Indiana Reverses Controversial Recording Requirement

Title companies and many other parties routinely dealing with real estate transactions in Indiana are applauding Governor Holcomb’s signature of HB 1056 into law, which is effective immediately. The act reverses the recording law change on July 1, 2020, about which I wrote here.

Essentially, the so-called “proof witness,” previously required on recorded instruments, has been negated. Since July of last year, recorded documents such as mortgages and deeds needed two signatures and two notaries.  It was a pain, and now it’s over.

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I represent parties involved in disputes about loans. 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.


Northern District of Indiana Court Dismisses Borrower’s FDCPA Claim Concerning Force-Placed Insurance Notices

Lesson. Force-placed insurance letters issued to a borrower following a Chapter 7 BK discharge generally should not violate the FDCPA.

Case cite. Mohr v. Newrez_ 448 F. Supp. 3d 956 (N.D. Ind. 2020)

Legal issue. Whether a mortgage loan servicer’s post-bankruptcy, force-placed hazard insurance notices to the borrower violated the Fair Debt Collection Practices Act (FDCPA).

Vital facts. Plaintiff borrower/mortgagor sue defendant servicer. Borrower had been discharged through a Chapter 7 bankruptcy. Borrower and servicer had agreed that servicer could foreclose on the subject real estate, and servicer (for the lender/mortgagee) filed the foreclosure action. Allegedly, “nothing was done to advance the foreclosure for six months.” While the foreclosure case was pending, the servicer sent the borrower three “warning letters” related to the expiration of borrower’s hazard insurance. Specifically, the letters informed borrower “that hazard insurance was required on his property, demand[ed] proof of insurance, and inform[ed] him that [servicer] would purchase hazard insurance for the property on his behalf and ultimately at his expense.” Two of the letters had language about the servicer being a debt collector but stated that, if the borrower were the subject of a bankruptcy stay, the notice was “for compliance and informational purposes only and does not constitute a demand for payment or any attempt to collect such obligation.”

Procedural history. The defendant filed a motion to dismiss the plaintiff’s complaint. The U.S. District Court for the Northern District of Indiana granted the motion. The borrower appealed to the Seventh Circuit, but the appeal was dismissed before any ruling.

Key rules.

The FDCPA “bans the use of false, deceptive, misleading, unfair, or unconscionable means of collecting a debt.”

The Court stated that “for the FDCPA to apply, however, two threshold criteria must be met. First, the defendant must qualify as a ‘debt collector[.]’” “Second, the communication by the debt collector that forms the basis of the suit must have been made ‘in connection with the collection of any debt.’” (quoting 15 U.S.C. §§ 1692c(a)–(b), 1692e, 1692g).

The opinion went on to tell us that “whether a communication was sent ‘in connection with the collection of any debt’ is an objective question of fact.” Having said that, “the FDCPA does not apply automatically to every communication between a debt collector and a debtor.” Further, the Act “does not apply merely because a letter bears a disclaimer identifying it as an attempt to collect a debt.”

The Seventh Circuit “applies a commonsense inquiry” into the question of whether a communication is “in connection with the collection of any debt.” The district court noted that the Seventh Circuit examines several factors, including:

whether there was a demand for payment, the nature of the parties' relationship, and the purpose and context of the communications—viewed objectively. None of these factors, alone, is dispositive.

Holding. The Court found that the three letters were not communications “‘in connection with’ the collection of a debt,” and thus did not fall “within the ambit of the FDCPA.”

Policy/rationale. The Court addressed each the factors involved in the “commonsense inquiry,” and for that detailed analysis please review the opinion. The Court also touched upon other published decisions across the country on the issue. The opinion is well-written and seems to suggest that the outcome may have been a tough call, particularly considering that it resulted in a dismissal of the complaint. Having said that, this quote from the opinion is pretty strong:

These letters notified plaintiff that insurance was required for the property, and that if he did not provide proof of insurance or obtain insurance himself, insurance would be obtained at his expense. The letters explained that it may be in plaintiff's interest to obtain his own insurance policy, and encouraged him to do so by identifying the ways in which force-placed insurance was not to his benefit. Viewed objectively, the letters were merely informational notices, explaining plaintiff's options.

Related posts.

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My practice includes representing 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 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.

 


Another Indiana Court Of Appeals Opinion Regarding Admissibility Of Lender’s Loan and Business Records

Lesson. A lender’s proposed witness who was not present when the original loan documents were executed, or for that matter when any materials relevant to the loan were created, does not in and of itself preclude the witness from testifying or prevent related exhibits from being admitted into evidence.

Case cite. Wells Fargo v. Hallie, 142 N.E.3d 1033 (Ind. Ct. App. 2020)

Legal issue. Whether the lender’s trial witness was competent to testify as to the admissibility of certain loan documents and records.

Vital facts. The lender filed a straightforward mortgage foreclosure action against the borrower claiming a default under the subject loan. The original lender had transferred the loan to the plaintiff lender.

Procedural history. The trial court held a bench trial on the lender’s complaint. The lender called one witness, who worked for the original lender and later the plaintiff lender in the default arena. The lender proffered as exhibits various loan documents and a payoff statement. The borrower objected to the admissibility of the exhibits, asserting that the witness was incompetent to authenticate the exhibits. The trial court granted the borrower’s objection as to all the exhibits but for the payoff statement. The court then entered a “judgment on the evidence” in favor of the borrower that disposed of the case. The lender appealed.

Key rules. Indiana Evidence Rule 803(6) – the business records exception to the hearsay rule – was at issue. In Indiana, the party offering a business record exhibit “may authenticate it by calling a witness ‘who has a functional understanding of the record keeping process of the business with respect to the specific entry, transaction, or declaration contained in the document.’” That witness is only required to have “personal knowledge of the matters set forth in the document,” but the witness “need not have personally made or filed the record or have firsthand knowledge of the transaction represented by it in order to sponsor the exhibit.”

Evidence Rule 902 deals with the admissibility of so-called “self-authenticating” documents. Among the self-authenticating documents listed in Rule 902 are of official records or documents recorded or filed in a public office as authorized by law, if the copies are certified in compliance with law, and commercial paper, to the extent allowed by general commercial law. This rule does not guarantee admissibility but relieves the proponent from the need to provide foundational testimony.

Holding. The Indiana Court of Appeals reversed the trial court and remanded the case for a hearing to allow the lender to proffer exhibits consistent with Indiana’s rules “without a heightened personal knowledge requirement.”

Policy/rationale. The Court of Appeals surmised that the trial court concluded that the lender’s witness “could not testify concerning any document generated in her absence,” such as business records of the organization or original loan documents. The Court rejected the notion of the trial court’s “near-blanket exclusion of exhibits.” The Court reasoned that the lender “should not be precluded from eliciting foundational testimony from a witness on grounds that the witness was not present at the time a document was created.” Moreover, properly-certified documents such as the recorded mortgage should have been admitted at trial without a witness. The same goes for the original promissory note endorsed in blank.

Related posts.

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I represent parties involved in disputes about loans. 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.


Marion County (Indianapolis) Sales Disclosure Forms Effective 1/1/21

The Marion County Assessor’s Office is employing a new procedure for the completion of a sales disclosure form (SDF). This is relevant to the foreclosure process because parties pursuing sheriff’s sales in Marion County must tender SDFs as part of their pre-sale bid package.

For more on SDFs, see my prior posts:

Go to the Assessor’s system “Properly” to create the SDF. The Assessor circulated great step-by-step instructions for completing SDFs on line on Properly. Click here for those instructions.

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I represent parties in connection with foreclosure cases and 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.


2021 Marion County (Indianapolis) Sheriff's Sale Calendar, Procedure Reminders

The Marion County Sheriff's Office recently circulated its 2021 calendar, which sets out the relevant pre-sale and sale dates.  Click here for the Excel spreadsheet issued by the Sheriff.  The Office reminded parties that, through March, the sales will be on Friday in Room T230 of the City/County Building.  

One universal takeaway from Marion County's schedule is that all Indiana counties, by statute, must follow certain basic steps in order to properly tee up a sale.  Although each particular county will have its own sale dates and slightly different pre-sale deadlines, all counties will have (1) a cutoff date to file a praecipe for sale in order to meet a future sale date, usually about two months down the road, (2) a deadline for the submission of notices of sale, (3) an advertising/publication period, and (4) a deadline for the so-called bid package, which includes the sale-related documents and any costs/fees.   

Although I've said this before here, it's worth repeating:  while the Indiana Code covers the fundamentals of the sheriff's sale process, the specific rules and procedures vary by county.  There are 92 counties in Indiana and therefore 92 different sets of customs and practices applicable to sheriff's sales.  My advice is to call the local civil sheriff or visit sheriff's website to confirm the hoops through which you must jump, and when, to start and finish a successful sheriff's sale.

Happy New Year,

John


Indiana Commercial Court Expanding, Succeeding

I attended a continuing ed webinar last week related to the recent-announced expansion of Indiana's commercial court system.  Effective January 2021, there will be four new counties in the program.  There will now be ten counties (and ten judges) total.  For interest lawyers, there are a handful more CLE's upcoming about the new judges and the system generally.

I first wrote about this new specialized court in June 2016:  Indiana Commercial Court Pilot Project And Interim Rules.  One thing I learned during the CLE was that the court has a website/database with a search function that allows you to research commercial court decisions:  Commercial Court Document SearchClick here for the court's rules, which I've added permanently to the right side of my home page.        

I would recommend utilizing the court for most commercial foreclosure cases or business loan disputes.  In my opinion, the specialized system has been a really good thing for Indiana.  Kudos to our Supreme Court for implementing this change and to the judges who have embraced it.  


Indiana Supreme Court Suspends All Jury Trials Until 3/1/21

Click here for today's Order Suspending Jury Trials entered by our state's high court.  The Indiana Lawyer reported on this development, and you can read the article here.  

For more on this topic, see my June post:  Indiana Supreme Court's 5/29/20 Order Extending Its 3/16/20 Order Related to COVID Relief And Procedures 


Indiana Court of Appeals Mortgage Foreclosure Opinion, III of III: Damages Evidence After Lenders Merge

Lesson.  Even if the original lender no longer exists due to a merger, as long as the proper foundation is laid, the necessary liability and damages evidence should be admissible based upon the business records exception to the hearsay rule.

Case cite.  Hussain v. Salin Bank, 143 N.E.3d 322 (Ind. Ct. App. 2020)

Legal issue.  Whether a 41-page damages exhibit offered into evidence by the plaintiff lender was inadmissible hearsay.  More specifically, the question was whether the lender’s witness “lacked the knowledge to lay an adequate foundation for the admissibility of the documents under the business records exception to the hearsay rule.”  The borrowers challenged the testimony of the operative based upon the fact that their original lender had merged into the plaintiff lender.

Vital facts.  Please click here for my first post and here for my second post about Hussain, which was a straightforward mortgage foreclosure action. 

Procedural history.  Following an evidentiary hearing on damages, the trial court granted judgment for the lender for about 243k.  The borrowers appealed.   

Key rules.

Similar to last week, today’s piece addresses Indiana Evidence Rule 803(6)’s business records exception to the hearsay rule.  Last week dealt with a summary judgment affidavit and attached exhibits.  Today’s post concerns the testimony of a live witness and the so-called evidentiary “foundation” to get certain exhibits into evidence.  In Indiana:

[u]nder the business records exception, “a person who has a familiarity with the records may provide a proper business records exception foundation even if he or she is not the entrant or his or her official supervisor.”  To obtain admission under the business records exception, the proponent of an exhibit need only call an individual who has a functional understanding of the business's record-keeping process.  This could be the entrant, the entrant's supervisor, co-workers, a records custodian or any other such person.

Holding.  The Indiana Court of Appeals affirmed the trial court’s damages judgment.

Policy/rationale.  The borrowers contended that the lender’s damages witness was not qualified to lay the foundation for admission of the damages exhibits because he worked for the plaintiff lender’s predecessor and not directly for the plaintiff.  Among other points, the borrowers relied upon the Holmes decision related to credit card debt, about which I wrote on 1/13/19.  The Court distinguished Hussain from Holmes, however: 

Unlike the circumstances in [Holmes] where the [witness was] attempting to lay a foundation for the records of another business that had sold its accounts, [the witness here] was testifying on behalf of a company for whom he worked that had merged with another.  As [the original lender] no longer exists, [the successor lender] is vested with all the rights, duties and records that previously were [the merged lender’s] under Indiana corporate law. 

Just as importantly, the evidence in Hussain established that the subject loan had been integrated into the plaintiff lender’s software system, about which the witness had personal knowledge.  Among other things, the witness testified that, with respect to the debt, “he personally [ran] the numbers based upon the payments that were made on [the borrowers’] loan and determined that the amount due was consistent with what was reflected in the bank's documents.”  The Court ultimately agreed with the trial court that the witness laid the proper foundation for the damages exhibits under the business records exception to the hearsay rule.

Related posts. 

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I represent parties involved in foreclosure cases. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.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 Court of Appeals Mortgage Foreclosure Opinion, II of III: Liability – Evidence Teachings

Lesson.  In contested motions for summary judgment, lenders should not forget to point to the entire record before the court.  Often borrowers will have admitted key facts in their pleadings or offered detrimental evidence themselves while trying to defend certain elements of the case.

Case cite.  Hussain v. Salin Bank, 143 N.E.3d 322 (Ind. Ct. App. 2020)

Legal issue.  Whether the affidavit in support of the lender’s motion for summary judgment constituted inadmissible hearsay. 

Vital facts.  Please click here for my first post about Hussain that contains some background.  In addition to the “first to breach” argument discussed in that post, the borrowers defended the mortgage foreclosure action on evidentiary grounds.  The plaintiff lender had merged with the original lender.  In support of its summary judgment motion, the lender tendered an affidavit from an employee of the current lender who had also served as a records custodian of the original lender. 

Procedural history.  The trial court granted summary judgment for the lender on liability but ordered a trial on damages.  This post relates to the summary judgment ruling on liability.   

Key rules.

    General ruleIndiana Trial Rule 56(E) controls the admissibility of summary judgment affidavits and prohibits hearsay while requiring personal knowledge.  Indiana Evidence Rule 801 defines hearsay, which generally means on out-of-court statement offered for the truth of the matter asserted.    

