Can a Lender Foreclose an Illegal Subdivision?

Blogs, Foreclosure

According to the Connecticut Supreme Court, in a case where Jerry Garlick represented the successful plaintiff, the answer is yes. In ARS Investors v. Crystal, LLC, a lender took a mortgage on a commercial property that was created by an illegal subdivision. When the lender went to foreclose, the owner and a subsequent encumbrancer argued that the property “did not exist” because the subdivision was never approved by the municipality, and to allow the foreclosure would be to validate an illegal subdivision. The Superior Court disagreed and entered a judgment of strict foreclosure. The owner and the subsequent encumbrancer appealed to the Appellate Court. The Supreme Court, on its own, reached down and took the case from the Appellate Court, and the Supreme Court held that the lender was entitled to foreclose on the illegally created subdivision. Although the lender will have zoning and other issues to resolve after taking title, those issues did not prevent a judgment of strict foreclosure.