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Must Indiana Affidavits Be Signed Under The Penalties Of Perjury?

A client recently asked me whether its summary judgment affidavit needed to be signed under the penalties of perjury. Given the business records nature of the affidavit (under Evidence Rule 803(6)), the affiant had some heartburn about the nature of his execution.

Trial rule.  The affidavit was for an Indiana state court case, so Indiana state law applied.  The applicable Trial Rule is 11(B). The rule doesn’t directly answer the question, however. Here is the entire section of the rule:

Verified pleadings, motions, and affidavits as evidence. Pleadings, motions and affidavits accompanying or in support of such pleadings or motions when required to be verified or under oath shall be accepted as a representation that the signer had personal knowledge thereof or reasonable cause to believe the existence of the facts or matters stated or alleged therein; and, if otherwise competent or acceptable as evidence, may be admitted as evidence of the facts or matters stated or alleged therein when it is so provided in these rules, by statute or other law, or to the extent the writing or signature expressly purports to be made upon the signer’s personal knowledge. When such pleadings, motions and affidavits are verified or under oath they shall not require other or greater proof on the part of the adverse party than if not verified or not under oath unless expressly provided otherwise by these rules, statute or other law. Affidavits upon motions for summary judgment under Rule 56 and in denial of execution under Rule 9.2 shall be made upon personal knowledge.

The rule begs the question of what “verified or under oath” means.

Case law.  Indiana case law appears to have the answer. Although using the exact language of TR 11(B) is not required, the “chief test of the sufficiency of an affidavit is its ability to serve as a predicate for a perjury prosecution.” Jordan v. Deery, 609 N.E.2d 1104, 1110 (Ind. 1993). In Gaddie v. Manlief (In re H.R.M.), 864 N.E.2d 442 (Ind. Ct. App. 2007), the Indiana Court of Appeals provides a thorough discussion of what is required for a business records affidavit and affidavits generally. The Court determined that a business records affidavit whose affiant stated, “I, Anita Martin, being duly sworn, state as follows” was insufficient to constitute a valid verification as it was inadequate to subject Martin to prosecution for making a false affidavit, and therefore, insufficient to support the accompanying business records. A statement such as “duly sworn upon his oath, alleges and says” with a notarized signature provides a stronger intention to be bound by the penalty for perjury than “being duly sworn,” Id. (citing State ex rel. Ind. State Bd. Of Dental Examiners v. Judd, 554 N.E.2d 829 (Ind. Ct. App. 1990)). The Court did note, however, that Bentz v. Judd, 714 N.E.2d 203 (Ind. Ct. App. 1999), and an older Indiana Supreme Court case, Gossard v. Vawter, 21 N.E.2d 416 (Ind. 1939), found such a verification to still be insufficient. On the other hand, the statement “I affirm the truth of the above statements” met the requirements for verification in a summary judgment affidavit in Hoskins v. Sharp, 629 N.E.2d 1271 (Ind. Ct. App. 1994).

The answer is yes.  Although the rule and the case law may not crystal clear on the exact verbiage needed, the bottom line is that, to ensure affidavits will stand up in court, it is prudent to state, either at the beginning or immediately before the signature, that the affidavit is being given under oath and subject to the penalties of perjury. For what it’s worth, I usually start my affidavits with “Affiant, _____, having first been duly sworn upon his oath, hereby affirms as follows", and I end my affidavits with “I affirm under the penalties of perjury that the foregoing is true and correct to the best of my knowledge, information and belief.”

Here are a couple prior posts related to affidavits:

I’d like to thank our associate Erica Drew for researching this issue. Her work helped me to get this post up before being out on spring break next week.     

Mortgagee Prevails In Claim For Indiana Tax Sale Surplus

What happens if a lender’s real estate collateral is sold at a tax sale, which nets a surplus (funds remaining over and above payment of the tax lien)?  Does the money go back to the owner, or can the lender/mortgagee recover it?  Beneficial Indiana v. Joy Properties, 942 N.E.2d 889 (Ind. Ct. App. 2011) helps answer these questions.

Course of events.  In 2003, lender made a mortgage loan to borrowers.  In 2008, following the failure by the borrowers to pay real estate taxes, the county held a tax sale that resulted in a $42,000 surplus.  No party redeemed within the one-year period, so the county issued a tax deed in November of 2009.  However, the tax sale purchaser did not immediately record it.  In December of 2009, lender filed a motion in the county trial court for the auditor to hold the surplus.  At the hearing on the motion, the lender established a default under the mortgage loan and losses of approximately $100,000.  Shortly after the hearing, borrowers, who did not participate in the hearing, deeded the real estate to a third party, which recorded the deed in January of 2010.  In February of 2010, lender filed a motion to compel the auditor to turn over the surplus, and then the the tax sale purchaser recorded its tax deed.

