OLR Bill Analysis

sHB 6144

AN ACT CONCERNING A MORATORIUM ON MORTGAGE FORECLOSURE.

SUMMARY:

This bill prohibits judgments foreclosing title to residential real property by strict foreclosure or sale from its passage until January 1, 2010. It defines “residential real property” as real property containing one to three dwelling units.

EFFECTIVE DATE: Upon passage

BACKGROUND

Strict Foreclosure and Foreclosure by Sale

Connecticut law permits a creditor to use “strict foreclosure,” rather than “foreclosure by sale,” when a debtor defaults on mortgage payments. In strict foreclosure, the court gives the foreclosing party title to the property. In foreclosure by sale, the court orders the sale of the foreclosed property and applies the proceeds to the amount owed the foreclosing party. The defendant has a right to be heard in both situations.

Contract Clause

The Contract Clause of the U. S. Constitution bars states from passing any law that impairs the obligation of contracts. However, the U. S. Supreme Court has held that claims of a contract clause violation must first undergo a three-step analysis. Courts must determine whether (1) there is a contractual relationship, (2) a change in a law has impaired that relationship, and (3) the impairment is substantial (General Motors Corp. v. Romein, 503 U. S. 181 (1992)). If the court determines that the contract has been substantially impaired, it must then determine whether the law at issue has a legitimate and important public purpose and whether the adjustment of the rights of the parties to the contractual relationship was reasonable and appropriate in light of that purpose. A challenged law will not be held to impair the contract clause if the impairment, although substantial, is reasonable and necessary to fulfill an important public purpose (Energy Reserves Group v. Kansas Power & Light, 459 U. S. 400, 411-412 (1983)).

COMMITTEE ACTION

Housing Committee

Joint Favorable Substitute