Sheriff's Sale Surplus Goes To Owner/Borrower

My news feed this week produced this article from Fox59:  Surplus Funds After Foreclosure: Key Facts and Recovery Options for Homeowners.  The article is not state-specific, so I thought I'd build on the piece by commenting on Indiana law.

In the event an Indiana sheriff's sale produces surplus (excess) proceeds (money), by statute those funds belong to the owner.  Indiana Code 32-30-10-14 "Application of proceeds of sale; disposition of excess proceeds" provides:

the surplus must be paid to the clerk of the court to be transferred, as the court directs, to the mortgage debtor, mortgage debtor's heirs, or other persons assigned by the mortgage debtor.

For more on this subject, click on my prior post:  Statutory Disposition of Foreclosure Sale Proceeds.

While we're on this topic, the result in an Indiana tax sale, albeit a much more complex process than a foreclosure sale, essentially is the same.  See:  Indiana Code 6-1.1-24.7(c).   

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Part of my practice involves representing parties at sheriff’s sales. 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.

Affidavit From Subservicer Employee Passes Hearsay Test For Original Lender’s Records

Lesson. Loan records created by the originating lender can be admissible in an assignee lender’s lawsuit.

Case cite. King v. Nat'l Collegiate Student Loan Tr. 2006-4 232 N.E.3d 646 (Ind. Ct. App. 2024)

Legal issue. Whether Lender’s designated loan records, some of which were created by the prior holder or servicer of the loan, constituted admissible evidence.

Vital facts. JPMorgan Chase Bank (Chase) was the original lender of several loans, but later pooled and sold the loans to National Collegiate Funding, LLC, which in turn sold the loans to five National Collegiate Student Loan Trusts (collectively, Lender). Lender, the plaintiff in the suit, claimed Borrower defaulted on the loans and, accordingly, sought summary judgment.

Lender tendered an affidavit of an employee of the subservicer of the loans (Subservicer), which affidavit was the vehicle for Lender to prove up the loan documents, payment history and default. Notably, some of the records attached to the affidavit were not created by Lender or Subservicer, but by prior parties. Lender obtained the evidence upon acquisition.

The opinion in King articulated the supporting affidavit’s key testimony:

• The prior servicer of the loan was American Education Services ("AES"), which “began servicing the [Loans] upon the first disbursement and continued to service the [Loans] until [the debt] was charged-off."
• "Upon charge-off, the loan records were transmitted to and incorporated within the records of [Subservicer] as part of its regularly-conducted business practice," and [Subservicer] "began servicing the [Loans]." Further, it was "[Subservicer]’s regularly-conducted business practice to incorporate prior servicers' loan records into the system of record it maintains on [Lender's] behalf when [Subservicer] assumes [the] role of [s]ubservicer.”
• With respect to how AES created and maintained the loan records, the witness "‘ha[d] access to’—and "’training and experience using’—‘the system of record utilized by [AES] . . . to enter, maintain[,] and access the loan records during its role as servicer,’ and that he was ‘familiar with the transaction codes reflected in [AES] records.’"
• Regarding the way in which [Subservicer] obtained those records, the witness was "familiar with the process by which [Subservicer] receives access to loan records from [the] prior servicers and incorporates those records into [Subservicer] system of record." Moreover, the affidavit provided language that "the loan records were transmitted to and incorporated within the records of [Subservicer] as part of its regularly-conducted business practice" when it began servicing the Loans.The affidavit further stated that [Subservicer] "regularly relies upon these integrated loan records in performance of its services on behalf of [Lender]."

Although she could have, Borrower did not depose the affiant to vet, for instance, whether he had personal knowledge of the third-party recordkeeping.

Procedural history. The trial court granted Lender’s motion for summary judgment, and Borrower appealed on the basis that the affidavit did not lay the proper foundation for the business records and, as a result, the evidence should have been excluded as inadmissible hearsay.

Key Rules. Trial Rule 56(E) and Indiana Rules of Evidence 602 generally address admissibility and personal knowledge requirements, and IRE 802 is Indiana’s fundamental hearsay rule. IRE 803(6) is the business records exception to the hearsay rule. Those are the basics.

Borrower relied on Holmes v. Nat’l Collegiate Student Loan Tr., 94 N.E.3d 722 (Ind. Ct. App. 2018), about which I wrote here – Lender’s Summary Judgment Affidavit Flawed - Business Records Inadmissible – that held the lender did not sufficiently lay the foundation for the business records exception. The Court ruled that this case’s affidavit was sufficient, however, and relied on a subsequent, distinguishing opinion in Smith v. Nat’l Collegiate Student Loan Tr., 153 N.E.3d 222 (Ind. Ct. App. 2020). The King opinion thoroughly compares and contrasts the technical principles in the Holmes and Smith cases.

