U.S. Bank National Assn. v. Blowers

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U.S. BANK NATIONAL ASSOCIATION, TRUSTEE v.
ROBIN BLOWERS ET AL.
(SC 20067)
Robinson, C. J., and Palmer, McDonald, D’Auria,
Mullins, Kahn and Ecker, Js.
Syllabus
The plaintiff bank, as trustee, sought to foreclose a mortgage on certain
real property owned by, among others, the defendant P. Following P’s
default on the mortgage, the plaintiff, through its loan servicing agent,
initiated loan modification negotiations with P, but the parties were
unable to agree on a binding modification. P then contacted the state
Department of Banking, which intervened on his behalf and initiated a
modification, but the plaintiff shortly thereafter increased P’s monthly
mortgage payment. Subsequently, the plaintiff commenced a foreclosure
action, and the parties participated in mediation but were unable to reach
an agreement. P then asserted special defenses sounding in equitable
estoppel and unclean hands, as well as certain counterclaims, contending
that the plaintiff engaged in conduct after the note had been executed
that wrongfully and substantially increased P’s overall indebtedness,
caused P to incur costs that impeded his ability to cure the default, and
reneged on loan modifications. The plaintiff moved to strike the special
defenses and counterclaims, contending that they were legally insuffi-
cient because they were not related to the making, validity or enforce-
ment of the note or mortgage and were otherwise insufficient to state
a claim on which relief could be granted. The trial court granted the
motion to strike, concluding that the counterclaims did not have a
reasonable nexus to the making, validity or enforcement of the note
because the misconduct alleged related to activities that occurred subse-
quent to the execution of the note or mortgage. The court did not reach
the issue of whether P’s allegations were otherwise legally sufficient to
support the counterclaims. The trial court found that P had alleged
sufficient facts to support his special defenses of equitable estoppel and
unclean hands, but, because P did not allege that the parties had agreed
to a modification of the loan postforeclosure and could not rely on
postforeclosure conduct to support his special defenses, they were
legally insufficient, as they did not directly relate to the making, validity
or enforcement of the note or mortgage. The trial court rendered judg-
ment of strict foreclosure, from which P appealed to the Appellate Court.
The Appellate Court rejected P’s request to abandon the making, validity
or enforcement test in favor of the transactional test, set forth in the
rules of practice (§ 10-10), that requires that counterclaims must arise
out of the transaction that is the subject of the plaintiff’s complaint.
The Appellate Court affirmed the trial court’s judgment, and P, on the
granting of certification, appealed to this court. Held that the Appellate
Court incorrectly concluded that P’s allegations, made in connection
with his special defenses and counterclaims, did not provide a legally
sufficient basis for those defenses and counterclaims, as P’s allegations
involved the types of misconduct that bore a sufficient connection to
the enforcement of the note or the mortgage, and to the extent that the
pleadings could be construed to allege that the intervention by the
Department of Banking resulted in a binding loan modification, the
breach of such an agreement also provided a sufficient basis to withstand
a motion to strike in a foreclosure action; accordingly, the judgment of
the Appellate Court was reversed, and the case was remanded with
direction to reverse the judgment of strict foreclosure and for further pro-
ceedings.
Argued December 11, 2018—officially released August 13, 2019
Procedural History
Action to foreclose a mortgage on certain real prop-
erty owned by the named defendant et al., brought to
the Superior Court in the judicial district of Hartford,
where the defendant Farmington Valley Landscape,
LLC, et al. were defaulted for failure to appear; there-
after, the defendant C&I Solutions, LLC, was defaulted
for failure to plead; subsequently, the named defendant
et al. filed special defenses and counterclaims; there-
after, the court, Dubay, J., granted the plaintiff’s motion
to strike the special defenses and counterclaims; subse-
quently, the court, Wahla, J., granted the plaintiff’s
motion for judgment on the counterclaims, the court,
Peck, J., granted the plaintiff’s motion for summary
judgment as to liability and the court, Wahla, J., granted
the plaintiff’s motion for judgment of strict foreclosure
and rendered judgment thereon, from which the defen-
dant Mitchell Piper appealed to the Appellate Court,
Alvord and Pellegrino, Js., with Prescott, J., dissenting,
which affirmed the trial court’s judgment, and the defen-
dant Mitchell Piper, on the granting of certification,
appealed to this court. Reversed; further proceedings.
Eli Jacobs and Michael Linden, certified legal
interns, with whom were Jeffrey Gentes and, on the
brief, J.L. Pottenger, Jr., and Jessica Lefebvre, Victoria
Stilwell, Anderson Tuggle, and Emily Wanger, certified
legal interns, for the appellant (defendant Mitchell
Piper).
Pierre-Yves Kolakowski, with whom was Zachary
Grendi, for the appellee (plaintiff).
Opinion
McDONALD, J. This certified appeal calls upon the
court to decide whether allegations that a mortgagee
engaged in a pattern of misrepresentation and delay in
postdefault loan modification negotiations before and
after initiating a foreclosure action—thereby adding to
the mortgagor’s debt and frustrating the mortgagor’s
ability to avoid foreclosure—can establish legally suffi-
cient special defenses and counterclaims in that action.
The defendant mortgagor, Mitchell Piper,1 appeals from
the judgment of the Appellate Court affirming the trial
court’s judgment of strict foreclosure in favor of the
plaintiff mortgagee, U.S. Bank National Association,2
following the trial court’s decision striking the defen-
dant’s special defenses and counterclaims. See U.S.
Bank National Assn. v. Blowers, 177 Conn. App. 622,
638, 172 A.3d 837 (2017). The defendant’s principal
claim is that the Appellate Court incorrectly concluded
that such allegations cannot establish legally sufficient
special defenses or counterclaims because the miscon-
duct alleged does not relate to the making, validity, or
enforcement of the note or mortgage. We agree with the
defendant and reverse the Appellate Court’s judgment.
The record reveals the following undisputed back-
ground facts. In August, 2005, the defendant executed
a promissory note in exchange for a loan in the original
principal amount of $488,000. The plaintiff subsequently
became the holder of the note. The note was secured
by a mortgage on the defendant’s real property in Avon,
and the mortgage was assigned to the plaintiff in 2010.
