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Aurora Loan Services, LLC v. Hirsch

Court of Appeals of Connecticut

January 31, 2017

AURORA LOAN SERVICES, LLC
v.
HARRY HIRSCH ET AL.

          Argued September 20, 2016

         Appeal from Superior Court, judicial district of Waterbury, Complex Litigation Docket, Dooley, J.

          Peter A. Ventre, with whom, on the brief, was Kimball Haines Hunt, for the appellant (substitute plaintiff).

          Michael D. O'Connell, with whom, on the brief, was Erin Arcesi Mutty, for the appellee (defendant Connecticut Attorneys Title Insurance Company).

          Beach, Keller and Norcott, Js. [*]

          OPINION

          BEACH, J.

         The substitute plaintiff, Nationstar Mortgage, LLC, [1] appeals from the judgment of the trial court rendered, in part, in favor of the defendant, Connecticut Attorneys Title Insurance Company.[2] The plaintiff claims that the court erred in: (1) its calculation of damages; (2) declining to award attorney's fees; and (3) calculating prejudgment interest pursuant to General Statutes § 37-3a from the return date on the summons.[3]We disagree and affirm the judgment of the trial court.

         The following facts, as found by the trial court, and procedural history are relevant. Harry Hirsch, a Connecticut attorney and an approved title agent for the defendant, was authorized to issue title insurance policies and letters of protection on behalf of the defendant. John Eoanou was a real estate developer and a client of Hirsch since 1999. In approximately 1998, Eoanou began the process of acquiring and developing a tract of land in Groton that was approved for resubdivision and development by Mardie Lane Homes, LLC (Mardie), a company owned by Eoanou. Aspart of the subdivision approval, Mardie was required to build a road and other infrastructure and ‘‘to obtain a bond in the event of its failure to do so.'' Mardie obtained construction loans from Liberty Savings Bank for which a mortgage was given on two lots within the subdivision, lots 14 and 19. Mardie did not build the necessary infrastructure and defaulted on its construction loans; subsequently, subdivision approval expired in 2003. Liberty Savings Bank took title to lots 14 and 19.

         In 2004, Eoanou filed a bankruptcy petition in federal court. While in bankruptcy, Eoanou, with Hirsch's knowledge and assistance, formed a new company, Thames River, LLC, that listed Eoanou's son as the sole member and manager, but in reality Eoanou was the controlling entity. Thames River, LLC, continued development of the Groton property. At Eoanou's direction, Hirsch purchased lots 14 and 19 from Liberty Savings Bank, and took title to the properties as trustee. The town of Groton issued building permits to Eoanou for lots 14 and 19, despite the expiration of the subdivision approval. Eoanou converted each lot into a condominium containing two units each. Lot 14 became 52A and 52B Mardie Lane and lot 19 became 47A and 47B Mar-die Lane.

         Before the condominiums or the road were completed, and before any certificates of occupancy were issued, Eoanou arranged for the sale of 47B and 52B. The transaction was not an arm's length transaction. Xenia Kamberos, who lived in Chicago and met Eoanou while on vacation in Aruba, agreed to invest in Eoanou's real estate projects in Westport and Preston because she liked and trusted him. When Kamberos decided to withdraw from the Westport investment, Eoanou, using a power of attorney from Kamberos, subsequently arranged a sham sale of the Westport property. The power of attorney was prepared by Hirsch. Eoanou did not return any of Kamberos' investment upon selling the property for more than twice the amount which Kamberos had invested.

         Without Kamberos' knowledge, Eoanou used the money that Kamberos had invested in the Westport project toward the purchase of 47B and 52B Mardie Lane. Eoanou informed Hirsch that Kamberos would be purchasing 47B and 52B Mardie Lane for $385, 000 each. Kamberos did not fill out the loan applications that were submitted for financing the transaction; the applications falsely stated her income and address. Financing was obtained through Sterling Lending Group, with which Eoanou had a preexisting relationship.

