Lender Overcomes Borrower’s Allegations Of Misconduct Surrounding Settlement Negotiations

Lesson. In the wake of an undisputed consumer/residential mortgage loan default, lenders and their servicers generally are not compelled to enter into loan modification agreements with their borrowers. Lenders really must only participate in a settlement conference, if requested, or consider whether a borrower qualifies for a loan mod.

Case cite. Feehan v. Citimortgage, 97 N.E.3d 639 (Ind. Ct. App. 2018).

Legal issue. Whether the lender should have been denied the remedy of foreclosure based upon alleged misconduct during and after a court-ordered settlement conference.

Vital facts. Borrower executed a promissory note that was secured by a mortgage on his real property. Borrower later defaulted under the loan, at which point the lender sent him a “notice and cure” letter. Following the borrower’s failure to cure, the lender filed a mortgage foreclosure action. The parties then became involved in lengthy and somewhat complicated workout discussions following the trial court’s order compelling a settlement conference. Distilled to their essence, the borrower’s contentions were (1) the lender did not participate in the settlement conference in good faith, mainly because a lender rep with settlement authority did not appear in person and (2) the lender refused to consider a loan modification. The opinion (link above) outlines the circumstances in greater detail. There was one other significant fact: the subject loan was a conventional non-government-sponsored enterprise with a private investor, which denied all of the borrower’s loan mod requests based in part on the housing expense-to-income ratio. Thus this was not a HUD loan, which may or may not have triggered different loan mod standards.

Procedural history. The trial court granted summary judgment and a decree of foreclosure in favor of the lender. The borrower appealed.

Key rules.

Ind. Code 32-30-10.5-9 states, in part, that “a court may not issue a judgment of foreclosure until a creditor has given notice regarding a settlement conference and, if the debtor requests a conference, upon conclusion of the conference the parties are unable to reach agreement on the terms of a foreclosure prevention agreement.” (This statute does not apply to commercial foreclosures.)

As with some Indiana counties, St. Joseph County has a local rule that also provides for the scheduling of a settlement conference upon a demand by the borrower.

Feehan cited to a number of cases from Indiana and elsewhere holding that alleged violations of the Home Affordable Modification Program (HAMP) do not give rise to a private right of action by a borrower against a lender or its servicer.

Holding. The Indiana Court of Appeals affirmed the summary judgment in favor of the lender:

[The lender] has satisfied its burden of establishing that, even if another foreclosure-prevention settlement conference was scheduled and a personal representative of [the lender] with the authority to enter a loan modification or make a loan modification offer was present at the conference, [the borrower] is not eligible for or entitled to a loan modification, a loan modification offer, or further consideration of the possible loan modification options.

Policy/rationale. The defendant borrower in Feehan claimed that the Court should have denied the lender the equitable remedy of foreclosure given the lender’s alleged misconduct surrounding the settlement conference and its failure to appropriately process the borrower’s loan mod applications. In response, the Court reasoned that, among other things, the borrower was unable to point to any terms in the loan documents requiring the lender or its servicer to consider, upon a default for non-payment, a loan modification on any certain terms. Indeed the borrower never went so far as to assert that the lender was required to agree to a particular loan modification. In the end, the lender was able to designate evidence establishing that it did consider loss mitigation and loan mod options but determined that the borrower was not eligible.

Related posts.

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Part of my practice is to represent lenders, as well as their mortgage loan servicers, entangled in contested foreclosures. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at 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.


Your Source For Indiana Lis Pendens Law

I've been tied up with my day job of late but wanted to post some material this weekend.  The links below should answer most basic questions about Indiana's lis pendens rules:

  1. For Indiana's lis pendens statute, Indiana Code 32-30-11, click here.
  2. Lis Pendens Lessons is a post from 2007.
  3. In 2015, I wrote Indiana Lis Pendens Notices:  What and When.
  4. Indiana Supreme Court Tackles Lis Pendens Law is from 2016.   
  5. My most recent article on this subject was last year, Indiana Lis Pendens Notice Deemed Discharged Despite Pending Appeal Of The Discharge Order

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I have represented judgment creditors and lenders, as well as their mortgage loan servicers, entangled in lien priority and title claim 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.


New York Confession Of Judgment From Cognovit Note Enforceable In Indiana

Lesson. Although Indiana does not permit cognovit notes (confessions of judgment), our state will enforce properly-entered foreign judgments based upon the otherwise prohibited language. The key is to determine whether cognovit notes are legal in the state that entered underlying the judgment.

Case cite. EBF v. Novebella, 96 N.E.3d 87 (Ind. Ct. App. 2018)

Legal issue. Whether Indiana courts must give “full faith and credit” to a “confessed judgment” entered in New York pursuant to a cognovit note.

Vital facts. Plaintiff obtained a judgment in a New York state court based upon the Defendant’s alleged breach of a contract. The contract, a purchase agreement, contained a clause with the following language: upon a default “… [Defendant] hereby authorizes [Plaintiff] to execute in the name of the [Defendant] a Confession of Judgment in favor of [Plaintiff] in the full uncollected Purchase Amount and enter that Confession of Judgment with the Clerk of any Court and execute thereon.” (This type of clause transforms the agreement into something called a “cognovit note.”) The contract in EBF expressed that it was to be governed by and construed under New York law.

Procedural history. The New York court entered a judgment pursuant to the confession of judgment clause. Because Defendant was an Indiana company, Plaintiff came to Indiana and filed a Petition to Domesticate Foreign Judgment that asked the Indiana trial court to recognize and enforce the New York judgment. (Plaintiff did not proceed under the statutory method to enforce the foreign judgment.) Defendant contested the Indiana action on the basis that the judgment was void under Indiana law. The trial court granted Defendant’s motion to dismiss, and the Plaintiff appealed.

Key rules. Generally, a cognovit note is a legal device whereby the debtor consents in advance to the creditor’s judgment without notice or hearing. Evidently, such confessions of judgment are allowed in the State of New York.

Indiana Code 34-54-3-1 essentially is Indiana’s definition of a cognovit note.

Importantly, cognovit notes are prohibited in Indiana. See, I.C. 34-54-3-2. In fact, Indiana makes it a crime to procure such a note or enforce it. I.C. 34-54-4-1. A key concept here is that the promise to pay cannot be entered into before a cause of action on the underlying agreement has accrued. I.C. 34-54-3-3.

Nevertheless, the Court in EBF noted that, under Indiana common law, “a valid foreign judgment based on a cognovit note will be given full faith and credit in Indiana … based upon the Federal Constitution’s ‘full faith and credit’ clause.” Article IV, Section 1. Indiana cases articulate “full faith and credit” as meaning: “the judgment of a state court should have the same credit, validity, and effect, in every other court of the United States, which it had in the state where it was pronounced.” The Indiana Code adopts full faith and credit at I.C. 34-39-4-3.

The full faith and credit rule has two exceptions/limitations: if, in the foreign court, there was an absence of (1) subject matter jurisdiction and/or (2) personal jurisdiction. The debtor/defendant has the burden of proof on these jurisdictional matters, meaning that it must rebut the presumption of the judgment’s validity.

Holding. The Indiana Court of Appeals reversed the trial court.

Policy/rationale. The Court concluded that constitutional federal full faith and credit rules and policies trumped Indiana’s statutory prohibition on cognovit notes/confessions of judgment. The underlying judgment appeared “on its face to be rendered by a court of competent jurisdiction and [Defendant] did not challenge the jurisdiction of the New York court to enter the judgment.” For more on the policies behind full faith and credit, read the EBF opinion, which impressively lays out all the applicable and competing ideas.

Related posts.

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My practice includes representing parties to judgment enforcement actions. 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.


Lender’s Summary Judgment Affidavit Flawed - Business Records Inadmissible

Lesson.  For lenders and servicers filing motions for summary judgment, always remain mindful of the elements of the Evidence Rule 803(6) business records exception to the hearsay rule.  An insufficient supporting affidavit could doom the motion.     

Case citeHolmes v. National Collegiate Student Loan Trust, 94 N.E.3d 722 (Ind. Ct. App. 2018)

Legal issue.  Whether, on a motion for summary judgment, the lender proved it owned the subject loan and thus had standing to bring the claim. 

Vital facts.  This case involved what appeared to be a straightforward default under a school loan.  The original lender sold a pool of loans to National Collegiate Funding LLC, which then sold the pool to the plaintiff lender.  The defendant in the case was the student’s father, who co-signed the loan.  There seemed to be no question that the loan was in default.      

Procedural history.  Lender filed a motion for summary judgment.  The trial court granted the motion and ordered the father to pay the debt, plus interest and costs.  The father appealed.

Key rules

To make a prima facia case  for summary judgment, the plaintiff lender in Holmes was required to show that the defendant father executed a contract for a loan and that the lender was the assignee of the loan - and thus the owner of the debt.  Indiana law also required the lender to establish that the defendant owed the original lender the amount alleged.

Indiana Trial Rule 56(E) states that affidavits on summary judgment “… shall be made on personal knowledge, shall set forth such facts as would be admissible in evidence, and shall show affirmatively that the affiant is competent to testify as to the matters stated….”

Inadmissible hearsay contained in an affidavit may not be considered in ruling on a summary judgment motion.

Indiana Evidence Rule 803(6) discusses the “business records” exception to the general hearsay rule and outlines the elements of admissibility.

Holding.  The Indiana Court of Appeals reversed the summary judgment for the lender and concluded that it failed to make a prima facia case.   

Policy/rationale

The defendant in Holmes contended that the lender’s designated evidence (documents) constituted inadmissible hearsay and, as a result, the lender failed to show that it was entitled to summary judgment.  The Court’s opinion is a technical lesson in evidence and provides an example of how an assignee (a successor-in-interest) can get tripped up in a simple loan enforcement claim.

When Holmes first came down last year, some thought the ruling may have created a real problem for servicers to obtain summary judgment in cases involving loan assignments.  In reality, the plaintiff in the case simply failed to dot the I’s and cross the T’s.  There is favorable case law in Indiana, and across the country, concerning how assignees and successors-in-interest can establish a prima facia case pursuant to the Rule 803(6) business records exception.  But the affidavit in Holmes was deficient as to several key elements, according to the Court: 

Here, the [affidavit] provided no testimony to support the admission of the contract between [defendant] and [original lender] or the schedule of pooled loans sold and assigned to National Collegiate Funding, LLC, and then to [plaintiff], as business records pursuant to Evidence Rule 803(6). There was no testimony to indicate that [the witness] was familiar with or had personal knowledge of the regular business practices or record keeping of [the loan originator or that of plaintiff] regarding the transfer of pooled loans, such that she could testify as to the reliability and authenticity of those documents. Indeed, [the witness] offered no evidence to indicate that those records were made at or near the time of the business activities in question by someone with knowledge, that the records were kept in the course of the regularly conducted activities of either [original lender or plaintiff], and that making the records was part of the regularly conducted business activities of those third-party businesses.

Also noteworthy is that Holmes was not a mortgage foreclosure case.  The school loan in Holmes was not secured, and the opinion does not address one way or another whether there was a UCC negotiable instrument at issue.  Thus the Court did not analyze some of the more conventional ways of proving standing, such as the possession of an original promissory note and/or the recording of an assignment of mortgage.     

Related posts.

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My practice includes representing lenders, as well as their mortgage loan servicers, in contested mortgage 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.


Tune Up To Indiana Commercial Foreclosure Law

Over the last couple weeks, I've been working with the good folks at Typepad to "tune up" my blog.  You'll notice the new look and feel, which generally mirrors that of my Firm's website. I've fixed several links that were outdated, and I've added a new mortgage servicing category.

What I'm most excited about are the mobile and search features:

    1.  I'm now mobile friendly, which means that the site reads much better on a smartphone or tablet.  

    2. I also now have a custom Google search engine at the top of my right sidebar.  The results are limited to my blog (albeit with a few ads that unfortunately appear at the start).  After the ads, the search supplies links to prior posts.  When I started in 2006, my vision included a site where you could research Indiana foreclosure-related issues.  The prior search function was somewhat inadequate, but the new application works great and captures all applicable content about which I've written over the last 12+ years.  Please note that the search results are delivered in a pop-up window.   

Happy New Year to you and yours, and thanks for reading.

John

 


Borrower’s Failure To Prove Actual Damages Leads To Summary Judgment In RESPA Case

Lesson. A mortgage loan servicer in a RESPA case can successfully defend the matter if it can show that it did not injure the borrower/mortgagor, even if the defendant did not adequately respond to the qualified written request (QWR).

Case cite. Linderman v. U.S. Bank, 887 F.3d 319 (7th Cir. 2018)

Legal issue. Whether Borrower’s alleged non-receipt of a Servicer’s QWR response caused or aggravated her alleged injuries.

Vital facts. Plaintiff Borrower bought a house in 2004 and lived there with multiple family members. Borrower’s mother later asked her to move out, at which point Borrower stopped paying on her mortgage loan. In 2014, the last remaining family member moved out of the house, leaving it vacant and subject to vandalism. The vandalism produced insurance money that went to Defendant mortgage loan servicer (Servicer) to be held in escrow. Servicer disbursed a portion of the insurance proceeds to pay a contractor, which later abandoned the job due to fears over being paid in full for its work. In 2015, the house was vandalized twice more and was further damaged from a storm. Borrower sent Servicer a letter on September 5, 2015 asking about the status of her loan and how the 2014 insurance money was being handled. Servicer sent a response ten days later, but Borrower said she never received it. Borrower claimed that suffered from depression and anxiety arising out of the issues with her house, as well as problems from divorce, foreclosure proceedings and money concerns.

Procedural history. Based upon the assertion that she did not receive the letter response from Servicer, Borrower filed suit against Servicer in federal court under the Real Estate Settlement Procedures Act (RESPA). The U.S. District Court for the Southern District of Indiana granted summary judgment for Servicer, and Borrower appealed to the Seventh Circuit Court of Appeals.

