Lender Overcomes Borrower’s Allegations Of Misconduct Surrounding Settlement Negotiations

Lesson. In the wake of an undisputed consumer/residential mortgage loan default, lenders and their servicers generally are not compelled to enter into loan modification agreements with their borrowers. Lenders really must only participate in a settlement conference, if requested, or consider whether a borrower qualifies for a loan mod.

Case cite. Feehan v. Citimortgage, 97 N.E.3d 639 (Ind. Ct. App. 2018).

Legal issue. Whether the lender should have been denied the remedy of foreclosure based upon alleged misconduct during and after a court-ordered settlement conference.

Vital facts. Borrower executed a promissory note that was secured by a mortgage on his real property. Borrower later defaulted under the loan, at which point the lender sent him a “notice and cure” letter. Following the borrower’s failure to cure, the lender filed a mortgage foreclosure action. The parties then became involved in lengthy and somewhat complicated workout discussions following the trial court’s order compelling a settlement conference. Distilled to their essence, the borrower’s contentions were (1) the lender did not participate in the settlement conference in good faith, mainly because a lender rep with settlement authority did not appear in person and (2) the lender refused to consider a loan modification. The opinion (link above) outlines the circumstances in greater detail. There was one other significant fact: the subject loan was a conventional non-government-sponsored enterprise with a private investor, which denied all of the borrower’s loan mod requests based in part on the housing expense-to-income ratio. Thus this was not a HUD loan, which may or may not have triggered different loan mod standards.

Procedural history. The trial court granted summary judgment and a decree of foreclosure in favor of the lender. The borrower appealed.

Key rules.

Ind. Code 32-30-10.5-9 states, in part, that “a court may not issue a judgment of foreclosure until a creditor has given notice regarding a settlement conference and, if the debtor requests a conference, upon conclusion of the conference the parties are unable to reach agreement on the terms of a foreclosure prevention agreement.” (This statute does not apply to commercial foreclosures.)

As with some Indiana counties, St. Joseph County has a local rule that also provides for the scheduling of a settlement conference upon a demand by the borrower.

Feehan cited to a number of cases from Indiana and elsewhere holding that alleged violations of the Home Affordable Modification Program (HAMP) do not give rise to a private right of action by a borrower against a lender or its servicer.

Holding. The Indiana Court of Appeals affirmed the summary judgment in favor of the lender:

[The lender] has satisfied its burden of establishing that, even if another foreclosure-prevention settlement conference was scheduled and a personal representative of [the lender] with the authority to enter a loan modification or make a loan modification offer was present at the conference, [the borrower] is not eligible for or entitled to a loan modification, a loan modification offer, or further consideration of the possible loan modification options.

Policy/rationale. The defendant borrower in Feehan claimed that the Court should have denied the lender the equitable remedy of foreclosure given the lender’s alleged misconduct surrounding the settlement conference and its failure to appropriately process the borrower’s loan mod applications. In response, the Court reasoned that, among other things, the borrower was unable to point to any terms in the loan documents requiring the lender or its servicer to consider, upon a default for non-payment, a loan modification on any certain terms. Indeed the borrower never went so far as to assert that the lender was required to agree to a particular loan modification. In the end, the lender was able to designate evidence establishing that it did consider loss mitigation and loan mod options but determined that the borrower was not eligible.

Related posts.

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Part of my practice is to represent lenders, as well as their mortgage loan servicers, entangled in contested foreclosures. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


Your Source For Indiana Lis Pendens Law

I've been tied up with my day job of late but wanted to post some material this weekend.  The links below should answer most basic questions about Indiana's lis pendens rules:

  1. For Indiana's lis pendens statute, Indiana Code 32-30-11, click here.
  2. Lis Pendens Lessons is a post from 2007.
  3. In 2015, I wrote Indiana Lis Pendens Notices:  What and When.
  4. Indiana Supreme Court Tackles Lis Pendens Law is from 2016.   
  5. My most recent article on this subject was last year, Indiana Lis Pendens Notice Deemed Discharged Despite Pending Appeal Of The Discharge Order

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I have represented judgment creditors and lenders, as well as their mortgage loan servicers, entangled in lien priority and title claim disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


New York Confession Of Judgment From Cognovit Note Enforceable In Indiana

Lesson. Although Indiana does not permit cognovit notes (confessions of judgment), our state will enforce properly-entered foreign judgments based upon the otherwise prohibited language. The key is to determine whether cognovit notes are legal in the state that entered underlying the judgment.

