Indiana Supreme Court’s COVID Order Interpreted: Post-Judgment Interest

Lesson. Post-judgment interest was not tolled by the Indiana Supreme Court’s 2020 COVID-related emergency orders.

Case cite. Denman v. St. Vincent Med. Grp., Inc., 2021 Ind. App. LEXIS 254 (Ind. Ct. App. 2021)

Legal issue. Whether the Indiana Supreme Court’s order that “no interest shall be due or charged during the tolled period” was unconstitutional with respect to statutory post-judgment interest.

Vital facts. Plaintiff obtained a $4.75 million judgment against Defendant in January 2020. Beginning on March 13, 2020, the Indiana Supreme Court entered a series of orders that dealt with the COVID public health emergency. The order pertinent to the Denman case included the following language:

The Court authorizes the tolling … of all laws, rules, and procedures setting time limits for speedy trials in criminal and juvenile proceedings; public health and mental health matters; all judgments, support, and other orders; and in all other civil and criminal matters before Indiana trial courts. Further, no interest shall be due or charged during this tolled period.

Procedural history. On March 30, 2020, the trial court in Denman ordered that post-judgment interest on Plaintiff’s judgment shall be tolled per the Supreme Court’s order. Plaintiff appealed that ruling and others.

Key rules.

Ind. Code § 24-4.6-1-101 states that: “[e]xcept as otherwise provided by statute, interest on judgments for money whenever rendered shall be from the date of the return of the verdict or finding of the court until satisfaction at: . . . (2) an annual rate of eight percent (8%) if there was no contract by the parties.”

As opposed to prejudgment interest, trial courts have no discretion over whether post-judgment interest will be awarded. Prevailing plaintiffs are awarded it automatically.

Holding. The Indiana Court of Appeals reversed the trial court’s order tolling the accrual of post-judgment interest.

Policy/rationale. The Court found that the trial court erred in applying the Supreme Court’s interest-tolling order to post-judgment interest “because so doing would give the [order] effect beyond the power constitutionally and statutorily allocated to the courts.” Post-judgment interest is a “creature of statute, borne of legislative authority.”

The Court upheld the trial court’s tolling of prejudgment interest, however, which is discretionary. One of its reasons in doing so was the Supreme Court’s “inherent authority,” in an emergency, to supervise all courts of the state. This authority “allows it to suspend trial courts' discretionary decision-making, like the grant of prejudgment interest.” The Court explained:

Permitting grants of prejudgment interest would have cost litigants for a delay they did not cause. As we explained above, Indiana's Tort Prejudgment Interest Statute is meant to influence litigants' behavior. To award prejudgment interest for delays not attributable to any party would not advance that goal. Post-judgment interest, on the other hand, arises just as automatically during a pandemic as it does any other time—and it will continue to do so until the legislature decides otherwise.

The “elephant in the room” is whether the Supreme Court’s order impacted interest accruing on a loan, such as contractual interest under a promissory note. The Indiana Court of Appeals’ treatment of pre- and post-judgment interest in Denman is telling on this point. Interest on a loan is not discretionary (in my view, at least). It is based on a contract entered into between private parties that, arguably, is constitutionally protected from an emergency order from the judicial branch. Contractual interest, not unlike post-judgment interest, arises automatically during the pandemic - as it does any other time. Accordingly, I do not believe that the Supreme Court’s COVID-related orders in 2020 tolled the accrual of interest on loans, and the outcome in Denman supports that conclusion.

Related posts.

• What Is Indiana's Post-Judgment Interest Rate?
• Force Mejeure And The COVID-19 Pandemic: Impact On Indiana Notes and Mortgages

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I represent judgment creditors and lenders, as well as their mortgage loan servicers, entangled in loan-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.

Does A Deed-In-Lieu Of Foreclosure Automatically Release A Borrower From Personal Liability?

A deed-in-lieu of foreclosure (DIL) is one of many alternatives to foreclosure. For background, review my post Deeds In Lieu Of Foreclosure: Who, What, When, Where, Why And How. Today I discuss the Indiana Court of Appeals’ opinion in GMAC Mortgage v. Dyer, 965 N.E.2d 762 (Ind. Ct. App. 2012), which explored whether a DIL in a residential mortgage foreclosure case released the defendant borrower from personal liability.

