Indiana Receiver Sales: Why ... Why Not?

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

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

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

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

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

Hybrid? My old post In Indiana Sheriff’s Sale, Consider The Option Of Using A Private Auctioneer addressed a kind of hybrid between a receiver’s sale and a sheriff’s sale. And, unlike receiver’s sales, there is no question as to the statutory authority for this relief, and mortgagor/owner consent generally isn’t needed. We have not seen many of these types of sheriff’s sales in recent years – (or many commercial foreclosures period due to the healthy economy) – but this statutory alternative should not be forgotten.
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Part of my practice includes representing parties in connection with sheriff’s sales. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


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

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

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

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

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

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

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

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

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

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

Key rules.

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

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

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

Policy/rationale.

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

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

Related posts.

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I represent parties involved in disputes arising out of loans that are in default. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


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

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

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

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

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

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

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

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

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

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

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

Related posts.

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Part of my practice relates to post-judgment collection proceedings.  If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


Bank Records Of Non-Party (Third Party) Discoverable In Post-Judgment Collection Action

Lesson. A bank’s records of a non-party to litigation can be subpoenaed in post-judgment collection proceedings if the document request is reasonably calculated to lead to the discovery of concealed or fraudulently transferred assets.

Case cite. Allstate Ins. Co. v. Orthopedic P.C. 2022 U.S. Dist. LEXIS 42485 (S.D. Ind. 2022)

Legal issue. Whether a judgment creditor could obtain the bank records of a non-party in post-judgment collection proceedings.

Vital facts. The Allstate opinion followed the entry of a 460k judgment that Defendant health care providers failed to pay. Plaintiff claimed that Defendants improperly transferred patients to Non-Party provider and that those patients “were then to be billed using the name of a separate entity apparently to avoid detection by [Plaintiff].” Thus, there was a perceived financial relationship between Defendants and Non-Party in which Defendants were transferring assets to avoid collection. In order to investigate the theory further, Plaintiff subpoenaed the bank records of Non-Party.

Procedural history. Non-party moved to quash the subpoena.

Key rules. Allstate was a federal court action, so the federal rules of procedure applied. The Court noted that Rule 69(a)(2) expressly provides that a judgment creditor "may obtain discovery from any person" to aid in execution of a judgment. This applies to discovery to non-parties too. See also, Indiana Trial Rule 69(E).

Indiana federal case law interprets Rule 69 to allow “a judgment creditor to obtain discovery on ‘information relating to past financial transactions which could reasonably lead to the discovery of concealed or fraudulently transferred assets.’”

Discovery to non-parties “may be permitted where [the] relationship between judgment debtor and nonparty is sufficient to raise a reasonable doubt about bona fides or transfer of assets.”

The Court cited the following test for subjecting third parties (aka non-parties) to discovery: “. . . so long as the judgment creditor provides 'some showing of the relationship that exists between the judgment debtor and the third party from which the court . . . can determine whether the examination has a basis.'”

However, a judgment creditor must keep its inquiry “pertinent to the goal of discovering concealed assets of the judgment debtor and not be allowed to become a means of harassment of the debtor or third persons.”

Holding. The trial court denied the motion to quash and ordered Non-Party’s bank to provide the responsive materials.

Policy/rationale. Non-Party contended that the records were irrelevant and beyond the reach of discovery. Non-Party’s main theory was that it had not been sued by Plaintiff and that Plaintiff had not claimed Non-Party was a part of any conspiracy. The Court disagreed and concluded that the subpoena was “an entirely reasonable and appropriate attempt to obtain discovery in support of [Plaintiff’s] efforts to collect on its judgment . . . .” The Court’s rationale was that Plaintiff met the “reasonable doubt” standard by presenting evidence in the form of emails that indicated Defendants may have fraudulently transferred its patients to Non-Party to evade Plaintiff’s collection efforts.

Related posts.

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Part of my practice involves representing parties in post-judgment collection actions. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


Lender Entitled To Full Amount Of Insurance Proceeds From Fire Loss: Borrower Responsible For Own Attorney Fees

Lesson. If a borrower engages an attorney to help with an insurance claim arising out of a loss to mortgaged property, generally the attorney will not be paid from the insurance proceeds, which belong to the lender as a loss payee.

Case cite. Flannagan v. Lakeview Loan Servicing LLC 184 N.E.3d 691 (Ind. Ct. App. 2022)

Legal issue. Whether Borrower’s attorney was entitled to a cut of the insurance proceeds following a fire that damaged Borrower’s house.

Vital facts. Borrower and Lender entered into a mortgage loan. A fire destroyed the house on the mortgaged real estate.

As is typical, the mortgage required insurance against certain losses, including fire. The customary language in the mortgage also stated that, in the event of a loss, the insurance proceeds may be applied by Lender either (a) to the reduction of the indebtedness owed under the promissory note or (b) to the restoration or repair of the damaged property. Borrower’s insurance policy had a standard provision that any loss payments would be paid to Borrower unless “some other person is named in the policy or is legally entitled to receive payment” (a so-called “loss payee”). With respect to lenders/mortgagees named in the policy, the mortgage went on to express that losses shall be paid “to the mortgagee and you, as interests appear.” Lender was a loss payee on Borrower’s hazard insurance policy.

Borrower engaged a law firm to represent her in connection with the fire loss. The insurer issued settlement checks in the amount of $74,373.23 that were jointly payable to Borrower, Lender and Borrower’s law firm. The proceeds were less than the total amount of Borrower’s debt.

Procedural history. A lawsuit arose in which Lender and Borrower sought a determination by the trial court of Borrower’s law firm’s rights to the insurance proceeds. The trial court granted summary judgment in favor of Lender, and Borrower appealed.

Key rules. Indiana law generally provides that, because a mortgage is a contract, the parties “are free to enter into an agreement concerning the disposition or application of insurance proceeds in the event of a loss.”

"Where a mortgage or insurance policy provides for insurance proceeds to be paid to the mortgagee 'as its interest appears', the mortgagee is entitled to the insurance proceeds to the extent of the mortgage debt."

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

Policy/rationale. Borrower essentially contended Lender was only entitled to the insurance proceeds remaining after the cost of her attorneys, which were instrumental in negotiating a settlement of the fire loss. The Court rejected Borrower’s theory because “the plain language of the Mortgage does not support [Borrower’s] interpretation of the phrase “insurance proceeds.” The Court noted that the mortgage:

did not expressly refer to a partial distribution of insurance proceeds or, at least where the proceeds do not exceed the amount of the [Borrower’s] indebtedness, to a distribution of a portion of the insurance proceeds to the Lender and a portion of the proceeds to the [Borrower]. Also, the Mortgage does not suggest the amount of insurance proceeds to which the Lender is entitled must be reduced by an amount equal to the costs or attorney fees incurred by the [Borrower] to secure the proceeds.

The Court also examined equitable claims asserted by Borrower. Please review the opinion for details of those theories. In the end, neither the language of the mortgage nor the law of equity required Lender to share the insurance proceeds with Borrower’s attorneys. Remember, the purpose of the insurance was to cover damage to Lender’s loan collateral (Borrower’s house). Assuming Borrower did not use the funds to rebuild the destroyed property, the money went to reduce Borrower’s debt. Make no mistake – this was a windfall to Lender. Borrower benefitted from the insurance proceeds. It’s just that Borrower had to pay for her lawyers.

Related posts.

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I represent parties involved in disputes arising out of loans that are in default. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


Date Of Sheriff Sale Fee Increase Varying By County

In follow-up to my post on Monday the 27th - County Sheriff Sale Fees Increasing to $300 - it appears the actual date upon which the fee increase will apply may vary by county.  The quote below is an email to local lawyers I received from the Marion County Civil Sheriff's Office on the matter:

We are starting to get questions regarding the increase in the User fee that was effective on July 1st.

Our Attorney reads the new law as the effective date of the increase to be when the praecipe was filed. So the User fee will increase for Marion County once we see that the praecipe date is after July 1st. Looks like increase of user fee will start with some sales in September.

We heard other counties in the state have already raised theirs. All depends on how each county interprets the new law.

Always check with county officials and websites to confirm the local process because in Indiana Sheriff's Sales: Local Rules, Customs and Practices Control.  The fee increase is an example of this.

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Part of my practice includes representing parties in connection with sheriff’s sales. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


County Sheriff Sale Fees Increasing to $300

I've been peppered with emails from various Indiana county sheriff's departments advising that the foreclosure sale fees are about to increase to $300.  This is consistent with the enactment of House Bill 1048, about which I wrote back in March:  Upcoming Changes To Indiana Sheriff's Sales.  Please re-read that post for information about other rules that become effective July 1st.

NOTE:  See follow-up post, Date Of Sheriff Sale Fee Increase Varying By County

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Part of my practice includes representing parties in connection with sheriff’s sales. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


Presumption Of Ownership Through Tenants By The Entirety Can Be Rebutted By Contract

Lesson. Since ownership of real estate by a husband and wife creates a presumption of a tenancy by the entirety, typically a creditor cannot collect the debt of one spouse from the marital real estate. However, the presumption is rebuttable by a contract that states otherwise or that implies otherwise – potentially opening the door to collecting the debt from the debtor spouse’s interest in the real estate.

Case cite. Fund Recovery Servs. LLC v. Wolfe 2022 U.S. Dist. LEXIS 28754 (N.D. Ind. Feb. 17 2022)

Legal issue. Whether a fraudulent transfer case against husband and wife should be dismissed because they held the subject real estate jointly.

Vital facts. Creditor alleged that Husband transferred his interest in real estate that he held jointly with Wife such that Wife become the sole owner. The transfer occurred after entities for which Husband was a personal guarantor filed bankruptcy. The Court’s opinion does not mention anything about the language in any of the deeds, nor is there any discussion of why Husband transferred title to Wife.

Procedural history. Creditor filed suit against Husband and Wife seeking to collect the debt Husband owed to Creditor. Specifically, Creditor claimed the conveyance should be set aside because the real estate transfer violated Indiana’s Uniform Fraudulent Transfer Act (IFTA). Defendants filed a motion to dismiss the Complaint for a failure to state a claim for relief.

Key rules.

Certain transfers made by a debtor are voidable as to a creditor if the transfer was made with intent to hinder, delay, or defraud the creditor. Ind. Code. 32-18-2-14(a)(1).

A transfer can also be voidable “if the transferor did not receive reasonable value for the transfer and the debtor was engaged in a business for which his remaining assets were unreasonably small in relation to that business, or the transferor incurred debts beyond his ability to pay.” Ind. Code § 32-18-2-14(a)(2).

The IFTA also provides that a transfer is voidable if the claim arose before the transfer, if the debtor made it without “receiving reasonably equivalent value,” and if the debtor was insolvent at the time or became insolvent as a result of the transfer. Ind. Code. § 32-18-2-15.

Tenants by the entirety is a form of ownership of real estate in Indiana that is reserved for husband and wife “based on the legal fiction that a husband and wife are a single entity.” The nature of the ownership protects real estate from being seized to satisfy the debts of only one of the spouses.

In Indiana, ownership of real property by a husband and wife creates a presumption of a tenancy by the entirety that is rebuttable by either a contract hat states otherwise or that implies otherwise. Ind. Code § 32-17-3-1(d).

Holding. The Court denied the motion to dismiss.

Policy/rationale. Husband and Wife argued that, because the couple was married, the real estate was held as tenants in entirety and, as such, the real estate would not have been available to satisfy the debt of Husband. Further, Husband and Wife asserted that the Complaint did not allege facts necessary to overcome the presumption of an estate by the entireties. Creditor argued that it may be able to rebut the presumption by virtue of a contract for the purchase of the subject real estate. (The Court did not elaborate on the details of the contract, but clearly something did not sit well with the Court, which allowed the claims to proceed to the next phase of the case.)

Related posts.

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I represent parties involved in real estate-related disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


Lender’s Redirection Of Rents Does Not Constitute “Unclean Hands” When Supported By Loan Documents

Note: This is the fourth post about the 410 case, cited below, that grants a lender’s motion for summary judgment against a borrower (and other defendants), despite the defendants’ assertions of multiple defenses and counterclaims. For background and context, here are links to the prior three posts: May 6, May 20 and May 27.

Lesson. A lender’s demand for a tenant to redirect rents from the landlord/borrower will not trigger a claim for “unclean hands” when the action is supported by a loan document.

Case cite. Wilmington Tr. Nat'l Ass'n v. 410 S. Main St. LLC 2022 U.S. Dist. LEXIS 21288 (N.D. Ind. Feb. 7 2022).

Legal issue. Whether the doctrine of “unclean hands” precluded summary judgment for a lender in a commercial foreclosure action.

Vital facts. Following a loan default, Lender directed the commercial tenant of the mortgaged real estate to make rent payments directly to Lender instead of the borrower/landlord. The tenant evidently complied with the request. In turn, the absence of rental income apparently created a cash flow problem for the borrower that hampered Defendants’ ability to settle with Lender. The problem was that the borrower had previously entered into a Subordination, Non-Disturbance and Attornment Agreement (commonly called an SNDA) as part of the underlying loan documents. In the SNDA, the borrower consented to such direct payments and released the tenant from all liability to the borrower on account of any such payments. (Typically, an assignment of rents will contain similar rights in favor of a lender/mortgagee.)

Procedural history. In response to Lender’s motion for summary judgment, Defendants raised the “unclean hands” defense.