Key rules. For purposes of their decisions, both the district court and the Seventh Circuit in Linderman assumed that Borrower’s September 5, 2015 letter to Servicer constituted a QWR under RESPA, 12 USC 2605(e)(1)(B). The Linderman opinion also assumed that Servicer breached RESPA based upon Borrower’s allegation that she did not receive the letter response, even though RESPA, including specifically 12 CFR 1024.11, provides that the mailing of a timely and properly-addressed response to a QWR likely satisfies the requirements under the statute – whether or not the response is received. Even with these favorable assumptions, Borrower still lost.

RESPA requires servicers upon receipt of a QWR to, among other things, (a) correct errors in records or (b) provide appropriate information if no error needs fixing. Section 2605(e)(2)(A-B). RESPA also requires servicers to refrain for sixty days from taking steps that would jeopardize a borrower’s credit rating. Section 2605(e)(3). But to ultimately prevail on a claim for money damages, a borrower still must prove “actual damages” under Section 2605(f)(1)(A) – something Borrower failed to do in Linderman.

Holding. The Seventh Circuit affirmed the summary judgment for Servicer.

Policy/rationale. Borrower contended that Servicer’s alleged lack of response to the QWR aggravated her house, family and financial-related problems, but the Court found that “she did not explain how.” The Court reasoned that “the ongoing foreclosure and need of money for repairs,” and not the alleged lack of response to the QWR, contributed to Borrower’s mental issues. Importantly, RESPA “does not require a servicer to pay money in response to a [QWR].” The Court went on to preach that Borrower may have had state law tort or contract remedies available to her that she did not pursue against various parties. “The sole claim in this [federal court suit] is that [Servicer] injured her by not adequately responding to her letter. That claim fails for the reasons we have given.”

Related posts.

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My practice includes defending lenders, as well as their mortgage loan servicers, in federal court cases brought by borrowers. 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 County Clerk Liable To Judgment Creditor For Bail Bond Proceeds Released To Judgment Debtor

Lesson. Following the entry of a money judgment, there may be innocent third parties who have money in their possession that they owe to the defendant (aka judgment debtor). If any such third party receives notice of the plaintiff’s (judgment creditor’s) post-judgment claim to such money, the third party should hold the money until the court determines the judgment creditor’s rights to the proceeds. If a third party (known as a garnishee-defendant) pays such money to the judgment debtor, the third party can be liable to the judgment creditor for the amount of money turned over. 

Case cite. Garner v. Kempf, 93 N.E3d 109 (Ind. 2018).

Legal issue. Whether Indiana law permits a judgment creditor to garnish a bail bond that the judgment debtor posted in an unrelated criminal case.

Vital facts. A judgment debtor tendered a cash bail bond in a criminal matter, which was unrelated to the civil matter where the judgment was entered. The judgment creditor tried to garnish the bond to satisfy the unpaid judgment. The clerk of the criminal court, who was named as a garnishee-defendant during proceedings supplemental in the civil case, released the funds to the judgment debtor’s criminal defense attorney. The judgment creditor pursued a claim against the clerk for the amount of the released proceeds.

Procedural history. The trial court ruled that the bond was not subject to garnishment. The judgment creditor appealed all the way to the Indiana Supreme Court, which issued the very comprehensive Garner opinion that is the subject of today’s post.

Key rules.

  1. Court clerks are subject to garnishment proceedings.
  2. The court that issues the underlying judgment retains jurisdiction over proceedings supplemental, even if there is a parallel action in another court.
  3. When a garnishee-defendant receives a summons, it becomes “accountable to the plaintiff in the action for the amount of money, property, or credits in the garnishee’s possession or due and owing from the garnishee to the defendant.”
  4. “In effect, upon serving the summons, the judgment-creditor secures a lien on the defendant-debtor’s property then held by the garnishee-defendant.”
  5. The garnishee-defendant is liable for paying out funds inconsistent with this lien.

Holding. The Indiana Supreme Court reversed the trial court and held that the clerk was an eligible garnishee-defendant and that the civil judgment was a lien on the criminal bond. The Court went on to find that the clerk was liable to the judgment creditor because the clerk distributed the proceeds before the civil court determined the parties’ rights to them.

Policy/rationale. In Garner, the clerk’s main contention was that she was protected by a separate criminal court order that released the bond to the defendant’s attorney. But the clerk had already received a summons from the civil court in connection with the judgment creditor’s proceedings supplemental. The clerk failed to inform the criminal court of the lien on the bond created by the summons. The Indiana Supreme Court reasoned that the clerk had a duty to hold the cash pending a determination of the judgment creditor’s right to the proceeds to satisfy the judgment. When the criminal judge approved of the defendant’s request to use the cash bond proceeds to pay his defense lawyer, “those proceeds were no longer encumbered to ensure [the defendant’s] appearance at his criminal trial,” at which point the proceeds became subject to the judgment creditor’s preexisting garnishment lien. Since the clerk released the money before the civil court determined the plaintiff/judgment-creditor’s right to the proceeds, the clerk became liable to the creditor for that amount. Please note that Justice David wrote a dissenting opinion that focused on the criminal law aspects of the matters at hand.

Related posts.

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I represent judgment creditors and lenders in commercial collection actions. 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.


Post Script: When Can Post-Judgment Collection Efforts Begin In Indiana?

This follows-up last week's post.  Yesterday, I bumped into a lawyer who reads my blog and reminded me that we always must check the local rules of a particular county, including the local smalls claims court rules, for their potential application to a particular situation.  Local rules often supplement, or even trump, the state rules of procedure or case law.  As an example, the Marion County (Indianapolis) Small Claims Court Rules, specifically Rule LR49-SC00-602 provides:

B.  Thirty-Day Rule.  A Motion for Proceedings Supplemental shall not be set until thirty (30) calendar days after the date of judgment, except by order of the Court for good cause shown.

The point is that, in certain Indiana venues, post-collection efforts may not begin immediately.  Thanks to attorney Robert Burt for the feedback on last week's post.  

 


When Can Post-Judgment Collection Efforts Begin In Indiana?

How long must the holder of an Indiana judgment wait before executing on the judgment?  The answer depends on whether the case is in state or federal court.  Two opinions by Magistrate Judge Cherry address that issue and other proceedings supplemental basics Artmann v. Center Garage, 2012 U.S. Dist. LEXIS 153966 (N.D. Ind. 2012) (“Artmann I” - .pdf) and 2012 U.S. Dist. LEXIS 160908 (N.D. Ind. 2012) (“Artmann II” - .pdf). 

Procedural posture.  In Artmann I, the U. S. District Court for the Northern District of Indiana entered judgment in plaintiff’s favor, and one day later plaintiff filed its motion seeking to freeze, and collect upon, defendant’s bank accounts pursuant to Ind. Code §§ 28-9-3-4 and 28-9-4-2.  The opinion dealt with plaintiff’s motion and defendant’s corresponding motion to quash plaintiff’s motion. 

14 days.  The defendant contended that plaintiff’s efforts were premature.  Specifically, Federal Rule 62(a) provides for a 14-day stay of execution on a judgment.  The purpose of the rule is to “afford litigants an ample period of time to consider whether to appeal, to file a motion for new trial and/or to seek a stay of execution of judgment.”  Plaintiff argued that the rule did not bar its request for interrogatories and a hold because plaintiff sought only to “preserve” defendant’s property for eventual satisfaction.  Plaintiff stipulated that it would not actually collect any money until after the 14-day stay had expired. 

Yes and no.  The Court concluded that it could not permit garnishment proceedings before the expiration of the 14-day stay.  As such, plaintiff filed its motion too early.  Clearly the Court could not issue any order granting the motion until the stay ended.  Having said that, the ultimate result in Artmann I was a practical one in that the Court allowed plaintiff’s motion to remain pending until the expiration of the stay period.  (I learned that the Court granted plaintiff’s motion on day 15.) 

State law.  Indiana state court Rule 62(A) does not articulate a 14-day automatic stay of execution, or any stay whatsoever.  Historically, the Indiana state rule provided for a 60-day automatic stay, which later evolved into a 30-day stay and ultimately to no stay at all.  As such, the Artmann I holding only applies in federal court proceedings.  Plaintiffs in Indiana state courts may undertake post-judgment collection efforts immediately.  (Note:  In instances of enforcing a foreign judgment in Indiana, the domestication process cannot commence until 21 days after the entry of the judgment in the original [non-Indiana] court.)      

Pro supp basics.  Artmann II dealt with defendant’s contention that plaintiff’s Artmann I motions did not follow certain technical requirements for proceedings supplemental.  The Artmann II opinion provides a nice summary for judgment creditors and their counsel struggling with the nuts and bolts of proceedings supplemental in federal court.  Specifically, judgment creditors need to remain mindful that, under Indiana law, before courts can entertain a garnishment motion under I.C. §§ 28-9-3-4 and 28-9-4-2, creditors must first (or simultaneously) file a separate motion for proceedings supplemental.

Pro supp relief.  Finally, for those wondering what “proceedings supplemental” can accomplish, the Artmann II opinion noted the three fundamental types of relief available:  (1) requiring a judgment debtor (a defendant) to appear in court for an examination as to available property, (2) requiring a judgment debtor to apply particular property to satisfy the judgment and (3) joining a third-party (a garnishee) to the action and requiring that party to answer as to property held by that party for the judgment debtor.   For more posts on garnishment and proceedings supplemental, including freezing bank accounts, please click on the those Categories to your right.


Data Suggests Housing Recovery Complete

Click on the following link for an article from the Jacksonville Daily Record about the status of the recovery from the housing market collapse:  Black Knight data shows the housing recovery finally is complete

The conclusions in the story are consistent with recent comments from one of our mortgage servicer clients.  He told me that virtually all of the foreclosures from the early 2010's have been processed and that the market is back to more normal default levels.

(For a little different spin on the story, here is a link to my 9/6/18 post:  Housing Crisis Revisited In Long-Form Article, With Video)


Mortgage Lien Second In Line, Because Small Claims Court Judgment Never Fully Satisfied

Lesson. Look for a filed satisfaction of judgment to conclusively determine whether a judgment lien has been extinguished. A small claims court judgment, properly indexed and unreleased, will have senior priority over a subsequently-recorded mortgage.

Case cite. Herron v. First Financial Bank, 91 N.E.3d 994 (Ind. Ct. App. 2017)

Legal issue. The issue in Herron was whether a judgment lien was effective as of May 14, 2013, when a small claims court entered its judgment, or as of November 17, 2015, following an appeal of the small claims court’s ruling during proceedings supplemental. If the judgment lien was effective as of the earlier date, then it would have senior priority over the competing mortgage lien. If the judgment lien was not effective until the later date, then the mortgage lien would have first priority.

Vital facts. Herron, a contractor, repaired a church’s roof in March 2011. In 2013, the Lawrence Township small claims court (Marion County) entered judgment for Herron against the church. The Township recorded the judgment in its Judgment Book on May 14, 2013. There was no appeal. Proceedings supplemental ensued and resulted in payments that satisfied the principal amount of the judgment and filing fees. However, on November 14, 2014, the court awarded additional damages to Herron for attorney’s fees and collection costs. Several months later, the small claims court, apparently sua sponte (on its own), rescinded the November 2014 order. Herron appealed that ruling to the Marion Superior Court, and on November 17, 2015, the superior court (a) reversed the small claims court’s rescission of its 2014 damages ruling and (b) entered a $10,000 award for Herron. Meanwhile, in November 2014, First Financial Bank (FFB) entered into a mortgage loan with the church and recorded its mortgage on February 23, 2015 – after the May 2013 Herron small claims judgment but before the November 2015 superior court judgment.

Procedural history. Herron filed an action to foreclose his judgment lien and named FFB as a defendant. FFB contended that its mortgage was senior to Herron’s lien. Both FFB and Herron filed summary judgment motions claiming that their respective liens had senior priority. The trial court determined that FFB’s mortgage had priority and granted FFB’s motion for summary judgment. Herron appealed.

Key rules. Indiana Code 34-55-9-2 provides that a money judgment becomes a lien on the defendant’s real property when the judgment is entered and indexed in the judgment docket in the county where the property is located. Indiana Code 32-21-4-1 states that a mortgage takes priority according to the time that it was filed in the recorder’s office of the county where the property is located. Generally, in Indiana, “priority in time gives a lien priority in right.” 

Holding. The Indiana Court of Appeals reversed the trial court and held that Herron’s judgment lien was first in time and thus senior to FFB’s mortgage.

Policy/rationale. FFB based its argument on the fact that the file of the small claims court contained a November 7, 2014 receipt that showed the 2013 judgment balance to be zero, which suggested that there was no judgment lien as of that date. FFB further asserted that the November 14, 2014 award for fees during proceedings supplemental constituted a new judgment that was later rescinded. According to FFB, therefore, on November 17, 2015, when the superior court overturned the rescission and awarded damages, a second judgment lien was created, nine months after FFB perfected its mortgage lien.

The Indiana Court Appeals rejected each of FFB’s points. Although the record from the small claims court proceedings was not crystal clear, there was nothing “determinative” showing that the original judgment for Herron had been paid in full or was otherwise satisfied or released. Also, through proceedings supplemental, Herron had an ongoing claim for attorney fees and interest that related back to the original judgment. The Court also found that the small claims court’s rescission of its prior fee award did not go into effect because the superior court ultimately overturned the rescission on appeal. In the end, the Court concluded that Herron had a single judgment lien, created May 14, 2013, which had not been satisfied. As such, Herron’s judgment lien preceded FFB’s February 23, 2015 mortgage lien and had first priority.

Related posts.

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I represent judgment creditors and lenders, as well as their mortgage loan servicers, entangled in lien priority and title claim 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.