        An exception.  The Court specifically pointed to language in T.R. 56(E) precluding exhibits “not previously self-authenticated….”  In Indiana, “once evidence has been designated to the trial court by one party, that evidence is deemed designated and the opposing party need not designate the same evidence.”

        Another exceptionInd. Evid. R. 803(6) is the business records exception to the hearsay rule.  (There are many, many exceptions to the hearsay rule.)

Holding.  The Court of Appeals affirmed the trial court’s summary judgment on liability.

Policy/rationale.  The borrowers argued that the lender’s affidavit was based upon inadmissible hearsay and that, without the affidavit, the lender failed to prove a default under the loan.  One of the legal bases of the borrowers’ argument was the Court of Appeals’ holding in the 2019 Zelman case, about which I wrote here, which reversed a trial court’s summary judgment due to a flawed affidavit.  The Court in Hussain was not persuaded by the borrowers’ argument and distinguished its holding in Zelman as follows:

Unlike [Zelman], the [affiant/witness in Hussain] was not an employee of a third party who had purchased the [borrowers’] debt.  He was an employee of [the current lender] that had merged with [the prior lender].  [The witness] was the custodian of the records for [the prior lender], and the designated evidence established that he had acquired knowledge of the [borrowers’] debt by personally examining the business records relating to their loan.  Moreover, [the witness] did not refer to unspecified business records as did the affiants did in … Zelman.  Instead, [his] affidavit specifically identified the promissory note and mortgage to which he referred.

Of equal importance to the outcome in Hussain was the fact that many of the key documents referenced in the affidavit were already of record in the case and thus had been authenticated by the borrowers themselves. 

Therefore, notwithstanding any alleged flaws in [the lender’s affidavit], the [borrowers] admitted that they executed the note and mortgage, along with their failure to pay.  And that evidence was already before the court.  The [borrowers] further admitted that they made payments on the note and they submitted their payment history as part of the designated evidence.  That history demonstrated that they had not made a payment since November 27, 2015, yet the note required payments through September 16, 2023.  That evidence was not disputed, and it established all the required elements for a mortgage foreclosure.  For all these reasons, the trial court did not err in admitting [the] affidavit into evidence.

Related posts. 

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I represent parties involved in foreclosure cases. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.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.


Recent Indiana Mortgage Foreclosure Opinion, Post I of III: Liability – First Material Breach Doctrine

Lesson.  Indiana’s “first to breach” defense would appear to be an exceedingly difficult theory for borrowers to establish in most foreclosure cases. 

Case cite.  Hussain v. Salin Bank, 143 N.E.3d 322 (Ind. Ct. App. 2020)

Legal issue.  Whether the lender was precluded from foreclosing based upon its alleged contract breach, which purportedly occurred before the borrowers’ default.

Vital facts.  Hussain involved a typical mortgage loan.  The promissory note had a 15-year term and was secured by the borrowers’ real estate.  From the outset, the borrowers struggled to make payments, and the lender assessed a series of non-sufficient funds fees and late fees.  The loan ended up in the borrowers’ Chapter 13 bankruptcy case that was later dismissed.  The lender then pursued a state court mortgage foreclosure action and filed a motion for summary judgment in the case.

The liability (loan default) aspect of the action surrounded the so-called “first to breach” rule.  Specifically, the borrowers tendered an affidavit stating that the lender (not the borrowers) initially breached the promissory note by assessing a $20 NSF fee to the principal due on the loan.  The borrowers had bounced a check due at the closing of the loan.  Nonetheless, the borrowers contended that the NSF fee amounted to a “unilateral, unauthorized alternation in the terms of the Note by [the lender].”

Procedural history.  The trial court granted summary judgment for the lender on liability.

Key rules.

The Court in Hussain outlined Indiana’s elements for a prima facie case for the foreclosure of a mortgage: 

(1) the existence of a demand note and the mortgage, and (2) the mortgagor's default….  Ind. Code § 32-30-10-3(a) provides that “if a mortgagor defaults in the performance of any condition contained in a mortgage, the mortgagee or the mortgagee's assign may proceed ... to foreclose the equity of redemption contained in the mortgage.”  To establish a prima facie case that it is entitled to foreclose upon the mortgage, the mortgagee or its assign must enter into evidence the demand note and the mortgage, and must prove the mortgagor's default….  Once the mortgagee establishes its prima facie case, the burden shifts to the mortgagor to show that the note has been paid in full or to establish any other defenses to the foreclosure.

The Court cited to Indiana’s “first material breach doctrine,” which provided:

When one party to a contract commits the first material breach of that contract, it cannot seek to enforce the provisions of the contract against the other party if that other party breaches the contract at a later date….  Whether a party has materially breached an agreement is a question of fact and is dependent upon several factors including:

(a) The extent to which the injured party will obtain the substantial benefit which he could have reasonably anticipated;

(b) The extent to which the injured party may be adequately compensated in damages for lack of complete performance;

(c) The extent to which the party failing to perform has already partly performed or made preparations for performance;

(d) The greater or less hardship on the party failing to perform in terminating the contract;

(e) The willful, negligent or innocent behavior of the party failing to perform;

(f) The greater or less uncertainty that the party failing to perform will perform the remainder of the contract.

Holding.  The Court of Appeals affirmed the trial court’s summary judgment as to liability.

Policy/rationale.  The Court first pointed to language in the note about how payments are to be applied:  “payments are first to be applied to any accrued unpaid interest, then to principal, and then to any unpaid collection costs.”  The Court reasoned: “the note provides that collection costs will be assessed to the [borrowers], and they do not dispute that the NSF fee is a collection cost.”  Further, the lender had established that it performed its obligations under the loan by funding the principal at closing.  “The $20 NSF fee in no way prevented [the borrowers] from obtaining the benefit of the loan.”  Even more, the evidence established that it was the borrowers who breached by failing to make the initial payment due under the loan and that there was no evidence the lender “committed a material breach of the loan prior to that time.” 

I suspect that, at the trial court level, the proceedings were more involved with regard to the minutia surrounding the theoretical applicability of the “first to breach” rule, but in the end the Court of Appeals was having none of it.  The meatier parts of the Hussain opinion deal with the issues of damages and evidence, and I will address those matters in the coming days. 

Have a great Thanksgiving.  

Related posts.  

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I represent parties involved in foreclosure cases. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.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.


“Economics Of The Transaction” Establish Land Contract Rather Than Lease

Lesson. When determining whether a real estate agreement is a lease or a land sale contract, follow the money.

Case cite. Vic’s Antiques v. J. Elra Holdingz, 143 N.E.3d 300 (Ind. Ct. 2020)

Legal issue. Whether an agreement was a lease (subject to an eviction remedy) or a land sale contract.

Vital facts. Elra, as the owner, and Vic’s, as either the purchaser or the tenant, executed a “Lease Agreement” for a building and 3+ acres of real estate. Vic’s agreed to pay $1,265.30/month for twenty years with an option to purchase the property for $1.00 at the end. The opinion details the terms and conditions of the agreement. The language of the contract controlled the outcome – not testimony or any other documents. Of paramount importance were “the economics of the transaction.”

Procedural history. About a year after the signing of the agreement, Elra filed an eviction action against Vic’s based, not on a payment default, but on other breaches related to the maintenance and condition of the property. The trial court ruled in Elra’s favor and ordered Vic’s to vacate the property. Vic’s appealed.

Key rules. In Indiana, “the transaction's purported form and assigned label do not control its legal status.” Therefore, “to determine whether the agreement is a lease or a land sale contract, [Indiana courts] look beneath the surface of the agreement and … consider the substance of the agreement to determine the intent of the parties.”

“'In effect,' a land sale contract is 'a sale with a security interest in the form of legal title reserved by the vendor' and that the 'retention of the title by the vendor [owner] is the same as reserving a lien or mortgage.' In other words, in a land sale contract, the vendor retains legal title to the real estate until the vendee pays the total contract price. And … a land sale contract is ‘in the nature of a secured transaction.’”

The Court also looked to the UCC for help in making its decision as “essentially the same rules which distinguish a lease from a sale under the UCC apply….”

Holding. The Indiana Court of Appeals reversed the trial court and concluded that the agreement was a land contract, which could not give rise to an eviction.

Policy/rationale. The Vic’s opinion is excellent in terms of how the Court relies upon and analyzes the financial aspects of the deal. Vic’s is a valuable resource for parties or counsel on the origination side of such deals and on the back-end enforcement of them. Although the facts are dense, there is a road map within the case about how to create a land contract or how to create a lease with an option to buy so as to avoid land contract status—depending upon your objectives. This case, together with the Indiana Supreme Court’s decision in Rainbow Realty (link to my 8/22/20 post here), have really helped define this area of Indiana law over the last couple years.

The Court’s comments below capture the essence of its overall rationale, which zeroed in on the “economics” of the deal:

In addition, in order to exercise its $1.00 “option to purchase,” Vic's must first have paid a sum equal to 240 monthly payments of $1,265.30, or a total of $303,671.63, which is $103,671.63 more than the purchase price. Elra has failed to account for this additional payment. A simple calculation confirms that this amount represents interest on the $200,000 purchase price.

Amortization is the payment of a debt with interest over time. The agreement provides for the amortization of $200,000 in principal payable in 240 monthly payments of exactly $1,265.30. Solving for the interest rate yields a rate of 4.5%. This amortization is the Rosetta Stone that unpacks and reveals the nature of the agreement. All four of these factors—the principal amount, the number of monthly payments, the amount of each monthly payment, and the interest rate—are integral to the amortization schedule, and each factor depends upon the others.

Interest represents the time value of money. While contract purchasers pay interest on the unpaid principal balance of a land sale contract, lessees do not pay interest on future rent payments. Here, the four factors comprising the amortization show that the monthly payments were not “rent payments” but contract payments of principal and interest on a fully amortized land sale contract.

The Court concluded that, although the contract “contains terms that are consistent with a lease, it is clear from the economics of the transaction that from the outset the parties intended for Vic's to acquire the option property. Accordingly, we can say with confidence that the agreement … is a land sale contract.”

Note: I regret that the opinion in Vic’s did not address the remedy available to Vic’s: foreclosure vs. forfeiture. The Court was on a roll, and the remedy aspect of land contract cases can be just as complicated as determining whether the agreement is or is not a land contract to begin with. Alas, that issue was not ripe for a ruling, and the early termination of the contract weighed heavily in favor of forfeiture anyway.  

Related posts.

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Part of my practice involves handling real estate and loan-related disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.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.


Bank Loses 100k After Failing To Appear At Garnishment Hearing To Prove Right Of Set-Off

Lesson. A bank, as a garnishee-defendant, may claim a right to set-off funds on deposit against amounts its customer owes the bank. However, the bank should appear in court and prove its right. Merely asserting set-off in answers to interrogatories could waive the bank’s claim and result in a loss of the funds.

Case cite. Old Plank Trail Community Bank v. Mattcon General Contractors, 137 N.E.3d 308 (Ind. Ct. App. 2019)

Legal issue. Whether Bank preserved its right to a set-off of the amounts owed under a garnishment order.

Vital facts. In December 2018, a judgment in the amount of $162,178.95 was entered against defendant, Burrink, in favor of plaintiff, Mattcon. In January 2019, Mattcon initiated proceedings supplemental and sought the garnishment of Burrink’s deposit accounts at Bank. Bank, as garnishee-defendant, answered Mattcon’s interrogatories and identified two accounts with $97,944.07 on deposit. The answers went on to state “Bank has claimed set-off rights as past loans due to Bank.” However, Bank provided no documents to support the set-off, and Bank did not attend a hearing on the court’s order to appear. The trial court determined that Bank “waived any defenses as to garnished funds” and entered a final order in garnishment that required Bank to turn over the $97,944.07 to Mattcon.

Procedural history. The trial court ruled that Bank waived its right to set-off the garnished funds. Bank appealed.

Key rules. A garnishment proceeding “is a means by which a judgment creditor seeks to reach property of a judgment debtor in the hands of a third person, so that the property may be applied in satisfaction of the judgment.” A judgment creditor “has the initial burden of proving that funds are available for garnishment.” The burden then shifts to the garnishee-defendant to “demonstrate a countervailing interest in the property or assert a defense to the garnishment.”

A depositary bank generally “has the right of set-off after receipt of notice of garnishment.” However, that right of set-off can be waived. Waiver means “the voluntary relinquishment of a known right.” The “silence or failure to act will not constitute waiver unless the holder of the right fails to speak or act when there is a duty to speak or act.”

Holding. The Indiana Court of Appeals, guided by the lofty “abuse of discretion” standard, affirmed the trial court’s final order in garnishment.

Policy/rationale. Bank contended that, even though it did not attend the proceedings supplemental hearing, the interrogatory answers provided adequate notice of the set-off rights and, in turn, permitted Bank to set-off any amounts owed after Bank received notice of the garnishment proceedings. The Court refused to reverse the trial court’s decision related to Bank’s “potential” right to set-off:

[Bank] failed to include or reference any relevant loan documents, payment histories, statements of outstanding balances, or notices of default that would support its claimed set-off rights. Moreover, [Bank] had the duty, knowledge, and opportunity to present and prove the claimed defense to garnishment at the February 8 hearing. It failed to do so, despite the trial court's order that the claims or defenses were to be presented at the time and place of the hearing.

While the result seems a little harsh, the system is set up to be deferential to the trial court, which conducted the proceedings first-hand. Bank didn’t quite do enough to protect its interests here.

Related postSet-Off Versus Garnishment: Rights To And Priorities In Deposit Accounts
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My practice includes representing parties, including judgment creditors and lenders, in 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@woodenlawyers.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.


U.S. Supreme Court: FDCPA Statute Of Limitations

The Supreme Court of the United States, in Rotkiske v. Klemm, 140 S.Ct. 355 (2019), held that the Fair Debt Collection Practices Act's one-year statute of limitations "begins to run on the date on which the alleged FDCPA violation occurs, not the date on which the violation is discovered."  15 U.S.C. 1692k(d)   Justice Thomas authored the opinion, which strictly construes the statutory text.  The Court "simply enforce(d) the value judgments made by Congress" and declined to build the so-called discovery rule into the statutory provision.    


