Salisbury Bank & Trust Co. v. Christophersen

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SALISBURY BANK AND TRUST COMPANY v. ERLING
C. CHRISTOPHERSEN ET AL.
(AC 37269)
Lavine, Alvord and Wilson, Js.
Argued January 7—officially released March 1, 2016

(Appeal from Superior Court, judicial district of
Stamford-Norwalk, Complex Litigation Docket,
Genuario, J.)
Andrew M. McPherson, with whom, on the brief, was
William J. Kupinse, Jr., for the appellants (named
defendant et al.).
Patrick M. Fahey, for the appellee (plaintiff).
Opinion

PER CURIAM. The defendant Erling C. Christo-
phersen, individually and as trustee,1 appeals from the
judgment of strict foreclosure rendered by the trial
court. On appeal, the defendant claims that the court
abused its discretion by ordering a judgment of strict
foreclosure rather than a foreclosure by sale. We affirm
the judgment of the trial court.
In its memorandum of decision issued on June 2,
2014, the trial court made the following findings of fact
that are relevant to the defendant’s appeal. Prior to
December, 2006, the defendant in his individual capac-
ity had an ownership interest in two adjacent parcels of
real property in Westport known as 1 Chalmers Landing
(Chalmers parcel) and 259 Saugatuck Avenue (Sauga-
tuck parcel), (collectively the property). The defendant
acquired his interest in the property by conveyances
from members of his family or family trusts. In 2006,
the defendant was in need of cash to pay off encum-
brances on the property, back taxes, and personal
expenses. To secure a loan, he met with a representative
of the plaintiff, Salisbury Bank and Trust Company, on
November 24, 2006, and represented that the property
was being offered for sale for $9 million. He suggested
that the plaintiff serve as a cotrustee of the property
and eventually as cotrustee of the net proceeds from
the sale of the property. At all times relevant, both
parties understood that the only way that the defendant
could repay the loan was with the proceeds from the
sale of the property. The plaintiff was interested in the
defendant’s proposal given the potential for funds to
accrue to its trust department.
The plaintiff commissioned a summary appraisal of
the property that valued the Saugatuck parcel at $4.675
million and the Chalmers parcel at $4.725 million. The
defendant’s lawyer drafted a document entitled ‘‘The
Erling C. Christophersen Revocable Trust’’ (trust),2
which the defendant signed as both grantor and trustee
on November 21, 2006, and the plaintiff signed on
December 4, 2006. Thereafter, the plaintiff issued a loan
commitment letter in the amount the defendant
requested, $740,000. The loan was conditioned on the
plaintiff’s remaining a cotrustee ‘‘ ‘so long as there is
debt owed to [it].’ ’’
By February, 2007, the parties realized that the defen-
dant’s original plan was insufficient. The defendant,
therefore, prepared a second business plan, which
revealed that the property was subject to certain family
interests. In particular, the defendant represented that
his mother, Lorna B. Christophersen, who previously
had a 25 percent interest in the property, had conveyed
her interest to the defendant. As a result of the convey-
ance, the defendant had a 75 percent interest in the
property. The remaining 25 percent interest was owned
by the defendant’s aunt, Elena B. Dreiske. The defen-
dant represented in his second business plan that
Dreiske had agreed to accept $1.5 million for her inter-
est in the property. The second business plan also called
for the creation of a credit line of $2.5 million in favor
of the defendant, which included the amount the defen-
dant needed to acquire Dreiske’s share of the property.
In May, 2007, the defendant presented the plaintiff
with a third business plan that called for the plaintiff
to lend him $3,228,757. The additional funds were
needed, in part, to pay Dreiske, who then wanted $1.75
million for her share of the property, to pay a variety
of the defendant’s debts, and to create an interest
reserve for such things as future property taxes. On
May 29, 2007, the plaintiff issued a commitment letter
to the defendant for a loan in the amount of $3,386,609.
The loan was conditioned on a satisfactory appraisal
of the property indicating a maximum loan to collateral
value of 50 percent and that the plaintiff remain a
cotrustee of the trust as long as the defendant owed it
a debt. By June 1, 2007, the plaintiff had acquired new
appraisals of the property indicating that the Saugatuck
parcel was worth $4.85 million and the Chalmers parcel
was worth $1.85 million for a total value of $6.7 million.
