News Reports Regarding Increase In Foreclosure Activity Despite Government Programs

Both of the following news reports stem from the Q1 2021 Foreclosure Market Report by ATTOM Data Solutions:

I was out last week and have been playing catch-up.  I hope to post some new material next week.  

John


Title Work And Foreclosures In Indiana

One of the common themes on this blog has been the importance of obtaining title work in connection with an Indiana commercial mortgage foreclosure case.  If you’re wondering why your foreclosure counsel recommends that you incur the expense of a title commitment and later premiums for a title insurance policy, keep reading.

Procedural context.  Before the filing of the foreclosure complaint, certain steps should be undertaken to analyze the loan collateral, in this case the real estate.  One such step is to determine priority in title.  We strongly recommend that lenders order a foreclosure (title insurance policy) commitment.  (Tip:  If the lender has a prior title insurance policy related to the property, such as a lender’s policy, then you can save some expense simply by placing the order from the same company.  Or, a separate title insurance company may provide a cheaper commitment faster based upon a prior policy.) 

ID parties/priority.  The commitment should be reviewed for purposes of determining all parties with an interest in the real estate and their relative priorities.  I.C. § 32-29-9-1 articulates the necessary parties to be named in the suit.  The provision essentially requires that the plaintiff name such necessary parties to the suit in the same manner in which the person or entity’s lien or claim appears on the public records of the county where the suit is brought.  Service of summons upon such necessary parties is sufficient to make the court’s judgment binding as to those parties.  In order for there to be clear title secured at the sheriff’s sale, all parties with a recorded interest in the real estate need to be named in the lawsuit to answer as to their interests.  (Tip:  Also review the commitment to ensure that the legal description of the collateral in the commitment matches the legal description in the mortgage.)  An early priority determination will guide decisions as to settlement or workout negotiations, or whether to proceed with the foreclosure action in the first place.   

Update title work.  Normally, there will be a time gap between the date of the foreclosure commitment and the date of the filing of the complaint.  Conceivably, interests in the subject real estate could arise in this gap period.  For example, a mechanic’s lien could be filed, or the borrower could obtain a loan secured by a junior mortgage on the property.  It is thus critical to update or “date down” the title insurance policy commitment after the complaint is filed.  For more on this issue, see my December 21, 2006 post and House v. First American Title Company, 858 N.E.2d 640 (Ind. Ct. App. 2006), which held that a foreclosure action’s filing date is the “only relevant date used to determine the proper parties to a mortgage foreclosure.”   

Amend complaint.  Again, clear title cannot be obtained upon a sheriff’s sale unless all lien holders are named as defendants in the suit so that their interests can be foreclosed.  Should the updated title work disclose new lien holders, then such parties need to be added to the case by filing an amended complaint.  If no new interests are uncovered, then lenders can be comfortable proceeding with the original defendants named in the suit. 

No bona fide purchaser.  Third-parties who secure an interest in the mortgaged property after the filing of the foreclosure complaint do not need to be named as defendants in the action.  Lenders need not continuously search title during the course of litigation and worry about adding new parties to their foreclosure complaint.  “The only relevant date” is the foreclosure action’s commencement date – the day the lender filed the complaint.  Here’s what I wrote on December 21, 2006, which is particularly relevant in the wake of my October 4, September 25 and May 28, 2009 posts that touch upon Indiana’s bona fide purchaser doctrine:

Any party obtaining an interest in the property after the filing of the action will not be considered a bona fide purchaser without notice and thus will be bound by the foreclosure as if named as a party defendant to the foreclosure action.  (Such parties, upon learning of the suit, should intervene in the action to assert their rights to the property.)

Finish the job.  Arguably, the secured lender’s ultimate goal in its mortgage foreclosure action is to acquire title to (repossess) the real estate collateral free and clear of all liens.  This is why the commitment is important, as is the date down.  Lenders and their counsel should not forget the final step, however.  Once the lender obtains the sheriff’s deed (title) to the property, lenders are advised to purchase a title insurance (owner’s) policy.  Certainly the premium can be expensive, but in most commercial foreclosure cases the benefits of being insured (as free and clear title holder) far outweigh the costs.  For more insight into the wisdom of ordering an owner’s policy, please see my July 20, 2009 post.


In HAMP Case, Seventh Circuit Disposes Of Borrower’s Claims Of Wrongdoing

Lesson. It would seem to be extraordinarily challenging for a borrower to assert a viable claim against a lender arising out of a failed HAMP loan mod.