Wife Was A “Creditor” In Alleged Fraudulent Transfer Case And Proved The Necessary Fraudulent Intent To Prevail Over Husband In Divorce Case

Lesson. Dumping real estate assets for no value shortly before a judgment, even in a divorce case, could lead to a court order unwinding the transfers under Indiana’s UFTA.

Case cite. Hernandez-Velazquez v. Hernandez, 136 N.E.3d 1130 (Ind. Ct. App. 2019)

Legal issues. Whether a wife was a “creditor” under Indiana’s Uniform Fraudulent Transfer Act? Whether the subject transfers violated the UFTA?

Vital facts. This dispute arises out of a divorce and involves the husband (Husband), the wife (Wife), the husband’s brother (Brother), and the Brother’s longtime girlfriend (Girlfriend). In connection with a decree of dissolution, there was a property division in which Wife was to receive certain parcels of real estate. Although the facts are pretty dense, in a nutshell, shortly before the divorce was to become final, Husband conveyed a bunch of real estate to Girlfriend.

Procedural history. The trial court set aside the conveyances based upon the UFTA. Husband appealed.

Key rules. Ind. Code § 32-18-2-14 sets out how a transfer becomes voidable under Indiana’s UFTA. One key inquiry is whether the transfer was made with the “intent to hinder, delay, or defraud” the creditor.

I’ve written about the test for “fraudulent intent” and the so-called “eight badges of fraud” previously.   

The UFTA defines a “creditor” as “a person that has a claim.” I.C. § 32-18-2-2.

Holding. The Indiana Court of Appeals affirmed the trial court ruling in favor of Wife.

Policy/rationale. Husband first contended that Wife was not a creditor because Brother financed the purchase of the subject real estate from Husband and had the right to direct to the conveyances to Girlfriend. However, the evidence showed that Wife contributed to the original purchases of the real estate, which, in part, had been titled in Wife’s name. The Court concluded the properties were part of the marital estate for purposes of the divorce, thereby rendering Wife a “creditor.”

Husband next argued that the transfer of real estate from Husband to Girlfriend was not made with the “intent to hinder, delay, or defraud” Wife. The Court addressed Indiana’s law of fraudulent intent and found that at least five of the eight badges of fraud were present:

First, the record shows that Husband transferred the properties to [Girlfriend] approximately one month before Wife filed for divorce and when the parties' relationship had already begun to deteriorate. Second, the transfer of these properties greatly reduced the marital estate because the rental properties were substantially all of the family's assets. Third, there is evidence that Husband would retain some benefits over the rental properties. That is, Husband, [Brother], and [Girlfriend] would continue to renovate and manage the properties and collect rent from tenants. Fourth, Husband transferred the properties to [Girlfriend] for little or no consideration. That is, he transferred all the properties to [Girlfriend] for ten dollars. Finally, the transfer of these properties from Husband to [Girlfriend] was effectively a transfer between family members. Although [Brother] and [Girlfriend] have never been married, they have been in a relationship for over thirty years and have three children together. All of this together constitutes a pattern of fraudulent intent.

Related posts.

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Part of my practice is to advise parties in connection with post-judgment collection matters. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.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.


The Indiana Lawyer: Bankruptcy Flood Coming?

This article in The Indiana Lawyer predicts a "flood" of COVID-related bankruptcy filings and quotes a number of local BK lawyers.  That flood, which many predicted in March and April would have occurred by now, has not happened - yet.  But, conventional wisdom suggests it's not a matter of if, but when.  I tend to agree.

The same goes for COVID-related foreclosure filings, both residential and commercial.  Of course the consumer foreclosure moratorium prevented and, in many cases, continues to prevent a tidal wave of residential cases.  The interesting thing is that, at least from what I've seen, commercial foreclosures in Indiana have not spiked at all. 

My understanding is that, if a commercial flood, is coming, it will start with hotels - unless Congress provides some kind of bail out.  Having said that, with the stimulus money, combined with the general attitude of forbearing instead of foreclosing, it's difficult to predict when, or even if, a commercial foreclosure tsunami is near.        


Credit Card's Summary Judgment Reversed Due To Flawed Affidavit

In Zelman v. Capital One, 133 N.E.3d 244 (Ind. Ct. App. 2019), the Indiana Court of Appeals reversed the trial court's summary judgment in favor of a credit card lender based upon the lender's failure to "lay a proper foundation to authenticate the Customer Agreement or credit card statements as business records admissible under Evidence Rule 803(6)'s hearsay exception." 

Respectfully, I don't entirely agree with the Court's analyis, but admittedly I don't handle credit card collection cases.  Nevertheless, the opinion is notable for parties and their counsel who seek summary judgments in debt collection cases.  The Court held:

To support its motion for summary judgment, Bank was required to show that Zelman had opened a credit card account with Bank and that Zelman owed Bank the amount alleged in the complaint.

***

... the Affidavit of Debt did not lay a proper foundation to authenticate the Customer Agreement or credit card statements as business records admissible under [Rule 806].

For the technical details and related law upon which the Court made its decision, please review the opinion.  Key problems surrounded the fact that the affiant was an employee of a third party that had acquired the debt and had not personally examined all of the business records related to the loan.  Again, bear in mind this was not a mortgage foreclosure action or a suit based upon a promissory note.

Zelman is similar to Holmes v. National Collegiate Student Loan Trust, 94 N.E.3d 722 (Ind. Ct. App. 2018) , which dealt with school loan debt and which I discussed on 1/13/19.

Here are some other posts related to Indiana affidavits and summary judgment procedure:

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I represent parties in real estate and loan-related disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.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.

 


Is The Label “Indiana Lender Liability Act” A Misnomer?

In the past, I’ve heard things from secured lenders like:  “you don’t see any exposure to our bank under the Lender Liability Act, do you?” or “surely the borrower won’t countersue us under Indiana’s lender liability statute.”  People are sometimes surprised to learn that the so-called “Indiana Lender Liability Act” (“ILLA”), Ind. Code § 26-2-9, doesn’t list claims or causes of action that can be asserted against a lender.  The ILLA primarily deals with the issue of evidence, specifically the inadmissibility of oral testimony about the terms of a loan.  (Interestingly, the statute’s official title in the Indiana Code is “Credit Agreements.”)  The definitive ILLA case is Sees v. Bank One, 839 N.E.2d 154 (Ind. 2005) (Sees.pdf).  Somewhat amusingly, the Indiana Supreme Court itself struggled with the label: 

In the first reported opinion discussing the statute since its 2002 re-codification, the Court of Appeals refers to it as the “Indiana Lender Liability Act.”  . . .  Sees refers to the statute alternatively as the “Indiana Lender Liability Act” and the “Credit Agreement Statute.”  . . .  Bank One refers to the statute as the “Credit Agreement Statute of Frauds.”  . . .  We agree with the Court of Appeals’ designation and thus refer to the statute as the Indiana Lender Liability Act.

Lender liability, generally.  It is true that “lender liability” is a common phrase used to describe a borrower’s potential claims against a lender due to the conduct of the lender with regard to a particular loan relationship.  Capello & Komoroke, Lender Liability Litigation: Undue Control, 42 Am. Jur. Trials 419 § 1 (2005).  This body of law comprises a wide variety of both statutory and common law causes of action.  One of many examples is the Fair Debt Collection Practices Act.  There are, in fact, a multitude of federal and state laws that could form the basis of a lawsuit against a lender.  The ILLA is not one of those laws, however. 

The ILLA rule.  The essence of the ILLA can be found in section 4, which provides that “a [borrower] may assert a claim . . . arising from a [loan document] only if the [loan document] . . . [1] is in writing; [2] sets forth all material terms and conditions of the [loan document] . . . ; and [3] is signed by the [lender] and the [borrower].”  The ILLA effectively protects lenders from certain kinds of liability.  That’s why the label “Lender Liability Act” seemingly is inconsistent with the law’s true nature. 

Statute of frauds.  Sees provides an excellent discussion of the statute, its history and its policies.  In a broad sense, the legislative intent behind the statute is to protect lenders from lawsuits by borrowers (or guarantors) asserting fraudulent claims.  Hence the “in writing” requirement in the ILLA.  As such, the ILLA actually is a “statute of frauds,” which at its core is a procedural law about the exclusion of certain testimony of a witness at trial.  Black’s Law Dictionary defines “statute of frauds” as “. . . no suit or action shall be maintained on certain classes of contracts or engagements unless there shall be a note or memorandum thereof in writing signed by the party to be charged . . ..”  As noted by Judge Posner in Consolidated Services, Inc. v. KeyBank, 185 F.3d 817 (7th Cir. 1999):

 [T]he principle purpose of the statute of frauds is evidentiary.  It is to protect contracting or negotiating parties from the vagaries of the trial process.  A trier of fact may easily be fooled by plausible but false testimony to the existence of an oral contract.  This is not because judgment or jurors are particularly gullible, but because it is extremely difficult to determine whether a witness is testifying truthfully.  Much pious lore to the contrary notwithstanding, ‘demeanor’ is an unreliable guide to truthfulness.

Be a wise guy.  Next time someone asks you whether your commercial lending institution may have exposure to a lawsuit or a counterclaim based on Indiana’s Lender Liability Act, you can explain to them that the ILLA does not really articulate any theories of liability.  Rather, the ILLA limits breach of contract actions to the terms of the loan that are memorialized.  Again, this is not to say that there is no “lender liability” in Indiana.  The generic term “lender liability” is proper when referring to the many possible claims of wrongdoing that exist.  In short, lenders can be exposed to liability, but they shouldn’t be held liable in Indiana for any alleged violations of loan terms unless such terms (promises or duties) are in writing, signed by all parties. 

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Part of my practice includes defending banks in lawsuits. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.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 Sheriff's Sale Update

The COVID-related impact upon Indiana sheriff's sales has had a few layers:

    1.    The first involved Governor Holcomb's moratorium on residential foreclosure activity. Click here for more on that subject. That ended July 31, 2020, and some sheriff’s sales occurred in August. For example, after cancelling its monthly sales from March through July, the Marion County (Indianapolis) civil sheriff held a sale on August 21st. Click here for more information on Marion County sales.

    2.    The second layer surrounded the federal mandate. Despite the expiration of the state suspension, there still is a moratorium on sales of (and, in fact, foreclosure actions involving) FHA-insured mortgages. This freeze extends to year-end. Click here for a press release and here for my 4/6/20 post about the CARES Act.

    3.    The third is that neither the federal nor the state orders impacted commercial (business) foreclosures or sales. Nevertheless, it does not appear that any commercial foreclosure sales occurred this Spring or early Summer. I could be wrong, but as a practical matter, my understanding is that sheriff’s sales simply stopped, even for commercial real estate.

    4.    The fourth and more subtle layer of COVID's impact upon Indiana sheriff’s sales relates, not to economic relief, but to safety and social distancing. (This might explain why no commercial sales happened.) As I’ve written here previously: local rules, customs, and practices control county sheriff’s sales. Thus, there is a certain degree of latitude that each county has, or is taking, with respect to whether to proceed with sales during the pandemic. A quick survey of the websites of SRI and Lieberman, two private companies that hold sheriff’s sales for select counties, shows that several sheriff’s offices in Indiana still are not having sales, despite the termination of the state and federal moratoria. My understanding is that these continued delays are based upon public health reasons and/or a county sheriff's interpretation of local social distincing guidelines.  

The upshot is to contact the county sheriff’s office, either by phone or via the internet, to determine exactly what’s going on with your particular case as the COVID situation continues to unfold.

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I represent parties in connection with foreclosure cases and sheriff’s sales. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.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.


REAL ESTATE FINANCING TIDBITS: Consistency In Both the Form and Substance Of An Indiana Land Contract Is Essential To Post-Breach Enforcement

Standard Operating Procedure.  Traditional real estate financing involves a purchase evidenced by a deed, coupled with a promissory note secured by a mortgage.  The seller typically (but not always) is out of the picture because title transfers at closing.  The seller receives the full purchase price in exchange for delivering a deed to the buyer.  (The exception is when the seller takes back a note and mortgage and thus become the lender/mortgagee, but most transactions are financed by a third party.)  In a conventional sale, what remains post-closing is a lien on the real estate that serves as collateral for the loan.  If the new owner (borrower/mortgagor) defaults under the loan, the lender/mortgagee has the right to sue for the debt and foreclose its mortgage. 

Purchase Without A LoanA land contract is another, albeit less conventional, form of real estate financing.  The deal normally requires the buyer to make payments over time to the seller (the owner).  In many instances, the contract will require a down payment and/or a large balloon payment.  Only after the buyer fully pays the contract price does the buyer get a deed and become the owner.  In the interim, although the buyer gets to possess and occupy the real estate, legal title remains with the seller, although something called equitable title vests with the buyer.  See Skendzel v. Marshall, 261 Ind. 226, 234, 301 N.E.2d 641, 646 (1973) (“Legal title does not vest in the vendee [buyer] until the contract terms are satisfied, but equitable title vests in the vendee [buyer] at the time the contract is consummated.”)  One might say that the seller is a hybrid between a landlord and a bank.  Usually, but not always, these transactions apply to situations where the buyer is unable or unwilling to get a traditional loan, or to informal deals between family and friends.

Rights Upon Breach?  Indiana substantive law and the procedural rules related to mortgage foreclosures are fairly settled, which is to say that the parties’ rights and remedies are well established.  This is not the case with land contracts, which may seem simple to close yet can be complicated to enforce.  When there is a breach of the agreement, the dispute may look and feel like an eviction proceeding, a mortgage foreclosure action, or both.  Frankly, lawyers and judges struggle with how best to handle land contract disputes, and the parties themselves rarely understand what can or should happen if the deal goes bad.    

I attribute this potential complexity to the overlapping ownership and possessory rights of the parties.  Should the contract be treated like a lease (possession only) or like a mortgage (lien/ownership)?  Upon a default, should the seller/owner be permitted to simply evict the buyer, or should the seller be forced to obtain a foreclosure decree and have a sheriff’s sale?