12 Years And Counting

On November 1, 2006, at age 38, I placed my first four posts on this blog.  (I was on fire that month, with 12 posts.)  Although my production varies from month to month, on Monday, at age 50, I'll submit my 553rd post.  And I have no plans to stop.  Thanks for reading, for the feedback and for the referrals. 

John


From Marion County Sheriff's Sale Team - Recording of Plaintiff's Deeds

I received the attached email blast from the MCSO Sheriff’s Sale Real Estate Team today:

The Marion County Sheriff’s Office (“MCSO”) requires that the successful bidder notify the MCSO Sheriff’s Sale Real Estate team within one week of the recording date once each deed has been recorded by the Marion County Recorder’s Office.

Effective 10.18.2018 Sheriff sale, please email MCSO-SheriffSaleRealEstate@Indy.Gov within one week of the deed’s recording date with the:

1. Sheriff’s File #
2. Date the deed was recorded

If you have multiple deeds being recorded, we would ask that you still report each deed within the requested timeframe.

Please submit all questions and/or comments to this email address MCSO-SheriffSaleRealEstate@Indy.Gov 


Commercial Foreclosure Refresher: Some Basics

A prospective client, who holds a promissory note, which requires an upcoming balloon payment, and a mortgage on commercial real estate securing the note, had these questions for us:

1.    Could the client (effectively, a lender) pursue a default the day after the balloon payment was due?

2.    What did #1 require?

3.    How long would the loan collateral be tied up?

Since I've written about each of these topics in the past, I thought the prospective client's questions made for a nice, short blog post.  Here are the quick answers (as I prepare to head on a fall break vacation with the family):

1.    Depending upon the language in the note, usually yes.  The default and enforcement provisions in the note control.  But, some lenders provide a notice and cure letter as a courtesy, or to initiate settlement discussions.  For more, see Notices of Default, Who Should Send the Letter.   Moreover, while residential/consumer foreclosures require pre-suit notice in Indiana, commercial cases do not:  Indiana's Pre-Suit Notice And Settlement Conference Statute Not Intended For Commercial Foreclosures.  

2.    The Commercial Lender's 8-Item Care Package For Its Foreclosure Attorney

3.    Indiana Foreclosure Process And Timing - The Basics

 


As A Matter Of First Impression, Indiana Adopts Rule That A Debtor Lacks Standing To Challenge An Assignment

Lesson. Generally, defendants in foreclosure actions - such as borrowers, guarantors or mortgagors - cannot contest the validity of a loan assignment.

Case cite. Duty v. CIT, 86 N.E.3d 214 (Ind. Ct. App. 2017)

Legal issue. Whether a borrower had standing to challenge the assignment of the loan documents from his original lender to the assignee of the loan.

Vital facts. The borrower executed a promissory note and mortgage in favor of lender Wilmington Finance in connection with the purchase of his home. Later, lender CIT Group filed a foreclosure action against him. Shortly thereafter, the loan was assigned to a Trust. A few months later, the trial court entered a judgment against the borrower, who then filed for bankruptcy. Years later, the bankruptcy stay was lifted, and the borrower sought relief from the judgment. By then the loan was held by yet another Trust (another mortgagee). The borrower essentially claimed that one or more of the assignments of the loan documents were faulty.

Procedural history. Following the entry of the foreclosure judgment against the borrower, the borrower moved the trial court to set aside the judgment on the basis that the entity that filed suit against him had no legal right to enforce the loan documents at the time. The trial court denied the motion, and the borrower appealed.

Key rules. As a fundamental matter, a party to an underlying contract lacks standing to attack problems with the reassignment of that contract. Therefore, the general rule across the country is that a debtor may not challenge an assignment between an assignor and assignee. Before Duty, however, that rule had not been adopted in Indiana. The only recognized exception to this rule is if the subject assignment is “void” (such as being made under duress), as opposed to being “voidable,” but the Court in Duty did not address this distinction, which I’ll defer to another day.

Holding. The Indiana Court of Appeals affirmed the trial court and held that the borrower had no standing to challenge the loan assignment.

Policy/rationale. The Duty opinion cited to a bankruptcy opinion from Pennsylvania for the rationale behind the prevailing rule:

[The underlying contract] is between [Debtor] and [Assignor].  [Assignor’s] assignment contract is between [Assignor] and [Assignee]. The two contracts are completely separate from one another.  As a result of the assignment of the contract, [Debtor’s] rights and duties under the [underlying] contract remain the same: The only change is to whom those duties are owed….  [Debtor] was not a party to [the assignment], nor has a cognizable interest in it. Therefore, [Debtor] has no right to step into [Assignor’s] shoes to raise [its] contract rights against [Assignee].  [Debtor] has no more right than a complete stranger to raise [Assignor’s] rights under the assignment contract.

Related posts.

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I represent judgment creditors and lenders, as well as their mortgage loan servicers, entangled in contested 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.


Unusual Deed In Lieu Of Foreclosure Agreement Failed To Guarantee Sale Proceeds to Borrower/Mortgagor

Lesson. Creativity with settlement agreements is fine so long as the language clearly and unambiguously articulates the terms of the intended deal.

Case cite. Bobick’s Pro Shop v. 1st Source Bank, 84 N.E.3d 1238 (Ind. Ct. App. 2017)

Legal issue. Whether a deed in lieu of foreclosure agreement compelled a lender/mortgagee to dispose of the mortgaged property in a fashion that paid money back to the borrower/mortgagor.

Vital facts. Borrower and Bank entered into an Agreement for Deed In Lieu of Foreclosure (Agreement). The Bobick’s opinion sets out verbatim the pertinent portions of the Agreement, which by its nature was a settlement arrangement between the parties related to a $2.5MM debt. A unique element of the Agreement surrounded how the proceeds from the Bank’s sale of the mortgaged property would be applied, including a scenario whereby the Borrower itself could recover a portion of the proceeds. After a lengthy time on the market, the Bank ultimately sold the property back to itself at a price that did not net any money to the Borrower.

Procedural history. The Borrower filed a lawsuit against the Bank claiming that the Bank’s sale of the property to itself was a breach of the Agreement. The parties filed cross-motions for summary judgment, and the trial court ruled in favor of the Bank. The Borrower appealed.

Key rules. A contract may be construed on summary judgment if it is not ambiguous or uncertain.

Holding. The Indiana Court of Appeals affirmed the trial court’s summary judgment in favor of the Bank.

Policy/rationale. The Borrower asserted that the language in the Agreement gave the Bank limited discretion to sell the property and that the “fundamental purpose of the Agreement … was to provide a mechanism for the parties to share excess value…” in the property. The problem was that the Agreement’s wording did not support the Borrower’s theory. The Court rejected the Borrower’s position as being “wholly without merit” and pointed to a clause in the Agreement that authorized the Bank to “dispose of the property in such manner … and at such time as [Bank] determines in its sole and absolute discretion.” The Court also noted that, as is the case with any standard deed in lieu agreement, the Agreement resulted in the Bank acquiring unrestricted title to (ownership of) the property. “The plain language of the Agreement demonstrates that the parties contemplated that [the Bank] might dispose of the property in such a manner and time that there would be no funds to distribute to [Borrower).”

Related posts.

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I represent lenders, as well as their mortgage loan servicers, entangled in contested foreclosures. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at 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.


Mortgagor/Owner Compelled To Turnover Tax Sale Surplus Funds To Mortgagee/Judgment Creditor

Lesson. Indiana law may obligate an owner/mortgagor to turnover real estate tax sale surplus funds to his judgment lien creditor or mortgagee.

Case cite. 2444 Acquisitions v. Fish, 84 N.E.3d 1211 (Ind. Ct. App. 2017).

Legal issue. Whether a lender/mortgagee could compel his borrower/mortgagor to turnover previously-refunded surplus funds arising out of a county’s tax sale of the mortgaged real estate.

Vital facts. This case involved a private loan from Plaintiff to Defendant that was secured by a mortgage on Defendant’s real estate. Following a loan default, Plaintiff obtained a judgment and foreclosure decree against Defendant in state court. Before the sheriff’s sale, Defendant filed a Chapter 11 bankruptcy case. In connection with that proceeding, the bankruptcy court ordered the County to turnover surplus funds, from a prior real estate tax sale, to counsel for Defendant to be held in trust. The bankruptcy case later was dismissed, and Defendant’s counsel transferred the tax sale surplus to his client.

Procedural history. Plaintiff filed a motion in the state court case for the Defendant to turnover the tax sale surplus funds. The trial court granted Plaintiff’s motion, and Defendant appealed.

Key rules. Ind. Code 6-1.1-24-7(c) authorizes who can make a claim for a refund in the event of a tax sale surplus. Although that statute does not expressly authorize a mortgagee or judgment creditor to obtain a surplus, Indiana courts have held that persons “with an interest in the real estate, including those who did not own the real estate at the time of the tax sale or who did not purchase the real estate at the tax sale, may assert a claim for a tax sale surplus directly with the trial court.” Indiana case law provides that a mortgagee qualifies as a person with a substantial property interest of public record.

Holding. The Indiana Court of Appeals affirmed the trial court’s order granting Plaintiff’s motion for turnover.

Policy/rationale. One of Defendant’s challenges was that Plaintiff could not file a motion against Defendant to recover the surplus but that Plaintiff instead was limited to proceedings supplemental for any relief. The nuance here is that prior Indiana case law (see post below) dealt with a mortgagee’s pursuit of funds still held by the County, not funds already refunded to the owner. The Court rejected the Defendant’s contention because the statute does not specify the procedural conduit to file the claim, which essentially is one for an equitable declaratory judgment. The Court reasoned that, because Plaintiff held a lien against the real estate subject to the tax sale, Plaintiff’s interest in the real estate had priority over the interest of the property’s owner, Defendant. The Court concluded that, since Plaintiff “has a more substantial interest in the tax sale surplus funds than [Defendant], we find that equity requires the disbursement of the funds to [Plaintiff].” The Defendant asserted other technical bases for a reversal, all of which the Court rejected.

Related post. Mortgagee Prevails In Claim For Indiana Tax Sale Surplus 
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I represent lenders, as well as their mortgage loan servicers, entangled in tax sale disputes and contested foreclosures. 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.


Housing Crisis Revisited In Long-Form Article, With Video

First, credit goes to the Indianapolis Business Journal's "Eight @8" daily eNewletter for alerting me to this content.  The eight stories from yesterday, compiled by Mason King, included this in-depth piece from The Penny Hoarder:  "The Amercian Nightmare," which "examines the [foreclosure crisis] impact" a decade later, by Desiree Stennett and Lisa Rowan.  There are lots of interesting perspectives in the story.  Hard to believe it's been ten years since the crash....       


Reminder Of Indiana's View Of MERS

I've been pressed for time of late but wanted to post some material today.  The article that follows is from my October, 2012 post prepared in the wake of the Indiana Supreme Court's landmark decision involving Mortgage Electronic Registration Systems, Inc. (aka MERS).  

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What is Mortgage Electronic Registration Systems, Inc. (“MERS”)?  More specifically, what does mortgage language identifying MERS “as nominee” mean?  The Indiana Supreme Court in Citimortgage v. Barabas, 2012 Ind. LEXIS 802 (Ind. 2012) dealt with those and other questions surrounding the role of MERS in the foreclosure world about which I wrote following the Indiana Court of Appeals' opinion, which the Supreme Court ultimately reversed. 

Setting the table.  In Citimortgage, junior mortgagee ReCasa initiated a foreclosure action and named only Irwin, the purported senior mortgagee, as a defendant.  The language in the subject mortgage stated that Barabas, the mortgagor, granted the mortgage to MERS “as nominee” of Irwin, identified as the lender.  Upon being sued to answer as to its interests in the subject real estate, Irwin quickly filed a disclaimer of interest, and the court dismissed Irwin from the case.  The trial court later entered judgment for ReCasa, which acquired the real estate at the sheriff’s sale.  ReCasa then sold the real estate to a third party, Sanders.  A month later, Citimortgage filed a motion to intervene in the action and asked the trial court to set aside the judgment and sheriff’s sale. 

Defining MERS.  In its rationale, the Court came to terms with the reality that “about 60% of the country’s residential mortgages are recorded in the name of MERS rather than in the name of the bank, trust, or company that actually has a meaningful economic interest in the repayment of the debt.”  The Court pronounced that “a MERS member bank appoints MERS as its agent for service of process in any foreclosure proceeding on a property for which MERS holds the mortgage.”  The Court found that:

the relationship between Citimortgage and MERS was one of principal and agent.  Clearly, one of the primary purposes of that agency relationship was to facilitate efficient service of process.  . . .  By designating MERS as an agent for service of process, as Irwin did in the Barabas mortgage, lenders can have their cake and eat it too; they free themselves from burdensome, expensive recording requirements but still receive notice when another lienholder seeks to foreclose on a property in which they have a security interest.

Senior mortgage survives.  The core question in Citimortgage was whether ReCasa’s failure to name MERS as a defendant impacted the rights, if any, of Citimortgage, which at some point appears to have acquired the senior mortgage.  Although the Court of Appeals affirmed the trial court’s decision in favor of ReCasa, the Supreme Court ruled for Citimortgage.  ReCasa’s failure to name MERS as a defendant or, more specifically, failure to serve MERS with a summons and complaint, prevented ReCasa from terminating the senior mortgage and leapfrogging into the first lien position.  In short, the judgment was void as to Citimortgage. 

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I represent lenders, as well as their mortgage loan servicers, entangled in lien priority disputes and contested foreclosures. 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 “Lender Exception” Applicable To Leasehold Mortgage In Priority Dispute With Mechanic’s Lien

Lesson. A leasehold mortgage constitutes a valid mortgage lien and can be senior to a mechanic’s lien, if the facts otherwise meet the so-called “Lender Exception.”

Case cite. Kellam Excavating v. Community State Bank, 82 N.E.3d 928 (Ind. Ct. App. 2017)

Legal issue. Whether a leasehold mortgage or mechanic’s lien had priority in title.

