184 Conn. App. 727
Conn. App. Ct.2018Background
- Defendant Karin Eichten defaulted on a $480,000 mortgage and applied for a HAMP loan modification through the servicer (Chase). Plaintiff U.S. Bank filed this foreclosure action and moved for summary judgment on liability.
- Chase approved Eichten for a three‑month trial period plan (TPP) and she made the required trial payments; the TPP letter stated a permanent modification would follow if all trial payments were timely made and she continued to meet HAMP eligibility.
- Internal servicer records submitted by defendant indicated an internal approval/final review and preparation of modification documents months after the TPP, but no permanent modification agreement was ever mailed to Eichten. Months later the servicer denied modification based on a housing‑ratio ineligibility.
- Eichten asserted special defenses (unclean hands, equitable estoppel, promissory estoppel, breach of covenant of good faith and fair dealing, breach of contract) and filed a counterclaim for breach of contract alleging the TPP created enforceable obligations.
- Trial court granted plaintiff summary judgment as to liability and on the counterclaim; Appellate Court reversed in part, holding genuine issues of material fact existed on unclean hands and on the counterclaim (transaction test, formation, statute of frauds issues), but affirmed dismissal of several other equitable defenses.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Unclean hands (special defense) | Plaintiff followed HAMP procedures; no wilful misconduct; foreclosure proper. | Servicer failed to follow Treasury/HAMP directives, internally approved modification but never sent offer or required "Incomplete Information" notices; delay and conduct are inequitable. | Court: Genuine issue of material fact exists; summary judgment improper on this defense. |
| Equitable estoppel (induced default) | Servicer did not force default; defendant elected to stop payments and cannot show reasonable detrimental reliance. | Servicer told her it would not discuss assistance unless she defaulted, inducing her to stop payments to pursue modification. | Held: Claim unpreserved as framed on appeal and, even if preserved, insufficient — no proof of promise or reasonable reliance that she would be protected from credit harm or guaranteed a modification. |
| Breach of contract (special defense re: TPP) | TPP did not create enforceable modification contract; defendant failed to plead continued eligibility (a condition precedent) so no duty to perform arose. | TPP plus performance (timely trial payments and supplied docs) obligated servicer to tender permanent modification offer. | Held: As pleaded in special defense, defendant failed to allege she satisfied the condition precedent (continued eligibility); defense insufficient to defeat summary judgment. |
| Counterclaim (breach of contract; Practice Book §10‑10 transaction test; statute of frauds) | Counterclaim not transactionally related to foreclosure; any contract unenforceable under §52‑550 because loan > $50,000; insufficient evidence of contract formation/consideration. | Counterclaim arises from same transaction (same borrower, lender, property); TPP and performance created enforceable obligations or at least raise factual disputes; statute of frauds may not apply or part‑performance/estoppel exceptions may save claim. | Held: Counterclaim passes §10‑10 transaction test; genuine factual disputes exist about contract formation, consideration, whether servicer could continue eligibility review after TPP, and whether statute of frauds bars enforcement — summary judgment on counterclaim reversed and remanded. |
Key Cases Cited
- Thompson v. Orcutt, 257 Conn. 301 (Conn. 2001) (unclean hands doctrine can apply where plaintiff's unrelated misconduct is directly and inseparably connected to the claim)
- U.S. Bank Natl. Assn. v. Sorrentino, 158 Conn. App. 84 (Conn. App. 2015) (counterclaims about post‑note modification negotiations may not relate to making/validity/enforcement of the note)
- U.S. Bank Natl. Assn. v. Blowers, 177 Conn. App. 622 (Conn. App. 2017) (discusses limits on defenses/counterclaims based on loan modification negotiations and exceptions for equitable defenses)
- Glazer v. Dress Barn, Inc., 274 Conn. 33 (Conn. 2005) (part performance/estoppel can be an exception to the statute of frauds when acts unmistakably point to the contract)
- Corvello v. Wells Fargo Bank, N.A., 728 F.3d 878 (9th Cir. 2013) (held a HAMP TPP could create enforceable contractual obligations where borrower performed)