Opinion
No. FST CV 05 4006330 S
September 29, 2009
MEMORANDUM OF DECISION ON MOTION FOR DETERMINATION OF PRIORITIES AND FURTHER SUPPLEMENTAL JUDGMENT DATED SEPTEMBER 5, 2008 (#223.00)
This case tests the limits of the Superior Court's general equitable authority in the distribution of the net proceeds of a foreclosure by sale in what one of the lawyers has categorized as a race to scrounge for the meager assets remains after the death of Andrew M. Kissel. The moving party is claiming the entire proceeds since its underlying mortgage was recorded first in time. The opposing party is claiming an equitable division of the proceeds between these two parties based on the comparison of the losses sustained by both parties alleging that both parties were victims of a fraud perpetrated by Andrew M. Kissel. "There is no Connecticut Appellate authority addressing the issue . . ." National City Mortgage Company v. Stoecker, 92 Conn.App. 787, 792 (2006).
FACTS
On July 27, 2004 the defendant, Andrew M. Kissel, purchased real property at 43 Burning Tree Road, Greenwich, Connecticut and commenced construction of a single-family house. At the time of the purchase Mr. Kissel obtained a first mortgage issued by Washington Mutual Bank, FA in the face amount of $1,620,800. The mortgage was recorded in the Greenwich Land Records volume 4710 at page 1, immediately after the recordation of the warranty deed with which Andrew M. Kissel took title. At all times herein Washington Mutual Bank, FA professed to hold a first mortgage on the real property at 43 Burning Tree Road, Greenwich, Connecticut. On March 22, 2005 Andrew M. Kissel obtained a loan from Hudson Valley Bank in the amount of $4,500,000, which was secured by a mortgage deed recorded on March 22, 2005 in the Greenwich Land Records in volume 4877 at page 264. As of March 23, 2005 Hudson Valley Bank believed that it held a valid first mortgage on the property at 43 Burning Tree Road, Greenwich, Connecticut since a release of the Washington Mutual Bank, FA $1,620,800 mortgage had been duly recorded in the Greenwich Land Records. That Washington Mutual Bank, FA mortgage release was a forgery and was fraudulently obtained by Andrew M. Kissel. It was not a valid release of mortgage.
Thereafter, in May 2005 Andrew M. Kissel obtained a loan of $1,000,000 from Independence Community Bank which recorded a mortgage deed on 43 Burning Tree Road, Greenwich, Connecticut on May 25, 2005 in volume 4926 page 179 of the Greenwich Land Records. As of May 25, 2005 Independence Community Bank believed that it held a valid first mortgage on the property at 43 Burning Tree Road, Greenwich, Connecticut, since the Washington Mutual Bank, FA release had been previously recorded and the release of the Hudson Valley Bank $4,500,000 mortgage had been duly recorded in the Greenwich Land Records. That Hudson Valley Bank release was a forgery and was fraudulently obtained by Andrew M. Kissel. Fairfield County Bank Corporation loaned Andrew M. Kissel the sum of $4,525,000 in June of 2005. That loan was assigned to Ridgefield Bank Mortgage Corporation. A mortgage deed and assignment were recorded on June 3, 2005 in the Greenwich Land Records at respectively volume 4934 at page 208 and 4934 at page 226. As of June 3, 2005 Ridgefield Bank Mortgage Corporation believed it had a valid first mortgage on the property at 43 Burning Tree Road, Greenwich, Connecticut since the previously two releases had been recorded and a release of the Independence Community Bank $1,000,000 mortgage had been duly recorded in the Greenwich Land Record. That Independence Community Bank release was a forgery and was fraudulently obtained by Andrew M. Kissel. Name of the above four loans or mortgages were paid by anyone including Andrew M. Kissel.
