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AP: Indiana Bank Sues Vick Over Business Loan

It's raining and pouring on Michael Vick.  I never imagined blogging about his demise, but this news report from today actually is relevant to the commercial foreclosure area, not to mention interesting on a number of levels.  It would appear Vick received a $2.0 million loan secured by 130 vehicles.  To the extent there are any follow-up stories on this matter, I'll update this post. 

10-1-07 Update:  Here's a .pdf of the Complaint filed in the South Bend division of the USDC for the Northern District of Indiana - .pdf.  Vick is alleged to be a guarantor of borrower Divine Seven, LLC's loan.  Vick also is alleged to be a member of the LLC.  If you're wondering how Vick, apparently a resident of Virginia, can be sued in South Bend, look for my post this week about Indiana jurisdiction over out-of-state guarantors.

The Difference Between An Execution Sale And A Foreclosure Sale In Indiana

In Dempsey v. JP Morgan Chase Bank, 2007 U.S. Dist. LEXIS 58449 (S.D.Ind. 2007) (Dempsey.pdf), which involves litigation that also was the subject of my March 2, 2007 post about writs of assistance, Judge Tinder of the Southern District of Indiana issued another opinion concerning Dempsey’s disputes with his creditors.  Today’s post explains what an execution sale is and also touches upon lis pendens

Dempsey’s ongoing saga.  Many of Dempsey’s problems began when a state court entered a judgment against him and in favor of the Carters.  To satisfy the judgment, the state court ordered an execution sale on real estate owned by Dempsey on which Chase Bank held a mortgage.  At the execution sale, Chase Bank bid the amount of its mortgage and, with no other bids, took title to the property immediately.  This is when Chase obtained a writ of assistance to evict Dempsey and his tenants from the property.  (See, my March 2, 2007 post.) 

Judgment enforcement v. mortgage enforcement.  Dempsey continued to pursue relief associated with the loss of his real estate by asserting claims based upon language in his mortgage agreement.  But, as Judge Tinder observed, the mortgage-based equitable arguments were not applicable to Dempsey’s situation because “this was not a mortgage foreclosure.”  Id. at 6.  Dempsey believed, incorrectly, that the execution sale was like a mortgage foreclosure.  “However, these are distinct procedures in Indiana.”  Id.  For more background, compare I.C. § 32-30-10 “Mortgage Foreclosure Actions” with I.C. § 34-55-6 “Sale of Property on Execution”.  Judge Tinder pointed out perhaps the main distinction between the two types of sales.  “While mortgage foreclosure provides a right of redemption, execution on a judgment does not.”  Id.; I.C. § 32-30-10-11;Ind. Trial Rule 69(A).  In Dempsey, lender Chase Bank was not foreclosing its mortgage on Dempsey’s property.  Rather, Chase was a lien holder bidding at the sale of an asset of Dempsey’s, which sale was designed to satisfy the money judgment held by the Carters.  Judge Tinder rejected Dempsey’s theory that the execution sale should be undone, on page 6 of the opinion:

  There is nothing inherently inequitable about a lien holder
  bidding at an execution sale or, upon buying the property,
  refusing to give back the property to the previous owner
  who lacks a right of redemption.

An aside, lis pendens discussion.  One other point of interest in Judge Tinder’s opinion surrounds the validity of two lis pendens notices Dempsey filed on the property at issue.  Generally, “lis pendens is a way to give notice to the public, and in particular to potential buyers, that litigation is pending which may affect the rights in a piece of property.”  Id. at 12.  Rules applicable to lis pendens are statutory in Indiana, and a link to I.C. § 32-30-11 is permanently placed along the left side of my blog’s home page.  Dempsey had two related state court actions pending that, theoretically, could affect title to the property.  In the federal court case, Chase argued that it was entitled to have the lis pendens notices removed because a determination had been made that Dempsey has no interest in the subject property.  I.C. § 32-30-11-7.  Unfortunately for Chase, Judge Tinder, on a procedural technicality, had to punt the issue to state court for resolution.  Importantly, however, Judge Tinder did offer that “it appears that Dempsey had no right to use lis pendens in the manner that he did . . ..”  Id. at 13.  The Dempsey opinion illustrates that, generally, lis pendens notices are inappropriate encumbrances on title when the party filing the notice has no interest in the property or when litigation that may affect the rights in a piece of property has been concluded.