The defendant defaulted on the note in January, 2010.
In February, 2014, the plaintiff commenced the pres-
ent foreclosure action. Upon the defendant’s election,
the parties participated in the state’s court-supervised
foreclosure mediation program; see General Statutes
§§ 49-31k through 49-31o;3 but were unable to reach a
loan modification agreement during that process. The
defendant thereafter filed an answer, special defenses,
and counterclaims. The special defenses sounded in
equitable estoppel and unclean hands; the counter-
claims sounded in negligence and violations of the Con-
necticut Unfair Trade Practices Act (CUTPA), General
Statutes § 42-110a et seq.4
The defendant alleged the following facts in support
of all of his special defenses and counterclaims. In early
2010, the defendant fell behind on his mortgage pay-
ments due to decreased business revenue resulting from
the ‘‘Great Recession.’’5 Shortly thereafter, the plaintiff,
through its servicing agent,6 reached out to the defen-
dant and offered him a rate reduction that would result
in a monthly mortgage payment of $1950.7 After the
defendant successfully completed a three month trial
modification period, the plaintiff informed the defen-
dant that the reduced monthly amount previously
offered was too low. Thereafter, over an approximately
two year period, the plaintiff similarly offered and
reneged on at least four additional modifications after
accepting trial payments from the defendant. Each suc-
cessive modification offer sharply increased the defen-
dant’s monthly payment, rising from the initial proposal
of $1950 to approximately $3445.
In April, 2012, the defendant contacted the state’s
Department of Banking,8 which intervened on the defen-
dant’s behalf, ‘‘resulting in an immediate modification
being received.’’ Within months, however, the plaintiff
notified the defendant that his monthly payment was
increasing nearly 20 percent from that modified pay-
ment. The defendant was unable to afford the increased
payments but continued to make the monthly payment
set by the April modification until October, 2012, when
the plaintiff rejected them as ‘‘ ‘partial’ ’’ payments.
In late 2013, the plaintiff erroneously informed the
defendant’s insurance company that the Avon property
was no longer being used as the defendant’s residence.
As a result, the defendant’s insurance policy was can-
celled, and the defendant was forced to replace cover-
age at premium costs that increased from his prior rate
of $900 to $4000 per year.
The defendant also alleged that the following conduct
occurred after the February, 2014 commencement of
the foreclosure action, during the parties’ participation
in court-supervised mediation. In the course of approxi-
mately ten months of mediation, the plaintiff regularly
ignored agreed upon deadlines, arrived late to media-
tion sessions, made duplicative, exhaustive, and ever
changing requests, and provided the defendant with
conflicting or incomplete information. Due to the plain-
tiff’s tardiness, little was accomplished during media-
tion sessions given the time constraints of the program’s
scheduling. Although the plaintiff offered a modifica-
tion at one point, it could not be finalized because the
financial information on which it rested was more than
four months out of date by the time it was presented
to the defendant.
The defendant alleged that the foregoing preforeclo-
sure and postforeclosure misconduct not only frus-
trated his ability to obtain a proper modification but
also caused thousands of dollars in additional accrued
interest, attorney’s fees, escrow advances, and other
costs to be added to the debt claimed by the plaintiff
in the foreclosure action. In his negligence counter-
claim, the defendant further alleged that the unneces-
sary and negligent prolonging of this process had ruined
his credit score, which adversely impacted his business
and personal affairs, and had caused him to incur signifi-
cant expenses for legal representation and other profes-
sional services. The defendant claimed that the plaintiff
should be equitably estopped from collecting the dam-
ages it caused by its own misconduct and that the plain-
tiff’s attempt to foreclose should be barred by the doc-
trine of unclean hands. He further sought compensatory
and punitive damages, injunctive relief, and attorney’s
fees under his counterclaims.
The plaintiff moved to strike all of the special
defenses and counterclaims. It contended that they
were legally insufficient because they were not related
to the making, validity, or enforcement of the note,
as required under appellate precedent, and also were
otherwise insufficient to state a claim upon which relief
may be granted. The trial court, Dubay, J., granted the
motion to strike in its entirety.
With respect to the counterclaims, the trial court
explained that the proper application of Practice Book
§ 10-10, which dictates that counterclaims must ‘‘[arise]
out of the transaction [that] is the subject of the plain-
tiff’s complaint,’’ requires, in the foreclosure context,
consideration of whether the counterclaim has some
reasonable nexus to the making, validity, or enforce-
ment of the note. The court concluded that this test
was not met in the present case because all of the
misconduct alleged related to activities that took place
subsequent to the execution of the note or mortgage.
The court acknowledged that a foreclosure sought after
a modification had been reached during mediation
could have the requisite nexus to enforcement of the
note, but found that there had been no such modifica-
tion in the present case. In light of its conclusion that
the allegations did not establish this nexus, the court
did not reach the issue of whether they were otherwise
legally sufficient to support the CUTPA and negli-
gence counterclaims.
Conversely, with respect to the special defenses, the
trial court found that the defendant had alleged suffi-
cient facts to support equitable estoppel and unclean
hands defenses. It cited, however, Appellate Court case
law under which ‘‘[a] valid special defense at law to a
foreclosure proceeding must be legally sufficient and
address the making, validity or enforcement of the mort-
gage, the note or both.’’ (Emphasis added; internal quo-
tation marks omitted.) TD Bank, N.A. v. J & M Hold-
ings, LLC, 143 Conn. App. 340, 343, 70 A.3d 156 (2013).
As with the counterclaims, the court concluded that,
because the defendant did not allege that the parties had
agreed to a modification of the loan postforeclosure,
he could not rely on postforeclosure conduct to support
his special defenses. Therefore, the trial held that the
special defenses were legally insufficient because they
did not directly relate to the making, validity or enforce-
ment of the note. The trial court, Wahla, J., subse-
quently rendered a judgment of strict foreclosure.
The defendant appealed from the judgment of strict
foreclosure to the Appellate Court, challenging the trial
court’s decision granting the plaintiff’s motion to strike.
The Appellate Court panel, with one judge dissenting,
affirmed the judgment. U.S. Bank National Assn. v.