Deficiency. In GMAC Mortgage, the borrower sought to be released from any deficiency. The term “deficiency” typically refers to the difference between the fair market value of the mortgaged real estate and the debt, assuming a negative equity situation. Exposure to personal liability arises out of the potential for a “deficiency judgment,” which refers to the money still owed by the borrower following a sheriff’s sale. The amount is the result of subtracting the price paid at the sheriff’s sale from the judgment amount. (For more on this topic, please review my August 1, 2008, June 29, 2009 and March 9, 2012 posts.)

DIL, explained. GMAC Mortgage includes really good background information on the nature of a DIL, particularly in the context of residential/consumer mortgages. According to the U.S. Department of Housing and Urban Development (HUD), a DIL “allows a mortgagor in default, who does not qualify for any other HUD Loss Mitigation option, to sign the house back over to the mortgage company.” A letter issued by HUD in 2000 further provides:

[d]eed-in-lieu of foreclosure (DIL) is a disposition option in which a borrower voluntarily deeds collateral property to HUD in exchange for a release from all obligations under the mortgage. Though this option results in the borrower losing the property, it is usually preferable to foreclosure because the borrower mitigates the cost and emotional trauma of foreclosure . . .. Also, a DIL is generally less damaging than foreclosure to a borrower’s ability to obtain credit in the future. DIL is preferred by HUD because it avoids the time and expense of a legal foreclosure action, and due to the cooperative nature of the transaction, the property is generally in better physical condition at acquisition.

Release of liability in FHA/HUD residential cases. The borrower in GMAC Mortgage had defaulted on an FHA-insured loan. The parties tentatively settled the case and entered into a DIL agreement providing language required by HUD that neither the lender nor HUD would pursue a deficiency judgment. The borrower wanted a stronger resolution stating that he was released from all personal liability. The issue in GMAC Mortgage was whether the executed DIL agreement precluded personal liability of the borrower under federal law and HUD regulations. The Court discussed various federal protections afforded to defaulting borrowers with FHA-insured loans, including DILs. In the final analysis, the Court held that HUD’s regulations are clear: “A [DIL] releases the borrower from all obligations under the mortgage, and the [DIL agreement] must contain an acknowledgement that the borrower shall not be pursued for deficiency judgments.” In short, the Court concluded that a DIL releases a borrower from personal liability as a matter of law.

Commercial cases. In commercial mortgage foreclosure cases, however, a lender/mortgagee may preserve the right to pursue a deficiency, because the federal rules and regulations outlined in GMAC Mortgage do not apply to business loans or commercial property. The parties to the DIL agreement can agree to virtually any terms, including whether, or to what extent, personal liability for any deficiency is being released. The point is that the issue of a full release (versus the right to pursue a deficiency) should be negotiated in advance and then clearly articulated in any settlement documents. A release is not automatic.

GMAC Mortgage is a residential, not a commercial, case. The opinion does not provide that all DILs release a borrower from personal liability, and the precedent does not directly apply to an Indiana commercial mortgage foreclosure case.

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I represent parties in loan-related litigation. If you need assistance with such a 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.

The Rooker-Feldman Doctrine Is Alive And Well In The 7th Circuit

In Banister v. U.S. Bank Nat'l Ass'n, 2021 U.S. App. LEXIS 28565 (7th Cir. 2021), the United States Court of Appeals for the Seventh Circuit (that includes Indiana) affirmed an Illinois district court's decision to dismiss on jurisdictional grounds a federal court lawsuit filed by a borrower/mortgagor.  The suit was the borrower's fifth attempt to overturn a state court judgment foreclosing the mortgage on her home.  The plaintiff borrower asserted the defendants committed bank fraud and sought $20MM in damages, together with an order to set aside the sheriff's sale due to the alleged "illegal foreclosure."  The borrower's claims were blocked by the Rooker-Feldman doctrine, which prohibits a federal court action to vacate a state foreclosure order.  To the extent the federal case sought damages, "a federal court could not award them without invalidating the foreclosure judgment—something that only an Illinois appellate court or the Supreme Court of the United States could do."