In sum.  In the unlikely event a commercial lender/mortgagee gets involved in another creditor’s judgment enforcement action seeking to execute on the borrower/mortgagor’s real estate, the lender, not unlike with mortgage foreclosure sale, can bid at the auction and ultimately may be able to acquire title to the property.  Unlike a mortgage foreclosure sale, however, the borrower/mortgagor does not have the right at the last minute to redeem (pay off) the mortgage and retain title to the property.  Certainly that could be negotiated, but the statutes applicable to execution sales do not require it.  Always make sure you are familiar with the rules pertinent to your type of sale.

Jail Time Is Not An Available Remedy In Collection Actions In Indiana

Do you ever get so frustrated with your attempts to collect a guaranteed commercial debt that you wish you could have your guarantor thrown in jail for a failure to pay?  While I understand the frustration, this drastic remedy typically is not available in Indiana.  The Indiana Court of Appeals’ August 8, 2007 opinion in Mitchell v. Mitchell, 2007 Ind. App. LEXIS 1805 (Mitchell.pdf)  reminds us of the applicable legal principles. 

The Court decided Mitchell in the context of a divorce proceeding, specifically a husband’s failure to comply with a dissolution decree requiring him to pay certain marital debts.  The wife sought to hold the husband in contempt for his failure to do so.  Although the opinion does not specifically apply to commercial lenders, some of the rules outlined by the Court are good to know:

1.  The Indiana Constitution, Article 1, Section 22, forbids imprisonment for debt, so contempt may not be used to enforce an order requiring one party to pay another a fixed sum of money.  Id. at 9.

2.  As to a final money judgment requiring a person to pay a fixed sum of money to another party, Indiana Trial Rule 69 contains the correct remedies for non-compliance with the judgment (selling the judgment creditor’s property, proceedings supplemental/garnishment, etc.).

So, a money judgment, such as a judgment on a guaranty, may only be enforced by execution (not the death kind; the seizing and selling of property kind).  As much as commercial lenders may at times want to have evasive guarantors sent to jail until they deal with their debts, this simply is not an option in Indiana.

As an aside, the situation in Mitchell did not involve a money judgment requiring the husband to pay a fixed sum of money to his wife.  Rather, the court order required him to pay, and hold his wife harmless from the payment of, mortgage and credit card debts.  As such, the trial court was not barred from using its contempt powers to enforce compliance with the order.  Thus there may be rare situations in which a lender can utilize the contempt powers of the court, but those powers are not available when the basic problem is a failure to pay money owed.

AP: Beazer Homes Receives Notice of Default on Senior Notes

Admittedly, I haven't worked on a $1.38 billion commercial foreclosure case.  (I suspect not many Indiana lawyers have.)  Click here for the AP story.  I hope someday to be involved in some capacity with a case so large and complex.  One of the interesting things about the Beazer matter is that, apparently, the default may not relate to non-payment, which triggers foreclosure in the vast majority of cases.  The Beazer story illustrates that there can be a multitude of circumstances that give lenders the right to accelerate and foreclose on loan collateral.   

TIME: The Boom In Foreclosure Investing

This article from Time magazine's website is slightly off topic for my blog, but interesting nonetheless.  The procedures and principles outlined in the story apply with equal vigor to commercial properties, and I know there are investors who use similar business models to flip commercial real estate.  Of course, the commercial property inventory is no where near as high as the residential properties routinely set for sheriff's sales.

The Indianapolis Star ran a similar story on Sunday the 9th:  click here for the Indiana-related article "Fruits of Foreclosure."