Banking and Commercial Transactions, Bankruptcy Law, Blog
Indiana’s Dislike of Cognovit Notes
Indiana doesn’t look kindly upon cognovit notes, even though its neighbor, Ohio, routinely uses them. In fact, Indiana’s dislike of cognovit notes is demonstrated by the existence of an Indiana statute providing it’s a Class B misdemeanor to procure, retain possession of, or attempt to recover upon a promissory note with a cognovit provision in it. (see Indiana Code §34-54-4-1.) So, cognovit provisions aren’t just unenforceable in Indiana, they’re illegal. How can two states with a common border disagree so vastly about the legal attributes of the cognovit note? To answer this, it’s important to understand what a cognovit note is. A cognovit provision is a legal device by which a debtor gives advance consent to a noteholder obtaining a judgment against him or her without prior notice or hearing. A cognovit is essentially a confession of judgment included in a note. Should there be a default, the holder can obtain judgment without giving the debtor notice or a hearing. This allows the noteholder to obtain a judgment without the delays inherent in having to serve notice on the debtor or dealing with any defenses the debtor might throw up. This makes the process much smoother and quicker for the noteholder. But, what about the debtor? Doesn’t this fly in the face of constitutional due process? Indiana thinks so, although several states, not just Ohio, think cognovits are okay. The states who agree with Ohio and consider cognovit notes legal are: Delaware, Virginia, Pennsylvania, and Maryland. Why would any borrower agree to this? Simply because a…
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Appearances, Banking and Commercial Transactions, Blog
Madalyn Kinsey attended the Annual ACMA meeting as State Chair
Formed in 1974, the American College of Mortgage Attorneys (ACMA) is comprised of more than 400 lawyers in North America who are experts in mortgage law. Madalyn S. Kinsey focuses her practice in the representation of financial institutions in commercial lending transactions, real estate financings, work-outs, floor plan financings, aircraft financing, and bank regulatory matters. She represents real estate developers and investors in the construction, acquisition, management, and leasing of commercial real estate projects. She represents business entities in complex financings and joint ventures. https://www.acmaatty.org/page/AboutACMA
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Banking and Commercial Transactions, Blog
Mortgaged Property Sold at Tax Sale – What’s a Lender to do?
A lender’s priority in mortgaged commercial property can evaporate when the owner fails to pay property taxes. While a lender can preserve its mortgage interest in the property by insuring payment of the property taxes prior to a tax deed being given to a tax sale purchaser, it becomes progressively more expensive to preserve the lender’s interest. This article will go through the tax sale procedure in Indiana, review the notices that must be given to the property owner and the mortgage holder, and detail the timing and payment amounts that may be necessary to preserve the lender’s priority. The Tax Sale Statutes – Ind. Code 6-1.1-24-1 et. seq. The Indiana laws detailing how, when and where tax sales are held are contained in the Indiana Code starting at Ind. Code 6-1.1-21-1. That section states that the Treasurer of each county has a duty to certify to the county Auditor on or before June 30th of any given year any property taxes that are “delinquent”. Delinquent is defined in Ind. Code 6-1.1-37-10 as taxes not paid when due (normally May 10th (a “spring installment”) and November 10th (a “fall installment”)). Arguably that could mean that a property could be sold at tax sale for a single delinquent payment – even including the spring installment of the year that a tax sale is held. In practice however, most Indiana tax sales only seek to collect delinquent payments from previous years. A survey of Marion, Boone, Hamilton, and Vanderburgh counties, as well as most of the other counties…
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Madalyn Kinsey Attending 2017 Annual Meeting of the American College of Mortgage Attorneys in September
Madalyn S. Kinsey is attending the 2017 Annual Meeting of the American College of Mortgage Attorneys (“ACMA”) at the Omni Grove Park Inn & Spa in Asheville, North Carolina, September 14-16. Madalyn is ACMA’s Indiana State Chair and one of only three ACMA Fellows practicing in the State of Indiana.
