Opinion
FSTCV176030713S
01-17-2019
HSBC BANK, USA, N.A. AS TRUSTEE FOR SUNTRUST ALTERNATIVE LOAN TRUST 2006-IF v. Juan C. SANCHEZ aka Juan C. Sanchez-Contreras et al.
UNPUBLISHED OPINION
OPINION
Hon. Charles T. Lee, Judge
This matter comes before the court on the motion of the plaintiff, HSBC Bank, to strike the two special defenses and two counterclaims of the defendant Mr. Juan Sanchez. As more fully explained below, the court grants the motion to strike in its entirety because, among other things, it declines to apply the doctrine of equitable subrogation under the facts of this case.
Background
As alleged in the complaint, dated November 23, 2016, and substantively admitted by the defendant, the plaintiff commenced this action to foreclose on a mortgage securing a loan made by the plaintiff’s predecessor in interest, SunTrust Mortgage, Inc., on December 16, 2005 to Mr. Manuel Valdovinos, in the amount of $370,000. The mortgage encumbered property owned by Mr. Valdovinos located at 6 Colonial Place, Norwalk, CT (the property). The mortgage was filed on the Norwalk Land Records on December 21, 2005. The mortgage was assigned to the plaintiff, HSBC Bank, on June 18, 2010, which is the current holder of the note. On July 1, 201’2, the note evidencing the loan was modified pursuant to a modification agreement to reflect a new principal balance of $473,967.10. On or about June 7, 2013, Mr. Valdovinos deeded the property to Mr. Sanchez by warranty deed, as recorded on the Norwalk Land Records. The consideration for the transfer is not apparent in the record.
Mr. Sanchez obtained two subsequent loans from the defendant, Wells Fargo Bank, NA: 1) for $200,000 secured by a mortgage recorded on October 13, 2015, and 2) for $65,000 secured by a mortgage recorded on September 8, 2016. Mr. Sanchez claims that he used the proceeds of the loan to improve the property, which had deteriorated during the ownership of Mr. Valdovinos. His counsel also claims in his brief that he was unaware of the plaintiff’s prior mortgage on the property until this action was commenced.
On or about April 12, 2018, Mr. Sanchez filed an answer, special defenses and counterclaim, and a cross claim against Wells Fargo. His first special defense alleges:
The defendant hereby alleges that the mortgage which is the subject of the foreclosure should be equitably subrogated to the Wells Fargo mortgages for equitable reasons revolving around the fact that the property was in disrepair in the years before the mortgages to Wells Fargo was worth substantially less (upon information and belief, about $250,000) than the outstanding amount on the mortgage principal and interest and arrearages and the defendant ... borrowed $200,000.00 and used it to repair the property and put value and equity back into the property that has unjustly enriched and benefited the plaintiff HSBC and, therefore, the doctrine of equitable subrogation should be invoked to subrogate that portion of the mortgage that now has that equity created by the defendant at his expense and it should be equity [sic] subrogated to the subsequent mortgage to Wells Fargo and/or the defendant ...
The first counterclaim paraphrases the first special defense and alleges that plaintiff’s mortgage should be equitably subrogated to the Wells Fargo mortgages to the extent of defendant’s improvements, presumably in the amount of $200,000, in order to avoid unjust enrichment. The second special defense and the second counterclaim both allege "The discovery process is not complete and the defendant [and counterclaimant] reserves on further special defenses/claims in the counterclaim."
The plaintiff filed the instant motion to strike to defendant’s special defenses and counterclaims on May 25, 2018. The plaintiff claims that equitable subrogation should not be granted because it is limited to the situation where an intervening lender would succeed to a first priority where an earlier loan was replaced by a subsequent loan or, more broadly, because the current priorities are proper and work no injustice. The plaintiff also argues that the second special defense and counterclaim asserting lack of discovery are improper because they do not allege facts relating to the case and do not constitute a substantive defense or counterclaim.
On September 21, 2018, defendant filed his objection to the motion to strike, claiming that it was within the court’s equitable powers to alter the priority of the mortgages to avoid unjust enrichment, and also claiming that striking the second special defense and counterclaim should be postponed until after discovery is obtained.
