09 Sep Connecticut Legislative Update
The Connecticut legislature recently amended various laws relating to land titles, foreclosure and loss mitigation, all of which is effective October 1, 2016. The provisions of House Bill 5571 that were effective July 1, 2016, were discussed in our Distribution Memorandum dated June 9, 2016.
Connecticut House Bill 5571
Successor in Interest in Foreclosed Property
The expiration date of December 31, 2017 was removed from provisions governing the assumption of a property interest after foreclosure by a successor in interest.
“Underwater Mortgage” means a mortgage where the debt associated with such mortgage, along with any senior lien, exceeds the fair market value of the mortgaged property as determined by a court in accordance with Connecticut law.
“Mortgagor” for purposes of an Underwater Mortgage only includes those mortgagors (borrowers) with personal net liquid assets, excluding retirement and tax advantaged health savings plans, that are less than $100,000.
Notwithstanding any provision of the general statutes, any Underwater Mortgage on residential real property may be modified, and the principal balance increased by the amount of accrued interest, fees and costs allowed by law, without the consent of the holders of junior liens and without loss of priority for the full amount of the modified mortgage, provided such modification is approved by the court through entry of a judgment of loss mitigation as provided by Connecticut law.
A Mortgagor with an Underwater Mortgage may:
- Elect to convey the residential real property encumbered by the mortgage to a lender in full or partial satisfaction of the Mortgagor’s obligation to the lender by agreeing to convey such property in a transfer agreement executed by both parties (commonly known as a deed in lieu); or
- Enter into a transfer agreement to convey the residential real property subject to the mortgage to a third party and, as a condition of such conveyance, pay to the lender less than the outstanding balance due on the mortgage debt, which payment must be in full or partial satisfaction of the Mortgagor’s obligation to the lender (commonly known as a short sale).
In both cases, the transfer agreement must:
- Convey to the lender or third party, as applicable, all interests in the property, except for the interests reserved to the Mortgagor in the transfer agreement or the interests held by more senior lenders or lienholders or junior lienholders that are not a party to the action and not subject to the action;
- Contemplate a discharge of the mortgage after satisfaction of the conditions of the transfer agreement by the Mortgagor;
- Contemplate the termination of any other interest in the property subordinate to that of the lienholder party to the transfer agreement following a court’s entry of a judgment of loss mitigation; and
- Contain other provisions mutually agreeable to the Mortgagor and lender including, without limitation, a cash contribution of either party to the other or the execution of a promissory note by one party in favor of the other party upon such terms as such parties agree.
A lender may file a motion for judgment of loss mitigation at any time after the fifteen days following the return date in a pending foreclosure action following execution of a transfer agreement with Mortgagor. This should not be interpreted as allowing such a judgment to be entered by the court without the express written consent of both the Mortgagor and lender or requiring a lender to consider consenting to such a judgment in foreclosure mediation. Failure of either party to consent to a judgment of loss mitigation for any reason may not be a basis for a claim of bad faith. Upon motion of the lender and with the consent of the Mortgagor, the court, after notice and hearing, may render a judgment of loss mitigation approving the modification or conveyance.
All parties to the action may participate in such a hearing. Such judgment will be a final judgment for purposes of appeal. The only issues permitted at such hearing are:
- A finding of the fair market value of the residential property, which may be determined by a written appraisal of the fair market value of the residential real property obtained by the lender, to be performed by a licensed appraiser;
- To the extent necessary, a finding of the outstanding balance of any priority liens on such property to determine if the lender’s mortgage is an Underwater Mortgage;
- The debt owed to the lender that is secured by the mortgage;
- Whether the mortgage is an Underwater Mortgage;
- Whether the contemplated transaction was agreed to in good faith for the purposes of mitigation; and
- Whether the parties to the contemplated transaction other than the lender meet the financial requirements of a Mortgagor under this law, which must be determined by a financial statement submitted by the proposed Mortgagor or Mortgagors, or such other financial information from the proposed Mortgagor or Mortgagors that the court requires.
