Opinion
No. CV-10-6001649S
September 23, 2011
MEMORANDUM OF DECISION ON MOTION FOR DEFICIENCY JUDGMENT
The plaintiff, Samsam, LLC, has moved for a deficiency judgment against the defendants, River Run Estates, LLC ("River Run"), Kenneth Robitaille and Roberta Robitaille, after a foreclosure by sale where the plaintiff was the successful bidder with a bid that was more than $60,000 less than the debt and more than $100,000 less than the fair market value of the mortgaged property. The defendants have objected to the deficiency judgment on legal and equitable grounds.
Factual and Procedural Background
The plaintiff commenced this action by complaint dated January 20, 2010. It alleged that by its note dated January 25, 2008, River Run Estates, LLC promised to pay to the plaintiff the principal sum of $250,000 and that the note was secured by a mortgage on parcels of land in East Haddam, Connecticut. The complaint further alleges that the defendants, Kenneth Robitaille and Roberta Robitaille, signed a guaranty agreement wherein they guaranteed payment and performance of all sums due to the plaintiff under the note from River Run Estates, LLC. The note matured on January 25, 2009 and despite demand, the defendants have failed to pay the note and the note, mortgage and guaranty are in default.
The defendants, Kenneth Robitaille and Roberta Robitaille, filed pro se appearances "in lieu of Attorney Vincent Sabatini" on March 3, 2010. The "in lieu of" appearance is puzzling because as of March 2010, Attorney Sabatini had not filed an appearance for any defendant. On October 6, 2010, Attorney Sabatini entered an appearance for the defendants, River Run and The Salmon River Estates Homeowner's Association, Inc. ("Salmon River").
Defaults entered against all defendants and the plaintiff moved for a foreclosure judgment. That motion was heard and granted on September 27, 2010. On that date, the court found that the mortgaged property had a fair market value of $395,000, and that the debt was $289,529.87. Upon the motion of the defendant, Diciccio Brothers, a subsequent encumbrancer, the court granted a foreclosure by sale. The present defendants did not oppose the sale.
Prior to the sale, the court-appointed appraiser valued the mortgaged property at $365,000. In accordance with the court's order, the sale occurred on December 4, 2010. There was an opening bid of $100,000 from a third party and the plaintiff made the high bid of $250,000. On December 9, 2010, the committee for sale filed a Motion for Approval of Sale. The defendants, River Run and Salmon River, were represented by Attorney Sabatini at that time. Neither River Run, Salmon River, nor the Robitailles objected to the court's approval of the sale, and the sale was approved by the court on December 23, 2010.
Thereafter the plaintiff filed a Motion for Supplemental Judgment which was approved by the court on March 9, 2011. On March 18, 2011 the plaintiff filed the Motion for Deficiency Judgment now under consideration. On March 23, 2011, Attorney Sabatini entered his appearance for the Robitailles and on the same date he filed a Motion for Extension of Time to Respond to the Motion for Deficiency Judgment. On April 8, 2011, River Run, Salmon River, Kenneth Robitaille and Roberta Robitaille filed an objection to the Motion for Deficiency Judgment.
Discussion of the Law and Ruling
The defendants' first argument in opposition to the deficiency judgment is that the defendants are entitled to a hearing to determine the value of the mortgaged property before the court can grant a deficiency judgment. Unfortunately for the defendants, there is case law which specifically contradicts this argument. In New England Savings Bank v. Lopez, 227 Conn. 270, 630 A.2d 1010 (1993), the Connecticut Supreme Court addressed facts quite similar to those of the present case. In that case a subsequent encumbrancer moved for a judgment of foreclosure by sale. At the hearing on foreclosure judgment the plaintiff's appraiser testified that the value of the property was $274,000, and the subsequent encumbrancer's appraiser testified that the value was $563,000. The trial court, found the value to be $490,000, found the amount of the debt to be $385,157.59, and granted the motion for a judgment of foreclosure by sale. The trial court appointed three appraisers to appraise the property. The plaintiff was the only bidder at the foreclosure sale. Subject to the approval of the sale by the court, the plaintiff purchased the property for $260,000, free and clear of all liens except for a tax lien to the town of Groton in the amount of approximately $23,000. Thereafter, the defendants moved to set aside the sale and for a judgment of strict foreclosure. The trial court denied these motions and approved the sale.
Prior to P.A. 91-25 Connecticut General Statutes § 49-25 required that the court appoint three appraisers to appraise property that was subject to foreclosure by sale.
