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Indiana Receiver Sales: Why ... Why Not?

I wanted to post some content before leaving on a vacation to celebrate my 25th wedding anniversary. Today’s article incorporates material first published back in 2015 and relates to my prior post - Receiver Not Authorized To Sell Property Without Mortgagor’s Consent - which followed another post - Can Indiana receivers sell the subject real estate?  Those pieces begged the question: When would a lender/mortgagee in a commercial foreclosure case want to pursue a receiver’s sale in the first place?

Why? There are a multitude of factors involved in a lender’s decision to pursue a receiver’s sale of the mortgaged real estate. The pros and cons are almost endless and vary depending upon the lender, the borrower, the extent of any competing liens, the nature of the real estate, the purpose of the borrower’s business, if any, that operates on the property and the costs of the auctioneer. With those factors in mind, based upon my experience the following is a list of considerations in favor of seeking a receiver’s sale:

  • The plaintiff lender has no interest in taking title to the real estate.
  • The plaintiff lender desires to quickly cut off its interest in, and thus the attendant expenses associated with ownership of, the real estate. Costs may include real estate taxes, hazard insurance premiums and receivership expenses (for the maintenance/management of the property).
  • The plaintiff lender has reason to believe that there are interested buyers.
  • A defendant junior lien holder may be particularly interested since it should have a greater chance of being paid. A receiver’s sale, due to enhanced and targeted marketing, coupled with a more organized transaction, should net more proceeds than a standard sheriff’s sale.
  • Similarly, a defendant guarantor of the debt may be especially attracted to this option. Since a receiver’s sale theoretically will result in a higher price, the deficiency judgment (if any) should be lower. In other words, a guarantor’s personal liability could be reduced or even eliminated.
  • In complex cases involving multiple competing liens, the replacement of the real estate with a cash fund often triggers, simplifies and expedites a global settlement of the litigation. (Remember that a foreclosure case could last many months, meaning that a sheriff’s sale may be delayed indefinitely.)

Why not? Factors weighing against a receiver’s sale include, but are not limited to:

  • The lender (or current owner of the loan) desires to take ownership of the property.
  • The real estate taxes, hazard insurance and receivership/management costs are tolerable.
  • There is no known, immediate market for the property.
  • Attorney’s fees to obtain court authority for the receiver’s sale, coupled with the fees associated with closing the sale, are higher and otherwise unnecessary in a standard foreclosure case. Also, sheriff’s sales are cheap – a few hundred dollars.
  • The foreclosure case is either uncontested, or there is a realistic possibility for some kind of settlement.
  • Perhaps most importantly, one or more parties, particularly the owner/mortgagor, objects to the receiver’s sale. (Objections to the sale, especially from the mortgagor/owner, create an insurmountable obstacle to obtaining court authority for the sale.)

Hybrid? My old post In Indiana Sheriff’s Sale, Consider The Option Of Using A Private Auctioneer addressed a kind of hybrid between a receiver’s sale and a sheriff’s sale. And, unlike receiver’s sales, there is no question as to the statutory authority for this relief, and mortgagor/owner consent generally isn’t needed. We have not seen many of these types of sheriff’s sales in recent years – (or many commercial foreclosures period due to the healthy economy) – but this statutory alternative should not be forgotten.
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Part of my practice includes representing parties in connection with sheriff’s sales. 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.


Forged Power Of Attorney In Set Of Loan Documents Did Not Render Personal Guaranty Unenforceable

Lesson. A properly-executed promissory note and personal guaranty should overcome alleged defenses associated with other flawed loan documents.

Case cite. Nextgear Capital Inc. v. Premier Grp. Autos LLC 2022 U.S. Dist. LEXIS 89317 (S.D. Ind. 2022)

Legal issue. Whether a forged power of attorney signed in connection with floorplan financing rendered a personal guaranty of the loan unenforceable.

Vital facts. Floorplan financing “is when an automobile dealer establishes a line of credit with a lender to purchase vehicles before selling them to a customer….” Once the dealer sells the vehicle, it repays the money to the lender. In Nextgear, Borrower entered into a contract for floorplan financing with Lender. The contract involved a promissory note, security agreement and two personal guaranties. Borrower “floored” its first vehicle with Lender on April 16, 2019.

On April 18, 2019, a sales executive for Lender went to Borrower’s office to meet with the two guarantors, who were also representatives of Borrower, for the purpose of obtaining a power of attorney (POA) required to service the loan. Upon arriving, the sales executive met with someone he believed was one of the guarantors, who signed the POA. The sales executive, who was a notary, examined a photocopy of the individual’s driver’s license and notarized the POA. Borrower proceeded to floor ten more vehicles.

Lender’s policy of obtaining a POA was limited to having one signed by Borrower, not any guarantors. The promissory note and guaranties confirmed this. In this instance, for some reason Lender got signatures on POAs from what Lender believed were both guarantors, presumably signing as agents of Borrower.

Later in 2019, the parties agreed to increase the line of credit. In connection with this, Borrower made a 150k payment to Lender, which credited Borrower’s account for that amount. Immediately following that payment, Borrower floored several more vehicles. Shortly thereafter, Borrower’s 150k payment was rejected for insufficient funds. At that point, Borrower’s loan balance was about 355k. Further, Borrower began paying operational expenses upon the sales of vehicles rather than paying Lender as required. Lender declared Borrower to be in default.

