HUDSON VALLEY BANK v. ANDREW M. KISSEL et al., SC 18547
Judicial District of Stamford
Foreclosure; Determination of Priorities; Whether the Trial Court Properly Disbursed the Proceeds of a Foreclosure Sale Pursuant to the Theory of “Pari Passu.” In 2004, Andrew Kissel purchased a parcel of real estate in Greenwich and obtained a first mortgage from Washington Mutual Bank, FA (Washington). Thereafter, Kissel acquired additional mortgage loans from Hudson Valley Bank (Hudson) and Independence Community Bank (Independence), which later assigned its mortgage to Stewart Title Guaranty Company (Stewart). He was able to obtain the subsequent loans by forging mortgage releases, which convinced the lenders that they each held a valid first mortgage on the Greenwich property. In 2005, Hudson brought this action to foreclose its mortgage. After a judgment of foreclosure by sale was entered and the property was sold, First American Title Insurance Company (First American) was allowed to intervene as a party defendant because it had received an assignment of Washington's mortgage. First American subsequently filed a motion for a determination of priorities, claiming that it was entitled to the remaining proceeds of the sale that had not been disbursed to Hudson on the ground that its mortgage was recorded first. Stewart countered that, because all of the lenders were defrauded into believing that they each had received a first mortgage on the property, the recording dates of the mortgages were of little consequence. Stewart maintained that the remaining proceeds should be equitably apportioned such that Stewart and First American would each receive an amount that would be in proportion to the losses that they had incurred as a result of Kissel's fraud. The court, Downey, J., agreed with Stewart and awarded 71.46 percent of the proceeds to Stewart and 28.54 percent of the proceeds to First American. First American subsequently filed a motion to reargue, which the court, Tierney, J.T.R., granted. In doing so, Judge Tierney first decided that he had the authority to grant the motion to reargue and consider de novo the underlying motion for a determination of priorities because Judge Downey had resigned as a Superior Court judge. He then determined that the proceeds should be disbursed pursuant to the theory of “pari passu,” under which each creditor’s level of priority is determined, and then, beginning with the creditors that are within the first level of priority, the funds are distributed on a pro rata basis. Accordingly, he concluded that, as the sole holder of the first recorded mortgage, First American was the only creditor in the first level of priority and that because its losses exceeded the amount of the proceeds, it was entitled to all of those funds. In this appeal, the Supreme Court will determine whether Judge Tierney’s decision was correct.