Unanimous Connecticut Supreme Court Sides with Housing Clinic on Foreclosure Defenses

the Connecticut Supreme Court
The Connecticut Supreme Court in Hartford.

The Connecticut Supreme Court sided with students from the Jerome N. Frank Legal Services Organization’s Housing Clinic, who argued that allegations of a bank's insurance kickback scheme can be raised as defenses in a foreclosure action. Students represented the defendant against plaintiff M&T Bank.

In a unanimous decision, the Court held the alleged scheme “wrongfully and substantially increased the mortgagor’s overall indebtedness,” and thus allowed the defendant to plead special defenses based on the plaintiff’s “unclean hands” and “breach of the implied covenant of good faith and fair dealing.”

Clinic students Alex Emmons ’24 and Kyle Ranieri ’24 argued the case for the defendant in November. Clinic students Callan Bruzzone ’23, Leah Kazar ’23, Miriam Pierson ’23, Natasha Reifenberg ’24, and Zachary Shelley ’23 worked on the briefs under the supervision of Clinical Lecturer in Law Jeff Gentes and Clinical Professor of Law Anika Singh Lemar.

Residential mortgages typically require homeowners to maintain hazard insurance on the property. If a homeowner fails to do so, the bank can “force-place” insurance and charge it to the borrower’s account. 

In the Housing Clinic’s case, the defendant alleged that M&T Bank had conspired with insurance giant Assurant to artificially inflate the price of his “force-placed” flood insurance and split the profits, then passed the cost onto him, more than doubling his monthly mortgage payment. In fact, in 2019, M&T Bank — the foreclosing plaintiff in Thursday’s decision — settled a nationwide class-action lawsuit alleging that it artificially increased the price of force-placed insurance for profit.

“Construing the defendant’s allegations in the manner most favorable to sustaining their legal sufficiency,” the Court held, “we conclude that the defendant has sufficiently alleged that the plaintiff’s misconduct increased his overall debt beyond that which was necessary to protect the plaintiff’s interest in the property.”

The Court affirmed its prior holding in a 2019 foreclosure case that was also defended by the Housing Clinic, in which the Connecticut Supreme Court held that any conduct that “wrongfully and substantially increased the mortgagor’s overall indebtedness” is sufficiently related to the mortgage transaction to serve as the basis of foreclosure defenses.