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Flagstar Bank, FSB v. Kepple

Court of Appeals of Connecticut

June 4, 2019

FLAGSTAR BANK, FSB
v.
CHRISTINE KEPPLE ET AL.

          Argued February 4, 2019

         Procedural History

         Action to foreclose a mortgage on certain real property owned by the defendants, and for other relief, brought to the Superior Court in the judicial district of New London, where the defendants were defaulted for failure to disclose a defense; thereafter, the court, Cos-grove, J., denied the defendants' motion to dismiss and motion for an order to produce certain documentation; subsequently, the court granted the defendants' motion for a stay; thereafter, the defendants filed counterclaims; subsequently, the court granted the plaintiffs motion to lift the stay; thereafter, the court, Nazzaro, J., granted the plaintiffs motion to strike the defendants' counterclaims; subsequently, the court, Cosgrove, J., rendered judgment of foreclosure by sale, from which the defendants appealed to this court. Affirmed.

          Albert L.J. Speziali, with whom, on the brief, were Paul M. Geraghty and Mark R. Kepple, self-represented, for the appellants (defendants).

          Scott H. Bernstein, for the appellee (plaintiff).

          DiPentima, C. J., and Alvord and Moll, Js.

          OPINION

          MOLL, J.

         The defendants, Christine Kepple and Mark Kepple, [1] appeal from the judgment of foreclosure by sale rendered in favor of the plaintiff, Flagstar Bank, FSB. On appeal, the defendants claim that the trial court lacked subject matter jurisdiction over this action as a result of the plaintiffs alleged lack of standing. We disagree and, accordingly, affirm the judgment of the trial court.

         The following facts and procedural history are relevant to the resolution of the defendants' claim on appeal. The plaintiff filed this action in February, 2011, seeking to foreclose a residential mortgage on property located at 140 Elm Street in Stonington. According to the complaint, on November 19, 2004, Mark Kepple executed a promissory note payable to the order of Atlantis Mortgage Co., Inc., in the amount of $322, 700. To secure the note, the defendants executed a mortgage on the property in favor of Mortgage Electronic Registration Systems, Inc., as nominee for Atlantis Mortgage Co., Inc. The complaint alleged that the plaintiff was the owner of the note and mortgage by virtue of an assignment of the mortgage dated February 3, 2011. The complaint further alleged that the note was in default and that the plaintiff was exercising its option to declare the entire balance on the note due and payable. On October 23, 2017, the court rendered a judgment of foreclosure by sale. The court thereafter denied the defendants' motion to reconsider, and the defendants filed the present appeal.

         On appeal, the defendants claim that the trial court lacked subject matter jurisdiction over this action because of the plaintiffs alleged lack of standing. Specifically, the defendants argue that (1) the plaintiff merely was the holder of the note and not the owner of the debt, and (2) the evidence in the record, taken as a whole, rebutted the presumption that the plaintiff, as the holder of the note, was the owner of the debt.[2]We disagree.

         At the outset, we note that "[t]he issue of standing implicates [the] court's subject matter jurisdiction. . . . Standing is the legal right to set judicial machinery in motion. One cannot rightfully invoke the jurisdiction of the court unless he [or she] has, in an individual or representative capacity, some real interest in the cause of action, or a legal or equitable right, title or interest in the subject matter of the controversy. . . . When standing is put in issue, the question is whether the person whose standing is challenged is a proper party to request an adjudication of the issue .... Because standing implicates the court's subject matter jurisdiction, the plaintiff ultimately bears the burden of establishing standing." (Citation omitted; internal quotation marks omitted.) JPMorgan Chase Bank, National Assn. v. Simoulidis, 161 Conn.App. 133, 142, 126 A.3d 1098 (2015), cert, denied, 320 Conn. 913, 130 A.3d266 (2016). "Because a determination regarding the trial court's subject matter jurisdiction raises a question of law, [the standard of] review is plenary." (Internal quotation marks omitted.) Id. "In addition, because standing implicates the court's subject matter jurisdiction, the issue of standing is not subject to waiver and may be raised at any time." (Internal quotation marks omitted.) U.S. Bank, National Assn. v. Schaeffer, 160 Conn.App. 138, 145, 125 A.3d 262 (2015).

