By Geoffrey Milne, Esq. and Victoria Forcella, Esq.

McCalla Raymer Leibert Pierce, LLC *

USFN Member (AL, CA, CT, FL, GA, IL, KY, MS, NV, NJ, NY, OH, OR, TX, WA)

Servicers and their counsel will want to follow closely the decision of the Connecticut Supreme Court which granted Certification on November 23, 2021 in KeyBank, NA v. Yazar, PSC-210159, to address two key issues under the Emergency Mortgage Assistance Act (“EMAP”). The Court granted the Petition as to whether the EMAP statute involves subject matter jurisdiction and whether a servicer can rely upon an EMAP notice issued in a previous foreclosure, which was then dismissed. Litigation regarding EMAP notices has become rampant over the past few years, pausing foreclosures under the argument that a defective notice implicates subject matter jurisdiction. It is certainly possible that the law is about to change in this area based on the Court’s order granting Certification.

EMAP’s goal is to provide eligible borrowers with mortgage assistance during the pendency of a foreclosure. The EMAP program requires that its loans be repaid by consumers, and consequently, is not often used by borrowers. When it is used, the statutory framework allows a borrower to obtain EMAP assistance while a pending foreclosure is effectively placed on hold. Regardless, the statute requires a written notice prior to the commencement of a consumer foreclosure.

In 2020, the Connecticut Appellate Court held in MTGLQ Investors, L.P. v. Hammons[1] that a foreclosing plaintiff’s failure to provide the defendant mortgagor with the notice required by § 8-265ee (a) of EMAP constituted a jurisdictional defect requiring dismissal of the action. This means that a foreclosure judgment is subject to dismissal because the Court never had the power to hear the case due to the defect in the notice. The issue can be raised years after a case is filed and even after judgment enters.  The impact of the Hammons decision on servicers is substantial. If the EMAP notice was defective for any reason, such as failure to send by certified mail to the property address, then the foreclosure judgment was fatally defective, the case was dismissed, and a borrower could seek attorneys’ fees under Connecticut’s consumer fee statute, CGS 42-150bb. After Hammons, servicers saw a flurry of motions to dismiss claiming defective EMAP notices, delaying their cases.

In 2021, the Connecticut Appellate Court was faced with another case involving a challenge to an EMAP notice in KeyBank, NA v. Yazar[2].  In Yazar, the borrower executed a note and mortgage payable to First Niagara Bank, N.A. The loan became delinquent in 2016, and First Niagara issued separate default and EMAP notices to the borrower. About two months later, KeyBank acquired First Niagara by merger. In January 2017, KeyBank commenced a foreclosure which was dismissed for failure to provide mediation notices. About eight months later, KeyBank re-filed an action for foreclosure relying upon the prior EMAP notice sent in 2016. The plaintiff filed a motion for summary judgment on liability only, which was granted by the trial court, over an objection that the borrower had not received[3] an EMAP notice. After entry of a judgment of strict foreclosure, the borrower filed an appeal challenging the sufficiency of the EMAP notice. The borrower argued that the trial court lacked subject matter jurisdiction because the plaintiff failed to comply with the EMAP notice requirement of § 8-265ee (a). The plaintiff argued that the 2016 EMAP notice, sent prior to the first foreclosure, satisfied the statute. The Appellate Court reversed, finding that the EMAP notice was not sufficient, and remanded to the trial court to dismiss the case for a lack of subject matter jurisdiction. Fortunately, the bank filed a Petition for Certification, which was granted by the Connecticut Supreme Court.

The argument advanced by KeyBank on the Petition for Certification through its counsel, McCalla Raymer Leibert Pierce, LLC, was that a mortgage foreclosure is not a creature of statute; rather, its origins are deeply rooted in over two centuries of Connecticut common law. The common law right of foreclosure has existed in Connecticut since prior to 1825.[4] Recognition that a mortgage foreclosure is a common law cause of action is critical to an analysis of whether strict compliance with the EMAP’s notice requirements is jurisdictional. When the legislature intends to modify or restrict a common law cause of action, it is required to state expressly that it is doing so because such rights are being modified or limited. Statutes change common law rights “only if the language of the legislature plainly and unambiguously reflects such an intent.”[5] When the legislature is modifying or changing common law rights, it must state explicitly that it intends to abrogate them.[6] There is nothing in the legislative history of EMAP, as well as its 2009 amendments, to demonstrate that the legislature intended to abrogate common law rights as part of its enactment. The original act did not expand or limit the ability to file a mortgage foreclosure; neither did the 2009 amendments address limitations on subject matter jurisdiction.

The second issue which the CT Supreme Court granted Certification on is whether an EMAP notice sent by a mortgagee in a prior mortgage foreclosure (which was dismissed) can be relied upon in connection with a second foreclosure action commenced against the borrower based on the same default under the same mortgage. This issue is equally important to servicers, in that the EMAP notice relied upon by the lender in Yazar had been issued by a predecessor in interest, which had subsequently merged with KeyBank.  Normally, a surviving bank after a merger can rely upon the actions of the predecessor in interest. This issue has another practical benefit to servicers. Sometimes, a foreclosure is administratively dismissed based on the dormancy program. When the suit is re-filed, the lender has to address whether a new EMAP notice is required, even if the new suit is based on the same default as the prior case.

            It is likely that the Yazar case will be argued in 2022 before the Connecticut Supreme Court. It will be the first time that Court has addressed EMAP. It presents an excellent opportunity to clarify the law under EMAP, possibly to the benefit of servicers.