The matter appeared on the foreclosure short calendar for September 24, 2018, and the court reserved decision on the papers.
Discussion
The legal standard governing motions to strike is well settled. "A motion to strike challenges the legal sufficiency of a pleading, and, consequently, requires no factual findings by the trial court." (Citations omitted; internal quotation marks omitted.) Fort Trumbull Conservancy, LLC v. Alves, 262 Conn. 480, 498 (2003). "The role of the trial court in ruling on a motion to strike is to examine the [pleading], construed in favor of the [pleading party], to determine whether the [pleading party has] stated a legally sufficient cause of action." (Internal quotation marks omitted.) Coe v. Board of Education, 301 Conn. 112, 117 (2011). "In ruling on a motion to strike, the court is limited to the facts alleged in the [pleading]." (Internal quotation marks omitted.) Faulkner v. United Technologies Corp., 240 Conn. 576, 580 (1997). "Thus, [i]f facts provable in the [pleading] would support a cause of action, the motion to strike must be denied ... A motion to strike is properly granted if the [pleading] alleges mere conclusions of law that are unsupported by the facts alleged." (Citation omitted; internal quotation marks omitted.) Fort Trumbull Conservancy, LLC v. Alves, supra, 498.
With regard to the doctrine of equitable subrogation, the Appellate Court recently had occasion to review Connecticut caselaw and engaged in a comprehensive discussion of equitable subrogation in AJJ Enterprises, LLP v. Jean-Charles, 160 Conn.App. 375 (2015). The court summarized the doctrine as follows: "In mortgage law, [a] fundamental principle is that a mortgage that is recorded first is entitled to priority over subsequently recorded mortgages provided that every grantee has a reasonable time to get his deed recorded." (Internal quotation marks omitted.) Equicredit Corp. of Connecticut v. Kasper, 122 Conn.App. 94, 97, 996 A.2d 1243, cert. denied, 298 Conn. 916, 4 A.3d 831 (2010). This principle is referred to as the first in time, first in right rule. See id. ‘The doctrine of equitable subrogation provides an exception to the first in time, first in right rule ...’ Id.
‘Subrogation is a doctrine which equity borrowed from the civil law and administers so as to secure justice without regard to form or mere technicality ... It is broad enough to include every instance in which one party pays a debt for which another is primarily answerable, and which, in equity and good conscience, should have been discharged by the latter. It is a legal fiction through which one who, not as a volunteer or in his own wrong and where there are no outstanding and superior equities, pays the debt of another, is substituted to all the rights and remedies of the other, and the debt is treated in equity as still existing for his benefit.’ (Citation omitted; internal quotation marks omitted.) Home Owners’ Loan Corp. v. Sears, Roebuck & Co., 123 Conn. 232, 238, 193 A. 769 (1937)." AJJ Enterprises, LLP v. Jean-Charles, supra, 160 Conn.App. 396-97.
The court further explained the doctrine as follows, "The Restatement (Third), Property, Mortgages § 7.6 (1997), on the topic of subrogation, provides a thorough explanation of this complicated doctrine. The Restatement rule provides: "(a) One who fully performs an obligation of another, secured by a mortgage, becomes by subrogation the owner of the obligation and the mortgage to the extent necessary to prevent unjust enrichment. Even though the performance would otherwise discharge the obligation and the mortgage, they are preserved and the mortgage retains its priority in the hands of the subrogee." Id., at 397.
The Appellate Court added, "The Restatement is careful to emphasize that the court considering equitable subrogation must be convinced that no injustice will result to the intervening lien holder before applying the doctrine: ‘Since the purpose of subrogation is to prevent unjust enrichment, it will not be granted where it would produce injustice.’" Id., at 401.
Analysis
Applying these principles to the instant case, it is clear that the plaintiff’s mortgage was recorded before the Wells Fargo mortgages, and would be entitled to priority over them unless priority is reordered by application of equitable subrogation.
