Opinion
No. HHB CV 07-6000990-S
September 28, 2009
MEMORANDUM OF DECISION ON THE MOTION FOR SUMMARY JUDGMENT BY THE DEFENDANTS ROSENBLIT AND FAULISE
This case is a foreclosure action in six counts by the plaintiff, U.S. Bank, N.A., seeking to foreclose on a note and mortgage allegedly made by the defendants John and Lori Wadman, secured by the Wadmans' property located at 1048 Marion Avenue in Southington, CT. Presently pending before the court is a Motion for Summary Judgment filed by two other defendants in this case — Ellen Rosenblit, Trustee, and Salvatore Faulise (the Rosenblit defendants) — who also have a mortgage on the property. The motion is aimed at resolving priority issues between the U.S. Bank and the Rosenblit defendants in advance of a judgment of foreclosure. The Rosenblit defendants claim their mortgage should have priority over the U.S. Bank mortgage. U.S. Bank disagrees. Due to the proliferation of disputes of material fact, the court concludes that the matter is inappropriate for summary disposition. The issues must be resolved after hearing from the witnesses and weighing the evidence at a trial. Therefore, the Motion for Summary Judgment is denied.
The loan secured by the Rosenblit mortgage was originally made by Jack Rosenblit, Trustee and Salvatore Faulise in 2004. Jack Rosenblit died in 2006. Ellen Rosenblit then became the Trustee, but Ellen Rosenblit died in 2009. The defendants are in the process of substituting Seth Rosenblit, Trustee, as a defendant with Mr. Faulise. These defendants will be referred to as the Rosenblit defendants in this decision.
I
The law governing summary judgment and the accompanying standard of review are well settled. Practice Book § 17-49 requires that judgment shall be rendered forthwith if the pleadings, affidavits and any other proof submitted show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. A material fact is a fact that will make a difference in the result of the case. See Rockwell v. Quintner, 96 Conn.App. 221, 227-30, 899 A.2d 738, cert. denied, 280 Conn. 917, 908 A.2d 538 (2006); see also Vitale v. Kowal, 101 Conn.App. 691, 923 A.2d 778, cert. denied, 284 Conn. 904, 931 A.2d 268 (2007).
In deciding a motion for summary judgment, the trial court must view the evidence in the light most favorable to the nonmoving party. Appleton v. Board of Education, 254 Conn. 205, 209, 757 A.2d 1059 (2000). The party seeking summary judgment has the burden of showing the absence of any genuine issue of material fact, such that he or she is entitled, under principles of substantive law, to a judgment as a matter of law. Id.
In ruling on a motion for summary judgment, the court's function is not to decide the issues of material fact, but rather to determine whether any such issues exist. Nolan v. Borkowski, 206 Conn. 495, 500, 538 A.2d 1031 (1988). Summary judgment is appropriate only if a fair and reasonable person could conclude only one way, based on the substantive law and the undisputed material facts. Miller v. United Technologies Corp., 233 Conn. 732, 751, 660 A.2d 810 (1995).
II
In support of their Motion, the Rosenblit defendants submit, inter alia, an affidavit by Seth Rosenblit with a copy of the Rosenblit mortgage, note, deed, allonge and family ryder, in an effort to establish the validity of their loan and to establish that it is prior in time and, therefore, prior in right to the U.S. Bank loan; and to dispute the authenticity of a record of satisfaction of the debt purportedly signed by Jack Rosenblit. They also supply an affidavit by Ellen Rosenblit and Salvatore Faulise in accord. In opposition, the plaintiff U.S. Bank supplies the court with, inter alia, an affidavit by Natasha Dzura, an agent of the bank, setting forth facts in an effort to establish that U.S. Bank (or its predecessor) and the Wadmans refinanced a first mortgage that was prior in time and right to the Rosenblit mortgage, that they intended the U.S. Bank to have a first lien status, and that that U.S. Bank was unaware of the Rosenblit mortgage. U.S. Bank further submits a copy of a decision in a companion case denying summary enforcement of the same Rosenblit mortgage due to material facts in dispute concerning the unconscionable rate of that loan; discovery responses by Rosenblit in that companion case; a Loan Affidavit used in the Rosenblit mortgage transaction; a General Power of Attorney used in the Rosenblit mortgage transaction; tax returns filed by the Wadmans; and deposition transcripts, all in an effort to show, inter aila, that the Rosenblit defendants knew or should have known that the Wadmans could not afford the Rosenblit loan. U.S. Bank further makes reference to a satisfaction of loan document, a copy of which is attached to their Second Amended Complaint, purportedly signed by Jack Rosenblit on December 19, 2004, and purportedly stating that the Rosenblit loan was paid in full, in an effort to show that the Rosenblit debt collection effort is invalid or inequitable. Both sides have filed several briefs on the legal issues raised.
