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The following article by ATTOM from 4/21/22 shows that foreclosure starts, bank repossessions are at the highest levels in two years but still well below normal: LINK.
Lesson. COVID did not provide a defense to the accrual of interest on mortgage loans in 2020.
Case cite. PNC v. Page, 2022 Ind. App. LEXIS 92 (Ind. Ct. App. 2022).
Legal issue. Whether certain provisions in Indiana’s COVID-related Emergency Orders (defined below) apply to promissory notes and mortgages such that prejudgment interest could be tolled for five months.
Vital facts. Borrower and lender entered into a mortgage loan. The promissory note contained fairly standard language that interest shall accrue after default until the loan balance is paid in full. Borrower defaulted on the loan in November 2017.
In the wake of the COVID pandemic, Indiana’s Governor and Supreme Court entered a series of orders (the “Emergency Orders”) related to the handling of the public health emergency. I wrote about some of these orders in 2020: link. In one of the orders, the Indiana Supreme Court stated:
The Court authorizes the tolling, beginning March 16[, 2020] and until April 6, 2020, 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 the courts of Marion County. Further, no interest shall be due or charged during this tolled period.
Procedural history. Lender filed a mortgage foreclosure action in November 2018. While the case was pending, the pandemic occurred. It was not until June 2021 that the lender sought a default judgment seeking the balance due of principal and interest, which included accrued interest from the date of default through the date of the entry of the judgment. The trial court entered the judgment requested by Lender except that it specifically excluded “interest accruing 3/16/20 – 8/14/20” based on the Emergency Orders, including specifically the provision quoted above. Lender appealed the interest reduction.
Key rules. The well-written PNC opinion cites to plenty of constitutional and statutory support for its decision. The Court also referred to and relied upon its 2021 case, Denman v. St. Vincent Med. Grp., Inc., 176 N.E.3d 480 (Ind. Ct. App. 2021), about which I wrote on 11/24/21 (see related post below). In a nutshell, and in an interesting twist, the Indiana Court of Appeals (the lower court) stated: “because our Supreme Court [the higher court] could not, by rule, change substantive law, the Emergency Orders instruction … cannot be construed to suspend automatic accrual on non-discretionary interest provided by the terms of a private loan instrument and as permitted by statute.”
Holding. The Indiana Court of Appeals reversed the trial court with instructions to award Lender interest from the date of default to the date of the judgment at the rate specified in the promissory note, including the period from 3/16/20 to 8/14/20.
Policy/rationale. The Court’s conclusion is consistent with the practice “of presuming that each branch of our government acts within their constitutionally prescribed boundaries.” PNC, with Denman, settled once and for all the question of whether the accrual of contractual interest was suspended by the Emergency Orders. The decisions were, in my view, the correct ones, and they are great results for lenders. Imagine if all borrowers of any type (consumers or businesses) were free from interest obligations for five months.
Related posts.
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I represent parties involved in disputes arising out of loans that are in default. 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.