Vital facts. A lessee of real estate and a contractor entered into a construction contract on 7/30/13 to build a fertilizer plant. Construction began on 10/25/13. Lessee later needed additional financing for the construction. On 5/16/14, the lessee granted a bank a leasehold mortgage as collateral for some financing the bank offered through a series of master leases between the bank and the lessee. The bank recorded its mortgage on 6/24/14. Following the lessee’s failure to pay the contractor in full, the contractor recorded a mechanic’s lien on 3/6/15. Collection and foreclosure litigation subsequently commenced against the lessee that included a lien priority dispute between the bank and the contractor.

Procedural history. The bank filed a motion for summary judgment claiming that its mortgage should receive priority over the contractor’s mechanic’s lien. The trial court granted the motion, and the contractor appealed.

Key rules.

    Three statutes: There are three Indiana statutes that govern priority between a mortgage and a mechanic’s lien: Indiana Code Sections 32-21-4-1(b), 32-28-3-2 and 32-28-3-5(d).

    Lender Exception: The Court in Kellam incorporated its prior decision in Harold McComb v. JP Morgan Chase that “discussed the interplay between the three relevant statutes and the question of mortgage lien priority versus a later-recorded mechanic’s lien as to improvements provided on commercial property.” That holding “is commonly referred to as the Lender Exception,” and I wrote about the McComb opinion on 9/6/08. In short, the Lender Exception provides:

With regard to commercial property, where the funds from the loan secured by the mortgage are for the specific project that gave rise to the mechanic’s lien, the mortgage lien has priority over the mechanic’s lien recorded after the mortgage.

    Mortgage defined: The definition of a mortgage is a “conveyance of title to property that is given as security for the payment of a debt or the performance of a duty and that will become void upon payment or performance according to the stipulated terms” and as a “lien against property that is granted to secure an obligation (such as a debt) and that is extinguished upon payment or performance according to stipulated terms.”

Holding. The Indiana Court of Appeals affirmed the trial court’s summary judgment in favor of the bank/mortgagee. The Indiana Supreme Court denied transfer.

Policy/rationale. The heart of the Kellam dispute surrounded the nature of the financing. The contractor argued, among other things, that the lessee did not execute a promissory note and that the security agreement was not a qualifying mortgage because the document’s title was a “leasehold” mortgage. The Court, however, found that the agreement operated like a typical mortgage by granting a lien on the lessee’s property rights and by obligating the lessee to repay the bank for funds the bank expended. Moreover, there was no authority for the proposition that a promissory note is required for a valid mortgage.

In the final analysis, despite the unconventional (my term) nature of the financing arrangement, the Court in Kellam was convinced that the lessee sought a loan from the bank for construction of the facility and that the bank’s funds were used for that purpose. Since the Lender Exception applied, the bank’s mortgage was superior to the contractor’s mechanic’s lien.

Related posts. The Mechanic's Liens category to your right contains all of my posts about these kinds of priority disputes.
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I represent lenders, as well as their mortgage loan servicers, entangled in lien priority disputes and contested foreclosures. 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 Buyers Beware: Meth Labs

Yikes.  Did you know that Indiana has a set of regulations that deal with the cleanup of properties contaminated by the manufacture of illegal drugs?  Did you know that, for instance, an innocent buyer at a sheriff's sale arguably could be compelled by the State of Indiana to cleanup a house previously utilized as a meth lab?  

The Law.  Title 410 of the Indiana Administrative Code, Article 38, entitled Inspection and Cleanup of Property Contaminated with Chemicals Used in the Illegal Manufacture of Controlled Substance, governs this matter.  Even though the regulation never mentions mortgage foreclosures or sheriff's sales, a handful of key provisions point to the idea that even a totally innocent buyer at a sale, with no prior knowledge of any contamination, could be required to pay for a cleanup before either living in the house or, perhaps more on point here, liquidating the post-foreclosure.  410 IAC 39-2-18-1 defines "owner" as "a person having an ownership interest in the contaminated property."  410 IAC 38-3-2 goes on to require the owner to cleanup the property before occupying it or "transferring any interest in the property to another person." 

The Impact.  Other than a client once asking me to interpret the law, admittedly I've never had to litigate this issue, nor have I been involved in a dispute with the State surrounding the law's applicability.  Nevertheless, it seems to me that residential mortgage loan servicers should be aware of these rules in the event they learn, either pre or post-sheriff's sale, that they service a mortgage on a house contaminated by the manufacture of illegal drugs (i.e. a meth lab).  By foreclosing on a meth lab, the lender/mortgagee could end up with an expensive mess on its hands.     

The Rub.  The potential exposure to cleanup liability is similar to the environmental exposure discussed in my 9/24/09 post Always Consider An Environmental Liability Analysis, geared more toward commercial foreclosures.  (See also, Real Estate Appraisals Are Important, But Not Required, In Indiana Foreclosures.)  One difference between the environmental topic I previously discussed and today's subject is that it may be difficult if not impossible for a foreclosing lender or a sheriff's sale buyer to know about a meth lab before the sheriff's sale.  Ideally, a foreclosing mortgagee or potential buyer would inspect the interior of the house before any sale, but that's not always possible absent consent by the owner/mortgagor or perhaps a clear abandonment by the occupant. 

More Info.  I understand that the State agency that oversees these matters is the Indiana State Department of Health, Environmental Public Health Division.  For details about the State's program, the Division's website has a plethora of information.  Start by clicking here, but note the "Cleanup and Inspection of Illegal Drug Labs" button on the left side of the home page. 


Post-Foreclosure Attack On Writ Of Assistance (Eviction) Dismissed

Lesson. A borrower-mortgagor’s challenge to a lender-mortgagee’s execution of a writ of assistance needs to occur in the state court foreclosure action, not in a subsequent federal court case. Even then, there’s not much the borrower can do about the writ, which essentially is the process to evict the former owner following a sheriff’s sale.

Case cite. Holt v. BSI, 2017 WL 3438192 (N.D. Ind. 2017) (pdf)

Legal issue. Whether a borrower/mortgagor had a viable federal court claim against his lender (the mortgagee) for damages arising out of the manner in which a state court writ of assistance was executed.

Vital facts. A borrower lost a state court mortgage foreclosure action, and his property was sold at a sheriff’s sale. The lender then obtained a writ of assistance in order to take possession of the property. Movers later loaded the borrower’s belongings onto a truck and locked him out of the house. Among other things, the borrower, in this subsequent federal case, claimed that the lender should not have taken possession of his property and that some of his belongings were damaged after they were removed.

Procedural history. The defendants, including the lender/mortgagee, filed a Rule 12(b)(6) motion to dismiss the borrower’s claims.

Key rules. For the rules related to Trial Rule 70(A) writs of assistance, please click on the related blog posts below. One guideline of particular importance here is the Seventh Circuit precedent establishing that “the sheriff has the ‘right and duty’ to execute the writ of assistance immediately upon receiving it,” so the borrower (former owner) cannot claim that the writ was executed without delay.

Holding. In Holt, the U.S. District Court for the Northern District of Indiana granted the defendants’ motions and dismissed the borrower’s case.

Policy/rationale. The borrower alleged that the lender wrongfully seized his property because it executed the writ of assistance while the borrower was contesting the foreclosure. However, the state court had already entered the foreclosure judgment, and the sheriff had already sold the mortgaged property. As such, the borrower “had already lost that dispute.” The foreclosure order entitled the lender to immediate possession of the real estate and directed the sheriff to enter the property and remove the borrower from it.

As to the borrower’s personal property, his complaint did not allege that the lender actually performed the lockout or took the belongings. Rather, an independent contractor performed those acts. Also the Court noted the principle that the borrower “could have avoided his trouble by moving out voluntarily and promptly when [the lender] obtained title to the property as opposed to forcing [the lender] to utilize the sheriff’s department to enforce the court’s decision.” In the end, the Court in Holt concluded that the borrower did not identify a basis upon which the lender could be liable for negligence.

Related posts.

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I represent lenders, as well as their mortgage loan servicers, in connection with contested mortgage foreclosure cases and related claims. 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.

 


Restraining Order To Enjoin Sheriff's Sale Denied

Hollowell v. Bornkempt, 2017 WL 3446676 (N.D. Ind. 2017) (pdf) is an Indiana federal court opinion following an Indiana state court foreclosure case wherein the borrower's property was slated for a sheriff's sale.  The pro se borrower filed the federal court action seeking a temporary restraining order (TRO) to prevent the sale.  For the following reasons, the Court denied the borrower relief:

1.    The borrower did not convince the Court that the standard for an injunction was met.  Primarily, the Court found the borrower was not reasonably likely to succeed on the merits of his claims (for FDCPA and TILA) violations.  

2.    The TRO was barred by the Rooker-Feldman doctrine.  

3.    There was no evidence that the borrower gave prior notice to the defendants of the TRO as the law required him to do.

Here are links to two other posts dealing with similar issues:

*    Indiana Federal Court Denies Request For Injunction To Stop Sheriff’s Sale

*    Assets Cannot Be Frozen By An Injunction


Indiana Federal Court Dismisses Borrower’s Contract Claim Against Lender Because Lender Never Executed The HAMP Trial Period Plan

Lesson. Absent a fully-executed TPP, signed by a lender or its mortgage loan servicer, no enforceable contract exists, and a borrower’s claim against a lender based upon a TPP, or under HAMP, will be dismissed. In other words, an alleged loan modification agreement requires the signature of the lender.

Case cite. Taylor v. JP Morgan, 2017 WL 3754607 (N.D. Ind. 2017) (Judge Lozan's opinion); Taylor v. JP Morgan, 2017 WL 7370978 (N.D. Ind. 2017) (Magistrate Judge Martin's order)

Legal issue. The main question in Taylor was whether the Home Affordable Modification Program's Trial Period Plan constituted an enforceable contract between a lender and a borrower. A secondary issue was whether the lender was liable for breach of an implied covenant of good faith and fair dealing.

Vital facts. Borrower and his residential/consumer lender discussed a loan modification pursuant to the Home Affordable Modification Program (“HAMP”). Specifically, the lender sent the borrower a letter offering a HAMP Trial Period Plan (“TPP”). The TPP had certain terms and included certain steps for the borrower to complete before the lender would modify the mortgage loan. One of the conditions to the TPP was that the lender must provide the borrower with a fully-executed copy of the TPP; otherwise, there would be no loan modification. In Taylor, the borrower purportedly submitted the necessary paperwork, but the lender never returned an executed copy of the TPP. The borrower claimed that he qualified for a loan modification under HAMP but that the lender improperly denied the request.

Procedural history. The borrower filed a breach of contract action against the lender. The lender filed a motion for judgment on the pleadings. The U.S District Court for the Northern District of Indiana granted the lender’s motion and dismissed the borrower’s case.

Key rules.

Indiana case law involving HAMP provides that the language of the TPP is clear that it is not an offer by lenders that borrowers can accept simply by providing further documentation. Instead, the TPP is an invitation for borrowers to apply to the program, which requires the borrowers’ compliance to be considered. Cases around the country generally provide that a TPP does not take effect until the lender provides a signed copy.

There is no separate cause of action in cases like these for breach of an implied covenant of good faith and fair dealing.

Holding. Since the lender was required to execute the TPP but did not, no contract was formed and thus no viable breach of contract claim existed. Also, the Court rejected the borrower’s claim breach of good faith and fair dealing. (This case is now on appeal to the 7th Circuit.)

Policy/rationale.

TPP’s are not agreements to provide borrowers with a loan at a specified date, but rather are agreements governing obligations of both lenders and borrowers over a trial period after which lenders may extend a separate permanent loan modification should lenders determine that borrowers qualify.

The alleged contract was not for the sale of goods governed by the Uniform Commercial Code and was not the sale of insurance. Moreover, the mortgage did not give rise to any fiduciary or other special relationship. Thus the borrower’s complaint did not articulate the independent tort of breach of good faith/fair dealing.

Related post. Indiana Upholds Dismissal Of Residential Borrower’s Tort Claims Arising Out Of Alleged HAMP Violations
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I represent lenders, as well as their mortgage loan servicers, in connection with contested mortgage foreclosures and related litigation. 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 Finds That Large Crane And Saw For Stone Fabricating Business Were Not "Fixtures"

Lesson. In title and priority disputes surrounding alleged “fixtures,” the parties’ intention is the controlling factor.

Case cite. 11438 Highway 50 v. Luttrell, 81 N.E.3d 261 (Ind. Ct. App. 2017).

Legal issue. Whether certain pieces of equipment were fixtures subject to a lender’s mortgage.

Vital facts. This case dealt with a crane and a saw owned by a limestone sawing business. The business operated out of a building the partners constructed on the back edge of some real estate owned by a separate corporation. A lender held a mortgage on the real estate and also had on file a UCC financing statement claiming an interest in, among other things, equipment and fixtures of the corporation (but not the sawing business).

Procedural history. The lawsuit started when one of the two partners in the limestone sawing business sued the other partner for, among other things, possession of the crane and the saw. Later, the lender (mortgagee) intervened in the action, foreclosed on the real estate and asserted a first-priority security interest in the crane and the saw. The trial court awarded the equipment to the plaintiff (the partner), and the lender/mortgagee appealed.

Key rules. Indiana case law generally provides that “a fixture is a former chattel or piece of personal property that has become a part of real estate by reason of attachment thereto.”

Indiana’s three-part test for whether something “has become so identified with real property as to become a fixture” is “(1) actual or constructive annexation of the article to the realty, (2) adaptation to the use or purpose of that part of the realty with which it is connected and (3) the intention of the party making the annexation to make the article a permanent accession to the freehold.”

The intention factor is controlling and “may be determined by the nature of the article, relation and situation of the parties making the annexation, and the structure, use, and mode of annexation.” If there is doubt regarding intent, “the property should be regarded as personal.”