Key rules. The Court in 410 summarized Indiana state and federal court law regarding the doctrine of unclean hands:

The doctrine is designed to prevent a party that behaved inequitably or acted in bad faith from benefitting from that improper behavior. There is no exact formula for applying the doctrine and courts thus generally have discretion when determining whether to apply it. The doctrine is not favored under Indiana law "and must be applied with reluctance and scrutiny."

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For a defendant to successfully assert the doctrine in Indiana, the defendant generally must show that: 1) the plaintiff's misconduct was intentional; 2) the plaintiff's wrongdoing concerned the defendant and has an immediate and necessary relation to the matter in litigation; and 3) the defendant was injured because of the plaintiff's conduct.

Holding. The Court rejected the unclean hands defense and granted Lender’s motion for summary judgment. The Defendants have appealed the decision to the 7th Circuit Court of Appeals. I will follow-up as warranted.

Policy/rationale. Defendants contended that Lender “exacerbated” the loan default by taking the rents. The Court easily rejected the theory. The borrower could not, on the one hand, grant Lender rights to the rents in an SNDA while, on the other hand, claim misconduct in asserting such rights.

Related posts.

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I represent parties involved in disputes arising out of loans that are in default. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


Borrower’s Loan Reinstatement-Related Promissory Estoppel Defense Dismissed

Note: on 5/6/22 and 5/20/22, I wrote about the 410 case cited below. Today’s post addresses more issues from the same opinion. In particular, the 5/20/22 article provides context for today’s installment, which follows up on the “loan balance statement” at issue.

Lesson. A promissory estoppel theory in the defense of a foreclosure case often fails for the simple reason that there is no evidence the lender made an actual promise to the borrower (to reinstate or forbear).

Case cite. Wilmington Tr. Nat'l Ass'n v. 410 S. Main St. LLC 2022 U.S. Dist. LEXIS 21288 (N.D. Ind. Feb. 7 2022).

Legal issue. Whether a lender’s foreclosure action could be defeated on the basis of promissory estoppel, where the lender had tendered a “loan balance statement” during workout discussions that was arguably a commitment to reinstate a loan.

Vital facts. The “balance statement” (the subject of my May 20th post) was at the center of the Defendants’ promissory estoppel theory. The Defendants essentially claimed that they were “ready, willing and able” to reinstate the loan in reliance on the figures in the balance statement. The Defendants alleged that they took steps to obtain the necessary funds, but Lender “made an about face and refused to honor the Balance Statement, damaging Defendants.”

Procedural history. Lender filed a motion for summary judgment on the promissory estoppel claim/defense.

Key rules. The Court cited to an Indiana Supreme Court case for the five elements of promissory estoppel: “1) a promise by the promissor [here, Lender]; 2) that was made with the expectation that the promisee [here, Defendants] would rely on it; 3) and induces reasonable reliance by the promisee [Defendants]; 4) of a definite and substantial nature; 5) in a way where injustice can be avoided only be enforcement of the promise.”

Holding. The Court granted Lender’s motion summary judgment. The Defendants have appealed the decision to the 7th Circuit Court of Appeals. I will follow-up as warranted.

Policy/rationale.

The Court reasoned that the balance statement simply did not create a promise to reinstate the loan and waive prior defaults. “Without a promise, promissory estoppel fails from the start.” Moreover, there was no evidence that Lender sent the balance statement with the expectation that Defendants would rely on it as they did. For good measure, the Court also noted that the Defendants did not meet the payment deadline in the balance statement anyway.

Related posts.

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I represent parties involved in disputes arising out of loans that are in default. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


Loan Reinstatement Communication Did Not Bind Lender In Workout Negotiations

Note: on 5/6/22, I wrote about the 410 case cited below. Today’s post addresses additional subject matter from the same opinion. Please review my previous post for background.

Lesson. In workout negotiations, if banks wish to avoid communications that could unwittingly bind them to a deal, ensure the communications do not have these three elements: (a) a writing, (b) that sets forth all material terms and conditions of the workout/resolution, (c) that is signed by both parties. Also, to the extent lenders engage in written communications or issue reinstatement memos, consider including limiting language such as the following: "if your loan has matured, or is otherwise in default, neither your receipt of this statement nor acceptance of any partial payment, or any future partial payment, shall be deemed to amend or modify the terms of the loan documents, nor cure or waive the default existing under the loan. Lender reserves all of its rights and remedies under the loan documents, at law or in equity."

Case cite. Wilmington Tr. Nat'l Ass'n v. 410 S. Main St. LLC 2022 U.S. Dist. LEXIS 21288 (N.D. Ind. Feb. 7 2022).

Legal issue. Whether a “loan balance statement” tendered by a lender in connection with workout discussions constituted a binding contract to reinstate a loan and waive any prior events of default upon payment of the amount listed.

Vital facts. The standard loan documents were at issue in this commercial mortgage foreclosure case: a promissory note, a loan agreement, a mortgage, an assignment of rents and a guaranty. Borrower began missing monthly loan payments. Borrower also was in default because it “had also been involved in a variety of transfers and liens related to the real estate underlying the loan, none of which were disclosed to the Trustee and none of which were executed with the Trustee's prior written consent as the loan documents required.”

In an effort to resolve the loan default, one of the parties connected to the Borrower requested mortgage statements and received a “balance statement” identifying an amount owed. The statement seems to have been a kind of loan reinstatement memorandum. Please read the opinion for further details. The Defendants contended the balance statement was an agreement that, if the quoted amount was paid, then Lender would reinstate the loan and waive any past defaults. Lender viewed the balance statement as merely giving a snapshot of the amount owed on a particular day and nothing more.

As the payment defaults and improper transfers continued to mount, the Trust notified Defendants that it was accelerating the loan and that full payment was due in 30 days. Defendants did not meet the demand. Instead, they made a series of payments that nearly satisfied the amount articulated in the balance statement.

Procedural history. Lender filed suit to enforce the loan. Defendants asserted various defenses to Lender’s foreclosure action, and also filed counterclaims for breach of contract and negligent misrepresentation. The Trustee filed a motion for summary judgment on all claims and defenses.

Key rules. I’ve previously written about the Indiana Lender Liability Act at Indiana Code 26-2-9. See Related Posts below. 410 reminds us that:

under the ILLA, a “credit agreement,” which includes an agreement to forebear or make any other financial accommodation, is enforceable if: 1) it is in writing; 2) that writing sets forth all material terms and conditions, and; 3) that writing is signed by both parties. All material terms and conditions must be embodied by the singular, signed writing. A combination of multiple writings does not suffice to form a single agreement.

Under Indiana law, the fundamental requirements for a contract include “an offer, acceptance, consideration, and a meeting of the minds of the contracting parties.”

Holding. The Court granted Lender’s summary judgment. The Defendants have appealed the decision to the 7th Circuit Court of Appeals. I will follow-up as warranted.

Policy/rationale. Defendants contended that the balance statement was either a “credit agreement” under the ILLA or a binding common law contract. The Court disagreed. Despite the balance statement being in writing, it failed to satisfy the other elements of an enforceable credit agreement, namely an outline of all materials terms and conditions, together with signatures by both parties. Among other things, the balance statement contained no language promising any future action in the event the quoted amount was paid. Indeed the statement provided that it should not be read as promising anything. Further, the statement was not signed by the parties. The Court refused to adopt Defendants’ theory that signatures were incorporated by reference because the statement referred to the underlying loan documents.

As to the common loan contract theory, the Court stated that “the only ‘offer’ the Defendants have pointed to is the one to reinstate the Loan and cure the defaults that they unilaterally read into the Balance Statement despite the Balance Statement explicitly stating it did not amend, modify, cure, or waive any existing default under the Loan.”

Related posts.

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I represent parties involved in disputes arising out of loans that are in default. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


Pooling And Servicing Agreement Did Not Divest Trustee Of Ability To Foreclose

Lesson. With securitized loans, the trustee on behalf of the trust (the lender) is a “real party in interest” for purposes of filing a foreclosure suit, despite the existence of a special servicer appointed by a pooling and servicing agreement.

Case citeWilmington Tr. Nat'l Ass'n v. 410 S. Main St. LLC 2022 U.S. Dist. LEXIS 21288 (N.D. Ind. Feb. 7 2022).

Legal issue. Whether the special servicer of securitized loan is the only party that can bring a suit to enforce that loan.

Vital facts. The 410 opinion arises out of a $3.0 million commercial loan transaction related to a single tenant retail building, and efforts by the lender to collect on the loan after default. As is typical with securitized debt, the original lender assigned the loan to a trust (the “Trust”), which entered into a Pooling and Servicing Agreement (“PSA”) with a company to service the loan (the “Servicer”). The PSA conveyed the interests in the loan to a bank that acted as the trustee for the Trust (the “Trustee”), thereby putting the Trustee “in the standard role” of a party that could sue. After the loan went into default, the Trustee filed suit to enforce the loan.

Procedural history. This is an Indiana federal district (trial) court decision.  One of the defenses asserted in the action was that the court lacked jurisdiction because the Servicer, not the Trustee, was the “real party in interest.” In other words, the Servicer should have been the named plaintiff. Because the Servicer shared New York citizenship with several defendants, the so-called “diversity of citizenship” requirement for federal court cases of this type was absent. If applicable, the defense would compel dismissal (although the case could be re-filed in state court).

Key rules. Under Rule 17, a "real party in interest" is the “person or entity that possesses the right or interest to be enforced through litigation.” The Court noted further that “the purpose of Rule 17 is to protect the defendant against a subsequent action by the party actually entitled to recover.”

Case law provides that “the terms of a PSA can permit a special servicer to sue in its own name if the special servicer chooses to do so, . . . [but the terms of the PSA do not] divest the trustee for whom that special servicer acts from bringing suit when it is the one that chooses to do so.” The Court relied on law stating that the Trustee, as the holder of the loan for the Trust, could “sue to enforce and collect on those interests.” The Defendants have appealed the decision to the 7th Circuit Court of Appeals. I will follow-up as warranted.

Policy/rationale. Defendants contended that the Trustee did not have standing to sue because the “true party in interest” was the Servicer by virtue of the PSA’s provisions giving the Servicer discretion to pursue litigation. The Court disagreed because, even if the Servicer was the party that filed the lawsuit, it would be litigating as the Trustee’s representative under the PSA. The Servicer’s role, “no matter how many duties it may be given,” was to act as an agent for the Trustee related to its interest in the loan. Ultimately, the Trustee had “the true stake in the litigation. . . .”

The Court did not buy the argument that the PSA “dispossessed” the Trustee of the power to initiate suit. The PSA as a whole suggested that the Servicer’s “powers … are only the result of delegated authority from the Trust, not separate authority given solely to [the Servicer]….” 410 suggests that a special servicer under a PSA can be the named plaintiff in a mortgage foreclosure lawsuit. While I’ve seen that approach, the more common practice is for the trustee to bring the case. The 410 opinion supports this approach.

Related posts.

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I represent parties involved in disputes arising out of loans that are in default. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


Indiana’s COVID Orders Interpreted: Interest-Tolling Provisions Not Applicable To Mortgage Loans

Lesson. COVID did not provide a defense to the accrual of interest on mortgage loans in 2020.

Case cite. PNC v. Page, 2022 Ind. App. LEXIS 92 (Ind. Ct. App. 2022).

Legal issue. Whether certain provisions in Indiana’s COVID-related Emergency Orders (defined below) apply to promissory notes and mortgages such that prejudgment interest could be tolled for five months.

Vital facts. Borrower and lender entered into a mortgage loan. The promissory note contained fairly standard language that interest shall accrue after default until the loan balance is paid in full. Borrower defaulted on the loan in November 2017.

In the wake of the COVID pandemic, Indiana’s Governor and Supreme Court entered a series of orders (the “Emergency Orders”) related to the handling of the public health emergency. I wrote about some of these orders in 2020: link. In one of the orders, the Indiana Supreme Court stated:

The Court authorizes the tolling, beginning March 16[, 2020] and until April 6, 2020, of all laws, rules, and procedures setting time limits for speedy trials in criminal and juvenile proceedings, public health, and mental health matters; all judgments, support, and other orders; and in all other civil and criminal matters before the courts of Marion County. Further, no interest shall be due or charged during this tolled period.

Procedural history. Lender filed a mortgage foreclosure action in November 2018. While the case was pending, the pandemic occurred. It was not until June 2021 that the lender sought a default judgment seeking the balance due of principal and interest, which included accrued interest from the date of default through the date of the entry of the judgment. The trial court entered the judgment requested by Lender except that it specifically excluded “interest accruing 3/16/20 – 8/14/20” based on the Emergency Orders, including specifically the provision quoted above. Lender appealed the interest reduction.

Key rules. The well-written PNC opinion cites to plenty of constitutional and statutory support for its decision. The Court also referred to and relied upon its 2021 case, Denman v. St. Vincent Med. Grp., Inc., 176 N.E.3d 480 (Ind. Ct. App. 2021), about which I wrote on 11/24/21 (see related post below). In a nutshell, and in an interesting twist, the Indiana Court of Appeals (the lower court) stated: “because our Supreme Court [the higher court] could not, by rule, change substantive law, the Emergency Orders instruction … cannot be construed to suspend automatic accrual on non-discretionary interest provided by the terms of a private loan instrument and as permitted by statute.”

Holding. The Indiana Court of Appeals reversed the trial court with instructions to award Lender interest from the date of default to the date of the judgment at the rate specified in the promissory note, including the period from 3/16/20 to 8/14/20.

