Commercial Foreclosure

The cast of characters. Everyone knows what a bank is. Most of us understand what a lender is – an institution from whom money is borrowed. Adding the word “commercial” to describe a lender simply means that the financial entity deals with businesses as opposed to individuals. Black’s Law Dictionary defines “commercial loans” as: “loans made to businesses as distinguished from personal-consumer credit loans.” Although a lender could make both commercial and consumer loans, this blog is dedicated primarily to commercial matters.

The field of law. To me, commercial foreclosure law refers to the rules and procedures applicable when a business defaults on a loan secured by some kind of collateral. So, if you work for an institution that loaned money to a business, and if the borrower defaulted under the terms of the loan agreement, then commercial foreclosure law provides the judicial framework for the protection of your rights. Typically, those rights involve the ability to collect money owed by the borrower through the sale of the loan collateral.

Collateral. Black’s states that collateral is property pledged as security for the satisfaction of a debt. If a business defaults on a loan, the lender can initiate a foreclosure action to compel the sale of the loan collateral and therefore collect the amounts owed by the borrower through proceeds from the sale. There are all kinds of business-related collateral. Perhaps the most recognizable is real estate – the land a business owns. Some of the most interesting cases, however, deal with personal property collateral, which can be any property imaginable that is owned by a business – a fleet of cars, office furniture or intangibles such as accounts receivable.

Lien. A lien is a description of an encumbrance on property: “a claim . . . on property for payment of some debt.” Black’s. In the context of my blog, a lien arises by written contract between a lender and a borrower – either a real estate mortgage agreement or a personal property security agreement. The lien granted by a borrower to a lender gives a lender the right to foreclose upon the subject property (collateral) for payment of the debt in the event of a default.

Commercial foreclosure. Turning again to Black’s, a foreclosure is defined, in part, as the “enforcement of a lien . . . or mortgage . . ..” Paraphrasing Black’s, foreclosure is the legal process by which real or personal property subject to a lien is sold in satisfaction of a debt. To foreclose means to terminate a borrower’s rights in the subject property. A foreclosure that is commercial merely refers to the termination of a business borrower’s rights in its property.

A form of collection. Commercial foreclosure law is a special kind of collection law. It’s a body of rules governing how banks and financial institutions recover money by asserting rights in, and selling, collateral that a business granted to secure the loan. It’s the set of legal principles applicable to a lender needing to collect money owed by a business, which failed to make its loan payments or otherwise defaulted under the terms of the loan documents. If any of these matters are relevant to what you do for a living, I welcome your visits to my blog and hope that you will e-mail me with your questions or comments.
John D. Waller is a partner at the Indianapolis law firm of Wooden & McLaughlin LLP (http://www.woodmclaw.com). He publishes the blog Indiana Commercial Foreclosure Law at http://commercialforeclosureblog.typepad.com. John’s phone number is 317-639-6151, and his e-mail address is jwaller@woodmclaw.com.

Foreclosure Process in Indiana

Need a handle on how long it will take to liquidate your borrower’s collateral in Indiana? Since the foreclosure process officially starts with the filing of a complaint, my timelines start there. A complaint cannot be filed until there has been a default under the terms of the real estate mortgage or personal property security agreement. Needless to say, many weeks if not months might pass between the initial loan default and the decision to file suit.

The timing of the foreclosure process largely depends upon whether and to what extent the borrower contests the proceeding:

Uncontested Foreclosure: 4½ – 6 months minimum. If a business debtor does not contest foreclosure (but will not agree to a deed in lieu), the process can move relatively quickly. Here are the major steps and applicable ranges of time:

1. Filing of the Complaint

2. Service of process on the debtor: occurs in 5-10 days unless service by publication

3. Application for default judgment: can be sought 21-24 days after service of process

4. Entry of default judgment and decree of foreclosure: should occur within approximately 30 days after the Application is filed