Blowers, supra, 177 Conn. App. 638. The Appellate
Court majority agreed that the special defenses and
counterclaims did not satisfy the making, validity, or
enforcement test as required under its precedent. Id.,
627–32. It rejected the defendant’s request to abandon
this test in favor of a straightforward application of the
standard transactional test applied in other settings.
Id., 633–34. The majority reasoned that ‘‘automatically
allowing counterclaims and special defenses in foreclo-
sure actions that are based on conduct of the mortgagee
arising during mediation and loan modification negotia-
tions would serve to deter mortgagees from participat-
ing in these crucial mitigating processes’’ and would
thwart judicial economy. Id., 634. It disagreed that its
test was inconsistent with the equitable nature of fore-
closure, noting that exceptions to the test’s application
had been recognized when traditional notions of equity
would not be served thereby. Id., 633–34. The majority
further noted that mortgagors who do not meet such
limited exceptions are not without a remedy for a mort-
gagee’s postdefault misconduct because a mortgagor
could bring a separate action for damages. Id., 634 n.5.
The dissenting judge contended that the court’s prece-
dent did not stand for the sweeping proposition that
allegations of improper conduct during mediation and
modification negotiations lack a reasonable nexus to
the making, validity, or enforcement of the note or
mortgage. Id., 647 (Prescott, J., dissenting). The dis-
senting judge recognized that the court previously had
concluded that allegations of misconduct during the
court-sponsored mediation program lacked such a
nexus. Id., 647 (Prescott, J., dissenting). The present
case, however, also alleged preforeclosure misconduct,
including that the defendant had ‘‘received’’ an ‘‘immedi-
ate’’ modification as a result of the intervention of the
Department of Banking, an allegation that should have
been accepted as true for purposes of the motion to
strike. Id., 646–47 (Prescott, J., dissenting).
The defendant’s certified appeal to this court fol-
lowed. The defendant challenges the propriety of the
making, validity, or enforcement test, the proper scope
of ‘‘enforcement’’ under that test if it does apply to
foreclosure actions, and the sufficiency of the allega-
tions to establish that the parties had entered into a
binding modification if such allegations are necessary
to seek equitable relief on the basis of postorigina-
tion conduct.9
At its essence, the defendant’s position is that, given
the equitable nature of a foreclosure action, a mortgag-
ee’s misconduct that hinders a mortgagor’s efforts to
cure a default, such as through obtaining a modification
agreement, and adds to the mortgagor’s debt while the
mortgagor is making such good faith efforts, is a proper
basis for special defenses or counterclaims in that
action. Although the defendant suggests that the stan-
dard test set forth in our rules of practice should be
the sole measure of legal sufficiency, he contends that
such misconduct sufficiently relates to enforcement of
the note or mortgage if the making, validity, or enforce-
ment test is applied. We conclude that the Appellate
Court’s judgment must be reversed.
We begin with the observation that the ‘‘making,
validity, or enforcement test’’ is a legal creation of
uncertain origin, but it has taken root as the accepted
general rule in the Superior and Appellate Courts over
the past two decades.10 Its scope, however, has been
the subject of some debate in those courts.11 This court
has never expressly endorsed this test. Our lone refer-
ence to it was in a case in which we acknowledged
that the mortgagee had argued that the mortgagor’s
equitable special defense did not meet this test; see
Thompson v. Orcutt, 257 Conn. 301, 312, 777 A.2d 670
(2001); but we resolved the case in favor of the mort-
gagor by application of a different standard. Id., 313.
In reaching our decision, we presume that the Appel-
late Court did not intend for the making, validity, or
enforcement test to require mortgagors to meet a more
stringent test than that required for special defenses and
counterclaims in nonforeclosure actions. We therefore
interpret the test as nothing more than a practical appli-
cation of the standard rules of practice that apply to
all civil actions to the specific context of foreclosure
actions. See CitiMortgage, Inc. v. Rey, 150 Conn. App.
595, 605, 92 A.3d 278 (‘‘a counterclaim must simply
have a sufficient relationship to the making, validity or
enforcement of the subject note or mortgage in order
to meet the transaction test as set forth in Practice
Book § 10-10 and the policy considerations it reflects’’),
cert. denied, 314 Conn. 905, 99 A.3d 635 (2014). We
agree with the defendant and the dissenting Appellate
Court judge that a proper construction of ‘‘enforce-
ment’’ includes allegations of harm resulting from a
mortgagee’s wrongful postorigination conduct in nego-
tiating loan modifications, when such conduct is alleged
to have materially added to the debt and substantially
prevented the mortgagor from curing the default.12
I
Appellate review of a trial court’s decision to grant
a motion to strike is plenary. See, e.g., Doe v. Hartford
Roman Catholic Diocesan Corp., 317 Conn. 357, 398,
119 A.3d 462 (2015); Kumah v. Brown, 307 Conn. 620,
626, 58 A.3d 247 (2013). This is because ‘‘a motion to
strike challenges the legal sufficiency of a pleading . . .
and, consequently, requires no factual findings by the
trial court . . . . In ruling on a motion to strike, the
court must accept as true the facts alleged in the special
defenses and construe them in the manner most favor-
able to sustaining their legal sufficiency.’’ (Internal quo-
tation marks omitted.) Doe v. Hartford Roman Catholic
Diocesan Corp., supra, 398; see also Kaminski v. Fair-
field, 216 Conn. 29, 31, 578 A.2d 1048 (1990). ‘‘The allega-
tions of the pleading involved are entitled to the same
favorable construction a trier would be required to give
in admitting evidence under them and if the facts prov-
able under its allegations would support a defense or
a cause of action, the motion to strike must fail.’’ Min-
gachos v. CBS, Inc., 196 Conn. 91, 108–109, 491 A.2d
368 (1985).
The defendant’s allegations are not a model of clarity.
The ambiguity in the defendant’s pleadings is exacer-
bated by the fact that the defendant has alleged the
very same facts in support of various special defenses
and counterclaims that require different elements. On
one hand, the defendant may be asserting that he satis-
fied all of the conditions necessary to transition from
temporary modifications to permanent modifications
but that no such permanent modification was executed.
