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New Spin On Alleged Predatory Lending: Land Contracts

The Indianapolis Business Journal's website has a report today regarding a lawsuit recently filed here in Indiana that targets a “predatory and unlawful rent-to-own scheme.”  The lawsuit seeks class-action status on behalf of the alleged victims of the scheme and claims violations of "several fair housing, equal credit opportunity act, truth-in-lending and condition-of-premises laws." 

Here is a link to the article: Lawsuit targets local rent-to-own housing operator.  Evidently the Indiana Attorney General sued the same operator  back in 2012 for similar claims and "for allegedly running a rent-to-buy scheme meant to avoid Indiana's landlord tenant law."  See: Ind. AG Zoeller suing Rainbow Realty.

Although I have not read the complaints or reviewed the "rent-to-own" contracts, the transactions in question would seem to be land contracts.  Indiana law views these types of agreements as a kind of hybrid of a lease and a mortgage loan.  I've written about land contracts in the following posts:

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If you are involved in a land contract dispute or wish to obtain advice about land contracts on the front-end, please email me at John.Waller@WoodenMcLaughlin.com or call 317-639-6151.  Also, don't forget to follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to my blog posts via RSS or email as noted to your left.    

 


7th Circuit Affirms Rooker-Feldman Dismissal Of Borrower's Post-Foreclosure Federal Claims Under RESPA, TILA, FDCPA, RICO And FPRA

Today's topic is a recurring one on my blog, namely whether a borrower can pursue a federal lawsuit against a lender after the lender foreclosed in state court. The answer is almost always no, although the possibility exists under very limited circumstances.    

On February 26th, I wrote about the Mains v. Citibank case, which at the time was before the U.S. District Court for the Southern District of Indiana.  Here is that post: Borrower’s Claims For Violations of RESPA, TILA, FDCPA, RICO And FPRAM, Together With Claims for Various Torts, Dismissed.  

The borrower lost at the trial court level and appealed to the Seventh Circuit.  On March 29th, the Court of Appeals affirmed the district court's ruling.  Click here for the opinion, which, like the district court's, provides a nice summary of the legal issues that lawyers will find useful.  Chief Judge Wood summed up the Seventh Circuit's view of the case in his opening paragraph:

[Borrower] has been battling the impending foreclosure of his home for quite some time.  Most recently, he brought an action in federal court raising various state and federal law theories, related primarily to alleged fraudulent activity by the defendants [which included the lender and certain law firms].  But the state courts resolved these matters long before he turned to the federal court.  Mindful of our limited jurisdiction and the need to respect the finality of state-court judgments, we affirm the district court's dismissal of this case.  

In addition to applying the Rooker Feldman doctrine, the Court employed res judicata (claim preclusion) in affirming the dismissal of the borrower's case.

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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.  You may also follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to my blog posts via RSS or email as noted on my home page.

 

 


Claim “On An Account” Vs. Enforcement Of A Loan: Comments On Proposed Amendment to Indiana Trial Rule 9.2(A)

Proposed rule change.  Indiana’s Committee on Rules of Practice and Procedure has before it a proposal to amend Trial Rule 9.2(A). To see the proposed change, click here.  The amendment also has changes to the form affidavit of debt found in Appendix A-2 of the rules.  Application of the added language appears to be limited to actions “on an account” and does not seem to relate to actions involving loans, such as breaches of promissory notes or security agreements like mortgages. Although the amendment does not expressly target mortgage foreclosure cases or the enforcement of UCC security interests, the proposed language arguably leaves the rule open to interpretation as to its scope.  As such, we are respectfully recommending that the Committee clarify the proposed amendment to confirm that the new subsections (A)(1) and (2) are limited to claims “on an account” and do not apply to loans.

What is an action “on an account?”  To my knowledge, and based on some very limited legal research, there is no specific Indiana statutory definition of, or statutory cause of action for, an action on an account.  Black’s Law Dictionary defines “on account,” in part, as “a sale on credit.”  Indiana Practice, Procedural Forms with Practice Commentary (Arthur), Chapter 9, discusses “Complaints-On An Account” and says: “an action on account is one upon which billings have been sent to the other party specifying the goods or services delivered and the amount due….” Section 9.1 identifies the following elements of such an action:

1. A description of the account and the nature of the dealings between the parties;
2. The goods and services were provided to defendant at his request;
3. Defendant is indebted to plaintiff for a specified sum; and
4. The account is due and unpaid.

Not a loan.  An account and a loan are two different animals. Black’s Law Dictionary defines a loan, in part, as “delivery by one party to and receipt by another party of a sum of money upon agreement, express or implied, to repay it with or without interest.” Although an account and a loan both might be considered “debts,” they arise out of dissimilar transactions.  With a loan, one party (a lender or a creditor) gives money to another party (a borrower or a debtor).  Obvious examples of this are banks funding the purchase of a car or a house.  On the other hand, an account is born out of one party (seller/vendor) giving, not money, but rather goods and/or services to the other party (buyer/vendee).  A classic example of an account is a hospital bill.