The court may not enter a judgment of loss mitigation unless the court makes express findings that the mortgage is an Underwater Mortgage and the requirements have been satisfied. If the court renders a judgment of loss mitigation, then immediately after the expiration of any applicable appeal period or after the disposition of an appeal that affirms the judgment, either, as applicable:
- The mortgage held by the lender will be increased as contemplated in such judgment and the lien of any junior lienholder who is a party to the action, or subject to the action, will be deemed subordinated to such mortgage, in the same order as existed prior to the subordination; or
- The conveyance to the lender contemplated in the transfer agreement will be effectuated, provided, in the event of an appeal, the Mortgagor or the lender may withdraw his or her consent to the foreclosure by loss mitigation at his or her sole discretion and the foreclosure of the mortgage may continue without any further restriction.
Unless otherwise indicated, to the extent such conveyance is later set aside or avoided by application of any provision of the federal bankruptcy law, the judgment of loss mitigation will be set aside and all parties will retain the same interests in the property as existed before the judgment of loss mitigation, to the extent permitted under applicable provisions of the federal bankruptcy law. The Mortgagor and lender must, not later than thirty days after the modification or conveyance, submit the judgment of loss mitigation to the town clerk for recording. Nothing in this law should be construed as prohibiting a consensual modification of a mortgage or a deed in lieu of foreclosure being consummated outside of the judicial process.
If the court does not enter a judgment of loss mitigation, then the modification or conveyance contemplated by the Mortgagor and lender may not be consummated. This does not prohibit a consensual modification of a mortgage or conveyance from being consummated outside of the judicial process. In the event of such non-entry:
- The Mortgagor may, if eligible, petition for inclusion in the foreclosure mediation program established by Connecticut law, provided the Mortgagor did not substantially contribute to the events leading to the non-entry or other circumstances resulting in the non-entry. In determining whether to grant such petition, the court must give consideration to any testimony or affidavits the parties may submit in support of or in opposition to such petition. The court may grant such petition upon a determination that:
- Such petition is not motivated primarily by a desire to delay entry of a judgment of foreclosure; and
- It is highly probable the parties will reach an agreement through mediation; and
- The lender will have the right to request the entry of a judgment of foreclosure in accordance with the other provisions of law, including the provisions governing strict foreclosure.
The above provisions should not be construed as eliminating the debt or any judgment associated with an affected junior lien on the residential real property encumbered by the Underwater Mortgage.
Foreclosure by Market Sale
“Mortgagor” means the owner-occupant of residential real property located in Connecticut who is also the borrower under the loan that is secured by a mortgage, other than a reverse annuity mortgage, encumbering such residential real property that is the primary residence of such owner-occupant, where the amount due on such mortgage loan, including accrued interest, late charges and other amounts secured by the mortgage, when added to amounts for which there is a prior lien by operation of law, exceeds the appraised value of the property.
A Mortgagor and a lender may agree, by mutual consent, to pursue a foreclosure by market sale but are not required to. Failure of either party to consent to a foreclosure by market sale for any reason is not a basis for a claim of bad faith. Previously the lender was required to give notice to the homeowner of the availability of foreclosure by market sale. This requirement has been deleted.
In regard to required mediation, the mediator may excuse any Mortgagor from attending meetings with the mediator provided the Mortgagor shows good cause for nonattendance. Such good cause may include, but is not limited to, the Mortgagor no longer owning the home pursuant to a judgment of marital dissolution and related transfer via deed, or no longer residing in the home and not being a necessary party to any agreement being contemplated in connection with the mediation.
Connecticut Senate Bill 248
The existing law authorizes the recordation of an affidavit that states facts which may affect the title to or any interest in real estate in the state of Connecticut; however, the affidavit must be related to one of the specific categories listed in the law. The amendment authorizes the recordation of such an affidavit if it relates to any state of facts affecting title to real property.
A new section has been added which provides that any conveyance of an interest in land to a trust rather than the trustee(s) of the trust shall constitute a valid and enforceable transfer of that interest. Additionally, any conveyance by the trust, which is signed by a duly authorized trustee of such trust, shall be treated as if the conveyance was made by the trustee.