Justia Banking Opinion Summaries

This dispute stemmed from a house that Debra Stevenson and her son Eugene Smith both own. After Stevenson refinanced her mortgage twice and then filed for bankruptcy, HSBC filed suit in Bankruptcy Court seeking equitable subrogation, which permits courts to declare that the owner of a mortgage (HSBC) has the same rights as an earlier-in-time owner of another mortgage (Wells Fargo). Only Stevenson signed the paperwork for the second refinancing with HSBC and Smith refused to sign because he thought the interest rate was too high. HSBC went ahead with the mortgage in full without Smith's signature. The court affirmed the Bankruptcy Court's conclusion that HSBC is entitled to equitable subrogation and rejected Stevenson and Smith’s claims that the mortgage is invalid under D.C. and federal lending laws. The court affirmed the judgment. View "In Re: Debra M. Stevenson" on Justia Law

Lake Street was obligated under a $1.5 million loan made by American Chartered Bank, secured by a mortgage. Unable to repay, Lake Street negotiated several forbearance-to-foreclose agreements. One required Lake Street to give the deed to the mortgaged property (its only significant asset) to an escrow agent who, in the event of default, would give the deed to Scherston, the bank’s affiliate. The bank’s charter forbids it to own real estate. Lake Street defaulted, Scherston recorded the deed. Lake Street, a debtor in possession in a Chapter 11 bankruptcy, brought an adversary proceeding against the bank and Scherston. The district court granted the bank summary judgment. The Seventh Circuit affirmed, noting that Lake Street focused on the deed rather than on the mortgage, claiming that the deeded property is worth more than the mortgage. It was Lake Street’s decision to give the deed to the bank; it did so to induce the bank’s forbearance, by giving additional security. There is no contention that the bank employed unlawful or unethical practices to the transfer, or that any unsecured creditors were harmed by the transaction—there is only one unsecured creditor and his claim is worth less than a thousand dollars. View "1756 W. Lake St. LLC v. Am. Chartered Bank" on Justia Law

In this bankruptcy case, Bank of America obtained a junior foreclosure judgment and received the Debtor’s equity of redemption for a senior mortgage. Bank of America did not sell this interest within the specified time period, nor did it appear in the senior foreclosure to assert its interest in redeeming the senior mortgage within the redemption period. Peoples United Bank, the holder of the senior mortgage, then filed a foreclosure complaint. Bank of America and the Debtor failed to appear in the action and were defaulted. Thereafter, Peoples United was granted a foreclosure judgment. Bank of America was not named as a distributee in the resulting judgment. Bank of America subsequently purchased Peoples United’s interest in the Debtor’s senior mortgage debt, and Peoples United postponed the foreclosure sale. Bank of America successfully moved to substitute itself in place of Peoples United as the plaintiff in the senior foreclosure. The Trustee then moved to sell the premises free of liens, interests, and encumbrances. Bank of America objected. The bankruptcy court entered judgment in favor of Bank of America. The federal district court disagreed with the bankruptcy court and certified an unsettled state law question to the Maine Supreme Court. The Court answered that Bank of America, who failed to appear in the senior foreclosure and was not named as a distributee in the resulting judgment, did not have any rights to the excess proceeds from that foreclosure sale. View "Bankruptcy Estate of Everest v. Bank of Am., N.A." on Justia Law

The Borrower defaulted on a nonrecourse Commercial Mortgage-Backed Securities (CMBS) loan secured by property located in Detroit. CMBS loans are packaged as a trust to attract investors; in return for nonrecourse liability, CMBA borrowers promise to refrain from certain financial behavior likely to increase the risk of default and bankruptcy; the loan at issue included a solvency clause. Michigan’s 2012 Nonrecourse Mortgage Loan Act applies retroactively to render solvency covenants in nonrecourse loans unenforceable, declaring them “an unfair and deceptive business practice . . . against public policy [that] should not be enforced.” The lender foreclosed. Purchaser bought the property at auction with a winning bid of $756,000, and, standing in the lender’s shoes and citing the solvency clause, sued Borrower and its guarantor to collect a $6 million deficiency. The district court granted summary judgment in favor of Borrower. The Sixth Circuit affirmed, agreeing that that the NMLA: rendered the solvency covenant in Borrower’s CMBS loan unenforceable; violated neither the Contract nor Due Process Clauses of the United States and Michigan Constitutions; and comported with Michigan’s constitutional provision mandating the separation of governmental powers. View "Borman, LLC v. 18718 Borman, LLC" on Justia Law