Written contracts.  Certainly a written contract could exist for an account, and the contract conceivably may result in some kind of lien, but ultimately the nature of an account does not involve the transfer of money but rather the provision of goods or services.  But frequently there is not a written agreement - only an invoice or purchase order.  In fact, there may not be any written document at all, like when I mowed lawns in high school.  As such, unlike with promissory notes or mortgages, when a debt arising out of an account is sold or assigned from the original account holder to a third party, proof of the account creditor may be unclear or perhaps non-existent.  This absence of documentation makes the collection of such debts susceptible to fraud, or at least to questions about who is owed the money.

The target.  In our view, the new Rule 9.2(A) seems to focus on a plaintiff’s obligation to establish that it has the right to enforce the debt.  We understand the amendments proposed to Rule 9.2(A) may arise, in part, out of bad actors attempting to collect debts based on an account.  These debt collectors often purchase debt at a discount and specialize in trying to collect it. We further understand that some of these debt collectors may be fraudsters that either don’t actually own the debt or try to collect the debt long after the statute of limitations has run.

Protections unnecessary.  While claims “on an account” arguably need the protections afforded by the new subsection to the rule, claims for breaches of loan documents do not.  Indeed, protections already are in place. Article 3.1 of Indiana’s UCC dealing with Negotiable Instruments (promissory notes), Article 9.1 involving secured transactions, Ind. Code 32-29 (Mortgages), Ind. Code 32-30-10 (Foreclosure Actions), well-settled case law, and a plethora of other rules, laws, and regulations, both state and federal, at present cover questions surrounding proof of standing and the right to enforce.  See, for example, my post Proving You’re The Holder Of The Note. This makes the proposed amendment unnecessary for loans and, even more, contradictory to existing law and procedure, not to mention onerous.  Indeed some of the proposed requirements may not even be possible for certain assignees to meet, such as a listing of all prior owners of the loan.  (The Indiana Supreme Court's opinion in the Barabas case from 2012 that surrounds MERS is instructive here.)       

Solution.  Without clarification that the new rule is limited to claims on an account and thus does not apply to loans, courts will be confused as to how to handle such cases, which could create more problems than the rule seeks to solve. We’ve seen one very simple yet meaningful change that could be made to the proposed amendment.  The mere insertion in Subsection (2) of “and the claim is on account” after the word “if” and before the words “the plaintiff” should be sufficient to clarify that the new rule does not apply to loans.  Even better, if at the end of the proposed amendment, the rule said something like “Subsection (2) does not apply to actions to enforce loans, including but not limited to promissory notes or credit agreements,” then the lending and finance communities should have no issue whatsoever with the amendment.

Call to action.   The Committee invites public comment on the proposed rule amendments.  Those wishing to comment should do so, in writing, not later than May 15, 2017.  That's Monday. Comments may be sent by email to RulesComments@courts.in.gov or addressed to:

ATTN: Rules Committee
Hon. Mary Willis
Indiana Office of Judicial Administration
30 South Meridian Street, Suite 500
Indianapolis, IN 46204

If you work for a lender or are an Indiana lawyer who represents creditors in commercial or consumer finance, and if you agree with our position, then we invite you to submit a comment by next Monday – even if it’s just to state briefly that you generally agree with the points outlined here.  I’m planning on emailing a link to today’s post directly to the committee’s staff. If you have any questions or comments, please call me at 317-860-5375 or email me at John.Waller@WoodenMcLaughlin.com.  Thanks.  

 


Success Following Trial And Appeal Of Contested Foreclosure, Including Defense Of Constructive Fraud and Bad Faith Claims

In February 2016, my partner Matt Millis and I tried a contested commercial foreclosure case.  Following the four-day trial, the court entered judgment in our clients’ favor.  Click here to see the judgment.  The trial mainly was about the borrower’s counterclaims against our clients, an originator of hard-money commercial mortgage loans and the company that funds the loans, as well as the borrower’s defenses to the foreclosure.

The borrower appealed.  Yesterday, the Indiana Court of Appeals affirmed the trial court’s judgment.  Here is the opinion.  The Court’s opinion summarizes some of the key facts and, of note, addresses two of the borrower’s defenses: (1) that our clients breached a “duty to speak,” which arose out of the borrower’s allegations of constructive fraud, and (2) that our clients violated the “Hamlin Doctrine,” which dealt with the borrower’s assertion that our clients breached a duty to act in good faith.

The Court of Appeals decided that our clients did not breach any alleged duty to speak about certain loan-to-value requirements for the deal.  In other words, the Court found that the judgment was supported by the findings of fact (the evidence at trial) and was not clearly erroneous.  In addition, the Court held that the trial court’s findings of fact supported the conclusion that our clients did not act in bad faith with respect to the fulfillment of a broker’s price opinion contingency.  For more about the case, please read the trial court’s judgment and the appellate court's memorandum decision – links above.

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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.  You may also follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to my blog posts via RSS or email as noted on my home page.