         The closings on 47B and 52B Mardie Lane occurred on April 24, 2007, and May 9, 2007, respectively. The closings were attended only by Hirsch and Eoanou, and at the closings, Hirsch purportedly represented Kamb-eros, the purchaser; Thames River, LLC, the seller; and First Magnus Financial Corporation (First Magnus), [4] the purchaser's lender. He also acted as the defendant's approved agent for the issuance of title insurance and letters of protection. Hirsch never spoke to Kamberos about the transactions and never sent the sales contracts to her. Eoanou signed Kamberos' name to the sales contracts, and Hirsch was aware of this fact. At the closing, Bryan Johnson purportedly acted pursuant to Kamberos' power of attorney. Kamberos did not sign any power of attorney nor was Johnson present at the closing; rather, Johnson's signature was forged and the document purporting to give him power of attorney also was forged. Hirsch knew that the attestation purportedly made on behalf of Kamberos was false.

         Prior to the closings, First Magnus sent Hirsch documents to be completed in accordance with certain instructions. Onesuch documentwas the ‘‘Owner Occupancy Agreement, '' which required that the borrower represent that the property would be used as the borrower's principal residence within sixty days after recordation of the security instrument. At the time of the closing, work on both properties was incomplete and both lacked certificates of occupancy. Hirsch had no information as to whether certificates of occupancy would be issued within sixty days. Hirsch knew that Kamberos lived in Chicago and had no intention to move to Connecticut. Hirsch nonetheless submitted the owner occupancy agreement to First Magnus.

         Another document essential to the closing was an ‘‘Address Certification'' which required Hirsch to certify the correct mailing address of the mortgagor. Hirsch falsely certified Kamberos' mailing address, an address that was actually an uninhabited lot in Westport next to Eoanou's home. Hirsch also sent the HUD-1 forms to First Magnus, knowing that the documents bore the signature of Johnson as attorney in fact for Kamberos, despite the fact that Johnson did not sign the forms. In connection with the closing, Hirsh, on behalf of the defendant, issued identical title insurance policies in favor of First Magnus and the purchaser relating to 47B and 52B Mardie Lane. The policies provided in relevant part that the defendant provided coverage against loss or damage sustained by an insured, by reason of, inter alia, unmarketability of title and lack of right of access to and from the land. At the closing, Hirsch also issued letters of protection on behalf of the defendant as to both properties. The letters provided that the defendant would reimburse ‘‘for actual loss'' incurred in connection with such closing when conducted by an issuing agent or approved attorney ‘‘when such loss arises out of: 1. Failure of the Issuing Agent or Approved Attorney to comply with your written closing instructions to the extent that they relate to . . . the status of the title to said interest in land or the validity, enforceability and priority of the lien of said mortgage on said interest in land, including the obtaining of documents and the disbursement of funds necessary to establish such status of title or lien . . . or 2. Fraud or dishonesty of the Issuing Agent or Approved Attorney in handling your funds or documents in connection with such closings.'' When Eoanou stopped making mortgage payments, the loans went into default and the properties were foreclosed upon. Aurora, the plaintiff's predecessor in interest; see footnote 1 of this opinion; took title to the properties by strict foreclosure.

         In August, 2013, the plaintiff filed a consolidated amended complaint against the defendant only, [5] relating to the sale of 47B and 52B Mardie Lane.[6] Counts one and three allege that the titles to both properties were unmarketable and therefore the title insurance policies provide coverage for its losses. In counts two and four, the plaintiff sought contractual indemnification under the letters of protection and claimed that the defendant, through its agent Hirsch, (1) failed to comply with the lender's written closing instructions, and (2) acted fraudulently and dishonestly in handling the lender's funds or documents in connection with the closing.

         In its memorandum of decision, the court found in favor of the defendant as to the title insurance policy claims, concluding that title was marketable. The court found in favor of the plaintiff as to counts two and four. The court found that First Magnus' lien was valid and title was marketable; therefore, the plaintiff could not prevail under the first clause at issue in the letters of protection because the misconduct upon which the plaintiff relied did not relate to the status of the title or the validity, enforceability or priority of the lien. As to counts two and four, the court found in favor of the plaintiff under the ‘‘fraud or dishonesty'' clause in the letters of protection because ‘‘several of First Magnus' closing documents contained false representations or were known forgeries, '' such as the false representation regarding owner occupancy, the false certifications of Kamberos' mailing address and the fact that Johnson did not sign as Kamberos' attorney on the HUD-1 forms.

         The court awarded damages on counts two and four in the total amount of $426, 362.98 and prejudgment interest in the amount of $61, 361.23. The court declined to award attorney's fees. This appeal followed.

         I

         The plaintiff claims that the court erred in the amount of its ...


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