160 Conn.App. 375
Conn. App. Ct.2015Background
- In 2002 AJJ Enterprises (the plaintiff) sold 18 Monroe St. to Jean-Charles/JCE, received $500,000 cash, and took back a $195,000 note secured by: (a) a second mortgage on 18 Monroe St., (b) a mortgage on Jean-Charles’s residence at 10 Carlin St., and (c) a quitclaim deed in escrow to 18 Monroe St. as extra security.
- First County Bank loaned $500,000 to JCE and took a first mortgage on 18 Monroe St.; First County was later paid-down and its mortgage was foreclosed in 2008; plaintiffs’ second mortgage on 18 Monroe was subordinate to First County.
- In June 2002 Aeges (later Bank of New York Mellon predecessor) lent $348,000 to Jean-Charles, paid off two earlier mortgages on 10 Carlin St., and its mortgage was recorded after AJJ’s mortgage; due to recording/timing issues AJJ’s mortgage unexpectedly became first in time on 10 Carlin St.
- AJJ sued to foreclose its mortgage on 10 Carlin St.; the bank asserted equitable subrogation to be subrogated to the prior liens it paid (so its mortgage should be first), and argued AJJ had constructive notice of intervening liens.
- Trial court (after bifurcated trial) applied equitable subrogation, reordered priorities to make the bank first in right (limited to the amount actually used to discharge prior liens), reduced AJJ’s debt to reflect value received when it recorded the quitclaim deed to 18 Monroe (found to be $670,000 in 2005), and later entered strict foreclosure for AJJ in a second phase with a reduced debt figure.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether equitable subrogation may be applied despite defendant’s constructive notice of AJJ’s recorded mortgage on 10 Carlin St. | Constructive notice should bar subrogation; a party with notice cannot claim an equitable windfall. | Constructive notice is not a per se bar; equity requires balancing the parties’ expectations and prejudice. | Court: Constructive notice is not a per se bar; trial court may apply equitable subrogation after balancing equities. |
| Whether the quitclaim deed recorded by AJJ in 2005 had no legal/value effect (so AJJ’s lien should not be reduced). | The quitclaim deed was void as a device to clog redemption and had no monetary value; it should not reduce AJJ’s claim. | AJJ negotiated, recorded, and used the quitclaim deed (including in bankruptcy); it provided value and reduced AJJ’s debt when exercised. | Court: AJJ received value from the quitclaim deed and related transactions; the court did not err in attributing monetary value and reducing AJJ’s lien. |
| Whether the trial court erred in assigning a 2005 value ($670,000) to 18 Monroe St. without a 2005 appraisal. | No direct 2005 appraisal existed; court improperly relied on appraisals from other years. | Court had 2002 and 2008 appraisals and expert testimony about market decline; using nearby-date appraisals was reasonable. | Court: Finding was supported by evidence (2002 & 2008 appraisals and testimony); valuation for 2005 was not clearly erroneous. |
| Bank's cross-appeal: Whether AJJ failed to prove its debt in chief (court did not reach on appeal). | (Bank argued AJJ failed to prove debt) | (N/A) | Appellate court affirmed on equitable subrogation issues and did not reach bank’s cross-appeal. |
Key Cases Cited
- Lomas & Nettleton Co. v. Isacs, 101 Conn. 614 (Conn. 1924) (equity may restore intended priority when a renewal/release was a technical mistake and no superior equities are injured)
- Home Owners' Loan Corp. v. Sears, Roebuck & Co., 123 Conn. 232 (Conn. 1937) (permitting subrogation despite constructive notice where parties bargained for priority and subrogation causes no prejudice)
- Connecticut Nat'l Bank v. Chapman, 153 Conn. 393 (Conn. 1966) (equitable subrogation available to prevent unjust enrichment; negligence or constructive notice does not automatically bar relief)
- Rosenbilt v. Williams, 57 Conn. App. 788 (Conn. App. 2000) (affirming application of equitable subrogation to reorder mortgage priorities)
- Deutsche Bank Nat'l Trust Co. v. DelMastro, 133 Conn. App. 669 (Conn. App. 2012) (Appellate Court affirmed trial court’s discretionary denial of subrogation where equities did not favor relief)