The lessee operated the truck for Gangloff Industries.  At some point, the truck broke down, and Gangloff paid for the repairs.  Before the lessee was able to repay the corporation for the repairs, the lessee died.  Gangloff then took possession of the truck. 

The Court found that because the “lease agreement” between the parties looked more like a sale than a lease, the “lender” had a security interest in the truck.  Because the corporation was owed money by the lessee for the repairs that it had paid for, the corporation had a possessory lien.  The Court found that the corporation’s possessory lien had priority over the lender’s security interest.

This case is an example of how a properly perfected first position can be weakened by a subsequent possessory lien.  If you have questions about lien priority, please call one of the firm’s Creditors’ Rights attorneys. 

Author: Catherine A. Nestrick (bio)
Phone: 812.452.3561
email: cnestrick@bamberger.com

Author: Laura A. Scott (bio)
Phone: 812.452.3557
email: lscott@bamberger.com

Unlike a joint or syndicated loan, where each lender makes a loan directly to the borrower and each lender is in contractual privity with the borrower, the participant’s only contractual relationship is with the lead lender.  As a result, a participant is not a creditor of the borrower or entitled to assert claims against it.  Typically, only the lead lender  has the right to collect and enforce payment against the borrower, hold and enforce security interests in the borrower’s assets, grant forbearances, or otherwise administer the borrower’s loan. 

The participant can only look to the lead lender for repayment of its participation and usually only upon the lead lender’s receipt of payment from the borrower.  The participant and lender typically agree to share those payments as made and in proportion to their respective interest in the loan. 

An advantage for the participant is that participations can allow the participant to diversify and expand its loan portfolio without having the necessary administration to find and service the loans.  However, the disadvantage to the participant is that they are still subject to the risks associated with bad loans and often the participant is at the mercy of the lead lender when it comes to the management of such risks. We can help both participants and lead banks assess the pros and cons of entering into these types of lending arrangements.

Author: Laura A. Scott (bio)
Phone: 812.452.3557
email: lscott@bamberger.com

Although procedures differ somewhat among the states, collecting the judgment in Indiana begins with filing a complaint in proceedings supplemental.  In connection with the complaint, the court will order the debtor to appear to testify as to the location and extent of his assets from which he may be able to pay the judgment.  When the debtor appears, he is placed under oath, and the creditor’s counsel is entitled to ask a wide range of questions with regard to income, assets, debts, liabilities, and other subjects which may bear on his ability to pay.  If the debtor discloses bank accounts, the creditor may submit interrogatories and a court order compelling the financial institution to post a hold on the bank account, pending further order of the court.  Upon a subsequent hearing, the judge may order some or all of the account to be paid to the creditor to satisfy its judgment.

If the creditor learns that the debtor is employed, the creditor may take steps to garnish his wages.  Under current Indiana law, a creditor cannot garnish the first $217.50 per week of the debtor’s net income.  For any net income greater than $217.50 per week, the bank can garnish up to 25% of the income.

Additionally, in Indiana, once a creditor obtains a judgment, the judgment automatically becomes a lien upon any real estate property owned by the debtor in the county in which the judgment was obtained.  For example if the debtor owns real estate in Vanderburgh County, a Vanderburgh County judgment will automatically become a lien upon that property once the judgment is obtained.  If, however, the debtor owns property in another Indiana county, then the judgment will need to be docketed in that county so that it will become a lien upon the real property.  Some  other states require the recording of the lis pendens notice before a judgment becomes a lien upon real property.  Once the judgment becomes a lien, creditors can seek to have the property sold at sheriff’s sale or simply wait until the debtor sells the property on his own.  The creditor’s lien will appear on the title work performed in connection the transaction, and most buyers will insist that the lien be satisfied before the sale is closed.

Author: Laura A. Scott (bio)
Phone: 812.452.3557
email: lscott@bamberger.com

Author: Laura A. Scott (bio)
Phone: 812.452.3557
email: lscott@bamberger.com

This change in the registration system is made to increase the accuracy of the FAA’s database which is used by financial institutions, among others, in conjunction with financing transactions.  This change in the law will require lenders and leasing companies to more closely track the registration status of aircraft.  At a minimum, it would be advisable for financing documents to add a covenant requiring borrowers to show proof of compliance with these registration requirements.  In addition, lenders will need to make sure that they have tracking mechanisms in place in order to confirm compliance.  According to the FAA, this rule will not affect security interests that lenders register with the FAA.  Those registrations of security interests will continue in perpetuity regardless of the status of the aircraft’s own registration.  However, as with any new rule, its ultimate effects remain to be seen.

Since the effect of failure to comply with these re-registration or renewal requirements will result in an aircraft being grounded, lenders will want to make sure that these new rules are complied with since non-compliance may have a detrimental effect on collateral values.  If you would like more information, or if you have questions regarding the new rules, please contact Laura Scott.