Case cite. Taylor v. JPMorgan Chase Bank, 958 F.3d 556 (7th Cir. 2020)

Legal issue. Whether Borrower’s claims for promissory estoppel, fraud, and intentional infliction of emotional distress should have been dismissed.

Vital facts. This is my third post about Taylor. See my March 11 and March 18 posts for background on this case, which centered on negotiations surrounding a potential loan mod under HAMP. To the Borrower’s chagrin, Lender did not ultimately grant the loan mod.

Among other things, Borrower pointed to language in the TPP indicating that Lender would modify the loan if Borrower qualified. Borrower also alleged that employees of Lender told him that his documents were "in receipt for processing" and that two other employees told him they had "received" his documents and were "forwarding" them. Basically, Borrower felt that he was misled and that Lender did not process the application in good faith.

Procedural history. The trial court granted Lender’s motion for judgment on the pleadings.

Key rules. “To hold [Lender] accountable under a theory of promissory estoppel, [Borrower] needed to allege that [Lender] made a definite promise to modify his loan.” An expression of intention or desire is not a promise.

A claim for fraud requires a misrepresentation about a past or existing fact. Indiana law does not support a claim based upon the misrepresentation of the speaker’s current intentions.

A claim for intentional infliction of emotional distress requires “extreme and outrageous” conduct.

Holding. Affirmed.

Policy/rationale. As to the promissory estoppel theory, the Court said that the statements at issue did not “convey a definite promise.” Indeed the commitment to modify “came with express strings” that were disclosed to Borrower.

Regarding the fraud claim, the Court found that the alleged misrepresentations “even if credited as entirely true,” could not “be construed as [Lender] committing to a permanent loan modification in the future.”

With respect to the action for intentional infliction of emotional distress, the Court didn’t buy the idea that the alleged conduct was extreme or outrageous. The Court followed the Indiana Court of Appeals decision in Jaffri (see HAMP post below): “‘any mishandling of’ HAMP by a loan servicer, ‘even if intentional,’ did not establish the tort of emotional distress because the HAMP applicant's options ‘would have been even more limited’ if the program were not in place.” That rationale carried the day in Taylor.

Related posts.

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Part of my practice includes representing lenders, as well as their mortgage loan servicers, entangled in consumer finance 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.


Seventh Circuit Rejects Borrower’s HAMP Contract Breach Claim: Part 2 of 2

Lesson. Statements by Lender’s employees about the status of a HAMP loan modification, coupled with Lender’s acceptance of reduced payments during the period of negotiations, should not result in a waiver of the countersignature condition precedent.

Case cite. Taylor v. JPMorgan Chase Bank, 958 F.3d 556 (7th Cir. 2020)

Legal issue. Whether lenders waive the HAMP countersignature requirement through statements made by their employees and acceptance of borrowers’ reduced payments.

Vital facts. Today follows-up last week’s post, which I recommend you read for context: Seventh Circuit Rejects Borrower’s HAMP Contract Breach Claim: Part 1 of 2.

Borrower claimed that employees of Lender told him that Borrower’s loan mod document submissions were “in receipt for processing” and that they “did not know of” Lender ever returning fully-executed copies of TPP’s to customers (despite the contract requirement). Also, Lender accepted Borrower’s reduced payments during the application period.

Procedural history. The U.S. District Court for the Northern District of Indiana granted Lender’s motion for judgment on the pleadings and dismissed Borrower’s breach of contract claim.

Key rules. As mentioned last week, the Taylor opinion has an informative introduction to HAMP. If you’re not familiar with the program, please read the case for background.

In Indiana, “a party who benefits from a condition precedent can waive it.” The waiver does not have to be in writing but “can be inferred if the waiving party shows an intent to perform its obligations under the contract regardless of whether the condition has been met.”

Holding. The Seventh Circuit affirmed the district court’s order dismissing the contract claim.

Policy/rationale. The Court found that Borrower failed to allege any action on Lender’s part from which the Court could reasonably infer that Lender intended to proceed with the trial modification without a signature by Lender. First, the alleged statements by Lender’s employees did not promise eligibility. “[Borrower’s] discussions with bank personnel cannot reasonably be viewed as binding [Lender]—with no accompanying writing of any kind—to each of the terms and conditions otherwise part of the TPP or, by extension, any agreement for a permanent mortgage modification.”

