Court Opinion

ID: 7842975
Source: CourtListenerOpinion
Date Created: 2022-09-08 17:04:43.842383+00
Date Added: 2024-06-11T16:20:31.764480
License: Public Domain

Katz, J.,
with whom
Berdon, J.,
joins, dissenting. Today the majority holds that different treatment should be afforded to debtors who lose their property through foreclosure by sale and debtors who lose their property through strict foreclosure. Only if a debtor’s property is taken as a result of a strict foreclosure, the majority maintains, is a debtor’s remaining debt offset by the fair market value of the property. The poor soul whose property is taken through foreclosure by sale will have his debt reduced by the price procured at the foreclosure sale. The majority recognizes that this price is not fair market value and that a large disparity will likely result between a deficiency following a judgment of strict foreclosure and a deficiency following a judgment of foreclosure by sale. The hearing held pursuant to General Statutes § 49-14 following strict foreclosure specifically provides for a deficiency to be calculated on the basis of fair market value. The majority reasons, however, that this requirement is merely a necessary mechanism to establish value and the extent of the deficiency calculated. I suggest that the basis for the hearing held to determine the deficiency after a judgment of strict foreclosure rests on more than mere mechanics and has its foundation rooted in notions of due process that must be afforded as well to those parties who lose their property at foreclosure sales.
Before embarking on this journey, there are some additional facts that deserve mention. At the hearing to confirm the foreclosure sale,1 the defendants Mark *290Lopez and Pauline Henson (defendants) asked that the sale be set aside and that a judgment of strict foreclosure be rendered because a “strict foreclosure at that value [$490,000 as set by Judge Teller] would eliminate the debt.” The trial court responded that that would not necessarily be the case; rather, the defendants would be entitled to a new hearing “at which appraisers come in and say gee, we had an auction, the best we could do was two hundred thousand. Nobody bid more than two sixty. So you may well find that you get an appraiser who says it’s really now . . . only worth two forty because the market’s worse than it was before. So . . . I’m confused as to what result you’re going to get except another bite at the apple.”2 Reference was made to the sale price being only 53 percent of the value previously set by the court, but no further arguments were advanced by the defendants that other evidence be taken regarding the property’s fair market value or that the court reexamine the file and consult the new appraisals that had been provided pursuant to General Statutes § 49-25.
On November 22,1991, the plaintiff moved for a deficiency judgment against the defendants. On December 6, 1991, the defendants filed an objection to the motion for a deficiency judgment claiming that the value of the property as of the date of the foreclosure sale was greater than the debt owed. In their objection, the defendants requested a hearing to establish the value of the property for the purpose of calculating the claimed deficiency. On February 24,1992, the trial court, Koletsky, J., denied the defendants the hearing they requested and found a deficiency of $155,905.30. The deficiency judgment represented the difference *291between the foreclosure sale price of $260,000 and the total debt plus expenses and interest of $411,341.50.
At this deficiency judgment proceeding, the defendants stated that either they had been misled by the court or they had misinterpreted what had been said, but in any event, “the question is still whether or not in a foreclosure by sale—whether or not I should be able to put on evidence regarding the value.” The defendants’ argument in the trial court and on appeal is that Practice Book § 528 provides for such a hearing and that § 49-28 does not distinguish between foreclosure by sale and strict foreclosure. The defendants claimed “that the value of the property and the price attained by sale might not be the same . . . .” At an evidentiary hearing, the defendants contended, the court “would be able to look at the facts of the case—the bidding, and say there was some interest here. There was more than one party bidding on this and, therefore, the sale act reflects the value of the property.”
The defendants’ offer to submit a brief in support of their position was deemed unnecessary by the trial court judge because he had “already ruled in a half dozen cases where the issue has been raised that the foreclosure by sale established the value of the property.” The court also noted “that in this particular file these issues were raised and argued and opportunity was given for the petition of evidence at the hearing on the objections to the committee report and the motion to approve the committee report and the sale.”
