By:  Adam Swanson

The Connecticut Appellate Court recently held that the limited purpose of a deficiency judgment hearing in a mortgage foreclosure action precludes re-litigating the underlying debt.  TD Bank, N.A. v. Doran, No. 37001, 2016 WL 116449 (Conn. App. Ct. Jan. 19, 2016).  Thus, borrowers were precluded from raising the defense of laches to prevent entry of a deficiency judgment.  In TD Bank, the foreclosing plaintiff obtained judgment of strict foreclosure fifteen months after commencing its action, even though the lawsuit was uncontested.  Title to the property vested with plaintiff on October 8, 2013.  Two years after commencement and eight months after title vested, plaintiff proceeded to a hearing on its motion for deficiency judgment.  Evidence showed a $150,000 decline in the value of the collateral in the sixteen-month period between commencement and the vesting of title with plaintiff.  At the hearing for deficiency judgment, borrowers argued that no deficiency judgment should enter because plaintiff was guilty of laches, a defense borrowers had raised in pleadings, but not litigated in the liability phase.  Borrowers argued that they were prejudiced by a $150,000 decline in property value and that had plaintiff not delayed, likely no deficiency judgment would have entered.  The Connecticut Appellate Court rejected borrowers’ argument, and held that the limited purpose of the deficiency judgment hearing is to fix the value of the property as of the date title vests with the foreclosing plaintiff to determine the deficiency.  Further, the Appellate Court explained that “defenses, such as laches, that ‘could have been raised during the foreclosure proceedings may not be raised in the deficiency hearing.’”  TD Bank, N.A. v. Doran, No. 37001, 2016 WL 116449, at *4 (Conn. App. Ct. Jan. 19, 2016).  Thus, it was proper to enter a $167,022.23 deficiency judgment, including accrued interest and up to $150,000 for the reduction in value of the collateral over the sixteen-month period.

This decision recognizes significant protections for servicers conducting business in Connecticut.  However, the Appellate Court did not preclude laches from tolling interest for unreasonable delays in foreclosure proceedings altogether and limited that defense to being raised at the time a foreclosure judgment enters.  Accordingly, servicers should remain vigilant to prevent unreasonable delays in Connecticut foreclosure proceedings.