Each of the four lenders mentioned previously commenced foreclosure litigation against Andrew M. Kissel. This instant lawsuit was commenced by Hudson Valley Bank by a complaint dated August 1, 2005 seeking a foreclosure of its $4,500,000 March 22, 2005 loan. After protracted litigation, the involvement of multiple other parties and the mysterious and sudden death of Andrew M. Kissel, a judgment of foreclosure by sale was entered in the above entitled case on January 29, 2007. On January 29, 2007 the fair market value of 43 Burning Tree Road, Greenwich, Connecticut including the real property and the partially constructed single-family house thereon was $2,200,000. The foreclosure sale took place on Saturday, March 31, 2007. There was spirited competitive bidding and the successful bidder bid $2,300,000. The Committee filed his report on the April 7, 2007, (#205.00) which contained the following notation: "Because of publicity surrounding the fraudulent conduct of property owner dealing with several banks, his subsequent arrest and murder, the sale was attended by over 50 people and also covered by several members of the press. Everyone was well behaved and no problems occurred."
A Motion for Approval of Committee Sale, Approval of Committee Deed and Committee Report, Fees and Expenses dated April 3, 2007 was filed by the Committee (## 203.00, 204.00, 205.00). The sale was approved and the deed executed on April 23, 2007. The closing took place and the successful bidder paid the $2,300,000 into court. From the sales proceeds the entirety of the debt due Hudson Valley Bank was paid. No payment was made to the other three lenders; Washington Mutual Bank, F.A., Independence Community Bank and Ridgefield Bank Mortgage Corporation. The Committee fees and costs were paid. The remaining balance of approximately $404,000 is on deposit with the Clerk of the Superior Court. 43 Burning Tree Road sold at the foreclosure sale for a sum in excess of the fair market value found by the court on January 29, 2007 and March 27, 2007.
There are two parties that are claiming the right to receive the $404,000 on deposit with the Clerk of the Superior Court; the defendant, First American Title Insurance Company, (First American) and the defendant, Stewart Title Guaranty Corporation (Stewart). Both are licensed title insurance companies who insured the three mortgage lenders who were not paid at the foreclosure sale. First American was added to this lawsuit as a party defendant by the granting of the Motion to Add/Substitute Parties dated April 13, 2007 (#206.00). First American insured Washington Mutual Bank, FA and First American Title Insurance Company received an assignment of Washington Mutual's $1,620,000 mortgage deed by an assignment dated March 29, 2007, which was duly recorded in the Greenwich Land Records prior to the March 31, 2007 sale. Prior to the March 31, 2007 sale, First American subordinated the Washington Mutual mortgage to that of the plaintiff, Hudson Valley Bank, by a subordination agreement dated March 30, 2007 also recorded in the Greenwich Land Records prior to the sale.
The Motion to Add/Substitute Partners stated that Washington Mutual's Mortgage "was prior in time and right to the interests of the plaintiff and each of the defendants in this action which dates from March 22, 2005 . . ." Accordingly, "First American, as assignee of Washington Mutual, has a right and interest in this action superior to that of all the named defendants . . . First American does intend to assert its right to the overage that the sale yielded, in accordance with its priority position over the other defendants." Furthermore, First American alleged in the Motion that by entering into the assignment of mortgage and subordination agreement, it was able to permit the Committee to convey to the successful bidder at the March 31, 2007 auction "clean title" to Burning Tree Road free from all encumbrances.
The defendant, Stewart, became a party defendant in the above entitled Hudson Valley Bank foreclosure by virtue of its recording an assignment of $1,000,000 mortgage from the Independence Community Bank that Stewart had insured. As stated, that $1,000,000 Independence Community Bank loan was secured by a mortgage on 43 Burning Tree Road, Greenwich, Connecticut.
In addition, Stewart insured an entirely different mortgage from Andrew M. Kissel to the Ridgefield Bank Mortgage Corporation in the face amount $3,500,000 dated December 18, 2003 secured by a mortgage on the real property owned by Andrew M. Kissel at 58 Quaker Lane, Greenwich, Connecticut. 58 Quaker Lane, Greenwich, Connecticut was not the subject of this instant Hudson Valley Bank foreclosure action. Stewart paid off both of those lenders and has received assignments of those mortgages. Stewart claims that those two lenders that it insured, Ridgefield Bank Mortgage Corporation and Independence Community Bank, were both defrauded by Andrew M. Kissel since Andrew M. Kissel had forged releases of prior mortgages on each property and misrepresented his financial condition. Stewart filed a lawsuit against the Estate of Andrew M. Kissel in United States District Court. It received a judgment against Andrew M. Kissel in the amount of $4,843,188.73 on April 20, 2007, based upon both the $3,5000,000 Ridgefield Bank Mortgage Corporation loan on 58 Quaker Lane, Greenwich, Connecticut and the $1,000,000 Independence Commercial Bank loan on 43 Burning Tree Road, Greenwich, Connecticut.
