Distressed Assets in Connecticut: What to Know Before Jumping In
There are many benefits for out of state lenders or investors looking to engage in business in Connecticut, one of the wealthiest (per capita) states in the United States of America. For example, Connecticut has relatively stable property values. However, Connecticut also has a number of legal pitfalls for lenders or investors who acquire Connecticut mortgages as part of a loan sale transaction. These pitfalls may end up causing undue delays and unnecessary expense when it comes to the legal process. A lender or entity unfamiliar with Connecticut specific laws and procedures should, prior to committing to acquire an asset secured by property in Connecticut, undertake due diligence and seek advice on what programs and statutes are or are not applicable prior to consummating the deal. Below are a few of the procedural thickets that must be navigated prior to being able to seek to foreclose a mortgage deed, the most common form of collateral for a real estate transaction, in Connecticut.
Preliminarily (and interestingly), Connecticut is unique in the United States in that it, as of January 1, 2015, recognizes three separate and distinct methods of foreclosure of a mortgage deed: Strict Foreclosure (appropriation of the mortgaged property after passage of law days set by judicial order); Foreclosure by Sale (created by statute and permits judicially ordered and overseen auction process); and Foreclosure by Market Sale (created by statute and permits agreement for marketing and private sale of property by mortgagor with consent of the mortgagee). Every foreclosure commenced in Connecticut is a judicial proceeding regardless of which of the above three forms the judgment of foreclosure will eventually take. The fact that every foreclosure is a judicial action alone can create havoc to the plans of a party who is otherwise unfamiliar with the foreclosure process in Connecticut and is best understood up front before committing any sum to a transaction where the main source of potential recovery is a parcel of property in Connecticut.
Secondly, Connecticut has many legislatively imposed requirements which must be met prior to even commencing an action for foreclosure of a mortgage deed. The vast majority of these programs were implemented either during or immediately after the nancial crisis of 2007 through (roughly) 2014 and, accordingly, revolve around 1 to 4 family owner-occupied residential property but are nonetheless worded vaguely enough so that they arguably apply to non-owner occupied or commercial properties as well. Amongst these programs are the Emergency Mortgage Assistance Program (“EMAP”), codified at Conn. Gen. Stat. 8-265dd, et seq., and the Foreclosure by Market Sale procedure, codi ed at Conn. Gen. Stat. 49-24b, et seq.