Lender’s Email Committing To Future Loan Modification Does Not Prevent Foreclosure

Lesson. In Indiana, borrowers generally cannot use oral statements of lenders to contradict or alter the written terms of a promissory note.

Case cite. Cent. Mkt. of Ind. v. Hinsdale Bank N.A., 207 N.E.3d 1215 (Ind. Ct. App. 2023)

Legal issue. Whether Lender’s pre-closing email committing to a post-closing loan modification precluded summary judgment for Lender in loan enforcement action.

Vital facts.

This case arose out of an SBA loan for the purchase of a grocery store. Lender’s loan was secured by a mortgage, personal guaranties, and a security interest on all of Borrower’s assets. Due to financial difficulties with the store, Borrower defaulted on the loan, and Lender filed suit seeking to recover on the approximate $1.8 million debt.

A complicating factor to this otherwise straightforward case surrounded a guaranty executed by a son of one of the owners/members of Borrower (“Son”). Son was reluctant to sign off. The loan officer, after speaking to Lender’s president, sent the following email to the father:

Please tell [Son] there is nothing to worry about. I have spoken to [president] and he assured me that within three months of this closing, the bank will refinance and transfer the loan to [another guarantor]. This refi will get you some working capital and also absolve [Son] of the SBA's guaranty. It's just a matter of three months or at most four months. After the initial closing, the SBA is no [longer]in [the] picture and the bank has more leeway in these matters.

If you want, I can speak to [Son] personally. Also please ask [Son] to sign the [l]ease and reassignment of rents, and some additional documents that were sent to you to forward him for his signatures. Have you forwarded them to [Son] yet[?] Hopefully he will sign off on those once he knows that we will get him off the loan/SBA guaranty within 3-4 months. You also have to finalize some details in [Son's] life insurance. We will need the policy to close.

(the “Email”). These representations were not incorporated into the loan documents, however. The refinance never occurred.

Procedural history. Lender filed a motion for summary judgment that the trial court granted. Borrower appealed.

Key rules. Indiana Code Section 26-2-9-4 bars enforcement of oral "credit agreements" unless they (l) are in writing; (2) set forth all material terms and conditions of the credit agreement; and (3) are signed by the creditor and the debtor.

Holding. The Indiana Court of Appeals affirmed the summary judgment for Lender.

Policy/rationale. In response to the summary judgment motion, Borrower filed an affidavit from Son showing that Lender reneged on its promise to remove Son as guarantor upon refinancing. Borrower’s defense theory was fraudulent inducement. The Court concluded that the Email “fell short” of the requirements of I.C. 26-2-9-4 because it did not mention the promissory note’s terms and was only a discussion about a possible future modification of Son’s guaranty. Thus, neither Son’s affidavit nor the Email created an issue of fact precluding summary judgment. Note: the Hinsdale Bank case dealt only with Lender’s action against Borrower. Lender was not enforcing Son’s guaranty at the time. Had Son been a party, the opinion suggests the outcome would have been the same, which is to say the Email may not have absolved Son from personal liability.

Related posts.

• Is The Label “Indiana Lender Liability Act” A Misnomer?
• Alleged Oral Release Of Mortgage Rejected
• Indiana’s Lender Liability Act Once Again Protects Bank From Borrower’s Claims
• ILLA Saves Bank From Alleged Misrepresentation That Loan Was “A Go”

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Part of my practice involves representing parties in loan-related disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. 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.

SCOTUS: Innocent Girlfriend’s Debt Stemming From Boyfriend’s Fraud Held Nondischargeable

Lesson. The Bankruptcy Code’s provisions barring the discharge of a debt can extend to an innocent business partner.

Case cite. Bartenwerfer v. Buckley 143 S. Ct. 665 (2023)

Legal issue. Whether the bar to dischargeability in 11 U. S. C. § 523(a)(2)(A) applies to a debtor found liable for fraud that she did not personally commit.

Vital facts. Boyfriend and Girlfriend jointly bought a house and later decided to remodel it for the purpose of flipping it for a profit. Boyfriend was in charge of the project while Girlfriend “was largely uninvolved.” The couple later sold the house to Buyer following the execution of standard paperwork intended to disclose all material facts about the property. Buyer later discovered several defects and sued the couple in state court. The couple was found to be jointly responsible for about $200,000 in damages. The couple later filed a Chapter 7 bankruptcy action seeking to discharge the debt.

Procedural history. Buyer filed an adversary complaint claiming that the money owed for the judgment was nondischargeable. After a trial, the bankruptcy court found that Boyfriend had knowingly concealed the defects. The court also imputed the fraud to Girlfriend based on the premise that the couple had formed a partnership to flip the property. On appeal, the Court affirmed as to Boyfriend but disagreed as to Girlfriend. The Court instructed the lower court to hold a second trial as to whether Girlfriend “knew or had reason to know” of Boyfriend’s fraud. The lower court concluded that Girlfriend lacked the requisite knowledge and discharged her liability to Buyer. On a second appeal, the Court held that Girlfriend’s debt could not be discharged based on precedent that “a debtor who is liable for her partner’s fraud cannot discharge that debt in bankruptcy, regardless of her own culpability.” That decision was appealed to the Supreme Court of the United States.