On the other hand, he may be asserting that, even
though the plaintiff was not obligated to execute a per-
manent modification, it induced the defendant to
believe that a permanent modification would be exe-
cuted and engaged in the negotiations in bad faith
because it delayed foreclosure with the purpose or
effect of extracting additional funds from the defendant,
or increasing the defendant’s debt.13 It is also possible
that the defendant may be advancing both of these
arguments as alternative theories. Given the posture of
the case, an early stage of litigation, and the obligation
to construe the pleadings in the defendant’s favor, we
assume that the defendant is advancing all of these
theories.
Finally, before turning to the merits of the appeal,
we emphasize the narrow scope of the issue before us.
The trial court concluded that the allegations in support
of both special defenses of unclean hands and equitable
estoppel were legally sufficient, but for the requisite
direct connection to the making, validity, or enforce-
ment of the note or mortgage. The court never decided
whether the counterclaims adequately stated a claim
upon which relief may be granted, resting its conclusion
solely on the lack of the requisite connection to enforce-
ment of the note or mortgage. We assume, for purposes
of this opinion, that both the defenses and counter-
claims would otherwise be legally sufficient and limit
our review to the question of whether the allegations
bear a sufficient connection to enforcement of the note
or mortgage.14 The meaning of enforcement in this con-
text presents an issue of law over which we also exer-
cise plenary review. See CitiMortgage, Inc. v. Rey,
supra, 150 Conn. App. 602 (plenary review applies to
question of which legal standard controls and whether
proper standard was applied).
II
Our view of the scope of ‘‘enforcement’’ of the note
or mortgage is informed by the following principles. An
action for foreclosure is ‘‘peculiarly an equitable action
. . . .’’ Hartford Federal Savings & Loan Assn. v. Lenc-
zyk, 153 Conn. 457, 463, 217 A.2d 694 (1966); accord
New Milford Savings Bank v. Jajer, 244 Conn. 251, 256,
708 A.2d 1378 (1998). ‘‘A party that invokes a court’s
equitable jurisdiction by filing an action for foreclosure
necessarily invites the court to undertake . . . an
inquiry [into his conduct].’’ Willow Funding Co., L.P.
v. Grencom Associates, 63 Conn. App. 832, 849, 779
A.2d 174 (2001); accord Basak v. Damutz, 105 Conn.
378, 385, 135 A. 453 (1926) (in court of equity, ‘‘the
conduct of the plaintiff is subject to scrutiny, since he
who claims equity must do equity’’). ‘‘Equity will not
afford its aid to one who by his conduct or neglect has
put the other party in a situation in which it would be
inequitable to place him.’’ Glotzer v. Keyes, 125 Conn.
227, 231–32, 5 A.2d 1 (1939). A trial court conducting
an equitable proceeding may therefore ‘‘consider all
relevant circumstances to ensure that complete justice
is done.’’ Reynolds v. Ramos, 188 Conn. 316, 320, 449
A.2d 182 (1982). When a mortgagee’s conduct is inequi-
table, ‘‘a trial court in foreclosure proceedings has dis-
cretion . . . to withhold foreclosure or to reduce the
amount of the stated indebtedness.’’ Hamm v. Taylor,
180 Conn. 491, 497, 429 A.2d 946 (1980); accord South-
bridge Associates, LLC v. Garofalo, 53 Conn. App. 11,
15, 728 A.2d 1114, cert. denied, 249 Conn. 919, 733 A.2d
229 (1999).
This court previously has declined to take a narrow
view of the circumstances under which equitable
defenses may be asserted in a foreclosure action. In
Thompson v. Orcutt, supra, 257 Conn. 318, the court
held that the mortgagor’s special defense of unclean
hands, which rested on actions by the mortgagee subse-
quent to the execution of the note and mortgage, was
legally sufficient. In that case, the mortgagee was
alleged to have engaged in fraudulent conduct in a bank-
ruptcy proceeding, which, in turn, enabled the mort-
gagee to pursue the foreclosure action. Id., 304–305.
Specifically, the mortgagee was alleged to have inten-
tionally overstated the extent to which the mortgage
encumbered the property, which caused the bankruptcy
trustee to abandon the property as an asset of the bank-
ruptcy estate. Id., 304. Before this court, the mortgagee
argued that an unclean hands defense should not apply
in a mortgage foreclosure action unless the wrongful
conduct relates to the making, validity, or enforcement
of the mortgage or note. Id., 312. It contended, therefore,
that the mortgagor could not assert this defense
because the mortgage transaction was not premised on
fraud but, rather, the alleged fraud had been undertaken
in the bankruptcy action. Id. This court rejected the
mortgagee’s narrow view. Id., 312–14. It concluded that
the mortgagee’s alleged misconduct was ‘‘ ‘directly and
inseparably connected’ ’’ to the foreclosure action and,
therefore, was sufficient to support the unclean hands
defense to the foreclosure action. Id., 313, 318. In so
concluding, this court explained that, although ‘‘[t]he
original transaction creating the . . . mortgage was
not tainted with fraud . . . the plaintiff’s ability to fore-
close on the defendants’ property . . . depended upon
his fraudulent conduct in the bankruptcy proceeding.’’
Id., 313–14.
Although Thompson is silent on precisely when the
alleged misconduct occurred, appellate case law recog-
nizes that conduct occurring after the origination of the
loan, after default, and even after the initiation of the
foreclosure action may form a proper basis for defenses
in a foreclosure action. See McKeever v. Fiore, 78 Conn.
App. 783, 789–90, 829 A.2d 846 (2003) (applying doctrine
of unclean hands to reduce interest accrued and attor-
ney’s fees incurred over nine year period between plain-
tiff’s initial commencement of foreclosure action and
final prosecution of action); Federal Deposit Ins. Corp.
v. Voll, 38 Conn. App. 198, 211, 660 A.2d 358 (concluding
that equitable defense of laches, based on delay
between commencement of foreclosure action and
motion for judgment of foreclosure, could have been
asserted in responsive pleading or in objection to calcu-
lation of debt when plaintiff moved for judgment of
foreclosure, and, therefore, laches argument could not
be raised in proceeding for deficiency judgment), cert.
denied, 235 Conn. 903, 665 A.2d 901 (1995).