On appeal, the defendants claim that the trial court improperly failed to hold an evidentiary hearing to determine the fair market value of the property prior to awarding the plaintiff the deficiency judgment. The defendants argue that they were entitled to this hearing under the due process clause of the fourteenth *292amendment to the United States constitution3 and General Statutes §§ 49-144 and 49-28 and Practice Book § 528. The defendants also raise the alternative claim that the trial court should have exercised its equitable powers to deny any deficiency judgment. Finally, the defendants claim that even if the court was correct in awarding a deficiency judgment, it incorrectly computed the amount. I agree with the defendants that they were entitled to have a hearing to determine the fair market value of the property for the purpose of cal*293culating a deficiency judgment and therefore do not address the remaining claims.
The defendants claim that the failure to hold a hearing after a foreclosure by sale to determine value for the purpose of a deficiency judgment violates their procedural due process rights under the fourteenth amendment to the United States constitution. I agree.
When a debtor’s property is foreclosed upon, he has two constitutionally protected property interests potentially to lose: the real property (mortgage) and the deficiency judgment (note). See Society for Savings v. Chestnut Estates, Inc., 176 Conn. 563, 571, 409 A.2d 1020 (1979). Whether there are adequate safeguards in place under our laws to protect debtors when being deprived of their real property is not presently before this court.5 As for the deficiency judgment proceeding, due process requires a method of calculating the deficiency that strips debtors of only the amount of money that they obligated themselves to repay.
“There is no question that the property right involved here is constitutionally cognizable. Although the passing of the law day [or approval of sale and closing] has already vested title in the mortgagee, the question of value remains as a determination of how much the guarantor will owe on the note. The questions of *294whether there will be a deficiency owed, and of how much, constitute valid property interests.” (Emphasis added.) Id., 571. Once that property right has been recognized, “ ‘[i]t is fundamental that property cannot be taken without procedural due process as guaranteed by the fourteenth amendment to the constitution of the United States and article first, § 10, of the constitution of Connecticut.’ Roundhouse Construction Corporation v. Telesco Masons Supplies Co., 168 Conn. 371, 376, 362 A.2d 778 (1975).” Id., 570.
The salient inquiry to determine whether § 49-28 violates procedural due process is the balancing test of Mathews v. Eldridge, 424 U.S. 319, 334-38, 96 S. Ct. 893, 47 L. Ed. 2d 18 (1976).6 Three factors will be considered: “First, the private interest that will be affected by the official action; second, the risk of an erroneous deprivation of such interest through the procedures used, and the probable value, if any, ,of additional or substitute safeguards; and finally, the Government’s interest, including the function involved and the fiscal and administrative burdens that the additional or substitute procedural requirement would entail.” Id., 335; Sassone v. Lepore, 226 Conn. 773, 781, 629 A.2d 357 (1993); Matza v. Matza, 226 Conn. 166, 174, 627 A.2d 414 (1993); Scinto v. Stamm, 224 Conn. 524, 535, 620 A.2d 99 (1993).
I suggest that, given the protected property interest at stake and the minimal additional burden of a hearing to calculate the deficiency similar to those routinely held pursuant to § 49-14, the method of calculation currently employed does not adequately guard *295against an unconstitutional taking of that property interest. Further, I propose that procedural due process requires a method to determine the fair market value7 of the property which can then be offset against the remaining debt in determining the deficiency judgment.
*296It is without question that the defendants’ interest in a deficiency judgment is of sufficient weight to require a hearing. Even § 49-28 implicitly says as much. “[T]he second prong of Mathews requires us to measure the risk of an erroneous deprivation of the defendant[s’] interest through the procedures used, and the probable value, if any, of additional or substitute procedural safeguards.” Matza v. Matza, supra, 179. The procedures set forth in § 49-28 and approved today by the majority expose the defendants to a significant risk of deprivation because it strips them of a meaningful ability to have their debt reduced by the fair market value of the property, rather than what is often a bargain basement price paid by the lucky bidder at a forced sale. Although the trial court considers the fair market value when it decides whether to approve the sale, as I have already indicated, there is often little choice. See footnote 5.
*297The third prong of the Mathews analysis also supports the defendants’ contention that they were entitled to the hearing they sought. “[T]he governmental or general public interest, if there be one, is not one that could be characterized as ‘extraordinary.’ ” Society for Savings v. Chestnut Estates, Inc., supra, 573. In fact, the judicial system has a very definite and significant interest in ensuring that any taking not be unfair, unreasonable or confiscatory. Moreover, the fiscal and administrative burden that the additional procedural requirement would entail would be de minimis. Indeed, if debtors knew that the sales price would not automatically be determinative of the deficiency judgment, they might be less contentious about the sale and more willing to allow the trial court to approve it. This new procedure at the deficiency hearing, while costing a slight burden to the system, in effect might eliminate some of this contention and consequent court battles that typically transpire earlier in the proceedings.
