Before You File, Review For “Personally Identifiable Information” and Redact: Indiana Overview

Most if not all states, including Indiana, have rules requiring the redaction of so-called “personally identifiable information” (PII) before documents may be filed with a court. (Don’t know what “redaction” means? This article helps explain.) Generally speaking, each document should be prepared according to the court’s respective guidelines and jurisdictional/county rules. Examples of these documents include, but are not limited to, complaints for foreclosure, affidavits, judgments, and bankruptcy filings.

Federal rules. For federal court actions, see Federal Rule of Civil Procedure Rule 5.2 and Federal Rule of Bankruptcy Procedure 9037.

Indiana rules. Indiana’s Rules on Access to Court Records (the “Rules”) govern our state court matters. There are only 12 rules, and Indiana practitioners and their staffs should take a minute to review (or re-review) them. For purposes of today’s post, Rule 5(C)(1) is key:

        (C) Personal Information of Litigants, Witnesses, and Children:

            (1) Unless necessary to the disposition of the case, the following information shall be redacted, and no notice of exclusion from Public Access is required:

                (a) Complete Social Security Numbers of living persons;
                (b) Complete account numbers, personal identification numbers, and passwords.

If the information is necessary to the disposition of the case, the document containing the confidential information shall be filed on green paper (if paper filing) or filed as a confidential document (if e-filed). A separate document with the confidential information redacted shall be filed on white paper (if paper filing) or filed as a public document (if e-filing). A separate ACR Form identifying the information excluded from public access and the Rule 5 grounds for exclusion shall also be filed.

Note that Rule 11 provides that lawyers and/or their clients can be subject to sanctions for failing to comply with the Rules. Again, any PII not required in the filing should be redacted.

Examples of PII. The following is a list of the type of information that should be redacted, but the list is not all inclusive:

• Social Security Number(s)

• Taxpayer Identification Number ("TIN")

• Driver’s License Number(s) or other Government identification number

• Loan Originator/ Loan Application Number(s)

• Servicer Loan Number(s)

• Third Party Loan/File Number(s)

• Bank Account Number (may include copy of imaged check)

• Any Financial Account, credit card numbers, Escrow Account Number(s)

• Customer Reference Number(s)

• Mortgage Identification Number ("MIN")

• Mortgage Electronic Registration Systems Number (“MERS”)

• Birthdates

• Insurance Policy Number(s)

• Any Minor Child Information

• Any Images that may include NPPI

• Telephone Numbers

• Bar Codes on Collateral Documents for any of the above numbers, except as may otherwise be required in documents that are filed as part of the public record.

Other tips.

• All information, including attachments and exhibits, should be reviewed for PII (including handwritten information).

• Even if a previously-recorded document, such as a mortgage, contains PII, redaction still should occur.

• With today’s computer software, redactions can (and should) be accomplished electronically.

• We advise redacting with a clearly visible black box to reflect where PII has been removed. The black box should completely cover the PII.

• Be careful not to redact any original loan documents such as an original promissory note.

Credit. I would like to thank my colleague Edward Boll, who helps lead Dinsmore’s default servicing and consumer bankruptcy practice group in Cincinnati. Ed and his team prepared the majority of today’s content.  Thanks for sharing your presentation, Ed.
__________
I represent parties involved in disputes arising out of loans that are in default. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.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.


7th Circuit Opinion Captures The Essence Of An Indiana Lis Pendens Notice

The recent Seventh Circuit Court of Appeals case in Nat'l Asset Consultants LLC v. Midwest Holdings-Indianapolis LLC 2022 U.S. App. LEXIS 16689 (7th Cir. June 16 2022) did not litigate a lis pendens issue per se. The opinion did, however, comment on the practical impact of an Indiana lis pendens filing.

The dispute began with the filing of a state court case in which the plaintiffs [Sellers] sought to require the defendant [Purchaser] “to perform what [Sellers] described as a contract for the sale of a parcel of land.” Sellers filed a lis pendens notice in connection with the suit. Purchaser later alleged that Sellers attached an altered exhibit to their state court complaint. In an effort to combat that wrong, Purchaser filed a federal court action against the Sellers for fraud and counterfeiting.

In the federal court case, the district judge granted summary judgment for Sellers on the basis that the alleged fraud/counterfeiting had not caused any damage. Sellers thus convinced the district court that there was an absence of injury arising out of the bogus exhibit. Purchaser appealed.

At the 7th Circuit, Purchaser asserted that it had been injured by the very existence of the state court litigation, which made the subject real estate unmarketable by greatly diminishing the potential selling price. The Court rejected the theory, noting that “one page of one exhibit to a complaint” did not affect the value or marketability of the real estate. Rather:

it is the complaint itself, accompanied—as Indiana law requires—by a lis pendens in the real-estate property records. The lis pendens notifies potential buyers that the interests a seller can convey may be subject to the suit's outcome…. [A] lis pendens would have been filed whether or not the page had been altered, so any injury would have been the same.