Holding. The Indiana Court of Appeals affirmed the trial court’s determination “that the crane and the saw should be regarded as the personal property of [the limestone sawing business] rather than a fixture subject to the lender’s mortgage lien.”

Policy/rationale. The equipment in Luttrell was annexed to the real estate and assembled in a building meant to accommodate it. However, the saw (14’x7’) could be disassembled in two days and transferred to a new place via semi-truck. The crane weighed 50 tons, but also could be moved if needed. The sawing business purchased the equipment, and the partners intended for it to remain their personal property after installation. Also, the sawing business and the borrower’s/mortgagor’s business were independent from one another, and the original plan of the partners was to save up money to buy the building.

Seemingly most fixture-related disputes are between creditors who are fighting over the debtor’s property. Here, the dispute was between a creditor and a third-party owner (not a borrower). The fact that the mortgagor/borrower did not own the equipment, and thus could not have pledged it as collateral, probably carried the day.

Related post. What Is A Fixture?
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I represent creditors, as well as mortgage loan servicers, entangled in lien priority and title 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.


District Court Denies Fraudulent Transfer and Alter Ego Claims

Fraudulent transfer and alter ego cases seem to almost always be factually dense and, therefore, difficult to summarize in a blog post.  Since I've written about the essential elements of Uniform Fraudulent Transfer Act and alter ego claims in the past, I've decided simply to post the Court's opinion in Wine & Canvas v. Weisser, 2017 WL 2905026 (S.D. Ind. 2017) here

United States District Judge Pratt authored a thorough, twenty-page opinion dealing with plaintiff's motion for turnover of trademarks and for funds received as royalties in connection with the pending proceedings supplemental.  The two bases of the motion were (1) fruadulent transfer under Indiana Code 32-18-2-14 and 15 and (2) alter ego.  The opinion spells out why the Court denied the plaintiff's motion on both theories.  The Court found that the plaintiff did not show that the subject transfer was fraudulent or voidable.  Further, the Court concluded that company 2 was not the alter ego of company 1. 

For more on the law and the Court's reasoning, please review the opinion, which is a good illustration of how a court will walk through all of the relevant factors toward a decision denying relief.      


Guarantor Loses Procedural Battle Over Whether He Can Be Sued In Both the United States and Brazil

Lesson. When negotiating guaranties, or litigating rights under them, know that courts will slice and dice the language within the guaranty in order to determine the parties’ intent and reach an appropriate outcome. Every word can be important.

Case cite. 1st Source Bank v. Neto, 861 F.3d 607 (7th Cir. 2017).

Legal issue. Whether language in a guaranty allowed for parallel litigation in the United States (Indiana) and Brazil.

Vital facts. 1st Source was an Indiana federal court collection action by a lender against a guarantor arising out of a $6 million loan to purchase an airplane. Defendant, who resided in Brazil, personally guaranteed the loan. The Seventh Circuit’s opinion interpreted the guaranty’s so-called choice-of-law and venue provision, which stated:

This guarantee shall be governed by and construed in accordance with the laws of the state of Indiana .… In relation to any dispute arising out of or in connection with this guarantee the guarantor [i.e., the defendant guarantor] hereby irrevocably and unconditionally agrees that all legal proceedings in connection with this guarantee shall be brought in the United States District Court for the District of Indiana located in South Bend, Indiana, or in the judicial district court of St. Joseph County, Indiana, and the guarantor waives all rights to a trial by jury provided however that the lender [i.e., the plaintiff lender] shall have the option, in its sole and exclusive discretion, in addition to the two courts mentioned above, to institute legal proceedings against the guarantor for repossession of the aircraft in any jurisdiction where the aircraft may be located from time to time, or against the guarantor for recovery of moneys due to the lender from the guarantor, in any jurisdiction where the guarantor maintains, temporarily or permanently, any asset. The parties hereby consent and agree to be subject to the jurisdiction of all of the aforesaid courts and, to the greatest extent permitted by applicable law, the parties hereby waive any right to seek to avoid the jurisdiction of the above courts on the basis of the doctrine of forum non conveniens.

The guarantor defaulted under the guaranty, and the lender sued to collect in both Indiana federal court (where the lender was located) and in a court in Brazil (where the airplane and other of the guarantor’s assets were located).

Procedural history. The guarantor, in the Indiana case, sought “antisuit injunctive relief” to prevent the lender from suing him in Brazil. The trial court denied the guarantor’s motion, and the guarantor appealed to the Seventh Circuit, which issued the opinion that is the subject of today’s post.

Key rules. Generally, in Indiana, “courts interpret a contract so as to ascertain the intent of the parties.” When courts find a contract to be clear, they will require the parties to perform “consistently with the bargain they made, unless some equitable reason justifies non-enforcement.”

International forum-selection clauses are prima facie valid. The resisting party can only call into question the agreement’s validity if enforcement is unreasonable under the circumstances, which exception has been held to apply to three circumstances: (1) if the clause was the result of fraud, undue influence or overweening bargaining power, (2) if the selected forum “is so gravely difficult and inconvenient that the complaining party will for all practical purposes be deprived of its day in court” or (3) if enforcement would contravene strong public policy of the forum in which the suit is brought, declared by statute or judicial decision.”

Holding. The Seventh Circuit Court of Appeals affirmed the District Court’s decision.

Policy/rationale. The guarantor had five contentions in support of his position, all of which the Court rejected. First, the clause did not limit venue to Indiana. Second, the clause did not limit the suit to either Brazil or Indiana. Third, the guarantor’s “judicial estoppel” argument had no merit. Fourth, the clause did not violate public policy. Finally, the Court found that the Brazil suit was not “vexatious or duplicative” of the Indiana action. In the final analysis, the Court carefully studied the words in the operative guaranty provision, and the Court’s interpretation of those words carried the day. For more detail on the Court’s analysis, or to better understand how a court might interpret your guaranty provision, please review the Court’s opinion (link above).

Related posts.

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I represent both lenders and guarantors in commerical loan enforcement actions. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlaweyrs.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 Vacates Trial Court Order Domesticating Illinois Judgment

Lesson. Perhaps the only basis upon which a judgment debtor (defendant) can prevent the domestication in Indiana of a foreign judgment (a judgment entered in another state) is to contest the Indiana court’s jurisdiction (power) to enter the judgment in the first place.

Case cite. Sekerez v. Grund & Leavitt, 77 N.E.3d 193 (Ind. Ct. App. 2017).

Legal issue. Whether an Indiana trial court’s order to domesticate a foreign judgment should be set aside because the order was outside of the trial court’s jurisdiction.

Vital facts. Sekerez was a dispute between an Illinois law firm and an Indiana client regarding payment of attorney fees. The law firm filed an action against the client in Illinois that evolved into an arbitration of their claims in Indiana. The arbitrator awarded the law firm about $50,000 in damages, and the law firm returned to the Illinois court to issue a final judgment. The client objected on the grounds of jurisdiction, but the Illinois court entered the judgment for the law firm anyway. The client then filed an action in Lake Circuit Court (Indiana) to set aside the Illinois judgment under the Indiana Uniform Arbitration Act. While the Lake Circuit Court case was pending, the law firm initiated a separate action in Lake Superior Court (Indiana) to domesticate the Illinois judgment. The Lake Superior Court granted the law firm’s motion and entered final judgment in favor of the law firm and against the client.

Procedural history. The client appealed the Lake Superior Court’s judgment. The Indiana Court of Appeals’ opinion is the subject of today’s post.

Key rules. Indiana common law provides that two courts of concurrent jurisdiction cannot deal with the same subject matter at the same time. “Once jurisdiction over the parties and the subject matter has been secured, it is retained to the exclusion of other courts of equal competence until the case is determined.”

Similarly, Indiana Trial Rule 12(B)(8) prohibits one Indiana court from hearing “the same action pending in another state court of this state.”

Holding. The Court of Appeals reversed the Lake Superior Court with instructions to vacate its judgment.

Policy/rationale. The arbitration order was the exclusive basis for the Illinois judgment . The Court reasoned that the issue of whether the arbitration order was valid was already before the Lake Circuit Court when the Lake Superior Court domesticated the Illinois judgment. The client was litigating whether the Illinois court lacked jurisdiction to confirm the arbitration award when the law firm filed the Lake Superior Court case. The Court of Appeals concluded that the law firm’s effort to have the Lake Superior Court domesticate the Illinois judgment simply was an attempt to circumvent the Lake Circuit Court proceedings.

As a side note, the law firm did not utilize Indiana Code 34-54-11 “Enforcement of Foreign Judgments” to domesticate its judgment. Please click on the link below to learn more. Even if the law firm in Sekerez had followed the statute, however, the client still should have prevailed based upon the jurisdictional attack.

Related posts.

I frequently represent judgment creditors in contested collection actions. 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 Federal Court Finds De Facto Merger Giving Rise To Successor Liability for Contract Obligations

Lesson. Depending upon the facts, a newly-formed company can be liable for a separate, but related, company’s debts under Indiana’s “successor liability” doctrine.

Case cite. Continental Casualty v. Construct Solutions, 2017 U.S. Dist. LEXIS 76396 (S.D. Ind. 2017) (pdf).

Legal issue. Whether Company 2 was a successor company of Company 1 and thus responsible for Plaintiff’s contract damages because Company 2 was either a “de facto merger” or a “mere continuation” of Company 1.

Vital facts. Continental Casualty was a breach of contract action. About a year after Defendant Company 1 signed the contract, the owner incorporated Defendant Company 2. Both companies were commercial roofing operations. Company 1’s people controlled the operations of Company 2. The same individual was the president of, and owned, both companies. Both operated from the same location. Company 2 assumed the trade name of Company 1.

Procedural history. Continental Casualty was Judge Tonya Walton Pratt’s opinion on Plaintiff’s motion for summary judgment. Plaintiff asked for a judgment against Defendant Company 2 as the successor company for Defendant Company 1. In other words, Plaintiff sought to hold Company 2 liable for Plaintiff’s losses under its contract with Company 1.

Key rules.

Generally, in Indiana, a successor company may liable for the obligations of its predecessor if it’s a “de facto consolidation or merger” or where the successor is a “mere continuation of the seller.”

Indiana looks at the following factors to make such a determination:

1. Continuity of ownership,
2. Continuity of management, personnel and physical operation,
3. Cessation of ordinary business and dissolution of the predecessor as soon as practically and legally possible, and
4. Assumption by the successor of the liabilities ordinarily necessary for the uninterrupted continuation of the business of the predecessor.

Holding. The Court granted summary judgment in favor of Plaintiff.

Policy/rationale. The same person owned both companies. The same person was the president of both companies, which were both operated from the same location. Company 1 dissolved in early 2015, before Company 2 was formed. Plus, the companies adopted each other’s trade names and provided the same roofing services. The Court concluded that these uncontested facts were sufficient to establish that Company 2 was a de facto merger with Company 1 and, thus, was “liable as a successor company to amounts owed under the [subject contract].”

Related post. Indiana Collection Theories Of Piercing The Corporate Veil, Alter Ego, Successor Liability And Mere Continuation: Part II


Changes to Rules/Procedures for Marion County (Indianapolis) Sheriff's Sales

Rachel Winkler of the Marion County Civil Sheriff’s Office recently circulated an email to the local foreclosure community of lawyers, investors and bidders about some immediate changes to the local sheriff’s sale rules and procedures. Since the Office wants to spread the word to future participants in the mortgage foreclosure sale process, consider this a public service announcement.

Below is a verbatim copy of her email, and I’ve provided links to the various .pdf’s and the home page:

Greetings Attorneys/Investors/Bidders,

We want to include all because the adjustments we are working on and toward affect all.

Some highlights of these adjustments to our process are:

Interest will now come from Attorneys; please consider including these on the added cost sheet.

Plaintiff Bid Forms; Treasurer’s Tax Clearance Forms; Removal Letters; Assignment of Judgment/Bids and Added Costs Sheets are due no later 3:00 p.m. two business days prior to the respective sale date.

Cost checks for User Fees, Sheriff’s fees and Publication Fees (including Sheriff’s File Number on checks) are also due and requested no later 3:00 p.m. two business days prior to the respective sale date.

Cost checks will now be cashed and applied as part of the Sheriff Sale process. Please be sure to consider these costs as part of the minimum bid amount and Plaintiff’s written bid as applicable.

Attorneys are responsible for preparing all Sheriff’s Deeds, Clerk Returns and Sales Disclosure Forms for all sales including third party purchases.

All information is included in the document called Marion County Sheriff's Sale Real Estate Rules Requirements for Plaintiffs.Attorneys.Revised 05.04.2018.

Bidders, please come with document Marion County Sheriff's Sale Real Estate Sales Disclosure Information.Revised 05.4.2018 already prepared for each property you plan to purchase. If the property is sold to you, please submit the corresponding document at the completion of the oral auction.

Please visit our website: http://www.indy.gov/eGov/County/MCSD/Services/RealEstate/Pages/home.aspx

Please direct your questions, comments and concerns to myself, Rachel.Winkler@indy.gov 317-327-2420 and Lori, Lori.Wyeth@indy.gov 317-327-2405.

More to follow…

Rachel Winkler
Marion County Sheriff's Office
Judicial Enforcement Division
200 E. Washington St.
Suite 1122
Indianapolis, IN 46204
Office – (317) 327-2420
Fax – (317) 327-2465
rachel.winkler@indy.gov

Here are the other .pdf’s that Ms. Winker attached to her email:


Indiana Lis Pendens Notice Deemed Discharged Despite Pending Appeal Of The Discharge Order

Lesson. If a trial court discharges (releases) a lis pendens notice in a final appealable order, an appeal of the underlying decision does not resurrect the notice or extend the filer’s lis pendens rights pending the outcome of the appeal.

