208 Conn.App. 132
Conn. App. Ct.2021Background
- In Sept. 2007 the Sheldons borrowed from GMAC and enrolled in a “bisaver” program authorizing GMAC to withdraw biweekly payments from Sandra Sheldon’s account.
- Beginning Aug. 2008 GMAC stopped withdrawing the authorized payments (an admitted servicing error) but reported the resulting missed payments as the borrowers’ defaults to credit reporting agencies.
- The Sheldons’ credit was severely damaged; James Sheldon lost credit cards, lost work opportunities, and suffered major income decline.
- In July 2009 the parties reached an oral agreement: the Sheldons paid arrears and three extra payments and GMAC agreed to “restore” their credit. The Sheldons contend GMAC did not effect the promised corrections; GMAC produced letters asserting it had sent amendments.
- GMAC assigned the loan to Ocwen in 2010, which continued reporting delinquencies. Ocwen/PHH (substitute plaintiff) commenced foreclosure in 2017. The Sheldons asserted equitable defenses including unclean hands; the trial court credited James Sheldon’s testimony, found GMAC/Ocwen acted willfully and failed to restore credit, and denied foreclosure while leaving the legal obligation on the note intact. PHH appealed.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the trial court’s finding that GMAC did not restore the Sheldons’ credit was clearly erroneous | Documentary letters show GMAC corrected reports; defendants offered no credible proof to the contrary | James Sheldon’s firsthand testimony that GMAC never sent correction letters and credit remained unrepaired | Not clearly erroneous — court credited Sheldon’s testimony; letters were insufficient to overturn that finding |
| Whether the doctrine of unclean hands could bar equitable foreclosure | No fraud or inequitable conduct; prior cases refusing to apply unclean hands when lender merely declined post-acceleration payments | GMAC willfully reported defaults it caused and failed to correct them, destroying defendants’ credit | Properly applied — GMAC/Ocwen’s conduct warranted invoking clean hands to deny equitable foreclosure |
| Whether findings of wilfulness, the defendants’ clean hands, and causation were clearly erroneous | No adequate evidence of willfulness or causal link between reporting and long-term ruin | Testimony and circumstantial evidence support inference of intentional or highly unreasonable conduct and causal harm | Findings sustained — not clearly erroneous; intent may be inferred from conduct and circumstances |
| Whether the trial court abused discretion in balancing equities by denying foreclosure | Withholding foreclosure effectively “wipes out” the lien on weak, largely oral evidence | Equitable foreclosure is discretionary; remedy tailored to justice — legal claim on the note remains available | No abuse of discretion — court balanced factors and permissibly withheld equitable foreclosure while leaving legal remedies intact |
Key Cases Cited
- Monetary Funding Group, Inc. v. Pluchino, 87 Conn. App. 401 (2005) (explaining the clean hands doctrine and equitable discretion)
- Wells Fargo Bank, N.A. v. Lorson, 183 Conn. App. 200 (2018) (standard of review for factual findings; clearly erroneous test)
- Gianetti v. Norwalk Hospital, 304 Conn. 754 (2012) (deference to trial court credibility determinations)
- LaSalle Nat’l Bank v. Freshfield Meadows, LLC, 69 Conn. App. 824 (2002) (distinguishing cases declining to apply unclean hands where facts differ)
- 19 Perry Street, LLC v. Unionville Water Co., 294 Conn. 611 (2010) (intent may be inferred from conduct and circumstances)
- U.S. Bank Nat’l Assn. v. Blowers, 332 Conn. 656 (2019) (trial court’s discretion to withhold foreclosure as an equitable remedy)
- JP Morgan Chase Bank, N.A. v. Winthrop Properties, LLC, 312 Conn. 662 (2014) (distinguishing equitable foreclosure from legal claim on the note)