It is also clear that the jurisprudence of Connecticut limits application of the doctrine to a situation where the earlier mortgage has been paid off and an intervening mortgagee would assume first priority without application of equitable subrogation in appropriate circumstances. The defendant cites out of state cases and general equitable principles to argue that equitable subrogation should be granted without payment of the earlier loan; however, he cites no Connecticut law to that effect and the court has been unable to find any. Indeed, a Connecticut trial court has recently rejected this proposition, "Although the Connecticut statement of the rule is described as ‘broad enough, ’ it is clearly limited to situations where the party invoking the benefit of the doctrine has paid a debt owed by another, and therefore gets to step into the shoes of the satisfied creditor. Even construing the allegations of the Third Count most favorably toward the position of the plaintiff, there is no allegation that plaintiff paid off or satisfied or disbursed loan proceeds to any mortgagee or lienholder or other secured creditor of the ... defendants or the trustee of their Trusts." J.P. Morgan Chase Bank, N.A. v. Montanaro, Superior Court, judicial district of Fairfield at Bridgeport, Docket No. FBT CV 176061517S, at *4 (March 26, 2018, Jennings, J.) , 2018 WL 1936656.
There is no allegation that Mr. Sanchez used the proceeds from the Wells Fargo loans to make any payment towards the plaintiff’s loan. Accordingly, he is not within the traditional confines of the doctrine of equitable subrogation. As stated in Independence One Mortgage Corp. v. Katsaros, 43 Conn.App. 71, 74 (1996), "The doctrine of equitable subrogation is not intended as a means of circumventing the rights of existing lien holders who have properly recorded their mortgage instruments."
Defendant argues for a broader application of equitable subrogation in order to prevent injustice. In that context, the court must ascertain the balance of the equities. "The court is mindful that in exercising its discretion it may ‘consider whatever factors may be relevant to its determination. Judicial discretion, however, is always a legal discretion, exercised according to the recognized principles of equity ... Such discretion ... imports something more than leeway in decision making and should be exercised in conformity with the spirit of the law and should not impede or defeat the ends of substantial justice. (Citations omitted: internal quotation marks omitted.) Burton v. Browd, 258 Conn. 566, 569-70, 783 A.2d 457 (2001).’ Dilieto v. County Obstetrics and Gynecology Group. P.C., 310 Conn. 38, 54-55 (2013)." AJJ Enterprises, LLP v. Jean-Charles, Superior Court, Complex Litigation Docket No. X08 FST CV 054005882S (February 14, 2014, Genuario, J.), aff’d, 160 Conn.App. 375 (2015).
Weighing the factors in this case, the court considers that the defendant has retained the value of the Wells Fargo loans because they increased the value of his house. Those monies did not reduce the amount of HSBC’s debt. The defendant’s pleadings do not claim that he was ignorant of HSBC’s mortgage, although his brief does without benefit of an affidavit. Nevertheless, the HSBC mortgage was properly recorded, requiring the conclusion that defendant had constructive notice of the mortgage. This factor is not dispositive, but is entitled to consideration. AJJ Enterprises, supra, 160 Conn.App. 410. No impropriety of any kind is alleged on the part of the plaintiff or its predecessor in interest. Indeed, the only fault to be found here may be on the part of Wells Fargo’s title searcher, which is the subject of a companion action.
Ultimately, as our Supreme Court has noted, "[t]he object of [legal or equitable] subrogation is the prevention of injustice." Wasko v. Manella, 269 Conn. 527, 532 (2004). Here, reordering the priorities as requested by defendant would grant him a windfall for which he did not bargain and penalize the plaintiff in a manner to which it never agreed. Accordingly, the court finds that the application of equitable subrogation to alter the existing priorities in this case is not justified.
Finally, defendant concedes in his brief that the second special defense and second counterclaim asserting lack of discovery should be stricken, eventually. These grounds were raised on April 12, 2018, nine months prior to the date of this ruling. The court finds that sufficient time has passed for discovery, even if it were to consider the pleading valid. However, these assertions cannot constitute a legitimate special defense or counterclaim because they do not state a defense or cause of action.
Conclusion
As a result of the foregoing, the plaintiff’s motion to strike the special defenses and counterclaims of defendant Sanchez is granted.