915) our Appellate Court dealt with the same issue and stated:
When a defendant mortgagor stipulates to the amount of the indebtedness he is ordinarily barred from later contesting it. Connecticut National Bank v. N.E. Owen II, Inc., 22 Conn.App. 468, 473, 578 A.2d 655 (1990).
Section 10-5 of the Connecticut Code of Evidence provides: " The contents of voluminous writings, recordings or photographs, otherwise admissible, that cannot be conveniently examined in court, may be admitted in the form of a chart, summary or calculation, provided that the originals or copies are available for examination or copying, or both, by other parties at a reasonable time and place.
Most modern evidence rules explicitly allow the introduction of summaries of records which are lengthy, complicated, or both, in the original form. Even before the explicit recognition of this, however, many courts were deemed to have the discretion to permit a witness to testify as to lengthy, complicated, and voluminous records as an exception to the best evidence rule. (Internal quotation marks omitted.) Nat'l Publ'g Co. v. Hartford Fire Ins. Co., 94 Conn.App. 234, 265-66, 892 A.2d 261 (2006), rev'd on other grounds, 287 Conn. 664, 949 A.2d 1203 (2008). [Section] 10-5 of the Connecticut Code of Evidence and a line of cases, of which Brookfield v. Candlewood Shores Estates, Inc., 201 Conn. 1, 513 A.2d 1218 (1986), is a part, state that summaries may be admitted provided that the documents on which they are based are available to the court and opposing counsel. Unavailability of some supporting documents, not due to the fault of the proponent, will not bar the admissibility of the summary. National Publishing Co. v. Hartford Fire Ins. Co., supra, 264-65. (Alternate citations omitted.)
Although not required to render the business record admissible, the witness attested to the accuracy of the information contained in the computer. New England Savings Bank v. Bedford Realty Corporation, 246 Conn. 594, 604, 717 A.2d 713 (1998). Moreover, in First Union National Bank v. Woermer, 92 Conn.App. 696, 709, 887 A.2d 893 (2005), cert. denied 277 Conn. 914, 895 A.2d 788 (2006) the court approved of the admissibility of computer generated records by concluding that:
Although the witness conceded that she had not prepared the report or had [any] responsibility in connection with the defendant's loan: id.; this court on review held that the witness was qualified to authenticate exhibit seven because she was very familiar with the records and the [payment processing] computer system used by Centerbank and First Union, because she had been an employee of both institutions for several years and had worked extensively with the computer system.
Moreover the witness's personal knowledge of the information contained in the business record goes to the weight of the evidence and not its admissibility. Customers Bank v. Tomonto Industries, LLC, 156 Conn.App. at 441, supra . Ms. Poch's testimony amply met this standard.
The defendant further asserts that " a proper calculation cannot be made without a manual computation" but does not offer any example of how that would be done. Instead, the calculation of the debt was made by a computer whose accuracy and reliability was attested to by Ms. Poch.
The following colloquy occurred between the court and the witness:
THE COURT: I think what we need to know is how you determined that the computer's output is reliable; how do you know that? THE WITNESS: By looking at the parameters that the computer is given to calculate on. So that I know that in the computer system it is given the right index rate, the right floor rate to use. And in this case those amounts, the correct amount are in the computer system. THE COURT: And, therefore, it has to come out right. THE WITNESS: Correct.
Next, the defendant complains that he does not have the loan payment history to determine whether the principal balance was accurate at the time that the loan modification agreement was executed. The simple answer to that is that in the four years that the action has been pending the defendant never sought discovery or production of the loan payment history. Finally, the defendant states at page 13 of his brief that " the plaintiff was charging excess interest, capitalizing said interest and then charging interest on an inflated principal balance." The defendant offered no evidence that the interest was excessive. Defendant's exhibit B is an excerpt from the Federal Reserve Board's twelve-month Treasury average. The defendant has failed to show how this renders the plaintiff's calculations inaccurate or excessive. The court was impressed with Ms. Poch's credibility in validating the process employed in establishing the rate on each change date. The plaintiff has proved the amount of the debt.
A judgment of foreclosure may enter in favor of the plaintiff. Based upon the persuasive evidence the court finds the debt as of April 12, 2017 to be $942,000.10. The value which is undisputed is found to be $950,000 based on exhibit 7. The court will hold a hearing concerning the form of judgment, attorneys fees and related costs on July 25, 2017 at 9:30 A.M.