Daily Development for
Wednesday, December 23, 1998

by: Patrick A. Randolph, Jr.
Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri

MORTGAGES; FORECLOSURE; STRICT FORECLOSURE; PROCEDURE: Court may open a strict foreclosure judgment a year after "law day" in order to correct the inadvertent omission of a parcel of the mortgaged property from the judgment.

New Milford Savings Bank v. Jajer, 708 A.2d 1378 (Conn. 1998).

The case provides an interesting insight into Connecticut's unique foreclosure practices. Altough foreclosure by sale is the routine and mandatory approach in virtually every other jurisdiction, Connecticut still embraces the classical strict foreclosure remedy.

Here, in its strict foreclosure proceeding, the foreclosing bank mistakenly referred to a description of only two parcels in its foreclosure complaint rather than three parcels constituting the mortgaged property. The court ordered the two parcels forfeited to the bank unless the defendant borrower redeemed (paid the mortgage amount with interest and costs) by a date certain, that is, "law day." The state statutes provided that following this forfeiture the bank could have sought a deficiency judgment if it established that the value of the property was less than the amount it was owed. Bank, operating under the mistaken impression that it had obtained all three parcels, did not seek a timely deficiency judgment.

A state statute bars Connecticut courts from opening a foreclosure judgment after the mortgagor's failure to redeem. The court here determined that the statute was not meant to limit the mortgagee from further pursuit of its property rights but rather to prohibit the mortgagor from challenging the enforceability of the mortgagee's rights.

The court reasoned that its conclusion was consistent with the law of marshalling, which requires a mortgagee, in the case of a mortgage secured by several parcels of real estate, to foreclose first on those parcels that do not secure junior liens. Implicit in the concept of marshalling, argued the court, is the understanding that a mortgagee does not waive an encumbrance on one of the parcels securing a mortgage by first foreclosing on the others. In the instant case, because all the junior lieners held security interests in all three parcels of land, there was no true marshalling issue, but the court argued that the analogy existed.

The borrower further argued that the mortgagee's failure to seek a deficiency judgment constituted an acknowledgement that the debt had been satisfied. No debt no mortgage. This argument was inconsistent, however, with the mortgagor's prior admissions (to which the court alluded on several occasions) that the mortgage was still in effect as to the third parcel.

Moreover, the court pointed out, although it is established law that the mortgage follows the debt and the mortgage cannot survive the extinction of the debt, it is also established law that upon the default of a mortgagor, the mortgagee has multiple remedies against both the mortgagor and the mortgaged property. An action for foreclosure of the mortgage and upon the note are regarded as separate and distinct causes of action and a mortgagee's failure to pursue a deficiency judgment is not an election of remedies and does not per se extinguish the debt so as to preclude further equitable relief by way of foreclosure on other parts of the mortgaged property. The court did note however, that principles of collateral estoppel might have operated here to bar any further judicial action to foreclose; but these principles were not relevant here because this was an action to reopen the old foreclosure, not to institute a new one.

The court did require, however, that the mortgagee demonstrate that the properties already foreclosed upon did not have a value equal to or in excess of its claim, and it apparently intended that the "redemption" required at the new "law day" for the last parcel would be equal only to the amount of the deficiency remaining following this computation.

Comment: This basic conundrum operates in a variety of contexts in mortgage law. The mortgagee had taken formal steps to foreclose that normally would have established the value of the collateral and determined whether the mortgagee had a further claim. But the mortgagee made a good faith mistake in carrying out the process, and consequently wound up with less than it expected to get. Is it unfair to the mortgagor to permit the mortgagee a "second bite?"

The three parcels in this proceeding appeared to be unrelated to one another, and there does not appear to have been any argument that the mortgagor was deprived of an opportunity to have the value of the property determined as an entirety as opposed to valued in three separate amounts. The use of a strict foreclosure proceeding first against two parcels and later against a third is analogous to a court ordered marshalling of assets.

So long as the mortgagor cannot show special injury or nefarious intent on the part of the mortgagee, it would appear that the court was correct in its ruling here.

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