Indiana Code 32-30-10.5-8.6: Can Foreclosing Lenders Obtain Provisional Court Orders Requiring Borrowers To Make Monthly Payments?
Lesson. In Indiana residential mortgage foreclosure cases, under certain circumstances a court can require a borrower to make monthly payments during the pendency of the foreclosure action. Typically, this happens when the parties are discussing a loan modification or similar workout. Before entering such an order, however, the court must first determine the borrower’s ability to pay.
Case cite. Yeager v. Deutsche Bank, 64 N.E.3d 908 (Ind. Ct. App. 2016).
Legal issue. Whether the trial court abused its discretion by failing to hold a hearing or otherwise obtain data to determine the borrowers’ ability to make monthly payments before it issued its provisional order.
Vital facts. Yeager was a residential mortgage foreclosure case. Borrowers defaulted under a promissory note and mortgage, and lender filed suit to foreclose. During the suit, lender filed a “motion for payment of mortgage, taxes and insurance premiums” in which lender sought a “provisional order,” essentially requiring the borrowers to make their monthly mortgage payment.
Procedural history. The trial court granted lender’s motion without a hearing and before the borrowers even filed a response. The borrowers appealed.
Yeager involved Ind. Code § 32-30-10.5 entitled “Foreclosure Prevention Agreements for Residential Mortgages.” This statute was born in 2009 during the Great Recession and has many provisions regulating the residential foreclosure process, including loss mitigation.
The specific section at issue in Yeager was 8.6(b):
(b) During the pendency of an action to which this section applies, regardless of any stay that is issued by the court under section 8.5 of this chapter, if the debtor continues to occupy the dwelling that is the subject of the mortgage upon which the action is based, the court may issue a provisional order that requires the debtor to continue to make monthly payments with respect to the mortgage on which the action is based. The amount of the monthly payment:
(1) shall be determined by the court, which may base its determination on the debtor's ability to pay; and
(2) may not exceed the debtor's monthly obligation under the mortgage at the time the action is filed.
Holding. The Indiana Court of Appeals, with one Judge dissenting, reversed the trial court’s ruling and remanded the case back to the trial court for a factual determination of the borrowers’ ability to pay.
The lender contended that a hearing was not required because the provisional order “did nothing more than direct such matters as permitted by statute.” Further, neither the statute nor any procedural rules required a hearing. Finally, the lender asserted that the order did not harm the borrowers. (Subsection [c] of the statute calls for any payments to be held in trust pending a future court order for disbursement.)
The borrowers countered that the trial court entered the order “ex parte” (without the borrowers being present or heard) in violation of due process. The Court’s opinion suggested that the lack of a hearing may not have been the compelling factor. Rather, the error stemmed from the trial court’s failure to conduct, in some fashion, “any inquiry on which to base its determination of the monthly payment prior to issuing the Provisional Order” in violation of 8.6(b)(1) set out above. The record contained no evidence of the borrowers’ current financial situation.
I have represented lenders, as well as their mortgage loan servicers, in connection with consumer finance litigation. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at firstname.lastname@example.org. 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.