Sale Or Lease?  When faced with a purported land contract enforcement action, one should examine whether the contract fits the mold of a sale versus a lease.  The answer to this question will control the remedies upon the default.  (By the way, these issues are not unique to real estate law.)  In a standard land contract dispute, the owner/seller will want the buyer out of the property asap with as little legal and practical hassle as possible.  In other words, the owner will want to evict the buyer, a remedy known as forfeiture in this context.  On the other hand, the buyer may want to protect its alleged equity in the real estate or, in other words, will want credit toward ownership for the payments made.  This is to say that the buyer may want the rights attendant to mortgage foreclosure actions (time, right of redemption, sheriff’s sale process, etc.).  

The Rainbow Realty Case

    The Issue.  This brings me to today’s topic, last year’s Indiana Supreme Court opinion in Rainbow Realty Group v. Carter, 131 N.E.3d 168 (Ind. 2019).  The decision is interesting and impactful on many levels for non-traditional lenders, real estate developers, and landlords.  For purposes of my blog and particularly today’s post, however, I’ll zero in on the Court’s discussion of whether the written agreement was a land contact or a lease.  Were the parties to the dispute sellers/buyers or landlords/tenants?  Unlike most land contract disputes, the buyers in Rainbow wanted the agreement to be a lease so they could countersue for damages.

    The Facts.  The contract in Rainbow was labeled a “Purchase Agreement (Rent to Buy Agreement).”  The language in the agreement clearly expressed an intent to be a thirty-year land contract as opposed to a lease, although the first two years of payments were in fact for “rent.”  If the buyer performed for the first two years, the parties would execute a separate “Conditional Sales Contract (Land Sale)” for the remaining 28 years.  The seller contended the agreement was a land contract, and the buyer asserted the agreement was a lease.  The heart of the dispute was whether the seller could be liable to the buyer for damages for failing to comply with Indiana’s residential landlord-tenant statutes, Ind. Code 32-31.  The seller contended it was exempt from those laws.

    The Holding.  The Court concluded that the agreement was not a land contract, even though wording in the document said things like “My intent is to purchase … [and] I am not renting the property….”  Indeed the Court conceded “that most of the transaction’s terms and formal structure suggest this was a sale … necessitated by the Couple’s inability to afford a down payment for the House.”  Sometimes, the label or title to a contract, or written stipulations in the contract, are immaterial.  Rarely does form prevail over substance.  The Court in Rainbow said:  “the transaction’s purported form and assigned label do not control its legal status.” 

    The Rationale.  The key appeared to be that the agreement operated as a lease for two years with a contingent commitment to sell, which sale would require a separate contract.  Importantly, “if the Couple defaulted before executing the subsequent ‘Land Contract’, or they failed to make payments or to close this latter transaction, they were subject to eviction and forfeiture of all payments made.”   The opinion reads:

During the Agreement's twenty-four-month term, [the seller] reserved for themselves a landlord's prerogative to enter the premises, restricted the Couple's use of the land, and, upon the Couple's default, evicted them as if they were tenants and kept their “rental payments”.  These features, taken together, are particular to a residential lease. Thus, the parties' Agreement—a purported rent-to-buy contract—is not a “contract of sale of a rental unit” and thus is not exempt from the Statutes' coverage under Section 32-31-2.9-4(2).

The Policy.  The seller’s structure in Rainbow backfired.  There is a lot more to story, so please read the opinion if you are interested in more detail.  There are consumer rights themes built into the Court’s findings.  In a nutshell, following a payment default by the buyer, the seller sued for damages and repossession, not unlike a land contract dispute.  To the chagrin of the seller, which appeared to be offering financing and housing to low income individuals, the seller ended up facing a judgment for money damages and attorney fees as a de facto landlord.  The Court held that the structure of the deal in Rainbow, namely an initial two-year rental term followed by a subsequent sale term, was not a land contract, at least for the first two years, making the seller a landlord.  Here is the Court’s policy statement:

If this case were simply about the parties' freedom of contract, the [buyers] would have no legal recourse. Plaintiffs disclaimed the warranty of habitability, informed the [buyers] that the House required significant renovation, and forbade them from taking up residence there before it was habitable. The [buyers] agreed to these terms but soon thereafter violated them. Were it not for the governing Statutes, Plaintiffs would be entitled to relief against the Couple for having breached their Agreement. But the Statutes are not about vindicating parties' freely bargained agreements. They are, rather, about protecting people from their own choices when the subject is residential property and their contract bears enough markers of a residential lease. Unless a statute is unconstitutional, the legislature is entitled to enact its policy choices. The disputed statutes at issue here reflect those choices.

Some Takeaways

    Can’t have it both ways.  The format of a “rent-to-buy” aka a land contract is often ambiguous and places the owner in a hybrid role as both a landlord and seller.  Seemingly, in Rainbow the development company drafted an agreement that was a combination of a lease and a land contract.  It wanted the document classified as a land contract so it did not have the responsibilities of a landlord.  At the same time, the developer wanted the benefit of a lease for the first couple of years so it could easily evict the buyer if he or she did not pay.  Parties entering into these types of agreements should be wary of how their contract will be characterized.  Both the format and substance of the agreement should be consistent to avoid any confusion regarding the parties’ rights and obligations.  Not often will the law allow one to have its cake and to eat it, too.

    Be clear.  If as a seller you want to be able to retain ownership and simply evict an occupant after he/she fails to make payment, then you should expect the court to treat the agreement as a landlord-tenant arrangement.  If on the other hand you want to sell the property through payments over time, the form and substance of the agreement should make it clear that the deal is to convey ownership, and you should recognize that equitable title and its associated rights vest with the buyer.

    My two cents.  Finally, in case you’re wondering, I personally would never recommend entering into a land contract, as either a seller or a buyer.  There are too many risks and uncertainties.  With leases or loans, everyone – including the courts – knows where the parties stand.  If traditional financing isn’t an option, seller financing in the form of a standard note and mortgage is, in my view, better than a land contract.

(Thanks to my colleague David Patton for his help with this article.)

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I represent parties in real estate and loan-related disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.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.


Email Evidence Of Alleged Loan Modification And Promissory Estoppel Defeats Auto Dealer Lender’s Summary Judgment Motion

Lesson. Lenders, particularly those that are not conventional banks, should proceed carefully when entering into and executing upon loan modification or workout discussions. An innocent or well-intended email or phone call could come back to haunt you.

Case cite. SWL v. Nextgear, 131 N.E.3d 746 (Ind. Ct. App. 2019)

Legal issues. Whether a “floor plan” finance company was entitled to summary judgment on the borrower’s defenses, which were (1) that the lender modified its loan or (2) was otherwise barred from enforcing the default based upon promissory estoppel.

Vital facts. Plaintiff lender and defendant borrower, a car dealer, entered into a promissory note and security agreement in which the lender agreed to extend a revolving line of credit to the borrower. The borrower used the money to buy vehicles at auctions. As part of the financing arrangement, the parties agreed to a payment schedule detailing, among other things, the money the borrower was required to repay for each vehicle it purchased with the lender’s funds.

At some point, the borrower became delinquent on its payments, and the parties began discussing how to proceed. On the one hand, there was evidence that the borrower’s plan was to liquidate its inventory and pay off the loan. On the other hand, there was evidence, primarily in the form of an email exchange, in which a representative of the lender pushed for and stipulated to a plan to salvage the relationship. The borrower claimed that, in reliance on the email exchange, it made a couple more payments in an apparent effort to pay down the loan and continue the lending relationship. Something broke down, however, causing the lender to repossess the borrower’s remaining vehicles and file suit to collect the balance owed on the loan.

Procedural history. The lender filed a breach of contract action. The borrower asserted the defenses of modification and promissory estoppel. The trial court granted the lender’s motion for summary judgment, and the borrower appealed.

Key rules.

    Oral modification. Despite language in a contract expressing that it can only be modified by written consent, a contract “may nevertheless be modified orally.” Moreover, modification “can be implied from the conduct of the parties.” Intent is what matters – the parties’ “outward manifestations of it” or, in other words, “the final expression of that intent found in conduct” as opposed to one’s subjective intent.

    Promissory estoppel. The doctrine provides that, where parties believed they had a contract but in fact did not, equity applies to hold the parties to their representations to each other. To demonstrate that the doctrine of promissory estoppel applied in SWL, the borrower was required to show:

(1) a promise by the promissor; (2) made with the expectation that the promisee will rely thereon; (3) which induces reasonable reliance by the promisee; (4) of a definite and substantial nature; and (5) injustice can be avoided only by enforcement of the promise.

In SWL, the “promissor” was the lender, and the “promisee” was the borrower.

As an aside, please note that Indiana's Lender Liability Act did not apply to this case because the plaintiff lender in SWL was not a conventional bank.  For more, click on the Related Posts below.

Holding. The Indiana Court of Appeals reversed the summary judgment in favor of the lender and remanded the case for trial.

Policy/rationale. First, it’s important to remember that SWL was a summary judgment case, not a trial. Issues of fact, mainly surrounding the modification discussions and the parties’ intent, prevented a pretrial judgment for the lender. If the case were tried, the lender still could prevail.

With regard to the modification issue, the borrower designated evidence to raise a genuine issue of material fact concerning whether the lender intended to modify the terms of the promissory note when the lender’s rep spoke with the borrower’s rep and sent the email. “Because the parties' conduct is subject to more than one reasonable inference, we cannot say as a matter of law that the parties did not modify the Contract.”

As to the promissory estoppel matter, the lender keyed in on the legal requirement that the alleged promise must be of a “definite and substantial nature.” The borrower had in fact been in default on vehicles other than those addressed in the fateful email at the heart of the case. However, the borrower’s affidavit in opposition to the summary judgment motion raised questions surrounding the matter of default. The Court reasoned:

[The borrower’s] affidavit is sufficient evidence to create a genuine issue of material fact concerning whether [the borrower] was in default when [the lender sent] the February email. And even if [the borrower] were in default as of February 24, 2016, the designated evidence suggests that, because [the borrower] had a “lengthy impeccable history,” [the lender] proposed a course of action to cure any default and for [the borrower] to maintain its good standing. We therefore cannot say as a matter of law that [the lender] did not make a definite and substantial promise to [the borrower].

Related posts.

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I represent parties in disputes arising out of loans. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.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.


Tax Deed Denied Because Redemption Notice Suggested The Amount To Redeem Included Surplus Funds

Lesson. A tax sale purchaser may not obtain a tax deed if the statutory redemption notice inflates the redemption amount. Such notices should not include any overbid/surplus funds as being required for redemption.

Case cite. Pinch-N-Post, LLC v. McIntosh, 132 N.E.3d 14 (Ind. Ct. App. 2019)

Legal issue. Whether tax sale purchaser’s post-sale statutory redemption notice substantially complied with Indiana law despite erroneously including purchaser’s overbid amount.

Vital facts. Tax sale purchaser (“Purchaser”) timely sent the post-sale statutory redemption notice to the owner/tax payer (“Owner”). This is sometimes referred to as the “4.5 Notice” based upon the relevant statute. Owner did not redeem the property from the tax sale.  The contents of the 4.5 Notice were at issue in McIntosh. Purchaser bought the tax sale certificate for $8752.00, which included an overbid (surplus) amount of $4679.29. The 4.5 Notice erroneously listed the overbid as a component of the redemption amount.

Procedural history. Purchaser filed a petition for tax deed, and Owner objected. After a hearing, the trial court denied the petition, and Purchaser appealed.

Key rules. The Indiana Court of Appeals summarized the tax sale process:

the sale proceeds first satisfy the property tax obligation for the property, then satisfy certain other qualifying tax obligations of the property owner, with any surplus going into the Surplus Fund. In other words, the Surplus Fund is comprised of the overbid. The Surplus Fund may also be used to satisfy taxes or assessments that become due during the redemption period. Finally, if the property is redeemed, the tax-sale purchaser has a claim on whatever is in the Surplus Fund, and, if a tax deed is issued, the original owner does.

A 4.5 Notice arises out of Indiana Code 6-1.1-25-4.5. The notice must include, among other things, “the components of the amount required to redeem” the property from the sale. Indiana Code 6-1.1-24-6.1(b) details those components. The overbid/surplus is not one of the components.

Holding. The Court affirmed the denial of the petition for tax deed but remanded the case with instructions for the trial court to order a new 120-day redemption period with a new 4.5 Notice.

Policy/rationale. The trial court found that the 4.5 Notice “greatly overstated” the redemption amount. The Court of Appeals agreed that the notice “would have led a reasonable person to conclude that the total redemption amount was far greater than it actually was….” The Purchaser made a number of arguments in support of its theory that the 4.5 Notice substantially complied with the applicable statutes and was not inaccurate. However, the Court rejected the Purchaser’s position and reasoned that the notice “asked [Owner] to jump through too many hoops to discover the true redemption amount, a situation that only existed because [Purchaser] - misleadingly and without justification – included the overbid in the first place.”

Related posts.

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I sometimes am engaged by mortgage loan servicers or title companies to represent lenders/mortgagees in real estate-related disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.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.


Court Invalidates Mortgages In Favor Of Creditor In Judgment Lien Foreclosure Action

Lesson. If you are trying to collect a judgment and suspect the judgment debtor granted a bogus mortgage to neutralize the judgment lien, then study the description of the purported debt in the mortgage and investigate the debt’s nature. You may be able to invalidate the mortgage lien.

Case cite. Drake Investments v. Ballatan, 138 N.E.3d 964 (Ind. Ct. App. 2019) (unpublished, memorandum decision)

Legal issue. Whether the subject mortgages were invalid, rendering priority in title to the judgment lien.

Vital facts. Judgment creditor Ballatan obtained a 125k judgment against Huntley on 9/28/07. While the underlying action was pending but before the entry of judgment, Huntley granted mortgages to her son on four parcels of real estate. The one-page mortgages indicate that Huntley agreed to pay her son an aggregate amount of 830k secured by the real estate. The son testified that Huntley granted the mortgages “in exchange for [son] taking care of [mom’s] living expenses….” Three years later, the son paid Huntley 30k for title to all the real estate. Then, the son transferred ownership of the four parcels to Drake Investments. The son was the president of Drake.

Procedural history. Ballatan filed suit to foreclose his judgment lien against the real estate formerly owned by Huntley, the judgment debtor. Drake asserted that the mortgages had priority over the judgment lien. The trial court granted summary judgment in favor of Ballatan and against Drake, which appealed.