This broader temporal scope is consistent with the
principle that, in equitable actions, ‘‘the facts determina-
tive of the rights of the parties are those in existence
at the time of final hearing.’’ Greenwich Trust Co. v.
Tyson, 129 Conn. 211, 215, 27 A.2d 166 (1942); accord
E. M. Loew’s Enterprises, Inc. v. International Alliance
of Theatrical Stage Employees, 127 Conn. 415, 419, 17
A.2d 525 (1941) (whether plaintiff is entitled to equitable
relief is determined ‘‘not by the situation existing when
[the action] is begun, but by that which is developed
at the trial’’); Duessel v. Proch, 78 Conn. 343, 350, 62
A. 152 (1905) (‘‘[i]n equitable proceedings, any events
occurring after their institution may be pleaded and
proved which go to show where the equity of the case
lies at the time of the final hearing’’). ‘‘Equitable pro-
ceedings rest upon different foundations [than actions
at law], and in them the parties can always rely on new
matter, if properly pleaded.’’ Woodbridge v. Pratt &
Whitney Co., 69 Conn. 304, 334, 37 A. 688 (1897); see
Practice Book § 10-10 (‘‘[s]upplemental pleadings show-
ing matters arising since the original pleading may be
filed in actions for equitable relief by either party’’).
This broader temporal scope is not inconsistent with
a requirement that a defense sufficiently relates to
enforcement of the note or mortgage. The various rights
of the mortgagee under the note and mortgage (or
related security instruments) are not finally or com-
pletely ‘‘enforced’’ until the foreclosure action is con-
cluded. See General Statutes § 49-1 (setting forth gen-
eral rule that ‘‘[t]he foreclosure of a mortgage is a bar
to any further action upon the mortgage debt, note or
obligation against the person or persons who are liable
for the payment thereof who are made parties to the
foreclosure’’); JP Morgan Chase Bank, N.A. v. Winthrop
Properties, LLC, 312 Conn. 662, 673–74, 94 A.3d 622
(2014) (‘‘The purpose of the foreclosure is to extinguish
the mortgagor’s equitable right of redemption that he
retained when he granted legal title to his property to
the mortgagee following the execution of the mortgage.
. . . The mortgagee’s title does not become absolute,
however, until all eligible parties have failed to exercise
their rights to redeem the property.’’ [Citations omit-
ted.]); RAL Management, Inc. v. Valley View Associ-
ates, 278 Conn. 672, 685 n.12, 899 A.2d 586 (2006)
(amended affidavit of debt filed on day that court reen-
tered judgment of foreclosure, when it set new law
days).
The mortgagor’s rights and liabilities thus depend not
only on the validity of the note and mortgage but also
on the amount of the debt. That debt will determine
whether strict foreclosure or foreclosure by sale is
ordered, and, in turn, whether a deficiency judgment
may be recovered and the amount of that deficiency.
See Equity One, Inc. v. Shivers, 310 Conn. 119, 131, 74
A.3d 1225, 1233 (2013) (‘‘under Practice Book § 23-18,
the court was required to review the note, mortgage
and affidavit of debt before finding that the debt
exceeded the value of the property and ordering strict
foreclosure’’); Federal Deposit Ins. Corp. v. Voll, supra,
38 Conn. App. 207 (deficiency judgment allows note
holder to ‘‘recover the difference between the amount
due on the underlying debt and the amount received
upon foreclosure’’ [internal quotation marks omitted]);
see also TD Bank, N.A. v. Doran, 162 Conn. App. 460,
468, 131 A.3d 288 (2016) (‘‘the strict foreclosure hearing
establishes the amount of the debt owed by the defen-
dant’’); Federal Deposit Ins. Corp. v. Voll, supra, 211
(‘‘[d]efenses that could have been raised during the
foreclosure proceedings may not be raised at the defi-
ciency hearing’’); Connecticut National Bank v. N. E.
Owen II, Inc., 22 Conn. App. 468, 472, 578 A.2d 655
(1990) (‘‘in a mortgage foreclosure action, a fundamen-
tal allegation that must be proved by the plaintiff is the
amount of the debt’’). The debt may include principal,
interest, taxes, and late charges owed. See, e.g., New
England Savings Bank v. Bedford Realty Corp., 238
Conn. 745, 748 and n.3, 680 A.2d 301 (1996); Suffield
Bank v. Berman, 228 Conn. 766, 769 and n.9, 773, 639
A.2d 1033 (1994); Burritt Mutual Savings Bank of New
Britain v. Tucker, 183 Conn. 369, 374, 439 A.2d 396
(1981); Connecticut National Bank v. N. E. Owen II,
Inc., supra, 469; see also General Statutes § 49-2 (a);
Practice Book § 23-18. The terms of the note or mort-
gage may also permit an award of reasonable attorney’s
fees for expenses arising from any controversy relating
to the note or mortgage, which may be collected in
connection with the foreclosure action. See Connecti-
cut National Bank v. N. E. Owen II, Inc., supra, 470–71
and n.3; 1 D. Caron & G. Milne, Connecticut Foreclo-
sures (9th Ed. 2019) § 6-2:1.2k, p. 419.
These equitable and practical considerations inexora-
bly lead to the conclusion that allegations that the mort-
gagee has engaged in conduct that wrongly and substan-
tially increased the mortgagor’s overall indebtedness,
caused the mortgagor to incur costs that impeded the
mortgagor from curing the default, or reneged upon
modifications are the types of misconduct that are
‘‘ ‘directly and inseparably connected’ ’’; Thompson v.
Orcutt, supra, 257 Conn. 313; to enforcement of the
note and mortgage. To the extent that the pleadings
reasonably may be construed to allege that the April,
2012 intervention by the Department of Banking
resulted in a binding modification, there can be no
doubt that the breach of such an agreement would bear
the requisite nexus.15 See U.S. Bank National Assn. v.
Blowers, supra, 177 Conn. App. 630 (acknowledging
this point). Such allegations, therefore, provide a legally
sufficient basis for special defenses in the foreclosure
action. Insofar as the counterclaims rest, at this stage,
upon the same allegations as the special defenses, judi-
cial economy would certainly weigh in favor of their
inclusion in the present action. See Connecticut
National Bank v. Voog, 233 Conn. 352, 368, 659 A.2d
172 (1995) (‘‘[b]ecause th[ese] counterclaim[s] paral-
leled his special defense, [they were] also correctly
pleaded in this case rather than as a separate action
for damages’’).
