Borrower’s Claims For Violations of RESPA, TILA, FDCPA, RICO And FPRAM, Together With Claims for Various Torts, Dismissed

Following his unsuccessful defense of a state court foreclosure action, a borrower filed a multi-count complaint in federal court against six defendants. Mains v. Citibank, et. al., 2016 U.S. Dist. LEXIS 43874 (S.D. Ind. 2016) (.pdf) is a 34-page opinion by Judge Barker in which she methodically explains why all the counts against all the defendants must be dismissed with prejudice based upon the Rooker-Feldman doctrine.

“At the core” of the borrower’s case, he alleged that the defendants, which included lenders and law firms, (1) wrongfully assigned the subject promissory note, (2) lacked standing to foreclose the subject mortgage and (3) committed fraud against him and the state court. The borrower asserted the following legal claims: (a) Real Estate Settlement Procedures Act [RESPA] violations, (b) Truth In Lending Act [TILA] violations, (c) Ind. Code 32-30-10.5 Indiana Foreclosure Prevention Agreements for Residential Mortgages violations, (d) negligent and intentional infliction of emotional distress, (e) fraud, (f) negligence, (g) Fair Debt Collection Practices Act [FDCPA] violations and (h) violations of the Racketeer Influenced and Corrupt Organizations Act [RICO].  In other words, the borrower threw in everything but the kitchen sink....

Even though the case ultimately was dismissed on jurisdictional grounds, Judge Barker’s court took the time and effort to analyze the substantive legal claims involving RESPA, TILA, I.C. 32-30-10.5, torts, fraud, FDCPA and RICO. If lenders or their counsel face these claims in a similar context (following a state court foreclosure case), the Mains opinion would be a good place to start one’s research.

In the end, this case is another in line of recent federal court cases I’ve discussed that dismisses a borrower’s post-foreclosure claims and defenses. For more on the Rooker-Feldman doctrine, click here for my 8/24/16 post.

UPDATE:  Seventh Circuit Affirms Dismissal Of Borrower’s Post-Foreclosure Federal Claims Based On Rooker-Feldman and Res Judicata

Does A Deed-In-Lieu Of Foreclosure Automatically Release A Borrower From Personal Liability?

A deed-in-lieu of foreclosure (DIL) is one of many alternatives to foreclosure.  For background, review my post Deeds In Lieu Of Foreclosure: Who, What, When, Where, Why And How.  Today I discuss the Indiana Court of Appeals’ opinion in GMAC Mortgage v. Dyer, 965 N.E.2d 762 (Ind. Ct. App. 2012), which explored whether a DIL in a residential mortgage foreclosure case released the defendant borrower from personal liability. 

Deficiency.  In GMAC Mortgage, the borrower sought to be released from any deficiency.  The term “deficiency” typically refers to the difference between the fair market value of the mortgaged real estate and the debt, assuming a negative equity situation.  Exposure to personal liability arises out of the potential for a “deficiency judgment,” which refers to the money still owed by the borrower following a sheriff’s sale.  The amount is the result of subtracting the price paid at the sheriff’s sale from the judgment amount.  (For more on this topic, please review my August 1, 2008, June 29, 2009 and March 9, 2012 posts.) 

DIL, explained.  GMAC Mortgage includes really good background information on the nature of a DIL, particularly in the context of residential/consumer mortgages.  According to the U.S. Department of Housing and Urban Development (HUD), a DIL “allows a mortgagor in default, who does not qualify for any other HUD Loss Mitigation option, to sign the house back over to the mortgage company.”  A letter issued by HUD in 2000 further provides:

[d]eed-in-lieu of foreclosure (DIL) is a disposition option in which a borrower voluntarily deeds collateral property to HUD in exchange for a release from all obligations under the mortgage.  Though this option results in the borrower losing the property, it is usually preferable to foreclosure because the borrower mitigates the cost and emotional trauma of foreclosure . . ..  Also, a DIL is generally less damaging than foreclosure to a borrower’s ability to obtain credit in the future.  DIL is preferred by HUD because it avoids the time and expense of a legal foreclosure action, and due to the cooperative nature of the transaction, the property is generally in better physical condition at acquisition.

Release of liability in FHA/HUD residential cases.  The borrower in GMAC Mortgage had defaulted on an FHA-insured loan.  The parties tentatively settled the case and entered into a DIL agreement providing language required by HUD that neither the lender nor HUD would pursue a deficiency judgment.  The borrower wanted a stronger resolution stating that he was released from all personal liability.  The issue in GMAC Mortgage was whether the executed DIL agreement precluded personal liability of the borrower under federal law and HUD regulations.  The Court discussed various federal protections afforded to defaulting borrowers with FHA-insured loans, including DILs.  In the final analysis, the Court held that HUD’s regulations are clear:  “A [DIL] releases the borrower from all obligations under the mortgage, and the [DIL agreement] must contain an acknowledgement that the borrower shall not be pursued for deficiency judgments.”  In short, the Court concluded that a DIL releases a borrower from personal liability as a matter of law. 