Author: Laura A. Scott (bio)
Phone: 812.452.3557
email: lscott@bamberger.com

The difficulty with this requirement is that the creditor has the burden of proving that it complied with this requirement in the event that a question arises.  There is no requirement that the financing statement delivered be a file-marked copy of the financing statement.  To comply with this requirement, the creditor should include a document to be executed by the debtor at closing acknowledging receipt of a copy of the financing statement.  The Indiana statute is silent on whether the debtor can waive its right to receive a copy of the financing statement and security agreement. 

In the event that such a waiver is enforceable, financial institutions should consider including such a waiver provision in its security agreements used in Indiana so that a financial institution can attempt to assert the waiver as a defense in the event that the signed acknowledgement is lost or inadvertently not obtained. However, financial institutions should not rely on any waiver language, and should continue to obtain signed acknowledgements from the debtors.

Author: Laura A. Scott (bio)
Phone: 812.452.3557
email: lscott@bamberger.com

1)      Pre-suit Foreclosure Notice.  Under the new law, the 30-day pre-suit foreclosure notice (which was previously required to be sent in all foreclosure cases), is now only required in cases involving the debtor’s primary residence.  The new law serves to clarify an ambiguity under prior law, which should help to reduce costs and delays in commercial foreclosure actions while still protecting consumers at risk of losing their homes.

2)      New 180-Day Period to File Praecipe.  Previously, a judgment holder in a foreclosure action was essentially left to praecipe a sheriff’s sale at-will.  Now, if the judgment holder fails to file a praecipe initiating a sheriff’s sale within 180 days after:

1. the judgment and decree of foreclosure is entered or
2. 3 months from the filing of the complaint,

whichever is later, and such sale is not otherwise prohibited by law, subject to a voluntary statewide foreclosure moratorium, or subject to a written agreement between the owner of the property and the judgment holder, an enforcement authority that has issued an abatement order may proceed to set the property for sale. 

For purposes of this new provision, an enforcement authority is defined as the executive department authorized by ordinance to administer the Unsafe Building Law or, in a consolidated city, the department of metropolitan development.  It should be noted, however, that if no abatement order has been issued, or one of the other exceptions apply, the traditional rule regarding setting a property for sheriff’s sale remains unchanged. 

3)      New 120-Day Requirement to Sell Property.  In addition to the new praecipe time limits, all sheriff’s sales in Indiana must now be conducted within 120 days after the judgment and decree of foreclosure is certified to the sheriff under seal of court.  While this new requirement should not cause many problems in traditional sheriff-conducted sales, it might present an issue with foreclosure sales conducted by an auctioneer if the new time limits are not kept in mind.

4)      Payment of Property Taxes Prior to Sale.   Finally, all outstanding property taxes must now be paid prior to a sheriff’s sale.  This requirement includes redeeming all property taxes which were sold in a prior tax sale and/or payment of all delinquent taxes and penalties.  Although most Indiana sheriffs already required the taxes to be brought current prior to a sale, it has now been codified statewide.

If you have any questions about the changes to Indiana’s foreclosure law, please contact a Bamberger attorney for more information.

Author: Daniel R. Robinson (bio)
Phone: 812.452.3564
Email: drobinson@bamberger.com

Well over 100 financial institutions failed in 2009, and so far this year, over 40 financial institutions have failed.  Failed bank assets are frequently purchased by the Federal Deposit Insurance Corporation (“FDIC”) and other banks.  Congress has passed powerful legislation in order to protect the FDIC and to incent other banks to purchase these assets.

This federal law prohibits “secret agreements” that could diminish the value of the failed bank’s assets.  By “secret agreement,” Congress means agreements not in writing.  The federal law requires that agreements modifying a loan or guaranty made prior to the FDIC’s acquisition of the assets must be in writing.  The law clearly was enacted to protect the FDIC, but many courts have extended the doctrine to protect banks which purchase these assets from the FDIC or the failed institution.

The Seventh Circuit, the court of appeals for federal courts in Indiana, Illinois and Wisconsin, has found that “secret agreements” cannot be used as a defense or claim against a bank acquiring assets from the FDIC.  Additionally, the Indiana Court of Appeals has adopted the same doctrine for defenses and claims brought in state court.

This legislation can provide important protection to financial institutions purchasing assets from failed banks.  If you have questions about this law, please contact one of the firm’s banking and creditors’ rights attorneys.

Author: Catherine A. Nestrick (bio)
Phone: 812.452.3561
email: cnestrick@bamberger.com

The law in Indiana allows a guarantor of a debt to avoid personal liability when sued by a creditor by proving the “impairment of collateral’ defense.  Therefore, a guarantor’s liability may be discharged if the creditor’s conduct unjustifiably decreased the value of the collateral securing the debt. 

Generally, the discharge will only be to the extent the value of the collateral is impaired.  And, such impairment is to be measured at the time of the default with the burden of proof being on the guarantor to establish the amount of the loss.  The lesson to be learned is that the guaranties on a loan may not be of any value if a mistake is made by the secured creditor in creating the security interest in the collateral.

Author: Lori Young (bio)
Phone: 812.452.3560
Email: lyoung@bamberger.com