         The following additional facts are necessary for the resolution of the defendants' claim. On March 14, 2012, the plaintiff filed a motion for default for failure to disclose a defense, which the court, Martin, J., granted on March 26, 2012. On April 3, 2012, Mark Kepple filed (1) an appearance as a self-represented party in lieu of the appearance filed by his initial attorney and (2) a motion for inclusion in the foreclosure mediation program. On August 13, 2012, Attorney Paulann Hosier Sheets filed an appearance for the defendants in addition to the self-represented appearance filed by Mark Kepple. The defendants then filed a motion to open the default, an answer, and a motion to dismiss, claiming that the plaintiff lacked standing to prosecute the action because it did not own the underlying debt.

         In support of the motion to dismiss, the defendants filed an affidavit of Mark Kepple with accompanying exhibits. In the affidavit, Mark Kepple stated facts in support of the defendants' claim that Federal Home Loan Bank of Indianapolis was the owner of the mortgage and that the plaintiff lacked standing to bring this action.[3] The defendants also submitted a document produced by Mortgage Electronic Registration Systems, Inc., indicating that Federal Home Loan Bank of Indianapolis was the "investor." At a hearing on the defendants' motion to dismiss on September 7, 2012, the defendants argued that the owner of the underlying debt was Federal Home Loan Bank of Indianapolis and not the plaintiff.[4] The plaintiff responded by arguing that it had standing to bring the foreclosure action as the holder of the note.[5] The plaintiff also argued that the affidavit submitted in support of the motion to dismiss contained inadmissible hearsay.

         In a memorandum of decision dated September 21, 2012, the court, Cosgrove, J., denied the defendants' motion to dismiss, concluding that the plaintiff had standing to commence the action. In its decision, the court noted that the plaintiff had produced a copy of the note, endorsed by Atlantis Mortgage Co., Inc., to the plaintiff, and established a prima facie case for foreclosure against the defendants. With regard to Mark Kepple's affidavit, the court stated: "Absent some exception to the hearsay rule, which is not present here, the statements of third parties contained within Mark Kepple's affidavit constitute hearsay and cannot be considered by the court for the truth of the matters contained therein. Even if considered . . . Kepple's statement would not, alone, rebut the presumption created by possession of the note in this case. In viewing the remainder of the available evidence, the court finds that the defendants failed to rebut the presumption that the plaintiff owns the underlying debt, and thus the plaintiff has standing to commence the present foreclosure action."

         On October 2, 2012, the court denied the defendants' motion to open the default and granted the defendants' motion to participate in the foreclosure mediation program. The parties participated in the foreclosure mediation program from October, 2012 through August, 2014. The final foreclosure mediation took place on August 6, 2014. The foreclosure mediator's report from that mediation stated in part that "[t]he parties have been in mediation since [October 26, 2012] and the same issues are brought up at every mediation without resolution."

         Following the denial of the defendants' motion to dismiss, and after almost two years in the foreclosure mediation program, the defendants continued to raise the plaintiffs alleged lack of standing in various proceedings over the next several years. On August 21, 2014, the defendants filed a petition for reinclusion in the foreclosure mediation program and a motion to order the plaintiff to produce documentation of a purported investor restriction. In the latter motion, the defendants contended that the plaintiff repeatedly had denied their request for a loan modification because of an alleged investor restriction and sought, inter alia, an order that the plaintiff produce evidence of the purported investor restriction. On September 4, 2014, the defendants filed a second motion to open the default for failure to disclose a defense. In that motion, the defendants argued that they were waiting for the plaintiff to disclose any agreements between itself and Federal Home Loan Bank of Indianapolis regarding the servicing, including modification, of the defendants' loan. According to the defendants, these documents were relevant to their defense that the plaintiff lacked standing to bring this action.