First American filed this instant Motion for Determination of Priorities and Further Supplemental Judgment dated September 5, 2008 (#223.00). The Motion requested: "That this Court: (1) determine that the movant's interest in this matter is first in right, and recorded prior, to any defendant lien holders appearing herein and enter Further Supplemental Judgment in First American favor in accordance with the attached judgment file." The Further Supplemental Judgment dated September 5, 2008 attached to Motion #223.00 requests the following orders: "Whereupon, it is adjudged that the Clerk of this Court pay to said defendant the following sum: (1) To the Defendant, FIRST AMERICAN TITLE INS. CO., the balance which remained on deposit with the Court after amounts paid to the Committee and Plaintiff plus interest, which as of September 4, 2008 was $405,517.91."
Stewart filed an Objection dated December 4, 2008 (#225.00) and a Memorandum of Law in Support of Objection dated December 4, 2008 (#224.00). Stewart's Objection and Memorandum in Support of the Objection "requests that the Court equitably apportion the balance on hand, as explained in its Memorandum of even date." The Objection argued that the trial court "must exercise its discretion and equitable powers with fairness not only to the foreclosing mortgagee, but to subsequent encumbrancers and the owner. Fidelity Trust v. Irick, 206 Conn. 484, 490 (1988) . . ." "The ultimate victims of Andrew Kissel's fraud are the insurers. When the insurers agreed to insure the various mortgages, each believed that it was insuring a first mortgage. Each fell victim to the forgeries of Andrew Kissel recorded on the land records, as well as the frauds committed through his misrepresentations on financial statements." In its Memorandum in Support of its Objection Stewart noted that its losses amounted to the $4,843,188.73 based on the Federal District Court judgment obtained on April 20, 2007 less credit for payments made to date of $74,838.63. The Objection then compared Stewart's losses with First American's losses and then proportioned those losses. Based on these calculations Stewart argued that it was entitled 71.46% of the balance on hand with the Clerk of the Superior Court whereas First American was entitled to 28.54%.
The Motion for Determination of Priorities and Further Supplement Judgment appeared on the non-arguable short calendar list for January 5, 2009. Without hearing oral arguments from either of the parties since the matter was on the non-arguable short calendar the court, Downey, J., on January 6, 2007 divided the remaining $404,277.71; Stewart in the amount of $288,896.85 (71.46%) and First American $115,380.86 (28.54%).
A Motion to Reargue dated January 28, 2009 (#226.00) was filed by the defendant, First American. The Motion requested reargument for three reasons: (1) Due process requires that First American should have been given the opportunity to be heard on Stewart's Objection and claim for apportionment before the Court ruled; (2) Stewart's apportionment claim is contrary to law; and (3) Even if the apportionment theory were to be applied, Stewart miscalculated the ratios by adding liens it insured on a property that is not the subject of this action. By the time the First American's Motion to Reargue was assigned for a hearing, Judge Downey was no longer a Judge of the Superior Court. The Motion to Reargue was assigned by the Administrative Judge of the Stamford/Norwalk Judicial District to the undersigned. The court reviewed the file in order to determine what procedural and substantive issues were involved. This court then entered a three-page order dated April 28, 2009 (#229.00) assigning a status conference for May 7, 2009 to discuss those issues. Among the issues to be discussed was the authority of the undersigned as a Judge Trial Referee to hear and decide the Motion to Reargue from a decision rendered by a Superior Court Judge who is no longer a Superior Court Judge. This status conference was postponed at counsel's suggestion and held on the record on May 28, 2009. Counsel for First American and Stewart appeared and both counsel agreed that Judge Tierney had the authority to hear all matters arising out of the Hudson Valley Bank v. Kissel matter including the Motion to Reargue and the underlying Motion for Determination of Priorities and Further Supplemental Judgment. The file reflects that there are ten separate law firms that filed appearances in this case. In addition, there are three named parties who have not filed appearances. All counsel were notified of the May 28, 2009 hearing and only counsel for First American and Stewart appeared. The matter thereafter was assigned for a hearing to be held on Tuesday, June 2, 2009. Again all parties were notified and the only two parties that appeared in court were the two defendant title insurance companies. The parties waived testimony. Stewart offered into evidence a copy of the federal judgment and the assignment of the two mortgages; Independence Community Bank and the Fairfield County Bank Corporation/Ridgefield Bank Mortgage Corporation to Stewart. The procedural matters set forth in the April 28, 2009 order were then discussed. The parties then furnished oral argument and the matter was submitted to this court on June 2, 2009.