We express no opinion as to whether all of the defen-
dant’s allegations necessarily have a sufficient nexus
to enforcement of the note or mortgage. Because the
trial court, the Appellate Court, and the parties have
generally addressed the allegations in toto, we do the
same.16
Nor do we intend to suggest, at this stage of the
litigation, that the allegations in the present case are
sufficient to justify the remedy of withholding foreclo-
sure or reducing the debt. Even if the defendant is able
to prove all of his allegations, the trial court would have
to be mindful that ‘‘[t]he equitable powers of the court
are broad, but they are not without limit. ‘Equitable
power must be exercised equitably.’ Hamm v. Taylor,
supra, 180 Conn. 497.’’ McKeever v. Fiore, supra, 78
Conn. App. 793; see also Wells Fargo Bank, N.A. v.
Meyers, 108 A.D. 3d 9, 23, 966 N.Y.S.2d 108 (2013)
(it was improper for trial court to order mortgagee to
execute final loan modification patterned after trial loan
modification proposal as remedy for mortgagee’s failure
to negotiate loan modification in good faith and to direct
dismissal of complaint, and ‘‘courts must employ appro-
priate, permissible, and authorized remedies, tailored
to the circumstances of each given case’’ when no sanc-
tion is specifically directed). It would be premature for
us to express an opinion on that matter at this juncture.
We are not persuaded that our decision today will
have the adverse consequences envisioned by the plain-
tiff and the Appellate Court that would require a differ-
ent result as a matter of public policy. On this record,
we have no basis to conclude that mortgagees will be
deterred from engaging in modification negotiations.
Under the state’s mediation program, when a mortgagor
elects to participate in the program, a mortgagee is
required to engage in loss mitigation review with the
mortgagor before foreclosure proceedings can proceed
and faces sanctions for conduct that amounts to a lack
of good faith.17 See General Statutes §§ 49-31l and 49-
31n. This statutory obligation provides an incentive for
the parties to negotiate prior to the filing of a foreclo-
sure action, as do ordinary financial incentives. Our
decision serves as a deterrent to wrongful conduct only.
Insofar as the mortgagee is conducting itself fairly and
within the bounds of the law, we agree with the dis-
senting Appellate Court judge’s confidence that ‘‘our
trial courts will be able to discern efficiently between
claims that are well pleaded and supported by specific
factual allegations and those that are merely frivolous
and intended only to create unneeded delay.’’ U.S. Bank
National Assn. v. Blowers, supra, 177 Conn. App. 649
(Prescott, J., dissenting).
The judgment of the Appellate Court is reversed and
the case is remanded to that court with direction to
reverse the judgment of strict foreclosure and to
remand the case to the trial court for further proceed-
ings in accordance with this opinion.
In this opinion the other justices concurred.
1
Robin Blowers, Farmington Valley Landscape, LLC (Farmington), Land
Rover Capital Group (Land Rover), C&I Solutions, LLC, and Viking Fuel Oil
Company, Inc. (Viking), also were named as defendants in this foreclosure
action. Farmington, Land Rover and Viking were defaulted for failure to
appear, and the remaining defendants other than Piper declined to appeal
from the trial court’s judgment. For convenience, we refer to Piper as
the defendant.
2
The full name of the plaintiff is U.S. Bank National Association, as Trustee
for the Holders of the First Franklin Mortgage Loan Trust Mortgage Pass-
Through Certificates, Series 2005-FF10.
3
In 2008, the legislature established a court-administered and supervised
foreclosure mediation program under which neutral mediators assist eligible
homeowners facing foreclosure and their lenders or mortgage servicers to
achieve a mutually agreeable resolution to a foreclosure action. See General
Statutes §§ 49-31k through 49-31o. Mediation ‘‘shall . . . address all issues
of foreclosure,’’ including, but not limited to, restructuring of the mortgage
debt. General Statutes § 49-31m. When a mortgagor elects to participate in
the program, the mortgagee is obligated to engage in some form of loss
mitigation review with the mortgagor before foreclosure proceedings can
proceed. See General Statutes §§ 49-31l and 49-31n.
Although §§ 49-31k, 49-31l and 49-31n have been amended by the legisla-
ture since the events underlying the present case; see, e.g., Public Acts 2015,
No. 15-124; those amendments have no bearing on the merits of this appeal.
4
The defendant also asserted an unjust enrichment special defense and
counterclaim but subsequently withdrew both.
5
‘‘The Great Recession began in December 2007 and ended in June 2009,
which makes it the longest recession since World War II. Beyond its duration,
the Great Recession was notably severe in several respects. . . . Home
prices fell approximately 30 percent, on average, from their mid-2006 peak
to mid-2009, while the S&P 500 index fell 57 percent from its October 2007
peak to its trough in March 2009.’’ R. Rich, ‘‘The Great Recession,’’ available
at https://www.federalreservehistory.org/essays/great recession of 200709
(last visited July 23, 2019). As foreclosure actions soared; see generally
Equity One, Inc. v. Shivers, 310 Conn. 119, 145 n.7, 74 A.3d 1225 (2013)
(McDonald, J., dissenting) (noting mortgage foreclosure crisis during this
period); state and federal legislators stepped in to attempt to staunch the
tide. See footnote 3 of this opinion (addressing Connecticut’s legislative
response).
6
Because there is no dispute that the plaintiff’s servicing agent was acting
within the scope of its agency with respect to the conduct alleged, we impute
all of the servicer’s conduct to the plaintiff in this opinion.
7
Nothing in the record indicates the amount of the defendant’s mortgage
payment at the time of default.
8
The defendant alleges that he contacted the state ‘‘banking commission.’’
Because Connecticut does not have a banking commission, we construe
the defendant’s allegation to mean that he contacted the state’s Department
of Banking.