While preparing to close on the transfer to the trust of
Dreiske’s interest in the property, the plaintiff’s attorney
reviewed the title search and found that the chain of
title was ‘‘quite ‘convoluted.’ ’’ The two most significant
issues were (1) a restrictive covenant on the Saugatuck
parcel, which may have prohibited the construction of
a dwelling on it, and (2) a document on the land records
purporting to revoke the conveyance by the defendant’s
mother of her interest in the property to the defendant
and a quitclaim deed by which she conveyed her interest
to John R. Christophersen, the defendant’s brother.
In response to the information regarding the restric-
tive covenant on the Saugatuck parcel, the plaintiff com-
missioned another appraisal, asking that the Saugatuck
and Chalmers parcels be assessed jointly as one build-
ing lot. The appraisal was completed by July 17, 2007,
and indicated that the property as one building lot had
a fair market value of $6.5 million. The defendant criti-
cized the July, 2007 appraisal for undervaluing the prop-
erty. As a result of the July, 2007 appraisal, the
transaction no longer met the loan condition that the
value of the loan be no more than 50 percent of the
appraised value, as the loan to value ratio predicated on
the July, 2007 appraisal was 52.1 percent. The plaintiff,
however, amended the loan ratio condition to 52.1 per-
cent of value.
With respect to the defendant’s mother’s having
revoked the conveyance of her interest in the property
to the defendant and quitclaimed it to her son, John R.
Christophersen, the plaintiff required the defendant to
provide title insurance to insure against a claim on the
property by his brother. It also required the defendant
to establish a $50,000 litigation reserve from the pro-
ceeds of its loan to him.
The loan transaction closed on August 8, 2007.
Dreiske transferred her interest in the property to the
defendant, who in turn transferred his interest in the
property to himself and the plaintiff, as cotrustees of
the trust. The cotrustees granted a mortgage to the
plaintiff in the face amount of $3,386,609. The mortgage
secured the amount borrowed by the trustees and was
personally guaranteed by the defendant. Of the face
amount of the loan, $3 million was disbursed at the
closing. After the closing, the defendant in his sole
discretion continued to market the property for sale.
On or about October 1, 2007, the defendant procured
a document purporting to release the restriction against
building on the Saugatuck parcel. The document was
signed by an entity involved in its creation and filed on
the land records on October 10, 2007. The defendant
sent the document to the plaintiff. The court found,
however, that at no time did an attorney advise the
defendant in any manner of the effectiveness of the
document to release the restrictions on the Sauga-
tuck parcel.
On January 30, 2008, counsel for the owners of neigh-
boring properties notified the parties that a notice of
claim was being filed on the Westport land records,
asserting that the restriction against building on the
Saugatuck parcel was in full force and effect and that
they intended to enforce their rights as to it. The neigh-
bors also informed realtors and prospective buyers that
they intended to enforce the building restriction. The
court found that, at a minimum, the neighbors’ actions
created a significant impediment to the marketing of the
property, particularly to the marketing of the Saugatuck
parcel as a separate, independent building lot.
In May, 2008, John R. Christophersen commenced
a civil action against the plaintiff and the defendant
claiming an interest in the property. That action also
negatively affected the defendant’s ability to market
the property. The defendant took primary, if not sole,
responsibility to market the property. The court found
that the defendant’s conduct in taking responsibility for
marketing the property and the plaintiff’s deferring to
the defendant’s decisions was consistent with the provi-
sions of paragraph second of the trust document.
Between August, 2007, when the loan transaction
closed, and October, 2008, the plaintiff paid itself
trustee fees from the loan proceeds deposited with its
trust department. The court found that the plaintiff’s
paying itself trustee fees was consistent with the provi-
sions of the trust document and that the fees paid to
the plaintiff were not in excess of that to which it was
entitled under the trust document. Due to the fact that
the property had not been sold by October, 2008, the
plaintiff was increasingly concerned with the liquidity
of the trust and the plaintiff’s, as well as the defendant’s,
ability to continue to pay debt service on the loan.
Thereafter, the plaintiff suspended its trustee fees.
On October 27, 2008, the plaintiff again had the prop-
erty appraised as separate building lots. The Saugatuck
parcel was valued at $4.8 million and the Chalmers
parcel was valued at $2.05 million. The plaintiff resigned
as cotrustee of the trust on January 6, 2009. On October
5, 2009, the plaintiff sent the defendant a notice of
default for failure to make the required interest pay-
ments, to pay the loan by the maturity date, and to pay
property taxes, and for granting subsequent mortgages
on the property in violation of the mortgage covenants.