MOTION TO REARGUE
The parties, First American and Stewart, agree that this court as a Judge Trial Referee has the power to decide the issues raised in the Motion to Reargue (#226.00) and in the underlying original Motion (#223.00) since the Superior Court Judge who entered orders on the original motion (#223.00) is no longer a Superior Court Judge. There is no statute or case exactly on point. A series of statutes and cases support the general authority of this court as a Judge Trial Referee to hear a Motion to Reargue and the underlying motion when decided by a Superior Court Judge who is no longer a Superior Court Judge. Conn. Gen. Stat. §§ 51-50e, 51-50f, 51-183f, 51-183g, 52-267 and 52-268; Holcombe v. Holcombe, 22 Conn.App. 363, 365 (1990); Nahas v. Nahas, 25 Conn.App. 595, 596-97 (1991); Stevens v. Hartford Accident and Indemnity Co., 29 Conn.App. 378, 385-86 (1992); and Stevens v. Hartford Accident and Indemnity Co., 39 Conn.App. 429, 437-38, 440-41 (1995).
"The purpose of reargument is . . . to demonstrate to the court that there is some decision or some principle of law which would have a controlling effect, and which has been overlooked, or that has been a misapprehension of facts . . . It also may be used to address alleged inconsistencies in the trial court's memorandum of decision as well as claims of law that the movant claimed were not addressed by the court . . . A motion to reargue however is not to be used as an opportunity to have a second bite of the apple or to present additional cases or briefs which could have been presented at the time of the original argument." Opoku v. Grant, 63 Conn.App. 686, 692-93 (2001). The Motion to Reargue is addressed to the discretion of the court. Terry v. Terry, 102 Conn.App. 215, 230 (2007); Valentine v. LaBow, 95 Conn.App. 436, 451 (2006).
Since this is a Motion to Reargue before one Judge from a decision decided by another Judge, the following rules apply. "Where a matter has previously been ruled on interlocutorily, the court in a subsequent proceeding in the case may treat that decision as the law of the case, if it is of the opinion that the issue was correctly decided, in the absence of some new or overriding circumstance." . . ."A judge is not bound to follow the decisions of another judge made at an earlier stage of the proceedings, and if the same point is again raised he has the same right to reconsider the question as if he had himself made the original decision . . . One judge may, in a proper case, vacate, modify, or depart from an interlocutory order or ruling of another judge in the same case, upon a question of law." Signore v. Signore, 110 Conn.App. 126, 133 (2008).
The event to which this Motion to Reargue is filed concerns a matter that has gone to final judgment. Neither party has appealed. In order to stay the appeal period the motion must be filed pursuant to P.B. § 11-11. First American Company did not comply with P.B. § 11-11 by indicating on the bottom of the first page that the Motion to Reargue was a P.B. § 11-11 motion. In the body of the Motion to Reargue, First American cited P.B. § 11-12. Since this is a Motion for Supplemental Judgment it is not an interlocutory order. This could mean that First American is precluded from filing a Motion to Reargue under these circumstances. This court has obtained a concession from both counsel on the record that this court has the jurisdiction to grant the Motion to Reargue and hear de novo the underlying Motion for Determination of Priorities and Further Supplemental Judgment dated September 5, 2008 (#223.00). This court is going to treat the order of Judge Downey as an interlocutory order. This court finds that it is not bound by Judge Downey's January 6, 2009 decision.