Case cite. Knapp v. Wright, 76 N.E.3d 900 (Ind. Ct. App. 2017).

Legal issue. Whether the release of the lis pendens notice was premature because the court’s order was subject to an appeal.

Vital facts. Knapp was a dispute between the Wrights and the Knapps surrounding the enforceability of a land contract. The trial court entered a preliminary order granting the Wrights possession of the subject real estate. The Knapps responded by filing a lis pendens notice (LPN) asserting an ownership interest in a portion of the real estate based upon the land contract.

Procedural history. The Wrights filed an emergency motion to discharge the LPN because the trial court had already determined that the Knapps had no rights to the property under the land contract. The trial court wen on to hold an evidentiary hearing on the matter of damages and awarded the Wrights monetary relief. In the second order, the trial court stated that its ruling was a final, appealable judgment with respect to the real estate. The court’s order also granted the Wrights’ emergency motion to discharge the LPN and expressly authorized them to sell the real estate free and clear of the LPN. The Knapps appealed.

Key rules. The Indiana Supreme Court has described the doctrine of lis pendens as being:

fundamentally about notice. The term lis pendens itself means “pending suit,” and it refers specifically to “the jurisdiction, power, or control which a court acquires over property” involved in a pending real estate action. Any successor in interest to real estate is deemed to take notice of a pending action involving title to that real estate and is subject to its outcome. The judgment in the pending lawsuit binds all successors in interest, regardless of whether a successor was a party to the litigation. The doctrine’s purpose is to protect the finality of court judgments by discouraging purchases of contested real estate.

Ind. Code 32-30-11 is Indiana’s lis pendens statute. Section 7 states in pertinent part:

Upon the final determination of any suit brought:

(1) for the purposes described in section 2 or 3 of this chapter; and
(2) adversely to the party seeking to enforce a lien upon, right to, or interest in the real estate;

the court rendering the judgment shall order the proper clerk to enter in the lis pendens record a satisfaction of the lien, right, or interest sought to be enforced against the real estate. When the entry is made, the real estate is forever discharged from the lien, right, or interest.

Holding. The Knapps essentially claimed that the LPN should not have been removed pending the outcome of their appeal. The Indiana Court of Appeals disagreed and affirmed the trial court.

Policy/rationale. The trial court’s final appealable judgment disposed of all issues concerning title to the subject real estate. The Court of Appeals reasoned that the judgment constituted a “final determination” under the above statute that mandated the clerk to enter in the lis pendens record a satisfaction of the defendants’ interests they sought to enforce. The fact that the Knapps “intended to appeal … did not render the … final appealable judgment any less of a ‘final determination’ of their suit within the meaning of the statute.” Based upon the language in the statute and a 2003 case interpreting the operative words “final determination,” the Court concluded that the LPN was extinguished regardless of pending appellate rights. While I understand the Knapps’ position (what if the land contract ruling was reversed on appeal?), the language in the statute handcuffed the courts from extending the lis pendens in this instance.

Related posts.

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I frequently represent judgment creditors and lenders, as well as their mortgage loan servicers, entangled in lien priority and title claim 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.


Seventh Circuit Affirms Dismissal Of Borrower’s Post-Foreclosure Federal Claims Based On Rooker-Feldman and Res Judicata

Today’s post follows-up mine from 2/26/17: Borrower’s Claims For Violations of RESPA, TILA, FDCPA, RICO And FPRAM, Together With Claims for Various Torts, Dismissed. For an introduction to the case, Mains v. Citibank, 852 F.3d 669 (7th Cir. 2017), please click on that prior article.

The borrower appealed the District Court’s ruling to the Seventh Circuit Court of Appeals. Click here for the Court's opinion, which thoroughly sets up each of the borrower’s contentions and then knocks them out. Mains provides a road map through Indiana state and federal law under circumstances in which a borrower/mortgagor, in the aftermath of a state court foreclosure, pursues fraud-based remedies in federal court against a lender, a mortgage loan servicer and their law firms.

I’ve written about the Rooker-Feldman and res judicata doctrines many times in the past. In fact, this is the second post about a Seventh Circuit Court of Appeals’ decision on the subject – click here for my first post. As to this recent opinion, here are a couple highlights:

1. Federal claims not raised in state court, or that do not expressly require review of the state court decision, may be subject to dismissal “if those claims are closely enough related to a state court judgment.” Is the federal plaintiff alleging that the state court judgment caused his injury?

2. The Seventh Circuit broadly concluded that “the foundation of the present suit is [the borrower’s] allegation that the [prior foreclosure judgment] was in error because it rested on a fraud perpetrated by the defendants…. [The borrower’s] remedies lie [solely] in the Indiana courts.” The Court reasoned that, to delve into any alleged fraud, “the only relief would be to vacate [the state court] judgment … that would amount to an exercise of de facto appellate jurisdiction, which is not permissible.”

The Court found that “in the final analysis, all of [the borrower’s] claims must be dismissed - most under Rooker-Feldman and a few for issue preclusion [res judicata].” The only thing the Court of Appeals changed was that the dismissal should be without, instead of with, prejudice. (As an aside, the borrower appealed the decision to the United States Supreme Court, which denied his request to hear the case – Mains v. Citibank, 138 S.Ct. 227 (2017)).

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I frequently represent creditors and lenders, as well as their mortgage loan servicers, in contested mortgage 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.


Quickly: Application for Charging Order Granted

Heading out with the family for Spring Break but wanted to offer a quick post about a motion decided last year in our local federal court.  The opinion is very short, and Magistrate Judge Tim Baker's report and recommendation later was adopted by Judge Pratt.  Click here for the ruling. 

The case involved a twist to a charging order on one tenant's in common half-interest in some real estate.  The interest arose out of a purchase agreement.  The Court concluded that the  tenant's "economic interest in the [real estate] should be charged against any unsatisfied part of [judgment creditor's] judgment" against him.  The Court thus granted the judgment creditor a lien against the judgment debtor's interest in the real estate. 

The debtor claimed that he had no interest in the real estate because he did not actually financially contribute to the purchase, but the purchase agreement listed him as a tenant in common.  In arriving at his decision, Magistrate Judge also addressed the law of contribution.       


Mortgage Liens Survive Chapter 7 Bankruptcy Discharge, Allowing In Rem Foreclosures

Lesson. Although a Chapter 7 bankruptcy discharge eliminates personal liability for a mortgage loan, a discharge does not erase the debt or the mortgage lien. This means that borrowers will not be on the hook for the money, but lenders still can sue to foreclose the mortgage. Discharged debtors still can lose their property.

Case cite. Mccullough v. Citimortgage, 70 N.E.3d 820 (Ind. 2017).

Legal issue. Whether a discharge in bankruptcy precludes a mortgage foreclosure action.

Vital facts. The Borrowers entered into a loan secured by a mortgage on their home. They later defaulted for a failure to make payments when due. They filed a Chapter 13 bankruptcy case that was converted to a Chapter 7. The Borrowers’ debts were discharged in the Chapter 7 case, which was then terminated.

Procedural history. Lender initiated an in rem foreclosure against the Borrowers and filed a motion for summary judgment. The trial court granted the motion and entered an in rem judgment against the mortgaged property. The Borrowers appealed all the way to the Indiana Supreme Court.

Key rules.

A Chapter 13 is a reorganization type bankruptcy in which the debtor’s assets generally are not surrendered or sold. The debtor instead “pays his creditors as much as he can afford over a three or five-year period.”

A Chapter 7 is a liquidation type bankruptcy in which the debtor generally surrenders his assets and in exchange is relieved of his debts.

A Chapter 7 discharge eliminates a homeowner’s personal liability for a mortgage loan. But a discharge has “has no bearing on the validity of the mortgage lien.” A lender’s right to foreclose on the mortgage survives.

Holding. The Indiana Supreme Court affirmed the summary judgment in favor of Lender and against the Borrowers.

Policy/rationale. The Borrowers in Mccullough asserted that the bankruptcy discharge effectively negated the debt and, as a result, Lender could no longer foreclose. However, a mortgage loan has “two different but interrelated concepts, namely: the loan due on the mortgage as evidenced by the Note, and the lien on the property as evidenced by the Mortgage.” A bankruptcy discharge “removes the ability” of a lender to collect against the borrower individually (in personam liability), but liens (in rem rights against property) remain enforceable. In Mccullough, the Supreme Court found that the Borrowers were protected from personal liability as to Lender’s debt, but the mortgage lien was enforceable as an in rem action against the Borrowers’ real estate, for which there remained an outstanding lien balance. Thus the debt survived the bankruptcy. Only the Borrowers’ personal obligation to pay it went away.

Related posts.

Indiana Follows The Lien Theory Of Mortgages

Indiana Deficiency Judgments: Separate Action Not Applicable

What Is Indiana's Definition Of A Lien?
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I frequently represent creditors and lenders, as well as their mortgage loan servicers, in contested mortgage 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.


Language In Deed Overcomes Presumption Of Tenants By The Entireties Ownership, Allowing Judgment Lien To Attach

Lesson. Indiana law presumes that spouses own real estate as “tenants by the entirety.” In limited instances, however, the presumption can be overcome based upon language in the deed reflecting an intention to establish a different form of ownership.

Case cite. Underwood v. Bunger, 70 N.E.3d 338 (Ind. 2017)

Legal issue. Whether the language in the subject deed was sufficiently clear to overcome the presumption of ownership of tenants by the entirety.

Vital facts. In 2002, the owner of the subject real estate conveyed the property to the new owners through a warranty deed that contained this clause: “[Grantor] conveys and warrants to [Underwood], of legal age, and [Kinney] and [Fulford], husband and wife, all as Tenants-in-Common.” In June 2014, a six-figure damages judgment was entered against Underwood and Kinney. In November 2014, Kinney passed away but remained married to Fulford until his death.

Procedural history. In 2015, Underwood filed an action for partition to sell the real estate and distribute the proceeds, presumably to satisfy, at least in part, the judgment. Underwood claimed that she, Kinney and Fulford owned the real estate as three tenants in common. Kinney’s Estate claimed that it did not own the property and that Kinney’s interest had instead passed to Fulford, his spouse, based upon tenants by the entirety ownership. The trial court agreed with the Estate and concluded that the Kinney/Fulford marital unit was a single tenant in common with Underwood. As such, the judgment lien did not attach to Fulford’s one-half interest because the judgment was only against Kinney (and Underwood), not Fulford. Underwood appealed all the way to the Indiana Supreme Court, which issued the opinion that is the subject of today’s post.

Key rules.

The following prior post provides context for today’s submission: Execution Upon Indiana Real Estate Owned As “Tenancy By The Entireties.”

Under Indiana common law, “conveyance of real property to spouses presumptively creates an estate by the entireties.” However, the presumption “can be overcome if the instrument of conveyance reflects an intention to create some other form of concurrent ownership.”

These rules have now been codified. The operative statute is Ind. Code 32-17-3-1. The key language related to rebutting the presumption is in subsection (d)(2):

if it appears from the tenor of a contract described in subsection (a) that the contract was intended to create a tenancy in common; the contract shall be construed to create a tenancy in common.

In interpreting subsection (d)(2), the Supreme Court in Underwood articulated the following test: “in giving a fair reading to the whole instrument, we will find the presumption is rebutted if its terms reasonably reflect the parties’ intention to establish a different form of tenancy.”

Holding. The Supreme Court reversed the trial court and the Indiana Court of Appeals, which had affirmed the trial court. The Court concluded that the language in the deed specifying that the three grantees, two of whom were married, shall take the real estate “all as Tenants-in-Common" rebutted the presumption.  

Policy/rationale.

The Court felt that the phrase in the deed “all as Tenants-in-Common” showed the parties’ intent to create a tenancy in common among all three grantees. Specifically, the word “all” established that the grantor did not view “Husband and Wife” as a single entity.

    Judgment lien. The main reason I’m writing about Underwood is that the case illustrates the impact of a judgment lien in the context of real estate held by tenants by the entireties vs. tenants in common. The Court found that the interest of Kinney, one of the two judgment debtors, passed to his Estate. Thus the Estate’s one-third share of the partition sale proceeds should go to satisfy the judgment because the judgment lien attached to that third. On the other hand, Fulford, the surviving spouse, would not enjoy the tenancy by the entireties spousal exemption for half of the sale proceeds – only a third. Although the Supreme Court did not address the practical impact of the case, I’m guessing that Underwood’s goals included ensuring that two-thirds (instead of one-half) of the sale proceeds were applied to pay down (or off) the judgment and that Kinney, through his Estate, paid his pro rata share of the debt.
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I frequently represent judgment creditors and lenders, as well as their mortgage loan servicers, entangled in lien priority and title claim 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.


Publishing Notices Of Sheriff's Sales In Indiana

We’ve got a sheriff’s sale next month, in connection with a commercial foreclosure case, in Montgomery County. There, like many counties in Indiana, the sheriff’s office contracts with a third-party company that serves as the sheriff’s agent for purposes of preparing for, and holding, sheriff’s sales. In Montgomery County, the vendor is SRI. Other counties use Lieberman Technologies. Many county sheriff’s departments, such as Marion County’s here in Indianapolis, still run all aspects of the sale internally, however.

Check county rules. Don’t forget that local rules, customs and practices control (pardon any outdated links from that 2010 post). For our sale next month, Montgomery County requires the plaintiff/lender to handle the pre-sale notice publication process. Many if not most counties will cover publication, and then invoice you for the costs. The need for us to do this particular step caused me to dust off the applicable statute to make sure we published the sale notice properly, and timely.

Publication laws. The three critical elements of publication are: (1) advertising in a newspaper circulated in the county where the real estate is located, (2) running the ad for three successive weeks and (3) initiating the first ad at least thirty days befor the sale. Here is the pertinent statutory provision, Ind. Code 32-29-7-3(d):

Before selling mortgaged property, the sheriff must advertise the sale by publication once each week for three (3) successive weeks in a daily or weekly newspaper of general circulation. The sheriff shall publish the advertisement in at least one (1) newspaper published and circulated in each county where the real estate is situated. The first publication shall be made at least thirty (30) days before the date of sale.

