Trinity 83 Development LLC v. Colfin Midwest Funding LLC

In 2006 Trinity borrowed about $2 million from a bank, secured by a mortgage. The bank sold the note and mortgage to ColFin, which relied on Midland to collect the payments. In 2013, Midland recorded a “satisfaction,” stating that the loan had been paid and the mortgage released. The loan was actually still outstanding. Trinity continued paying. In 2015, ColFin realized Midland’s mistake and recorded a document canceling the satisfaction. Trinity stopped paying. ColFin filed a state court foreclosure action. Trinity commenced a bankruptcy proceeding, which stayed the foreclosure, then filed an adversary action against ColFin, contending that the release extinguished the debt and security interest. The bankruptcy court, district court, and Seventh Circuit rejected that argument and an argument that the matter was moot because the property had been sold under the bankruptcy court’s auspices. There is a live controversy about who should get the sale proceeds; 11 U.S.C. 363(m), which protects the validity of the sale, does not address the disposition of the proceeds. Under Illinois law, Trinity did not obtain rights from the 2013 filing, which was unilateral and without consideration; no one (including Trinity) detrimentally relied on the release, so ColFin could rescind it. ColFin caught the problem before Trinity filed its bankruptcy petition, so a hypothetical lien perfected on the date of the bankruptcy would have been junior to ColFin’s interest. View "Trinity 83 Development LLC v. Colfin Midwest Funding LLC" on Justia Law