Unusual Deed In Lieu Of Foreclosure Agreement Failed To Guarantee Sale Proceeds to Borrower/Mortgagor
Lesson. Creativity with settlement agreements is fine so long as the language clearly and unambiguously articulates the terms of the intended deal.
Case cite. Bobick’s Pro Shop v. 1st Source Bank, 84 N.E.3d 1238 (Ind. Ct. App. 2017)
Legal issue. Whether a deed in lieu of foreclosure agreement compelled a lender/mortgagee to dispose of the mortgaged property in a fashion that paid money back to the borrower/mortgagor.
Vital facts. Borrower and Bank entered into an Agreement for Deed In Lieu of Foreclosure (Agreement). The Bobick’s opinion sets out verbatim the pertinent portions of the Agreement, which by its nature was a settlement arrangement between the parties related to a $2.5MM debt. A unique element of the Agreement surrounded how the proceeds from the Bank’s sale of the mortgaged property would be applied, including a scenario whereby the Borrower itself could recover a portion of the proceeds. After a lengthy time on the market, the Bank ultimately sold the property back to itself at a price that did not net any money to the Borrower.
Procedural history. The Borrower filed a lawsuit against the Bank claiming that the Bank’s sale of the property to itself was a breach of the Agreement. The parties filed cross-motions for summary judgment, and the trial court ruled in favor of the Bank. The Borrower appealed.
Key rules. A contract may be construed on summary judgment if it is not ambiguous or uncertain.
Holding. The Indiana Court of Appeals affirmed the trial court’s summary judgment in favor of the Bank.
Policy/rationale. The Borrower asserted that the language in the Agreement gave the Bank limited discretion to sell the property and that the “fundamental purpose of the Agreement … was to provide a mechanism for the parties to share excess value…” in the property. The problem was that the Agreement’s wording did not support the Borrower’s theory. The Court rejected the Borrower’s position as being “wholly without merit” and pointed to a clause in the Agreement that authorized the Bank to “dispose of the property in such manner … and at such time as [Bank] determines in its sole and absolute discretion.” The Court also noted that, as is the case with any standard deed in lieu agreement, the Agreement resulted in the Bank acquiring unrestricted title to (ownership of) the property. “The plain language of the Agreement demonstrates that the parties contemplated that [the Bank] might dispose of the property in such a manner and time that there would be no funds to distribute to [Borrower).”
- Does A Deed-In-Lieu Of Foreclosure Automatically Release A Borrower From Personal Liability?
- Deeds In Lieu Of Foreclosure: Who, What, When, Where, Why and How
I represent lenders, as well as their mortgage loan servicers, entangled in contested foreclosures. If you need assistance with a similar 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.