The defendants in New England Savings Bank argued that "the calculation of a deficiency in a foreclosure by sale by merely subtracting the sales price from the debt . . . without providing a hearing to establish the actual value of the property sold . . . is unconstitutional because it does not provide the mortgagor, who does not request a foreclosure sale, with any meaningful hearing during which he can give testimony or present evidence . . . as to the true fair market value of the property sold at the forced sale." New England Savings Bank, supra, at 275-76.
The foregoing, absent the constitutional claim, is essentially what the defendants here argue. The Court in New England Savings Bank upheld judgment of the trial court granting the deficiency, stating:
While an evidentiary hearing is required to determine the value of the mortgaged property and thus the amount of any deficiency following a strict foreclosure, such a valuation would be superfluous following a foreclosure by sale. In the latter action the price realized upon the sale of the property fixes the amount for which a deficiency may be entered pursuant to General Statutes 49-28. Fairfield Plumbing Heating Supply Corporation v. Kosa, 220 Conn. 643, 646 n. 8, 600 A.2d 1 (1991); see also Cronin v. Gager-Crawford Co., 128 Conn. 688, 692-93, 25 A.2d 652 (1942); D. Caron, Connecticut Foreclosures (2d Ed. 1989) 9.05B, p. 161." (Internal quotation marks omitted.) Baybank Connecticut, N.A. v. Thumlert, 222 Conn. 784, 788-89, 610 A.2d 658 (1992). The deficiency is determined by subtracting the sale proceeds from the amount of the debt. Id., 786; Cronin v. Gager-Crawford Co., supra, 692.
Furthermore, General Statutes 49-14(a), which does provide for an evidentiary hearing to determine the fair market value of property under foreclosure, "applies only to deficiency judgments in strict foreclosure actions." Fairfield Plumbing Heating Supply Corporation v. Kosa, supra, 646 n. 8. Nor does the appraisal procedure provided by 49-25 supply a basis for the defendants' premise that they are entitled to a credit of the property's fair market value, as opposed to the foreclosure sale proceeds, for purposes of determining a deficiency judgment. That procedure performs two different functions: (1) it gives the trial court guidance on the subsequent question of whether to approve the sale; and (2) it provides the basis for the reduction in the amount of a deficiency judgment permitted to the party who moved for the foreclosure by sale, required under 49-28. Cronin v. Gager-Crawford Co., supra, 692.
New England Savings Bank, supra, 277-79.
The Court in New England Savings Bank also pointed out that the foreclosure statutes give the mortgagor several opportunities to be heard with respect to the foreclosure sale:
Our foreclosure statutes permit a mortgagor to be heard regarding the determination of whether there should be a foreclosure by sale and, if so, whether the sale should be confirmed. Furthermore, with notice of the sale, the mortgagor may participate, either by bidding or by attempting to increase the likely sales price by interesting other potential bidders in the property. Consequently, we believe that the legislature may constitutionally permit the Superior Court to ascertain the amount of a deficiency judgment in a foreclosure by sale case by subtracting the amount of the proceeds of the sale from the amount of the debt.
New England Savings Bank, supra, 282-83. Emphasis added.
The defendants did not object to the foreclosure sale and did not object to the approval of the sale, even though at the time of said approval River Run and Salmon River were represented by counsel.
The Court in New England Savings Bank made it clear that a discrepancy, even a large one, between fair market value and actual sales price at a foreclosure sale is not a ground for disapproving a foreclosure sale:
Indeed, the usual notion of fair market value is inconsistent with the notion of a foreclosure sale. "[F]air market value is generally said to be the value that would be fixed in fair negotiations between a desirous buyer and a willing seller, neither under any undue compulsion to make a deal." (Internal quotation marks omitted.) Uniroyal, Inc. v. Board of Tax Review, 174 Conn. 380, 390, 389 A.2d 734 (1978); New Haven Savings Bank v. West Haven Sound Development, 190 Conn. 60, 71, 459 A.2d 999 (1983). An auction sale, such as a foreclosure sale, is not designed to reach that result because there is no opportunity for negotiations, and the seller, namely, the committee appointed by the trial court to conduct the sale, is under compulsion to "make a deal," in the sense that it is required to take the highest bid, subject only to the approval of the court.