Policy/rationale. The Court’s conclusion is consistent with the practice “of presuming that each branch of our government acts within their constitutionally prescribed boundaries.” PNC, with Denman, settled once and for all the question of whether the accrual of contractual interest was suspended by the Emergency Orders. The decisions were, in my view, the correct ones, and they are great results for lenders. Imagine if all borrowers of any type (consumers or businesses) were free from interest obligations for five months.

Related posts.

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I represent parties involved in disputes arising out of loans that are in default. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


Upcoming Changes To Indiana Sheriff's Sales

In this year’s Indiana legislative session, the General Assembly enacted House Bill 1048, which becomes effective July 1, 2022. Here are some of the changes that will impact Indiana foreclosure law.

Electronic sales. HB 1048 amended I.C. 32-29-7-3 to provide that sheriff’s sales may be conducted electronically as long as they comply with all other sale requirements under the statute. Electronic sales include the ability for sheriffs to receive electronic payments for the real estate. The amended statute says nothing further about the electronic sale process. Thus, the local sheriff’s offices will set up their own rules and regulations related to such things as bidding procedures and closing on the sales. The new law would appear to open the door for an online auction to be conducted by a private auctioneer in conjunction with I.C. 32-30-10-9.

Fees. I.C. 32-29-7-3(j) increases the sheriff’s sale administrative fee from $200 to $300 “for actual costs directly attributable to the administration of the sale….” The fee is payable by the plaintiff and is due before the sale.

Bad actors. HB 1048 added I.C. 29-7-4.5. This is the so-called “bad actor” or “slum lord” measure that caught the attention of the media this year. The language of the new law is quite dense and does not apply to plaintiffs or lenders foreclosing on mortgages but only to third-party bidders. Essentially, the act attempts to exclude certain third parties from participating in sheriff’s sales who, for example, are delinquent in the payment of real estate taxes on other property they own.

    Affirmation. To that end, the new I.C. 32-29-7-4.6 provides that any person bidding at a sheriff’s sale must sign a statement that says:

Indiana law prohibits a person who owes delinquent taxes, special assessments, penalties, interest, or costs directly attributable to real property under IC 6-1.1 from bidding on or purchasing property at a sheriff's sale. I hereby affirm under the penalties for perjury that I am not prohibited from bidding under IC 32-29-7-4.5 and that I do not owe delinquent taxes, special assessments, penalties, interest, costs directly attributable to real property under IC 6-1.1, amounts from a final adjudication in favor of a political subdivision, any civil penalties imposed for the violation of a building code or county ordinance, or any civil penalties imposed by a county health department. I also affirm that I am not purchasing property on behalf of or as an agent for a person who is prohibited from bidding under IC 32-29-7-4.5. I further acknowledge that a person who knowingly or intentionally provides false information on this affidavit commits perjury, a Level 6 felony.

    Foreign Businesses. Moreover, the new I.C. 32-29-7-4.7 prohibits non-Indiana businesses from bidding at an Indiana sheriff’s sale. This rule does not apply to a party foreclosing on a mortgage, however, such as a plaintiff lender or a defendant mortgagee.
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Part of my practice includes representing parties in connection with sheriff’s sales. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


Criminal Restitution Order Is Like A Tax Lien

United States v. Ervin 2022 U.S. Dist. LEXIS 7344 (N.D. Ind. 2022) dealt with a criminal conviction and resulting order to pay restitution.

Why is a criminal case the subject of a post on Indiana Commercial Foreclosure Law? Because the Court’s opinion reminds us that a "restitution order is a lien in favor of the government on 'all property and rights to property' of the defendant and is treated as if it were a tax lien." United States v. Sayyed, 862 F.3d 615, 618 (7th Cir. 2017) (quoting 18 U.S.C. § 3613(c)).

The Court further stated that “while there is certain property that is exempt, the statutory language applies broadly and is intended to reach every interest in property that a taxpayer might have.” Thus, a restitution order permits the government to "step[] into the defendant's shoes" and acquire his or her rights to property.

Who enforces the lien arising out of a restitution order? Federal law empowers the United States Attorney’s Office to do so. 18 U.S.C. § 3613.

I’ve written about tax liens on several occasions. Here are links to a few of those posts:

Happy St. Patrick’s Day,

John
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I represent parties involved in real estate and loan-related disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


Indiana Legislation Proposed To Shut Bad Acting Landlords Out Of Foreclosure Sales

Indiana House Bill 1048 proposes to some adjustments to the sheriff's sale process.  Here is the latest synopsis of the bill:

Allows the sheriff to conduct a public auction electronically. Prohibits certain persons and entities from purchasing a tract at a sheriff's sale. Requires each person bidding at a sheriff's sale to sign a statement containing a notice of the law and certain affirmations. Raises the amount that a sheriff can charge for administrative fees from $200 to $300.

Click here for the latest version of the bill.  

The bill has been in the news because it targets "slum lords," in the words of the Indianapolis Star (article for subscribers only).  Here is a link to a free article from WFYI: Lawmakers make move to shut bad acting landlords out of online foreclosure sales

I'll keep my eye on this bill and summarize the enacted version after the 2021 legislative session.

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I represent parties in connection with foreclosure cases and sheriff’s sales. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


Indiana Court Of Appeals Reverses Fraudulent Transfer Judgment And Remands For Remedy Determination

Lesson. The devil’s in the details when looking at fraudulent intent, and various statutory remedies are available in Indiana fraudulent transfer actions.

Case cite. Holland v. Ketcham, 2021 Ind. App. LEXIS 404 (Ct. App. Dec. 27, 2021)

Legal issue. Whether Defendant’s conversion of cash into real estate, instead of using the cash to pay Plaintiff’s prior money judgment against Defendant, constituted a fraudulent transfer.

Vital facts. Plaintiff brought a fraudulent transfer claim against Defendant on the basis that Defendant transferred her cash assets into the purchase of a house. Plaintiff alleged that the purpose of transaction was for Defendant to avoid paying Plaintiff’s judgment.

Procedural history. The trial court entered judgment for Defendant after concluding that Plaintiff failed to meet his burden of establishing an intent to defraud.

Key rules. Indiana Code 32-18-2-14(a)(1) states that a fraudulent transfer, or a fraudulent obligation incurred, may be subject to Indiana's Uniform Fraudulent Transfer Act if it is made “with actual intent to hinder, delay, or defraud any creditor of the debtor….”

I.C. 32-18-2-14(a)(2) outlines a list of nine nonexhaustive factors that courts may consider when determining whether a pattern of actual intent under subsection (1) exists. Indiana case law identifies three more factors: “any transaction conducted in a manner differing from customary methods; a transaction whereby the debtor retains benefits over the transferred property; and a transfer of property between family members."

Holding. The Court of Appeals reversed the trial court and held that the evidence demonstrated Defendant’s actual intent to hinder, delay, or defraud Plaintiff’s right to payment under the judgment. The Court remanded the case to the trial court to determine the appropriate remedy.

Policy/rationale. As I’ve said here before, these types of cases are highly fact sensitive, and Holland is no different. Please read the opinion to learn more about what happened. The Court walked through all of the pertinent factors - some of which actually weighed in favor of Defendant. It would seem this case was a close call. A key piece of evidence seemed to be Defendant’s admission “that converting the cash into equity in the [real estate] placed it beyond the reach of [Plaintiff] to collect it.” In the end, the Court accepted Plaintiff’s theory that, rather than pay Plaintiff with money Defendant had in hand, Defendant bought a 200k house and claimed it as a homestead.

One of the reasons this case caught my eye was Holland’s discussion of Plaintiff’s remedy. First, the Court stated that “the immediate issuance of an injunction that prohibits [Defendant] from transferring the [real estate] is appropriate while the trial court on remand determines [Plaintiff’s] remedy. The Court then deferred to the trial court to rule in its discretion what the ultimate remedy should be under I.C. 32-18-2-17:

(a) In an action for relief against a transfer or an obligation under this chapter, a creditor . . . may obtain any of the following:

    (1) Avoidance of the transfer or obligation to the extent necessary to satisfy the creditor's claim.

    (2) An attachment or other provisional remedy against the asset transferred or other property of the transferee in accordance with the procedure prescribed by IC 34-25-2-1 or any other applicable statute providing for attachment or other provisional remedy against debtors generally.

    (3) Subject to applicable principles of equity and in accordance with applicable rules of civil procedure, any of the following:

        (A) An injunction against further disposition by the debtor or a transferee, or both, of the asset transferred, its proceeds, or of other property.

        (B) Appointment of a receiver to take charge of the asset transferred or of the property of the transferee.

    (C) Any other relief the circumstances require.

(b) If a creditor has obtained a judgment on a claim against the debtor, the creditor, if the court orders, may levy execution on the asset transferred or its proceeds.

Related posts.

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Part of my practice involves post-judgment collection-related matters.  If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


Reinstated Federal Tax Liens On Property Owned Pre-Bankruptcy

Lesson. An erroneously-released federal tax lien can be reinstated, and the lien can reattach to a debtor’s pre-petition property, even in the wake of a bankruptcy discharge.

Case cite. United States v. Shadoan, 2021 U.S. Dist. LEXIS 219003 (S.D. Ind. Nov. 12 2021)

Legal issue. Whether Debtor’s bankruptcy discharge from tax liabilities prevented a reinstated federal tax lien from attaching to Debtor’s property.

Vital facts. A federal tax lien arose against Debtor, and the USA recorded the lien with the Hamilton County Recorder. Debtor subsequently sought Chapter 7 bankruptcy protection and received an order of discharge. The USA then released the lien by mistake, but later reinstated it (to the chagrin of Debtor).

Procedural history. The Shadoan opinion stems from litigation between the USA and Debtor related to, among other things, the validity of the tax lien reinstatement. Debtor filed a motion to dismiss the USA’s action.

Key rules. The opinion contains all sorts of citations to federal tax lien law. If interested or needed, dig in.

A BK discharge “does not disturb valid, pre-petition federal tax liens.” The USA may still enforce the lien in rem by proceeding against the property.

Under the US Code, the USA, through the IRS, can reinstate an erroneously-released lien by filing a revocation certificate. 26 U.S.C. § 6325(f)(2). Such a lien will reattach to a debtor’s pre-bankruptcy property.

Holding. The court denied Debtor’s motion to dismiss.

Policy/rationale. Debtor made two assertions. First, he claimed that the certificate of release of lien conclusively established that the federal tax lien was extinguished such that a reinstatement could not occur. Alternatively, Debtor argued that, once he obtained his BK discharge, the individual income tax liability ceased to exist such that there was no longer a federal tax lien to reinstate. The court rejected Debtor’s contentions and found that the USA followed the required procedure to appropriately reinstate the federal tax lien against Debtor’s property and Debtor’s corresponding rights to it. Remember that liens on real estate don’t disappear simply because the underlying debt disappears through BK.

Related posts.

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I 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@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


Legal Reader: How Best To Prepare When Facing A Foreclosure

I thought this article by Samantha Higgins on legalreader.com was quite informative for borrowers: How Best to Prepare When Facing a Foreclosure.  Although the piece is designed for residential/consumer foreclosures, many of the tips identified by Higgins apply with equal vigor to commercial borrowers and guarantors.  Engage, seek advice, and follow-up.

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I represent parties in loan-related litigation. If you need assistance with such a matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


Indiana Federal Court Dismisses Alter Ego Claim Against Affiliated Company

Lesson. Common presidents and physical locations alone is insufficient evidence to render two companies one enterprise in disguise.

Case cite. Vasquez v. Steiner Enters. 2021 U.S. Dist. LEXIS 211903 (N.D. Ind. Nov. 2 2021)

Legal issue. Whether Company A was the “alter ego” of Company B so as to be liable for claim against Company B.

Vital facts. Plaintiff named Company A in his lawsuit against Company B that sought damages for discrimination. Company B was a wholesale jobber of fabrics and textiles. Company A was an engineering firm. Although separate corporate entities, the two businesses occupied two halves of a single building. Also, the president of both companies was the same.

Procedural history. Company A filed a motion for summary judgment on Plaintiff’s alter ego claim.

Key rules. In the Seventh Circuit, “where two companies are alter egos, ‘a parent (or other affiliate) would be liable for the torts...of its subsidiary….’” Under Indiana state law, which applied to Vasquez:

… the focus is on whether the corporate form was so ignored, controlled or manipulated that it was merely the instrumentality of another and that the misuse of the corporate form would constitute a fraud or promote injustice. Courts are reluctant to disregard corporate identity, and [Plaintiff] has the burden on what is described as a "highly fact-sensitive question."

The court noted that evidence of such misuse of the corporate form “might include circumstances such as undercapitalization, the absence of corporate records, fraud by corporate shareholders or directors, use of the corporation to ‘promote fraud, injustice, or illegal activities,’ commingling of the companies' assets and affairs, and conduct by the corporations ignoring corporate formalities.”

Holding. The U.S. District Court for the Northern District of Indiana granted Company A’s motion and dismissed it from the case.

Policy/rationale. Vasquez was a federal employment discrimination case, but its principles apply equally to post-judgment collection actions where a borrower or a judgment debtor may be trying to avoid payment of a debt. One of the main policies behind the alter ego theory is to protect creditors from being confused about whom they can look to for the payment of their claims.

