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Media Reports: It's "Game Over" For Premier Properties - Is Chris White Next?

As my regular readers are aware, I've been following the fascinating story of the fall of Indianapolis-based real estate developer Premier Properties USA since the Indianapolis Business Journal first started covering it earlier this year.  Today - May 30 - as noted below is a significant day.  I will continue to update this post, and I ask you to email me links to other media reports, which I'll post here.  A friend and business associate of mine mentioned yesterday that someone should write a book about the rise and fall of Chris White's real estate empire.  I wish I had the time ... perhaps a local journalist will do it some day.

March 10:    Click here for an article about the continued financial struggles of local real estate developer Premier Properties and its owner, Chris White.  Embedded in the article are links to two prior stories regarding the matter.

Bridgewater Falls put in receivership - story from March 11.

April 7 update from IBJclick here .  Mr. White is keeping many lender workout departments and creditor's rights lawyers busy (including me, by the way). 

April 9's breaking news:  click here for latest IBJ story.

April 10 story from The Indianapolis Starclick here.

April 12 article on front page of StarLawsuits show free-spending CEO in grip of soaring debt.

April 17, post-auction to mezz lender Dominion reports:  IBJ and Star.

April 24, post-bankruptcy (Chapter 11) filing by Premier Properties:  IBJ and Star.  It does not appear Mr. White, personally, has filed for bankruptcy protection to this point.  Click - .pdf - for a copy of the April 23 bankruptcy petition in Case No. 08-04607-BHL-11.

April 25, IBJ: Emergency hearing scheduled in bankruptcy court.

April 26, IBJ:  Criminal charges possible in Premier blowup - Bankruptcy puts slew of creditors' lawsuits on hold

May 7, Star:  Judge orders "exam" of Premier books

May 12, IBJ:  Trustee to intervene in Premier bankruptcy

May 15, Star:  Colts want Premier Properties decision on stadium suite - looks like there will be another suite available for the new Lucas Oil Stadium....

May 19, IBJ:  DeBartolo to buy Premier Properties' Metropolis from Dominion Capital 

May 28, Star:  Metropolis may have a buyer.

May 29Star columnist John Ketzenberger's two cents:  Defaulted debt by Premier goes on and on.

May 30:  The fat lady is singing:  (1) StarPremier Properties throws in the towel - (2) IBJPremier Properties to be liquidated

I've heard rumors that a personal filing by Chris White is on the horizon - a Chapter 7 liquidation.  My contact's opinion is that we'll see a bankruptcy petition in two weeks.  I'll keep you posted on any such developments. 

June 2, IBJ:  Boberschmidt appointed Premier trustee.

June 11, IBJ:  Trustee working to determine Premier assets.

June 16, IBJ:  Chris White charged with three felonies.  Star:  Developer charged with check fraud, $100,00 theft.

June 18, Star:  Arrest warrant issued on June 17.

June 23, IBJ:  Authorities can't find Premier's White.  Star:  Premier Properties founder hasn't reported to jail yet .

June 26, IBJ:  White taken into custody, posts bond.  Star:  Mall developer booked on fraud charges

July 24, Star:  As noted several days ago by a reader in the Comments, the Assets of Premier Founder to be Auctioned .

Nat City Calls Loan On Frank E. Irish Co.

From today's Indianapolis Star:  Prices were pinching Frank E. Irish Co. when loan was called.

From yesterday's IBJ.comStadium contractor ends operations.

As to the credit issue, here's a telling quote: 

Irish Chief Executive Officer Patrick Dooley said the company was working to extend its line of credit with National City when the bank changed some calculations associated with the loan that eliminated the types of inventory that could be used for collateral.

It would be interesting to hear Nat City's side of the story and to learn more about the collateral calculations.  Evidently, Nat City's reps wouldn't comment.

May 22 Ketzenberger column:  Star columnist John Ketzenberger provides further insight into the Irish default and blames, in part, the subprime lending crisis:  "[Mr. Irish] won't be the last business owner to cry as the subprime lending debacle reverberates through the economy."  Click, Bank's woes put end to Irish's luck.  I'm not sure how much the lender is to blame, but it's a sad story nonetheless.

May 25 Star editor Dennis Ryerson, on the Ketzenberger column:  More to story behind the Irish Co. story.  Ryerson quotes a Nat City rep, who appears to question Ketzenberger's theory that the subprime lending crisis caused the bank to call Irish's loan. 


In other news, today's Cincinnati Enquirer is reporting that one of the city's downtown hotels - The Hyatt Regency Cincinnati - is headed for a receivership:  Lender seeking foreclosure on downtown hotel.  Midland Loan Services is the plaintiff in the suit. 

Indiana Foreclosure Sale Terminates The Right Of Redemption

Recently, an out-of-state client asked whether the defendant borrower, in an Indiana commercial foreclosure case we're handling, will have the right to redeem the mortgage after the sheriff's sale.  The client was pleased to learn that, even though some states may permit redemption post-sale, Indiana is not one of them. 

Indiana redemption rights.  Indiana does provide a pre-sale right of redemption.  Please see my February 1, 2008 post for details.

Mortgages.  Ind. Code 32-29-7-13 states:  "There may not be a redemption from the foreclosure of a mortgage executed after June 30, 1931, on real estate except as provided in this chapter."  Thus the general statutory rule is that there is no right of redemption.  (My 2-1-08 post addresses the "before the sale" statutory exception, Ind. Code 32-29-7-7.)  Well-settled Indiana case law provides that "a foreclosure sale cuts off a mortgagor's rights of redemption."  Patterson v. Grace, 661 N.E.2d 580, 585 (Ind. Ct. App. 1996); Overmyer v. Meeker, 661 N.E.2d 1271, 1275 (Ind. Ct. App. 1996); Vanjani v. Federal Land Bank of Louisville, 451 N.E.2d 667, 672, n.1 (Ind. Ct. App. 1983).