The Motion to Reargue is covered by P.B. § 11-12, (c): "The motion to reargue shall be considered by the judge who rendered the decision or order. Such judge shall decide, without a hearing, whether the motion to reargue should be granted. If the judge grants the motion, the judge shall schedule the matter for hearing on the relief requested." Since the parties have agreed that the undersigned shall hear both the Motion to Reargue and the underlying Motion for Determination of Priorities and Further Supplemental Judgment, P.B. § 11-12(c) gives this court the authority to consider the Motion to Reargue. The court therefore granted the Motion to Reargue on May 28, 2009 and assigned the Motion for Determination of Priorities and Further Supplemental Judgment for the June 2, 2009 hearing.
DISCUSSION OF ISSUES CT Page 15813
First American cites the general proposition of law that its claim is first because Washington Mutual Bank, FA recorded its mortgage deed first in chronological order. "The law relating to the priority of interests has its roots in early Connecticut jurisprudence. 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." Independence One Mortgage Corporation v. Katsaros, 43 Conn.App. 71, 73 (1996). In this case there is no claim that the mortgages insured by the Stewart failed to record their mortgages within a reasonable time. First American argues that it is entitled to the entire proceeds on deposit on the theory of: "The first in time is the first in right," a common-law rule, Linden Condominium Association v. McKenna, 247 Conn. 575, 584-85 (1999); Carmody v. Peck, 40 Conn.Sup. 484, 490 (1996); United States v. New Britain, 347 U.S. 185, 74 S.Ct. 367, 98 L.Ed. 520 (1954).
Stewart is claiming that this court should divide the $404,000 plus proceeds remaining in the hands of the Clerk of the Superior Court on an equitable basis since a foreclosure is an equitable proceeding. Stewart is claiming an 71.46%/28.54% division of the clerk held proceeds between Stewart and First American.
The court ordered a judicial sale pursuant to Gen. Stat. § 49-25. "The purpose of the judicial sale in a foreclosure action is to convert the property and the money and, following the sale, a determination of the rights of the parties and the funds is made, and the money received from the sale takes the place of the property." Gruss v. Curry, 132 Conn. 22, 25-26 (1945); National City Mortgage Company v. Stoecker, supra, 92 Conn.App. 794. "Under Connecticut law, the rights of the mortgagor in the mortgaged property are terminated by confirmation of the foreclosure sale, and subsequent to such sale, any interest the mortgagor may claim is in the proceeds of the sale solely and not in the property . . . A judicial sale becomes complete and creates a legal right to obligations among parties when it is confirmed and ratified by the court. Hartford Federal Savings and Loan Assn. v. Tucker, 13 Conn.App. 239, 247 (1988)." National City Mortgage Company v. Stoecker, supra, 92 Conn.App. 794-95.
Stewart also claims the following equitable considerations. First in time is first in right is not an immutable provision of law and is not applicable to the division of proceeds after the foreclosure by sale takes place since the mortgages have been extinguished on the real property. Therefore, first in time is first in right is a title doctrine and does not determine the distribution of surplus funds held after a foreclosure sale has been approved by the court and excess funds are to be distributed. (2) The distribution of excess funds is an equitable proceeding. (3) Andrew M. Kissel committed a fraud by forging a series of mortgage releases on multiple properties not only 43 Burning Tree Road. When he refinanced those properties he failed to pay off the existing mortgage and pocketed the new mortgage proceeds. Each of the lenders believed that they held a first mortgage. Washington Mutual Bank FA, and Independent Mortgage Corporation both believed they held a first mortgage on the property at 43 Burning Tree Road, Ridgefield Bank Mortgage Corporation also believed it has a valid mortgage on the property at 58 Quaker Lane. Equally so the two title insurance companies, First American and Stewart, both believed they had been insuring first mortgages. The parties seeking distribution are in equal status all due to the extensive fraudulent conduct of Andrew M. Kissel. (4) Stewart was the first to obtain a formal judgment against Andrew M. Kissel; on April 20, 2007 in the Federal Court, District of Connecticut. (5) This case involves the distribution of the meager assets remaining in the Estate of Andrew M. Kissel and those proceeds should be equitably divided among the victims of the mortgage fraud perpetrated by Andrew M. Kissel. For full equitable relief the judgment Stewart obtained against Kissel in the Federal District Court should be prorated with the Washington Mutual mortgage, resulting in a 71.46%/28.54% division of the funds on deposit with the Clerk: Stewart 71.46%, First American 28.54%.