Plaintiff contended that Companies A and B were alter egos of a single business entity. The primary basis of this contention was the allegation that both entities were fully owned and controlled by the same individual, who was president of both. However, Plaintiff offered no evidence of any misuse of the corporate form. In rejecting the claim, the court in Vasquez reasoned that companies can do “a fair amount of sharing” and have a “degree of integration” without misuse of the corporate form.

Under Indiana law, "separate corporate identity" can only "be disregarded where one corporation is so organized and controlled and its affairs are so conducted by another corporation that it is a mere instrumentality or adjunct of the other corporation." The fact that Companies A and B shared the same president and the same building was insufficient to support such a conclusion. The court declared: “[n]o reasonable fact finder could conclude that [Company A and Company B] were one enterprise in disguise….”

Related posts.

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Part of my practice is to represent parties involved in post-judgment collection proceedings. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


No Surprise: Report Concludes That Nation's Foreclosure Activity Dropped To All-Time Low In 2021

From IT News Online:

IRVINE, Calif., Jan. 13, 2022 /PRNewswire/ -- ATTOM, licensor of the nation's most comprehensive foreclosure data and parent company to RealtyTrac, the largest online marketplace for foreclosure and distressed properties, today released its Year-End 2021 U.S. Foreclosure Market Report, which shows foreclosure filings— default notices, scheduled auctions and bank repossessions — were reported on 151,153 U.S. properties in 2021, down 29 percent from 2020 and down 95 percent from a peak of nearly 2.9 million in 2010, to the lowest level since tracking began in 2005.  Click here for the rest of the article.  


Indianapolis Bar Association COVID Update: Marion County Courts

Courtesy of the IBA today:

Updated COVID Marion Superior and Circuit Court Measures regarding Facial Coverings and Suspension of Jury Trials

The Executive Committee of the Marion Superior Court and the Judge of the Circuit Court have continued to monitor local numbers regarding increase in COVID positive cases.

The statewide Resuming Court Operations Task Force has continued to provide guidance to courts across the state on how to maintain court operations in light of the ongoing public health emergency. As of November 10, 2020, the Indiana Supreme Court, in 20S-CB-123, provided guidance to trial courts on minimizing the risk of exposure to COVID to court staff, litigants, attorneys and members of the public. In the Order, the Indiana Supreme Court reiterated that trial courts have inherent authority to suspend and/or reschedule criminal or civil jury trials for a limited time.

At this time, all jury trials in Marion County will be continued and reset after January 21, 2022. Additionally, facial coverings will be required and occupancy capacity will be limited in all areas of the courthouse. The proper use of facial coverings will be strictly enforced.

Click here to view the order regarding facial coverings.
Click here to view the order regarding the continuance of jury trials.

It's currently unclear whether there will be a ripple effect from the continuances this month, which is to say we don't know for certain whether jury trials currently set after the 21st will be impacted.  This likely will unfold on a case-by-case basis.  

John

 


Damages Under Indiana’s UCC For Breaching The Peace: Treatment Of Deficiency

Lesson. A Borrower’s UCC damages arising out of a secured lender’s breach of the peace can be reduced by the loan deficiency, assuming the disposition of the collateral was commercially reasonable.

Case cite. Horizon Bank v. Huizar, 2021 Ind. App. LEXIS 317 (Ct. App. Oct. 13, 2021)

Legal issue. Whether Borrower’s damages under Indiana Code § 26-1-9.1-625(c)(2) can be reduced be a deficiency owed under the loan.

Vital facts. Please review my 12/10/21 post, which discusses the liability aspects of the Huizar case and serves as an introduction to today’s post.

Following the repossession, Lender sold the vehicle at an auction house that had been in existence for at least twenty-six years. Lender’s employee testified that he had attended such auctions for that period of time and determined when prices will be accepted. In this case, the vehicle sold for $16,000, which left a deficiency of $7,679.08 on the loan amount.

Based upon the trial court’s reading of the applicable Indiana statute, the trial court calculated Borrower’s damages based upon the underlying facts:

10% of amount financed: $2,276.79 ($22,676.93 x .10)
+ a finance charge: $8,482.32
= $19,759.11

The court then reduced that amount by $7,679.08 (the deficiency), which the court rules “was part of [Borrower’s] relief.” The final result was an award of UCC damages of $3,080.03.

Procedural history. The trial court found that Lender’s auction of the repossessed vehicle was conducted in a commercially reasonable manner. In turn, the court applied the deficiency amount of $7,679.08. Borrower appealed those aspects of the trial court’s judgment.

Key rules.

    UCC Damages Statutes.

I.C. § 26-1-9.1-625(b) states: “a person is liable for damages in the amount of any loss caused by a failure to comply" with the UCC.

"Damages for violation of the requirements of [the UCC] are those reasonably calculated to put an eligible claimant in the position that it would have occupied had no violation occurred." I.C. § 26-1-9.1-625, cmt. 3.

I.C. § 26-1-9.1-625(c)(2) provides that, if the loan collateral is consumer goods, then the debtor may recover "the credit service charge plus ten percent (10%) of the principal amount of the obligation or the time-price differential plus ten percent (10%) of the cash price."

However, secured lenders are not liable under section 625(c)(2) more than once with respect to any one secured obligation. I.C. § 26-1-9.1-628(e).

    Disposition (Liquidation) Laws.

Under the UCC, secured creditors have the burden of establishing that the disposition of the collateral was proper. I.C. § 26-1-9.1-626(2).

Under I.C. § 26-1-9.1-627(b), disposition is made in a commercially reasonable manner if made:

  1. in the usual manner on any recognized market;
  2. at the price current in any recognized market at the time of the disposition; or
  3. otherwise in conformity with reasonable commercial practices among dealers in the type of property that was the subject of the disposition. 

Subsection (b) states that: “the fact that a greater amount could have been obtained . . . is not of itself sufficient to preclude the secured party from establishing" that the disposition was commercially reasonable.”

Indiana cases provide that collateral sold in the usual manner in a recognized market for such goods is presumed to be proper. Under Indiana law, “a sale or disposal of collateral to a dealer or on a wholesale market or auction” is deemed to be commercially reasonable.

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

Policy/rationale. Borrower argued that the UCC’s minimum statutory damages under I.C. § 26-1-9.1-625(c)(2) cannot be reduced. Based upon the UCC and Indiana case law, however, the Court rejected the argument. The Court reasoned that, by not reducing the damages, Lender would be penalized through an automatic forfeiture of the deficiency judgment. In other words, Borrower would receive a kind of windfall.

Borrower next contended that his damages could not be reduced because Lender failed to prove it was entitled to a deficiency. The Court pointed out that that the vehicle was sold at auction, with no evidence that Lender executed the sale in bad faith. Accordingly, the Court determined that the trial court did not abuse its discretion in finding that the deficiency judgment was commercially reasonable.

Related posts.

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I represent judgment creditors and lenders, as well as their mortgage loan servicers, entangled in loan-related disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


Liability Under Indiana’s Uniform Commercial Code For Breaching The Peace

Lesson. A Lender (secured creditor) could be exposed to liability for breaching the peace (“disturbing the public tranquility or order”) if it refuses to halt a repossession after a borrower voices an objection to the seizure.

Case cite. Horizon Bank v. Huizar, 2021 Ind. App. LEXIS 317 (Ct. App. Oct. 13, 2021)

Legal issue. Whether Lender’s agents breached the peace during the repossession of Borrower’s vehicle.

Vital facts. After a payment default, Lender, through agents, repossessed a vehicle owned by Borrower that served as collateral for the loan. The agents went to the home of Borrower and his girlfriend, and found the vehicle backed into the driveway. Here’s what went down:

[Agent] went to [Borrower’s] front door and informed [Borrower] that he was there to repossess the vehicle because [Borrower] was behind on payments. [Agent] then showed [Borrower] the contract as the basis for the repossession. [Agent] testified that he could have just taken the vehicle without going to the door, but he was trying to allow [Borrower] to remove the personal property from the vehicle. While [Agent] was talking to [Borrower], [another Agent] got into the driver's seat of the unlocked vehicle and locked the doors. [Girlfriend] came outside and tried to open the vehicle's doors, but [Agent] kept locking the doors and refused to let her enter. [Borrower] then told [Agent] that the men needed to get off his property and that he was not letting them take the vehicle. [Agent] told [Borrower] that if he did not give up the keys to the vehicle, [Agent] would get the police involved. Eventually, [Borrower] instructed [Girlfriend] to provide the keys to [Agents]. [Girlfriend] then removed the personal property from the vehicle, and [Agents] left with the vehicle.

The vehicle later was sold at auction for $16,000.00, leaving a deficiency of $7,679.08 on the loan amount. (I will discuss the issue of damages in my next post.)

Procedural history. Borrower sued Lender on multiple legal theories, including alleged violations of Indiana’s UCC. (This post does not address all of Borrower’s legal claims.) The trial court found, among other things, that Lender breached the peace in violation of the UCC. Lender appealed.

Key rules.

Ind. Code 26-1-9.1-609 (within Indiana’s UCC) states that, after default, a secured creditor may take possession of collateral "without judicial process, if it proceeds without breach of the peace." Indiana appellate court decisions define “breach of the peace” as:

a violation or disturbance of the public tranquility or order, and the offense includes breaking or disturbing the public peace by any riotous, forceful, or unlawful proceedings. Further, the general rule is that the creditor cannot utilize force or threats, cannot enter the debtor's residence without consent, and cannot seize any property over the debtor's objections.

Indiana cases further state that:

if the repossession is verbally or otherwise contested at the actual time of and in the immediate vicinity of the attempted repossession by the defaulting party or other person in control of the chattel, the secured party must desist and pursue his remedy in court.

Holding. The Indiana Court of Appeals held that the trial court did not abuse its discretion in finding that Lender breached the peace.

Policy/rationale. Lender’s main defense was that Borrower ultimately surrendered the vehicle to Agents. The Court rejected the argument, reasoning:

[Borrower] told [Agents] that [they] needed to get off his property and that he was not letting them take the vehicle…. [Lender] contends that "[a]ny initial objection to the repossession was waived when [Borrower] voluntarily surrendered the keys to the vehicle." [Lender] further argues that "[Agents] did not continue the repossession of the vehicle once the objection was lodged and did not resume until [Borrower] consensually surrendered the keys." [Lender] conveniently omits that, during this apparent period of "suspended repossession," an [Agent] had locked himself inside the vehicle and refused to exit until [Borrower] produced the keys.

In the end, the Court felt that an improper "disturbance of the public tranquility or order" occurred when [Agent 1] refused to desist after [Borrower] objected to the repossession - in the context of [Agent 2] locking himself inside the vehicle until the keys were produced.

(My next post will discuss how Huizar handled the damages aspect of the case.)

Related posts.

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I represent judgment creditors and lenders, as well as their mortgage loan servicers, entangled in loan-related disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


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

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

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

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

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

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

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

Key rules.

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

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

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

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

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

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

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

Related posts.

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I represent judgment creditors and lenders, as well as their mortgage loan servicers, entangled in loan-related disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


Does A Deed-In-Lieu Of Foreclosure Automatically Release A Borrower From Personal Liability?

A deed-in-lieu of foreclosure (DIL) is one of many alternatives to foreclosure. For background, review my post Deeds In Lieu Of Foreclosure: Who, What, When, Where, Why And How. Today I discuss the Indiana Court of Appeals’ opinion in GMAC Mortgage v. Dyer, 965 N.E.2d 762 (Ind. Ct. App. 2012), which explored whether a DIL in a residential mortgage foreclosure case released the defendant borrower from personal liability.

Deficiency. In GMAC Mortgage, the borrower sought to be released from any deficiency. The term “deficiency” typically refers to the difference between the fair market value of the mortgaged real estate and the debt, assuming a negative equity situation. Exposure to personal liability arises out of the potential for a “deficiency judgment,” which refers to the money still owed by the borrower following a sheriff’s sale. The amount is the result of subtracting the price paid at the sheriff’s sale from the judgment amount. (For more on this topic, please review my August 1, 2008, June 29, 2009 and March 9, 2012 posts.)

DIL, explained. GMAC Mortgage includes really good background information on the nature of a DIL, particularly in the context of residential/consumer mortgages. According to the U.S. Department of Housing and Urban Development (HUD), a DIL “allows a mortgagor in default, who does not qualify for any other HUD Loss Mitigation option, to sign the house back over to the mortgage company.” A letter issued by HUD in 2000 further provides:

[d]eed-in-lieu of foreclosure (DIL) is a disposition option in which a borrower voluntarily deeds collateral property to HUD in exchange for a release from all obligations under the mortgage. Though this option results in the borrower losing the property, it is usually preferable to foreclosure because the borrower mitigates the cost and emotional trauma of foreclosure . . .. Also, a DIL is generally less damaging than foreclosure to a borrower’s ability to obtain credit in the future. DIL is preferred by HUD because it avoids the time and expense of a legal foreclosure action, and due to the cooperative nature of the transaction, the property is generally in better physical condition at acquisition.

Release of liability in FHA/HUD residential cases. The borrower in GMAC Mortgage had defaulted on an FHA-insured loan. The parties tentatively settled the case and entered into a DIL agreement providing language required by HUD that neither the lender nor HUD would pursue a deficiency judgment. The borrower wanted a stronger resolution stating that he was released from all personal liability. The issue in GMAC Mortgage was whether the executed DIL agreement precluded personal liability of the borrower under federal law and HUD regulations. The Court discussed various federal protections afforded to defaulting borrowers with FHA-insured loans, including DILs. In the final analysis, the Court held that HUD’s regulations are clear: “A [DIL] releases the borrower from all obligations under the mortgage, and the [DIL agreement] must contain an acknowledgement that the borrower shall not be pursued for deficiency judgments.” In short, the Court concluded that a DIL releases a borrower from personal liability as a matter of law.

