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Thursday, August 22, 2019

Housing Clinic Scores Connecticut Supreme Court Win for Mortgage Borrowers

The Housing Clinic scored a long-fought victory for homeowners this month when the Connecticut Supreme Court broadened what sort of bank misconduct mortgage borrowers can raise when defending against a foreclosure action.

“In its decision, the Connecticut Supreme Court said, for the first time definitively at the appellate level, that all your dealings with your mortgage company, if they’re related at all to the foreclosure, are fair game for defenses and counterclaims,” said Visiting Clinical Lecturer in Law Jeffrey Gentes, who is also a Managing Attorney at the Connecticut Fair Housing Center.

The ruling in U.S. Bank v. Blowers reverses some 30 years of the courts cutting back on what borrowers could say when defending their homes, Gentes said. Previously, “borrowers had trouble even being heard when they raised the bad faith tactics their bank had used before or even during the foreclosure as grounds to stop their foreclosure,” he said.

Blowers concerns a homeowner who fell behind on his mortgage payments in 2010 when his small business suffered and his income fell during the recession. Court documents describe attempts between the bank and the borrower to reach a loan modification agreement. Early on, the bank offered to reduce the amount of the borrower’s monthly payment and the parties agreed to a loan modification. But, despite receiving payments for several months, the bank unilaterally cancelled the modification. Over the next two years, the bank subsequently offered and reneged on several more loan modifications after accepting trial payments from the borrower, increasing his monthly payment from $1,950 to roughly $3,445. At one point, the bank incorrectly told the borrower’s insurance company that he no longer lived in the house, which resulted in his homeowner’s insurance being canceled. To replace the coverage, he had to pay premiums totaling $4,000 a year instead of the $900 he had been paying, according to court documents.

The bank’s conduct continued after foreclosure proceedings started in 2014, the borrower alleged. Over the next 10 months, “the plaintiff regularly ignored agreed upon deadlines, arrived late to mediation sessions, made duplicative, exhaustive, and ever-changing requests, and provided the defendant with conflicting or incomplete information,” according to court documents. At one point, the borrower alleged, the bank offered a modification that could not be finalized because it was based on financial information that was four months out of date by the time he received it. All of these actions, the borrower argued, formed a “pattern of misrepresentation and delay.” By dragging out the case, the borrower alleged in his defenses and counterclaims, the bank increased the amount of his debt, damaged his credit score, and made him incur legal expenses and other costs.

The bank moved to strike the borrower’s defenses and claims, arguing that the borrower’s allegations were inappropriate for the court to consider in a foreclosure action because they did not relate to “the making, validity, or enforcement of the note or mortgage.” A trial court sided with the bank, ruling in 2015 that the borrower could not use the bank’s actions in his defense because they all occurred during loan modification negotiations or during foreclosure mediation. The borrower appealed.

That’s when the Housing Clinic took over. The appeal offered the clinic the opportunity to build on its experience from an earlier appellate case, CitiMortgage v. Rey, where a student team saved a homeowner’s counterclaims from dismissal on similar grounds. First, however, the clinic had to face an appellate court panel that had ruled 3-0 against another lawyer’s client in 2015, finding that the Rey decision did not apply even though the facts were similar. The panel ruled 2-1 against the clinic’s client.

The Connecticut Supreme Court, which usually accepts just one foreclosure case a year, agreed to hear the case in 2018. The Housing Clinic filed a brief and a reply brief, drawing from its years of work in foreclosure prevention. Contributing to the briefs were J.L. Pottenger Jr. ’75, Nathan Baker Clinical Professor of Law; Jessica Lefebvre, former summer fellow of the Jerome N. Frank Legal Services Organization; and students Victoria Stilwell ’19, Anderson Tuggle ’18, and Emily Wanger ’18. A number of students fought the same issue in earlier stages or other cases, including Renata Strause ’13, Christian Mott ’15, and Solange Hilfinger-Pardo ’17.

Students, clinical faculty and fellows, private appellate specialists, and the Connecticut Fair Housing Center mooted the case. Eli Jacobs ’19 and Michael Linden ’19 argued the case before the Connecticut Supreme Court in December. The court ruled unanimously in favor of the borrower on Aug. 13.

“We’re thrilled with the result,” Gentes said. “The decision will help several other homeowners with pending cases, including three current Connecticut Fair Housing Center clients, and hundreds more to come.”

Linden called working on the case “a highlight of my time in law school.”

“It was a crash course in appellate advocacy, from research, to brief drafting, and finally oral argument in front of the Connecticut Supreme Court,” Linden said. “We used our client's story, legal research, and empirical evidence to communicate to the Court the severe and unjust results of the precedent we were working to overturn. Our clinic is devoted to fighting abuses in the mortgage servicing industry, and I couldn't be prouder to have played a small role in a big win for homeowners.”

Students in Yale Law School’s Housing Clinic focus one one of three tracks: foreclosures, evictions, or fair housing policy. Foreclosure track students have handled three appeals at the Connecticut Supreme Court, five petitions for certification, four appeals at the Appellate Court, and, in Connecticut alone, have filed amicus briefs in three Supreme Court cases and one Appellate Court case, and in support of petitions for certification.

Housing Clinic students study ethics and policy issues, including the role discrimination has played in the government’s and industry’s treatment of homeowners and renters. Students also attend skills-training sessions and sessions of the court handling cases in their respective tracks. Working through the Jerome N. Frank Legal Services Organization, Housing Clinic students represent clients and handle cases seeking affirmative relief. Student teams also tackle legislative remedies arising from the clinic’s clients’ cases.