The hearing would allow the trial court to consider the sales price as well as independent appraisals to arrive at the fair amount by which the defendants’ original obligation should be reduced. The sale price obtained at the forced sale would be one indication of value, but the trial court would not be bound by it. “[T]he defendants’] interest militates in favor [of this kind] of an evidentiary hearing only if such a hearing would be a more efficacious means of safeguarding that interest than the other procedural protections available to her.” Matza v. Matza, supra, 181. I believe that a hearing similar to that afforded under § 49-14 would be. Certainly this type of hearing would go a long way to ensure that the taking by the plaintiff of the defendants’ property would be limited to what the plaintiff is fairly entitled.
The question that arises in my mind is whether we are able to adjust and to rise to the needs of justice *298and see that the parties are fairly and properly protected when a deficiency judgment is sought. I suggest that we are. In the case of a judgment of strict foreclosure, a hearing is held, pursuant to § 49-14, to determine the fair market value of the property at the time title is transferred. See Baybank Connecticut, N.A. v. Thumlert, 222 Conn. 784, 610 A.2d 658 (1992); Society for Savings v. Chestnut Estates, Inc., supra. In Society for Savings v. Chestnut Estates, Inc., supra, 576, we struck down the prior § 49-14 as unconstitutional because it did not provide adequate due process protection to the debtor in the valuation of the property for the purpose of a deficiency judgment. It is time we acknowledge the infirmities of the approach we have allowed to continue in awarding deficiency judgments following foreclosures by sale and recognize that the price obtained at a foreclosure sale does not necessarily represent the fair market value of the property.
If the sale price obtained in a foreclosure sale constituted the fair market value of the property, the protections offered the mortgagor at the sale and the confirmation hearing would be sufficient to comport with due process. Once we acknowledge that a foreclosure by sale does not automatically produce the fair market value price, however, “the court must have a mechanism for establishing the value of the subject property to determine whether and to what extent a deficiency exists. ’ ’ Fairfield Plumbing & Heating Supply Corporation v. Kosa, 220 Conn. 643, 647, 600 A.2d 1 (1991). Because foreclosure sales rarely produce the fair market value price,8 and due process requires that *299the fair market value price be offset against the outstanding debt, automatically applying the foreclosure sale price to determine the deficiency judgment violates due process. To the extent that § 49-28 does not require the trial court to use the fair market value of the property to determine a deficiency judgment, I would find it unconstitutional.9
“ £ “If the invalidity of an enactment is evident beyond a reasonable doubt, our duty, delicate as the task may be, is to nullify the statute.”. . .’ ” Society for Savings v. Chestnut Estates, Inc., supra, 576. I “fully appreciate the presumption of constitutionality that attaches to a statutory enactment . . . .” Id., 577. Nonetheless, to the extent that the statute allows the court to use something other than the fair market value of the property to determine a deficiency judgment, it deprives a debtor of procedural due process and cannot stand.
Although there is presently no statutory guidance on how to ascertain the fair market value of the property *300following a foreclosure by sale, I would recommend that a deficiency judgment following a foreclosure by sale carry the same opportunities as the hearing held pursuant to § 49-14 when a deficiency judgment is sought following a judgment of strict foreclosure. Having ascertained only fourteen years ago what is required to sustain a deficiency judgment following a judgment of strict foreclosure, we have ample guidance in determining what is required to sustain a deficiency judgment following a judgment of foreclosure by sale. See id., 569-70. A deficiency judgment procedure is the functional equivalent of a suit upon the note which, although procedurally a part of the foreclosure action, serves the separate function of providing for recovery on the balance of the note that was not satisfied by the foreclosure. See Equitable Life Assurance Society v. Slade, 122 Conn. 451, 455, 190 A. 616 (1937). There is, however, “no hard and fast formula that can be applied to all situations .... [T]he hearing required by due process ... is not fixed in form [which] does not affect its root requirement that an individual be given an opportunity for a hearing before he is deprived of any significant property interest. . . ."(Citations omitted; emphasis omitted; internal quotation marks omitted.) Society for Savings v. Chestnut Estates, Inc., supra, 572-73.
Recognizing that a foreclosure sale price even once approved does not automatically determine fair market value for purposes of a deficiency, I would conclude that § 49-28 does not adequately provide due process protections in determining a deficiency judgment. Accordingly, I would declare § 49-28 unconstitutional.