Holding. The Indiana Court of Appeals affirmed the trial court’s summary judgment.

Policy/rationale. Borrower’s attack centered on the witness’s lack of personal knowledge of the record keeping practices of the originator of the Loans. The Court’s opinion, which provides a road map for admissibility in such cases, provided:

[T]he Affidavit—like the affidavit in Smith—demonstrated, from a source and circumstances that did not indicate a lack of trustworthiness, that the loan records were ‘created, compiled[,] or recorded from information transmitted by a person with personal knowledge of such event who had a business duty to accurately report it, from information transmitted by a person with personal knowledge of such event’; and that "‘[s]uch records [were] created, kept, maintained, accessed[,] and relied upon in the course of ordinary and regularly conducted business activity.’ And this testimony maps onto the foundational requirements of Evidence Rule 803(6).

Related post.  Another Indiana Court Of Appeals Opinion Regarding Admissibility Of Lender’s Loan and Business Records
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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 X, @JohnDWaller, or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

In Indiana, Is “Piercing The Corporate Veil” An Independent Cause Of Action?

[Personal and professional commitments have prevented me from posting this past month. Rest assured that I and my beloved blog are alive and well. I wish you and your families a Happy Thanksgiving, and I appreciate you visiting this site, which turned 18 on November 1st.]   

Lesson. Piercing the corporate veil is an equitable remedy rather than an independent claim.

Case cite. Elpers Bros. Constr. & Supply Inc. v. Smith 230 N.E.3d 920 (Ind. Ct. App. 2024)

Legal issue. Whether the plaintiffs could proceed against the defendant purely to pierce the corporate veil without an underlying, independent cause of action against that defendant.

Vital facts. Husband and wife (Plaintiffs) sued a group of contractors (Builders) and a homeowners’ association (HOA) in a dispute related to the design and construction of a subdivision’s drainage system. The technical, construction-related facts, which are dense, are immaterial to this post. What matters is that Plaintiffs based one of the theories in their complaint on the idea that the HOA merely was operating as the Builders’ “alter ego,” such that Plaintiffs could “pierce the HOA's corporate veil.” Although not explicitly stated in the Court’s opinion, it seems that the goal of the Plaintiffs’ veil piercing theory was to hold the HOA liable for the damages caused by the Builders.

Procedural history. In connection with the HOA’s motion for summary judgment, the trial court essentially concluded that there were fact questions surrounding whether the HOA was the alter ego of the Builders such that the veil piercing theory must proceed to trial. The HOA appealed.

Key rules. The Court in Elpers Bros. identified the following common law rules:

• The corporate alter ego doctrine is a device by which a plaintiff attempts to demonstrate that two corporations are so closely connected that the plaintiff should be able to sue one for the actions of the other.
• A court "pierces the corporate veil" to furnish a means for a [plaintiff] to reach a second corporation … upon a claim that otherwise would have existed only against the first corporation.
• Courts will not provide the protection of limited liability to an entity "that is a mere instrumentality of another and engages in misconduct in the function or use of the corporate form."
• Courts invoke the equitable doctrine of piercing the corporate veil to "protect innocent third parties from fraud or injustice."

As it pertained to the theory in Elpers Bros., the Court proclaimed:

Although our courts have not had occasion to specifically address whether piercing the corporate veil under an alter ego theory constitutes an independent claim for substantive relief, the jurisdictions that have addressed this issue have determined that piercing the veil is not a theory of liability. Rather, such is a remedy and a means of imposing liability on an underlying cause of action like a tort or breach of contract. We adhere to that determination and conclude that piercing the corporate veil is an equitable remedy rather than an independent cause of action.

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

Policy/rationale.  The trial court granted summary judgment in favor of the HOA on Plaintiffs’ independent causes of action for breach of contract and negligence but denied summary judgment on the veil piercing issue. The Indiana Court of Appeals held that, because of the trial court’s dismissal of Plaintiffs’ contract and negligence claims, so too must the veil piercing theory. “Inasmuch as the alter ego theory is not an independent cause of action, the remedy of piercing the corporate veil would be futile, and the HOA must necessarily be dismissed as a named party.” Although not directly expressed in its opinion, it appears that the Court essentially followed the principle that veil-piercing is a post-judgment collection tool, not a pre-judgment cause of action. Stated differently, Plaintiffs prematurely sought a remedy against the HOA without first obtaining a judgment against the Builders.

Related posts.