Commercial cases. In commercial mortgage foreclosure cases, however, a lender/mortgagee may preserve the right to pursue a deficiency, because the federal rules and regulations outlined in GMAC Mortgage do not apply to business loans or commercial property. The parties to the DIL agreement can agree to virtually any terms, including whether, or to what extent, personal liability for any deficiency is being released. The point is that the issue of a full release (versus the right to pursue a deficiency) should be negotiated in advance and then clearly articulated in any settlement documents. A release is not automatic.

GMAC Mortgage is a residential, not a commercial, case. The opinion does not provide that all DILs release a borrower from personal liability, and the precedent does not directly apply to an Indiana commercial mortgage foreclosure case.

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I represent parties in loan-related litigation. If you need assistance with such a matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


The Rooker-Feldman Doctrine Is Alive And Well In The 7th Circuit

In Banister v. U.S. Bank Nat'l Ass'n, 2021 U.S. App. LEXIS 28565 (7th Cir. 2021), the United States Court of Appeals for the Seventh Circuit (that includes Indiana) affirmed an Illinois district court's decision to dismiss on jurisdictional grounds a federal court lawsuit filed by a borrower/mortgagor.  The suit was the borrower's fifth attempt to overturn a state court judgment foreclosing the mortgage on her home.  The plaintiff borrower asserted the defendants committed bank fraud and sought $20MM in damages, together with an order to set aside the sheriff's sale due to the alleged "illegal foreclosure."  The borrower's claims were blocked by the Rooker-Feldman doctrine, which prohibits a federal court action to vacate a state foreclosure order.  To the extent the federal case sought damages, "a federal court could not award them without invalidating the foreclosure judgment—something that only an Illinois appellate court or the Supreme Court of the United States could do."

A recent opinion by the United States District Court for the Northern District of Indiana reached the same result.  Shaffer v. Felts, 2021 U.S. Dist. LEXIS 198114 (N.D. Ind. 2021) held that it "has no jurisdiction to set aside a state-court foreclosure judgment."  One of the lessens in Shaffer is that a federal court complaint "simply invoking the word 'fraud' does not grant a district court jurisdiction to set aside a state-court order."  The opinion cited to the 7th Circuit's 2015 Iqbal decision: 

The Rooker-Feldman doctrine is concerned not with why a state court's judgment might be mistaken (fraud is one such reason; there are many others) but with which federal court is authorized to intervene. The reason a litigant gives for contesting the state court's decision cannot endow a federal district court with authority; that's what it means to say that the Rooker-Feldman doctrine is jurisdictional.

I previously wrote about the Iqbal case here:  Dismissal Of Mortgagor’s Post-Foreclosure Federal Lawsuit: Usually, But Not Always.  

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I represent lenders, as well as their mortgage loan servicers, entangled in loan-related disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


What “Loss” Does An Owner’s Policy Of Title Insurance Cover?

Lesson. Title insurance generally covers “actual losses” arising out of the existence of a title defect, not losses from the conduct of the insured or personal dealings between people.

Case cite. Hughes v. First Am. Title Ins. Co., 167 N.E.3d 765 (Ind. Ct. App. 2021)

Legal issue. What “actual loss” arose from an undisclosed easement.

Vital facts. Owners purchased real estate and obtained a policy of title insurance from Title Company. Unbeknownst to Owners, the prior owners (sellers) had granted an easement across the entire south side of the real estate. After Owners learned of the easement, they submitted a claim to the Title Company, which acknowledged coverage for the easement that Title Company had not disclosed to Owners.

The subject title insurance policy covered against "actual loss, including any costs, attorneys' fees and expenses provided under this Policy." Such loss must have resulted from one or more of the enumerated covered risks, one of which was that "[s]omeone else has an easement on the Land." Title Company obtained an appraisal of the diminution in value of the real estate caused by the existence of the easement. The appraisal assigned a loss of $3,000. Owners would not accept that amount.

Meanwhile, Owners sued the easement holder to challenge the validity of the easement or, in other words, to terminate it. Apparently things got a little contentious in that dispute as Owners used “tire poppers” to try to block use of the easement. In the end, the case turned out poorly for Owners, and the court ordered Owners to pay $61,000 in attorney fees and costs to the easement holder.

Owners then sued Title Company seeking to recover losses from both the easement and the prior lawsuit, including reimbursement of the $61,000.

Procedural history. The trial court granted Title Company’s motion for summary judgment, and Owners appealed.

Key rules. An insurance policy is a contract and is subject to the same rules of construction as other contracts. “The purpose of title insurance is to insure that title to the property is vested in the named insured, subject to the exceptions and exclusions stated in the policy.”

“Title insurance is a contract of insurance against loss or damage caused by encumbrances upon or defects in the title to real estate.” Ind. Code § 27-7-3-2(a); see also Ind. Code § 27-7-3-2(g)(2) (defining "title policy" as "a policy issued by a company that insures or indemnifies persons with an interest in real property against loss or damage caused by a lien on, an encumbrance on, a defect in, or the unmarketability of the title to the real property").

In Indiana, the measurement of damages resulting from an easement is “the difference between the value of the property with the defect and the value of the property without the defect.” In other words, "actual loss is the diminution in value of the property caused by the easement."

Importantly, title insurance “does not insure against the conduct of the insured and does not cover matters involving personal dealings between individuals.”

Holding. The Indiana Court of Appeals affirmed the summary judgment in favor of Title Company. Owners were to be reimbursed for the actual loss suffered in reliance of the title policy, limited to the diminution in value caused by the existence of the easement ($3,000).

Policy/rationale. Owners contended that “loss” included the $61,000 arising out of the judgment in the suit against the easement holder because “it was a loss that resulted from a covered risk (i.e. the easement).” The Court rejected that argument: “the actual loss of the insured [here, Owners] is the difference in value of the property with the encumbrance [here, the easement] and its value without the encumbrance.” The Court reasoned:

Only title to the parcel was insured … not any actions [Owners] took to keep the easement holder from using the easement. Stated another way, the [61k] loss was not a result of the existence of the easement; rather, the loss [Owners] seek to recover is a result of their actions concerning the easement….

Although it was not a part of the Hughes opinion, depending upon the circumstances a title insurance company might fund—on behalf of its insured—a lawsuit to challenge the validity of an easement. Evidently that did not happen in Hughes, possibly because Title Company determined the easement was in fact valid.

Related posts.

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Part of my practice includes litigation surround title insurance claims. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


American Banker: Small Banks, Credit Unions Warned To Brace For Pandemic Aftershock

Here is an article by Ken McCarthy and Jim Dobbs in the Community Banking section of the American BankerSmall banks, credit unions warned to brace for pandemic.

One of the interesting opinions featured in this piece is that problem loans may not surface until 2023, when many of us initially felt it would be a Fall 2020 issue.

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I represent lenders, as well as their mortgage loan servicers, entangled in loan-related disputes. If you need assistance with such a , please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

 


Judgment Requiring Payment Of Sum Certain Through Monthly Installments Until Paid Or “Until Death” Does Not Create Judgment Lien

Lesson. If the amount of a money judgment is contingent, then the judgment will not give rise to a statutory lien on the real estate of the obligor (or borrower).

Case cite. Harris v. Copas, 165 N.E.3d 611 (Ind. Ct. App. 2021)

Legal issue. Whether a divorce decree providing that Husband would pay Wife $75,000 in $500 monthly installments until paid in full or until Wife’s death constituted a money judgment entitling Wife to a lien against the marital home.

Vital facts. Husband and Wife divorced, and the decree provided, among other things, that Husband would become the sole owner of the marital home and that "[Husband] will pay [Wife] the sum of $75,000.00 at $500.00 a month starting June 15th 2017 until paid or death of [Wife].” The situation later became complicated for a variety of reasons, but for purposes of today’s post Wife contended that the divorce decree created a judgment lien on Husband’s real estate. She recorded a lis pendens notice against the marital home as part of her efforts to collect.

Procedural history. Husband filed a petition for, among other things, an order to dismiss the lis pendens notice. The trial court granted the petition and ruled that the contingent nature of the judgment “took it out of the purview of the judgment lien statute.” Wife appealed.

Key rules.

Indiana’s judgment lien statute (I.C. § 34-55-9-2) provides in relevant part:

All final judgments for the recovery of money or costs in the circuit court and other courts of record of general original jurisdiction in Indiana, whether state or federal, constitute a lien upon real estate and chattels real liable to execution in the county where the judgment has been duly entered and indexed in the judgment docket as provided by law[.]

Harris expressed that a “judgment for money is a prerequisite for the application of the judgment lien statute. A 'money judgment' is ‘any order that requires the payment of a sum of money and states the specific amount due, whether labeled as a mandate or a civil money judgment.’" Under Indiana law: "A money judgment must be certain and definite. It must name the amount due."

Holding. The Indiana Court of Appeals affirmed the trial court and held that Wife did not hold a statutory judgment lien on the marital home.  The holding necessarily included the dismissal of the lis pendens notice.  

Policy/rationale. Wife asserted that she held a $75,000 lien based upon the idea that the divorce decree constituted a money judgment against Husband that automatically created such lien. The Court disagreed, reasoning:

If the parties had simply agreed that [Husband] would pay [Wife] $75,000 in monthly $500 installments, there would be no dispute that [Wife] held a money judgment against [Husband]. However, the inclusion of the term "until paid or death of [Wife]" made the amount ultimately due to [Wife] unknowable and unascertainable because it could not be predicted when [Wife] would die. This is the antithesis of a statement of a "specific amount due" required of a money judgment.

The Court took the view that the divorce decree was not, in fact, a money judgment. It appears that the Court viewed the decree simply as a form of payment plan that, while enforceable, did not operate as the kind of judgment that could become a lien.

Related posts.

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I represent judgment creditors and lenders, as well as their mortgage loan servicers and title insurers, entangled in lien priority disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


7th Circuit: Absent “Concrete Injury” Plaintiffs Have No Standing To Bring FDCPA Claim

Lesson. Mere annoyance or intimidation by language in a demand letter, without any concrete harm resulting from such language, is insufficient for a plaintiff to have standing to file a FDCPA action.

Case cite. Gunn v. Thrasher, 982 F.3d 1069 (7th Cir. 2020)

Legal issue. Whether a true statement in a demand letter nevertheless injured the plaintiffs.

Vital facts. Plaintiffs owed their homeowners’ association $2,000. The HOA hired a law firm, which sent a demand letter to plaintiffs that contained this sentence:

If Creditor has recorded a mechanic’s lien, covenants, mortgage, or security agreement, it may seek to foreclose such mechanic’s lien, covenants, mortgage, or security agreement.

The HOA subsequently sued plaintiffs for breach of contract (damages) but not for foreclosure. The plaintiffs responded by filing suit against the HOA’s law firm in federal court under the Fair Debt Collection Practices Act (FDCPA). Although the plaintiffs conceded that the disputed sentence in the letter was both factually and legally true, they contended that the sentence was false and misleading because it would have been too costly to pursue foreclosure to collect the 2k debt.

Procedural history. The USDC for the Southern of Indiana dismissed the complaint on the basis that a true statement about the availability of legal options “cannot be condemned” under the FDCPA. Plaintiffs appealed.

Key rules. “Concrete harm” is essential for a plaintiff to have standing to sue in federal court. Article III of the Constitution “makes injury essential to all litigation in federal court.”

Holding. As a practical matter, the 7th Circuit agreed with the District Court. However, rather than affirming the District Court’s ruling on the defendant’s dispositive motion, the 7th Circuit remanded the case with instructions to dismiss for lack of subject matter jurisdiction.

    See also: Larkin v. Finance System, 982 F.3d 1060 (7th Cir. 2020) and Brunett v. Convergent Outsourcing, 982 F.3d 1067 (7th Cir. 2020). The 7th Circuit decided these two Wisconsin cases at the same time as Gunn and applied the same injury/standing rules.

Policy/rationale. The plaintiffs failed to allege or argue how the contested sentence in the demand letter injured them. Although they were annoyed and intimidated by the letter, that does not constitute a concrete injury. The Court reasoned:

Consider the upshot of an equation between annoyance and injury. Many people are annoyed to learn that governmental action may put endangered species at risk or cut down an old-growth forest. Yet the Supreme Court has held that, to litigate over such acts in federal court, the plaintiff must show a concrete and particularized loss, not infuriation or disgust. Similarly many people are put out to discover that a government has transferred property to a religious organization, but Valley Forge Christian College v. Americans United for Separation of Church and State, Inc., 454 U.S. 464 (1982), holds that a sense of indignation (= aggravated annoyance) is not enough for standing.