5. Praecipe for Sheriff’s sale, including notice of same: by statute, cannot be filed until 3 months after the Complaint

6. Sheriff’s sale: happens about 45-90 days from Praecipe, depending on the county

Contested Foreclosure: 6-9 months minimum. Given the vagaries of litigation, it’s virtually impossible to conclusively estimate how long a contested foreclosure case may last. Much depends upon how clear the default and the damages are. Perhaps the most significant factor relates to the time associated with workout negotiations. In that regard, each case is different. Here are the main steps of a fairly quick contested foreclosure:

1. Filing of the Complaint

2. Service of process on the debtor: occurs in 5-10 days unless service by publication

3. Appearance of debtor’s attorney and motion for one or more 30-day extensions of time to respond to the Complaint: filed 20-23 days after service of process

4. Answer to Complaint: filed 30 days after filing of Appearance and expiration of last motion for extension

5. Motion for summary judgment: can be filed immediately after the filing of the Answer

6. Objection to motion for summary judgment: due 30 days after the filing of the motion for summary judgment

7. Summary judgment hearing: usually held 75-120 days after the motion is filed

8. Entry of judgment and decree of foreclosure: occurs on day of hearing, or soon thereafter, unless the motion is vigorously contested with viable defenses

9. Praecipe for Sheriff’s sale: can be submitted immediately after the entry of judgment assuming more than 3 months have passed since the complaint was filed

10. Sheriff’s sale: takes place 45-90 days from Praecipe, depending on the county

Judicial sales. Indiana law requires a judicial sale in order to foreclose a mortgage. I.C. 32-29-7-4 (http://www.ai.org/legislative/ic/code/title32/ar29/ch7.html#IC32-29-7-4) is a nice option for creditors looking to expedite a sale. The statute permits, under certain limited circumstances, the sheriff’s sale to be conducted by a private auctioneer on the civil sheriff’s behalf. This may be advisable in counties without regularly-scheduled sheriff’s sales. (I should note that, as to personal property security interests, UCC/Article 9.1 and/or the terms of a security agreement may allow the creditor to repossess the collateral without a sheriff’s sale.)

Be prepared for delays. Although the basic procedure is the same throughout Indiana, the timing can be impacted dramatically by the dockets of the individual courts and/or the schedules of the individual civil Sheriffs’ offices. The periods described are the minimum time periods. The actual time usually is longer. This is especially true if there are multiple creditors named in the lawsuit. Further, in contested cases involving debtors represented by counsel, opposing attorneys can prolong the process in a variety of ways, including multiple motions for extensions of time, requests for discovery and vigorous challenges to a motion for summary judgment. In the event a trial must occur, a resolution of the case can be delayed several months if not years. In addition, a bankruptcy can be filed up until the time when the Sheriff’s sale begins, and that can delay the foreclosure process indefinitely.

Depending on the goals of the lender, the lawyer representing the lender can push the case aggressively toward a sale. Or, counsel can be more passive to give the parties time to assess whether a refinancing arrangement may be warranted. The parties can settle, or the debtor can redeem – real estate / I.C. § 2-29-7-7 (http://www.ai.org/legislative/ic/code/title32/ar29/ch7.html#IC32-29-7-7); personal property / I.C. § 26-1-9.1-623 (http://www.ai.org/legislative/ic/code/title26/ar1/ch9.1.html#IC26-1-9.1-623) – right up to the sale or disposition of the collateral. Debtors’ attorneys know this, so don’t be surprised if a borrower waits until the eve of sale either to file for bankruptcy protection, redeem or yield to the lender’s loan modification terms.

John D. Waller is a partner at the Indianapolis law firm of Wooden & McLaughlin LLP (www.woodmclaw.com). He publishes the blog Indiana Commercial Foreclosure Law at http://commercialforeclosureblog.typepad.com. John’s phone number is 317-639-6151, and his e-mail address is jwaller@woodmclaw.com.

Law Information

We welcome you to www.legalcatch.wordpress.com This blog is set-up to provide information to the general public regarding all aspects of law. This site is intended to provide information regarding a specific legal practice area. We will provide ongoing information that is easily accessable at no charge. You can easily access all sorts of information by using the search bar or categories links. If you have questions please feel free to contact us at rcartwell24@yahoo.com.