To these claims First American responds, citing the following equitable considerations on its behalf: (1) The assignment of the Washington Mutual mortgage to First American, the payment by First American to Washington Mutual of the entire mortgage claimed by Washington Mutual and the subordination of the Washington Mutual mortgage to the Hudson Valley Bank created a situation where 43 Burning Tree Road was sold free and clear of any of the mortgages thus increasing the ease with which the Committee would be able to sell the property thereby increasing the amount of cash available for distribution. (2) The sales price after a spirited auction was $2,300,000 exceeding the appraised value of $2,200,000 and this increase in price should accrue to the benefit of First American on equitable grounds. (3) First American claims the first in time, first in right is also an equitable principal since its underlying Washington Mutual Bank, FA mortgage was first recorded. It notes that none of the later lenders made a telephone call to or tried to verify directly with Washington Mutual that the recorded release of mortgage was valid and in fact that the Washington Mutual mortgage had been paid off. There was no opportunity for Washington Mutual to make similar contact with any of the lenders who had filed mortgages thereafter since Washington Mutual mortgage was recorded first in time. (4) If equitable factors between Stewart and First American are to control the distribution of funds, the percentage distribution should be based upon their status as lien holders against 43 Burning Tree Road only. Therefore the $3,500,000 claim arising out of Ridgefield Bank Mortgage Corporation at 58 Quaker Lane, Greenwich, Connecticut should not be considered in the apportionment of the remaining funds currently being held by the Clerk of the Superior Court.
Although the "first in time is first in right" is a fundamental principal in the determination of priority of interests, there are a number of exceptions to this rule. State v. Bucchieri, 176 Conn. 339, 346-47 (1978) (priority of certain debts due the federal government); Conn. Gen. Stat. § 47-258 (priority of liens with respect to foreclosure involving condominium confirmed by Dime Savings Bank v. Muranelli, 39 Conn.App. 736, 739 (1995)). The doctrine of equitable subrogation is an exception to the first in time, first in right theory. "Our Supreme Court has stated that in numerous cases it has been held that one who advances money to discharge a prior lien on real or personal property and takes a new mortgage as security is entitled to be subrogated to the rights under the prior lien against the holder of an intervening lien of which he was ignorant." Independence One Mortgage Corporation v. Katsoros, 43 Conn.App. 71, 73-74 (1996). "The doctrine of equitable subrogation is not involved as a means of circumventing the rights of existing lien holders who have properly recorded their mortgage instruments. The case of Lewis v. Hinman, 55 Conn. 13 A.143 (1887), went no further than to hold that where owners of a third mortgage who paid a first mortgage on the property and caused a release of that first mortgage to be recorded, in ignorance of a second mortgage, they could not assert any rights under the released first mortgage against one who, in reliance upon the record purchased the second mortgage." Id., 75-76.
This court has not been able to locate any other exceptions to the first in time and first is right theory nor have the briefs of the parties indicated any such exception. It appears that the above cited exceptions are not applicable to this case the court concludes that the "first in time is first in right" theory is therefore, not an immutable principle of law without exceptions. It is not clear that the "first in time is first in right" theory applies to proceeds of a foreclosure by sale when the committee deed has been approved by the court, the sale has been conducted and the only issue before the court is the distribution of the excess money on deposit with the clerk of the court.
Both parties agree that a foreclosure of real property is an equitable proceeding. Willow Funding Co L.P. v. Grencom Assoc., 63 Conn.App. 832, 849 (2001).
Stewart further argues that "apportionment is an appropriate equitable remedy when the circumstances require it to be employed." Four Connecticut cases have been cited by Stewart in its Opposition papers in support of this proposition. First American argues that none of the four cases stand for the proposition that the funds being held by the clerk in this case are subject to such equitable apportionment.