Case cite. EBF v. Novebella, 96 N.E.3d 87 (Ind. Ct. App. 2018)

Legal issue. Whether Indiana courts must give “full faith and credit” to a “confessed judgment” entered in New York pursuant to a cognovit note.

Vital facts. Plaintiff obtained a judgment in a New York state court based upon the Defendant’s alleged breach of a contract. The contract, a purchase agreement, contained a clause with the following language: upon a default “… [Defendant] hereby authorizes [Plaintiff] to execute in the name of the [Defendant] a Confession of Judgment in favor of [Plaintiff] in the full uncollected Purchase Amount and enter that Confession of Judgment with the Clerk of any Court and execute thereon.” (This type of clause transforms the agreement into something called a “cognovit note.”) The contract in EBF expressed that it was to be governed by and construed under New York law.

Procedural history. The New York court entered a judgment pursuant to the confession of judgment clause. Because Defendant was an Indiana company, Plaintiff came to Indiana and filed a Petition to Domesticate Foreign Judgment that asked the Indiana trial court to recognize and enforce the New York judgment. (Plaintiff did not proceed under the statutory method to enforce the foreign judgment.) Defendant contested the Indiana action on the basis that the judgment was void under Indiana law. The trial court granted Defendant’s motion to dismiss, and the Plaintiff appealed.

Key rules. Generally, a cognovit note is a legal device whereby the debtor consents in advance to the creditor’s judgment without notice or hearing. Evidently, such confessions of judgment are allowed in the State of New York.

Indiana Code 34-54-3-1 essentially is Indiana’s definition of a cognovit note.

Importantly, cognovit notes are prohibited in Indiana. See, I.C. 34-54-3-2. In fact, Indiana makes it a crime to procure such a note or enforce it. I.C. 34-54-4-1. A key concept here is that the promise to pay cannot be entered into before a cause of action on the underlying agreement has accrued. I.C. 34-54-3-3.

Nevertheless, the Court in EBF noted that, under Indiana common law, “a valid foreign judgment based on a cognovit note will be given full faith and credit in Indiana … based upon the Federal Constitution’s ‘full faith and credit’ clause.” Article IV, Section 1. Indiana cases articulate “full faith and credit” as meaning: “the judgment of a state court should have the same credit, validity, and effect, in every other court of the United States, which it had in the state where it was pronounced.” The Indiana Code adopts full faith and credit at I.C. 34-39-4-3.

The full faith and credit rule has two exceptions/limitations: if, in the foreign court, there was an absence of (1) subject matter jurisdiction and/or (2) personal jurisdiction. The debtor/defendant has the burden of proof on these jurisdictional matters, meaning that it must rebut the presumption of the judgment’s validity.

Holding. The Indiana Court of Appeals reversed the trial court.

Policy/rationale. The Court concluded that constitutional federal full faith and credit rules and policies trumped Indiana’s statutory prohibition on cognovit notes/confessions of judgment. The underlying judgment appeared “on its face to be rendered by a court of competent jurisdiction and [Defendant] did not challenge the jurisdiction of the New York court to enter the judgment.” For more on the policies behind full faith and credit, read the EBF opinion, which impressively lays out all the applicable and competing ideas.

Related posts.

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My practice includes representing parties to judgment enforcement actions. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


Lender’s Summary Judgment Affidavit Flawed - Business Records Inadmissible

Lesson.  For lenders and servicers filing motions for summary judgment, always remain mindful of the elements of the Evidence Rule 803(6) business records exception to the hearsay rule.  An insufficient supporting affidavit could doom the motion.     