 Although the parties dispute whether the plaintiff objected to the oral motion for a foreclosure by sale made by the defendants Stephen B. Watrous Builder, Inc., and Melanie Watrous, the plaintiff indicated a preference that *290“a strict foreclosure be ordered given the appraised value that was testified [to] by our appraiser and the current economic outlook for this economy.”

 The trial court also asked the following: “Where does [a strict foreclosure] get you . . . [h]oping . . . [that] after the strict foreclosure that there’ll be a new hearing on a deficiency and . . . another Judge will find the property to be worth more than the sale price?”

 The fourteenth amendment to the United States constitution provides in pertinent part: “No State shall . . . deprive any person of life, liberty or property, without due process of law.”

 General Statutes § 49-14 provides: “deficiency judgment, (a) At any time within thirty days after the time limited for redemption has expired, any party to a mortgage foreclosure may file a motion seeking a deficiency judgment. Such motion shall be placed on the short calendar for an evidentiary hearing. Such hearing shall be held not less than fifteen days following the filing of the motion, except as the court may otherwise order. At such hearing the court shall hear the evidence, establish a valuation for the mortgaged property and shall render judgment for the plaintiff for the difference, if any, between such valuation and the plaintiffs claim. The plaintiff in any further action upon the debt, note or obligation, shall recover only the amount of such judgment.
"(b) Upon the motion of any party and for good cause shown, the court may refer such motion to a state referee, who shall have and exercise the powers of the court with respect to trial, judgment and appeal in such case.
“(c) Any party to a mortgage foreclosure who has moved for an appraisal of property for the purpose of obtaining a deficiency judgment, but has not been granted a deficiency judgment, or has not received full satisfaction of any deficiency judgment obtained subsequent to the filing of such motion, may make a motion to the court for a deficiency judgment as set forth in subsection (a) of this section. If such motion is made on or before November 1, 1979, such moving party shall be deemed to have complied with all of the requirements of subsection (a) of this section and shall be entitled to the benefit of any deficiency judgment rendered pursuant to said subsection (a).
“(d) Any appeal pending in the supreme court with regard to any deficiency judgment or proceedings relating thereto shall be stayed until a hearing is held pursuant to subsection (a) of this section. Any appellant in such an appeal shall have the right for a period of thirty days after the rendering of judgment pursuant to subsection (a) of this section to amend his appeal. There shall be no stay of such an appeal if no motion has been filed pursuant to this section on or before November 1, 1979.”