Key rule. The Supreme Court sliced and diced 11 U. S. C. § 523(a)(2)(A), which applies to a debtor who was the fraudster and bars the discharge of “any debt … for money … to the extent obtained by … false pretenses, a false representation, or actual fraud.”

Holding. The Court found that section 523(a)(2)(A) “turns on how the money was obtained, not who committed fraud to obtain it.”

Policy/rationale. The Court noted that bankruptcy laws balance the interests of insolvent debtors and their creditors. The Bankruptcy Code “generally allows debtors to discharge all prebankruptcy liabilities, but it makes exceptions when, in Congress’s judgment, the creditor’s interest in recovering a particular debt outweighs the debtor’s interest in a fresh start.” The bar on discharging a monetary debt for money obtained by fraud is “one such exception.” The Court, while seemingly sympathetic to Girlfriend’s position, stuck to the text of the code provision:

[I]nnocent people are sometimes held liable for fraud they did not personally commit, and, if they declare bankruptcy, § 523(a)(2)(A) bars discharge of that debt. So it is for [Girlfriend], and we are sensitive to the hardship she faces. But Congress has evidently concluded that the creditors’ interest in recovering full payment of debts obtained by fraud outweigh[s] the debtors’ interest in a complete fresh start … and it is not our role to second-guess that judgment.

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Part of my practice involves representing parties in a variety of debt collection matters.  If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. 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.

Twin Decisions By The Northern District Of Indiana Speak To Attorney’s Charging Liens

Lesson. Statutory attorney’s charging liens are not valid unless a judgment has been entered. However, a common law equitable lien for the recovery of fees may attach to settlement proceeds paid into court.

Case cites. Browne v. Waldo, 2023 U.S. Dist. LEXIS 30121 (N.D. Ind. 2023) and Lymon v. UAW Local Union #2209, 2023 U.S. Dist. LEXIS 29128 (N.D. Ind. 2023)

Legal issue. Whether alleged statutory or equitable attorney’s liens were valid.

Vital facts. In Browne, an attorney represented a litigant in a case that resulted in a settlement. The terms of the settlement required the funds to be deposited with the court. After apparently not being paid by his client, the attorney filed notices of attorney’s liens on the settlement funds.

Lymon arose out of an attorney’s withdrawal from a pending case. Shortly after withdrawing, the attorney filed a notice of a statutory charging lien with the court intending to give notice of the unpaid fees against any future settlement or judgment in favor of his client.

Procedural history. The Browne dispute surrounded whether the attorney was entitled to be paid out of the settlement funds by virtue of his lien. On the other hand, Lymon focused on the client’s motion to strike a lien filed before the case had been resolved.

Key rules. There is no federal law providing for an attorney’s lien. Indiana state law controls.

Indiana Code § 33-43-4-1 allows an attorney charging lien only "on a judgment rendered." By statute, there cannot be a valid statutory charging lien before judgment is entered in the case.

Our state also has an equitable attorney's charging lien, which “is the equitable right of an attorney to have fees and costs owed to them for services provided in a lawsuit to be secured out of the funds their client recovers in the lawsuit.” This equitable lien may be enforced in the absence of a judgment.

My 6/30/17 post Indiana Attorney Fee Liens In Commercial Cases discusses these rules in the context of a receivership case, and I comment on how they might factor into a commercial foreclosure matter.

Holding. In Browne, the U.S. District Court for the Northern District of Indiana ruled in favor of the attorney and upheld his equitable lien on the settlement funds. In Lymon, the Court struck the lien.

Policy/rationale. The Browne matter did not involve a judgment, so there was no statutory charging lien. That was the basis of the Lymon decision too. The purported lien was “premature.”

However, the Court in Browne found that a valid equitable lien existed on the settlement proceeds that had been deposited into the Court. The policy behind the decision was “based on natural equity—the client should not be allowed to appropriate the whole of the judgment [or recovery] without paying for the services of the attorney who obtained it.”
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Part of my practice involves representing parties in lien-related disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. 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 Is “Constructive Notice” In The Context Of Indiana Real Estate Law?

I’m sometimes asked by clients and new associates about the idea of “constructive notice” in the context of real estate litigation generally and commercial foreclosures specifically. The concept of constructive notice is a recurring theme on my blog. Indeed the doctrine is important to many things in the real estate world, including:

• The enforceability and priority of mortgages
• Lis pendens law
• The bona fide purchaser doctrine
• The enforceability and priority of judgment liens
• Quiet title and deed-related actions
• Title insurance

A recent opinion by the Indiana Court of Appeals discussed the issue, and I thought it might be worthwhile to quote the Court as a reminder of the rule:

A "purchaser of real estate is presumed to have examined the records of such deeds as constitute the chain of title thereto under which he claims, and is charged with notice, actual or constructive, of all facts recited in such records showing encumbrances, or the non-payment of purchase-money." Crown Coin Meter v. Park P, LLC, 934 N.E.2d 142, 147 (Ind. Ct. App. 2010). The recording of an instrument in its proper book is fundamental to the scheme of providing constructive notice through the records. Id. Constructive notice is provided when a valid instrument is properly acknowledged and placed on the record as required by statute. Id.