Case citeHolmes v. National Collegiate Student Loan Trust, 94 N.E.3d 722 (Ind. Ct. App. 2018)

Legal issue.  Whether, on a motion for summary judgment, the lender proved it owned the subject loan and thus had standing to bring the claim. 

Vital facts.  This case involved what appeared to be a straightforward default under a school loan.  The original lender sold a pool of loans to National Collegiate Funding LLC, which then sold the pool to the plaintiff lender.  The defendant in the case was the student’s father, who co-signed the loan.  There seemed to be no question that the loan was in default.      

Procedural history.  Lender filed a motion for summary judgment.  The trial court granted the motion and ordered the father to pay the debt, plus interest and costs.  The father appealed.

Key rules

To make a prima facia case  for summary judgment, the plaintiff lender in Holmes was required to show that the defendant father executed a contract for a loan and that the lender was the assignee of the loan - and thus the owner of the debt.  Indiana law also required the lender to establish that the defendant owed the original lender the amount alleged.

Indiana Trial Rule 56(E) states that affidavits on summary judgment “… shall be made on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify as to the matters stated….”

Inadmissible hearsay contained in an affidavit may not be considered in ruling on a summary judgment motion.

Indiana Evidence Rule 803(6) discusses the “business records” exception to the general hearsay rule and outlines the elements of admissibility.

Holding.  The Indiana Court of Appeals reversed the summary judgment for the lender and concluded that it failed to make a prima facia case.   

Policy/rationale

The defendant in Holmes contended that the lender’s designated evidence (documents) constituted inadmissible hearsay and, as a result, the lender failed to show that it was entitled to summary judgment.  The Court’s opinion is a technical lesson in evidence and provides an example of how an assignee (a successor-in-interest) can get tripped up in a simple loan enforcement claim.

When Holmes first came down last year, some thought the ruling may have created a real problem for servicers to obtain summary judgment in cases involving loan assignments.  In reality, the plaintiff in the case simply failed to dot the I’s and cross the T’s.  There is favorable case law in Indiana, and across the country, concerning how assignees and successors-in-interest can establish a prima facia case pursuant to the Rule 803(6) business records exception.  But the affidavit in Holmes was deficient as to several key elements, according to the Court: 

Here, the [affidavit] provided no testimony to support the admission of the contract between [defendant] and [original lender] or the schedule of pooled loans sold and assigned to National Collegiate Funding, LLC, and then to [plaintiff], as business records pursuant to Evidence Rule 803(6). There was no testimony to indicate that [the witness] was familiar with or had personal knowledge of the regular business practices or record keeping of [the loan originator or that of plaintiff] regarding the transfer of pooled loans, such that she could testify as to the reliability and authenticity of those documents. Indeed, [the witness] offered no evidence to indicate that those records were made at or near the time of the business activities in question by someone with knowledge, that the records were kept in the course of the regularly conducted activities of either [original lender or plaintiff], and that making the records was part of the regularly conducted business activities of those third-party businesses.

Also noteworthy is that Holmes was not a mortgage foreclosure case.  The school loan in Holmes was not secured, and the opinion does not address one way or another whether there was a UCC negotiable instrument at issue.  Thus the Court did not analyze some of the more conventional ways of proving standing, such as the possession of an original promissory note and/or the recording of an assignment of mortgage.     

Related posts.

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My practice includes representing lenders, as well as their mortgage loan servicers, in contested mortgage foreclosure cases.  If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


Tune Up To Indiana Commercial Foreclosure Law

Over the last couple weeks, I've been working with the good folks at Typepad to "tune up" my blog.  You'll notice the new look and feel, which generally mirrors that of my Firm's website. I've fixed several links that were outdated, and I've added a new mortgage servicing category.