 In deciding whether to approve a foreclosure sale price, the trial court often has a limited number of options available. It can approve the sale, reject it and order a judgment of strict foreclosure, or it can reject it and order a new sale. D. Caron, Connecticut Foreclosures (2d Ed. 1989) § 6.03C. In certain cases, as when the federal government is a party, the court is not free to convert the judgment into a strict foreclosure without the government’s consent. City Savings Bank v. Lawler, 163 Conn. 149,154, 302 A.2d 252 (1972). In that instance, the court is, therefore, left with the options of approving the sale or ordering a new one. Unless the trial court is given a strong reason to believe a new sale will bring a better price, it is unlikely that it will order a new sale, which will cause the defendant mortgagor to incur significant additional debt. General Statutes § 49-29. This leaves the court with one option: to approve the sale. Under these circumstances, there is nothing that makes the sale price determinative of value.

 See Connecticut v. Doehr, 501 U.S. 1, 111 S. Ct. 2105, 115 L. Ed. 2d 1 (1991) (applying test to prejudgment statute); Cleveland Board of Education v. Loudermill, 470 U.S. 532, 105 S. Ct. 1487, 84 L. Ed. 2d 494 (1985) (applying test to termination of government employee); Mackey s. Montrym, 443 U.S. 1, 99 S. Ct. 2612, 61 L. Ed. 2d 321 (1979) (applying test to suspension of driver’s license); Board of Curators s. Horowitz, 435 U.S. 78, 98 S. Ct. 948, 55 L. Ed. 2d 124 (1978) (applying test to dismissal of student from medical school).

 In general, fair market value is achieved when the sale results from “fair negotiations between a desirous buyer and a willing seller, neither under any undue compulsion to make a deal . . . (Citations omitted; internal quotation marks omitted) New Haven Savings Bank v. West Haven Sound Development, 190 Conn 60, 71, 459 A.2d 999 (1983); A & M Realty v. Dahms, 217 Conn. 95, 100-101, 584 A.2d 466 (1991); R. Washburn, “The Judicial and Legislative Response to Price Inadequacy in Mortgage Foreclosure Sales,” 53 So. Cal. L. Rev. 843, 870 (1980). Even in a good economic climate, the auction held pursuant to a judgment of foreclosure by sale does not automatically provide the conditions normally associated with an arms length sale of property between two parties with equal bargaining power. The auction sale is not typically this kind of arms length transaction. That is not to say that the proceeding is an unconscionable one; Williams v. Walker-Thomas Furniture Co., 350 F.2d 445, 449 (D.C. Cir. 1965) (“[ujnconscionability has generally been recognized to include an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party”); however, we would be remiss were we to ignore the realities of distress sales. These realities are even more apparent in a distressed market. B. Dunaway, The Law of Distressed Real Estate § 14.01, p. 14-2. The mortgagor does not have proportionate bargaining power as compared with the mortgagee who is often the sole bidder. Generally, only a few people participate in the bidding process because few people can afford the risks associated with such auctions, including but not limited to forfeiture of the deposit and assumption of the risk of damage to property. See 47 Am. Jur. 2d, Judicial Sales § 313; see also Wilcox v. Willard Shopping Center Associates, 23 Conn. App. 129, 132, 579 A.2d 130 (1990). Such foreclosure auctions do not provide the usual protections people expect in the average arms length transaction: there is no financing or building inspection contingency and no representations as to title. Therefore, unless a savvy potential buyer retains counsel to review title, he will have little or no protection. These risks can result in fewer viable bidders, thereby creating a situation that frequently allows a successful bidder to purchase property for significantly less than the appraised value previously set by the court. See, e.g., Cronin v. Gager-Crawford Co., 128 Conn. 688, 25 A.2d 652 (1942) (appraised value $57,000; sold at properly conducted foreclosure sale for $45,000); North End Bank & Trust v. Mandell, 113 Conn. 241, 155 A.2d 80 (1931) (appraised value $12,500; sold at properly conducted foreclosure sale for $5000); Staples v. Hendrick, 89 Conn. 100, 93 A. 5 (1915) (appraised value $16,900; sold at properly conducted foreclosure sale for $10,000); Central Bank for *296Savings v. Heggelund, 23 Conn. App. 266, 579 A.2d 598 (1990) (court found value at $300,000; sold at properly conducted foreclosure sale for $50,000); Danbury Savings & Loan Assn., Inc. v. Hovi, 20 Conn. App. 638, 569 A.2d 1143 (1990) (appraised value $225,000; sold at properly conducted foreclosure sale for $98,000). Courts and scholars alike have recognized that foreclosure sales frequently produce a price substantially less than the property's fair market value. Cronin v. Gager-Crawford Co., supra, 692 (foreclosure sale will likely involve a “sacrifice of value”); North End Bank & Trust v. Mandell, supra, 245 (foreclosure sale instead of strict foreclosure “causes, in many instances, a sacrifice of value”); Murphy v. Financial Development Corporation, 126 N.H. 536, 545, 495 A.2d 1245 (1985) (Brock, J., dissenting) (“a foreclosure sale . . . usually produces a price less than the property’s fair market value”); see Illini Federal Savings & Loan Associates v. Doering, 162 Ill. App. 3d 768, 516 N.E.2d 609 (1987), appeal denied, 119 Ill. 2d 557, 522 N.E.2d 1245 (1988); Federal Savings & Loan Ins. Corporation v. Hamilton, 241 Mont. 367, 786 P.2d 1190 (1990); First Financial Savings Assn. v. Spranger, 156 Wis. 2d 440, 456 N.W.2d 897 (1990); see also B. Dunaway, supra, § 14.01 (“Generally, property will not sell for as much in a foreclosure sale as it would after a leisurely marketing effort. Often the foreclosure bid is only a fraction of the normal market value.”); R. Washburn, supra, 870.

