ACMA Summary - 2023 - Connecticut

• Year: 2023

CONNECTICUT FORM SECURITY INSTRUMENT USED: Mortgage Deed. Note: A statutory short form mortgage may be used pursuant to Connecticut General Statutes (hereinafter “CGS”) § 47-36c. There is special statutory language required for (i) mortgages securing future advances set forth in CGS § 49-2(c), (ii) mortgages securing future advances for construction or repairs set forth in CGS § 49-3, and (iii) mortgages securing guaranties of open-end loans set forth in CGS § 49-4b RECORDING REQUIREMENTS: 2 witnesses and acknowledgment before a notary public or Commissioner of the Superior Court (i.e., an attorney admitted to practice in Connecticut) or other authorized person. CGS §§ 1-29, 1-30 and 47-5. The recording fees consist of the following: (1) a $60 fee for the first page of the document being recorded; and (2) a $5 fee for each additional page of the document being recorded. These fees apply to mortgages and all other documents being recorded, including assignments of mortgages and releases of mortgages. Note that there is an additional $2 charge for a deed recorded where consideration is being paid. See CGS § 7-34a. CGS § 7-24(f) requires that the borders of documents contain a blank margin of at least ¾” in width and that the top of an instrument to be sent for recording must contain on the first page a return address and addressee. CGS § 7-35cc permits the use of electronic documents when the law requires, as a condition of recording, that a document be an original, be on paper or another tangible medium, or be in writing. This section also permits the use of electronic signatures by the signer, any required notary or witness when such signatures are required. CGS §§ 7-34a(a)(2)(A) and (B) increased recording fees for a “nominee of a mortgage,” which is defined in CGS § 7-34a(a)(2)(C) as “any person who (i) serves as mortgagee for a mortgage loan registered on a national electronic database that tracks changes in mortgage servicing and beneficial ownership interests in residential mortgage loans on behalf of its members, and (ii) is a nominee or agent for the owner of the promissory note or the subsequent buyer, transferee or beneficial owner of such note.” The recording fee for a document where Mortgage Electronic Registration Systems Inc. (“MERS”) is the grantor is $159 regardless of the number of pages. Where MERS is the grantee, the fee is $159 for the first page of the document and $5 for each additional page. CGS § 7-34a. The assignment of mortgage in which a “nominee of a mortgagee” appears as assignor and a release of mortgage is a $159 flat fee for the entire assignment of mortgage or release. The Connecticut Supreme Court has upheld the constitutionality of the bifurcated filing-fee system and the higher recording fees imposed on a “nominee of a mortgage.” See MERSCORP Holdings, Inc. v. Malloy, 320 Conn. 448 (2016). STATUTES TO BE WAIVED: None for residential loans. For commercial loans, waivers of the borrower’s rights to prior notice and a hearing regarding a pre-judgment remedy pursuant to CGS §§ 52-278a through 52-278n are frequently included in commercial loan documents. In addition, it is commonplace for open-end mortgage loans permitting future advances to include a waiver of the borrower’s right to terminate the right to make optional future advances secured by such mortgage pursuant to CGS § 49-2(c)(7) and record a written notice evidencing such termination. UNUSUAL TREATMENT OF STANDARD PROVISIONS: Residential Mortgage Prepayment penalties. “High-cost home loans” are subject to the Connecticut Abusive Home Loan Lending Practices Act, which prohibits prepayment penalties. CGS §§ 36a-746 – 36a-746g. Residential Escrow Accounts. Connecticut’s residential mortgage servicing law, CGS §§ 36a-715 to 36a-719l, restricts the ability of a mortgage servicing company to recoup any deficiency in an escrow account. The mortgage servicing law requires mortgage servicing companies to give mortgagors the option of paying a “shortage” (which is a deficiency under the Real Estate Settlement Procedures Act (“RESPA”) and Regulation X) over at least 1 year if the mortgage servicing company underestimates the proper amount of funds to be held in the escrow account. CGS § 36a-716(c). The standard provisions in the FannieMae/FreddieMac residential mortgages regarding escrow accounts are nonetheless permissible. Residential Mortgage Prepaid Finance Charges trigger limit on acceleration. Also, CGS § 36a-498a prohibits mortgage lenders from including in any residential secondary mortgage loan agreement upon which loan fees, points, commissions, transaction fees, or similar prepaid finance charges have been assessed any provision that permits the lender to demand payment of the entire loan balance prior to the scheduled maturity, except that such loan agreement may contain a provision that permits the lender to demand payment of the entire loan balance if any scheduled installment is in default