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Banking and Commercial Transactions, Blog
Accuracy is key when it comes to selling real estate
Selling real estate is the largest financial transaction most people undertake. In order to maximize their return, some sellers misrepresent the condition of their property—often to their own peril. The importance of being accurate when advertising your property for sale was recently addressed in Cheng Song v. Thomas and Theresa Iatarola, 2017 WL 1908400, _____ N.E.3d _____ (Ind. Ct. App. 2017), reh’g denied (July 06, 2017). In Song, the Iatarolas advertised 10 acres for sale and represented that it was zoned I-2 Industrial suitable for warehousing and other light industrial uses. The Sellers knew the property was zoned Agricultural because Ms. Iatarola refused to sign the Listing Agreement until the zoning error was corrected. Despite Ms. Iatarola’s refusal, the property was listed for sale as I-2 industrial land. Cheng Song approached the Iatarolas about purchasing the property and disclosed that he intended to use the property for an imported tool warehouse. The Iatarolas did not inform Song that the property was zoned agricultural—not industrial—and they subsequently entered into a purchase agreement. At the final inspection, Mr. Iatarola informed Song that the property was actually zoned agricultural. Song subsequently terminated the purchase agreement and requested the return of his earnest money. When the Iatarolas refused, Song sued them for fraud and won. Song was victorious despite the Purchase Agreement not containing an express representation regarding the property’s zoning designation. When Selling real estate, it’s critical that the listing, the offering memorandum (if any), and the Real Estate Sales Disclosure Form are each accurate. In addition, the Seller…
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Banking and Commercial Transactions, Blog
The mechanic’s lien process
We often counsel consumer and commercial clients on property rights. Often, those discussions begin with a primer on property law. This blog entry breaks down mechanic’s liens. In prior entries, we first discussed types of ownership estates as well as the method of ownership and then discussed the forms of deeds, mortgage rights and responsibilities. In subsequent weeks we will post entries on construction projects and surety bonds. If you find these articles helpful, or if you have additional questions, please don’t hesitate to contact us. Real Estate As many contractors and subcontractors know, despite high quality work, sometimes the property owner fails to pay for the work or materials. Contractors and sub-contractors may obtain a lien on the property where they provided labor or materials via a mechanic’s lien. Indiana Code § 32-28-3 et seq. sets forth the procedure for obtaining payment from a recalcitrant client. For the uninitiated, the mechanic’s lien statute generally provides that when property is improved through the application of labor or services, then the party providing such labor or services may place a lien on the property to compel payment. (Ind. Code § 32-28-3-1). Mechanic’s liens may be obtained on real estate for the improvement of the property. For the alteration or repair of an owner-occupied single or double family dwelling, the putative lienholder must send written notice of the delivery of materials or work to home owner within 30 days of the first delivery or work performed. This pre-lien notice notifies the homeowner of work being done that could…
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Ownership Estates and Methods of Ownership
We often counsel consumer and commercial clients on property rights. Often, those discussions begin with a primer on property law. This blog entry breaks down the types of ownership estates as well as the method of ownership. In subsequent weeks we will post entries on forms of deeds, mortgage rights and responsibilities, mechanic’s liens, construction projects and surety bonds. If you find these articles helpful, or if you have additional questions, please don’t hesitate to contact us. A. Ownership estates of real property 1. Freehold Estates a. Fee Simple Fee simple estate is the most common type of ownership and grants a complete interest in land for use. Indiana recognizes five subsets of fee simple estates: i. Fee Simple Absolute: An estate in fee simple absolute is the owner’s to do with as wished and cannot be revoked. However, the land is subject to seizure due to non-ownership issues, such as taxes, settlement of a judgment, and the like. ii. Fee Simple Determinable: An ownership interest that reverts to the grantor upon the happening of a stated event. A fee simple determinable is also known as a “determinable fee.” Commonly created with deeds that include words of limitation like “as long as,” “so long as,” “while,” “during,” or “until.” Once the stated event occurs, or ceases to occur, the interest automatically reverts to the grantor. As an example, a deed that conveys property to a church so long as the property is used for church purposes, is a fee simple determinable. If the property ceases to be…