First American notes that the disposal of the proceeds of a foreclosure sale is covered by Gen. Stat. § 49-27 which states; "The proceeds of each such sale shall be brought into court, there to be applied if the sale is ratified, in accordance with provisions of a supplemental judgment then to be rendered in the cause, specifying the parties who are entitled to the same and the amount to which each is entitled. If any part of the debt or obligation secured by the mortgage or lien foreclosed or by any subsequent mortgage or lien was not payable at the date of the judgment of foreclosure, it shall nevertheless be paid as far as may be out of the proceeds of the sale as if due and payable . . ." First American notes that Gen. Stat. § 49-27 does not provide for equitable apportionment. Gen. Stat. § 49-27 is silent on the standards for that supplemental judgment that orders the distribution of the remaining funds. Case law states that distribution of the surplus from a foreclosure sale is an equitable proceeding. Bryson v. Newtown Real Estate Development Corp., 153 Conn. 267-73 (1965).
Three of the four cases cited by Stewart in support of the claim for apportionment will now be discussed. Mortgage Electronic Registration Systems, Inc. v. Bank, 97 Conn.App. 822, 834-36 (2006) was an appeal from a supplemental judgment in a mortgage foreclosure that dealt with the holding of surplus funds sufficient to cover any additional attorney fees. The trial court held that reserving the surplus proceeds from distribution to the mortgagee was within the equitable jurisdiction of the court. The court noted the extensive pleadings filed by the self-represented defendant and the torturous and labyrinthine procedural history involved. MERS v. Bank does not support Stewart's equitable apportionment claim.
The Fidelty Trust Company v. Irick et al. 206 Conn. 484, 490-91 (1998) involved a dispute between mortgagees regarding the type of foreclosure the court should allow; sale or strict foreclosure. The Appellate Court reversed the trial court's denial of a foreclosure by sale in light of the substantial equity that would remain in the real estate once the foreclosing first mortgage was paid in full. This case does not involve the priority of mortgagees and their right of the proceeds after a foreclosure sale.
Town of Voluntown v. Rytman, 21 Conn.App. 275, 278-81 (1990) involved a defendant in a tax foreclosure who sought to divide the real property that was to be sold in a foreclosure sale and to require the sale of only those portions of the real property necessary to satisfy the mortgage. The trial and Appellate Court rejected that claim indicating that the trial court has the right to accept or reject the sale of foreclosure real property in parcels and the trial court properly exercised its discretion. Rytman did not involve the apportionment of funds after a foreclosure sale.
CONCLUSION
A judicial sale converts the property rights to a fund of money. Then following the sale the court then determines the rights of the various parties to those funds. Gen. Stat. § 49-27; Gruss v. Curry, supra, 132 Conn. 25-26; National City Mortgage Company v. Stoecker, supra, 92 Conn.App. 794. After considering the cited cases on the exception to the "first in line is first in right" and the above proposition, the court declines to accept First American's claim to all of the proceeds solely based on the fact that its mortgage to Washington Mutual Bank, FA was recorded first. So too the court will not simply apply equitable principles in creating an apportionment of the remaining funds.
The court finds the fourth case cited by Stewart instructive.
In Bryson v. Newtown Real Estate and Development Corporation, 153 Conn. 267, 273 (1965), there were multiple mortgages on a large parcel of property called Parcel A that had been divided into separate tracts. There was a larger parcel that covered four contigious tracts of land on which Bryson held a first mortgage. Mortgagee P had a subsequent mortgage on one of the four tracts called Parcel B. Mortgagee D had a mortgage on Parcel A recorded after P's mortgage. All mortgages were properly executed and recorded. Bryson and P commenced separate foreclosure actions that were heard together. After the foreclosure sale there was a surplus and the trial court entered a supplemental judgment dividing the surplus proceeds. The trial court found that in effect P held a second mortgage on one of the four tracts and D held a second mortgage on the remaining three tracts and in effect D had a third mortgage on the single tract that P held a second mortgage. P wanted the rule of recorded priority to be followed and D wanted the rule of apportionment to be followed. The court ordered apportionment of funds was upheld. "We believe the two second mortgages should be treated equally and that it was proper for the court to apportion the surplus between them according to the respective values of their security." Id., 273
Although Bryson v. Newton Real Estate and Development Corporation does not cite the proposition of law used to reach that result, there is a Connecticut name for that theory: pari passu. Pari passu is the Latin phrase that literally means with "equal step." It is sometimes referred to as "part and parcel" or "hand in hand." Black's Law Dictionary 8th Edition, 2004 defines pari passu as "proportionally; at an equal pace; without preference."
