By James AR Pocklington, Esq
McCalla Raymer Leibert Pierce, LLP*

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

In one of its first opinions discussing so-called Zombie Mortgages, Aspen Properties Group, LLC v. Roberts-Joachim, the Connecticut Appellate Court has ruled in favor of the foreclosing lender on a defense of abandonment brought by the borrower.

Plaintiff, Aspen, brought suit seeking foreclosure of a 2006 second mortgage stemming from a 2012 default, with the action not commenced until 2020. At the time, Connecticut did not have a Statute of Limitations for mortgage foreclosure actions[1]  and defendants in the state have attempted various defenses in efforts to prevent what they see to be inequitable or improper foreclosures.

In Roberts-Joachim, the borrower, through her counsel from the Connecticut Fair Housing Center, attempted to raise a defense of abandonment. She alleged that, as she had been the subject of a prior foreclosure action brought by her first mortgage holder, and as the second had not participated, it had abandoned its mortgage. That action, brought in 2013, went to judgment but was eventually resolved through a loan modification and the action was withdrawn. One of Aspen’s predecessors in interest was properly named in that action, but did not appear or participate.

Aspen eventually accelerated and brought its action, which proceeded to a trial on the sole contested issue of whether Aspen’s predecessor had abandoned the second mortgage by not participating in the first mortgage’s prior foreclosure. The trial court rendered judgment for the lender as it determined that simply not appearing did not evidence an intent to abandon the second mortgage as there was no equity at the time, and that the abandonment claim was not carried. No evidence was provided as to the predecessor lender at trial and the trial court declined to infer an intent to abandon.

Much of the following appeal turned on the specific facts as found by the trial court, with the appellate court finding no reason to disagree with any of the rulings of the trial court.  Most importantly, the appellate court adopted the trial court analysis of the distinction between the debt and the lien, which provides some insight as to available arguments in similar situations.

First, the court reasoned that the sporadic mailing of demand letters … did not necessarily constitute an intent to abandon the mortgage because PNC had decided to ‘‘charge off’’ the home equity line of credit on its books as an accounting measure. … Of course, PNC’s determination that the loan should be classified as a bad debt does not necessarily mean that it also abandoned the mortgage, which realistically was perhaps the only remaining means to recover the sums it had loaned to the defendant. In other words, the court concluded that there was a reasonable explanation for the dearth of demand letters other than an intent to abandon the mortgage altogether.

While certainly not controlling (abandonment being a very fact-based defense in Connecticut), the argument that acknowledging a bad debt does not necessarily mean abandoning a lien is a potentially compelling argument, and one that lenders encountering challenges to second mortgages may do well to heed. This is potentially useful in any judicial state where a foreclosing senior is required to name the junior, and the junior took no action because, at the time, there was no equity in the property to justify same.

While the appellate court did not create a blanket rule against abandonment defenses to zombie mortgage foreclosures, Aspen provides a solid roadmap for how to address such claims at the trial court level and have the decision survive appellate review.