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My practice includes the defense of mortgage loan servicers 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@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


Indiana Supreme Court Affirms Denial Of Owner's Motion To Set Aside Tax Deed

Ind. Land Tr. Co. v. XL Inv. Props., LLC, 155 N.E.3d 1177 (Ind. 2020) is a thorough and definitive opinion by our state's highest court regarding whether a county auditor provided adequate notice to a landowner of an Indiana tax sale.  As is typical, these tax sale cases are fact sensitive and legally complicated, and frankly are difficult to summarize in a standard-size blog post.  Please read the entire opinion if you're confronted with a similar problem.  For purposes of today's post, I'll simply quote Justice David's introduction, which really says it all: 

Before the State sells a delinquent property, the Due Process Clause of the Fourteenth Amendment requires that the owner of the property be given adequate notice reasonably calculated to inform him or her of the impending tax sale. While actual notice is not required, the government must attempt notice in a way desirous of actually informing the property owner that a tax sale is looming. If the government becomes aware that its notice attempt was unsuccessful—such as through the return of certified mail—it must take additional reasonable steps to notify the owner of the property if practical to do so.

In this case, property taxes went unpaid on a vacant property from 2009 to 2015 resulting in over $230,000 in outstanding tax liability. The county auditor—through a third-party service—sent simultaneous notice of an impending tax sale via certified letter and first-class mail to the tax sale notice address listed on the deed for the property. The owner of the property, however, had moved from its original address several times and never updated its tax address for the property with the county auditor. The certified letter came back as undeliverable, but the first-class mail was never returned. After a skip-trace search was performed for a better address and notice was published in the local newspaper, the property eventually sold and a tax deed was issued to the purchaser. The original owner was ultimately notified of the sale when the purchaser filed a quiet title action and searched for a registered agent. The original owner then moved to set aside the tax deed due to insufficient notice.

The central question before our Court today is whether the LaPorte County Auditor gave adequate notice reasonably calculated to inform Indiana Land Trust Company of the impending tax sale of the property. As a corollary question, we also confront whether the Auditor was required under the circumstances of this case to search its own records for a better tax sale notice address when the notice sent via certified mail was returned as undeliverable. We find the Auditor provided adequate notice and was not required to search its internal records. We therefore affirm the trial court's denial of Indiana Land Trust's motion to set aside the tax deed.

The Court held that, under the facts of the case, the auditor "provided notice reasonably calculated, under all the circumstances, to apprise [the owner] of the pendency of the action and afforded them an opportunity to present their objections."  

See also:

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My practice includes representing parties in connection with contested tax sales. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


7th Circuit: Communications Were Not “False, Misleading, Or Deceptive To The Unsophisticated Consumer” In Violation of the FDCPA

Lesson. Per the Seventh Circuit, “Congress did not intend the FDCPA to require debt collectors to cast about for a disclosure formulation that strikes a precise balance between providing too little information and too much. The use of an itemized breakdown accompanied by zero balances would not confuse or mislead the reasonable unsophisticated consumer.”

Case cite. Degroot v. Client Servs. 977 F.3d 656 (7th Cir. 2020)

Legal issue. Whether allegedly false or misleading statements by a collection agency violated the Fair Debt Collection Practices Act, 15 U.S.C. § 1692e, by using false, deceptive, and misleading representations or means to collect a debt, or 15 U.S.C. § 1692g by failing to disclose the amount of the debt in a clear and unambiguous fashion.

Vital facts. Debtor defaulted on credit card debt, and the credit card company assigned the debt to Collection Agency. The Debtor sued Collection Agency following a couple of collection letters Debtor received. (The opinion details the letters.) Debtor claimed that the second letter “misleadingly implied that [the credit card company] would begin to add interest and possibly fees to previously charged-off debts if consumers failed to resolve their debts with [Collection Agency].” Specifically, Debtor alleged that he was "confused by the discrepancy between the [letter 1’s] statement that 'interest and fees are no longer being added to your account' and [letter 2's] implication that [credit card company] would begin to add interest and possibly fees to the Debt once [Collection Agency] stopped its collection efforts on an unspecified date."

Procedural history. The District Court granted the Collection Agency’s motion to dismiss. Debtor appealed.

Key rules. The FDCPA requires debt collectors to send consumers a written notice disclosing "the amount of ... debt" they owe. 15 U.S.C. § 1692g(a)(1).

This disclosure must be “clear.” "If a letter fails to disclose the required information clearly, it violates the Act, without further proof of confusion."

"A collection letter can be 'literally true' and still be misleading ... if it 'leav[es] the door open' for a 'false impression.'"

“A debt collector violates § 1692e by making statements or representations that ‘would materially mislead or confuse an unsophisticated consumer.’"

Holding. The Seventh Circuit affirmed the District Court and held that the Collection Agency’s communications “were not false, misleading, or deceptive to the unsophisticated customer.”

Policy/rationale. The key issue in Degroot was whether Collection Agency, by providing a breakdown of the debt that showed a zero balance for "interest" and "other charges," violated §§ 1692e and 1692g(a)(1) by implying that interest and other charges would accrue if the debt remained unpaid. The Court set out the test it faced:

To determine whether [Collection Agency’s] letter was false or misleading, we must answer two questions. The first is whether an unsophisticated consumer would even infer from the letter that interest and other charges would accrue on his outstanding balance if he did not settle the debt. If, and only if, we conclude that an unsophisticated consumer would make such an inference, then we move to analyze whether the inference is false or misleading.

The Court reasoned that the itemization (debt breakdown) at issue could not be construed “as forward looking and therefore misleading”:

That interest and fees are no longer being added to one's account does not guarantee that they never will be, because there is no way—unless the addition is a legal or factual impossibility—to know what may happen in the future. That is why a statement in a dunning letter that relates only to the present reality and is completely silent as to the future generally does not run afoul of the FDCPA. While dunning letters certainly cannot explicitly suggest that certain outcomes may occur when they are impossible … they need not guarantee the future. For that reason, the itemized breakdown here, which makes no comment whatsoever about the future and does not make an explicit suggestion about future outcomes, does not violate the FDCPA.

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My practice includes the defense of mortgage loan servicers 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@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


Tips For Indiana Receivers, Updated

My practice includes representing receivers in commercial mortgage foreclosure cases.  Since we could see an uptick in commercial loan defaults this year, I thought I'd re-share a few tips related to receiverships over mortgaged real estate: 

1. Review and understand the proposed order appointing receiver before agreeing to serve.   Ask an attorney (like me) to review and help negotiate terms, as needed.  Receivers can be personally liable for certain conduct or damages, so you need to go into the job with your eyes wide open. 

2. Ensure your compensation is fair and profitable from the outset.  See #1.

3. Before the receivership hearing, eyeball the property – drive by and/or inspect if possible.  Understand the lay of the land.

4. Determine the plaintiff lender’s objectives with regard to the case and the property from the beginning:  babysit the property only, improve the property, sell the property, etc.?  Get a feel for the lender’s cost tolerance.  As a practical matter, the plaintiff lender is the captain of the ship. 

5. Once appointed:

    a.  Line up a receiver's bond immediately.

    b. Secure rents ASAP.

    c. Ensure that hazard insurance is current.

    d. Determine the status of real estate taxes and confer with the lender regarding any delinquency.  Develop a plan with the lender as to how and when taxes should be paid, if at all.  Send a confirming email and record the status/plan in court-filed reports.

    e. Investigate the status of utilities and consider action.

    f. Evaluate whether there is any non-real estate (personal property) collateral of value and, if so, learn what the lender wants you to do with it.  Ensure that the action is covered by prior court order, or obtain order authorizing the action.

6. Hire an attorney unless (a) you have prior experience with, and trust in, lender’s counsel and (b) there is no apparent adversity with the lender.  Some lawyers have the view that receivers should always retain independent counsel.  I don’t necessarily share that opinion and tend to assess the issue on a case-by-case basis.  Having said that, the trend is for receivers to have independent counsel, which probably is best.   

7. Report, report, report.  Inundate the lender’s representative and/or lender’s counsel with emails regarding significant issues and action.  Timely file all reports required by the order appointing receiver.  Full disclosure of operations is the best practice, especially if there are other creditors involved and/or an interested owner/borrower.  

8. As to major decisions affecting the property, including significant expenditures, obtain prior written approval from the lender or lender’s counsel.  See #7.  Emails are easy.  Use them.  Archive them for your file.

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I represent parties involved with receiverships, including receivers themselves. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


Indiana Supreme Court Clarifies Scope Of Trial Rule 9.2(A) Affidavits Of Debt

The hand wringing over certain pleading requirements for residential mortgage lenders and servicers seeking to enforce loans in Indiana is over effective July 15, 2021. This is because the Indiana Supreme Court amended Trial Rule 9.2(A) and specifically exempted mortgage foreclosures from the affidavit of debt requirements arising out of the 2020 amendment to the rule.

Click here for the Court’s order, which contains the amendment. The following link is to the entire rule on the Court’s system that, as of today, does not reflect the amendment: T.R. 9.2.

For background on this topic, please click on my two prior posts:

The rule’s new language ends any debate regarding whether the subsections added in 2020 [(A)1) and (A)(2)] apply to mortgage foreclosure actions. (Incidentally, the 2020 amendment never affected commercial or business loans – only consumer debts.)

Somewhat regrettably, the Court did not include language in this year’s amendment to exempt actions to enforce unsecured loans, such as an action on a guaranty or a credit agreement. Having said that, as noted in my prior posts, a strong argument can be made that the affidavits only apply to actions “on account” and not to loans.

Kudos to our Supreme Court for providing clarity to the situation and for the folks behind the scenes who lobbied for the change.
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I represent lenders, as well as their mortgage loan servicers, entangled in loan-related disputes. If you need assistance with such a , please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


Assignee Of Mortgage Loan Not Liable For Alleged TILA Violations

Lesson. Generally, an assignee of a residential mortgage (a subsequent mortgagee) is not subject to liability under TILA, 15 U.S.C. § 1641(e)(1), for violations that occur after the loan has been made.

Case citeCrum v. SN Servicing Corp., No. 1:19-cv-02045-JRS-TAB, 2020 U.S. Dist. LEXIS 172358 (S.D. Ind. Sep. 21, 2020)

Legal issue. Whether a defendant lender/mortgagee, an assignee of a loan, violated the Truth and Lending Act (TILA), 15 U.S.C. 1601, specifically Sections 1639f or 1638f.

Vital facts. Plaintiff Borrower obtained a residential mortgage loan in 1997. Subsequently, the loan was assigned to other lenders. In 2012, Borrower filed a Chapter 13 bankruptcy case and, per the Plan, made regular monthly payments to the Trustee. In 2018, the Trustee filed a report (1) certifying the amounts received from Borrower and (2) stating that Borrower had completed the case. However, a discrepancy existed between the Trustee’s final report and its earlier report detailing the “final cure payment.” Specifically, the inconsistency involved two payments of $455.61 that Borrower did not make to the Trustee. Based upon this discrepancy, the subject lenders, through their loan servicers, considered the loan to be delinquent and charged a series of late fees. Borrower, on the other hand, claimed that he fully performed under the BK Plan and made all required payments.

Procedural history. Borrower filed a complaint against several lenders and servicers, asserting numerous claims related to the lenders’ and servicers’ continued assessment of fees, including attorney fees and late charges. As it relates to this post, Borrower asserted that the servicer acting on behalf of one of the lenders/mortgagees (Lender) violated TILA by failing to provide periodic billing statements and by failing to promptly credit payments to the loan. The Lender moved to dismiss the claim against it under Rule 12(b)(6).

Key rules. 15 U.S.C. 1639f requires that "[i]n connection with a consumer credit transaction secured by a consumer's principal dwelling, no servicer shall fail to credit a payment to the consumer's loan account as of the date of receipt . . . ."

“Section 1638(f) requires a creditor, assignee, or servicer with respect to any residential mortgage loan to send the obligor periodic statements containing information such as the remaining principal, the current interest rate, a description of late payment fees, and specific contact information through which the obligor can obtain more information about the mortgage”.

Borrower’s TILA claim depended upon the Lender being “a creditor who may be sued under Section 1640(a) or an assignee who may be sued under Section 1641(e)(1).”

    A creditor is a person who both "regularly extends . . . consumer credit" and "is the person to whom the debt arising from the consumer credit transaction is initially payable on the face of the evidence of indebtedness or, if there is no such evidence of indebtedness, by agreement." 15 U.S.C. 1602(g).

    Assignee liability under TILA “is much more limited than creditor liability.”

In the context of a mortgage loan transaction, an assignee is liable for conduct for which a creditor would be liable only if (1) "the violation for which such action or proceeding is brought is apparent on the face of the disclosure statement" and (2) "the assignment to the assignee was voluntary." 15 U.S.C. 1641(e)(1). A violation is said to be "apparent on the face of the disclosure statement" where "(A) the disclosure can be determined to be incomplete or inaccurate by a comparison among the disclosure statement, any itemization of the amount financed, the note, or any other disclosure of disbursement; or (B) the disclosure statement does not use the terms or format required to be used by this subchapter." 15 U.S.C. 1641(e)(2).

    TILA does not define “disclosure statement,” but case law provides that the statement refers to the mandatory “disclosure of certain terms and conditions of credit before consummation of a consumer credit transaction." The bottom line is that “an assignee of a mortgage is not subject to liability under TILA for violations that occur after the loan has been made.”

Holding. The district court granted the motion to dismiss. Borrower did not appeal.

Policy/rationale. In Crum, the Lender did not originate the loan. As such, the Lender could not be a “creditor” under TILA because it was not the person to whom the debt was “initially payable on the face of the” promissory note.