 Many other jurisdictions have recognized the need to have fair market value be the basis upon which the deficiency judgment is measured and have so legislated. E.g., Ariz. Rev. Stat. Ann. § 33-814 (A); Cal. Civ. Proc. Code § 580a; Ga. Code Ann. § 44-14-161; Idaho Code §§ 6-108, 45-1512; Mich. Comp. Laws Ann. § 600.3170; Neb. Rev. Stat. § 76-1013; Nev. Rev. Stat. § 40.457; N.J. Stat. Ann. § 2A:50-3; N.Y. Real Prop. Acts. Law § 1371 (McKinney); N.C. Gen. Stat. § 45-21.36; Okla. Stat. tit. 12, § 686; Pa. Stat. *299Ann. tit. 12, § 21-21.1; S.D. Codified Laws § 21-47-16; Utah Code Ann. § 57-1-32; Wash. Rev. Code § 61.12.060; Wis. Stat. Ann. § 846.165. In general, these statutes require that the fair market value of the property be credited against the debt. See generally B. Dunaway, The Law of Distressed Real Estate § 14.04 [3] [a]. By crediting the fair market value of the property against the debt, the “borrower’s equity in the property” is provided some protection. It also encourages mortgagees “to bid up the foreclosure sale price to the market value.” Id.; United. States v. MacKenzie, 510 F.2d 39, 41 (9th Cir. 1975). Additionally, courts have exercised their equitable powers to credit the fair market value of the property against the debt when the foreclosure sale price is less than fair market value. See, e.g., Chemical Bank & Trust Co. v. Schumann Associates, Inc., 150 Misc. 221, 223, 268 N.Y.S. 674 (1934); Davis Estate, Inc. v. Rochelle, 181 Wash. 81, 84, 42 P.2d 788 (1935); Suring State Bank v. Giese, 210 Wis. 489, 494, 246 N.W. 556 (1933).

 This court recently held in Baybank Connecticut, N.A. v. Thumlert, 222 Conn. 784, 788, 630 A.2d 658 (1992), that the language of General Statutes § 49-14 is not applicable to foreclosures by sale. To the extent that that case stands for the proposition that the foreclosure sale price automatically constitutes fair market value and, thus, should automatically be used to determine a deficiency judgment, I would overrule it.