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What If A Borrower Ignores A Lender's Foreclosure Suit?

Can a borrower in default simply disregard a lawsuit?  Of course not.  If the plaintiff/lender properly serves the borrower with a Summons and the Complaint, and if the borrower/defendant takes no action, then the borrower will face a "default judgment."  A July 23, 2007 opinion from the U.S. District Court for the Northern District of Indiana in United States of America v. Sheetz, 2007 U.S. Dist. LEXIS 53918 illustrates this. 

Rules.  The procedural rule giving courts the power to enter default judgments is Rule 55.  Click here for the federal rule.  Click here for the Indiana rule.  The rules essentially are the same.  Sheetz is a federal court action and thus applies the federal version of the rule. 

The Sheetz opinion on page 2 outlines the following guidelines utilized by federal courts asked to enter a default judgment:

  1. The entry of default is discretionary - a judgment call by the court.
  2. Factors that will be considered include (a) the amount of money involved, (b) whether there are issues of fact, (c) whether substantial public importance is in question, (d) whether the default is "largely technical", (e) whether the plaintiff has been prejudiced by the delay caused by the defendant and (f) whether the grounds for default are "clearly established or are in doubt." 

(Indiana state courts articulate the guidelines slightly differently, and that case law will be the subject of a future post.)

Liability.  Sheetz was an easy call for Judge Simon.  The defendant borrower had defaulted on a student loan.  The circumstances satisfied each of the factors.  Given the lender's motion and supporting materials, there were no issues of fact, and the grounds were clearly established.  The default went beyond a mere technicality as three months had passed since the defendant was served.  "Defendant cannot be allowed to completely ignore this suit."  Id at 2.  Finally, the money involved was a relatively small figure (under 10k). 

Damages.  A lawsuit usually concerns a determination of two basic things:  liability and damages.  The first question is whether the borrower owes the money.  The second question surrounds the amount of money owed (and, in foreclosure cases, the nature and extent of the lien).  A motion for a default judgment is way to expedite those determinations.  The motion triggers the same two-step analysis. 

Sometimes, a court will grant a default judgment (determine liability) on the pleadings, without a hearing, but later conduct an evidentiary hearing to determine damages.  However, sometimes a court will determine damages immediately and without a hearing.  Sheetz is one of those cases.  At least in federal court, if damages are "capable of ascertainment from definite figures contained in the documentary evidence or in detailed affidavits," then a hearing isn't necessary.  The key is whether the court has the information it needs to calculate damages.  Id. at 3.  The plaintiff/lender in Sheetz (the United States) properly filed an affidavit (sworn written statement) outlining the debt and how the final amount should be calculated based on the loan documents.  Judge Simon saw no reason to hold a hearing, and the plaintiff got its final, enforceable judgment as to both liability and damages quickly and without a court appearance. 

When faced with a borrower ignoring a foreclosure suit, and after you've assured yourself that service of process has been perfected and the appropriate time has passed, you or your counsel should follow Rule 55 and the Sheetz road map to reduce your claim to a judgment quickly and with limited expense.