Key rules.

Indiana Code 32-29-1-5 defines the proper form for mortgages in Indiana.

Indiana common law provides that mortgages must secure a debt that must be described in the document:

The debt need not be described with literal accuracy but it ‘must be correct so far as it goes, and full enough to direct attention to the sources of correct information in regard to it, and be such as not to mislead or deceive, as to the nature or amount of it, by the language used.’ It is necessary for the parties to the mortgage to correctly describe the debt ‘so as to preclude the parties from substituting debts other than those described for the mere purpose of defrauding creditors.’ As our federal sister court has observed, ‘most Indiana cases have examined the description of the debt as a whole to decide whether it puts a potential purchaser on in essence inquiry notice of an encumbrance, and whether it is specific enough to prevent the substitution of another debt.’

Holding. The Indiana Court of Appeals affirmed the trial court and held that the mortgages were invalid.

Policy/rationale. The Court’s opinion has a lengthy and thorough discussion of what constitutes a valid mortgage in Indiana, in particular the requirement for the description of the underlying debt. In Drake, the mortgages referred to promissory notes for the purported debts, but Drake never produced the notes. In fact, the only evidence was that the mortgages secured payment of future living expenses for Huntley. In other words, Huntley did not owe her son money upon execution of the mortgages. The mortgages also failed to include a date for repayment as required by statute. “One cannot tell from looking at the [mortgages] when [son’s] purported mortgage interest … was scheduled to expire.” Thus, the descriptions of the debts were inaccurate. Further, the Court concluded that the inaccuracies were “sufficiently material” to mislead or deceive as to the nature and amount of the debt. The mortgages made no connection between, or mention of, the debt and the living expenses. “The descriptions of the debts are so vague that they do not preclude [Huntley] and [son] from substituting other debts for the debts described.”

Related posts.

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I represent judgment creditors and lenders, as well as their mortgage loan servicers and title insurers, entangled in lien priority disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.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's Recording Law Change, Effective July 1

I'm passing along information distributed by the Indiana State Bar Association.  For today's content, all the credit goes to the ISBA:   

On July 1, 2020, an obscure change to an Indiana recording statute becomes effective, requiring lawyers to change how they prepare deeds, mortgages, powers of attorney, affidavits, and other instruments that must be recorded in an Indiana County recorder’s office.

The ISBA has drafted a directive to provide significant guidance to all members about this change and the sufficiency of signatures and notarial certificates for recording any deed, mortgage, or other paper or electronic instrument after June 30, 2020.

Click here for the ISBA's directive.  


Governor Holcomb's June 30 Order Extending Residential Foreclosure Moritoriaum

Section 1 of the Governor's order addresses residential mortgage foreclosures and follows-up his order order from March 19th, which was the subject of my March 28th post.  Here are the highlights:

  1. Residential mortgage foreclosure actions based upon nonpayment cannot be filed until August 1.
  2. This does not change the federal order that prevents FHA-insured mortgages from being foreclosed through August 31.
  3. Foreclosure actions on vacant or abandoned property can proceed.

Lender’s Failure To Comply With HUD’s Face-To-Face Meeting Requirement Dooms Indiana Mortgage Foreclosure Action

Lesson. A borrower/mortgagor may be able to defeat a foreclosure action if a lender/mortgagee does not comply with HUD regulations designed to be conditions precedent to foreclosure. For example, in certain cases, a failure to have an in-person meeting with the borrower/mortgagor before the borrower becomes more than three full months delinquent in payments, could lead to the dismissal of a subsequent foreclosure case.

Case cite. Gaeta v. Huntington, 129 N.E.3d 825 (Ind. Ct. App. 2019). NOTE: Gaeta is a so-called “memorandum decision,” meaning that, under Indiana law, the opinion is not supposed to be regarded as precedent or cited before any court. Nevertheless, the analysis and outcome are noteworthy.

Legal issue. Whether, in the context of a HUD-insured loan, a lender violated 24 C.F.R. 203.604 by failing to have a face-to-face meeting with the borrower before three monthly installments due on the loan went unpaid and, if so, whether the violation constituted a defense to the lender’s subsequent foreclosure suit.

Vital facts. The nine pages summarizing the underlying facts and the litigation in the Gaeta opinion tell a long and complex story. From the view of the Indiana Court of Appeals, the keys were: (1) the borrower defaulted under the loan by missing payments, (2) the lender failed to have a face-to-face interview with the borrower before three monthly installments due on the loan went unpaid, and (3) the lender filed a mortgage foreclosure action without ever having the face-to-face meeting.

Procedural history. This residential mortgage foreclosure case proceeded to a bench trial, and the court entered a money judgment for the lender and a decree foreclosing the mortgage. The borrower appealed.

Key rules.

24 C.F.R. 203.604(b) requires certain lenders to engage in specific steps before they can foreclose. One of those steps is to seek a face-to-face meeting with the mortgagor (borrower) “before three full monthly installments due on the mortgage are unpaid….” Click here for the entire reg.

There are exceptions to the face-to-face requirement, one of them being if the parties enter into a repayment plan making the meeting unnecessary. See, Section 604(c)(4).

The Court cited to and relied upon its 2010 opinion in Lacy-McKinney v. Taylor, Bean & Whitaker Mortgage, 937 N.E.2d 853 (Ind. Ct. App. 2010). Please click on the “related post” below for my discussion of that case.

“Noncompliance with HUD regulations [can constitute] the failure of the mortgagee to satisfy a HUD-imposed condition precedent to foreclosure.”

Not all mortgages are subject to HUD regs – only loans insured by the federal government.

Holding. The Court of Appeals reversed the trial court’s in rem judgment that foreclosed the mortgage. However, the Court affirmed the money judgment.

Policy/rationale. The Court concluded that the lender’s failure to conduct, or even attempt to conduct, a face-to-face meeting with the borrower before he became more than three months delinquent was a “clear violation” of applicable HUD regs. The lender made several arguments – very compelling ones in my view – as to why it substantially complied with the reg or did not violate the reg to begin with. The trial court agreed. The Court of Appeals disagreed, choosing to apply a strict reading of the law.

See the opinion for more because no two cases are the same, and the outcome could be different in your dispute. The silver lining, if there was one, for the lender was that the in personam judgment on the promissory note stood and thus created a judgment lien on the subject property. The debt was not extinguished - only the mortgage.

Related post. In Indiana, Failure To Comply With HUD Servicing Regulations Can Be A Defense To A Foreclosure Action 
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Part of my practice includes representing lenders, as well as their mortgage loan servicers, entangled in contested residential foreclosures and servicing disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.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.


Marion County (Indianapolis) Sheriff's Sales Will NOT Start Back Up In July

Following-up last week's post (below), we learned this morning that the sheriff's office has postponed the July sale "due to the extended evictions and foreclosures issued by Gov Eric Holcomb through August 1st."  No sale in July.

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Following the COVID-19 cancellations of the March, April, May, and June sales, the Marion County Civil Sheriff's Office is back in business.  The first sale since February will occur on July 15th.  Here is an email distributed by the Real Estate team this morning:

NEW RULES, REGULATIONS AND LOCATION FOR THE JULY SALE.

NEW LOCATION FOR THE JULY SALE - 8115 E. Washington St, Indianapolis IN 46219. Great parking.

SEVERAL WAYS TO LEAVE YOUR DEPOSIT:
You may come between 8:00 a.m. and 10:00 a.m. the morning of the sale, July 15th at 8115 E. Washington St and leave your deposit. However, we will end this process at 10:00 a.m. So if you are in line and the time hits 10:00 a.m. you will not be able to leave your deposit. So our suggestion is that you still come to the City-County Building at 200 E. Washington St 11th Floor conference room the day before the sale between 8:00 a.m. and Noon. Only one person allowed in the conference room at a time. Please social distance in the hallway of 6 feet.

For those of you that are in the pilot program you may still continue to send your registration form and check via email. Teena will stay one hour after the sale at 8115 E Washington St for you to bring your check back or you may also take it downtown to the City County Building right after the sale and Lori will be there to also take your check. Your choice.

It is mandatory that you stay and pick up your check if you did NOT win a bid. We will instruct you on this process the day of the sale.

SOCIAL DISTANCING:

A mask is required at the new location and in the City County Building.
Only bidders that have a paddle will be allowed in the bidding room. Other guest and attorney’s not bidding must go into the conference room. You will be able to hear the bidding process in that room. The conference room is not very large and may be difficult to social distance as per the recommendations of CDC. Please take this into consideration when choosing on whether or not you would like to attend since only 1 bidder is allowed in the bidding room per company/investor.

We will update the website soon as well with these changes. Please feel to contact us with any questions.

RE Team


Please visit our website: https://www.indy.gov/activity/sheriff-real-estate-sales

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I represent parties in connection with foreclosure cases and sheriff’s sales. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.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.


“Debtor” In Alleged Fraudulent Transfer Must Be Liable For Creditor’s Underlying Claim

Lesson. If there is no underlying claim, then there can be no fraudulent transfer.

Case cite. Underwood v. Fulford, 128 N.E.3d 519 (Ind. Ct. App. 2019)

Legal issue. What is a “debtor” under Indiana’s Uniform Fraudulent Transfer Act?

Vital facts. This case arises out of a tangled web of disputes between parties to a real estate transaction. Many suits and many years led to this particular opinion. To cut to the chase, Underwood alleged that Kinney, before he died, conveyed certain properties to his wife for the purpose of defrauding Underwood, a purported creditor of Kinney (later, his Estate). The Underwood decision dealt with both the underlying action for damages and the fraudulent transfer action. The nature of Underwood’s primary claim is not important here. The key is that both the trial court and the Court of Appeals concluded that the Estate owed no money to Underwood.

Procedural history. The trial court dismissed Underwood’s fraudulent transfer claim, and Underwood appealed.

Key rules. Indiana's UFTA, at Ind. Code § 32-18-2-14, generally provides that:

A transfer made … by a debtor is fraudulent as to a creditor, whether the creditor's claim arose before or after the transfer was made…, if the debtor made the transfer ... with actual intent to hinder, delay, or defraud any creditor of the debtor[.]

The statute defines a “debtor” as “a person who is liable on a claim.” I.C. § 32-18-2-2.

Indiana courts previously have declared, “a defendant cannot logically be held liable for a fraudulent transfer … if he is not to be held liable for the creditor’s underlying claim.” In other words, when a “UFTA defendant is not a debtor to the plaintiff, dismissal is proper.”

Holding. The Court affirmed the trial court’s dismissal of the UFTA action.

Policy/rationale. The Court first concluded on a separate contention that Underwood had no claim for damages against the Estate. Based on that premise, the Estate was not a “debtor” under the UFTA. For reasons that frankly are not altogether clear, Underwood continued to press her theory that the Estate was a debtor, but the Court found that she “failed to present a cogent argument” in support of her theory. The outcome is not surprising here, but the discussion is nonetheless noteworthy. For those who may be analyzing the viability of a fraudulent transfer claim, Underwood highlights who can be a “debtor” under the UFTA and why that definition is significant.

Related post. More On Piercing The Corporate Veil In Indiana, And The UFTA
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Part of my practice is to advise parties in connection with post-judgment collection matters. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.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 Supreme Court's 5/29/20 Order Extending Its 3/16/20 Order Related to COVID Relief And Procedures

On May 29, 2020, the Supreme Court entered the following order:  Order Extending Trial Courts' Emergency Tolling Authority and Setting Expiration of Other Emergency Orders.  The latest order follows-up the original order entered March 16, 2020, which I discussed in the following post from that date:  Indiana State Bar Association: COVID-19 Updates for the Legal Community

Be sure to check your relevant county courts for any local measures adopted.  For example, here in Marion County (Indianapolis), the Indiana State Bar Association released the following on May 18th:

We wanted to share the below update from the Marion Superior and Circuit Courts.

The Indiana Supreme Court has required that all Indiana trial courts seek advice and guidance from stakeholders. Based on this advice and guidance, you can expect that the earliest date the Marion Superior and Circuit Courts may return to any in-person hearings would be June 15. This is based on guidance and orders from the Indiana Supreme Court, collaboration with the controller and other city officials, as well as expert medical advice. 

Due to the high number of COVID-19 positive cases and deaths in Marion County, the courts are currently at least two weeks behind Governor Holcomb's Roadmap to Safely Reopen Indiana. The City-County Building is a particularly tough building to comply with the CDC and state/local health department requirements and recommendations. On an average day, 5,000 individuals enter the building, including employees. The city is in the process of engaging a firm with expertise in assisting all branches of government and city/county agencies in operating safely in a COVID-19 environment. This requires modification of the building in many areas. Some examples are installation of plexiglass, how elevators will be used by staff and the public, use of PPE by employees and the public, and what screening measure(s) will be used to enter the building, just to name a few.

With questions about a case, visit mycase.in.gov.

If you need the assistance of court staff, click here to visit the Marion Superior Court’s website for a listing of essential staff, or click here to visit the Marion County Circuit Court website. This is the best way to obtain information about a particular court and/or that court’s practices and policies during this time. While there is a general voicemail for the court system, court-specific phone communication is not possible at this time.


Status Of Marion County Indiana Sheriff's Sales

The Marion County Civil Sheriff's Office issued the following email last week:

The Marion County Sheriff sale for June 17th has been cancelled. These sales will be moved to August. However, your sales that moved from April to the June sale will have to be praeciped again. Please continue to send in your April cost checks.

I should be getting the July sale decrees from the Clerk this Friday. I will reassign your May SFN to the July sale. If you have not let us know the sales you want moved from May to July please let me know no later than Friday, the 15th by Noon.

We continue to work from home for the unforeseeable future. Please stay safe.

RE Team


Judgment Creditor Entitled To Recover Entire Value Of Real Estate Fraudulently Conveyed

Lesson. Although the transferee of real estate fraudulently conveyed theoretically could retain, or receive credit for, money spent to improve or otherwise increase the value of the subject property, the credit will only apply to improvements made after the fraudulent transfer. Otherwise, the judgment creditor will be entitled to the full value of the real estate, unless there is evidence of an inequitable windfall to the creditor.