Second, as to the interim payments, the Court reasoned:

By its terms, the TPP proposal made plain that [Borrower] would need to keep paying on his mortgage. More specifically, the TPP stated that [Lender] would accept the modified and reduced payments whether or not [he] ultimately qualified for permanent loan modification. Indeed, the Frequently Asked Questions document appended to the TPP application explained that if the bank found him ineligible for HAMP, [Borrower's] first trial period payment would "be applied to [his] existing loan in accordance with the terms of [his] loan documents." So [Lender's] decision to accept [Borrower's] trial period payments was not inconsistent with its intent to rely on the countersignature condition precedent and cannot establish waiver.

Because there was no agreement for a loan modification, there was no claim for breach in Taylor. But, remain mindful that the Court dismissed the case based upon the allegations in Borrower’s complaint. It’s conceivable that a different set of facts could have caused a different result. Having said that, the language in these HAMP and TPP documents is awfully clear in terms of what needs to happen before a HAMP loan mod will occur.

In my next post, I'll discuss Borrower's promissory estoppel theory.  

Related post.  Lender’s Acceptance Of Partial Payments Did Not Waive Default

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My practice includes representing lenders, as well as their mortgage loan servicers, in connection with consumer finance litigation. 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.


Seventh Circuit Rejects Borrower’s HAMP Contract Breach Claim: Part 1 of 2

Lesson. Under Indiana law, if a lender or its loan servicer does not sign the proposed HAMP TPP agreement, then there is no binding contract.

Case cite. Taylor v. JPMorgan Chase Bank, 958 F.3d 556 (7th Cir. 2020)

Legal issue. Whether the borrower had a viable Home Affordable Mortgage Program (HAMP) breach of contract claim against his lender.

Vital facts. Today’s post relates to the borrower’s appeal of the district court’s decision, about which I discussed in 2018: Indiana Federal Court Dismisses Borrower’s Contract Claim Against Lender Because Lender Never Executed The HAMP Trial Period Plan.

Lender informed Borrower of a HAMP-related loan mod opportunity and sent him a proposed Trial Period Plan (TPP) to be signed and returned in order to start the process. The agreement stated that the trial period would not begin until both sides signed off and until Lender returned the signed agreement to Borrower. Borrower executed, but Lender never did. The loan was never modified. The reason Lender did not execute the agreement and modify the loan was that Borrower did not qualify.

Procedural history. Borrower sued Lender alleging that Lender failed to honor the loan modification offer. As it relates to this post, Borrower sued for breach of contract. Lender filed a Rule 12(c) motion for judgment on the pleadings for failure to state a claim. The U.S. District Court for the Northern District of Indiana granted the motion, and Borrower appealed.

Key rules. The opinion in Taylor contains a very helpful introduction to HAMP. If you’re not familiar with the program or the TPP, you should read the case.

In Indiana, to have an enforceable contract, the elements of offer, acceptance, and consideration must be present. “The agreement comes into existence when one party (the offeror) extends an offer, and the other (the offeree) accepts the offer and its terms.” However, an offer can be qualified or held in abeyance until a condition is fulfilled. This is known as a condition precedent. “If an offer contains a condition precedent, a contract does not form unless and until the condition is satisfied.”

Holding. The Seventh Circuit affirmed the district court’s order dismissing the contract claim.

Policy/rationale. The Court concluded as follows:


The TPP unambiguously stated that the trial modification would "not take effect unless and until both [Borrower] and [Lender] sign it and [Lender] provides [Borrower] with a copy of this Plan with [Lender’s] signature." And if [Lender] did "not provide [Borrower] a fully executed copy of this Plan and the Modification Agreement," then "the Loan Documents will not be modified and this Plan will terminate." This language is clear and precise and created a condition precedent that required Borrower to countersign the TPP and return a copy to Borrower before the trial modification commenced.

The Court’s rationale was that, since the TPP never came into effect, no contractual obligations were imposed on Lender. One of the underlying policies behind the decision was that there “were other constraints on Lender's consideration of Borrower's loan modification request—not the least of which were imposed by the federal HAMP guidelines—but none could arise from the unsigned, ineffective TPP proposal.”

My next post will address Borrower’s waiver theory.

Related posts.

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My practice includes representing lenders, as well as their mortgage loan servicers, in connection with consumer finance litigation. 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.