Article courtesy of Paige Forcier (Morgan Lewis)
LPP Mortg. Ltd. v. Underwood Towers Ltd. P’ship, 355 Conn. 316 (2026)
In 1985, Underwood Towers Limited Partnership (the “Borrower”) leased land from the City of Hartford to construct two high-rise apartment buildings and obtained a $35 million mortgage loan to finance the project. Following defaults under that financing, the Borrower executed an additional note (“Note A”) and second mortgage in favor of the U.S. Department of Housing and Urban Development and subsequently executed another note (“Note B”) and agreed to modifications to the second mortgage. After a series of transfers, LPP Mortgage, Inc. (the “Lender”) acquired the second mortgage, Note A and Note B. The Lender did not, however, receive the original Note B, which had previously been lost; instead, it received a lost-note affidavit.
The Lender commenced an action to foreclose the second mortgage. The Borrower challenged the Lender’s standing on the ground that, because the Lender had never possessed the original Note B, it could not satisfy the requirements of the Uniform Commercial Code (the “UCC”) applicable to enforcement of a lost negotiable instrument. The trial court rejected the argument, finding that the Lender had established a complete chain of title to the debt underlying Note B. The Connecticut Appellate Court affirmed, holding that although the Lender was not entitled to enforce Note B under the UCC because it had not possessed the note when it was lost, the Lender nevertheless had standing, as owner of the underlying debt, to pursue the equitable remedy of foreclosure.
Following remand, the Borrower again challenged the Lender’s standing, arguing that an intervening Connecticut Supreme Court decision had changed Connecticut law by making a party’s standing to foreclose dependent upon its right to enforce the related promissory note under the UCC. The Connecticut Supreme Court (the “Court”) rejected that argument and affirmed the judgment of strict foreclosure. The Court held that the Borrower’s standing argument was barred by res judicata because the issue had already been litigated and decided in the prior appeal. The Court also rejected the Borrower’s contention that the intervening decision had changed the governing law. The Court explained that the intervening decision did not make the right to enforce a note under the UCC a prerequisite to foreclosure or disturb existing precedent distinguishing enforcement of a note from foreclosure of the mortgage securing the underlying debt. Because the intervening decision did not undermine the legal basis for the prior standing determination, it provided no basis to avoid the res judicata effect of the prior appeal.
As a result, the prior determination that the Lender could pursue foreclosure as owner of the underlying debt remained intact notwithstanding the Lender’s inability to enforce the lost Note B under the UCC. The decision thus preserves an important distinction under Connecticut law between ownership of a debt, the right to enforce the instrument evidencing that debt under the UCC, and the ability to enforce collateral securing the debt.
