Indiana’s Lender Liability Act Once Again Protects Bank From Borrower’s Claims

Indiana’s Lender Liability Act (Ind. Code § 26-2-9) saved another secured lender from litigation-related delays and costs.  Indiana Bank and Trust v. Hirsch, 2010 U.S.Dist. LEXIS 18505 (S.D. Ind. 2010) (.pdf) falls in line with my December 31, 2008 post regarding the Classic Cheesecake Company case.  When borrowers try to insert oral terms into written loan agreements, the Act is the lender’s first line of defense.

The problem.  The issue for the lender in Hirsch surrounded an alleged conversation that occurred between the borrower and the lender’s loan officer at the time of the origination of the subject loan.  The two individuals discussed the prospect of later converting the short-term line of credit into a conventional long-term mortgage loan.  The borrower subsequently defaulted on the loan by failing to pay off the line of credit by the maturity date.  In his defense, the borrower asserted that he entered into the loan based upon the loan officer’s promise that the short-term line of credit would later be converted into a long-term loan. 

Procedural posture.  The litigation started with the lender filing a mortgage foreclosure action against the borrower.  The borrower filed counterclaims for breach of contract, fraud and promissory estoppel – all based upon the allegation of an “oral agreement between [borrower] and [loan officer] that [lender] would, at some later time, convert the original line of credit into a long-term mortgage.”  The lender filed a motion to dismiss the counterclaims, together with its own motion for summary judgment.  Judge Barker of the Southern District of Indiana granted all of the lender’s motions. 

Missing link.  The borrower’s counterclaims all centered on the theory that a contract or commitment for long-term financing existed – in essence, that the loan should not have matured.  Significantly, however, there was no writing to support the borrower’s case.  The Court cited to I.C. § 26-2-9-1 and 5 and concluded that “even assuming all of the allegations in the counterclaim to be true, the contract alleged by the [borrower] never actually existed because it failed to meet the requirements of [the Indiana Lender Liability Act].”  The absence of a written, signed agreement was fatal to the borrower’s breach of contract counterclaim.  For similar reasons, the Court granted the lender’s motion to dismiss the borrower’s fraud and promissory estoppel claims.

Secured lenders in Indiana mortgage foreclosure cases, when faced with allegations of alleged oral promises that vary written loan agreements, need to remember that I.C. § 29-2-9 generally requires credit agreements to be in writing and signed.  Hirsch is a favorable decision for lenders, particularly because the Court entered an early dismissal of the borrower’s counterclaims that prevented litigation-related holdups and additional expense. 

Contractual Venue Provisions Enforceable In Indiana

I previously posted that parties can contractually stipulate to jurisdiction in Indiana.  For example, lenders can bring lawsuits against out-of-state guarantors in Indiana, assuming that’s what the guaranty says.  In Sunburst Chemical v. Acorn Distributors, 2010 Ind. App. LEXIS 280 (2010) (.pdf), the Indiana Court of Appeals confirmed that venue also can be dictated by contract.

Venue vs. jurisdiction.  Workout specialists should know the difference between the terms “venue” and “jurisdiction.”  Sunburst Chemical helps with the distinction:  “jurisdiction involves the court’s ability to hear a particular case, whereas venue concerns the proper situs for trial.”  With regard to state-court litigation, “jurisdiction” basically refers to the state, and “venue” refers to the county.  (“Jurisdiction” actually has a more comprehensive meaning.  “Venue,” on the other hand, is a more specific concept and, as noted by Black’s Law Dictionary, means “the particular county . . . in which a court with jurisdiction may hear and determine a case.”) 

Venue.  Ind. Trial Rule 75(A) spells out Indiana’s venue requirements.  The question in Sunburst Chemical was whether a suit to enforce a credit agreement should have been heard in Allen County (the location of the defendant) or Marion County (where the credit agreement’s contractual venue provision stated the case should be).  In a case like Sunburst Chemical, by rule the proper venue would be Allen County – the county of the defendant’s residence.  But in Sunburst Chemical, the credit agreement had a Marion County venue stipulation.  In Indiana, contractual venue provisions are enforceable.  Although the venue provision in Sunburst Chemical was somewhat vague, the Court ultimately concluded that the “agreement established venue in Marion County, and the trial court did not err by denying Sunburst’s motion to transfer venue.” 

Mortgages.  Sunburst Chemical was not a mortgage foreclosure case but rather a suit on a credit agreement for the collection of money.  In cases involving the foreclosure of a mortgage, plaintiffs in Indiana may file suit in the county where the real estate is located.  Ind. Code § 32-30-10-3(a); I.C. § 32-29-7-6(a).  Venue thus focuses, not on the residence of a party, but on the location of the subject real estate. 

Why choose?  Indiana law in this area is favorable to creditors.  Assuming clear language in the contract, an out-of-county resident or company can be forced to defend a suit in a foreign county - usually the county in which the creditor resides or is located.  For plaintiffs/creditors, contractual venue provisions result in the savings of time and expense through the centralization of litigation in one’s own backyard.  And, at least in theory, they may secure some level of “home court advantage.”

IndyStar: Indiana To Join Multistate Foreclosure Probe

As mentioned in my September 30 post, there is a residential/consumer foreclosure process-related controversy developing that has caught fire with politicians and the media.  The Indianapolis Star reports today that the State of Indiana will be looking into the issues.  Here's the story. 

While the problems with affidavit preparation, if true, certainly do not reflect well on the residential mortgage industry, in the end one of the key issues will be whether the facts in those affidavits were true and accurate.  I could be wrong, but none of the media reports (that I've seen, at least) claim that the court-filed affidavits were false.  In other words, the underlying documents and facts still may have supported the loan default and/or the damages claimed.  We'll have to see how that matter unfolds in these governmental probes.