Rockstone Capital, LLC v. Sanzo

         Argued January 15, 2019

         Appeal from the  Superior Court, Judicial District of Fairfield, Richard P. Gilardi, Judge Trial Referee.

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          Matthew K. Beatman, Bridgeport, with whom, on the brief, was John L. Cesaroni, Bridgeport, for the appellants (named defendant et al.).

         Houston Putnam Lowry, Meriden, with whom, on the brief, was Dale M. Clayton, Hartford, for the appellee (plaintiff).

         David Lavery and Loraine Martinez filed a brief for the Connecticut Fair Housing Center as amicus curiae.

         Robinson, C.J., and Palmer, McDonald, D’Auria, Mullins, Kahn and Ecker, Js.

          OPINION

         D’AURIA, J.

         [332 Conn. 308] If a creditor forecloses on a debtor’s home, the debtor might be entitled to keep a portion of [332 Conn. 309] the home’s value, whatever the amount of the debt. This debtor protection, known as the homestead exemption, is available when the creditor forecloses on a judgment lien, but not on a consensual lien. See General Statutes § 52-352b (t).^[1] In this case, the plaintiff, Rockstone Capital, LLC (Rockstone), held judgment liens against the defendants John Sanzo and Maria Sanzo.^[2] The parties later agreed to a consensual lien in the form of a mortgage to secure the debt. Now, the Sanzos have defaulted on the mortgage payments, and Rockstone seeks to foreclose on the mortgage. The primary issue on appeal is whether the Sanzos are entitled to the homestead exemption. We conclude they are not.

          The trial court found the following facts, as stipulated by the parties and contained in exhibits submitted to the court. The Sanzos’ primary residence is in Monroe and most recently was valued at $500,000. In 2000, Fleet National Bank (Fleet) secured a judgment against them for about $100,000. To secure the debt, it recorded judgment liens on the Monroe property. Fleet later assigned its interests in the

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judgment and judgment liens to Rockstone.

          In 2008, Rockstone initiated this action to foreclose on the judgment liens because the Sanzos had defaulted. The parties, however, entered into a forbearance agreement that halted the action. Under the agreement, the Sanzos were to make regular payments on the amount outstanding on the judgment liens and additional interest, costs, and fees, and to grant Rockstone a mortgage [332 Conn. 310] on the Monroe property securing these obligations. In exchange, Rockstone agreed to refrain from pursuing this foreclosure action for as long as the Sanzos made their payments. The parties stipulated that they were represented by counsel and that their agreement was a commercial agreement.

          The record also reflects the following procedural history. In 2014, Rockstone resumed this action, filing a motion to foreclose on the judgment liens because the Sanzos had defaulted on their obligations under the forbearance agreement. The Sanzos objected to the motion and invoked the homestead exemption. In response, Rockstone amended its complaint to seek foreclosure on the mortgage, instead of on the judgment liens. The Sanzos filed an answer, including a special defense that claimed the mortgage was a de facto waiver of the homestead exemption, which was contrary to public policy.

         The action was submitted to the trial court on stipulations and exhibits submitted by the parties. Following an initial decision that the parties agreed was improper,^[3] the court issued a corrected memorandum of decision. In it, the court acknowledged that the Sanzos had "voluntarily [332 Conn. 311] enabled [Rockstone] to seek recovery without the homestead exemption’s applicability" and that "the homestead exemption would ordinarily not be applicable to a mortgage created by a voluntary agreement such as the one at hand." But based on the "unique procedural history" of the case, in which "the progression of this action has been to get around the homestead exemption," the court decided that the exemption should apply nonetheless. It held that the forbearance agreement was void as against public policy and therefore denied Rockstone’s claim to foreclose on the mortgage. It also rendered judgment for Rockstone on the judgment liens, subject to the homestead exemption, even though Rockstone had amended its complaint to withdraw its claim regarding the judgment liens. The court did not determine the amount of debt, manner of foreclosure or law days for the judgment lien foreclosure.

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          Rockstone appealed and the Sanzos cross appealed to the Appellate Court. Rockstone appealed from the denial of its request to foreclose on the mortgage, and the Sanzos cross appealed from the judgment on the judgment liens. Because the trial court had not determined the amount of debt, manner of foreclosure or law days for the judgment lien foreclosure, the Appellate Court ordered a hearing to determine whether it should dismiss the appeals for lack of a final judgment. Following that hearing, the Appellate Court ordered the trial court to ...