In that decision, the court denied the Rosenblit defendants' Motion for Summary Judgment seeking to establish liability as to the defendant Lori Wadman only. The court denied the motion after raising the issue of the unconscionability of the rate of interest sua sponte and finding the material facts unsettled on the point. See Rosenblit v. Wadman, Superior Court, judicial district of New Britain, Docket No. CV 07-5004120 (January 2, 2008, Domnarski, J.) That decision did not address the priority dispute between the Rosenblit defendants and U.S. Bank presently before the court in the instant case. Therefore, this court does not consider that decision dispositive or preclusive as to the present case.
The information supplied thus far in this case, chronicled above, demonstrates that the parties have raised many issues on questions as to which mortgage should have priority over the other. For the following reasons, the dispositive finding of the court, on the Motion for Summary Judgment at least, is that the parties are in such dispute as to the material facts that the court is prevented from resolving the issues without trial.
III
The priority issues in this case arise from the First Count of the Second Amended Complaint. In that Count, U.S. Bank seeks to foreclose on its note and mortgage in the original amount of $384,000.00 dated March 7, 2005 and recorded March 14, 2005 in the Southington land records. In paragraph 8(a), it alleges that there is a Rosenblit mortgage on the land records respecting this property, dated and recorded February 24, 2004 in the original amount of $125,000.00, however, it alleges that this mortgage is subsequent in right. Ordinarily, the earlier dated and recorded Rosenblit mortgage would have priority over the U.S. Bank mortgage under the recording rule that provides that the first in time is first in right. General Statutes § 47-10(a); Brown v. General Laundry Service, Inc., 139 Conn. 363, 372, 94 A.2d 10 (1952), vacated on other grounds, 347 U.S. 81 (1954). Rosenblit argues that this rule, alone, resolves the matter and, therefore, summary judgment should enter in their favor. However, the allegation in the Second Amended Complaint that the Rosenblit mortgage is subsequent in right creates an issue between the parties as to whether the Rosenblit mortgage is eligible for priority treatment. See Independence One Mortgage Corp. v. Katsaros, 43 Conn.App. 71, 73, 681 A.2d 1005 (1996). The subsequent Counts, and the bank's materials in opposition to the Rosenblit's Motion for Summary Judgment, demonstrate that there are material facts in issue that fairly contest the Rosenblit's eligibility for priority status as a matter of equity. In particular, U.S. Bank presents facts supporting their arguments that it had no knowledge of the Rosenblit mortgage, that U.S. Bank and the Wadmans intended their mortgage to have priority, and that the equities favor U.S. Bank's loan because the Rosenblit lenders knew or should have known that the Wadmans had no ability to pay the Rosenblit loan, and that, as a matter of law and the equities, because U.S. Bank refinanced a first mortgage, it should stand in the shoes of the original first mortgage holder and, thus, have priority over the Rosenblit mortgage. Whether the trier of fact will agree with U.S. Bank remains to be seen. However, these disputed points fairly raise valid issues as to which loan should have priority. Accordingly, summary judgment must be denied as to the First Count.
The Second, Third, Fourth and Fifth Counts allege that the Rosenblit mortgage should be denied priority status, and that, conversely, U.S. Bank should hold first priority position under the doctrines of equitable subrogation, equitable subordination, equitable estoppel and unjust enrichment, respectively. All four theories rest on various equitable principles designed to prevent injustice. An action in foreclosure is an equitable action. City Savings Bank v. Lawlor, 163 Conn. 149, 155, 302 A.2d 252 (1972). Therefore, such considerations are appropriate. "Because a mortgage foreclosure is an equitable proceeding, the trial court may consider all relevant circumstances to ensure that complete justice is done . . . [T]he determination of what equity requires in a particular case, the balancing of the equities, is a matter for the discretion of the trial court." (Citations omitted; internal quotation marks omitted.) Reynolds v. Ramos, 188 Conn. 316, 320, 449 A.2d 182 (1982). The gravamen of all of these Counts is that the Rosenblit mortgage should be denied priority because U.S. Bank and the Wadmans intended to refinance all of the debt in 2005 giving U.S. Bank a first mortgage position, and that the failure to obtain a release of the Rosenblit mortgage was unintentional. The arguments derive from the doctrine of equitable subrogation. That doctrine generally provides 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." (Citations omitted; internal quotation marks omitted.) Home Owners' Loan Corp. v. Sears, Roebuck Co., 123 Conn. 232, 237, 193 A. 769 (1937).