On May 27, 2009, the property was once again
appraised as separate building lots. The Saugatuck par-
cel was valued at $3.85 million and the Chalmers parcel
was valued at $1.9 million. The plaintiff commenced
the present foreclosure action on July 14, 2010.
In June, 2012, the plaintiff, at its own expense, settled
John R. Christophersen’s claim on the property for
$250,000 and committed, among other things, to pay
him if it took title to the property and released its
mortgage lien. In settling the claim, the plaintiff secured
a release of John R. Christophersen’s claim of interest
in the property and a general release from him in favor
of the defendant and the defendant’s wife.
At the trial held in February, 2014, the plaintiff pre-
sented evidence of updated appraisals, which valued
the property as one building lot at $3.54 million. The
defendant produced an appraiser who valued the par-
cels separately: $3.75 million for the Saugatuck parcel
and $2.64 million for the Chalmers parcel. The court
issued its memorandum of decision on June 2, 2014.
The court found that the plaintiff had lent $3,386,609
to the defendant as trustee and that the defendant indi-
vidually guaranteed the amount of the loan, which was
in default. As of January 31, 2014, the defendant owed
the plaintiff $3,386,609 for principal, $1,266,877.16 for
interest, $2008.78 for late charges, $440,726.08 for taxes
paid, $3000 for appraisal fees, plus reasonable attor-
ney’s fees. Per diem interest was accruing on the debt at
the rate of $729.06. The court found that the defendant’s
business plan failed for a variety of reasons. In part
it was the result of the market forces that occurred
subsequent to the loan closing in August, 2008, which
was on the eve of the great recession. It also failed in
part due to the defendant’s failure to resolve the dispute
with John R. Christophersen, to recognize the signifi-
cance of the cloud on title caused by the restrictive
covenant on the Saugatuck parcel, and to adjust his
marketing strategy in the face of those obstacles.3
The court stated that valuing the property in the pre-
sent case was an unusual component of the foreclosure.
The court found that the property was unique in being
either two one-acre parcels or one two-acre parcel of
waterfront property in a highly desirable area on the
shores of the Saugatuck River in Westport. The property
had been the subject of multiple appraisals prior to the
August, 2007 closing. The court found that it could
not rely heavily on the appraisals done prior to the
economic crisis of 2008 and shortly thereafter in 2009
for meaningful sale price comparables due to the subse-
quent dramatic change in the real estate market.
The court considered the restrictive covenant that
arguably encumbers the Saugatuck parcel in determin-
ing its value. The court found that the purported restric-
tive covenant, regardless of its enforceability, is a
significant detriment to marketing the property. The
court declined to determine, as a matter of law, whether
the restrictive covenant is enforceable, by whom, and
to what extent for three reasons: there was insufficient
evidence for the court to make that determination; the
pleadings did not place the issue before it; and all of
the parties who have an interest in that determination
were not before it.
In determining the fair market value of the property,
the court decided to value it as one two-acre lot for
three reasons. First, the court found that regardless
of whether the purported restrictive covenant on the
Saugatuck parcel was enforceable, the evidence indi-
cated that the restrictive covenant represented a signifi-
cant cloud on title that adversely affected the ability of
the parcel to be marketed as a single building lot. Sec-
ond, the plaintiff’s appraiser credibly testified that the
fair market value should be determined as one two-
acre lot on the basis of the information he had obtained
about the Saugatuck parcel and the restrictive cove-
nant. Although the appraiser was not qualified to assess
the enforceability of the restrictive covenant, the court
found that he was entitled to rely on the information
and documents that such professional would rely on
as independent evidence of the validity of the restrictive
covenant. The court adopted the appraiser’s approach.
Third, the court found that the defendant often mar-
keted the property as a single building lot.
The court extensively examined and compared the
evidence presented by the plaintiff’s appraiser as to the
value of the Chalmers parcel, which was a buildable
lot. The court found that the fair market value of the
Chalmers parcel without the benefit of the Saugatuck
parcel was $4 million. The court found that the Sauga-
tuck parcel adds significantly more value to the Chal-
mers parcel than would any of the comparable
unbuildable properties analyzed by the plaintiff’s trial
appraiser due to its water views and water frontage.