A recent opinion by the United States District Court for the Northern District of Indiana reached the same result.  Shaffer v. Felts, 2021 U.S. Dist. LEXIS 198114 (N.D. Ind. 2021) held that it "has no jurisdiction to set aside a state-court foreclosure judgment."  One of the lessens in Shaffer is that a federal court complaint "simply invoking the word 'fraud' does not grant a district court jurisdiction to set aside a state-court order."  The opinion cited to the 7th Circuit's 2015 Iqbal decision: 

The Rooker-Feldman doctrine is concerned not with why a state court's judgment might be mistaken (fraud is one such reason; there are many others) but with which federal court is authorized to intervene. The reason a litigant gives for contesting the state court's decision cannot endow a federal district court with authority; that's what it means to say that the Rooker-Feldman doctrine is jurisdictional.

I previously wrote about the Iqbal case here:  Dismissal Of Mortgagor’s Post-Foreclosure Federal Lawsuit: Usually, But Not Always.  

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I represent lenders, as well as their mortgage loan servicers, entangled in loan-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.

What “Loss” Does An Owner’s Policy Of Title Insurance Cover?

Lesson. Title insurance generally covers “actual losses” arising out of the existence of a title defect, not losses from the conduct of the insured or personal dealings between people.

Case cite. Hughes v. First Am. Title Ins. Co., 167 N.E.3d 765 (Ind. Ct. App. 2021)

Legal issue. What “actual loss” arose from an undisclosed easement.

Vital facts. Owners purchased real estate and obtained a policy of title insurance from Title Company. Unbeknownst to Owners, the prior owners (sellers) had granted an easement across the entire south side of the real estate. After Owners learned of the easement, they submitted a claim to the Title Company, which acknowledged coverage for the easement that Title Company had not disclosed to Owners.

The subject title insurance policy covered against "actual loss, including any costs, attorneys' fees and expenses provided under this Policy." Such loss must have resulted from one or more of the enumerated covered risks, one of which was that "[s]omeone else has an easement on the Land." Title Company obtained an appraisal of the diminution in value of the real estate caused by the existence of the easement. The appraisal assigned a loss of $3,000. Owners would not accept that amount.

Meanwhile, Owners sued the easement holder to challenge the validity of the easement or, in other words, to terminate it. Apparently things got a little contentious in that dispute as Owners used “tire poppers” to try to block use of the easement. In the end, the case turned out poorly for Owners, and the court ordered Owners to pay $61,000 in attorney fees and costs to the easement holder.

Owners then sued Title Company seeking to recover losses from both the easement and the prior lawsuit, including reimbursement of the $61,000.

Procedural history. The trial court granted Title Company’s motion for summary judgment, and Owners appealed.

Key rules. An insurance policy is a contract and is subject to the same rules of construction as other contracts. “The purpose of title insurance is to insure that title to the property is vested in the named insured, subject to the exceptions and exclusions stated in the policy.”

“Title insurance is a contract of insurance against loss or damage caused by encumbrances upon or defects in the title to real estate.” Ind. Code § 27-7-3-2(a); see also Ind. Code § 27-7-3-2(g)(2) (defining "title policy" as "a policy issued by a company that insures or indemnifies persons with an interest in real property against loss or damage caused by a lien on, an encumbrance on, a defect in, or the unmarketability of the title to the real property").

In Indiana, the measurement of damages resulting from an easement is “the difference between the value of the property with the defect and the value of the property without the defect.” In other words, "actual loss is the diminution in value of the property caused by the easement."

Importantly, title insurance “does not insure against the conduct of the insured and does not cover matters involving personal dealings between individuals.”

Holding. The Indiana Court of Appeals affirmed the summary judgment in favor of Title Company. Owners were to be reimbursed for the actual loss suffered in reliance of the title policy, limited to the diminution in value caused by the existence of the easement ($3,000).

Policy/rationale. Owners contended that “loss” included the $61,000 arising out of the judgment in the suit against the easement holder because “it was a loss that resulted from a covered risk (i.e. the easement).” The Court rejected that argument: “the actual loss of the insured [here, Owners] is the difference in value of the property with the encumbrance [here, the easement] and its value without the encumbrance.” The Court reasoned:

Only title to the parcel was insured … not any actions [Owners] took to keep the easement holder from using the easement. Stated another way, the [61k] loss was not a result of the existence of the easement; rather, the loss [Owners] seek to recover is a result of their actions concerning the easement….