9
We granted the defendant’s petition for certification to appeal, limited
to the following issues:
‘‘1. Did the Appellate Court properly hold that (a) special defenses to a
foreclosure action must ‘directly attack’ the making, validity, or enforcement
of the note or mortgage, and (b) counterclaims in a foreclosure action must
also satisfy the ‘making, validity, or enforcement’ requirement? See Practice
Book § 10-10.
‘‘2. If the Appellate Court properly addressed the issues in the first ques-
tion, did it properly hold that alleged postorigination misconduct concerns
a plaintiff’s ‘enforcement’ of a note or mortgage only if the plaintiff breaches
a loan modification or other similar agreement that affects the enforceability
of the note or mortgage?
‘‘3. If the Appellate Court properly addressed the issues in the first and
second questions, did it properly hold that the [defendant’s] allegations of
the plaintiff’s misconduct and breach relating to a ‘received’ ‘immediate
modification’ did not amount to an allegation that the plaintiff had agreed
to a ‘final, binding loan modification’ that affected the plaintiff’s ability to
enforce the note or mortgage?’’ U.S. Bank National Assn. v. Blowers, 328
Conn. 904, 904–905, 177 A.3d 1160 (2018).
10
Our research reveals that the limitation applied in the present case
first appeared in Connecticut jurisprudence in a Superior Court case. In
Connecticut Savings Bank v. Reilly, 12 Conn. Supp. 327, 327–28 (1944), a
foreclosure action, the defendant asserted abuse of process as a special
defense, due to the excessiveness of attachment with which suit was com-
menced. With regard to that special defense, the trial court, in a brief two
paragraph decision, noted that abuse of process did not fall within the ambit
of defenses this court had recognized at common law—payment, discharge,
release, satisfaction or invalidity of the lien. Id., 327. The trial court deter-
mined, in a separate memorandum of decision in that same foreclosure
action, that the defendant’s counterclaim ‘‘sounds in tort and its subject
matter has no connection with the making, validity or enforcement of the
mortgage. This makes it an improper matter for adjudication in this litiga-
tion.’’ Connecticut Savings Bank v. Reilly, 12 Conn. Supp. 328, 329 (1944).
In support of this proposition, the trial court cited Schaefer v. O. K. Tool
Co., 110 Conn. 528, 148 A. 330 (1930), a case in which this court simply had
held that it is not permissible to file a counterclaim sounding in tort in a
contract action unless the subject matter of the counterclaim is so connected
with the matter in controversy under the original complaint that its consider-
ation is necessary for a full determination of the rights of the parties. Id.,
531; see Connecticut Savings Bank v. Reilly, supra, 329. Our research has
not revealed any reference to, or application of, the making, validity, or
enforcement test until almost five decades later. In a 1990 foreclosure action,
the trial court concluded that special defenses and counterclaims alleging
tortious interference with a contract to sell the subject property could
not proceed because they did not involve the validity and enforcement of
promissory notes, a guarantee and mortgages. See Citytrust v. Kings Gate
Developers, Inc., Superior Court, judicial district of Stamford-Norwalk,
Docket No. CV-XX-XXXXXXX-S (October 18, 1990) (2 Conn. L. Rptr. 639). That
case did not rely on either Reilly decision but, instead, relied on Wallingford
v. Glen Valley Associates, Inc., 190 Conn. 158, 161, 459 A.2d 525 (1983), a
case that makes no reference to a making, validity, or enforcement test.
Citytrust v. King Gate Developers, Inc., supra, 2 Conn. L. Rptr. 639; see
Wallingford v. Glen Valley Associates, Inc., supra, 159, 160–61 (applying
transaction test set forth in what is now Practice Book § 10-10 to conclude
that counterclaim alleging tort claim for property damage resulting from
surface water diversion did not involve same factual and legal issues as
plaintiff’s sewer and tax lien foreclosure action, which involved ‘‘enforce-
ment of a lien acquired by operation of law’’).
It appears that this test first entered our appellate foreclosure jurispru-
dence in 1999. See Southbridge Associates, LLC v. Garofalo, 53 Conn. App.
11, 17–19, 728 A.2d 1114, cert. denied, 249 Conn. 919, 733 A.2d 229 (1999).
The Appellate Court in Garofalo did not provide insight into the origins or
appropriateness of the making, validity, or enforcement test. Since then,
the Appellate Court has applied this test in numerous foreclosure actions.
11
‘‘There have been many and varied interpretations of the making, validity
and enforcement requirement by Connecticut Superior Court decisions.
There is a line of cases which interprets the phrase very strictly to mean
the execution and delivery of an enforceable instrument, and not the occur-
rences that may arise between the parties during the course of their loan
relationship. . . . A second line of cases, however, interprets the making,
validity, and enforcement requirement less rigidly. . . . This court does not
subscribe to the literal, chronological test of making, validity and enforce-
ment . . . . [P]ostexecution actions or positions of a lender can relate to
the enforcement of a note and mortgage. Each counterclaim or special
defense therefore requires a case-by-case analysis, by the court acting as a
court of equity, to assess the extent to which the facts alleged relate to the
original transaction and not to any different or subsequent transaction.’’
(Citations omitted; internal quotation marks omitted.) Bank of America,
N.A. v. Groton Estates, LLC, Docket No. CV-XX-XXXXXXX-S, 2010 WL 3259815,
*5 (Conn. Super. July 13, 2010); see also U.S. Bank National Assn. v. Blowers,
supra, 177 Conn. App. 648 n.7 (Prescott, J., dissenting) (‘‘I recognize that
our jurisprudence is somewhat opaque with regard to the meaning of
enforcement in this context and that there can be reasonable and differing
views about how to interpret that term in the foreclosure context. For
example, enforcement could be construed narrowly to refer only to the
ability of a mortgagee to enforce the note or mortgage or, more broadly,
to include a mortgagee’s actions related to such enforcement.’’).
12
Although the dissenting Appellate Court judge relied in part on a distinc-
tion between defenses at law and defenses in equity as a basis for a more
expansive meaning of enforcement for the latter; U.S. Bank National Assn.
v. Blowers, supra, 177 Conn. App. 644 (Prescott, J., dissenting); our focus
in the present case is on equitable defenses. As such, we have no occasion
to address whether legal defenses would be subject to the same broad view.