In 2004, Paint Rock Turn, LLC purchased a sod farm and related farm equipment. To partially finance the purchase, Paint Rock borrowed $1,706,250 from First Jackson Bank. The loan was secured by a mortgage on the sod farm and a security interest in the equipment used on the farm. By February 2009, reflecting in part a drop in demand for sod caused by the collapsing market for new homes, Paint Rock had defaulted on the loan. In early 2009, Paint Rock filed a Chapter 11 bankruptcy petition. The filing of the petition operated as an automatic stay and precluded First Jackson from foreclosing on the sod farm or retaking the equipment. The bankruptcy petition was dismissed later that year, and a few months later, First Jackson moved forward with its intent to foreclose by publishing the first of three notices of a foreclosure sale on the Paint Rock property. On the morning of the scheduled sale, Paint Rock filed a second bankruptcy petition, which stayed the sale. This second petition was dismissed a month later for failure to file the proper schedules and statements. First Jackson published another notice that the foreclosure sale was rescheduled for December 30, 2009. December 26, Paint Rock filed a third bankruptcy petition. Four days later, the bankruptcy court lifted the automatic stay, expressly finding that Paint Rock misused the bankruptcy process to "hinder and delay First Jackson's efforts to foreclose its mortgage and security agreement." First Jackson was the high bidder at the sale, purchased the property, and sent Paint Rock a letter demanding possession of the sod farm. In early 2010, First Jackson filed an ejectment action. The same day, Paint Rock demanded access to the farm to recover "emblements in the form of sod which is being grown on the real property recently foreclosed upon ...." Paint Rock also requested the return of its equipment. First Jackson denied Paint Rock's request. Paint Rock, relying on a section of the Alabama Code that permits a tenant at will to harvest its crop, counterclaimed for damages for harm suffered as the result of being unable to harvest the sod. Paint Rock also sought damages for conversion of "plats of sod" contained on the sod farm. First Jackson sold the sod farm to Mrs. Goodson, subject to any claim Paint Rock may have to the emblements growing on the property. Paint Rock filed a joint third-party complaint against First Jackson and Mr. and Mrs. Goodson, alleging conversion and detinue, as well as the emblements claim. After the trial court denied motions for a summary judgment filed by First Jackson and the Goodsons, the case proceeded to trial. At the close of Paint Rock and Jones's case, the trial court granted a motion for a JML filed by First Jackson and the Goodsons on Paint Rock's counterclaim for emblements on the ground that Paint Rock was not an at-will tenant. After Paint Rock withdrew its detinue claims and the trial court granted a JML on the wantonness claims, leaving only the conversion and negligence claims. The jury awarded Paint Rock damages against First Jackson for conversion of a sod cutter and cut sod that had been loaded on a tractor-trailer when First Jackson took possession of the property. The jury also awarded Paint Rock damages against the Goodsons for conversion of business property and equipment. Paint Rock appealed the JML in favor of the defendants on the emblements claim; First Jackson cross-appealed the judgment awarding Paint Rock damages for conversion of the cut sod. The Supreme Court affirmed with regard to Paint Rock's emblements claim, but reversed on the conversion of the cut sod claim. View "Paint Rock Turf, LLC v. First Jackson Bank et al. " on Justia Law

Duckworth borrowed $1,100,000 from the State Bank of Toulon. The security agreement said that Duckworth granted the Bank a security interest in crops and farm equipment. The promissory note referred to the security agreement. The security agreement said that it secured a note “dated December 13, 2008.” There was no promissory note dated December 13. Both the December 15 promissory note and the security agreement were prepared by the Bank’s loan officer. Duckworth filed a petition for Chapter 7 bankruptcy. The Bank filed adversary proceedings. The bankruptcy court held that the mistaken date in the security interest did not defeat the security interest and that the security agreement of December 13 secured the note of December 15. The bankruptcy court ruled in favor of the Bank. District courts affirmed. The Seventh Circuit reversed. The Bank was not entitled to use parol evidence against the bankruptcy trustee to correct the mistaken description of the debt to be secured, so the security agreement did not give the lender a security interest in the specified collateral that could be enforced against the trustee. View "Covey v. State Bank of Toulon" on Justia Law

