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Loan Servicers As Plaintiffs In Foreclosure Cases

Lesson.  Mortgage loan servicers can, in certain circumstances, prosecute foreclosure actions on behalf of lenders/mortgagees. 

Case cite.  Turner v. Nationstar, 45 N.E.3d 1257 (Ind. Ct. App. 2015).

Legal issue.  How can a servicer of a mortgage loan, instead of the lender itself, be the plaintiff in a foreclosure case?

Vital facts.  Nationstar sued Borrowers to foreclose a mortgage.  The parties entered into a settlement agreement that the Borrowers later breached.  Nationstar filed a motion to enforce the settlement agreement and sought to proceed with the foreclosure.  During the proceedings, facts surfaced that JPMorgan Chase Bank as Trustee for CHEC 2004-C (Chase) was the actual owner of the loan and that Chase had hired Nationstar to service the loan.  The Turner opinion is not altogether clear as to whether Nationstar or Chase actually possessed the original promissory note (endorsed in blank), other than to make an inference that, for purposes of its servicing, Nationstar probably held it.  There was proof that Nationstar’s servicing obligations obligated it to, among other things, handle foreclosure proceedings. 

Procedural history.  Borrowers filed a motion to dismiss Nationstar’s complaint because it was not prosecuted in the name of the owner of the loan (Chase).  In other words, Borrowers contended that Chase should have been the plaintiff.  The trial court denied the motion and granted foreclosure.  Borrowers appealed.

Key rules.  Indiana Trial Rule 17(A) deals with who is the “real party in interest,” and every action must be prosecuted by such party.  T.R.17(A)(1) suggests that in certain instances a party can sue for the benefit of another after “stating his relationship and the capacity in which he sues.”   

Indiana’s UCC at Ind. Code 26-1-3.1-301 outlines persons “entitled to enforce” a promissory note that include the “holder” of the note.  I.C. 26-1-1-201(2)(a) defines “holder” of a note, which can be a person in possession of the note if the note is endorsed in blank. 

Holding.  The Indiana Court of Appeals affirmed the trial court’s denial of Borrowers’ motion to dismiss and affirmed the decision to foreclose. 

Policy/rationale.  Borrowers argued that, under Rule 17(A)(1), Nationstar was required to disclose (plead) its relationship to Chase and the capacity in which it was suing.  The Court disagreed.  Although Chase owned the note, Nationstar was its holder and, by statute, had the right to enforce it.  It followed that Nationstar was a real party in interest.  Furthermore, as to the settlement agreement, the Court pointed out that, as servicer, Nationstar’s role was to negotiate such agreements and that Chase was not a necessary party to any such negotiations.  In the end, although the evidence seemed shaky as to whether Nationstar actually possessed the original promissory note, as a practical matter the Court had enough facts upon which to base its decision that Nationstar was a proper party to enforce the settlement agreement and take the matter through foreclosure. 

(The opinion did not address in any way whether Nationstar or Chase held the underlying mortgage.  In other words, Turner was silent on what assignment(s) of mortgage had been recorded.  As such, I think this case may be unique with regard to traditional standing issues given that the context was the enforcement of a settlement agreement as opposed to a straight foreclosure action.)      

Related posts. 

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Part of my practice is to defend lenders and their servicers in contested foreclosures and consumer finance litigation.  If you need assistance with such matters in Indiana, please call me at 317-639-6151 or email me at john.waller@woodenmclaughlin.com.  Also, you can receive my blog posts on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


PHH v. Consumer Financial Protection Bureau: Opinion

Last Tuesday the 11th, the United States Court of Appeals for the District of Columbia Circuit issued its 110-page opinion in PHH v. Consumer Financial Protection Bureau.  If you'd like to read the entire decision, here it is.

This is all over the news. Essentially, the Court held that the structure of the CFPB is unconstitutional.  Big news.  I won't post the news articles here because a separate Google search will provide you with plenty to read.  But, as one example, here is what George Will, one of my favorite columnists, wrote about the result:   Congress insists on making itself irrelevant

The CFPB really has no involvement with commercial foreclosure issues.  It does, however, have a great impact on residential/consumer mortgage lenders and their servicers, which our firm represents in a variety of matters here in Indiana. 


An “In Rem” Judgment Limits Collection To The Mortgaged Property

Lesson.  Borrowers are not personally liable for any deficiency resulting from the entry of an in rem judgment. 

Case cite.  Elliott v. Dyck O’Neal, Inc., 46 N.E.3d 448 (Ind. Ct. App. 2015).

Legal issue.  Were defendant borrowers entitled to a refund of monthly garnishment payments they made in connection with proceedings supplemental following an in rem judgment?

Vital facts.  The Elliotts defaulted under their mortgage loan with Fifth Third Bank, which obtained a judgment and decree of foreclosure.  The proposed order Fifth Third Bank tendered to the trial court spelled out an in rem (against the property) judgment, as opposed to an in personam (against the person) judgment.  The trial court signed off on the proposed order.  This meant that the judgment was against the Elliotts’ real estate but not the Elliotts individually.  After the sheriff’s sale, there was a deficiency remaining from the judgment amount.  Fifth Third Bank later assigned its interest in the judgment to O’Neal, which initiated proceedings supplemental against the Elliotts to collect the deficiency.  The Elliotts, who were without counsel initially, agreed to pay $50/month as part of a garnishment order.  Four years later, the Elliotts, with counsel, moved for a refund of the money they paid due to the fact that the judgment was in rem only.  O’Neal responded by claiming that the in rem limitation on the original judgment was a clerical error. 

