Rational Real Estate VI, LLC v. Hillside Heights, LLC

RATIONAL REAL ESTATE VI, LLC v. HILLSIDE HEIGHTS, LLC et al.

No. UWYCV176035269S

Superior Court of Connecticut, Judicial District of Waterbury, Waterbury

December 6, 2018

UNPUBLISHED OPINION

Mark H. Taylor, Judge.

I BACKGROUND AND FACTS

The substituted plaintiff in this action, Rational Real Estate VI, LLC (Rational), seeks a deficiency judgment on a mortgage note originally entered into by the defendant, Hillside Heights, LLC (Hillside). Hillside has been released by Rational from liability on the note, leaving the financial responsibility for any deficiency to the defendant, Yeshiva Gedolah of Waterbury ("Yeshiva"), as the alleged guarantor of Hillside’s mortgage note pursuant to count three of Rational’s operative complaint. This matter was heard by the court on five occasions, beginning on September 5, 2018 and concluding on November 28, 2018. After considering the evidence presented by the parties and the applicable law, the court finds there is a deficiency in the amount of $912 861.23.

Pursuant General Statutes § 49-14, a deficiency judgment is determined by the difference between the debt owed by a mortgagor or guarantor and the value of the foreclosed property. "The rule of law in Connecticut ... is that in order to determine the amount of any deficiency owed after a judgment of strict foreclosure, the value of the property foreclosed on must be determined as of the date title vested in the foreclosing plaintiff." (Emphasis in original.) Lestorti v. DeLeo, 298 Conn. 466, 484, 4 A.3d 269 (2010). The court will therefore begin by finding the debt owed and then proceed to a finding on the fair market value of the property on the day title vested in Rational, April 17, 2018.

On April 24, 2007, Hillside entered into a $2, 000, 000 mortgage loan from New York Community Bank (NYCB), Rational’s predecessor in interest. This note was secured by a mortgage deed on a large apartment building owned by Hillside at 117 Pine Street, also referred to as 120 Hillside Avenue, in Waterbury ("the property"). Hillside subsequently defaulted on the mortgage note and a judgment of strict foreclosure was entered by the court on January 5, 2018.

On the date judgment entered, the court found the fair market value of the property to be $880, 000. The court further found the debt owed, as of January 3, 2018, to be $1, 926, 534.35, plus attorneys fees of $29, 105.82, an appraisal fee of $2, 600 and a title search fee of $225, totaling $1, 958, 465.17. Between the time of judgment and the vesting of title in Rational, the court now finds the total debt has increased by $337, 611.22, comprised of real estate tax payments delinquent water and sewer charges and default interest totaling $2, 296, 076.39. Exhibit 12.

The primary dispute between the parties involves the fair market value of the property on April 17, 2018. In seeking to meet its burden of proving the fair market value of the property Rational introduced into evidence an appraisal of the property, supported by expert testimony of its author Charles A. Liberti. See Exhibit 1. After an interior and exterior inspection of the property, as well as evaluating comparable sales, Mr. Liberti’s opinion of the fair market value of the property on April 17, 2018 was $884, 000, using a "per unit" sales comparison analysis. The court credits Mr. Liberti’s report with an interior inspection of this distressed property and his own expertise in evaluating the rehabilitation costs, required to restore the building to a more marketable condition, including estimates presented to him by Hillsides agent, Mr. Krishner.

In countering Mr. Liberti’s conclusion, the defendants introduced their own appraisal of the property, supported by the expert testimony of its author, Ronald M. Diorio. See Exhibit A. After conducting an exterior inspection the property alone and evaluating comparable sales, Mr. Diorio’s expert opinion of the fair market value of the property on April 17, 2018 was $1, 800, 000, using a "square footage" sales comparison approach. The court credits Mr. Diorio’s report with his depth of experience in evaluating Waterbury commercial properties. In light of the demonstratively deplorable condition of the building, however, the weight of his appraisal was qualified by his appraisal of the exterior alone.

Fortunately, during the intervening period between the beginning and conclusion of the deficiency judgment hearing, the property was listed for sale by Rational for the asking price of $2, 900, 000, resulting in a contract for sale at the price of $2, 175, 000. The contract price was achieved, however, after considerable capital improvements were made by Rational after it took title to the property.

The parties dispute the amount of capital improvements made to the property after the date title vested and, further whether a multiplier should be applied to these capital improvements, increasing the fair market value of the property by a factor greater than one dollar for every dollar spent on improvements, such as 1.5-2:1, as asserted by Rational. The parties additionally dispute whether the capitalized value of the income from a cell tower lease, entered into on November 9,...