What I'm most excited about are the mobile and search features:

    1.  I'm now mobile friendly, which means that the site reads much better on a smartphone or tablet.  

    2. I also now have a custom Google search engine at the top of my right sidebar.  The results are limited to my blog (albeit with a few ads that unfortunately appear at the start).  After the ads, the search supplies links to prior posts.  When I started in 2006, my vision included a site where you could research Indiana foreclosure-related issues.  The prior search function was somewhat inadequate, but the new application works great and captures all applicable content about which I've written over the last 12+ years.  Please note that the search results are delivered in a pop-up window.   

Happy New Year to you and yours, and thanks for reading.

John

 


Borrower’s Failure To Prove Actual Damages Leads To Summary Judgment In RESPA Case

Lesson. A mortgage loan servicer in a RESPA case can successfully defend the matter if it can show that it did not injure the borrower/mortgagor, even if the defendant did not adequately respond to the qualified written request (QWR).

Case cite. Linderman v. U.S. Bank, 887 F.3d 319 (7th Cir. 2018)

Legal issue. Whether Borrower’s alleged non-receipt of a Servicer’s QWR response caused or aggravated her alleged injuries.

Vital facts. Plaintiff Borrower bought a house in 2004 and lived there with multiple family members. Borrower’s mother later asked her to move out, at which point Borrower stopped paying on her mortgage loan. In 2014, the last remaining family member moved out of the house, leaving it vacant and subject to vandalism. The vandalism produced insurance money that went to Defendant mortgage loan servicer (Servicer) to be held in escrow. Servicer disbursed a portion of the insurance proceeds to pay a contractor, which later abandoned the job due to fears over being paid in full for its work. In 2015, the house was vandalized twice more and was further damaged from a storm. Borrower sent Servicer a letter on September 5, 2015 asking about the status of her loan and how the 2014 insurance money was being handled. Servicer sent a response ten days later, but Borrower said she never received it. Borrower claimed that suffered from depression and anxiety arising out of the issues with her house, as well as problems from divorce, foreclosure proceedings and money concerns.

Procedural history. Based upon the assertion that she did not receive the letter response from Servicer, Borrower filed suit against Servicer in federal court under the Real Estate Settlement Procedures Act (RESPA). The U.S. District Court for the Southern District of Indiana granted summary judgment for Servicer, and Borrower appealed to the Seventh Circuit Court of Appeals.

Key rules. For purposes of their decisions, both the district court and the Seventh Circuit in Linderman assumed that Borrower’s September 5, 2015 letter to Servicer constituted a QWR under RESPA, 12 USC 2605(e)(1)(B). The Linderman opinion also assumed that Servicer breached RESPA based upon Borrower’s allegation that she did not receive the letter response, even though RESPA, including specifically 12 CFR 1024.11, provides that the mailing of a timely and properly-addressed response to a QWR likely satisfies the requirements under the statute – whether or not the response is received. Even with these favorable assumptions, Borrower still lost.

RESPA requires servicers upon receipt of a QWR to, among other things, (a) correct errors in records or (b) provide appropriate information if no error needs fixing. Section 2605(e)(2)(A-B). RESPA also requires servicers to refrain for sixty days from taking steps that would jeopardize a borrower’s credit rating. Section 2605(e)(3). But to ultimately prevail on a claim for money damages, a borrower still must prove “actual damages” under Section 2605(f)(1)(A) – something Borrower failed to do in Linderman.

Holding. The Seventh Circuit affirmed the summary judgment for Servicer.

Policy/rationale. Borrower contended that Servicer’s alleged lack of response to the QWR aggravated her house, family and financial-related problems, but the Court found that “she did not explain how.” The Court reasoned that “the ongoing foreclosure and need of money for repairs,” and not the alleged lack of response to the QWR, contributed to Borrower’s mental issues. Importantly, RESPA “does not require a servicer to pay money in response to a [QWR].” The Court went on to preach that Borrower may have had state law tort or contract remedies available to her that she did not pursue against various parties. “The sole claim in this [federal court suit] is that [Servicer] injured her by not adequately responding to her letter. That claim fails for the reasons we have given.”

Related posts.

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My practice includes defending lenders, as well as their mortgage loan servicers, in federal court cases brought by borrowers. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.