• Indiana Claims To Pierce The Corporate Veil Should Be Post-Judgment
• Veil-Piercing Claim Better Left For Proceedings Supplemental
• Collecting From Related Companies - The Two Prongs Of Indiana’s Alter Ego Doctrine

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Part of my practice involves representing parties in commercial collection 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 Does “Accord and Satisfaction” Mean In The Context Of Cashing A Borrower’s Check?

Lesson. Even when a check is cashed and that check contains a notation that cashing it shall be considered “settlement in full” of a disputed debt, accord and satisfaction is not automatic.

Case cite. Mayes v. Goldman Sachs Bank USA, 232 N.E.3d 1164 (Ind. Ct. App. 2024)

Legal issue. Did Borrower satisfy Ind. Code § 26-1-3.1-311’s requirements for an accord and satisfaction?

Vital facts. Borrower and Lender entered into an installment loan agreement. Among other provisions, the loan agreement provided that Lender “may process a … partial payment or a payment marked with any restrictive language” and that, by processing such payment, such action “will have no effect on [Lender’s] rights and the restrictive language will have no force or effect.” Following a default, Lender issued Borrower a demand letter for the amount due ($9,235). In response, Borrower sent Lender a $200 check in a letter stating that cashing the check would be “considered settlement in full” of the outstanding balance. The memo on the check also referenced “settlement.” Lender cashed the check.

Procedural history. Lender sued for the entire balance due, and Borrower asserted counterclaims and defenses surrounding the notion that the disputed debt had been settled by virtue of the check being cashed. The trial court granted Lender’s summary judgment motion, and Borrower appealed.

Key rules. The Court noted that “accord” means “an express contract between two parties by means of which the parties agree to settle some dispute on terms other than those originally contemplated.” The term “satisfaction,” in turn, “donates performance of the contract.”

Ind. Code § 26-1-3.1-311 applies when one attempts an accord and satisfaction by tender of a negotiable instrument (i.e. a check):

if a person against whom a claim is asserted proves:

(1) that person in good faith tendered an instrument to the claimant as full satisfaction of the claim;
(2) the amount of the claim was unliquidated or subject to a bona fide dispute; and
(3) the claimant obtained payment of the instrument

then the claim is discharged "if the person against whom the claim is asserted proves that the instrument or an accompanying written communication contained a conspicuous statement to the effect that the instrument was tendered as full satisfaction of the claim."

Holding. Borrower asserted the defense of “accord and satisfaction” under Section 311. The Court rejected it. While the check and letter did contain a “conspicuous statement,” the Court rejected the idea that $200 to settle a $9,235 debt was “good faith.” Even if it were, Borrower failed to prove that the amount was unliquidated (uncertain, and not definite or fixed) or subject to a bona fide dispute. The balance was not unliquidated because Lender established the specific amount due. As for the existence of a bona fide dispute, the mere assertion in a letter that the debt was disputed did not constitute evidence of such dispute. Also important to the Court’s reasoning were the terms of the loan agreement that specifically provided partial or late payments would not affect Lender’s rights.

Related posts.

• Settlement Agreement Between Lender And Guarantors Did Not Release The Contribution Rights Of The Guarantors
• Effectiveness Of A Release In An Indiana Forbearance Agreement

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Part of my practice involves representing parties 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.

Expired Judgment Lien Must Be Renewed Before Foreclosure Can Occur

Lesson. Judgment creditor must obtain an order to renew an expired judgment lien before trying to execute on that lien.

Case cite. Chitwood v. Guadagnoli, 230 N.E.3d 932 (Ind. Ct. App. 2024)

Legal issue. Whether summary judgment for Plaintiff in lien foreclosure action was erroneous because the 10-year lien had expired.

Vital facts. Plaintiff obtained a money judgment via default on 9/21/06. On 10/14/08, Plaintiff filed a separate action to foreclose his judgment lien against Defendant’s real estate. Defendant then filed a Chapter 13 bankruptcy case that stayed the foreclosure action. The BK case later was dismissed due to lack of payments. Many years later, in 2019, Plaintiff filed a motion for summary judgment to foreclose the original judgment lien.

Procedural history. The trial court granted Plaintiff’s motion for summary judgment. Defendant appealed.

Key rules. Indiana Code § 34-55-9-2 provides that all final judgments for the recovery of money constitute a lien on the judgment debtor’s real estate in the county until the expiration of ten years.

The Court in Chitwood stated: “While a judgment may be renewed before the expiration of the lien, we are unaware of any requirement to renew. Rather, it has been noted that ‘[b]ecause of the confusing complexity of execution and proceedings supplemental, and the added uncertainty caused by [long delays], most sophisticated judgment creditors 'renew' their judgments shortly before the expiration of the first (and each successive) decade after judgment.’"

