By Dustin DeNeal, Faegre Baker Daniels LLP
Indiana commercial and bankruptcy practitioners should be aware of several recent opinions, issued by both the Seventh Circuit Court of Appeals and Indiana courts, that could affect the foreclosure process and strategy in Indiana, specifically the post-foreclosure judgment appeal process.
For example, the Seventh Circuit Court of Appeals addressed stays of foreclosure judgments pending appeal in light of recent amendments to Fed. R. Civ. P. 62, holding in an unpublished majority opinion that, “stays pending appeal should be the norm in mortgage foreclosure appeals”, at least in states where the foreclosure judgment is not final and appealable until the homeowner faces imminent eviction. Deutsche Bank National Trust Company v. Cornish, 2019 WL 462484 (7th Cir. February 6, 2019). While unpublished, the decision provides helpful insight on how the Seventh Circuit views new Fed. R. Civ. P. 62 and stays pending appeal in foreclosure cases.
The Seventh Circuit also recently clarified the reach of 11 U.S.C. § 363(m) when dealing with the sale of mortgaged property. See Trinity 83 Development, LLC v. ColFin Midwest Funding, LLC, 2019 WL 98790266 (7th Cir. March 1, 2019). In bankruptcy, the debtor challenged the validity of the mortgage in an adversary proceeding. Bankruptcy Judge Deborah Thorne of Chicago didn’t bite. She held that the mortgagee retained its lien rights. The debtor appealed but lost in district court. Writing for a three-judge panel, Circuit Judge Frank Easterbrook issued two holdings: (1) “Section 363(m) does not make any dispute moot,” and (2) Section 363(m) does not “prevent a bankruptcy court from deciding what shall be done with the proceeds of a sale or lease.” Id. In so holding, the Seventh Circuit overturned two precedents: In re River West Plaza-Chicago, LLC, 664 F.3d 668 (7th Cir. 2011) (Section 363(m) not only precludes upsetting a sale but also prevents the court from redirecting sale proceeds to the debtor’s estate) and In re Sax, 796 F.2d 994 (7th Cir. 1986) (all disputes within the scope of Section 363(m) are moot). Of note, the Seventh Circuit’s decision seems contrary to recent decisions from both the Fifth Circuit and the Eighth Circuit bankruptcy appellate panel. See Matter of Sneed Shipbuilding, Incorporated, 2019 WL 442148 (5th Cir. 2019) (“Recognizing this role of section 363(m), [the unsecured creditor] says it does not challenge the sale of the property but only challenges the disbursement of cash to the probate estate. But it does not cite any authority that would allow us to perform this isolated analysis.”); In re Marshall, 595 B.R. 269 (B.A.P. 8th Cir. 2019).
The Indiana Court of Appeals also recently addressed post judgment proceedings in foreclosure actions, discussing Indiana R. Civ. P. 62 and a trial court’s discretion to determine the bond required to stay execution of a foreclosure judgment pending appeal. Brooks v. Bank of Geneva, 97 N.E.3d 647 (Ind. Ct. App. 2018); reaffirmed, 103 N.E.3d 197 (Ind. Ct. App. 2018). The Court of Appeals found that the trial court did not properly calculate the bond amount, reducing the required bond from $285,000 to $25,000.
While each opinion should be carefully considered for their own specific lessons, they all make clear that protecting a client’s interests after a foreclosure judgment requires more than just filing a timely notice of appeal.
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