The Court stated that Purchaser could have asked the state court judge to withdraw the lis pendens notice, but Purchaser apparently had not done so. Thus, the “altered page did not injure anyone, which knocks out any claim for damages” under the statute at issue.

A couple takeaways: (1) an Indiana lis pendens notice is a powerful tool that effectively renders the subject real estate unmarketable during the pendency of the underlying lawsuit and (2) if an owner has an objection to a lis pendens notice, the owner should seek an order lifting the notice.

For more on lis pendens, I have a separate category devoted to the subject.
__________
Part of my practice involves representing parties in real estate-related disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.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.


Indiana Receiver Sales: Why ... Why Not?

I wanted to post some content before leaving on a vacation to celebrate my 25th wedding anniversary. Today’s article incorporates material first published back in 2015 and relates to my prior post - Receiver Not Authorized To Sell Property Without Mortgagor’s Consent - which followed another post - Can Indiana receivers sell the subject real estate?  Those pieces begged the question: When would a lender/mortgagee in a commercial foreclosure case want to pursue a receiver’s sale in the first place?

Why? There are a multitude of factors involved in a lender’s decision to pursue a receiver’s sale of the mortgaged real estate. The pros and cons are almost endless and vary depending upon the lender, the borrower, the extent of any competing liens, the nature of the real estate, the purpose of the borrower’s business, if any, that operates on the property and the costs of the auctioneer. With those factors in mind, based upon my experience the following is a list of considerations in favor of seeking a receiver’s sale:

  • The plaintiff lender has no interest in taking title to the real estate.
  • The plaintiff lender desires to quickly cut off its interest in, and thus the attendant expenses associated with ownership of, the real estate. Costs may include real estate taxes, hazard insurance premiums and receivership expenses (for the maintenance/management of the property).
  • The plaintiff lender has reason to believe that there are interested buyers.
  • A defendant junior lien holder may be particularly interested since it should have a greater chance of being paid. A receiver’s sale, due to enhanced and targeted marketing, coupled with a more organized transaction, should net more proceeds than a standard sheriff’s sale.
  • Similarly, a defendant guarantor of the debt may be especially attracted to this option. Since a receiver’s sale theoretically will result in a higher price, the deficiency judgment (if any) should be lower. In other words, a guarantor’s personal liability could be reduced or even eliminated.
  • In complex cases involving multiple competing liens, the replacement of the real estate with a cash fund often triggers, simplifies and expedites a global settlement of the litigation. (Remember that a foreclosure case could last many months, meaning that a sheriff’s sale may be delayed indefinitely.)

Why not? Factors weighing against a receiver’s sale include, but are not limited to:

  • The lender (or current owner of the loan) desires to take ownership of the property.
  • The real estate taxes, hazard insurance and receivership/management costs are tolerable.
  • There is no known, immediate market for the property.
  • Attorney’s fees to obtain court authority for the receiver’s sale, coupled with the fees associated with closing the sale, are higher and otherwise unnecessary in a standard foreclosure case. Also, sheriff’s sales are cheap – a few hundred dollars.
  • The foreclosure case is either uncontested, or there is a realistic possibility for some kind of settlement.
  • Perhaps most importantly, one or more parties, particularly the owner/mortgagor, objects to the receiver’s sale. (Objections to the sale, especially from the mortgagor/owner, create an insurmountable obstacle to obtaining court authority for the sale.)

Hybrid? My old post In Indiana Sheriff’s Sale, Consider The Option Of Using A Private Auctioneer addressed a kind of hybrid between a receiver’s sale and a sheriff’s sale. And, unlike receiver’s sales, there is no question as to the statutory authority for this relief, and mortgagor/owner consent generally isn’t needed. We have not seen many of these types of sheriff’s sales in recent years – (or many commercial foreclosures period due to the healthy economy) – but this statutory alternative should not be forgotten.
__________
Part of my practice includes representing parties in connection with sheriff’s sales. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.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.


Forged Power Of Attorney In Set Of Loan Documents Did Not Render Personal Guaranty Unenforceable

Lesson. A properly-executed promissory note and personal guaranty should overcome alleged defenses associated with other flawed loan documents.

Case cite. Nextgear Capital Inc. v. Premier Grp. Autos LLC 2022 U.S. Dist. LEXIS 89317 (S.D. Ind. 2022)

Legal issue. Whether a forged power of attorney signed in connection with floorplan financing rendered a personal guaranty of the loan unenforceable.