Although the lien expires after ten years, the judgment persists for at least another ten years. See, I.C. § 34-11-2-12 (judgment is considered satisfied after twenty years). That said, the judgment is not “utterly destroyed” after 20 years.

My posts noted below talk about these rules and periods of time in more detail.

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

Policy/rationale. Defendant’s primary argument was that the time to foreclose the judgment lien had expired. “Focusing on Indiana Code § 34-55-9-2, [Defendant asserted] that, since the default judgment was granted on September 21, 2006, and was not renewed within a ten-year period, the judgment expired on September 21, 2016.” The Court essentially agreed, but concluded that the ten-year period effectively was tolled while Defendant was in bankruptcy (until dismissal 7/24/12). This meant that, although the lien did not expire until June 2020, it had in fact expired in this case.

The Court continued: “while the judgment lien has expired, [Plaintiff's] default judgment against [Defendant] has not. And, as the designated evidence does not reflect that [Plaintiff] renewed the judgment prior to the expiration of the judgment lien, he must obtain leave of the trial court in order to execute on the judgment.” Because renewal had not occurred, the Court reversed the summary judgment and remanded for further proceedings.

Related posts.

• Judgment Lien Principles Courtesy Of The Indiana Supreme Court
• Indiana Judgment Lien (10 Years) and Judgment Enforcement (20 Years) Statutes Of Limitation

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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.

Mortgage Lender Entitled To Attorneys’ Fees Despite Not Foreclosing Against Borrower

Lesson. Assuming a default, a defendant lender need not file a claim to enforce its loan against a borrower to recover attorneys’ fees incurred for litigation impacting its mortgage lien.

Case cite. Edgerock Dev. LLC v. C.H. Garmong & Son Inc., 227 N.E.3d 907 (Ind. Ct. App. 2024)

Legal issue. Whether a judicial determination of a default is necessary to trigger a lender’s right to recover attorneys’ fees under the loan documents.

Vital facts. In Edgerock, a mortgage lender for the developer of a commercial project was caught up in a construction dispute, which forced the lender to engage in mechanic’s lien litigation and incur attorneys’ fees to protect its lien priority. The lender did not itself appear to file a claim to enforce its rights against the developer/borrower under the subject loan, however, despite the fact that the loan was in default. The Court’s opinion sets out the controlling attorney fee provisions in the loan documents.

Procedural history. Among other things, on cross-motions for summary judgment, the trial court ruled that certain mechanic’s liens had priority over the mortgage. The trial court also denied the lender’s request for attorney’s fees. Certain parties, including the lender, appealed.

Key rules.

In Indiana, the so-called American rule applies to claims for attorneys’ fees, meaning that “in general, a party must pay his own attorneys' fees absent an agreement between the parties, a statute, or other rule to the contrary."

But, a “contract allowing for recovery of attorneys’ fees is enforceable, if the contract is not contrary to law or public policy." (By the way, a mortgage is a contract.)

The amount of fees, if any, awarded “is left to the sound discretion of the trial court,” but must be supported by the evidence.

Holding. The Indiana Court of Appeals held that the mechanic’s liens were invalid, which rendered the lien priority dispute moot. Further, the Court reversed the trial court’s denial of the lender’s claim for fees.

    Note: The case has been appealed to the Indiana Supreme Court, which accepted transfer on 5/23/24, Case No. 24S-PL-184, meaning that for now the opinion has been vacated. In the event the Supreme Court disturbs to Court of Appeals’ ruling on attorneys’ fees, I will follow-up.

Policy/rationale. The Edgerock opinion explained that the premise of the challenge to the recovery of fees was that the lender did not seek a judicial finding that the borrower had defaulted under the loan. However, the operative language in the relevant loan documents did not require such a judicial determination. Instead, the wording simply indicated that fees were “due and payable immediately following a default.” Since the two loan defaults, one of which was a maturity default, were uncontested, the Court concluded: “pursuant to the terms of the [mortgage], [the lender] adequately demonstrated that [borrower] had defaulted on the parties' agreement, and, as a result, is entitled to attorney's fees pursuant to the express terms of the mortgage agreement.”

Related posts.

• Commercial Construction Mortgages Stand Tall Over Later-Recorded Mechanic’s Liens In Indiana
• Attorney Fee Awards in Indiana
• Another Indiana Decision Concerning Attorney’s Fees In A Foreclosure Action
• Lender’s Recovery Of Attorney’s Fees Related To Collateral Actions Denied

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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.