Moreover, combining the adjacent Chalmers and Sauga-
tuck parcels adds a significant benefit by eliminating
the twenty-five foot setback between the two parcels,
which provides enhanced views of the Saugatuck River
and enhancements to the Chalmers parcel via the ability
to construct various amenities on the Saugatuck parcel
that would service the residence. The court found that
the addition of another one acre property with substan-
tial views and water frontage would increase the value
of the Chalmers parcel by $1.12 million. It therefore
found the fair market value of the property as a one
two-acre lot to be $5.12 million.
The parties subsequently appeared before the court
to present evidence of reasonable attorney’s fees and
evidence of per diem interest and property taxes to
update the amount of the debt. The plaintiff requested
$135,000 in attorney’s fees pursuant to the promissory
note, which the court found to be reasonable given that
this was not a routine foreclosure matter. The court
found the debt, as of July 28, 2014, to be $5,451,916.14
and that per diem interest was continuing to accrue at
the rate of $729.06. The court also found that the amount
of the debt exceeds the value of the property, which
it previously had determined to be $5.12 million, and
ordered that a judgment of strict foreclosure enter in
favor of the plaintiff. The court set the law day of Sep-
tember 16, 2014. The defendant appealed.
On appeal, the defendant claims that the court abused
its discretion by rendering a judgment of strict foreclo-
sure rather than a foreclosure by sale ‘‘because there
is monumental uncertainty as to the value of the prop-
erty and as a result there is also monumental uncer-
tainty as to whether the debt owed to [the] plaintiff is
greater than the value of the property.’’ The defendant
argues, on the basis of his appraiser’s opinion, that the
Saugatuck and Chamlers parcels should be valued as
two separate building lots, which would result in a value
in excess of the debt owed the plaintiff.
‘‘[I]n Connecticut, the law is well settled that whether
a mortgage is to be foreclosed by sale or by strict fore-
closure is a matter within the sound discretion of the
trial court. . . . The foreclosure of a mortgage by sale
is not a matter of right, but rests in the discretion of
the court before which the foreclosure proceedings are
pending.’’ (Citations omitted; internal quotation marks
omitted.) Fidelity Trust Co. v. Irick, 206 Conn. 484,
488, 538 A.2d 1027 (1988).
‘‘In actions requiring . . . a valuation of property,
the trial court is charged with the duty of making an
independent valuation of the property involved. . . .
[N]o one method of valuation is controlling and . . .
the [court] may select the one most appropriate in the
case before [it]. . . . Moreover, a variety of factors may
be considered by the trial court in assessing the value
of such property. . . . [T]he trier arrives at his own
conclusions by weighing the opinions of the appraisers,
the claims of the parties, and his own general knowl-
edge of the elements going to establish value, and then
employs the most appropriate method of determining
valuation. . . . The trial court has broad discretion in
reaching such conclusion, and [its] determination is
reviewable only if [it] misapplies or gives an improper
effect to any test or consideration which it was [its]
duty to regard.’’ (Internal quotation marks omitted.)
Sheridan v. Killingly, 278 Conn. 252, 259, 897 A.2d 90
(2006). ‘‘Our review of a trial court’s exercise of the
legal discretion vested in it is limited to the questions
of whether the trial court correctly applied the law and
could reasonably have reached the conclusion that it
did.’’ (Internal quotation marks omitted.) Federal
Deposit Ins. Corp. v. Owen, 88 Conn. App. 806, 812,
873 A.2d 1003, cert. denied, 275 Conn. 902, 882 A.2d
670 (2005).
On the basis of our review of the record and the
court’s detailed and well reasoned memorandum of
decision, we conclude that it did not abuse its discretion
by ordering a judgment of strict foreclosure.
The judgment is affirmed and the case is remanded
for the setting of new law days.
1
The action was brought against Erling C. Christophersen individually
and in his fiduciary capacity as a trustee of the Erling C. Christophersen
Irrevocable Trust. The other defendants, who are not parties to this appeal,
are the subsequent encumbrancers: John R. Christophersen, Law Offices of
Gary Oberst P.C., Rhoda L. Rudnick, and Hinckley, Allen & Snyder LLP. In
this opinion we refer to Erling C. Christophersen as the defendant.
2
At the time the trust document was signed, the only property that was
subject to the trust was $5, but the document provided for additions to the
trust corpus. The parties intended that the property eventually would be
transferred to the trust.
3
With respect to the defendant’s special defense that the plaintiff breached
its fiduciary duty as cotrustee, the court found that the plaintiff proved that
it acted fairly and in a manner consistent with its fiduciary duty.