Vital facts. Floorplan financing “is when an automobile dealer establishes a line of credit with a lender to purchase vehicles before selling them to a customer….” Once the dealer sells the vehicle, it repays the money to the lender. In Nextgear, Borrower entered into a contract for floorplan financing with Lender. The contract involved a promissory note, security agreement and two personal guaranties. Borrower “floored” its first vehicle with Lender on April 16, 2019.

On April 18, 2019, a sales executive for Lender went to Borrower’s office to meet with the two guarantors, who were also representatives of Borrower, for the purpose of obtaining a power of attorney (POA) required to service the loan. Upon arriving, the sales executive met with someone he believed was one of the guarantors, who signed the POA. The sales executive, who was a notary, examined a photocopy of the individual’s driver’s license and notarized the POA. Borrower proceeded to floor ten more vehicles.

Lender’s policy of obtaining a POA was limited to having one signed by Borrower, not any guarantors. The promissory note and guaranties confirmed this. In this instance, for some reason Lender got signatures on POAs from what Lender believed were both guarantors, presumably signing as agents of Borrower.

Later in 2019, the parties agreed to increase the line of credit. In connection with this, Borrower made a 150k payment to Lender, which credited Borrower’s account for that amount. Immediately following that payment, Borrower floored several more vehicles. Shortly thereafter, Borrower’s 150k payment was rejected for insufficient funds. At that point, Borrower’s loan balance was about 355k. Further, Borrower began paying operational expenses upon the sales of vehicles rather than paying Lender as required. Lender declared Borrower to be in default.

Also, Lender later discovered that the person who signed one of the POAs was not in fact a guarantor. The actual guarantor contended that the sales executive may not have properly notarized the POA or otherwise assisted with the forgery.

Procedural history. Lender sued Borrower and guarantors for breach of contract, specifically for claims related to the promissory note and guaranties. The guarantor identified on the forged POA (“Guarantor”) filed multiple counterclaims that included forgery and indemnification. Lender filed a motion for summary judgment.

Key rules.

When interpreting contracts like promissory notes and guaranties, an Indiana court’s analysis “starts with determining whether the contract's language is ambiguous.” If the language is unambiguous, courts then apply the contract’s “plain and ordinary meaning in light of the whole agreement, 'without substitution or addition.'"

Indiana’s right to indemnification arises through a contract, by a statutory obligation, or may be implied at common law. "In the absence of any express contractual or statutory obligation to indemnify, such action will lie only where a party seeking indemnity is without actual fault but has been compelled to pay damages due to the wrongful conduct of another for which he is constructively liable."

Holding. The U.S. District Court for the Southern District of Indiana granted summary judgment in favor of Lender. This post focuses on some of the counterclaims/defenses of Guarantor surrounding the forged POA.

Policy/rationale.

Were the promissory note and guaranty unenforceable against Guarantor due to the POA being forged? No. Importantly, Guarantor did in fact execute the guaranty. “[Guarantor contends that due to the forged POA allegedly from him, [his co-guarantor] was able to substantially increase the line of credit and increase the amount of money [Lender] now seeks from [Guarantor]. [Guarantor] argues that even if he is liable based on signing the guaranty, it should be limited to the amount of money that was provided in the first thirty days after execution of the promissory note.” The Court rejected the defense because the promissory note only required a POA to be signed by Borrower. Since the co-guarantor signed the POA on behalf of Borrower, and since Guarantor did not need to co-sign, the forgery on the separate POA was inconsequential.

Another of Guarantor’s defenses rested on the theory of indemnification. He claimed that his liability was derivative of the sales executive’s “wrongful conduct in assisting with the forgery” of his POA. “But for [the forger], [co-guarantor] would not have drawn on the line of credit, thus leading [Guarantor] to be liable.” The Court reiterated that the forged POA was not required to extend credit to Borrower. Further, the sales executive’s actions did not cause Guarantor to sign his guaranty.

Related posts.

__________
I represent parties involved in disputes arising out of loans that are in default. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.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.


Indiana Judgment Creditor Not Entitled To Post-Judgment Order Transferring Ownership Of Defendant’s Real Estate

Lesson. In the post-judgment collection phase of a case, the plaintiff creditor is not entitled to an order transferring title to the defendant debtor’s real estate for purposes of satisfying the judgment. For that to happen, the creditor must follow the process for an execution (sheriff’s) sale.

Case cite. Conroad Assocs., L.P. v. Castleton Corner Owners Ass'n, 187 N.E.3d 885 (Ind. Ct. App. 2022).

Legal issue. Whether a trial court, in post-money judgment collection proceedings, can transfer a judgment debtor’s interests in real estate to a judgment creditor.

Vital facts. The parties to the Conroad dispute were a building owner (Owner) and a party contracted to maintain the building (Association). The Association’s responsibilities included the maintenance of its own sewer lift station at the building. The lift station failed, resulting in a flood of sewage at a tenant’s location in Owner’s building. The flooding caused the tenant to terminate its lease with Owner.

