332 Conn. 656
Conn.2019Background
- Piper executed a $488,000 promissory note (2005) secured by a mortgage; he defaulted in 2010 and U.S. Bank later commenced foreclosure in 2014.
- Before and after foreclosure began, Piper alleges the servicer repeatedly offered then reneged on loan modifications, accepted trial payments, increased payments sharply, and caused additional fees and costs (including insurance premium increases after alleged servicer error).
- Piper contacted the Connecticut Department of Banking in 2012; he alleges the Department’s intervention produced an immediate modification that the bank later breached.
- During court-ordered foreclosure mediation, Piper alleges the bank engaged in dilatory, inconsistent, and bad-faith conduct that frustrated modification and increased his indebtedness.
- Trial court granted plaintiff’s motion to strike Piper’s special defenses (equitable estoppel, unclean hands) and counterclaims (negligence, CUTPA) for failing to directly relate to the making, validity, or enforcement of the note or mortgage; Appellate Court affirmed. The Connecticut Supreme Court granted certification.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether counterclaims/special defenses in foreclosure must directly attack the making, validity, or enforcement of the note/mortgage (narrow test) | Bank: defenses/counterclaims based on postorigination misconduct are not legally cognizable in foreclosure unless they directly attack making/validity/enforcement | Piper: foreclosure is equitable; postdefault misconduct that increases debt or prevents cure relates to enforcement and may be pleaded in the foreclosure action | Court: rejected overly narrow test; postorigination misconduct that materially increases debt or frustrates cure can relate to "enforcement" and survive motion to strike |
| Scope of "enforcement" under the making/validity/enforcement test | Bank: enforcement limited; only breaches of an agreement that affect enforceability (e.g., a finalized modification) qualify | Piper: enforcement should include actions by mortgagee during modification/mediation that affect ability to enforce (e.g., adding costs, blocking cure) | Court: "enforcement" includes wrongful postorigination conduct that substantially increased indebtedness or impeded curing the default |
| Whether allegations that Department of Banking intervention produced a binding modification were sufficiently pleaded | Bank: no binding modification was pleaded; thus no nexus to enforcement | Piper: pleadings allege Department intervention produced an immediate modification; plead inferences should be construed for him at motion to strike stage | Court: pleadings could reasonably be read to allege a binding pre-foreclosure modification; such a breach would plainly relate to enforcement and should not be stricken |
| Whether pleading such defenses/counterclaims would unduly burden mediation/foreclosure process | Bank/App. Ct.: allowing these claims will deter participation and clog courts; separate suit for damages is available | Piper: foreclosure equity powers and judicial economy support resolving related misconduct in foreclosure | Court: not persuaded of undue harm; equitable nature of foreclosure and mediation statutory duties mean wrongful conduct can be addressed in foreclosure; trial courts can police frivolous claims |
Key Cases Cited
- Thompson v. Orcutt, 257 Conn. 301 (Conn. 2001) (unclean hands defense based on postorigination misconduct that was "directly and inseparably connected" to foreclosure is legally sufficient)
- Hamm v. Taylor, 180 Conn. 491 (Conn. 1980) (equity court may withhold foreclosure or reduce stated indebtedness when mortgagee’s conduct is inequitable)
- Hartford Fed. Sav. & Loan Assn. v. Lenczyk, 153 Conn. 457 (Conn. 1966) (foreclosure is peculiarly an equitable action)
- McKeever v. Fiore, 78 Conn. App. 783 (Conn. App. 2003) (applying unclean hands to conduct occurring after loan origination and during long delay in foreclosure)
- JP Morgan Chase Bank, N.A. v. Winthrop Properties, LLC, 312 Conn. 662 (Conn. 2014) (foreclosure extinguishes equitable right of redemption only after redemption rights lapse; enforcement tied to finality of foreclosure)
- Equity One, Inc. v. Shivers, 310 Conn. 119 (Conn. 2013) (court must review note, mortgage, and affidavit of debt to determine appropriate foreclosure remedy)