Also, Lender later discovered that the person who signed one of the POAs was not in fact a guarantor. The actual guarantor contended that the sales executive may not have properly notarized the POA or otherwise assisted with the forgery.

Procedural history. Lender sued Borrower and guarantors for breach of contract, specifically for claims related to the promissory note and guaranties. The guarantor identified on the forged POA (“Guarantor”) filed multiple counterclaims that included forgery and indemnification. Lender filed a motion for summary judgment.

Key rules.

When interpreting contracts like promissory notes and guaranties, an Indiana court’s analysis “starts with determining whether the contract's language is ambiguous.” If the language is unambiguous, courts then apply the contract’s “plain and ordinary meaning in light of the whole agreement, 'without substitution or addition.'"

Indiana’s right to indemnification arises through a contract, by a statutory obligation, or may be implied at common law. "In the absence of any express contractual or statutory obligation to indemnify, such action will lie only where a party seeking indemnity is without actual fault but has been compelled to pay damages due to the wrongful conduct of another for which he is constructively liable."

Holding. The U.S. District Court for the Southern District of Indiana granted summary judgment in favor of Lender. This post focuses on some of the counterclaims/defenses of Guarantor surrounding the forged POA.

Policy/rationale.

Were the promissory note and guaranty unenforceable against Guarantor due to the POA being forged? No. Importantly, Guarantor did in fact execute the guaranty. “[Guarantor contends that due to the forged POA allegedly from him, [his co-guarantor] was able to substantially increase the line of credit and increase the amount of money [Lender] now seeks from [Guarantor]. [Guarantor] argues that even if he is liable based on signing the guaranty, it should be limited to the amount of money that was provided in the first thirty days after execution of the promissory note.” The Court rejected the defense because the promissory note only required a POA to be signed by Borrower. Since the co-guarantor signed the POA on behalf of Borrower, and since Guarantor did not need to co-sign, the forgery on the separate POA was inconsequential.

Another of Guarantor’s defenses rested on the theory of indemnification. He claimed that his liability was derivative of the sales executive’s “wrongful conduct in assisting with the forgery” of his POA. “But for [the forger], [co-guarantor] would not have drawn on the line of credit, thus leading [Guarantor] to be liable.” The Court reiterated that the forged POA was not required to extend credit to Borrower. Further, the sales executive’s actions did not cause Guarantor to sign his guaranty.

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 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.


Indiana Judgment Creditor Not Entitled To Post-Judgment Order Transferring Ownership Of Defendant’s Real Estate

Lesson. In the post-judgment collection phase of a case, the plaintiff creditor is not entitled to an order transferring title to the defendant debtor’s real estate for purposes of satisfying the judgment. For that to happen, the creditor must follow the process for an execution (sheriff’s) sale.

Case cite. Conroad Assocs., L.P. v. Castleton Corner Owners Ass'n, 187 N.E.3d 885 (Ind. Ct. App. 2022).

Legal issue. Whether a trial court, in post-money judgment collection proceedings, can transfer a judgment debtor’s interests in real estate to a judgment creditor.

Vital facts. The parties to the Conroad dispute were a building owner (Owner) and a party contracted to maintain the building (Association). The Association’s responsibilities included the maintenance of its own sewer lift station at the building. The lift station failed, resulting in a flood of sewage at a tenant’s location in Owner’s building. The flooding caused the tenant to terminate its lease with Owner.

Owner obtained a money judgment against Association for breach of contract (the Judgment). The procedural history that followed was complicated and involved proceedings supplemental, an appeal and a bankruptcy. Today’s post focuses on the motion for proceedings supplemental (post-judgment collection effort) filed thirteen days after the entry of the Judgment. Specifically, Owner requested that the Association’s lift station and related real estate rights be transferred to Owner to satisfy the Judgment. The trial court granted the motion (the Divest Order).

The trial court later reduced the amount of the Judgment, and the Association tendered money to the trial court to fully satisfy the amount owed. The Association then moved to vacate the Divest Order.

Procedural history. The trial court vacated the Divest Order, finding that it was erroneous in the first place. Owner appealed.

Key rules. Conroad has an in-depth analysis of Indiana Trial Rules 70(A) and 69(A), which deal with judgments and post-judgment remedies. (Please click on each for the full text of the rules.) The trial court relied upon Rule 70(A) when it entered the Divest Order.

Holding. The Indiana Court of Appeals affirmed the trial court and concluded that the court did not err when it vacated the Divest Order.

Policy/rationale. The Court reasoned that, under Rule 70(A), the only way a trial court can divest a defendant/judgment debtor of ownership in real estate is if the underlying judgment itself directs the judgment debtor to execute the conveyance. Because the Judgment in Conroad had no such direction (it was only a money judgment), the Divest Order was inappropriate under Indiana law. The Court pointed to Rule 69(A), which essentially provides that, in money judgment enforcement proceedings, the sale of real estate must be conducted in the same manner as a mortgage foreclosure (i.e. a sheriff’s sale). Indiana law does not permit a judgment creditor to simply file a motion to acquire title to a judgment debtor’s real estate.

Related posts.

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Part of my practice relates to post-judgment collection proceedings.  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.