Owner obtained a money judgment against Association for breach of contract (the Judgment). The procedural history that followed was complicated and involved proceedings supplemental, an appeal and a bankruptcy. Today’s post focuses on the motion for proceedings supplemental (post-judgment collection effort) filed thirteen days after the entry of the Judgment. Specifically, Owner requested that the Association’s lift station and related real estate rights be transferred to Owner to satisfy the Judgment. The trial court granted the motion (the Divest Order).

The trial court later reduced the amount of the Judgment, and the Association tendered money to the trial court to fully satisfy the amount owed. The Association then moved to vacate the Divest Order.

Procedural history. The trial court vacated the Divest Order, finding that it was erroneous in the first place. Owner appealed.

Key rules. Conroad has an in-depth analysis of Indiana Trial Rules 70(A) and 69(A), which deal with judgments and post-judgment remedies. (Please click on each for the full text of the rules.) The trial court relied upon Rule 70(A) when it entered the Divest Order.

Holding. The Indiana Court of Appeals affirmed the trial court and concluded that the court did not err when it vacated the Divest Order.

Policy/rationale. The Court reasoned that, under Rule 70(A), the only way a trial court can divest a defendant/judgment debtor of ownership in real estate is if the underlying judgment itself directs the judgment debtor to execute the conveyance. Because the Judgment in Conroad had no such direction (it was only a money judgment), the Divest Order was inappropriate under Indiana law. The Court pointed to Rule 69(A), which essentially provides that, in money judgment enforcement proceedings, the sale of real estate must be conducted in the same manner as a mortgage foreclosure (i.e. a sheriff’s sale). Indiana law does not permit a judgment creditor to simply file a motion to acquire title to a judgment debtor’s real estate.

Related posts.

__________
Part of my practice relates to post-judgment collection proceedings.  If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.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.


Bank Records Of Non-Party (Third Party) Discoverable In Post-Judgment Collection Action

Lesson. A bank’s records of a non-party to litigation can be subpoenaed in post-judgment collection proceedings if the document request is reasonably calculated to lead to the discovery of concealed or fraudulently transferred assets.

Case cite. Allstate Ins. Co. v. Orthopedic P.C. 2022 U.S. Dist. LEXIS 42485 (S.D. Ind. 2022)

Legal issue. Whether a judgment creditor could obtain the bank records of a non-party in post-judgment collection proceedings.

Vital facts. The Allstate opinion followed the entry of a 460k judgment that Defendant health care providers failed to pay. Plaintiff claimed that Defendants improperly transferred patients to Non-Party provider and that those patients “were then to be billed using the name of a separate entity apparently to avoid detection by [Plaintiff].” Thus, there was a perceived financial relationship between Defendants and Non-Party in which Defendants were transferring assets to avoid collection. In order to investigate the theory further, Plaintiff subpoenaed the bank records of Non-Party.

Procedural history. Non-party moved to quash the subpoena.

Key rules. Allstate was a federal court action, so the federal rules of procedure applied. The Court noted that Rule 69(a)(2) expressly provides that a judgment creditor "may obtain discovery from any person" to aid in execution of a judgment. This applies to discovery to non-parties too. See also, Indiana Trial Rule 69(E).

Indiana federal case law interprets Rule 69 to allow “a judgment creditor to obtain discovery on ‘information relating to past financial transactions which could reasonably lead to the discovery of concealed or fraudulently transferred assets.’”

Discovery to non-parties “may be permitted where [the] relationship between judgment debtor and nonparty is sufficient to raise a reasonable doubt about bona fides or transfer of assets.”

The Court cited the following test for subjecting third parties (aka non-parties) to discovery: “. . . so long as the judgment creditor provides 'some showing of the relationship that exists between the judgment debtor and the third party from which the court . . . can determine whether the examination has a basis.'”

However, a judgment creditor must keep its inquiry “pertinent to the goal of discovering concealed assets of the judgment debtor and not be allowed to become a means of harassment of the debtor or third persons.”

Holding. The trial court denied the motion to quash and ordered Non-Party’s bank to provide the responsive materials.

Policy/rationale. Non-Party contended that the records were irrelevant and beyond the reach of discovery. Non-Party’s main theory was that it had not been sued by Plaintiff and that Plaintiff had not claimed Non-Party was a part of any conspiracy. The Court disagreed and concluded that the subpoena was “an entirely reasonable and appropriate attempt to obtain discovery in support of [Plaintiff’s] efforts to collect on its judgment . . . .” The Court’s rationale was that Plaintiff met the “reasonable doubt” standard by presenting evidence in the form of emails that indicated Defendants may have fraudulently transferred its patients to Non-Party to evade Plaintiff’s collection efforts.

Related posts.

__________
Part of my practice involves representing parties in post-judgment collection actions. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.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.