As the parties have informed the court, there are generally three approaches to the law of equitable subrogation. The first is the Restatement approach. The Restatement (Third) of Property: Mortgages takes a very expansive view of the application of the subrogation principle. The Restatement holds that the refinancing lender should be entitled to subrogation even if it has actual knowledge of a junior lien, if it "reasonably expected to receive a security interest in the real estate with the priority of the mortgage being discharged, and if the subrogation will not materially prejudice the holders of intervening interests in the real estate." See Restatement (Third) of Property: Mortgages (1997), Sec. 7.6(b)(4), Subrogation. Under the Restatement, a lender who refinances a first mortgage would retain that priority even if it knows about, and fails to get releases of, subsequent liens. Many courts are more conservative than the Restatement approach. One group, probably the majority of all courts nationally, refuses subrogation if the payor had actual knowledge of the intervening interest, but allows subrogation if the payor's only notice was constructive from the recordation of the intervening interests. See, generally, G. Nelson and D. Whitman, Adopting Restatement Mortgage Subrogation Principles: Saving Billions of Dollars for Refinancing Homeowners, 2006 B.Y.U. L. Rev. 305, 314 (2006). The third and most conservative approach denies subrogation even if the payor's only knowledge of the intervening interest was constructive notice from the recording of that interest. Id. at 315. Some see a trend toward the Restatement approach. See, J.C. Murray, Equitable Subrogation: The Trend Toward the Restatement Position (2009). Rightly or wrongly, some consider Connecticut in the camp that follows the third, most conservative approach. 2006 B.Y.U. L. Rev., supra, 315, n. 41. That approach has been criticized as most hostile to the refinance industry. Id. at 315-18.
The Restatement 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.
(b) By way of illustration, subrogation is appropriate to prevent unjust enrichment if the person seeking subrogation performs the obligation:
(1) in order to protect his or her interest;
(2) under a duty to do so;
(3) on account of misrepresentation, mistake, duress, undue influence, deceit or other similar imposition; or
(4) upon a request from the obligor or the obligor's successor to do so if the person performing was promised repayment and reasonably expected to receive a security interest in the real estate with the priority of the mortgage being discharged, and if subrogation will not materially prejudice the holders of intervening interests in the real estate.
Restatement (Third) of Property: Mortgages (1997), Sec. 7.6 Subrogation.
This article can be viewed at: http:/www.firstam.com/ekcms/uploadedFiles/firstam_com/References/ Reference_Articles/John_C_Murray_Reference/Mortgages_and_Financing/ Equitable-Subrogation-Aug-2009.pdf.
Sorting Connecticut into any particular approach is an imprecise exercise at best because the pertinent Connecticut decisions were not written with those categories in mind, and they do not even cite the Restatement. Therefore, rather than identifying the approach to which Connecticut subscribes, this court will focus on the extant language of the decisions for guidance on the applicable law for this case.
The leading modern cases are Rosenblit v. Williams, 57 Conn.App. 788, 750 A.2d 1131, cert. denied, 254 Conn. 906, 755 A.2d 882 (2000) and Independence One Mortgage Corp. v. Katsaros, supra. In the Rosenblit case (the same family as in the instant case) the Rosenblit defendants held a third and a fourth mortgage on property in Bridgeport, CT. In 1995, Ford Consumer Finance Co. refinanced the first mortgage on the property and obtained a release of the intervening Rosenblit mortgage, but that release turned out to be a forgery. The court ruled that Ford should retain priority under the doctrine of equitable subrogation because Ford believed that it had secured its loan with a first mortgage and it was ignorant of the fact that the Rosenblit mortgages had not been released. Id. at 793. That was classic grounds for equitable subordination, according to the Appellate Court. The court further found no injustice that the Rosenblit defendants were left with two unpaid mortgage loans because it appeared from the payment history that they knew the debtor could not make payments on any of those loans. Id. at 794. In the other leading case, Independence One Mortgage Corp. v. Katsaros, the plaintiff financed the purchase of property in Easton, CT that had 12 mortgages on it, but, for reasons in dispute, it failed to obtain a release for the twelfth. The Appellate Court declined to find the equitable subrogation doctrine applicable in that situation. It ruled that the doctrine only applies to intervening lien holders, the court observed. It ruled that the unreleased mortgage in the Independence One case was a preexisting lien that was not part of the bargain. Therefore, the plaintiff had no justification in equity to claim priority over it in that case. Independence One Mortgage Corp. v. Katsaros, supra, 43 Conn.App. 76.