The problem.  Who should have received the $42,000 tax sale surplus - the lender or the third party (subsequent owner)?

Statute.  I.C. § 6-1.1-24-7 is the provision within Indiana’s tax sale statutory scheme that speaks to the surplus issue, and subsection (b) authorizes a claim by the:

 (1) owner of record of the real property at the time the tax deed is issued who is divested of ownership by the issuance of a tax deed; or
 (2) tax sale purchaser or purchaser’s assignee, upon redemption of the tract or item of real property.

Since there was no redemption, subsection (b)(2) did not apply.  Beneficial Indiana focused on subsection (b)(1), which seems to suggest that the borrowers would be entitled to the funds because they were the owners of record at the time the tax deed was issued.  Since they had conveyed their interests to a third party by the time the matter came before the trial court, the third party essentially stepped into their shoes and claimed subsection (b)(1) mandated the turnover of the surplus to it.

Statutory work around.  In Indiana, persons with “an interest in the real estate, including those who did not own the real estate at the time of the tax sale or who did not purchase the real estate at the tax sale, may assert a claim for a tax sale surplus directly with the trial court.”  The lender asserted that it was entitled to the surplus because its mortgage lien attached to the surplus.  Indiana law indeed provides that, even though the lender’s lien against the real estate was extinguished by the tax sale deed, its lien “attached to the tax sale surplus, and has priority over the interest conveyed to [the third party].”

More substantial interest.  The Court’s rationale rested upon the following test:  “which claimant has the more substantial interest in the real estate?”  The Court’s ruling in favor of the lender was, in my view, fair and sensible:

It is undisputed that [lender’s] mortgage was duly recorded on April 21, 2003.  It is further undisputed that the [borrowers] not only failed to pay their property taxes but also were in default on their mortgage, owing a balance that greatly exceeded the tax sale surplus held by the auditor.  Hence, [lender] had a substantial interest in the real estate prior to the issuance of the tax sale deed.  [Third party] acquired its interest in the real estate by a quitclaim deed executed by the [borrowers] after they had failed to make mortgage payments to [lender’s] for more than a year; and they had failed to redeem the real estate during the statutory one-year period following Allen County’s tax sale of real property due to the owners’ failure to pay real estate taxes.  Thus, at the time of the conveyance to [the third party] by the [borrowers], the interest conveyed was subject to the issuance of a tax deed to [the tax sale purchaser] and to [lender’s] recorded security interest.  In other words, the interest conveyed to [the third party] by the [borrowers] is significantly less substantial than and inferior to the interest of [lender].

Favorable to lenders.  As suggested here before on November 16, 2010 and most recently on March 19, 2012, delinquent real estate taxes and resulting tax sales can be a minefield for lenders in Indiana.  In Beneficial Indiana, the lender lost its loan collateral and incurred damages of about $100,000.00.  Luckily, the somewhat unique set of circumstances opened the door for the lender’s recovery of the surplus that mitigated its losses.

Borrower’s “Mutual Mistake” Defense Fails Under Indiana Law

Lesson. To set aside a loan document based upon the defense of mutual mistake, there first must be a mistake concerning a vital fact upon which the parties based the loan. Second, the mistake must be on the part of both parties.

Case cite. Williamson v. U.S. Bank, 55 N.E.3d 906 (Ind. Ct. App. 2016).

Legal issue. Whether a loan modification agreement should have been reformed or rescinded based upon an alleged mistake of fact.

Vital facts. In 2008, borrower defaulted under a promissory note and mortgage, and in 2009 lender obtained a default judgment against him. The day before the scheduled sheriff’s sale, lender notified the sheriff that the sale should be cancelled due to ongoing settlement negotiations. Nevertheless, the sheriff inadvertently held the sale, and the lender’s pre-sale written bid prevailed. The sheriff’s processed and recorded the sheriff’s deed. About three months later, lender discovered the mistake and ultimately got a court order vacating the deed. In 2010, borrower and lender executed a loan modification agreement that amended the note and mortgage, and set up a new payment plan. For three years, borrower made the payments under the loan mod. At some point, borrower discovered information leading him to believe that he was not on the deed to the property. He also had been denied his homestead exemption multiple times. About the same time, lender notified borrower that he needed to make an additional payment into escrow to cover real estate taxes. In response, borrower told lender he would not pay anything further until lender assured borrower “his name was back on the deed….” Lender then filed an affidavit with the county assessor reaffirming that the court had vacated lender’s title to the property and that the assessor’s records should reflect that title was with borrower. Despite lender’s action, borrower made no further mortgage payments.

Procedural history. Lender initiated a foreclosure lawsuit and filed a motion for summary judgment. In response, borrower filed an affidavit stating that he did not know that his name had been taken off the deed to the property when he signed the loan mod. Borrower argued that he would not have entered into the loan mod knowing his name had been taken off the deed. He essentially asserted that the loan mod was not enforceable against him. The trial court rejected borrower’s position and granted lender summary judgment.