Respondent obtained a home mortgage loan from Lender. Lender obtained a mortgage lender bond from Petitioner and later filed for bankruptcy under Chapter 11 of the United States Code. Respondent subsequently filed a complaint naming Petitioner as defendant solely as surety for Lender. At the time this suit was filed, Lender was bankrupt and judgment proof. Petitioner filed a motion to dismiss, arguing that the bond conditions had not been satisfied because Respondent had not obtained a judgment against the bond principal, Lender. The circuit court certified a question of law to the Supreme Court, which answered that the bond at issue was a judgment bond and that the unambiguous bond language requires an aggrieved party to obtain a judgment against the principal before maintaining an action against the surety of the bond. View "Fidelity & Deposit Co. of Md. v. James" on Justia Law

Between 2009 and 2012, Sunshine and Purdy, a Kentucky dairy farmer, entered into “Dairy Cow Leases.” Purdy received 435 cows to milk, and, in exchange, paid monthly rent to Sunshine. Purdy’s business faltered in 2012, and he sought bankruptcy protection. Sunshine moved to retake possession of the cattle. Citizens First Bank had a perfected purchase money security interest in Purdy’s equipment, farm products, and livestock, and claimed that its perfected security interest gave Citizens First priority over Sunshine with regard to the cattle. Citizens argued that the “leases” were disguised security agreements, that Purdy actually owned the cattle, and that the subsequently-acquired livestock were covered by the bank’s security interest. The bankruptcy court ruled in favor of Citizens, finding that the leases were per se security agreements. The Sixth Circuit reversed, noting that the terms of the agreements expressly preserve Sunshine’s ability to recover the cattle. Whether the parties strictly adhered to the terms of these leases is irrelevant to determining whether the agreements were true leases or disguised security agreements. Neither the bankruptcy court nor the parties sufficiently explained the legal import of Purdy’s culling practices or put forward any evidence that the parties altered the terms of the leases making them anything but leases.View "In re: Purdy" on Justia Law

Irwin, a holding company, entered bankruptcy when its two subsidiary banks failed. The FDIC closed both in 2009. Their asset portfolios were dominated by mortgage loans, whose value plunged in 2007-2008. Irwin’s trustee in bankruptcy sued its directors and officers (Managers). The FDIC intervened because whatever Irwin collects will be unavailable to satisfy FDIC claims. Under 12 U.S.C. 821(d)(2)(A)(i), when taking over a bank, the FDIC acquires “all rights, titles, powers, and privileges of the insured depository institution, and of any stockholder, member, accountholder, depositor, officer, or director of such institution with respect to the institution and the assets of the institution.” The claims assert that the Managers violated fiduciary duties to Irwin by not implementing additional financial controls; allowing the banks to specialize in kinds of mortgages that were especially hard-hit; allowing Irwin to pay dividends (or repurchase stock) so that it was short of capital; “capitulating” to the FDIC and so that Irwin contributed millions of dollars in new capital to the banks. The district judge concluded that all claims belong to the FDIC and dismissed. The Seventh Circuit affirmed in part, but vacated with respect to claims that concern only what the Managers did at Irwin: supporting the financial distributions, informing Irwin about the banks’ loan portfolios, and causing Irwin to invest more money in the banks after they had failed. View "Levin v. Miller" on Justia Law

This appeal involves a dispute between the Trustee, appointed to protect public customers and creditors in the liquidation of LBI, and purchasers of LBI's assets over the entitlement to two sets of LBI assets: (1) the Margin Assets and (2) the Clearance Box Assets (CBAs). The district court held that Barclays was entitled to both the Margin Assets and the CBAs, and was conditionally entitled to the Rule 15c-3 Assets. The Trustee appealed from the Margin Assets and CBA rulings. Barclays cross-appealed from the Rule 15c3-3 Assets ruling but the settlement had disposed of that issue and cross-appeal. The court concluded that the transfer of the Margin Assets to Barclays was contemplated in the Asset Purchase Agreement and confirmed in the Clarification Letter. The court agreed with the district court that extrinsic evidence showed an intent to transfer the CBAs to Barclays. Accordingly, the court affirmed the judgment of the district court.View "In Re: Lehman Brothers Holdings Inc." on Justia Law