Thus, under these rules, if U.S. Bank was innocently ignorant of an intervening Rosenblit loan in this case and reasonably expected first mortgage position in its refinance of the Wadman loans, it could be eligible for priority status despite the fact that the Rosenblit lien was recorded first, and especially if the Rosenblit defendants never expected to be paid back, and only expected junior status anyway, and if there were other equities that would make their advancement in status unfair. See, e.g., Rosenblit v. Williams, supra, 57 Conn.App. 795. On the other hand, if U.S. Bank, and/or its closing counsel, was not ignorant of the Rosenblit lien and/or failed to include it in the bargain, and especially if the equities favor the Rosenblit defendants, there is no justification for invocation of that doctrine. See, e.g., Independence One Mortgage Corp. v. Katsaros, supra; see also EquiCredit Corp. of Conn. v. Kasper, Superior Court, judicial district of Windham, Docket No. CV-06-5000595 (May 24, 2007, Martin, J.) and Independence One Mortgage Corp. v. Katsaros, supra; see also EquiCredit Corp. of Conn. v. Kasper, Superior Court, judicial district of Windham, Docket No. CV-06-5000595 (July 8, 2009, Potter, J.T.R.) [ 48 Conn. L. Rptr. 181]. These points obviously raise issues of fact on which the parties vigorously disagree. In fact, the legal fight is being waged in litigation beyond the confines of the instant case. On these disputed facts, the credibility of witnesses will play an important role, and the circumstances will be the key to the decision. In such cases, the matter is not appropriate for summary judgment. See, e.g., Spencer v. Good Earth Restaurant Corp., 164 Conn. 194, 198-99, 319 A.2d 403 (1972). Therefore, the Motion for Summary Judgment as to these Counts must be denied.
By agreement of the parties, this case has been consolidated with the case of Rosenblit v. Wadman, No. HHB CV 07-5004120-S wherein the Rosenblit parties, there acting as plaintiffs, seek to foreclose on their mortgage on this same property claiming priority over the U.S. Bank mortgage. In that case, John Wadman defends alleging, inter alia, that his wife used a forged power of attorney to obtain the Rosenblit mortgage and there is an issue in the case as to whether the rate charged by the Rosenblit lenders was unconscionable. Also, in that case, U.S. Bank alleges, inter alia, that the Rosenblit lenders had no license as required to make this non-commercial secondary loan, and that they should be denied priority for the same or similar equitable reasons raised in the instant case, plus others.
Additionally, there is also pending the case of RFC/GMAC SUB RFC S/S #BI1 v. Superior Closing Services, LLC, No. HHB CV 08-5007199-S wherein U.S. Bank, as substitute plaintiff, sues the closing agent, and others, for missing the Rosenblit mortgage, alleging, inter alia, professional negligence.
Finally, in Count Six, U.S. Bank alleges that the Rosenblit mortgage cannot be enforced because it was satisfied, as evidenced by a record signed by Jack Rosenblit himself. The Rosenblit defendants seek summary judgment on this point with affidavits claiming that the signature is a forgery, and a rather juvenile one at that, since the document misstates Jack Rosenblit's address and misspells Salvatore Faulise's name. The Rosenblit defendants have certainly raised serious doubts as to the authenticity of this document, but, once again, the point depends on the credibility of the witnesses. See, e.g., Webster Bank v. Fanagan, 51 Conn. 733, 739, 725 A.2d 975 (1999). That point, in all fairness, can only be tested at trial. Therefore, the Motion for Summary Judgment must be denied on this point as well.
Having concluded that the Motion for Summary Judgment must be denied as to all Counts on these points, it is not necessary for the court to resolve the other alternative issues raised by the parties.
IV
For all of the foregoing reasons, the Motion for Summary Judgment by the Rosenblit and Faulise defendants is denied in its entirety because there are material facts in dispute.