Gregory v. Koltz 204 N.E.3d 256 (Ind. Ct. App. 2023)

The mention of the “record” in the above quote refers to the index maintained in each county recorder’s office. (I wrote about “chain of title” here.)  In Gregory, the Court found that the recording of a default judgment to quiet title to the subject property “served as constructive notice to the world” and “bound all successors in interest, regardless of whether the successor was a party to the litigation." The judgment was recorded within the chain of title, which is key.

Constructive notice is tantamount to actual notice in the eyes of the law. Stated differently, even if you didn’t know about the recorded interest, you should have.
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I represent parties involved in real estate and loan-related disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. 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.

Avoiding Construction Project Challenges

Today's post is a bit off topic but still has relevance to the commercial foreclosure area.  This is because construction problems can lead to mechanic's liens, which can lead to priority disputes between contractors and lenders/mortgagees.

Here is a PDF of Dinsmore's White Paper entitled:  Show Me the Money (Top-10-Considerations-in-Contract-Pre-Planning) 

My partners Rob Schein and Jim Boyers, and our associate David Patton, did great work preparing the article.

Prior posts on this topic:

• Indiana’s “Lender Exception” Applicable To Leasehold Mortgage In Priority Dispute With Mechanic’s Lien
• Indiana’s Remedy For Mechanic’s Lienholder On Property Subject To Mortgage Foreclosure Action
• Commercial Construction Mortgages Stand Tall Over Later-Recorded Mechanic’s Liens In Indiana
• Blog Post On Priority Of Commercial Construction Mortgages “Affirmed On Appeal”

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I represent lenders, as well as their mortgage loan servicers, entangled in lien priority disputes and contested foreclosures. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. 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.

 

 

     

Orders Enforcing Settlement Agreements Are Not Money Judgments Giving Rise to Interest

Lesson. Foreclosure and commercial collection cases are often resolved through an agreement that includes the payment of money to the lender/creditor. If you, as the plaintiff, want the right to collect interest on the settlement payment(s), then you should articulate that right in the settlement agreement or otherwise file an agreed money judgment as part of the deal.

Case cite. Hair v. Goldsberry, 204 N.E.3d 275 (Ind. Ct. App. 2023)

Legal issue. Whether the payment called for in a settlement included consideration of statutory pre- or post-judgment interest.

Vital facts. Plaintiff Hair sued to foreclose on two judgment liens and named a number of defendants, including a mortgagee, which had an interest in the subject real estate. During the course of the litigation, the courts found that the parties had reached a settlement. The resulting court order was that “[defendants] would pay Hair ‘the settlement amount of $18,000’ and that Hair would release the judgment liens.” (The enforceability of the settlement agreement [an exchange of emails, nothing formal] was the subject of a prior appeal, but I’ll spare you those details.)

Procedural history. During subsequent proceedings, Hair sought an order that the settlement included pre- and post-judgment interest over and above the $18K. The trial court denied Hair’s request. The defendants tendered the $18K to Hair, who refused to release the judgment liens and instead filed an appeal seeking interest.

Key rules. "A settlement agreement is a compromise, the purpose of which is to end a claim or dispute and avoid, forestall, or terminate litigation … [and] Indiana law strongly favors settlement agreements, which are governed by general principles of contract law.”

Holding. The Indiana Court of Appeals affirmed the trial court’s ruling that Hair was not entitled to an award of interest.

Policy/rationale. The Court reasoned that an order to comply with a settlement agreement requiring the payment of money is not a money judgment, but rather an order for “specific performance.” As such, the order did not qualify for interest. Had the settlement agreement included a stipulation for the entry of a money judgment or otherwise provided for the payment of interest upon non-compliance, the outcome could have been different. Here, the settlement agreement “did not provide for any payments of interest whatsoever.”

It is not uncommon for parties to enter into a stipulation for the entry of judgment. But, here, the parties did something different. When the parties reached a settlement, they knew — and we presume they took into account — that interest had accrued on the judgment lien of $7,107 entered in 2010 and the judgment lien of $3,225 entered in 2012. The order, which concluded that the parties had settled their dispute and enforced their settlement agreement, merely acknowledged and ratified the agreement and did not alter its terms.

Hair contended that any order requiring the payment of a sum of money is a “money judgment” giving rise to interest on the amount due. The Court disagreed and concluded that the prior order simply was “that an act be done”:

Here, the court did not find and adjudicate that one party owed money to the other party and did not award a money judgment for one party and against the other party. The court ordered that the contract between the parties, the settlement agreement, an accord and satisfaction to resolve disputed claims, be enforced. This was not a money judgment but a decree in equity for specific performance.

Related posts.

• What Is Indiana's Post-Judgment Interest Rate?
• Indiana Supreme Court’s COVID Order Interpreted: Post-Judgment Interest
• Judgment Requiring Payment Of Sum Certain Through Monthly Installments Until Paid Or “Until Death” Does Not Create Judgment Lien

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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 [email protected]. 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.