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Bank Merger Mania Highlights Need For Best Practices
   
December 4, 2012
 
 Bank mergers, acquisitions, and consolidations continue to occur at a record pace. Recent case law in Indiana suggests novel defenses being raised by defaulting mortgagors which, even when properly rejected by the courts, highlight certain best practices for surviving lenders post-merger/acquisition. In early 2012, the Indiana Court of Appeals issued its ruling in CFS v. Bank of America,[1] upholding the right of Bank of America to enforce its rights in certain real estate pursuant to a mortgage granted to LaSalle Bank. LaSalle had been acquired by and merged into Bank of America sometime prior to the filing of the foreclosure action. The defaulting mortgagor asserted that Bank of America had failed to meet its burden of establishing its right to enforce LaSalle’s loan documents and mortgage.
The trial court in CFS grappled with the legal issue of whether a successor bank could enforce the note and mortgage of the predecessor lending institution without a written assignment. The Indiana Court of Appeals upheld the trial court’s ultimate rejection of the mortgagor’s purported defense pursuant to application of a federal statute governing mergers of financial institutions. The relevant statute provides that “[a]ll rights, franchises and interests of the individual merging banks . . . in and to every type of property (real, personal and mixed) and choses of action shall be transferred to and vested in the [surviving bank] without any deed or other transfer. The [surviving bank], upon the merger and without any order or other action on the part of any court or otherwise, shall hold and enjoy all rights of property[.]”[2]
The holding in CFS is both correct and perhaps common sense to most lenders. When the merged bank no longer exists, the surviving institution has all right to enforce the credits held by it without any separate assignment, endorsement, or allonge. All such loan and collateral documents can now be enforced in the name of the surviving institution. Other issues may exist, however, as it relates to the continued collateralization of those credits.
For example, what if the mortgage had been given by the lending institution that did not survive the merger and the recorded mortgage contains an address for a branch of the predecessor institution which is no longer being used?   That situation can be particularly problematic if property taxes for the subject real estate fall into arrears. A recent decision by the Indiana Court of Appeals upheld the propriety of tax sale notices sent by the county auditor to just such an address in Badawi v. Orth[3].
 In Badawi, Wells Fargo Bank objected to the issuance of a tax deed, claiming improper service of the tax sale notices. In affirming the trial court’s order issuing a deed to the tax sale purchaser, the Indiana Court of Appeals relied on sections of the Indiana Code requiring the notices be sent by certified mail, return receipt requested “at the address for the person included in the public record that indicates the interest.”[4] The only public record for a mortgagee will typically be the mortgage document itself. In Badawi, the mortgage contained an address the mortgagee either no longer used or regularly checked. Someone signed for the return receipt, however, and the tax sale notice procedure was deemed satisfied even though Wells Fargo never received actual notice and it was not sent to the bank’s corporate headquarters or registered agent. 
Certainly, an acquiring bank and/or the surviving lending institution post-merger can take solace in the CFS v. Bank of America decision that it can enforce the loan documents of the predecessor institution without the need for a separate assignment. The Badawi case cautions such surviving lending institutions, however, on the importance of updating the public records, particularly those recorded documents such as mortgages and assignments of rents, to ensure they receive notices regarding the property. The best practice for an acquiring institution may well be to record affidavits containing updated contact information and cross-referencing the prior mortgages. By virtue of other recent developments in Indiana law,[5] lenders should be reviewing their commercial mortgage portfolios, which should also provide an opportunity to ensure that the addresses listed on the mortgage instruments are current.

 
[1] 962 N.E.2d 151 (Ind. Ct. App. 2012). Of note, certain tax sale statutes applicable to mortgagees, specifically the lack of a requirement for pre-sale notices to be sent to mortgagees, were found to be unconstitutional by the Indiana Court of Appeals in M&M Investment Group, LLC vs. Ahlemeyer Farms, Inc., 972 N.E.2d 889, 896-97 (Ind. Ct. App. 2012). On November 21, 2012, the Indiana Supreme Court granted transfer and the ruling of the Court of Appeals in M&M has been vacated. Please look for updates on this issue once a decision is rendered by Indiana’s highest court.
 
[2] The statute in question is at 12 USC § 215A. Section 215A applies to a consolidation of National banks or State banks into National banks. Section 215 contains similar provisions for consolidations of State banks with other banks in the same state.
 
[3] 955 N.E.2d 849 (Ind. Ct. App. 2011)
 
[4] Ind. Code §§ 6-1.1-25-4.5 and 6-1.1-25-4.6.
 
[5] Senate Enrolled Act 298 of 2012, effective July 1, 2012 (“SEA 298”), made certain changes to Indiana Code Chapter 32-28-4, most importantly, when no last payment due date is listed on the mortgage, the lien of the mortgage will expire 10 years from the date of execution. Prior to SEA 298, this period was 20 years and rarely confronted by the typical commercial lender.
 
 
 
Disclaimer

These materials are intended for general informational purposes only. Accordingly, they should not be construed as legal advice or legal opinion on any specific facts or circumstances.   Instead, you are urged to consult counsel on any specific legal questions you may have concerning your situation.
 
RUBIN & LEVIN, P.C.    |    342 Massachusetts Avenue    |    Indianapolis, IN 46204     |    www.rubin-levin.com

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