Commercial cases.  In commercial mortgage foreclosure cases, however, a lender/mortgagee may preserve the right to pursue a deficiency, because the federal rules and regulations outlined in GMAC Mortgage do not apply to business loans or commercial property.  The parties to the DIL agreement can agree to virtually any terms, including whether, or to what extent, personal liability for any deficiency is being released.  The point is that the issue of a full release (versus the right to pursue a deficiency) should be negotiated in advance and then clearly articulated in any settlement documents.  A release is not automatic. 

GMAC Mortgage is a residential, not a commercial, case.  The opinion does not provide that all DILs release a borrower from personal liability, and the precedent does not directly apply to an Indiana commercial mortgage foreclosure case. 

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I represent parties in loan-related litigation.  If you need assistance with such a matter, please call me at 317-639-6151 or email me at [email protected].  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.

Sampling Of Indiana Deed Law, And Judgment Lien Attachment Issues

Lesson.  A judgment lien on real estate attaches only to the judgment debtor’s ownership interest in the real estate. If the property is owned by tenants in common, and one of the tenants is not a judgment debtor, then the lien will not impact the innocent party’s partial interest.

Case cite.  Underwood v. Bunger, 52 N.E.3d 829 (Ind. Ct. App. 2016).

Legal issue.  Whether and to what extent a judgment creditor had a valid, enforceable lien against a partial interest in real estate.

Vital facts. This case involved the interpretation of a warranty deed granted to three people. Two of the three, Kinney and Fulford, were married. A judgment creditor obtained a money judgment against Kinney and the third grantee under the deed, Underwood, but not Fulford. Later, Kinney died.

Procedural history.  The trial court granted summary judgment in favor of the judgment creditor. The court concluded that Underwood and Kinney each owned fifty percent of the real estate but that that the judgment lien attached only to Underwood’s interest.

Key rules. Indiana has three forms of concurrent ownership of real estate: (1) joint tenancy, (2) tenancy in common and (3) tenancy by the entirety.

    Tenancy by the entirety exists only between married spouses and creates ownership as a single unit. Upon death of one, the survivor holds the original grant. In other words, the transfer of title automatically occurs between the spouses upon death. Generally, if the contract to purchase the real estate or the deed itself contains no qualifying words, the married grantees hold the estate as tenants by the entirety.

    Tenancy in common is property held by two or more persons by distinct titles. They are united only by their right to possess the property, and their rights and interests are not held jointly. Black’s Law Dictionary advises that, unlike joint tenancy (see below) or tenancy by the entirety, “the interest of a tenant in common does not terminate” upon death.

    Joint tenancy was not discussed in Underwood. Black’s Law Dictionary defines this form of concurrent ownership as follows:

Joint tenants have one and the same interest, accruing by one and the same conveyance, commencing at one and the same time, and held by one and the same undivided possession. The primary incident of joint tenancy is survivorship, by which the entire tenancy on the decease of any joint tenant remains to the survivors, and at length of the last survivor.

    Resolving uncertainties.  When a married couple buys real estate jointly with a third party, the spouses take a one-half interest as tenants by the entireties, and the third party will take an undivided one-half interest as a joint tenant. The exception is if the language in the deed expresses an intent to hold otherwise. Furthermore, in Indiana, if there are words in the deed that qualify or define the estate conveyed “as to make it apparent that the parties intended the grantees to hold as tenants in common, such intention will prevail….” But as to a married couple, “all doubts are resolved in favor of estates by the entireties and against joint estates.”

Holding.  The Indiana Court of Appeals affirmed the trial court. Kinney and Fulford took their interest in the real estate as tenants by the entireties. It followed that Kinney’s interest in the real estate passed directly to Fulford, and not Kinney’s estate, upon Kinney’s death. Ind. Code 32-17-3-1. The ruling implied that Fulford’s interest in the real estate was not subject to the judgment lien.  See, Execution Upon Indiana Real Estate Owned As “Tenancy By The Entireties.”

Policy/rationale.  The Underwood opinion addressed the question of whether Underwood, Kinney and Fulford were three distinct tenants in common even though Kinney and Fulford were married. The Court held that the deed identified the couple’s relationship as spousal, even though the language in the deed also included the phrase “tenants-in-common.” The Court reasoned that the language did not overcome the presumption in favor of tenancies by the entirety because Kinney and Fulford were married and because the deed referred to them as husband and wife. “If the grantor had intended to create a tenancy in common among Underwood, Kinney, and Fulford, then the deed could have omitted the reference to Kinney and Fulford as husband and wife.”

Related posts.

Judgment Lien Principles Courtesy of Indiana Supreme Court

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I sometimes represent judgment creditors involved in lien priority and collection matters.  If you need assistance with a similar issue, please call me at 317-639-6151 or email me at [email protected].  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.