for more than 60 days or if any condition of default set forth in the mortgage note exists. SECURING FUTURE ADVANCES: Open-end mortgages to secure future advances made pursuant to commercial future advance loans or consumer revolving loans should be made subject to the requirements and restrictions of CGS § 49-2(c) to obtain statutory lien priority. Common law mortgages to secure obligatory future advances may also be used. See below regarding securing future advances for construction loans. SECURING ADDITIONAL ADVANCES TO PROTECT THE COLLATERAL: Advances for insurance premiums, taxes, and assessments and payments on prior mortgages are a part of the debt secured by the mortgage. CGS § 49-2(a). Advances up to $5,000 can be made for repairs, alterations, and improvements. CGS § 49-2(b). SECURING FUTURE ADVANCES FOR CONSTRUCTION LOANS: Advances for the construction or repair of buildings or improvements is valid to secure all money actually advanced pursuant to the terms and conditions of the mortgage up to the full amount of the loan authorized by the mortgage, with the same priority as if such money had been advanced at the time the mortgage was delivered, so long as the mortgage contains the specific language required by CGS § 49-3. The time to complete the construction or repair may be modified without affecting the priority of the mortgage. See CGS § 49-3. SAFE HARBOR: A mortgage given to secure payment of a note, which furnishes information from which there can be determined the date, principal amount and maximum term of the note, is deemed to give sufficient notice of the nature and amount of the obligation to constitute a valid lien securing payment of all sums owed under the terms of the note. In the event that the note provides that the interest rate is variable, care should be taken to ensure that the mortgage conforms to the requirements of CGS § 49-31b(b). Typically, attaching the note as an exhibit to the mortgage (or attaching the relevant provisions of the loan agreement if such matters are not included in the note) has become customary in Connecticut to satisfy the “safe harbor” requirements of CGS § 49-31b. TRUSTEE UNDER DEED OF TRUST: Not applicable. FORECLOSURE BRIEF DESCRIPTION OF PROCEDURE: Connecticut law requires judicial foreclosure of mortgages. When judgment is entered in a foreclosure action, CGS § 49-24 gives the court the discretion of entering a judgment of foreclosure by sale or a judgment of strict foreclosure. If there is equity in the property, the court generally will order a foreclosure by sale. See Voluntown v. Rytman, 27 Conn. App. 549, 555 (1992) (“… when the value of the property substantially exceeds the value of the lien being foreclosed, the trial court abuses its discretion when it refuses to order a foreclosure by sale.”). The court must also order a foreclosure by sale if the United States is a party to the foreclosure (i.e., there are federal tax liens filed against the property). 28 U.S. Code § 2410. If there is no equity, the court generally will enter a judgment of strict foreclosure. In a foreclosure by sale, the court appoints a Committee to arrange for the sale of the property. The court also schedules a sale date (typically, on a Saturday). The Committee then obtains an appraisal, advertises the auction, obtains liability insurance, and conducts the auction. The property is then sold subject to court approval to the highest bidder on the auction date. Foreclosure bid requirements are determined by the court. Typically, each bidder must provide a certified or cashier’s check for 10% of the appraised value in order to bid in the auction. The Committee then makes a report to the court and moves the court for an order approving the sale. After the sale is approved, the successful bidder is required to close (i.e. pay the remaining 90%) within 30 days. Thereafter, the Committee provides the successful bidder with a court approved Committee deed evidencing transfer of the ownership and returns the proceeds of the sale to the court for disbursement to the lien holders in accordance with their respective priorities (after payment of the committee fees and expenses, which typically include the appraiser’s fee). CGS § 49-25. If the plaintiff is paid the total judgment debt and costs before the sale, further proceedings are stayed, and the sale is cancelled. Furthermore, the owner has the equitable right of redemption up until the court issues an order of confirmation approving the sale. If the foreclosure sale does not close, the committee may arrange for another auction or opt for strict foreclosure, and the owner’s equitable right of redemption remains. If a judgment of strict foreclosure is entered, the court sets “law days” for the owner of the property and the holder of each encumbrance that is subsequent to the mortgage held by the foreclosing party (encumbrances prior in right to the foreclosing party are not subject to the foreclosure action). The first law day is assigned to...