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FEMA Plans to Suspend Flood Insurance Policy Renewals in Indianapolis
With FEMA’s announcement that it plans to suspend flood insurance policy renewals and new applications in Indianapolis, it’s important to discuss why flood zones* matter and how to protect yourself when buying real estate. An ALTA/ACSM Survey should disclose whether the property is located in a flood zone and its zone classification. In addition, FEMA maintains the Flood Map Service Center that can be used to determine if a property is in a flood zone and its zone classification. If an improvement on the property is located in a flood zone, any federally regulated lender will require you to purchase flood insurance before you get a mortgage. Why did Congress enact this requirement? If your home is located in flood zone A or AE (a typical category for Indiana homes located in a flood zone), your property has a 1% chance of flooding every year. Over the course of thirty years (a typical residential mortgage), the chance of a flood event is 30%. Over the long-run, flood insurance in these zones makes economic sense to protect the collateral. Even if the property is located in a flood zone, don’t expect to automatically rely on federally subsidized flood insurance policies. Barring an injunction or a settlement, FEMA will suspend flood insurance policy approvals in Marion County until local government fixes the errors in its revised Flood Protection Ordinance. In addition, other areas of the country have been redlined entirely from obtaining federal flood insurance (e.g. structures built in area that has been previously designated a Coastal Barrier…
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Make sure you’re protected against the acts of Tenant’s Guests
If you’re experienced in renting residential real estate, you likely have a litany of lease clauses that govern your tenant’s behavior in the premises and common areas. However, consider the following scenario: A tenant invites his friends to a party and the party gets a little rowdy. One of the tenant’s guests damages the premises. How are you protected under your lease? Invitees of a tenant are less likely to respect your property because they don’t have a contractual relationship with you. Boilerplate leases are often silent regarding the tenant’s obligations to you for the acts of third parties. A good lease will thoroughly address this situation. Damage to the premises by the tenant or his guests/invitees should be an event of default under the lease. Furthermore, the tenant should have an obligation to indemnify you for the acts of tenant’s guests. Like any well-run business, legal considerations shouldn’t be a landlord’s only concern. Tenants in your building expect a peaceful environmental. Noisy buildings and absentee landlords lead to lower lease renewal rates. Make sure your property manager maintains an open line of communication that promptly addresses tenants’ concerns and that your lease contains enforceable noise covenants. Not only does it make happier tenants, it decreases your risk of legal liability. For example, Indiana law provides that a landlord can be liable to a tenant if the landlord assumes a duty to protect the tenant and then negligently performs that duty. See, generally, Ctr. Mgmt. Corp. v. Bowman, 526 N.E.2d 228 (Ind. Ct. App. 1988); Nalls…
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Landlords with blanket criminal bans now violate the Fair Housing Act
On April 4, the Federal Department of Housing and Urban Development issued a guidance detailing the agency’s interpretation of how the fair housing law applies to Landlord policies that exclude people with criminal records, a group that is not explicitly protected by the Act but falls under it in certain circumstances. In this incredible pronouncement, HUD recognizes that “African Americans and Hispanics are arrested, convicted and incarcerated at rates disproportionate to their share of the general population.” Therefore, according to HUD, blanket bans on criminals violate the Fair Housing Act because criminals are more likely to be minorities (known in legal parlance as disparate impact liability). The landlord is liable for violating the Fair Housing Act even if the landlord has no discriminatory intent (i.e. applies the policy evenly to all applicants). So, the solution is not to run background checks, right? No so fast. Compounding the problem is the potential for premises liability for foreseeable criminal acts. See, generally, Ctr. Mgmt. Corp. v. Bowman, 526 N.E.2d 228 (Ind. Ct. App. 1988); Nalls v. Blank, 571 N.E.2d 1321, 1323 (Ind. Ct. App. 1991). Under Indiana law, a landlord can be liable to a tenant if the landlord assumes a duty to protect the tenant and then negligently performs those acts. The dilemma landlords now face is very real. If a landlord has a blanket ban on convicted felons, the landlord is in violation of the Fair Housing Act. If the Landlord rents to a convicted felon and that felon commits a crime against a tenant, the…
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