Notice to owner. Section 3(d) goes on to require that:

at the time of placing the first advertisement by publication, the sheriff shall also serve a copy of the written or printed notice of sale upon each owner of the real estate. Service of the written notice shall be made as provided in the Indiana Rules of Trial Procedure governing service of process upon a person.

(See, Service of Process” Fundamentals for the Plaintiff Lender.) My understanding is that, in most instances when a sheriff or its agent requires the plaintiff/lender to handle publication, the sheriff or agent still will perfect service upon the owner themselves. Normally, this is done by certified mail or hand delivery. By the way, if counsel represents the owner, I always include notice to the attorney.
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I represent lenders, as well as mortgage loan servicers, 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.


From Marion County (Indianapolis) Civil Sheriff's Office: Judgment Assignment and Costs Forms

This post essentially is a copy and paste of Laurie Gipson's email from last Friday.  You can download the two forms by clicking each hyperlink:

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Good afternoon!

Attached, please find two forms to be included with your sale documents beginning with the February 21, 2018 Sheriff Sale and all future Sheriff Sale dates.

The first form is the Assignment of Judgment Cover Sheet that should accompany each individual sale #. The specific language and format that we have provided you in the Assignment of Judgment Cover Sheet may be incorporated within the filed Assignment of Judgment and/or may be attached as a cover sheet with a copy of the filed Assignment of Judgment for verification of the same. This format will eliminate any confusion that may exist within our interpretation, allowing us clear documentation of your intent and help us all to be firm, fair and consistent across the board.

The second form is the Added Costs Sheet which should be used for your added costs for each individual sale #.

All bids; tax clearance forms; cost checks; added costs sheets (to include bid justification); assignment of judgments; and assignment of judgment cover sheets are due in our office no later than 3:00 p.m. on the day prior to the respective Sheriff Sale date.

Deeds; Clerk Returns; Sales Disclosure Forms; recording checks; and removal checks are due in our office no later than 3:00 p.m. the Friday after the respective sale.

Please pass this information along to all it my concern.

If you have any questions, please feel free to contact us.

Thank you for your cooperation,
Laurie

Laurie Gipson
Marion County Sheriff’s Office
Judicial Enforcement Division

Real Estate/Mortgage Foreclosures:  (317) 327-2450


Redemption From Tax Sale - Interest On Surplus Now 5%, Not 10%

In 2010, I posted Indiana Tax Sales, Part II: Redemption, which discussed how parties can redeem real estate from a tax sale.  Lenders who lose mortgaged property at a tax sale have the ability to redeem, and one of the issues always is amount of money needed to do so.  My prior post includes a discussion of the amounts needed to redeem.  One of the elements is interest on any surplus.  The purpose of today's post is advise that, as of July 1, 2014, the per annum interest redeemers must pay on the tax sale surplus is 5%.  Previously, the amount was 10%.  So, it's now less expensive to redeem.   

To review the entire Indiana statutory provision applicable to the amount of money required for redemption, click on Ind. Code 6-1.1-25-2

Enjoy the Patriots loss on Sunday....

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I often represent lenders, as well as their servicers, entangled in loan-related litigation, including disputes arising out of tax sales. If you need assistance with such a matter, please call me at 317-639-6151 or email me at john.waller@woodenmclaughlin.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 to your left.

 


Despite Judgment Debtor's Failure To Object, IRA Exempted From Garnishment

Lesson.  Indiana law generally protects retirement accounts from post-judgment collection.

Case cite.  Dumka v. Erickson, 70 N.E.3d 828 (Ind. Ct. App. 2017).

Legal issue.  Whether a judgment debtor’s failure to assert a statutory exemption from garnishment necessarily means that the exemption is waived.

Vital facts.  Judgment creditor filed a motion for proceedings supplemental against judgment debtor and named as a garnishee-defendant the institution that held funds in an “inherited traditional individual retirement account” (IRA). The judgment debtor inherited the IRA from her deceased husband. At the hearing on the motion, the debtor appeared pro se (without an attorney) and did not contest the creditor’s efforts to liquidate the IRA.

Procedural history.  Even though the judgment debtor failed to object to the garnishment or to otherwise assert an exemption, the trial court denied the judgment creditor’s motion. The creditor appealed.

Key rules.

Ind. Code 34-55-10-2(c)(6) provides that non-spousal inherited IRAs are not exempt from garnishment but that IRAs inherited by surviving spouses are exempt.

Generally, exemptions must be asserted by the debtor. However, the Indiana Supreme Court has held that, because exemptions “exist to give life to a constitutional right [sheltering certain property and income from attachment],” there should be exceptions to this general rule “consistent with fairness and practical realities.”

Trial courts may take “judicial notice” of statutes at any stage in a proceeding. Ind. Evid. Rule 201(b-d).

Holding.  The Indiana Court of Appeals affirmed the trial court.

Policy/rationale.

A key factor in the Court’s decision was that the judgment debtor was unrepresented by counsel. The undisputed facts established that “the IRA is lawfully exempt from attachment,” and the trial court properly took judicial notice of the exemption. Since the trial court’s order complied with the evidence and the law, the Court of Appeals affirmed the decision.

Related posts.

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I frequently represent creditors and debtors in business-related collection actions. 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.

 


Absence Of Legal Description Dooms Mortgage In Lien Priority Dispute

Lesson. First, if you are in the business of drafting and recording mortgages, make sure they contain legal descriptions of the subject real estate.  Common (street) addresses technically are inadequate to provide notice of a lien.

Case cite.  U.S. Bank v. Jewell, 69 N.E.3d 524 (Ind. Ct. App. 2017).

Legal issue.  Whether the omission of a legal description of the real estate rendered the mortgage insufficient to charge a competing mortgagee with notice.

Vital facts.  This case involved a mortgage lien priority dispute and dealt with Indiana’s bona fide purchaser (BFP) doctrine.  Jewell held a mortgage that it recorded but that failed to contain a legal description.  The mortgage only identified the common address a/k/a the street address.  When the owner later sold the real estate, the buyer obtained financing from a lender, which conducted a title search before ultimately making the mortgage loan.  The evidence established that the lender’s title search did not disclose Jewell’s mortgage.

Procedural history. Jewell filed suit to foreclose its mortgage and named the lender.  The lender filed a motion for summary judgment claiming that it was a bona fide purchaser and was entitled to senior lien status.  The trial court denied the motion.  The lender appealed.

Key rules.  The Jewell opinion contains an excellent summary of Indiana’s rules, exceptions and tests related to the bona fide purchaser doctrine.  The opinion also provides a really good analysis of Indiana’s summary judgment standard, and related burdens of proof, as applicable to our BFP laws. Without regurgitating all of the law from the opinion (see other posts noted below), here are some of the key rules in play in Jewell:

1. Prospective purchasers of real estate must search the grantor-grantee and the mortgagor-mortgagee indexes for the period that the mortgagor holds title.

2. On the matter of “constructive” notice, “a mortgage must be recorded [in the chain of title] in the proper county and must contain an accurate legal description of the property.”

3. In the absence of contructive notice, there is Indiana law supporting the notion that, in certain circumstances, subsequent purchasers may be charged with “inquiry” notice, sometimes called “implied or inferred” notice:

Notice is actual when notice has been directly and personally given to the person to be notified.  Additionally, actual notice may be implied or inferred from the fact that the person charged had means of obtaining knowledge which he did not use.  Whatever fairly puts a reasonable, prudent person on inquiry is sufficient notice to cause that person to be charged with actual notice, where the means of knowledge are at hand and he omits to make the inquiry from which he would have ascertained the existence of a deed or mortgage.  Thus, the means of knowledge combined with the duty to utilize that means equates with knowledge itself.  Whether knowledge of an adverse interest will be imputed in any given case is a question of fact to be determined objectively from the totality of the circumstances.

Holding. The Indiana Court of Appeals reversed the trial court and granted summary judgment for the lender.

Policy/rationale. Jewell dealt mainly with the inquiry notice matter.  Jewell contended that, had the lender searched the mortgagor-mortgagee index, it would have discovered Jewell’s mortgage.  However, the lender submitted affidavits establishing that it conducted such a search, which did not reveal the Jewell mortgage due to the omission of the legal description.  The problem was that Jewell merely argued that the common address was sufficient to defeat the summary judgment motion.  Jewell’s failure to submit evidence to prove its theory was the deciding factor.

Related posts.

Indiana Court Discusses Whether A Lender Was A “Bona Fide Mortgagee”

BFP Defense Denied, And IRS Lien Prioritized

What Does “Chain Of Title” Mean?
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I frequently represent lenders, as well as their mortgage loan servicers, entangled in lien priority and title claim 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.


Hyper Technical Error In Debtor’s Name Dooms Creditor’s UCC Financing Statement/Lien

Lesson.  If the debtor is an individual, use the spelling of the name as listed on his or her Indiana driver’s license when filing the UCC financing statement.    

Case citeIn re: Nay, 563 B.R. 535 (S.D. Ind. 2017) (pdf).

Legal issue.  Whether a creditor’s inadvertent omission of the letter “t” from the debtor’s middle name invalidated its UCC financing statement.

Vital facts.  In 2014, Plaintiff Mainsource held a blanket security interest in Debtor’s personal property.  In 2015, Leaf loaned money to Debtor to purchase two Dump Wagons (equipment) and filed UCC financing statements with the Indiana Secretary of State to perfect liens on the Wagons.  The UCCs identified the Debtor’s name as “Ronald Mark Nay.”  The Debtor’s name listed on his most recent Indiana driver’s license, however, was “Ronald Markt Nay.”    

Procedural history.   Nay arises out of an adversary proceeding, Mainsource Bank v. Leaf Capital, a lien priority dispute.  The U.S. Bankruptcy Court for the Southern District of Indiana ruled on a motion for judgment on the pleadings filed by Plaintiff Mainsource seeking to invalidate Leaf’s competing security interest.    

Key rules

Ind. Code 26-1-9.1-503(a), a lengthy statutory provision, outlines when a financing statement “sufficiently provides the name of the debtor.”

Ind. Code 26-1-9.1-506 deals with the effect of errors or omissions in financing statements.  The key concept is whether the mistake was “seriously misleading.” 

Much of the Nay opinion involved an analysis of Ind. Code 26-1-9.1-506(c), which is a safe harbor provision that allows creditors to overcome “seriously misleading” mistakes if the subject financing statement “was otherwise discoverable by searching under the Debtor’s correct name using the standard search logic promulgated by the Indiana Secretary of State.”      

Holding.  Judge Basil H. Lorch III granted the pending motion and found that Plaintiff Mainsource was entitled to judgment as a matter of law.  Leaf’s security interest was unperfected.  Mainsource held the first priority security interest in the Dump Wagons.

Policy/rationale

The difference between “Mark” and “Markt”, especially in a middle name, would not seem to be a “seriously misleading” error.  However, under Section 503(a), if the debtor has a driver’s license, a financing statement must provide “the name of the individual which is indicated on the driver’s license.”  By definition, therefore, Leaf’s misspelling was seriously misleading.

The Court addressed whether the financing statement was nevertheless discoverable using “standard search logic.”  Maybe it was.  But, in the end, and even after noting that the result seemed “harsh,” the Court still felt compelled to strictly adhere to the operative statutory language requiring the name of the Debtor to be the name set out on his Indiana driver’s license.    

Related posts.     

What Is A “Purchase Money Security Interest”?

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I often represent parties in commercial loan enforcement cases and 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. You also can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted to your left.


Indiana Federal Court Concludes That Servicer Is Not A Debt Collector and Did Not Violate The IHLPA

Lesson. Although servicers usually are not the actual owners of residential mortgage loans, they nevertheless may be the proper party to resolve the foreclosure action or to negotiate a settlement. Also, unless the debt was in arrears when the servicer obtained its role, the Fair Debt Collection Practices Act will not apply to communications by the servicer.

Case cite. Turner v. Nationstar, 2017 U.S. Dist. LEXIS (S.D. Ind. 2017) (pdf).

Legal issues. Whether the defendant loan servicer was a “debt collector” subject to the Fair Debt Collection Practices Act (“FDCPA”), specifically 15 U.S.C. 1692e(2)(A). Also, whether the defendant committed a “deceptive act” in violation of the Indiana Home Loan Practices Act (“IHLPA”), Ind. Code 24-9-1 et seq.

Vital facts. For background, click on last week’s post, which also discussed Turner. The borrower claimed that, during a mediation conference, the servicer committed a deceptive act by leading the borrower to falsely think that the servicer owned the loan “such that [borrower] believed he was bargaining with the owner of the loan when he agreed to exchange his counterclaim against [servicer] for a loan modification.” The borrower also alleged that, after the entry of the state court foreclosure judgment, the servicer wrongfully sent the borrower account statements with a debt amount different from the judgment amount.

Procedural history. The defendant servicer filed a motion for summary judgment. Judge Young’s ruling on the motion is the subject of this post.

Key rules.

The IHLPA at I.C. 24-9-2-7(1)(a) defines a deceptive act as:

(1) an act or a practice as part of a mortgage transaction . . . , in which a person at the time of the transaction knowingly or
intentionally:
(A) makes a material misrepresentation; or
(B) conceals material information regarding the terms or conditions of the transaction. . . .

For the FDCPA to apply, “two threshold criteria must be met:” (1) the defendant must be a “debt collector” and (2) the communication by the debt collector forming the basis of the claim “must have been made in connection with the collection of any debt.” 15 U.S.C. 1692a(6), c, e and g.

A “debt collector” is:

any person who uses any instrumentality of interstate commerce or the mails in any business the principal purpose of which is the collection of any debts or who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.