UCC Security Interests.  Similarly, Indiana's UCC, at Ind. Code 26-1-9.1-623, also covered in my prior post, calls for redemption rights to be terminated upon disposition of the collateral.  The "Official Comment" to the section states that "the debtor or another secured party may redeem collateral as long as the secured party has not collected, disposed of or contracted for the disposition of, or accepted the collateral."  The "Indiana Comment" states that Section 623 "recognizes the right of the debtor and other secured parties to redeem any time after default before disposal of the collateral or rescission under Section 502(2), unless otherwise agreed in writing after default."

When the fat lady sings.  Lenders enforcing mortgage liens or security interests in Indiana can rest assured that, once there is a sheriff's sale or a disposition of personal property collateral, the borrower's/debtor's right of redemption is terminated.  The borrower/debtor no longer owns the property, and no longer has any rights in or to the property.  If warranted, deficiency collection, among other things, can commence.

Indiana Mortgage Foreclosure Sales: Buyers Beware

Do junior lenders/mortgagees need to disclose, in the statutory notice of sheriff’s sale, that the real estate is being sold subject to a senior mortgage?  On April 22, 2008, the Indiana Court of Appeals in Indi Investments v. Credit Union 1, 2008 Ind. App. LEXIS 793 (Ind. Ct. App. 2008) said no (Indi.pdf).  Indiana law generally places the onus on buyers at sheriff’s sales to bid with their eyes wide open. 

Those involved.  Indi Investments, LLC purchased the property at a sheriff’s sale following a mortgage foreclosure action brought by Credit Union 1, which held a second mortgage.  Waterfield Mortgage held the first mortgage on the property but did not foreclose.

Procedural background.  Indi filed suit to foreclose its second mortgage and ultimately obtained a judgment, which ordered a sheriff’s sale of the property subject to Waterfield’s first mortgage.  Indi purchased the property and obtained a sheriff’s deed that Indi recorded on August 18, 2006.  Despite the fact that the sheriff’s deed contained language indicating the property had been acquired subject to Westfield’s mortgage, it was not until June, 2007 that Indi filed a petition to set aside the sheriff’s sale.  Indi generally claimed it didn’t know about Waterfield’s mortgage and wanted to unwind the sale.  The trial court and the Court of Appeals refused to set aside the sale, however. 

Ignorance is not bliss.  Indi asserted a number of arguments, all of which centered on its claim that it lacked knowledge of the Waterfield mortgage when it purchased the property.  Indiana requires the publication of a notice of sale in advance of sheriff’s sales.  In this case, the notice did not mention Waterfield or its senior mortgage.  At the sale itself, nothing was disclosed with regard to the Waterfield mortgage.  Although the language in the sheriff’s deed identified the Waterfield mortgage, Indi claimed that it “was not immediately aware of the content of the Sheriff’s Deed or the legal impact of the statement.”  The Waterfield mortgage, however, had been properly recorded and was in title.  What's more, the trial court’s judgment stated that the property was to be sold subject to Waterfield’s interests.  In other words, there were at least two places for Indi to have discovered, pre-sale, that Waterfield held a mortgage on the property:  the county recorder’s office and the trial court.

Technical arguments rejected.  Should Credit Union 1 have disclosed in the notice of sale that the property was being sold subject to the Waterfield mortgage?  No.  Ind. Code § 32-29-7-3 governs notices of mortgage foreclosure sales and does not require the notice to contain information concerning senior mortgages.  Did the judgment mandate that information related to Waterfield’s mortgage be included in the notice?  No.  The judgment only required the property to be sold subject to the mortgage and did not require any such language in the notice of sale.  Should the sale have been set aside because Indi was unaware of the Waterfield mortgage?  Not in this case.  Generally, there is no warranty in judicial sales in Indiana.  The doctrine of caveat emptor (buyer beware) applies “with all its force” to sales made by virtue of an execution.

Indi not a bona fide purchaser.  Indiana has an exception to the caveat emptor rule, however.  Indiana cases have held that buyers in good faith and without notice are protected as bona fide purchasers for valuable consideration against prior equities and unrecorded deeds.  Indiana defines a “bona fide purchaser” as “one who is given value and acted in good faith without actual or constructive notice.”  Constructive notice is provided when a mortgage is properly acknowledged and placed in the record as required by statute.  Actual notice is when notice has been directly and personally given to the person to be notified, and actual notice may be implied or inferred “from the fact that the person charged had means of obtaining knowledge which he did not use.”  The Court of Appeals concluded that Indi had the means of obtaining information regarding the Waterfield mortgage.  First, it could have performed a title search.  Second, it could have reviewed the trial court’s file.  Indi evidently did neither.  As such, “Indi Investments is charged with actual notice of the Waterfield mortgage and, consequently, is not a bona fide purchaser.” 

Lender protected.  While it may not be feasible or cost effective for a third party to order a title insurance policy commitment before bidding at a sheriff’s sale, a title search would have informed Indi of the Waterfield mortgage.  An easier and cheaper method for Indi to protect itself would have been to visit the court and review the judgment.  By doing neither, Indi assumed the risk of acquiring the property subject to any liens that were not wiped out in the foreclosure action.  Junior mortgagees that struggle with the decision of whether to publicize, in the notice of sheriff’s sale, that the property is being sold subject to a senior mortgage can take comfort in the Indi decision.  The Court of Appeals, based largely upon I.C. § 32-29-7-3, confirms that such notice need not be given.  Lenders generally are protected by the procedures applicable to this scenario.  Sheriff’s sale buyers are not.