Case cite. State v. Lawson, 128 N.E.3d 471 (Ind. Ct. App. 2019)

Legal issue. Whether judgment creditor was entitled to one-half ($7,500), or the full amount ($15,000), of proceeds from the sale of a Husband’s interest in real estate fraudulently transferred to him by Wife, the judgment debtor.

Vital facts. In 2017, the State obtained a large civil judgment against Wife for alleged theft. The State claimed that, when the theft was about to be discovered, Wife fraudulently conveyed to Husband her interest in the subject real estate. The property previously had been owned by Husband and a family member, both of whom spent $7,500 each improving the property in the 1990’s. In 2004, Husband transferred his one-half interest to Wife’s daughter, who later transferred her interest to Wife. Upon learning of the theft investigation in August 2014, Wife quitclaimed her one-half interest in the real estate back to Husband. While the litigation was pending, the parties agreed to the sale of Husband’s interests in the real estate for $15,000, which was deposited with the trial court pending the outcome of the case.

Procedural history. Following a bench trial, the trial court found that Wife had fraudulently transferred her interest in the real estate but ordered only $7,500 of the sale proceeds to be released to the State. The trial court ordered the remaining $7,500 to be released to Husband “for his equitable interest in the Property.” The State appealed.

Key rules.

Lawson involved the interpretation of Indiana’s Uniform Fraudulent Transfer Act. Under the Act, a creditor may bring a claim to set aside a fraudulent conveyance made by a debtor. As relevant here, a conveyance is fraudulent and voidable if the debtor made the transfer or incurred the obligation with actual intent to hinder, delay, or defraud a creditor of the debtor. I.C. § 32-18-2-14.

Section 18 was the key provision at issue and states in relevant part:

(b) To the extent that a transfer is avoidable in an action by a creditor under section 17(a)(1) of this chapter, the following rules apply:

    (1) Except as otherwise provided in this chapter, the creditor may recover judgment for the value of the asset transferred, as adjusted under subsection (c), or the amount necessary to satisfy the creditor’s claim, whichever is less....

* * *
(c) If the judgment under subsection (b) is based upon the value of the asset transferred, the judgment must be for an amount equal to the value of the asset at the time of the transfer, subject to adjustment as the equities may require.

The Indiana Court of Appeals interpreted “subject to adjustment as the equities may require” to mean: “A defrauded creditor is entitled to the full value of the fraudulently transferred property at the time of the transfer, and an equitable adjustment is permitted only when an inequitable windfall would result by granting the creditor the full value of the property.”

Holding. The Indiana Court of Appeals reversed the trial court and held that the State was entitled to a judgment for the full $15,000.

Policy/rationale. The trial court granted $7,500 to Husband under the equitable test of Section 18(c) based upon his cash outlay to improve the real estate in the 1990’s. On appeal, the State asserted that it should obtain the full value of the asset, as provided in Section 18(b) and (c). Significantly, Husband incurred the $7,500 “long before” the fraudulent transfer and after he himself transferred the property to Wife’s daughter. The Court of Appeals' focus was on whether any improvements had been made after the fraudulent transfer, and there had been none. Because Husband had not increased the value of the real estate after the subject transfer, “the equities did not require [Husband] to be reimbursed.”

Related post. “Negative Value” Dooms Indiana Fraudulent Transfer And Direct Continuation Claims

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I represent parties in disputes arising out of loans that occasionally involve post-judgment fraudulent transfer issues.  If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.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 Court Of Appeals Clarifies Bond Requirement In Corvette Receivership

Burelli v. Martin, 130 N.E.3d 661 (Ind. Ct. App. 2019) approved the appointment of a receiver to sell an expensive item of personal property, subject to the posting of a bond.  

At a judgment creditor’s request, the trial court appointed a receiver under I.C. 32-30-5-1(1) and (2) to sell a multi-million dollar Corvette to satisfy the debts of the owners of the Corvette.  Those sections are:

    (1): In an action by a vendor to vacate a fraudulent purchase of property or by a creditor to subject any property or fund to the creditor's claim.  [The judgment creditor alleged the Corvette was subject to his claim.]

    (2): In actions between partners or persons jointly interested in any property or fund.  [ The judgment creditor and the Corvette’s co-owners were all jointly interested in the Corvette, and the proceeds from its sale.]

The Court of Appeals affirmed the appointment a receiver. 

However, the Court reversed the trial court for failing to require the receiver to post a bond.  Although the parties apparently had stipulated to a $2.5 million insurance policy on the car, the insurance did not meet the bond obligation. 

The Court held that the insurance policy only protected the receivership property (the Corvette).  The statutory requirement for a bond (Section 3), on the other hand, insures the receiver’s conduct.  The Court expanded on the point of the receiver's personal liability:

When a receiver breaches his duty by acting outside his statutory authority or orders of the appointing court or is guilty of negligence and misconduct in administering the receivership, he is personally liable for any loss to any interested party.  A receiver must therefore post a bond to secure that obligation.

The Court remanded the case to the trial court to amend the receivership order to require the receiver to post “an appropriate bond to secure [the receiver’s] oath to faithfully discharge his duties.”  The Court expressed no opinion on what would be an appropriate amount, however.

See Also:  Standards And Duties Applicable To Indiana Receivers

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I represent parties involved with receiverships, including receivers themselves.  If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.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.


Status Of Indiana Sheriff's Sales

For what it's worth, the Marion County (Indianapolis) Civil Sheriff's Office announced last week that its May 2020 sale has been cancelled.  (The sheriff previously cancelled the April sale.)  The email from Marion County indicated that the June 2020 sale is still a go - at least for now.  The Marion County situation seems to be consistent with both our Governor's order and the CARES Act, Sections 4022 and 4023, to the extent those apply to a particular case.  

Always remain mindful that, although the Indiana Code covers the fundamentals of the sheriff's sale process, the specific procedures vary by county.  Local rules, customs, and practices control.  There is a saying in Indiana that there are 92 counties and therefore 92 different sets of rules applicable to sheriff's sales.  My point is that, if you have questions, you should call the local civil sheriff's office to confirm the status of its foreclosure sale activities (publications, notices, sales, etc.)  during the COVID-19 pandemic.  


The Federal CARES Act - Multifamily Properties With Federally Backed Loans

Here is a verbatim quote of Section 4023:

FORBEARANCE OF RESIDENTIAL MORTGAGE LOAN PAYMENTS FOR MULTIFAMILY PROPERTIES WITH FEDERALLY BACKED LOANS

(a) IN GENERAL.—During the covered period, a multifamily borrower with a Federally backed multifamily mortgage loan experiencing a financial hardship due, directly or indirectly, to the COVID–19 emergency may request a forbearance under the terms set forth in this section.

(b) REQUEST FOR RELIEF.—A multifamily borrower with a Federally backed multifamily mortgage loan that  was current on its payments as of February 1, 2020, may submit an oral or written request for forbearance under subsection (a) to the borrower’s servicer affirming that the multifamily borrower is experiencing a financial hardship during the COVID–19 emergency.

(c) FORBEARANCE PERIOD.—

    (1) IN GENERAL.—Upon receipt of an oral or written request for forbearance from a multifamily borrower, a servicer shall—

        (A) document the financial hardship;

        (B) provide the forbearance for up to 30 days; and

        (C) extend the forbearance for up to 2 additional 30 day periods upon the request of the borrower provided that, the borrower’s request for an extension is made during the covered period, and, at least 15 days prior to the end of the forbearance period described under subparagraph (B).

    (2) RIGHT TO DISCONTINUE.—A multifamily borrower shall have the option to discontinue the forbearance at any time.

(d) RENTER PROTECTIONS DURING FORBEARANCE PERIOD.—A multifamily borrower that receives a forbearance under this section may not, for the duration of the forbearance—

    (1) evict or initiate the eviction of a tenant from a dwelling unit located in or on the applicable property solely for nonpayment of rent or other fees or charges; or

    (2) charge any late fees, penalties, or other charges to a tenant described in paragraph (1) for late payment of rent.

(e) NOTICE.—A multifamily borrower that receives a forbearance under this section—

    (1) may not require a tenant to vacate a dwelling unit located in or on the applicable property before the date that is 30 days after the date on which the borrower provides the tenant with a notice to vacate; and

    (2) may not issue a notice to vacate under paragraph (1) until after the expiration of the forbearance.

(f) DEFINITIONS.—In this section:

    (1) APPLICABLE PROPERTY.—The term “applicable property”, with respect to a Federally backed multifamily mortgage loan, means the residential multifamily property against which the mortgage loan is secured by a lien.

    (2) FEDERALLY BACKED MULTIFAMILY MORTGAGE LOAN.—The term “Federally backed multifamily mortgage loan” includes any loan (other than temporary financing such as a construction loan) that—

        (A) is secured by a first or subordinate lien on residential multifamily real property designed principally for the occupancy of 5 or more families, including any such secured loan, the proceeds of which are used to prepay or pay off an existing loan secured by the same property; and

        (B) is made in whole or in part, or insured, guaranteed, supplemented, or assisted in any way, by any officer or agency of the Federal Government or under or in connection with a housing or urban development program administered by the Secretary of Housing and Urban Development or a housing or related program administered by any other such officer or agency, or is purchased or securitized by the Federal Home Loan Mortgage Corporation or the Federal National Mortgage Association.

    (3) MULTIFAMILY BORROWER.—the term “multifamily borrower” means a borrower of a residential mortgage loan that is secured by a lien against a property comprising 5 or more dwelling units.

    (4) COVID–19 EMERGENCY.—The term “COVID–19 emergency” means the national emergency concerning the novel coronavirus disease (COVID–19) outbreak declared by the President on March 13, 2020 under the National Emergencies Act (50 U.S.C. 1601 et seq.).

    (5) COVERED PERIOD.—The term “covered period” means the period beginning on the date of enactment of this Act and ending on the sooner of—

        (A) the termination date of the national emergency concerning the novel coronavirus disease (COVID–19) outbreak declared by the President on March 13, 2020 under the National Emergencies Act (50 U.S.C. 1601 et seq.); or

        (B) December 31, 2020.

A Few Thoughts:

  1. Section 4023 applies to a limited set of commercial mortgage loans that are "federally backed" and that essentially are related to apartments.  
  2. Borrowers might be entitled to an automatic 30-day "forbearance" and two more automatic 30-day "forbearance" periods upon a written request, which documents a financial hardship.
  3. The borrower must have been current as of 2/1/20.
  4. The law does not apply to construction loans.
  5. "Forbearance" is not defined.

The Federal CARES Act - Consumer/Residential Mortgage Loans

Here is a verbatim quote of Section 4022:

FORECLOSURE MORATORIUM AND CONSUMER RIGHT TO REQUEST FORBEARANCE

(a) DEFINITIONS.—In this section:

    (1) COVID–19 EMERGENCY.—The term “COVID–19 emergency” means the national emergency concerning the novel coronavirus disease (COVID–19) outbreak declared by the President on March 13, 2020 under the National Emergencies Act (50 U.S.C. 1601 et seq.).

    (2) FEDERALLY BACKED MORTGAGE LOAN.—The term “Federally backed mortgage loan” includes any loan which is secured by a first or subordinate lien on residential real property (including individual units of condominiums and cooperatives) designed principally for the occupancy of from 1- to 4- families that is—(A) insured by the Federal Housing Administration under title II of the National Housing Act (12 U.S.C. 1707 et seq.);

        (B) insured under section 255 of the National Housing Act (12 U.S.C. 1715z–20);

        (C) guaranteed under section 184 or 184A of the Housing and Community Development Act of 1992 (12 U.S.C. 1715z–13a, 1715z–13b);

        (D) guaranteed or insured by the Department of Veterans Affairs;

        (E) guaranteed or insured by the Department of Agriculture;

        (F) made by the Department of Agriculture;    or

        (G) purchased or securitized by the Federal Home Loan Mortgage Corporation or the Federal National Mortgage Association.

(b) FORBEARANCE.—

    (1) IN GENERAL.—During the covered period, a borrower with a Federally backed mortgage loan experiencing a financial hardship due, directly or indirectly, to the COVID–19 emergency may request forbearance on the Federally backed mortgage loan, regardless of delinquency status, by—

        (A) submitting a request to the borrower’s servicer; and

        (B) affirming that the borrower is experiencing a financial hardship during the COVID–19 emergency.

    (2) DURATION OF FORBEARANCE.—Upon a request by a borrower for forbearance under paragraph (1), such forbearance shall be granted for up to 180 days, and shall be extended for an additional period of up to 180 days at the request of the borrower, provided that, at the borrower’s request, either the initial or extended period of forbearance may be shortened.

    (3) ACCRUAL OF INTEREST OR FEES.—During a period of forbearance described in this subsection, no fees, penalties, or interest beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full under the terms of the mortgage contract, shall accrue on the borrower’s account.

(c) REQUIREMENTS FOR SERVICERS.—

    (1) IN GENERAL.—Upon receiving a request for forbearance from a borrower under subsection (b), the servicer shall with no additional documentation required other than the borrower’s attestation to a financial hardship caused by the COVID–19 emergency and with no fees, penalties, or interest (beyond the amounts scheduled or calculated as if the borrower made all contractual payments on time and in full under the terms of the mortgage contract) charged to the borrower in connection with the forbearance, provide the forbearance for up to 180 days, which may be extended for an additional period of up to 180 days at the request of the borrower, provided that, the borrower’s request for an extension is made during the covered period, and, at the borrower’s request, either the initial or extended period of forbearance may be shortened.

    (2) FORECLOSURE MORATORIUM.—Except with respect to a vacant or abandoned property, a servicer of a Federally backed mortgage loan may not initiate any judicial or non-judicial foreclosure process, move for a foreclosure judgment or order of sale, or execute a foreclosure-related eviction or foreclosure sale for not less than the 60-day period beginning on March 18, 2020.

Limited Applicability:

Neither the forbearance mandate nor the foreclosure moratorium of Section 4022 apply to commercial mortgage loans, nor do they apply to residential/consumer mortgage loans that are not "federally backed" per Section (a)(2).  See also the moratorium exception at Section (c)(2) for vacant or abandoned property.   


Governor Holcomb's Executive Order 20-06: How Does It Affect Indiana Foreclosures?

