Opinion
No. 4004428
July 12, 2006
MEMORANDUM OF DECISION RE MOTION FOR DEFICIENCY JUDGMENT #116
FACTS
On February 10, 2005, the plaintiffs, Sonny and Lucy Pezzello, sold the property at 66 Jefferson Avenue, New London, Connecticut ("the property") to defendant Knight Development, LLC ("the company") and took back a note of $250,000.00. The note was secured by a mortgage on the property from the company and personally guaranteed by Elizabeth Knight ("Knight"). Neither party made a payment on this note. This foreclosure action, brought by the plaintiffs on September 9, 2005, followed default under the above note.
The first count seeks a foreclosure of a mortgage as to the company. The second count seeks a deficiency judgment against both defendants; Knight is a defendant solely as a guarantor of the note secured by the aforesaid mortgage. Both of the defendants were defaulted for failure to appear.
On November 18, 2005, the plaintiff moved for judgment of strict foreclosure. On January 3, 2006, judgment was entered in accordance with the plaintiff's motion and a law day of January 26, 2006, was assigned to the company, the owner of the equity of redemption. No law day was assigned to Knight.
On February 21, 2006, the plaintiff moved for a deficiency judgment in the amount of $50,616.79 against Knight. On May 3, 2006, Knight filed an objection to the motion, with accompanying memorandum of law. Knight claims that the plaintiffs in a foreclosure action are not entitled to a deficiency judgment against a guarantor named in the original action as a defendant but for whom no law day was assigned. On May 5, 2006, the plaintiff filed a reply to Knight's objection to the motion for deficiency. Oral argument was heard at short calendar on May 8, 2006.
DISCUSSION
"A deficiency judgment provides a means for a mortgagee to recover any balance due on the mortgage note that was not satisfied by the foreclosure judgment . . . It is the only means of satisfying a mortgage debt when the security is inadequate to make the foreclosing plaintiff whole." People's Bank v. Bilmor Building Corp., 28 Conn.App. 809, 822, 614 A.2d 456 (1992). A motion for deficiency judgment may be brought "[a]t any time within thirty days after the time limited for redemption has expired." General Statutes § 49-14(a).
The fundamental issue in this case, and one of first impression in our state, concerns whether the plaintiff in a foreclosure action is entitled to a deficiency judgment against a guarantor named in the original action as a defendant but for whom no law day was assigned. If the guarantor is entitled to a law day, then, as discussed herein, title should not have vested in the plaintiffs without reopening the judgment assigning new law days to both Knight Development, LLC and Knight. (See C.G.S. § 49-15.) In that event, any motion for deficiency judgment would be premature. On the other hand, if the guarantor is not entitled to an individual law day, title has vested in the plaintiffs and the motion for deficiency judgment is timely.
There is a split of authority as to whether a co-signor, obligor, or guarantor should be assigned a law day. "The right of a co-maker or guarantor to have a law day is discussed under the heading `Lingering Problems' in Denis R. Caron's treatise Connecticut Foreclosures, Fourth Edition, 2004, § 19.05, pp. 430-31. The author's conclusion is that such a person is entitled to a law day, basing his opinion in part on The North End Bank Trust Co. v. Mandell, 113 Conn. 241, 246, 155 A. 80 (1931)." First Constitution Bank v. Pulito, Superior Court, judicial district of Fairfield, Docket No. CV 91 027999 (January 16, 1992, Lewis, J.) ( 5 Conn. L. Rptr. 468) (holding that a co-maker is entitled to a law day), affirmed, 31 Conn.App. 940, 626 A.2d 1344, cert. denied, 227 Conn. 918, 632 A.2d 690 (1993); see also Savings Bank of Rockville v. Soapstone Associates, Superior Court, judicial district of Tolland, Docket No. CV 92 513399 (June 7, 1994, Klaczak J.).
However, in Connecticut National Bank v. Granby Griffin Road Associates, Superior Court, judicial district of New Britain, Docket No. CV 920514118 (April 1, 1993, Satter, J.T.R.) ( 8 Conn. L. Rptr. 569), the court held that "an obligor on or guarantor of a note secured by a mortgage, who is not a mortgagor, has no interest in the property, and is not an encumbrancer . . . [He] accordingly has no right of redemption" and is not entitled to a law day.