Although it was not a part of the Hughes opinion, depending upon the circumstances a title insurance company might fund—on behalf of its insured—a lawsuit to challenge the validity of an easement. Evidently that did not happen in Hughes, possibly because Title Company determined the easement was in fact valid.

Related posts.

• Memo To Title Insurers: Disclose All Recorded Liens, Even Legally-Deficient Ones
• Title Work And Foreclosures In Indiana

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Part of my practice includes litigation surround title insurance claims. 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.

American Banker: Small Banks, Credit Unions Warned To Brace For Pandemic Aftershock

Here is an article by Ken McCarthy and Jim Dobbs in the Community Banking section of the American Banker:  Small banks, credit unions warned to brace for pandemic.

One of the interesting opinions featured in this piece is that problem loans may not surface until 2023, when many of us initially felt it would be a Fall 2020 issue.

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I represent lenders, as well as their mortgage loan servicers, entangled in loan-related disputes. If you need assistance with such a , 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.

 

Judgment Requiring Payment Of Sum Certain Through Monthly Installments Until Paid Or “Until Death” Does Not Create Judgment Lien

Lesson. If the amount of a money judgment is contingent, then the judgment will not give rise to a statutory lien on the real estate of the obligor (or borrower).

Case cite. Harris v. Copas, 165 N.E.3d 611 (Ind. Ct. App. 2021)

Legal issue. Whether a divorce decree providing that Husband would pay Wife $75,000 in $500 monthly installments until paid in full or until Wife’s death constituted a money judgment entitling Wife to a lien against the marital home.

Vital facts. Husband and Wife divorced, and the decree provided, among other things, that Husband would become the sole owner of the marital home and that "[Husband] will pay [Wife] the sum of $75,000.00 at $500.00 a month starting June 15th 2017 until paid or death of [Wife].” The situation later became complicated for a variety of reasons, but for purposes of today’s post Wife contended that the divorce decree created a judgment lien on Husband’s real estate. She recorded a lis pendens notice against the marital home as part of her efforts to collect.

Procedural history. Husband filed a petition for, among other things, an order to dismiss the lis pendens notice. The trial court granted the petition and ruled that the contingent nature of the judgment “took it out of the purview of the judgment lien statute.” Wife appealed.

Key rules.

Indiana’s judgment lien statute (I.C. § 34-55-9-2) provides in relevant part:

All final judgments for the recovery of money or costs in the circuit court and other courts of record of general original jurisdiction in Indiana, whether state or federal, constitute a lien upon real estate and chattels real liable to execution in the county where the judgment has been duly entered and indexed in the judgment docket as provided by law[.]

Harris expressed that a “judgment for money is a prerequisite for the application of the judgment lien statute. A 'money judgment' is ‘any order that requires the payment of a sum of money and states the specific amount due, whether labeled as a mandate or a civil money judgment.’" Under Indiana law: "A money judgment must be certain and definite. It must name the amount due."

Holding. The Indiana Court of Appeals affirmed the trial court and held that Wife did not hold a statutory judgment lien on the marital home.  The holding necessarily included the dismissal of the lis pendens notice.  

Policy/rationale. Wife asserted that she held a $75,000 lien based upon the idea that the divorce decree constituted a money judgment against Husband that automatically created such lien. The Court disagreed, reasoning:

If the parties had simply agreed that [Husband] would pay [Wife] $75,000 in monthly $500 installments, there would be no dispute that [Wife] held a money judgment against [Husband]. However, the inclusion of the term "until paid or death of [Wife]" made the amount ultimately due to [Wife] unknowable and unascertainable because it could not be predicted when [Wife] would die. This is the antithesis of a statement of a "specific amount due" required of a money judgment.

The Court took the view that the divorce decree was not, in fact, a money judgment. It appears that the Court viewed the decree simply as a form of payment plan that, while enforceable, did not operate as the kind of judgment that could become a lien.

Related posts.

• Your Source For Indiana Lis Pendens Law
• Indiana Court Finds That Ex-Wife Held A Judgment Lien, Not A Security Interest, On Ex-Husband’s Farm
• Judgment Lien Principles Courtesy Of The Indiana Supreme Court

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I represent judgment creditors and lenders, as well as their mortgage loan servicers and title insurers, entangled in lien priority 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.