On March 19, 2020, Indiana's Governor handed down his Order for Temporary Prohibition on Evictions and Foreclosures.  With regard to mortgage foreclosures, here's what it says in pertinent part (italics added):

WHEREAS, the adverse economic impacts of COVID-19 … on Hoosiers … include … hindering their ability to pay … mortgages, which could potentially result in creditors … initiating foreclosure … proceedings to remove them from their homes;

WHEREAS, to avoid the serious health, welfare, and safety consequences that may result if Hoosiers are … removed from their homes during this emergency, it is reasonable and necessary to suspend laws relating to real property (including breach of … mortgages, etc.), to control the occupancy of premises in … Indiana, and to impose a moratorium on … foreclosures;

WHEREAS, … HUD, in an effort to provide immediate relief to … homeowners … will temporarily suspend all foreclosures …;

NOW, THEREFORE … [the Governor orders] that:

  1. No … foreclosure actions or proceedings involving residential real estate real estate … may be initiated … until the state of emergency has been terminated….
  2. No provision contained in this … Order shall be construed as relieving any individual of their obligations … to make mortgage payments, or to comply with any other obligation(s) that an individual may have under a … mortgage.

Takeaways

  1. Order 20-06 applies only to consumer/residential mortgage foreclosures - not commercial foreclosures.
  2. Lenders cannot file a mortgage foreclosure complaint (start a lawsuit) against a homeowner until the Governor terminates this order.
  3. Despite the Order, Borrowers must continue to make mortgage loan payments. 

Gray Area

    A question I have relates to the Order's use of the term "proceedings."  For example, paraphrasing Paragraph 1:  "no foreclosure proceedings may be initiated."  This part of the Order is subject to interpretation, and the courts ultimately will decide what it means.  It seems to me that the Order effectively suspends all residential foreclosure (sheriff's) sales.  On the other hand, in a pending residential foreclosure case, the Order arguably does not prohibit a party from filing a motion.  But, the Order may prevent the court from holding a hearing on the motion or from ruling on the motion.  To that end, in connection with a pending case it would be wise to investigate whether any county-specific orders exist or to simply call the court's office to determine how the judge has decided to apply the Order.          

    


Force Mejeure And The COVID-19 Pandemic: Impact On Indiana Notes and Mortgages

  1. What does force majeure mean?

A “force majeure” is “[a]n event or effect that can be neither anticipated nor controlled” and “prevents someone from doing or completing something that he or she had agreed or officially planned to do.” Black’s Law Dictionary (11th ed. 2019). 

  1. What is the typical applicability of force majeure?

The purpose of a force majeure provision is to allocate the risk of loss if performance is impossible or impractical due to a force majeure event.  Black’s Law Dictionary (11th ed. 2019).  A force majeure clause in a contract will usually define various events that excuse or delay certain obligations of a party should these events occur.  In short, force majeure is a defense to a contract breach – it’s an excuse for a failure to perform.

  1. What is an example of a force majeure contract provision?

Here is a example:  “Force Majeure shall mean strikes, lockouts, flood, fire, acts of war, weather, acts of God and other events beyond the control of the Borrower.”  I am not aware of the use of force majeure clauses in promissory notes.  The same goes for mortgages.  Force majeure provisions are more often the subject of commercial leases, sales agreements, and construction contracts in which there are performance qualifiers.  For example, force majeure clauses related to construction obligations in construction loan agreements are common. 

Under Indiana law, the “scope and effect” of a force majeure clause centers on the specific language of the provision.  Specialty Foods of Indiana, Inc. v. City of S. Bend, 997 N.E.2d 23, 27 (Ind. Ct. App. 2013).  Courts are not permitted to “rewrite the contract or interpret it in a manner which the parties never intended.”  Id.  Importantly, “[a] force majeure clause is not intended to buffer a party against the normal risks of a contract. Murdock & Sons Const., Inc. v. Goheen Gen. Const., Inc., 461 F.3d 837, 843 (7th Cir. 2006).  Thus, a party’s nonperformance due to economic hardship is insufficient to trigger a force majeure provision.  § 77:31.  Force Majeure clauses, 30 Williston on Contracts § 77:31 (4th ed.). 

  1. Does the COVID-19 pandemic constitute an “act of God?”

As of 1894, the answer in Indiana would be no.  See Gear v. Gray, 10 Ind. App. 428, 37 N.E. 1059 (1894).  An “act of God” is defined as “[a]n overwhelming, unpredictable event caused exclusively by forces of nature, such as an earthquake, flood, or tornado.”  Black’s Law Dictionary (11th ed. 2019).  Although the virus itself is arguably a natural event, the government-imposed restrictions that would actually inhibit a party from completing its contractual obligations arguably do not satisfy the definition of an act of God.  Gear, 37 N.E. at 1061 (holding that the closing of a school due to a diphtheria outbreak was not an act of God).  Certainly this area of the law could evolve in the wake of the current pandemic.  

  1. Does the COVID-19 pandemic constitute an “event beyond the control of the borrower?”

We are aware of no Indiana case law on this, but we believe that the answer would be yes, depending upon the particular performance qualifier in the contract.

  1. Would a governmental shutdown order constitute an event beyond the control of the borrower?

We are aware of no Indiana case law on this but believe that the answer would be yes, again depending upon the particular performance qualifier in the contract.

  1. Is force majeure limited to situations in which a contract contains a provision?  In other words, is it only an express contract right?

Indiana law is clear that the answer is yes.  Force majeure should only arise if the parties’ contract has expressly provided for it.

  1. Can the force majeure defense be “read into” a contract or will the excuse apply as a matter of law?

As Indiana law currently stands, force majeure should not apply in the absence of a contract provision.  This rule would appear to be the prevailing view across the country, although certainly each state has its own set of rules, and we have not performed exhaustive research at this point.  According to our limited research, if a contract does not contain a force majeure clause, then a party cannot use force majeure to excuse a breach of its contractual obligations.  Metals Res. Grp. Ltd., 293 A.D.2d at 418.  (“The parties’ integrated agreement contained no force majeure provision, much less one specifying the occurrence that defendant would now have treated as a force majeure, and, accordingly, there is no basis for a force majeure defense.”).

  1. Can a force majeure defense be read into a promissory note?  

No.  See 7 and 8 above.

  1. Can a force majeure defense be read into a mortgage?

It shouldn’t.  See 7 and 8 above.  However, mortgages generally are governed by principles of equity, and it is not inconceivable that a judge might consider applying force majeure to certain performance-related covenants in a mortgage in the wake of the COVID-19 pandemic.  For example, if the mortgage requires real estate taxes to be current, but the county treasurer’s office is unable to accept payments, then the policy behind force majeure might excuse such a breach.  A pure loan payment default is another matter, however.

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I'd like to thank my colleague David Patton for the legal research that formed the basis of this post. 

Please remember that we represent parties in disputes arising out of loans.  Please call me at 317-639-6151 or email me at john.waller@woodenlawyers.com to discuss an engagement.  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.


Boone County Courts COVID-19 Order

If and to the extent you have any cases pending in Boone County, Indiana (my home county), please see the following order entered by the Indiana Supreme Court:  Boone County Order.

As to Marion County (where I work), my understanding is the Court's Executive Committee will be providing an update later this afternoon.  As of 3/13/20, click here for Marion County's press release.  


Indiana State Bar Association: COVID-19 Updates for the Legal Community

To: Indiana State Bar Association Members

From:  Indiana State Bar Assocaition

Date:  3/16/20

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In response to the COVID-19 outbreak, the Supreme Court has ordered trial courts to implement relevant portions of Continuity of Operations Planning (such as postponing jury trials, allowing for remote hearings, and keeping only essential staff in courthouses).

Trial courts are being directed to petition the Supreme Court through Administrative Rule 17 to carry out operational changes. AR 17 provides the framework for trial courts to put operational changes in place in the face of an emergency. Indiana Chief Justice Loretta Rush has already signed orders allowing for adjustments to jury trials, hearings, and other business practices as requested by counties. The Supreme Court is prioritizing review of any AR 17 petitions filed.

At the Supreme Court, attendance at oral arguments will be limited to the attorneys and parties in the case; the public is encouraged to watch the live webcasts.

The Office of Judicial Administration has already put in place social distancing and telework options for its employees.

In a press release just issued, Chief Justice Rush reported that she is monitoring the situation with guidance from the Indiana State Department of Health. She explained, “The Indiana Supreme Court will continue to hold oral arguments (subject to change), review cases, and accept filings—while taking proper measures to reduce exposure of COVID-19. We also know our trial court judges across the state are focused on ensuring essential court functions continue while being mindful of the safety of their communities. The Judicial Branch has avenues in place to ensure court operations at all levels continue.”

Resources:
Indiana Department of Health COVID-19 page
Indiana Supreme Court COVID-19 update page
Indiana State Bar Association COVID-19 page for the legal community
Webinar: COVID-19 Guidance for Individuals & Employers, presented by the Indianapolis Bar Association
Indiana Lawyer Coronavirus Update

Indiana State Bar Association Meetings & Events
ISBA staff began working remotely today, March 16, effectively closing the office space to meetings and visitors. In addition, all in-person events scheduled for March have been cancelled. We will keep you updated on events scheduled for April and May.

In the meantime, business will carry on, but virtually. Feel free to e-mail or call just as you have always done (click here for a staff directory). Although we won’t be able to answer calls directly, we will return them within 24 hours. We remain committed to serving your needs each day.


Indiana Supreme Court Negates Reasonableness Test For Statute Of Limitations

Three cases.  On February 17, 2020, Indiana’s highest court issued opinions in two cases dealing with the statute of limitations applicable to “closed account” notes or, in other words, installment contracts with a maturity date.  Here are links to the two opinions:

A third case, Stroud v. Stone, 122 N.E.3d 825 (Ind. Ct. App. 2019), which followed Alialy, was not on appeal but effectively was overturned. 

Background.  For information on the cases and how the law developed before the Supreme Court’s decisions, click on these posts:

Nature of notes.  Both Blair and Alialy involved an installment contract (required a series of payments) that had a maturity date (stated when the full balance was due).   The notes in the two cases also had discretionary acceleration clauses, which gave “the lender the option to immediately demand payment on the full loan amount if the borrower fail[ed] to pay one or more installments.” 

Not all notes have maturity dates or optional acceleration clauses, so the Court’s rulings do not apply to all loans.  For example, see:  Indiana’s Statute Of Limitations For “Open Account” Claims: Supplier’s Case Too Late.  Always be sure to study the language in the note.  Having said that, I believe the vast majority of promissory notes secured by real estate mortgages are “closed” and have optional acceleration provisions. 

Accrual dates.  As previously reported here, the length of the statute (six years) was not the issue.  When the clock on the six years starts ticking – the “accrual date” – was.  The Court in Blair studied Indiana’s two applicable statutes, Ind. Code 34-11-2-9 and Ind. Code 26-1-3.1-118(a), and concluded that “three events [trigger] the accrual of a cause of action for payment upon a promissory notice containing an optional acceleration clause:” 

  1. A lender can sue for a missed payment within six years of a borrower’s default;
  2. Upon a missed payment, a lender can exercise its option to accelerate, “fast-forward to the note’s maturity date,” and sue for the full balance owed within six years of acceleration; or
  3. A lender can chose not to accelerate and sue for the entire amount owed within six years of maturity.

The “reasonableness test” is now gone. 

Bar dates.  Looking at the three scenarios above, here is my view of when an action would be barred:

  1. No bar. The lender could, but does not have to, sue within six years of a missed payment.  See 2 and 3.
  2. Barred if no suit filed within six years of acceleration.  
  3. Barred if no suit filed within six years of maturity.

Outcome.  Interestingly, to illustrate how the Court apparently buried for good the “reasonableness test,” theoretically a lender would have 36 years to file suit under a standard 30-year mortgage loan, even if the borrower never made a single payment.  (Mortgages are governed by different statutes, however.)  It’s hard to argue with the Court’s logic, which is based upon pretty clear language in the two statutes.  Unless the General Assembly takes action, this matter is closed. 

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I represent parties in disputes arising out of loans. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.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 Supreme Court Rules On Statute Of Limitations Cases

On February 10th, I posted - Indiana Supreme Court Currently Reviewing Statute Of Limitations Rules Applicable to Promissory Notes.  Well, a week later the Court handed down its two opinions and ruled in favor of the lenders.  You can review the cases by clicking on the links below:

    *Dean Blair and Paula Blair v. EMC Mortgage, LLC

    *Collins Asset Group, LLC v. Alkhemer Alialy

Meanwhile, I intend to write more about these important decisions and post something next week.


Interests Held In A Joint Tenancy With Right Of Survivorship Are Not Exempt From Execution

Lesson.  Unlike spouses jointly holding real estate as a tenancy by the entireties, real estate co-owned under joint tenancy is subject to a lien arising from a judgment against one of the joint tenants. 

Case cite.  Flatrock River Lodge v. Stout, 130 N.E.3d 96 (Ind. Ct. App. 2019)

Legal issue.  Whether an ownership interest in real estate as a joint tenant with right of survivorship is exempt from execution on a judgment lien created during the owner’s lifetime.

Vital facts. In 1985, a couple deeded forty-six acres of real estate in Rush County to their son and their granddaughter as joint tenants with right of survivorship.  In 2016, a creditor obtained a $40,000 judgment against the son, at which time the Rush County Clerk entered the judgment in the record of judgments.  The son died in 2018, and his interest in the real estate became the granddaughter’s.  In other words, the granddaughter became the owner of all forty-six acres.      

Procedural history.  In January 2018, the judgment creditor moved to foreclose its judgment lien on the real estate.  The granddaughter intervened in the action and asserted that the son’s interest was exempt from execution because their interests were held jointly.  While the action was pending, the son passed away.  The trial court ultimately granted the granddaughter’s objection to the creditor’s motion.  The creditor appealed.

Key rules. 

As stated here many times, in Indiana “a money judgment becomes a lien on the defendant’s real property when the judgment is recorded in the judgment docket in the county where the realty held by the debtor is located.”

Ind. Code 34-55-10-2(c)(5) is the statute providing that “’[a]ny interest that the debtor has in real estate held as a tenant by the entireties’ is exempt from execution of a judgment lien.”