         On September 8, 2014, a hearing took place on the defendants' petition for reinclusion in the foreclosure mediation program and the defendants' motion to order the plaintiff to produce documentation of a purported investor restriction. At that hearing, counsel for the defendants argued that this matter should be referred back to mediation and that the court should order the plaintiff to produce documentation regarding the relationship and the restrictions between the investor, Federal Home Loan Bank of Indianapolis, and the plaintiff. The plaintiff argued in response that the defendants were not entitled to any of the documents requested and that the defendants were trying to interfere with the contractual relationship between the plaintiff and Federal Home Loan Bank of Indianapolis. The plaintiff further argued that the defendants were pursuing such discovery as a means to effectuate a settlement. During the argument on the defendants' motions, the court engaged in a colloquy with counsel for the plaintiff regarding the distinction between the owner and the holder of the note.[6]

         On September 17, 2014, the court denied the defendants' petition for reinclusion in the foreclosure mediation program, stating: "This case has been through an extended mediation process. Most recently, the mediator filed a report with the court indicating in part that the mortgagor was denied relief due to 'debt to income ratio.' Further, the mediator stated she had no material reason to disagree with the response. The court cannot find that further mediation has a high probability of success." On September 17, 2014, the court also denied the defendants' motion to order the plaintiff to produce documentation of a purported investor restriction.

         On October 14, 2014, during a hearing on the defendants' second motion to open the default, the court questioned counsel for the plaintiff regarding whether the plaintiff was a bank or a servicer of the loan. In response, counsel for the plaintiff stated: "They're a bank and the servicer of this loan. They're also the holder of the note authorized to commence the foreclosure action which has already been resolved by the prior motion to dismiss, which is a standing issue [that] counsel's attempting to raise again, which has already been denied." On December 5, 2014, the court denied the defendants' second motion to open the default.[7]

         On December 19, 2014, the defendants filed a motion for a stay, contending that this action was barred by a September 29, 2014 consent order entered into between the federal Consumer Financial Protection Bureau and the plaintiff regarding deceptive and unfair practices committed by the plaintiff. On January 21, 2015, the defendants filed an affidavit of Mark Kepple in support of their motion to stay the foreclosure proceedings. The defendants attached as exhibits (1) some of the same documents that were previously found to be inadmissible hearsay by the trial court when it ruled on the defendants' motion to dismiss, and (2) additional correspondence from the plaintiff to the defendants. Specifically, Mark Kepple included a letter from the plaintiff to the defendants dated August 8, 2012, identifying Federal Home Loan Bank of Indianapolis as the investor of the mortgage loan, and letters from the plaintiff dated July 22, August 27, and November 2, 2013, in which the plaintiff identified itself as the servicer of the defendants' mortgage loan. The latter two letters each stated that the defendants were "not approved for loss mitigation options by the investor/owner of the loan."[8]

         On December 24, 2014, the plaintiff filed an objection to the defendants' motion for a stay, along with an affidavit of Susan Dowd, an officer of the plaintiff.[9] A hearing on the motion for a stay took place on January 26, 2015. During a colloquy with counsel for the defendants at the conclusion of the hearing, the court commented that it appeared that the owner of the note was Federal Home Loan Bank of Indianapolis.[10] On January 26, 2015, the court entered a stay in this matter without prejudice to the plaintiff demonstrating that the defendants' loan was not covered by the consent order entered into by the plaintiff with the Consumer Financial Protection Bureau. On May 19, 2016, the plaintiff filed a motion for an order requesting that the court lift the stay. In that motion, the plaintiff maintained that (1) the defendants' loan was not covered by the consent order and (2) even if it were covered, which was denied, the plaintiff had offered the defendants the very relief they had been seeking, namely, a new loan modification review. In this connection, the motion detailed the efforts ...


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