The Lender was thus an “assignee,” but as assignee the Lender was not liable for the alleged TILA violations because the nature of the violations “would never appear on the face of the disclosure statement” as Section 1641(e)(1) requires. “By definition, such noncompliance would occur after any pre-transaction disclosures. Hence, [the Lender] cannot be liable as an assignee under § 1641(e)(1) for alleged violations of §§ 1639f and 1638(f).
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I represent lenders, as well as their mortgage loan servicers, entangled in loan-related disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


FHFA EXTENDS COVID-19 FORECLOSURE AND REO EVICTION MORATORIUMS

FOR IMMEDIATE RELEASE

6/24/2021

Washington, D.C. – Today, the Federal Housing Finance Agency (FHFA) announced that Fannie Mae and Freddie Mac (the Enterprises) are extending the moratoriums on single-family foreclosures and real estate owned (REO) evictions until July 31, 2021. The foreclosure moratorium applies to Enterprise-backed, single-family mortgages only. The REO eviction moratorium applies to properties that have been acquired by an Enterprise through foreclosure or deed-in-lieu of foreclosure transactions. The current moratoriums were set to expire on June 30, 2021.


What Is A Replevin Action?

In Indiana, a cause of action for “replevin” will come into play if your lending institution collateralized its loan with tangible personal property and if your borrower defaulted on such loan.  For more on the fundamentals of a claim for replevin in Indiana, keep reading.

Vocabulary.  Black’s Law Dictionary defines replevin as follows:

An action whereby the . . . person entitled to repossession of [personal property] may recover [it] . . . from one who . . . wrongfully detains such [personal property].  Such action is designed to permit one having the right to possession to recover property in specie from one who has either wrongfully taken or detained property.

In this context, a lender is the person entitled to repossession of the property, and a defaulting borrower is the one who has wrongfully detained the property. 

Indiana statute.  Ind. Code § 32-35-2 governs replevin actions.  The detailed statute provides the procedural steps to repossess personal property.  Section 1 states that grounds for an action for replevin exist:

If any personal goods, including tangible personal property constituting or representing choses in action, are: 
(1) wrongfully taken or wrongfully detained from the owner or person claiming possession of the property; or
(2) taken on execution or attachment and claimed by any person other than the defendant;
the owner or claimant may bring an action for the possession of the property.

When lenders seek to enforce a security interest in, for example, a borrower’s equipment, counsel should include a count for replevin, which will result in a court order granting the right to repossess the equipment.  A count for replevin typically will be in addition to a count for damages based upon a promissory note/credit agreement.

Indiana case law.  Indiana judicial opinions provide further insight into replevin actions.  “To succeed on his claim for replevin, [plaintiff] must prove by a preponderance of the evidence that the [defendant] wrongfully held or detained property that belonged to him.”  Whittington v. Indianapolis Motor Speedway Foundation, Inc., 2008 U.S. Dist. LEXIS 62760 (S.D. Ind. 2008) (The Court determined, in a case involving an antique car, that the transaction was a gift, rather than a loan.  Because the plaintiff failed to prove that he had a possessory interest in the car, his claim for replevin failed.)  See also, Schaefer v. Tyson, 2009 U.S. Dist. LEXIS 4536 (S.D. Ind. 2009) (Replevin action dismissed by six-year statute of limitations.)  In McCready v. Harrison, 2009 U.S. Dist. LEXIS 1518 (S.D. Ind. 2009), Judge David Hamilton noted, generally, that:

  • “A replevin action is a speedy statutory remedy designed to allow one to recover possession of property wrongfully held or detained, as well as any damages incidental to the detention.”
  • Reasonable loss of use damages may be recovered in a replevin action; I.C. § 32-35-2-33 provides that judgments for plaintiffs in replevin actions may be for (1) delivery of the property, or the value of the property in case delivery is not possible and (2) damages for the detention of the property. 

To repossess and, ultimately, liquidate most non-real estate loan collateral in Indiana, asset-based lenders and their legal counsel need to be familiar with I.C. § 32-35-2 and the applicable case law.

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I represent parties involved in disputes about loans. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


Impact of 1099-C Filing On Indiana Deficiency Judgments

Lesson. The filing of a 1099–C form (“1099-C”) does not, in and of itself, operate to extinguish a deficiency judgment under Indiana law. Ultimately, however, lenders should consult with their tax advisors to document, if necessary, that any issuance of a 1099-C following a sheriff’s sale was not the result on an intent to release a borrower (or guarantor) from the deficiency but rather a good faith effort to follow IRS rules and regulations.

Case cite. Leonard v. Old Nat. Bank Corp., 837 N.E.2d 543 (Ind. Ct. App. 2005)

Legal issue. Whether a lender’s issuance of a 1099-C as to its borrower cancelled the underlying debt so as to release the guarantor from liability.

Vital facts. A bank filed a 1099-C following its borrower’s bankruptcy case, which ended in a dismissal but not a discharge. (For more on 1099-C’s, click here.) It appears that the form pertained only to the borrower, not the personal guarantor of the loan, although the 1099-C dealt with the entire loan balance. Please note that Leonard did not involve a mortgage foreclosure. Also, the opinion did not mention whether the bank internally wrote off the debt. The bank in Leonard pursued the guarantor for the loan balance. In response, the guarantor asserted that the 1099-C cancelled the debt.

Procedural history. Following a bench trial that focused primarily on evidence of the bank’s intent, the court entered judgment for the bank and concluded that the bank did not extinguish the debt when it filed the 1099–C. The guarantor appealed.

Key rules. The Indiana Court of Appeals explained that the IRS requires a 1099–C to be filed after an “identifiable event,” which includes “a discharge of debt in bankruptcy, an agreement between the creditor and debtor, and a cancellation or extinguishment of the debt by operation of law that makes the debt unenforceable.”

Holding. The Court affirmed the trial court’s holding that the bank did not cancel the debt by virtue of the 1099–C.

Policy/rationale. The evidence showed that the bank’s filing was the result of the bank’s belief that the IRS required the form to be filed, but it was not an expression of the bank’s intent to discharge the debt.

Leonard appears to be the only Indiana appellate court opinion to address the 1099-C issue, which is to say that there is no Indiana case dealing directly with deficiency judgments following foreclosure sales. The holding is good for Indiana lenders because it definitively concludes that the mere filing of a 1099-C does not cancel a debt. Having said that, Leonard arguably leaves open the door for borrowers or guarantors, with appropriate evidence, to claim that their lender intended to cancel the deficiency by filing the form. In my view, a—or perhaps “the”—compelling factor will be whether the lender filed a satisfaction of judgment, which to my knowledge is the only way to formally terminate a deficiency judgment under Indiana law. Absent a satisfaction of judgment, the deficiency should not be extinguished by the mere issuance of a 1099-C.

Related posts.

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Part of my practice includes representing judgment creditors and lenders, as well as their mortgage loan servicers, in connection with contested mortgage foreclosure actions. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


Report: Surprise Plunge In Bankruptcies Puts Attorneys To Test

From yesterday's Indiana Lawyerarticle link.  The piece does not address consumer/residential foreclosure attorneys, but my understanding is that the story is the same and perhaps even worse due to the ongoing federal foreclosure moratorium.  Meanwhile, commercial foreclosures, which are not subject to a moratorium, also remain surprisingly low here in Indiana.              


Southern District Of Indiana Opinion Explains Why Federal Tax Liens Are Not Terminated In Bankruptcy

Lesson. A bankruptcy discharge can eliminate a tax payer’s personal liability for unpaid income taxes, but it will not extinguish a pre-existing tax lien on the tax payer’s real estate.

Case cite. United States v. Webb, 486 F. Supp. 3d 1238 (S.D. Ind. 2020) PDF

Legal issue. Whether federal income tax liens that attached to real estate belonging to bankruptcy debtors as of the date of the bankruptcy petition were unaffected by the bankruptcy.

Vital facts. The IRS filed notices of tax liens with the Hendricks County Recorder in 2010 against the Webbs related to certain tax assessments. The Webbs filed for bankruptcy in 2013, and one of the assets they scheduled was their residence. Later in 2013, the Webbs received a bankruptcy discharge. In 2014, the IRS mistakenly abated the tax assessments and mistakenly released the tax liens. The IRS corrected these mistakes in 2016 by reversing the abatement and filing revocations of the tax lien releases..

Procedural history. In this action before United States District Judge Hanlon, the USA, on behalf of the IRS, filed a motion for summary judgment to enforce its tax liens.

Key rules.

The Court noted that “a federal tax lien arises when ‘any person liable to pay any tax neglects or refuses to pay the same after demand.’” 26 U.S.C. § 6321.

Moreover, a “lien automatically ‘arise[s] at the time the assessment [of a tax] is made.’” 26 U.S.C. § 6322.

Such liens “attach to ‘all property and rights to property’ owned by the delinquent taxpayer during the life of the lien, 26 U.S.C. § 6321, and continue ‘until the liability for the amount so assessed . . . is satisfied or becomes unenforceable by reason of lapse of time.’” 26 U.S.C. § 6322.

Further, the Court in its opinion noted that prior federal courts have held that a taxing authority's existing lien upon property at the time of bankruptcy is not released or affected by the discharge. “Tax liens survive bankruptcy and may be enforced in rem even after the debtor has been discharged.”

Holding. The District Court granted the IRS’s summary judgment motion. The tax liens “remained intact.”

Policy/rationale. The Webbs asserted that the tax liens could not be reinstated because the tax assessments were discharged through bankruptcy. However, the discharge only extinguished one mode of enforcement, specifically an action against the Webbs for personal liability. The bankruptcy did not, however, disturb the in rem action against the Webbs’ real estate. In other words, the discharge terminated the underlying tax assessments against the Webbs individually but did not affect the right of the IRS to pursue relief for those assessment against the Webbs’ real estate. The Court emphasized the policy that federal tax liens have a “broad reach.”

The Court’s opinion discussed the Webbs’ other contentions concerning the mistaken releases and various bankruptcy-related matters. Please read the opinion if you have further interest in the Webb case.

Related posts.

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My practice includes representing 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@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


Absence Of Personal Jurisdiction Dooms Action To Domesticate Ohio Judgment In Indiana

Lesson. Domesticating an out-of-state judgment in Indiana is typically an easy and indefensible process, unless the original court lacked jurisdiction to enter the judgment in the first place.

Case cite. Ferrand Laser Screening v. Concrete Management, 150 N.E.3d 227 (Ind. Ct. App. 2020).

Legal issue. Whether a judgment creditor could domesticate and collect an Ohio judgment in Indiana.

Vital facts. Following construction-related litigation in Ohio, the judgment creditor (plaintiff) filed an action in Indiana against the judgment debtor (defendant) to domesticate and collect on the Ohio judgment. (Judgment Creditor also asserted claims against other defendants to pierce the corporate veil.)

Procedural history. Judgment Debtor filed a motion to dismiss the Indiana action on the basis that the judgment was not eligible for domestication because the Ohio court lacked personal jurisdiction. The trial court denied the motion. Judgment Debtor then filed a motion for summary judgment on the same basis that was denied. Following a bench trial, the court entered an order domesticating the Ohio judgment, and Judgment Debtor appealed.

Key rules. The Indiana Court of Appeals in Ferrand first noted that, under Indiana law, “a judgment of a sister state is presumed to be valid but is ‘open to collateral attack for want of personal jurisdiction or subject matter jurisdiction.’” Judgment debtors carry the burden of rebutting this presumption.

“In assessing a claim that a foreign judgment is void for lack of personal jurisdiction, [Indiana courts] apply the law of the state where the judgment was rendered.”

At issue in Ferrand were principles of “long-arm” jurisdiction from Ohio Revised Code 2307.382. (In Indiana, Trial Rule 4.4(A) governs long-arm jurisdiction.) Without going into detail, there are rules rooted in constitutional law that govern whether a court has personal jurisdiction (power) over an out-of-state defendant. To learn more, please read the opinion.

Holding. The Court held that the Ohio court lacked personal jurisdiction over Judgment Debtor and that the Ohio judgment was, accordingly, void.

Policy/rationale. The Court examined the evidence pertinent to the procedural issues and concluded that Ohio’s long-arm statute did not confer personal jurisdiction over Judgment Debtor. For purposes of this blog, an analysis of the technicalities is not altogether important. What is significant, however, is that a foreign judgment may not be automatically enforceable in Indiana. Although the underlying merits of the judgment cannot be attacked, judgment debtors still can defend the action on the basis that the foreign court lacked jurisdiction (power) to enter the judgment in the first place—assuming the circumstances as applied to the foreign court’s procedural law warrant such a defense.

As an aside, the Judgment Creditor in Ferrand did not avail itself of Indiana’s user-friendly (my term) statute to domesticate the Ohio judgment: Indiana Code 34-54-11. As noted below, I’ve written about this procedure previously. The Court in Ferrand did not mention this statute, and Judgment Creditor proceeded instead to file a new cause of action seeking a judgment to domesticate. I’m not here to say that was wrong—just that the parties, the trial court, and the Court of Appeals did not address it. I suspect the reason behind Judgment Creditor’s tactic was that its action was not limited to domestication but included separate claims against third parties that warranted a new lawsuit.

Related posts.

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Part of my practice involves representing judgment creditors in their efforts to collect debts. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


Pre-Judgment Seizure of Property: Attachment Fundamentals

Can lenders seize property of a borrower or a guarantor to ensure its availability to satisfy a subsequent judgment?  Rarely.  I touched on this area of the law back on 3/6/07Woodward v. Algie, 2014 U.S. Dist. LEXIS 52997 (S.D. Ind. 2014) is an excellent opinion detailing the nuts and bolts of the remedy of attachment. 