The Court in Flatrock identified the three forms of concurrent ownership in Indiana - (1) joint tenancy, (2) tenancy in common, and (3) tenancy by the entireties – and then contrasted joint tenancy with tenancy by the entireties:

A joint tenancy is a single estate in property owned by two or more persons under one instrument or act. Upon the death of any one of the tenants, his share vests in the survivors. When a joint tenancy is created, each tenant acquires an equal right to share in the enjoyment of the land during their lives. “It is well settled that a conveyance of his interest by one joint tenant during his lifetime operates as a severance of the joint tenancy as to the interest so conveyed, and [it] destroys the right of survivorship in the other joint tenants as to the part so conveyed.” Each joint tenant may sell or mortgage his or her interest in the property to a third party.  And the interest of each joint tenant “is subject to execution.” On the other hand, a tenancy by the entireties exists only between spouses and is premised on the legal fiction that husband and wife are a single entity.

* * *

The same difference which existed at common law between joint tenants and tenants by entireties continues to exist under our statute. In both, the title and estate are joint, and each has the quality of survivorship, but the marked difference between the two consists in this: that in a joint tenancy, either tenant may convey his share to a co-tenant, or even to a stranger, who thereby becomes tenant in common with the other co-tenant; while neither tenant by the entirety can convey his or her interest so as to affect their joint use of the property during their joint lives, or to defeat the right of survivorship upon the death of either of the co-tenants; and there may be a partition between joint tenants, while there can be none between tenants by entireties.

(I’ve omitted legal citations in the above quotes.)

Holding.  The Indiana Court of Appeals reversed the trial court and held that the real estate was not immune from execution on the judgment lien.  “We hold that subsection 2(c)(5) does not exempt from execution interests held in a joint tenancy with right of survivorship.”

Policy/rationale.  The granddaughter generally contended that real estate held jointly should be exempt from execution.  Thus, she sought to apply the I.C. 34-55-10-2(c)(5) exemption to a joint tenant with right of survivorship.  The granddaughter improperly equated the two tenancies, however.  The Court was compelled to follow the clear language in the exemptions statute, which applied only to tenancy by the entireties in which one spouse may not unilaterally convey or mortgage his interest to a third party and in which the property “is immune to seizure for the satisfaction of the individual debt of either spouse.”  To the contrary, a joint tenant may sell or mortgage his interest to a third party.  The Court also pointed out that the granddaughter took the son’s interest in the real estate subject to the judgment lien, which was not extinguished upon his death. 

As an aside, the Court stated that, if a third party were to buy the son’s interest at the execution (sheriff’s) sale, the purchaser and the granddaughter would each own an undivided interest as tenants in common.  As a practical matter, the outcome of the Flatrock appeal likely compelled the granddaughter to pay off the lien, assuming she had the means.

Related posts. 

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I represent lenders, loan servicers, borrowers, and guarantors in foreclosure and real estate-related disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.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 Supreme Court Currently Reviewing Statute Of Limitations Rules Applicable to Promissory Notes

Indiana law is clear that actions to enforce promissory notes have a six-year statute of limitations.  The trickier question surrounds when the clock starts ticking on the six years.  The law frames this issue as:  when does the cause of action accrue

Over the last couple years, three cases before the Indiana Court of Appeals have tackled that question in the context of promissory notes with optional acceleration clauses.  I’ve already written two posts about one of those cases, Collins Asset Group v. Alialy

On 4/5/19, the Court of Appeals issued its opinion in the second case, Stroud v. Stone, 122 N.E.3d 825 (Ind. Ct. App. 2019), which followed Alialy and held that a lender can’t sue over six years after a payment default simply by accelerating the note.  Then, on 6/12/19, in Blair v. EMC Mortgage, 127 N.E.3d 1187 (Ind. Ct. App. 2019), the Court of Appeals followed suit in the third case and concluded that the lender had waited an unreasonable time amount of time to accelerate its note. 

Based upon these three decisions by the Court of Appeals, Indiana law appeared to be settled on the accrual issue.  Specifically, to absolutely safe, in Indiana, a lender’s suit to enforce a promissory note should be filed within six years of the borrower’s last payment.  Or, at a minimum, assuming the note has an optional acceleration clause, the debt should be formally accelerated within six years, and it would be advisable to file suit within a period of time thereafter that is reasonable under the circumstances.

There has been a development, however.  Alialy and Blair are now before the Indiana Supreme Court.  (Stroud is not - officially.)  Under Indiana rules of procedure, the Alialy and Blair opinions have therefore been vacated.  We are left to wait on our Supreme Court’s holding.  I expect an opinion during the first half of 2020, at which point some of the questions raised in my two posts about Alialy should be answered.  Stand by.

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I represent parties in disputes arising out of loans. If you need assistance with a such a matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.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.


Seller’s Delivery Of Defective Or Non-Conforming Equipment To Buyer/Borrower Did Not Impair Lender’s Rights In the Collateral

Lesson.  A borrower’s complaints about equipment it purchases and pledges as loan collateral do not affect a lender’s rights in the collateral. 

Case cite.  1st Source v. Minnie Moore Resources, 2019 WL 2161679 (N.D. Ind. 2019) (PDF).

Legal issue.  Whether a creditor (lender) lacked an enforceable security interest in debtor’s equipment because the equipment differed from what the debtor (borrower/owner) thought it was purchasing.

Vital facts.  Lender loaned borrower money to buy three pieces of mining equipment worth about 350k.  The loan was secured by the equipment pursuant to a security agreement and a UCC financing statement.  Borrower defaulted on the loan, and lender sued to foreclose on the equipment.  Borrower contended that the equipment was defective, and varied from what the borrower had ordered from the seller.  The seller was not a party to the lawsuit. 

Procedural history.  Lender filed a motion for summary judgment.  1st Source is the summary judgment opinion and order entered by the U.S. District Court for the Norther District of Indiana.

Key rules.  1st Source essentially is about Article 9.1 attachment.

“A security interest will attach and be enforceable when three elements are present: (1) value has been given; (2) the debtor has rights in the collateral; and (3) the debtor has authenticated a security agreement that provides a description of the collateral.”  “Perfecting a security interest is only necessary to make the security interest effective against third parties; a security interest is enforceable “as between the secured party and the debtor” upon meeting the three requirements for attachment.”

The UCC clarifies what is sufficient for a description of the collateral: “a description of personal or real property is sufficient, whether or not it is specific, if it reasonably identifies what is described.”  I.C. § 26-1-9.1-108(a).  The Court noted, “that can be done by providing a ‘specific listing’ or a ‘category,’ or by ‘any other method, if the identity of the collateral is objectively determinable.’ Id. § 26-1-9.1-108(b).

Holding.  The Court granted lender’s motion for summary judgment and held that lender was entitled to take possession of and foreclose on the equipment.

Policy/rationale.  Borrower asserted two contentions in support of its argument that the security agreement was unenforceable:  (1) the security agreement did not identify the model years of the equipment and (2) there were discrepancies in the serial numbers between those on the equipment and those identified in the security agreement.  Basically, borrower asserted that the equipment it purchased was slightly older and less valuable than the equipment it intended to buy.    

On the first contention, the Court concluded that the security agreement reasonably identified the collateral.  Evidently there is no law supporting the proposition that a model year must be included in a security agreement to reasonably identify the collateral. 

On the second contention, the promissory note identified each piece of equipment by its name, serial number, and purchase price, and it directed lender to disburse loan proceeds directly to the seller.  The minor numerical error in a serial number “would not create a genuine question as to what equipment the parties intended to serve as collateral.”        

The Court summed up its finding as follows: 

[borrower’s] complaint that the equipment is defective and nonconforming is a dispute for [it] to take up with Interval Equipment Solutions, which sold the equipment.  It does not affect [lender’s] rights in the collateral, so [lender] is entitled to exercise its rights in that collateral.

Related posts. 

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My practice includes the representation of parties in disputes arising out of loans. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.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.


Unrecorded Deed Immediately Transferred Ownership

Lesson.  An unrecorded quitclaim deed executed and delivered during owner’s lifetime terminated a beneficiary’s interest under a “transfer on death” deed that had been executed previously.  An Indiana deed generally will effect a transfer regardless of whether it is recorded.

Case cite.  Robinson v. Robinson, 125 N.E.3d 1 (Ind. Ct. App. 2019).

Legal issue.  Whether subsequent, unrecorded quitclaim deed revoked a beneficial interest in real estate that previously had been created by a recorded transfer on death (TOD) deed.

Vital facts.  On October 24, 2014, Mom executed a TOD deed in which the fee simple title in her house would transfer, upon her death, to her kids Rea and Radley as tenants in common.  Mom recorded that deed on November 12, 2014.  Two years later, Mom executed and delivered a quitclaim deed of the house to Rea only, effective immediately.  However, this subsequent deed was not recorded until after Mom died.

Procedural history.  Radley filed a lawsuit seeking to enforce the TOD deed.  The trial court entered summary judgment in Radley’s favor and concluded that Radley and Rea owned the house as tenants in common.  Rea appealed.

Key rules.  Indiana has a statute called the Transfer on Death Property Act (ACT) at 32-17-14.  The Indiana Court of Appeals sliced and diced the Act in terms of its application to the Robinson dispute. 

The TOD deed was valid.  However, Section 19(a) of the Act provides, among other things, that a beneficiary of a TOD deed takes the owner’s interest in the property at the time of the owner’s death and subject to all conveyances made by the owner during the owner’s lifetime.

Indiana Code 32-21-1-15 controls quitclaim deeds.

In Indiana, generally “a party to a deed is bound by the instrument whether or not it is recorded.”

Holding.  The Indiana Court of Appeals reversed the trial court’s summary judgment for Radley and entered summary judgment for Rea.  “As a matter of law, Radley’s contingent interest in the real estate was extinguished before [Mom’s] death.” 

Policy/rationale.  If you have probate and estate issues under the Act, the Robinson opinion has a nice explanation of why the TOD deed did not hold up.  For purposes of mortgage servicing and title issues, the key takeaway is that, as to Radley (one of potential co-owners under the TOD deed), the quitclaim deed to Rea cut off Radley’s beneficial interest - even though the deed was never recorded.  The deed complied with Ind. Code 32-21-1-15.  Title passed.  The fact that the deed had not been recorded was immaterial to Radley’s claim to ownership.

Related posts. 

*Don’t Forget To Record The Deed

*Sampling Of Indiana Deed Law, And Judgment Lien Attachment Issues

*In Indiana, An Unrecorded Mortgage Has Priority Over A Subsequent Judgment Lien

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I represent lenders, loan servicers, borrowers, and guarantors in foreclosure and real estate-related disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.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.  


Deeds In Lieu Of Foreclosure: Who, What, When, Where, Why and How

In the event a loan becomes non-performing, commercial lending institutions that hold mortgages in Indiana need to be familiar with deeds in lieu of foreclosure.  They are a form of settlement.

Who.  The parties to a deed in lieu are the mortgagor (generally, the borrower) and the mortgagee (usually, the lender).  Both sides must consent.  Most lawyers will say that it isn't advisable to accept a deed in lieu if there are multiple lien holders.  Lenders will have to negotiate releases of those liens in order to secure clear title.  The better approach may be to proceed with foreclosure, which will wipe out such liens.   

What.  A deed in lieu of foreclosure is a document that conveys title to real estate.  What is unique about this particular deed is that the mortgagor surrenders its interests in the real estate to the mortgagee in consideration for a complete release from liabilities under the loan documents.  The release, among other things, usually is articulated in a separate settlement agreement.  But, a release is not automatic.  

When.  Lenders normally pursue deeds in lieu when there is no chance of collecting a deficiency judgment - the mortgagor is judgment proof.  For example, this option makes sense with non-recourse loans.  Another consideration is when the value of the property unquestionably exceeds the amount of the debt.  If the lender thinks it may be able to liquidate the real estate for more than the borrower owes, pursuing a money judgment may be superfluous.

The parties typically will explore a deed in lieu of foreclosure early on in the dispute - once a determination is made by the lender to foreclose.  Although this is the point in which deeds in lieu are best utilized, in Indiana it's possible to execute the deed right up until the time the property is sold at a sheriff's sale.

Where.  Deeds in lieu are the product of out-of-court settlements.  The process of the securing of a deed in lieu is non-judicial. 

Why.  The fundamental reasons why a lender may want to take a deed in lieu of foreclosure involve time and money.  A deed in lieu grants to the lender immediate possession of the real estate.  Several months, conceivably years, can be saved.  Just as importantly, spending thousands of dollars, primarily in attorney's fees, could be avoided by cutting to the chase with a deed in lieu.  Expediency and expense are the primary factors that motivate lenders to accept a deed in lieu of foreclosure. 

How.  Other than the obvious - executing a deed - there are certain steps a lender should consider taking before it enters into a deed in lieu.  The lender should know whether it is acquiring clear title.  A title insurance policy commitment should be ordered to examine the status of any liens, taxes and other potential clouds on title.  Work also may need to be done to get a handle on the value of the property.  This may include an appraisal, an inspection or an environmental assessment.  These things generally are recommended when evaluating how to proceed with any distressed loan.

    Anti-merger clause:  One potential land mine must be specifically highlighted here.  Without getting too technical, in Indiana there needs to be language in the deed protecting against a merger of the mortgagor's fee simple title and the mortgagee's lien interest, which merger could extinguish the mortgagee's rights under the mortgage.  Without the appropriate language expressing the intent of the parties in the deed, the lender's interest in the property could become subject to junior liens without the right to foreclose.  So, be sure that you or your lawyer inserts an anti-merger clause into the deed.

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My practice includes the representation of parties in disputes arising out of loans. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.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. 


Top 10 Foreclosure Blogs

The Founder of Feedspot has advised that Indiana Commercial Foreclosure Law is ranked second in its Top 10 listing of foreclosure-related blogs.  Here is a link to the site's list:  Top 10 Foreclosure Blogs & Websites To Follow in 2019.  Thanks to the folks at Feedspot for recognizing my work. 

Merry Christmas and Happy New Year to those who regularly read, or surf to, this blog.  Let's keep it going in 2020....

John