Key rules. A contract may be reformed on grounds of mistake upon clear and convincing evidence of both the mistake and the original intent of the parties. Stated differently, “where both parties to a contract share a common assumption about a vital fact upon which they based their bargain, and that assumption is false, the transaction may be avoided if, because of the mistake, a quite different exchange of value occurs from the exchange of values contemplated by the parties.”

Ind. Code 32-30-10-3 provides that “if a mortgagor defaults in the performance of any condition contained in a mortgage, the mortgagee … may proceed in the circuit court of the county where the real estate is located to foreclose the equity of redemption….” If a lender produces evidence of a demand note and mortgage, it establishes the prima facie evidence supporting foreclosure. That shifts the burden to the borrower to prove payment of the note or any affirmative defense to foreclosure.

Holding. The Indiana Court of Appeals affirmed the trial court’s summary judgment in favor of lender.

Policy/rationale. Borrower contended that he should not have been held to the terms of the loan mod, and thus his mortgage should not have been foreclosed, because the parties mistakenly believed his name was on the deed when they executed the loan mod. But the alleged mistake of fact did not exist upon execution of the loan mod. Borrower did in fact have a valid deed at the time. Although borrower was temporarily divested of ownership through the sheriff’s sale, the trial court later set the sale aside and vacated the deed. That happened in December of 2009. The loan mod didn’t occur until December of 2010. Since borrower’s name was on the deed upon execution of the loan mod, “there was no basis to reform or rescind the agreement.”

This seemed to be a fairly straightforward decision, but I suspect there may have been more to the story. (It’s common for appellate court opinions to distill the facts to their essence.) In any event, despite borrower’s obvious frustrations arising out of the 2009 sheriff’s sale and the resulting confusion with the county’s records, the loan mod had to be enforced.

Related posts.

I frequently represent lenders, as well as their mortgage loan servicers, in connection with contested mortgage foreclosure actions. 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.

Settlement Agreement Between Lender And Guarantors Did Not Release The Contribution Rights Of The Guarantors

Lesson. Be mindful of language in settlement agreements with lenders. Don’t unwittingly release contribution claims among guarantors unless that’s the objective.

Case cite. New v. T3 Investments, 55 N.E.3d 870 (Ind. Ct. App. 2016).

Legal issue. Whether a mutual release within a settlement agreement between a lender, on the one hand, and a borrower and several guarantors, on the other hand, resulted in a waiver of rights of contribution among the guarantors.

Vital facts. New was a commercial mortgage foreclosure matter. The heart of the case surrounded the liability of the guarantors of the loan. At issue was a “Settlement and Mutual Release Agreement” entered into by the lender, the borrower and the guarantors. The Court’s opinion sets out the relevant portions of the agreement, including the release provision. The borrower/guarantors breached the agreement by failing to pay the lender, so the lender’s claims later were reduced to a judgment. After a sheriff’s sale, an $865,315.95 deficiency remained, and one of the guarantors – T3 – paid the deficiency in full. T3 then filed an action for contribution against the other five guarantors seeking their pro-rata share of the deficiency payment. Those guarantors asserted that the prior settlement agreement had language that operated to release them from liability. T3 contended that the settlement agreement dealt only with the bank and did not demonstrate that the guarantors bargained for any benefits and detriments with respect to each other.

Procedural history. New was an appeal to the Indiana Court of Appeals following the trial court’s summary judgment in favor of T3.

Key rules.

  • The doctrine of contribution “rests on the principle that, where parties stand in equal right, equality of burden becomes equity.” Contribution ensures “those who assume a common burden carry it in equal portions.” A party who pays a debt is entitled to receive contribution from any party having the same joint and several liability.
  • Generally, the right of contribution only can be destroyed by an agreement between the obligated parties.
  • A release is a contract and is interpreted according to contract law. Contract formation requires an offer, acceptance and consideration. Consideration generally is where there is a benefit accruing to the promisor or a detriment to the promisee. Consideration “consists of bargained-for exchange.” A release must be supported by consideration.

Holding. The Court of Appeals affirmed the trial court’s summary judgment in favor of T3. The remaining guarantors were obligated to pay T3 their pro-rata portion of the deficiency judgment.

Policy/rationale. Although the language in the “mutual release” provision in the settlement agreement was very broad and arguably cut against T3’s position, the Court found that there was no “bargained-for” exchange among the guarantors related to any release among them. The guarantors negotiated collectively with the lender. The bargained-for exchange concerned only the loan and the lawsuits filed by the lender. The settlement agreement spelled out how to resolve only those claims. The guarantors in the agreement did not settle among themselves. In short, the mutual release contained within the settlement agreement was not applicable to T3’s contribution claim.

Related posts.

I represent parties, including guarantors, in commercial mortgage foreclosure disputes. 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.