13
Diane E. Thompson, then counsel for the National Consumer Law Cen-
ter, explains the financial incentives for a mortgage servicer to draw out a
delinquency without a modification or a foreclosure. See D. Thompson,
‘‘Foreclosing Modifications: How Servicer Incentives Discourage Loan Modi-
fications,’’ 86 Wash. L. Rev. 755 (2011). According to Thompson, servicers’
‘‘income stream comes primarily from their monthly servicing fee, which is
a fixed percentage of the outstanding principal balance.’’ Id., 767. Servicers
face competing incentives when deciding whether to offer a modification
or proceed with foreclosure. Id., 776–80. She posits that ‘‘the true sweet
spot lies in stretching out a delinquency without either a modification or a
foreclosure. While financing advances is a large expense for servicers, one
they will want to end as soon as possible, late fees and other [default related]
fees can add significantly to a [servicer’s] bottom line, and the longer a
homeowner is in default, the larger those fees can be. The nether-world
status between a foreclosure and a modification also boosts the monthly
servicing fee (because monthly payments are not reducing principal) and
slows down servicers’ largest [noncash] expense: the amortization of mort-
gage servicing rights (because homeowners who are in default are unlikely
to prepay via refinancing). Finally, foreclosure or modification, not delin-
quency by itself, usually triggers loss recognition in the pool under the
accounting rules. Waiting to foreclose or modify postpones the day of reckon-
ing for a servicer.’’ (Footnotes omitted.) Id., 777. ‘‘Servicers do not make
binary choices between modification and foreclosure. Servicers may offer
temporary modifications, modifications that recapitalize delinquent pay-
ments, modifications that reduce interest, modifications that reduce princi-
pal, or combinations of all of the above. Servicers may demand upfront
payment of fees or waive certain fees. Or servicers may simply postpone a
foreclosure, hoping for a miracle. Once a servicer chooses a modification,
the servicer must further choose between types of modifications. Servicers
will often, if they can, choose a short-term forbearance or repayment agree-
ment over a permanent modification of the loan terms. A permanent modifi-
cation of the loan terms might involve capitalizing arrears, extending the
term, reducing the interest, and reducing or merely forbearing the obligation
to repay principal. . . . [T]he weight of servicer incentives is always against
principal reductions and weighs heavily in favor of short-term agreements.
Principal reductions cut into the servicer’s main source of income—the
monthly [principal based] servicing fee—without offering any additional
income. Short-term modifications delay loss recognition and preserve cash
flow to the residual interests held by many servicers. Interest rate reductions
are only slightly more favorable from a servicer’s standpoint than principal
reduction or forbearance: they will still, ultimately, result in a drop in the
principal as borrowers pay down principal more quickly over time at a lower
interest rate. While the incentives are mixed for a foreclosure, there are
more incentives in favor of a foreclosure than against.’’ (Footnote omitted.)
Id., 780.
14
The trial court found that the defendant’s allegations that the plaintiff’s
misleading conduct was calculated to induce the defendant to believe that
he was going to get a loan modification and that the defendant acted on the
information provided by making payments under the May, 2012 modification
were legally sufficient to satisfy the elements of equitable estoppel. The
court did not explain why it distinguished the May, 2012 modification from
the other modifications previously offered and withdrawn. The court also
found that those same allegations, as well as further allegations that the
plaintiff conducted itself in wilful or reckless disregard of the harmful conse-
quences of its solicitations and that it failed to conduct itself in an honest
and equitable manner were legally sufficient to establish the elements of
an unclean hands defense.
15
The defendant alleged that the Department of Banking ‘‘intervened on
[his] behalf, resulting in an immediate modification being received.’’ We
agree with Judge Prescott that, in light of the liberal construction that the
trial court was required to give the pleadings, the defendant’s allegations
were sufficient to support a claim that a binding modification had been
reached prior to the commencement of the foreclosure action. As such, the
defendant’s pleadings should not have been stricken in their entirety on
that basis alone.
16
The only distinction that has been made focuses on allegations of con-
duct during the course of court-supervised mediation. The plaintiff suggested
at oral argument before this court that statutory sanctions are the proper
remedy to address misconduct during mediation. The mediation scheme
acknowledges ‘‘an expectation’’ that the parties will participate in the media-
tion process ‘‘in good faith, but without unreasonable and unnecessary
delays’’ in an effort to reach an agreement to avoid foreclosure or to expedite
or facilitate the foreclosure with reasonable speed and efficiency. General
Statutes § 49-31k (7). It authorizes the court to impose sanctions on any
party or counsel for engaging in ‘‘intentional or a pattern or practice of
conduct during the mediation process that is contrary to the objectives of
the mediation program’’ and provides that available sanctions ‘‘shall include,
but not be limited to, terminating mediation, ordering the mortgagor or
mortgagee to mediate in person, forbidding the mortgagee from charging
the mortgagor for the mortgagee’s attorney’s fees, awarding attorney’s fees,
and imposing fines.’’ General Statutes § 49-31n (c) (2).
The present case involves an alleged pattern of misconduct that com-
menced long before the filing of the foreclosure action and continued during
mediation. We have no occasion, therefore, to consider whether the availabil-
ity of those sanctions reflects a legislative intent to occupy the field when
the misconduct is limited to the mediation period. Moreover, the plaintiff
has provided no analysis on the issue of whether the legislature intended
these sanctions to supplant or otherwise limit the court’s inherent power
to impose sanctions or otherwise afford equitable relief. Cf. Mingachos v.
CBS, Inc., supra, 196 Conn. 109–10 (‘‘[b]ecause the [Workers’ Compensation
Act] provides the exclusive remedy to the employee for conduct alleged in
the original complaint, the trial court’s denial of the plaintiff’s motion to
strike the special defense was not clearly erroneous’’).
17
A litigation hold is placed on the case, during which time a mortgagee
is prohibited from making any motion, request or demand of a mortgagor,
except as it may relate to the mediation program; General Statutes § 49-31l
(c) (6); and no judgment of strict foreclosure or foreclosure by sale may
be rendered against the mortgagor during the mediation period. General
Statutes §§ 49-31l (c) (6) and 49-31n (c) (9).