Moreover, the traditional definition of fair market value implies a seller who is willing to entertain offers, and either rejects them or makes counteroffers and negotiates. That, in turn, implies the willingness to take time to sell, in order to see what the market will bring, and that willingness, in turn, implies a seller willing to take the risk of the market going down. Similarly, a desirous buyer who offers less than what the seller asks takes the risk of the market going up and of another desirous buyer making a higher offer. Neither of these scenarios fits the paradigm of the foreclosure sale, in which there is no asking price, no offer and counteroffer, and no opportunity for the parties to incur the respective market risks.
New England Savings Bank, supra, at 280-81.
In Cronin v. Gager-Crawford Co., 128 Conn. 688, 25 A.2d 652 (1942), which was relied upon by the Court in New England Savings Bank, the Court addressed the validity with respect to the deficiency judgment of the sales price of a sale which has been approved by the court:
There is, however, ample authority that . . . the price realized upon a sale which has been duly approved by the court affords the basis for the determination of the amount of the deficiency. Whites Estate, 322 Pa. 85, 89, 185 A. 589; Artisti-Kote Co. v. Benefactor Bldg. Loan Ass'n., 64 F.2d 407, 408; Jacksonville Loan Insurance Co. v. National Mercantile Co., 77 Fla. 825, 82 So. 292; Etter v. State Bank of Florida, 76 Fla. 203, 79 So. 724; Walton v. Washington County Hospital Ass'n., 178 Md. 446, 451, 13 A.2d 627; Marshall v. Davies, 78 N.Y. 414, 422; Frank v. Davis, 135 N.Y. 275, 279, 31 N.E. 1100; Snyder v. Blair, 33 N.J. Eq. 208, 209; 3 Jones, Mortgages (8th Ed.), 2206; 3 Wiltsie, Mortgage Foreclosure (5th Ed.), 975, 994; 37 Am.Jur. 243, 865; 42 C.J. 295, 1982. As the court said in Walton v. Washington County Hospital Ass'n., supra, at page 451: "It is also well established that since the confirmation of a foreclosure sale is the final determination by the court that the mortgaged property was sold at a fair price, the defense of inadequacy of price cannot be raised in subsequent proceedings, and for the purpose of a deficiency decree the price obtained at the sale is conclusive on the question of the market value of the property." The theory underlying the rule first above stated in that the mortgage is merely security for the debt, and, as in the case of the pledge of any property for debt where it has been fairly sold at public auction, the creditor is obliged only to credit the amount received and may hold the debtor for the balance. We are satisfied that the rule is the sound and proper one, and that, by reason of the court's power to disapprove a sale if found to be unfair or inequitable to any of the parties, it is well calculated to accomplish a just result.
Cronin v. Gager-Crawford Co., supra, at 692-93. Emphasis added.
The defendants next argue that they are entitled to a credit of one half of the difference between the appraised value of the property and the sales price pursuant to Connecticut General Statutes § 49-28. That statute provides, in pertinent part:
If the property has sold for less than the appraisal provided for in section 49-25, no judgment shall be rendered in the suit or in any other for the unpaid portion of the debt or debts of the party or parties upon whose motion the sale was ordered, nor shall the same be collected by any other means than from the proceeds of the sale until one-half of the difference between the appraised value and the selling price has been credited upon the debt or debts as of the date of sale; and, when there are two or more debts to which it is to be applied, it shall be apportioned between them.
The foregoing statute does not support the defendants' argument. The plaintiff did not move for sale and, therefore, the penalty provision does not apply to it. Cronin v. Gager-Crawford Co., supra, at 691. The statute contemplates reducing the debt owed to a creditor who moves for sale and not the debt owed by the mortgagor.
Finally, the defendants argue that in light of the discrepancy between the appraised value of the mortgaged property and the sales price of same, the court should refuse to grant the deficiency judgment on equitable grounds. This argument has the most appeal. However, in light of the statutes and case law set forth above, it is clear that where mortgagors have not objected to the approval of the sale, as in this case, the plaintiff is entitled to seek a deficiency judgment based on the difference between the amount of the debt and the sales price. The foregoing case law supports the proposition that a discrepancy between the sales price and the fair market value of the property is to be expected. Moreover, the language of § 49-28 specifically allows a deficiency based on the sales price, and not the appraised value. See Cronin v. Gager-Crawford Co., supra; New England Savings Bank, supra.
For the foregoing reasons, the defendants' objection to the deficiency judgment is overruled and the court awards the plaintiff deficiency judgment against the defendants River Run Estates, LLC, Kenneth Robitaille and Roberta Robitaille, in the amount of $65,119.69, plus attorneys fees and costs of $1,093.05 for a total of $70,212.74.