The dispute.  The heart of the Woodward case was the plaintiff’s breach of contract claim against the defendant.  The contract involved the design and building of airplanes.  The plaintiff funded the project, and the defendant was on the production side.  The plaintiff alleged that the defendant failed to produce any planes, resulting in damages.  Following the filing of the complaint, the plaintiff filed a petition for a pre-judgment writ of attachment under Ind. Code § § 34-25-2-1(b)(4)-(6) seeking the seizure of the defendant’s property connected to the airplane project.

Attachment law, generally.  In Indiana, Trial Rule 64 and I.C. § 34-25-2-1 authorize pre-judgment attachment.  The Woodward opinion dealt only with statutory attachment, however.  Indiana’s statute requires plaintiffs to file an affidavit in support of any petition showing, (1) the nature of the claim, (2) that the claim is just, (3) the amount sought to be recovered and (4) one or more of the grounds for attachment in I.C. § 34-25-2-1(b).  Indiana law also requires plaintiffs to post a bond “with sufficient surety payable to the defendant, that the plaintiff will duly prosecute the attachment proceeding and pay all damages suffered by the defendant if the attachment proceedings are both wrongful and oppressive.”  See, I.C. § 34-25-2-5. 

Grounds - § (b)(4) – asset movement.  This statutory provision mandates that the plaintiff show the defendant was removing, or was about to remove, property outside of Indiana and was not leaving enough in Indiana to satisfy the plaintiff’s claim.  Plaintiff’s supporting affidavit in Woodward did not meet this requirement.  There was no basis for the Court to find that the defendant had or would have insufficient assets to satisfy the judgment sought by the plaintiff. 

Grounds - § (b)(5)-(6) – fraudulent intent.  These rules require the plaintiff to show that the defendant had sold, conveyed or otherwise disposed of, or was about to sell, convey or otherwise dispose of, executable property with the fraudulent intent to cheat, hinder, or delay the plaintiff.  Again, the Court in Woodward concluded that there was insufficient evidence of the alleged fraudulent intent.  “This Court cannot simply assume fraud on the part of the [defendant].”  I discussed establishing fraudulent intent, through Indiana’s “8 badges of fraud,” in my post dated 12/14/06

Property subject to attachment, and why.  The plaintiff in Woodward sought a writ of attachment against essentially all of the defendant’s property.  The Court viewed this as seeking an order for replevin, not attachment.  The attachment remedy "is available in an action for the recovery of money.”  Replevin actions, on the other hand, seek to recover property.  “The plaintiff must aver the amount of damages that he ought to recover, and the sheriff seizes only the amount of property, by value, to satisfy the plaintiff’s averred claim, beginning with personal property.”  One seeking a writ of attachment should not identify specific goods to be seized “because the purpose of attachment is only to ensure that property, any property, will be available to satisfy a money judgment; it is not to preserve the availability of specific items of property for recovery by the plaintiff.”  Because the plaintiff made no claim for replevin, but only money damages, the proposed remedy of seizing specific property of the defendant’s was inappropriate. 

Denied.  The Court denied the petition for prejudgment writ of attachment.  The plaintiff in Woodward failed to prove he was entitled to the relief.  The plaintiff also lost because he proposed an inadequate bond of only $2,500 and submitted no explanation of the calculation, despite seeking a judgment for $475,000.  A pre-judgment writ of attachment is very difficult to obtain in Indiana.  Allegations will not be enough, and concrete proof will be needed.  In my view, an evidentiary hearing, in contested cases, will be required before an Indiana judge will grant this extraordinary relief. 

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My practice includes representing parties, including judgment creditors and lenders, in post-judgment collection proceedings. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


News Reports Regarding Increase In Foreclosure Activity Despite Government Programs

Both of the following news reports stem from the Q1 2021 Foreclosure Market Report by ATTOM Data Solutions:

I was out last week and have been playing catch-up.  I hope to post some new material next week.  

John


Title Work And Foreclosures In Indiana

One of the common themes on this blog has been the importance of obtaining title work in connection with an Indiana commercial mortgage foreclosure case.  If you’re wondering why your foreclosure counsel recommends that you incur the expense of a title commitment and later premiums for a title insurance policy, keep reading.

Procedural context.  Before the filing of the foreclosure complaint, certain steps should be undertaken to analyze the loan collateral, in this case the real estate.  One such step is to determine priority in title.  We strongly recommend that lenders order a foreclosure (title insurance policy) commitment.  (Tip:  If the lender has a prior title insurance policy related to the property, such as a lender’s policy, then you can save some expense simply by placing the order from the same company.  Or, a separate title insurance company may provide a cheaper commitment faster based upon a prior policy.) 

ID parties/priority.  The commitment should be reviewed for purposes of determining all parties with an interest in the real estate and their relative priorities.  I.C. § 32-29-9-1 articulates the necessary parties to be named in the suit.  The provision essentially requires that the plaintiff name such necessary parties to the suit in the same manner in which the person or entity’s lien or claim appears on the public records of the county where the suit is brought.  Service of summons upon such necessary parties is sufficient to make the court’s judgment binding as to those parties.  In order for there to be clear title secured at the sheriff’s sale, all parties with a recorded interest in the real estate need to be named in the lawsuit to answer as to their interests.  (Tip:  Also review the commitment to ensure that the legal description of the collateral in the commitment matches the legal description in the mortgage.)  An early priority determination will guide decisions as to settlement or workout negotiations, or whether to proceed with the foreclosure action in the first place.   

Update title work.  Normally, there will be a time gap between the date of the foreclosure commitment and the date of the filing of the complaint.  Conceivably, interests in the subject real estate could arise in this gap period.  For example, a mechanic’s lien could be filed, or the borrower could obtain a loan secured by a junior mortgage on the property.  It is thus critical to update or “date down” the title insurance policy commitment after the complaint is filed.  For more on this issue, see my December 21, 2006 post and House v. First American Title Company, 858 N.E.2d 640 (Ind. Ct. App. 2006), which held that a foreclosure action’s filing date is the “only relevant date used to determine the proper parties to a mortgage foreclosure.”   

Amend complaint.  Again, clear title cannot be obtained upon a sheriff’s sale unless all lien holders are named as defendants in the suit so that their interests can be foreclosed.  Should the updated title work disclose new lien holders, then such parties need to be added to the case by filing an amended complaint.  If no new interests are uncovered, then lenders can be comfortable proceeding with the original defendants named in the suit. 

No bona fide purchaser.  Third-parties who secure an interest in the mortgaged property after the filing of the foreclosure complaint do not need to be named as defendants in the action.  Lenders need not continuously search title during the course of litigation and worry about adding new parties to their foreclosure complaint.  “The only relevant date” is the foreclosure action’s commencement date – the day the lender filed the complaint.  Here’s what I wrote on December 21, 2006, which is particularly relevant in the wake of my October 4, September 25 and May 28, 2009 posts that touch upon Indiana’s bona fide purchaser doctrine:

Any party obtaining an interest in the property after the filing of the action will not be considered a bona fide purchaser without notice and thus will be bound by the foreclosure as if named as a party defendant to the foreclosure action.  (Such parties, upon learning of the suit, should intervene in the action to assert their rights to the property.)

Finish the job.  Arguably, the secured lender’s ultimate goal in its mortgage foreclosure action is to acquire title to (repossess) the real estate collateral free and clear of all liens.  This is why the commitment is important, as is the date down.  Lenders and their counsel should not forget the final step, however.  Once the lender obtains the sheriff’s deed (title) to the property, lenders are advised to purchase a title insurance (owner’s) policy.  Certainly the premium can be expensive, but in most commercial foreclosure cases the benefits of being insured (as free and clear title holder) far outweigh the costs.  For more insight into the wisdom of ordering an owner’s policy, please see my July 20, 2009 post.


In HAMP Case, Seventh Circuit Disposes Of Borrower’s Claims Of Wrongdoing

Lesson. It would seem to be extraordinarily challenging for a borrower to assert a viable claim against a lender arising out of a failed HAMP loan mod.

Case cite. Taylor v. JPMorgan Chase Bank, 958 F.3d 556 (7th Cir. 2020)

Legal issue. Whether Borrower’s claims for promissory estoppel, fraud, and intentional infliction of emotional distress should have been dismissed.

Vital facts. This is my third post about Taylor. See my March 11 and March 18 posts for background on this case, which centered on negotiations surrounding a potential loan mod under HAMP. To the Borrower’s chagrin, Lender did not ultimately grant the loan mod.

Among other things, Borrower pointed to language in the TPP indicating that Lender would modify the loan if Borrower qualified. Borrower also alleged that employees of Lender told him that his documents were "in receipt for processing" and that two other employees told him they had "received" his documents and were "forwarding" them. Basically, Borrower felt that he was misled and that Lender did not process the application in good faith.

Procedural history. The trial court granted Lender’s motion for judgment on the pleadings.

Key rules. “To hold [Lender] accountable under a theory of promissory estoppel, [Borrower] needed to allege that [Lender] made a definite promise to modify his loan.” An expression of intention or desire is not a promise.

A claim for fraud requires a misrepresentation about a past or existing fact. Indiana law does not support a claim based upon the misrepresentation of the speaker’s current intentions.

A claim for intentional infliction of emotional distress requires “extreme and outrageous” conduct.

Holding. Affirmed.

Policy/rationale. As to the promissory estoppel theory, the Court said that the statements at issue did not “convey a definite promise.” Indeed the commitment to modify “came with express strings” that were disclosed to Borrower.

Regarding the fraud claim, the Court found that the alleged misrepresentations “even if credited as entirely true,” could not “be construed as [Lender] committing to a permanent loan modification in the future.”

With respect to the action for intentional infliction of emotional distress, the Court didn’t buy the idea that the alleged conduct was extreme or outrageous. The Court followed the Indiana Court of Appeals decision in Jaffri (see HAMP post below): “‘any mishandling of’ HAMP by a loan servicer, ‘even if intentional,’ did not establish the tort of emotional distress because the HAMP applicant's options ‘would have been even more limited’ if the program were not in place.” That rationale carried the day in Taylor.

Related posts.

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Part of my practice includes representing lenders, as well as their mortgage loan servicers, entangled in consumer finance disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


Seventh Circuit Rejects Borrower’s HAMP Contract Breach Claim: Part 2 of 2

Lesson. Statements by Lender’s employees about the status of a HAMP loan modification, coupled with Lender’s acceptance of reduced payments during the period of negotiations, should not result in a waiver of the countersignature condition precedent.

Case cite. Taylor v. JPMorgan Chase Bank, 958 F.3d 556 (7th Cir. 2020)

Legal issue. Whether lenders waive the HAMP countersignature requirement through statements made by their employees and acceptance of borrowers’ reduced payments.

Vital facts. Today follows-up last week’s post, which I recommend you read for context: Seventh Circuit Rejects Borrower’s HAMP Contract Breach Claim: Part 1 of 2.

Borrower claimed that employees of Lender told him that Borrower’s loan mod document submissions were “in receipt for processing” and that they “did not know of” Lender ever returning fully-executed copies of TPP’s to customers (despite the contract requirement). Also, Lender accepted Borrower’s reduced payments during the application period.

Procedural history. The U.S. District Court for the Northern District of Indiana granted Lender’s motion for judgment on the pleadings and dismissed Borrower’s breach of contract claim.

Key rules. As mentioned last week, the Taylor opinion has an informative introduction to HAMP. If you’re not familiar with the program, please read the case for background.

In Indiana, “a party who benefits from a condition precedent can waive it.” The waiver does not have to be in writing but “can be inferred if the waiving party shows an intent to perform its obligations under the contract regardless of whether the condition has been met.”

Holding. The Seventh Circuit affirmed the district court’s order dismissing the contract claim.

Policy/rationale. The Court found that Borrower failed to allege any action on Lender’s part from which the Court could reasonably infer that Lender intended to proceed with the trial modification without a signature by Lender. First, the alleged statements by Lender’s employees did not promise eligibility. “[Borrower’s] discussions with bank personnel cannot reasonably be viewed as binding [Lender]—with no accompanying writing of any kind—to each of the terms and conditions otherwise part of the TPP or, by extension, any agreement for a permanent mortgage modification.”

Second, as to the interim payments, the Court reasoned:

By its terms, the TPP proposal made plain that [Borrower] would need to keep paying on his mortgage. More specifically, the TPP stated that [Lender] would accept the modified and reduced payments whether or not [he] ultimately qualified for permanent loan modification. Indeed, the Frequently Asked Questions document appended to the TPP application explained that if the bank found him ineligible for HAMP, [Borrower's] first trial period payment would "be applied to [his] existing loan in accordance with the terms of [his] loan documents." So [Lender's] decision to accept [Borrower's] trial period payments was not inconsistent with its intent to rely on the countersignature condition precedent and cannot establish waiver.

Because there was no agreement for a loan modification, there was no claim for breach in Taylor. But, remain mindful that the Court dismissed the case based upon the allegations in Borrower’s complaint. It’s conceivable that a different set of facts could have caused a different result. Having said that, the language in these HAMP and TPP documents is awfully clear in terms of what needs to happen before a HAMP loan mod will occur.

In my next post, I'll discuss Borrower's promissory estoppel theory.  

Related post.  Lender’s Acceptance Of Partial Payments Did Not Waive Default

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My practice includes representing lenders, as well as their mortgage loan servicers, in connection with consumer finance litigation. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.