Court proceedings where this legal theory is most commonly found is when creditors are said to be paid pari passu with each creditor being paid pro rata in accordance with the amount of his claim. In finance, the phrase "pari passu" refers to two or more loans, bonds, or series of preferred stock having equal rights of payment or level of seniority being paid at an equal pro rata basis.
It took almost two hundred years for pari passu to find its way into Connecticut jurisprudence. Robinson v. The Security Company Trustee, 87 Conn. 268, 270 (1913). Robinson involved the decedent's estate of two partners, William D. Hubbard and R. W. Farmer, who had been business partners in a partnership know as Hubbard and Farmer during their lifetime. Their respective decedent estates were in the process of settlement as insolvent estates in the Hartford Probate Court. Three assets were available for distribution: (1) The partnership assets of $24,609; (2) The assets of the separate Estate of Hubbard, $2,609; and (3) The assets of the separate Estate of Farmer in the amount of $5,053. The plaintiff was the administrator of the Estate of C.N. Beach, which had a claim against the partnership in the amount of $273,046. At the same time there were additional claims by other parties against the Estate of Hubbard in the amount of $13,934, additional claims by other parties against the Estate of Farmer in the amount of $17,130, and additional claims against the partnership in excess of $159,000. The Estate of C.N. Beach also had an individual claim as against the assets of the Estate of Farmer in the amount of $9,525. The plaintiff requested the distribution of the assets pari passu and requested that the court distribute consistent with the case of Camp v. Grant, 21 Conn. 41 (1851).
The Robinson decision is a virtual treatise on the subject of pari passu tracing the concept back for over two hundred years and citing cases on both sides of the Atlantic. The Supreme Court followed Camp v. Grant and entered the following orders: "The Superior Court is advised to render judgment dividing the distributable partnership assets ratably among the partnership creditors and the distributable assets belonging to the estate of each partner ratably among the separate creditors of such partner together with the partnership creditors, the several claims of the latter for such division to be reduced from the amounts allowed by the commissioners by the sums which will be received thereon respectively in the distribution of the partnership assets." Robinson v. The Security Company Trustee, supra, 87 Conn. 284-85.
Therefore, the Robinson court was decided on the basis of various levels of assets by each of the creditors. Then those assets were distributed on a pro rata basis within the same level of distribution. Pari passu is still valid law in Connecticut despite the fact that it was last cited by our Supreme Court in 1932. Bassett v. Merchants Trust Company, 115 Conn. 530, 538 (1932). See New York Law Journal, March 6, 2006 "Pari Passu Means What Now."
Applying Robinson to the facts of this case, the court can determine that there are clear separate levels of claimants. Although each of the three banks were similarly defrauded in the same manner by Andrew M. Kissel under a fraudulent scheme that was consistently applied by Mr. Kissel, the parties still retained separate levels of priority based on the Connecticut recording laws. This is unlike Bryson where it was impossible to determine what level of priority each party held due to the intersecting of the recorded mortgages. In Kissel there are no intersecting mortgages. Each is recorded in a chronological date as to a specific parcel of real property, either 43 Burning Tree Road or 58 Quaker Lane.
Applying the equitable principles of pari passu, the court finds that there are three levels of claimants: In the first level is Washington Mutual Bank, FA, who because of the forged release of its mortgage is and always was the only first mortgage on 43 Burning Tree Road. In the second level is Hudson Valley Bank, who because of the forged release of the previous Washington Mutual Mortgage is and was the only second mortgage on 43 Burning Tree Road. Independence Community Bank, is and was the only third mortgagee on 43 Burning Tree Road and thus is the third level.
After determining what parties are in what distribution level, the court then must under the theory of pari passu pro rata the funds held by the clerk among all in that level. Since Washington Mutual Bank, FA is the only claimant in the first level, and its claim is in excess of the $404,000, Washington Mutual Bank, FA is entitled to the entire funds on deposit with the clerk. Therefore, there are no funds left to distribute to levels two and three.
The court having granted the Motion to Reargue (#226.00) hereby grants the Motion for Determination of Priorities and Further Supplemental Judgment dated September 5, 2008 (#223.00) and orders the Clerk of the Superior Court to distribute to First American Title Insurance Company the entirety of the proceeds on deposit with the Clerk's office together with any accrued interest.