Procedural history.  The trial court denied the Elliotts’ motion for refund, and the Elliotts appealed.  

Key rules.  Mortgage foreclosure cases are “essentially equitable” actions to enforce a lien against property to satisfy a debt.  Generally, trial courts have discretion to fashion equitable remedies that are “complete and fair to all parties involved.”   

Holding.  The Indiana Court of Appeals reversed the trial court and held that the Elliotts were entitled to the equitable relief of a refund, plus interest, of the payments they made due to the lack of an in personam judgment in the original foreclosure order. 

Policy/rationale.  There was no dispute that the foreclosure order did not entitle O’Neal to collect a personal judgment from the Elliotts.  The Court was not persuaded by O’Neal’s position that the language in the judgment was a mistake.  The Court granted the Elliotts a refund “given the unique and specific facts of this case and because equity so demands.”  The money they paid was pursuant to an improper garnishment order based on an in rem judgment.  The case involved “significant equitable considerations” that included the fact that the Elliotts were unrepresented at the time.  (For more on the Court’s rationale, review the opinion, which also addressed O’Neal’s unsuccessful effort to amend the judgment.) 

Related posts. 

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Part of my practice is to defend lenders and their servicers in contested foreclosures and consumer finance litigation.  If you need assistance with such matters in Indiana, please call me at 317-639-6151 or email me at john.waller@woodenmclaughlin.com.  Also, you can receive my blog posts on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


Plaintiff/Judgment Creditor Gets Cart Before Horse In Indiana Garnishment Effort

Lesson.  Wolberg offers a great summary of some of the hoops a judgment creditor must go through before garnishing bank accounts of a judgment debtor.  Most importantly, garnishment is not a stand-alone proceeding but must occur within the context of a motion for proceedings supplemental, which motion must be filed before, or at the time of, a garnishment motion.     

Case cite.  Wolberg v. Stamer, 2015 U.S. Dist. LEXIS 153516 (N.D. Ind. 2015) (.pdf).

Legal issue.  Whether successful plaintiffs can immediately garnish bank accounts post-judgment.  

Vital facts.  Plaintiff held a judgment in the amount of $262,383.50 and sought the garnishment of bank accounts possibly held by Defendant at nine banks.  Plaintiff did not first file a motion for proceedings supplemental. 

Procedural history.  The Wolberg opinion was a U.S. Magistrate Judge’s decision on Plaintiff’s “motion for writs of garnishment.” 

Key rules.  Federal Rule of Civil Procedure 69(a) governed Plaintiff’s motion and, in pertinent part, states: 

A money judgment is enforced by a writ of execution, unless the court directs otherwise. The procedure on execution—and in proceedings supplementary to and in aid of judgment or execution—must accord with the procedure of the state where the court is located, but a federal statute governs to the extent it applies.

Since this was an Indiana case, “proceedings supplemental are generally required before the Court issues a garnishment order.” 

Indiana Trial Rule 69(E) controlled the proceedings supplemental, including garnishment generally.  The rule, as applicable in Wolberg, requires, among other things, a verified motion alleging: 

that [the] garnishee has or will have specified or unspecified nonexempt property of, or an obligation owing to, the judgment debtor subject to execution or proceedings supplemental to execution, and that the garnishee be ordered to appear and answer concerning the same or answer interrogatories submitted with the motion.

Garnishment “is a means … to reach property … of a [defendant] which are in the hands of a third person so that they may be applied in favor of the judgment.” 

As to bank accounts, Ind. Code 28-9-3-4(d) outlines what a plaintiff needs to establish in order to garnish. 

Holding.  The Court in Wolberg denied Plaintiff’s motion for the following reasons:  (1) Plaintiff  did not file a motion for proceedings supplemental, (2) the motion for garnishment was not verified, (3) Plaintiff did not allege that he had no cause to believe that levy of execution would satisfy the judgment, (4) as to the nine garnishee banks, Plaintiff alleged they “may hold” bank accounts for Defendant instead of first alleging that Defendant “had or will have” nonexempt property subject to execution and (5) Plaintiff did not represent to the Court his compliance with Ind. Code 28-9-3-4(d).  

Policy/rationale.  Courts usually aren’t going to let plaintiff/judgment creditors circumvent the applicable trial rules and statutes.  T’s must be crossed, and I’s must be dotted.  The Court granted Plaintiff leave to re-file papers in order to achieve his objective.  So, Plaintiff got a do-over, but the judgment debtor will be given the appropriate notice and opportunity to be heard.

Related posts. 

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I frequently counsel both plaintiffs and defendants in connection with judgment collection matters.  My colleagues and I also pursue proceedings supplemental, including the garnishment of bank accounts, for judgment creditors.  If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenmclaughlin.com.  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.