The defendant argues that Connecticut common law entitles a guarantor to a law day. In Associated East Mortgage Co. v. Highland Park, Inc., Superior Court, judicial district of New Haven, Docket No. 137592 (June 6, 1975, McCarthy J.); upheld on separate grounds in Associated East Mortgage Co. v. Highland Park, Inc., 172 Conn. 395, 374 A.2d 1070 (1977); two guarantors were made defendants. The court stated, "the defendants . . . as guarantors are entitled to a law day and that that day should be the same as that assigned the named defendant, their positions being essentially the same in respect to the mortgage." However, Judge McCarthy's conclusion was predicated upon the fact that there were additional defendant inferior mortgagees and if the guarantors' law day was subsequent to the law day of the inferior mortgagees, then the guarantors would be placed in a redemptive position superior to that of their principle, the named defendant. That case is not dispositive on the facts in this case where there are no inferior mortgagees and Knight would not be placed in a better position than the company if she did not receive a law day.
This court, instead, finds the Connecticut General Statutes and subsequent interpretations more persuasive. The right of redemption in a foreclosure action is premised on possessing an interest in the property. General Statutes §§ 49-19 and 49-20, create a right of redemption only for the owner in equity and in subsequent encumbrancers. "An obligor on or a guarantor of a note secured by a mortgage, who is not a mortgagor, has no interest in the property and is not an encumbrancer." Connecticut National Bank v. Granby Griffin Road Associates, supra, Superior Court, Docket No. CV 92 0514118.
"In actions of foreclosure, when a judgment of strict foreclosure is rendered and there are subsequent encumbrances, the judgment may provide that, upon the payment of the debt and costs by any encumbrancer, after all subsequent parties in interest have been foreclosed, the title to the property shall vest absolutely in such encumbrancer making such payment, subject to such unpaid encumbrances, if any, as precede him."
"When a strict foreclosure judgment contains a provision that title to the real estate being thereby foreclosed shall vest in the encumbrancer who redeems pursuant to the judgment, or specifies that the title shall vest in any particular person or persons who redeem as therein provided, the validity and effect of the judgment and of the provision therein shall not be limited or otherwise affected by the fact that the encumbrance or interest of the person so redeeming applies to or covers only a portion of the property described and being foreclosed in the judgment. In such case, if the foreclosure judgment requires that person to pay the entire amount thereof or be foreclosed of all equity to redeem the premises described in the judgment, the person shall, by the judgment, acquire all the rights and title of the foreclosing party granted by the judgment, as fully as if his interest or encumbrance covered all of the property described in the judgment."
Here, Knight, even as the only member of the company, has no interest in the property either as an owner or an encumbrancer. Furthermore, there remains an important distinction between the rights and obligations under the note secured by the mortgage and the mortgage itself. "A note and a mortgage given to secure it are separate instruments, executed for different purposes and in this State action for foreclosure of the mortgage and upon the note are regarded and treated, in practice, as separate and distinct causes of action, although both may be pursued in a foreclosure suit." Atlas Realty Corp. v. House, 120 Conn. 661, 670, 183 A. 9 (1936). As such, Knight's interest as a party to a foreclosure action is limited to matters that may affect her personal liability for the foreclosure on the note (i.e., she may submit appraisals and seek to influence the manner of the foreclosure i.e. strict or sale) and not the foreclosure on the mortgage. Connecticut National Bank v. Granby Griffin Road Associates, supra.
Knight, in the present action, failed to appear prior to counsel's appearance after judgment had entered. She failed to appear and object to the foreclosure, file any defenses and/or challenge the appraised value of the property for the court to determine whether a judgment of strict foreclosure or sale should be ordered.
The court, therefore, concludes the defendant guarantor is not entitled to a law day and this matter shall be set down for hearing as to the amount of the deficiency, if any. Plaintiff's counsel is ordered to reclaim its motion for a deficiency judgment.