Loan servicing agents are not “debt collectors” unless the debt was in arrears at the time the servicer obtained that role.

Holding. The Southern District of Indiana granted summary judgment for the servicer on the IHLPA and FDCPA claims brought by the borrower.

Policy/rationale.

As to the IHLPA action, the Court concluded that the servicer did not conceal “material” information about its role/status because the servicer established that it was the proper party to resolve the foreclosure action. In other words, whether the servicer was or was not the owner of the loan was immaterial in the Court’s view.

Regarding the FDCPA claim, the Court found that the defendant was the agent of the original creditor and acted as the servicer “well before [the loan] was in default.” As such, the servicer did not meet the definition of a “debt collector” under the FDCPA.

Related posts.

Click on the "Fair Debt Collection Practices" category to your right

Loan Servicers As Plaintiffs In Foreclosure Cases (also the Turner dispute)

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I frequently represent lenders, as well as their mortgage loan servicers, entangled in consumer finance litigation. 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.


Another Indiana Decision Concerning RESPA: Mixed Result For Servicer

Lesson. In defending RESPA QWR cases, first examine whether the subject letter is in fact a QWR. Next, assess whether the borrower suffered any actual damages arising out of the alleged failure to respond.

Case cite. Turner v. Nationstar, 2017 U.S. Dist. LEXIS (S.D. Ind. 2017) (.pdf).

Legal issue. Whether the lender/servicer was entitled to summary judgment on the borrower’s three theories for RESPA violations.

Vital facts. The procedural history and the underlying facts of Turner are quite involved. For purposes of today’s post, which focuses on the REPSA claims, the borrower sent three letters (alleged “QWRs,” see last week’s post) to the defendant’s lawyer seeking information. Letter 1 asked for the name of the owner of the loan. The defendant (a residential mortgage loan servicer) responded to that letter by identifying both the servicer and the owner of the loan. Later, the borrower, following the entry of a state court foreclosure judgment and a denial of a loan modification request, sent Letter 2 asking for the “amount of the proposed monthly payment” under a requested loan modification that had been denied. That information was never provided. The third alleged QWR, Letter 3, surrounded an inquiry into payments the borrower made that had only been partially refunded, despite a request for a full refund. The servicer did not respond to that letter either.

Procedural history. The parties ultimately entered into a Home Affordable Modification Agreement that vacated the foreclosure judgment. Despite the settlement, the borrower filed suit against the servicer in federal court alleging, among other things, violations of the Real Estate Settlement Procedures Act (“RESPA”). The servicer filed a motion for summary judgment that led to Judge Young’s opinion, which is the subject of today’s post.

Key rules.

  1. Borrowers may recover actual damages, including emotional distress, caused by a failure to comply with a Section 2605(e) qualified written request, per Section 2605(f)(1)(A).
  2. 12 U.S.C. 2605(e)(1)(B) defines a QWR. Case law has interpreted that provision to include “any reasonably stated written request for account information.” However, the duty to respond “does not arise with respect to all inquiries or complaints from borrowers to servicers.” The focus is on the servicing of the loan, not on the origination of the loan or modifications to the loan.
  3. 12 U.S.C. 2605(e)(1) and (2) deal with the timing of certain responses to certain QWRs. For example, Section (e)(2)(C)(i) sets a thirty-day deadline for certain servicing requests related to loan mods. See also 12 C.F.R. 1024.41 regarding timing for loss mitigation requests.
  4. 12 U.S.C. 2605(k)(1)(D) requires a servicer to provide within ten business days “the identity, address, and other relevant contact information about the owner or assignee of the loan” when requested by the borrower.

Holding. The Southern District of Indiana granted in part and denied in part the servicer’s summary judgment motion. The servicer prevailed on the Section 2605(k)(1)(D) and Section 2605(e)(2) claims about Letters 1 and 2. The Court denied summary judgment on the Section 2605(e)(1) claim for Letter 3.

Policy/rationale. As to Letter 1, the Court noted that the faulty timing of the response to the QWR did not cause actual damages. The distress alleged instead arose out of other factors in the borrower’s life. Letter 2 concerning loss mitigation options did not qualify as a QWR in the first place. Information related to a failed loan mod falls outside of RESPA. However, the Court concluded that Letter 3, a letter request seeking information about the servicer’s refund of payments made to stave off foreclosure, was a viable QWR because the letter involved the servicing of the loan. Since the servicer never responded to that letter, the claim regarding Letter 3 passed the summary judgment stage, although the opinion did not address the matter of damages.

Related posts.

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I frequently represent lenders, as well as their mortgage loan servicers, entangled in consumer finance litigation. 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.


7th Circuit Rejects Alleged RESPA Violations Based Upon Inadequate QWR

Lesson. Careful compliance by mortgage servicers should lead to a favorable summary judgment rulings in RESPA cases brought by borrowers.

Case cite. Perron v. JP Morgan Chase, 845 F.3d 852 (7th Cir. 2017).

Legal issue. Whether the lender violated the Real Estate Settlement Procedures Act (RESPA), specifically the statutory duty to respond to a “qualified written request” from the borrower.

Vital facts. The lender erroneously paid the wrong insurer for homeowner’s coverage using funds from the borrowers’ escrow account. However, the borrowers switched insurers without informing the lender. Upon learning of the error, the lender paid the new insurer and informed the borrowers that the prior insurer would be sending a refund. The lender requested that the borrowers remit the refund to the lender so the depleted escrow account could be replenished, but the borrowers failed to do so. As a result, the lender adjusted the monthly mortgage payment to make up for the shortfall, but the borrowers failed to pay the higher amount and went into default. Instead of curing, the borrowers sent a RESPA “qualified written request” to the lender and demanded reimbursement of their escrow. The lender responded to the requests but still got sued.

Procedural history. The borrowers filed an action in federal court alleging that the RESPA responses were inadequate and that they had suffered 300k in damages. The district court granted summary judgment to the lender, and the borrowers appealed to the Seventh Circuit.

Key rules. The Perron opinion provides a great summary of the QWR duties in RESPA, 12 U.S.C. 2601-2617. Here are some of the key legal principles outlined by the Court:

  1. Generally, the statute “requires mortgage servicers to correct errors and disclose account information when a borrower sends a written request for information” known as a “qualified written request” or QWR.
  2. RESPA gives borrowers a cause of action for actual damages incurred “as a result of” a failure to comply with the duties imposed on servicers of mortgage loans.
  3. If borrowers prove the servicer engaged in a “pattern or practice of noncompliance,” then statutory damages of up to 2k are available. Also, successful plaintiffs may recover attorney fees.
  4. RESPA does not impose a duty to respond to all borrower inquiries or complaints. The statute “covers only written requests alleging an account error or seeking information relating to loan servicing.”
  5. “Servicing” means “receiving … payments from a borrower pursuant to the terms of the loan … and making the payments … with respect to the amounts received from the borrower as may be required by the terms of the loan.” 12 U.S.C. 2605(i)(3). A QWR “can’t be used to collect information about, or allege an error in, the underlying mortgage loan.”
  6. Upon receipt of a valid QWR, RESPA requires the servicer to take the following action “if applicable”: (A) make appropriate corrections in the account, (B) after investigation, provide a written explanation or clarification explaining why the account is correct, (C) provide the information requested by the borrower or explain why it is unavailable and (D) provide the contact information of a servicer employee who can provide further assistance. 12 U.S.C. Sec 2605(e)(2).

Holding. The Seventh Circuit affirmed the district court’s summary judgment for the lender.

Policy/rationale. In Perron, the lender “almost perfectly” complied with its RESPA duties by providing a complete account and payment history, as well as a complete accounting of the escrow payments. The only area where the lender fell short was its failure to identify one of the insurers at issue, but the Court noted that the borrowers already had that information. The Court concluded that the borrowers were not harmed by an uncorrected account error or lack of information. “Simply put, [the borrowers] weren’t harmed by being in the dark because the lights were on the whole time.”

Related posts.

Borrower’s Claims For Violations of RESPA, TILA, FDCPA, RICO And FPRAM, Together With Claims for Various Torts, Dismissed
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I frequently represent lenders, as well as their mortgage loan servicers, entangled in consumer finance litigation. 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) Civil Sheriff's Office Changes

Foreclosure sales for Indianapolis properties occur through the Marion County Civil Sheriff’s Office. We recently received word of a handful of changes within the department.

First, Tammy Pickens is leaving at the end of the year. Tammy was a pro, was great to deal with and will be missed.

Second, Beth Ash, Rachel Winkler and Laurie Gipson will be the contacts for sheriff’s sales going forward. Here is their contact information:

Laurie Gipson
317-327-2450
Email: Laurie.Gipson@indy.gov<mailto:Laurie.Gipson@indy.gov>

Beth Ash
317-327-2459
Email: Elizabeth.Ash@indy.gov<mailto:Elizabeth.Ash@indy.gov>

Rachel Winkler
317-327-2420
Email: Rachel.Winkler@indy.gov<mailto:Rachel.Winkler@indy.gov>

Laurie’s email about these changes emphasized that parties should include all three contacts in any emails. Otherwise, there could be a delay of questions, concerns and/or documents being received.

Click here for the sheriff's Real Estate Sales website, with relevant links/forms.  As I’ve said before, there is no better run County agency than our civil sheriff’s office. The staff is always professional, courteous and prepared.

Happy Thanksgiving.


Indiana Trial Rule 9.2(A) Officially Amended But Uncertainty Remains

Back in May, I submitted this post: Claim “On An Account” Vs. Enforcement Of A Loan: Comments On Proposed Amendment to Indiana Trial Rule 9.2(A). One of my points was that the proposal left open the question of whether the rule applied solely to accounts, or to both loans and accounts. Indeed my post doubled as a submission to the Rules Committee recommending, among other things, language clarifying that the new rule does not (and should not) apply to loans, other than perhaps credit card debt.

New rule. On October 31st, the Indiana Supreme Court entered its official Order Amending Indiana Rules of Trial Procedure that included amendments to Rule 9.2. Here is the order signed by Chief Justice Rush. Regrettably, the amendment did not incorporate our proposed limiting language or otherwise resolve the matter of whether a plaintiff must file the new affidavit of debt in mortgage foreclosure cases. For reasons spelled out in my May 11th post, a strong argument still can be made that the affidavits only need to be filed with complaints articulating an action “on account” and that a mortgage foreclosure, or any other action to enforce a promissory note, is no such action. Admittedly, however, the situation remains clouded.

Consumer debts only. One critical change the Supreme Court made from the proposed rule was to limit the pleading requirement in Section (A)(2) to consumer debts. The rule’s requirement for the new affidavit applies only “if … the claim arises from a debt that is primarily for personal, family, or household purposes…” This is a common phrase in the law that identifies consumer claims and that excludes commercial/business debts. See my 12/18/09 and 11/16/06 posts. Thus the Supreme Court’s insertion of that language definitively means that Rule 9.2(A)(2) does not apply to commercial foreclosures or to the collection of business debts.

Effective date. It will be interesting to see how lawyers and judges interpret and apply Rule 9.2(A)(2), which is brand new. Again, and meaning no disrespect whatsoever, I think the Supreme Court left the scope of that subsection open for debate. We have time to digest this further as the amendment does not take effect for over two years - until January 1, 2020.


How Long Until The Sheriff’s Sale? Marion County (Indianapolis) Example

A common question we get from clients and out-of-state counsel is: when will the sheriff’s sale be? The answer depends upon a couple key variables: (1) the date the court enters the judgment and (2) the particular rules and customs of the local sheriff’s office.

Judgment First

Since Indiana is a judicial foreclosure state, there cannot be a foreclosure sale until after the court enters a judgment and decree. A plaintiff lender cannot praecipe for a sale until that occurs. From that point, depending upon how quickly the praecipe is filed, on average the sale will occur in 2 to 3 months.

Publication/Notice

The post-judgment delay initially arises out of basic administrative issues surrounding the handling and processing by the clerk’s and sheriff’s offices of paperwork. But the critical matter is the thirty-day statutory publishing/notice requirement. Ind. Code 32-29-7-3(d) says:

Before selling mortgaged property, the sheriff must advertise the sale by publication once each week for three (3) successive weeks in a daily or weekly newspaper of general circulation. The sheriff shall publish the advertisement in at least one (1) newspaper published and circulated in each county where the real estate is situated. The first publication shall be made at least thirty (30) days before the date of sale.

Marion County Example

The Marion County Civil Sheriff’s Office recently circulated the sale cut-off date list for 2018.  Here it is.  The noted “clerk’s cut-off” date is the deadline to praecipe for the sale in order to be slotted for the next sale date. Marion County, as with most if not all Indiana counties, have sheriff’s sales monthly, usually on a set day. For example, Marion County sales happen on the third Wednesday of the month.

Using the 2018 cut-off date list, here are a couple illustrations for the April 18, 2018 sale date. If judgment were entered on March 7th and if you were able to praecipe for sale the same day, the sale would be April 18th – 70 days. If, however, judgment were entered one day later, March 8th, then the sale would not be until May 16th – 98 days. Averaging those two figures results in 84 days. In most counties other than Marion, I would expect the post-judgment “time to sale” average to be slightly less.

2-3 Months

So, the 2-3 month rule of thumb essentially stems from the notice requirement and the time to process all the paperwork. Many counties have far few sales than Indianapolis, which holds hundreds each month. Some counties have less stringent deadlines and may be able to hold a sale within forty-five days of the judgment date.


In Indiana, A Judicial Foreclosure State, There Is No Post-Sale Right Of Redemption

From time to time, out-of-state clients and lawyers wonder whether and to what extent a borrower (mortgagor) has a right of redemption in Indiana.  As I prepare to head out with the family for Fall Break next week, I thought I'd provide links to two prior posts discussing what redemption means and when the right ends in our state:  

I hope to post new material the week of October 23rd.  

John