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Indiana Supreme Court’s COVID Order Interpreted: Post-Judgment Interest

Lesson. Post-judgment interest was not tolled by the Indiana Supreme Court’s 2020 COVID-related emergency orders.

Case cite. Denman v. St. Vincent Med. Grp., Inc., 2021 Ind. App. LEXIS 254 (Ind. Ct. App. 2021)

Legal issue. Whether the Indiana Supreme Court’s order that “no interest shall be due or charged during the tolled period” was unconstitutional with respect to statutory post-judgment interest.

Vital facts. Plaintiff obtained a $4.75 million judgment against Defendant in January 2020. Beginning on March 13, 2020, the Indiana Supreme Court entered a series of orders that dealt with the COVID public health emergency. The order pertinent to the Denman case included the following language:

The Court authorizes the tolling … of all laws, rules, and procedures setting time limits for speedy trials in criminal and juvenile proceedings; public health and mental health matters; all judgments, support, and other orders; and in all other civil and criminal matters before Indiana trial courts. Further, no interest shall be due or charged during this tolled period.

Procedural history. On March 30, 2020, the trial court in Denman ordered that post-judgment interest on Plaintiff’s judgment shall be tolled per the Supreme Court’s order. Plaintiff appealed that ruling and others.

Key rules.

Ind. Code § 24-4.6-1-101 states that: “[e]xcept as otherwise provided by statute, interest on judgments for money whenever rendered shall be from the date of the return of the verdict or finding of the court until satisfaction at: . . . (2) an annual rate of eight percent (8%) if there was no contract by the parties.”

As opposed to prejudgment interest, trial courts have no discretion over whether post-judgment interest will be awarded. Prevailing plaintiffs are awarded it automatically.

Holding. The Indiana Court of Appeals reversed the trial court’s order tolling the accrual of post-judgment interest.

Policy/rationale. The Court found that the trial court erred in applying the Supreme Court’s interest-tolling order to post-judgment interest “because so doing would give the [order] effect beyond the power constitutionally and statutorily allocated to the courts.” Post-judgment interest is a “creature of statute, borne of legislative authority.”

The Court upheld the trial court’s tolling of prejudgment interest, however, which is discretionary. One of its reasons in doing so was the Supreme Court’s “inherent authority,” in an emergency, to supervise all courts of the state. This authority “allows it to suspend trial courts' discretionary decision-making, like the grant of prejudgment interest.” The Court explained:

Permitting grants of prejudgment interest would have cost litigants for a delay they did not cause. As we explained above, Indiana's Tort Prejudgment Interest Statute is meant to influence litigants' behavior. To award prejudgment interest for delays not attributable to any party would not advance that goal. Post-judgment interest, on the other hand, arises just as automatically during a pandemic as it does any other time—and it will continue to do so until the legislature decides otherwise.

The “elephant in the room” is whether the Supreme Court’s order impacted interest accruing on a loan, such as contractual interest under a promissory note. The Indiana Court of Appeals’ treatment of pre- and post-judgment interest in Denman is telling on this point. Interest on a loan is not discretionary (in my view, at least). It is based on a contract entered into between private parties that, arguably, is constitutionally protected from an emergency order from the judicial branch. Contractual interest, not unlike post-judgment interest, arises automatically during the pandemic - as it does any other time. Accordingly, I do not believe that the Supreme Court’s COVID-related orders in 2020 tolled the accrual of interest on loans, and the outcome in Denman supports that conclusion.

Related posts.

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I represent judgment creditors and lenders, as well as their mortgage loan servicers, entangled in loan-related disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.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.


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 john.waller@dinsmore.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.