Anatomy of a Connecticut Real Estate Foreclosure
This guide is intended to address the procedural aspects of a foreclosure from start to finish. It is not intended to discuss strategies for delay, defense, or relief from a foreclosure. A skilled attorney should be consulted to defend a foreclosure, attempt a restructuring, or otherwise mediate a settlement if you are being foreclosed. Time is of the essence in these matters, and a delay might result in the loss of your rights.
The foreclosure process in Connecticut is commenced by a foreclosure lawsuit in court, which differs from many other states. The suit is commenced by serving a summons and a complaint on any person who has signed the mortgage, or has any interest in the subject property that is lesser in title to the mortgage. A title search must be performed to verify which parties have an interest in the subject property. Superior interest holders (such as towns who may have tax liens) are not made a party.
The plaintiff in the foreclosure action is generally the current owner of the mortgage. The mortgage may have been sold or transferred from the original mortgage holder, and therefore, a chain of assignments from the original mortgage holder to the plaintiff must be recorded in the appropriate land records and establish the plaintiff’s right to foreclose.
A summons and complaint must be served upon each defendant twelve days before the “return date" (which is set by the plaintiff and must be a Tuesday). The “return date" is a date by which a party must file an appearance with the court. After service, the summons and complaint must be filed with the court at least six days before the return date.
In order to obtain a foreclosure judgment, each defendant in a foreclosure action must be defaulted (for appearance, for failure to plead in a timely way, or for failure to disclose an adequate defense). If the case is contested, either a trial must be concluded, or a motion for summary judgment must be granted to establish the defendants’ liability to pay the debt owed to the plaintiff.
The Motion for Judgment
After obtaining judgment as to liability, if contested, or after filing (or in some cases at the same time as filing) the last motion for default, a motion for foreclosure judgment may be filed. At the same time, it is necessary to have a current real estate appraisal prepared by an appraiser licensed or certified by the State of Connecticut. This appraisal must be attached to the motion for judgment. At the hearing date the following documentation is necessary in order to obtain judgment: (1) The original promissory note; (2) The original mortgage; (3) All original assignments; (4) An affidavit of debt; (5) A real estate appraisal with an oath; and (6) A non-military service affidavit for all non-appearing parties.
If the original promissory note cannot be located, depending on the circumstances, a lost note affidavit might be accepted by a judge. Similarly, if the original mortgage and assignments cannot be located, certified copies of the same from the land records might be accepted.
The Judgment Hearing
At the judgment hearing, the court makes its findings as to the plaintiff's debt, the fair market value of the property, the court awarded attorney's fee, the court awarded appraisal fee and the court awarded title search fee. (The remainder of the foreclosure costs, such as the filing fee and marshal's fee, is taxed by the court clerk at a later date by submitting a bill of costs). The court at this time will also decide whether the judgment should be a judgment of strict foreclosure or a judgment of foreclosure by sale and sets the appropriate dates.
It is within the judge's discretion to order a strict foreclosure or a foreclosure by sale. A strict foreclosure is generally entered when there is very little or no equity in the subject property after the considering the amount of the foreclosure judgment and the incident costs to be taxed.
The rationale for this is that if there is no equity in the property, there will be no proceeds from a foreclosure sale to be distributed among the subsequent lien-holders or the owner. Even if there is no equity, however, federal law requires a sale in the event of an IRS lien (or any other lien held by the United States).
In the context of a strict foreclosure the judge sets a “law day." The “law day" is the date upon which each defendant has to pay off the debt of the foreclosing plaintiff. If the judgment debt is not paid off by such date, that party will be foreclosed out of all interest in the subject property. Each other defendant is given a law day on succeeding business days in the inverse order of their priority. Any subsequent defendant may redeem the debt of the foreclosing plaintiff on its law day. In such an instance, such defendant would take title to the premises free and clear of those parties whose law days have already passed, but would take subject to the interests of any parties whose law days have not yet run (as well as any interests prior to the plaintiff's).
The court has discretion in setting the law day(s). However, a minimum twenty-one day law day is required due to a twenty-day appeal period (absent the waiver of the appeal period by all parties).
Upon passing of all the law days, the plaintiff becomes the owner of the property. Filing a certificate of foreclosure on the land records creates evidence of title ownership. Plaintiff’s counsel prepares this document.
A foreclosure by sale is ordered at the discretion of the judge. It is generally ordered when there is equity in the property after the mortgage of the foreclosing plaintiff or if there is an IRS lien on the property. The court generally sets a sale date to be held on the property on a Saturday, approximately 60 days from the date of judgment. The judge will assign a local attorney (called the "Committee of Sale") who coordinates the sale. The Committee will generally have a sign posted on the property, schedule advertising in a local newspaper ordered by the court, obtain liability insurance for the date of sale, and coordinate an updated appraisal by the date as ordered by the court. Usually a deposit of ten (10%) percent of the property value is required from the successful bidder unless the successful bidder is the foreclosing bank. It should be noted that the committee usually charges approximately $2,000.00 in expenses and $3,000.00 in fees for conducting the sale.
Post Foreclosure-By-Sale Procedures
After the foreclosure sale is held, the committee files a motion for approval of sale. At the approval hearing, the court will look at the fair market value of the property as compared to the successful bid amount in determining whether to approve the sale. If the successful bidder is not the mortgage holder, then after the approval of sale the bidder has 30 days to conduct a closing with the committee. After the closing has been held, the committee pays the sale's proceeds into court, and it is necessary for the plaintiff to file a motion for supplemental judgment to obtain the proceeds from the court. After the motion for supplemental judgment is granted, there is an additional three-week delay in receiving the money because the court must wait until the twenty-day appeal period expires to disburse the funds.
The Committee fees and costs are paid first from the sales proceeds. Any remaining amounts equal to or less than the plaintiff's judgment debt, per diem interest to the date of disbursement, court awarded attorney's fees and costs, and generally any tax, insurance or other similar disbursements supported by an affidavit, will be paid to plaintiff. After a foreclosure by sale, evidence of title ownership is by a committee's deed signed by the committee, approved by a superior court judge, and recorded on the appropriate land records
The foreclosing plaintiff may apply for a “deficiency judgment" if they believe the mortgage debt and costs are greater than either the property value (if they took the property by strict foreclosure) or the amount they were distributed out of the sale proceeds (if the property was auctioned at a foreclosure sale). To establish a deficiency judgment, it is necessary to obtain an updated appraisal establishing the fair market value of the property as of the date of title vesting in the plaintiff. At a hearing on a deficiency judgment, testimony by an appraiser is generally required. If the judge finds that the amount received by the foreclosing plaintiff (either in terms of land value or in terms of sales proceeds) the judge will render a deficiency judgment which is a money judgment against the mortgagor (and any other signers of the promissory note if they are parties to the case).