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Mortgage company didn't act in good faith

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The Indiana Court of Appeals affirmed that a mortgage company shouldn't have been treated as a bona fide purchaser because it didn't act in good faith in providing a mortgage that was obtained by fraud.

In Richard Thomas, et al. v. Benjamin H. Thomas, No. 45A05-0906-CV-357, Trustcorp Mortgage Co. challenged the trial court's ruling that the mortgage it holds on Benjamin Thomas' home is invalid.

Benjamin remained in possession of his home that he owned since 1965, but his home was conveyed to his son Richard by a quit claim deed. After a family dispute, Benjamin asked Richard to convey the title back to him as agreed, but he refused. Benjamin filed notice of intention to hold a mechanic's lien for $200,000 on the home and filed a quiet title suit against his son. He didn't file a lis pendens notice at any point.

Richard then got an $118,000 mortgage on the home from Trustcorp by submitting a fraudulent loan application that included a purported release of the mechanic's lien. Richard never made any payments and filed for bankruptcy.

Benjamin received the title back via a mediated settlement and executed a release of the mechanic's lien to Trustcorp after the trial court issued partial summary judgment to the mortgage company on the lien's validity. Trustcorp conveyed the right to collect the mortgage loan to Fannie Mae and the servicing rights to EverBank.

The trial court then entered summary judgment for Benjamin in his suit, ruling the mortgage was invalid because it was a product of fraud. It also concluded despite Benjamin's failure to file a lis pendens, Trustcorp had constructive notice of his claims due to his pending litigation with Richard and the irregularities in the mechanic's lien release submitted with the loan application.

The trial court didn't err in finding Trustcorp's mortgage was invalid on the basis that the company wasn't a bona fide mortgagee. The record supports Trustcorp didn't act in good faith and can be imputed with notice of Richard's fraud and Benjamin's lawsuit, wrote Judge Cale Bradford.

"Quite simply, it is undisputed that Benjamin was in possession of the property in question and that Trustcorp nonetheless did nothing to ascertain his rights to it," he wrote. "It is apparent that even a cursory investigation would have quickly uncovered both Richard's fraud and Benjamin's claims on the home."

In addition, the irregularities in the forged mechanic's lien release should have put a reasonably prudent person on notice that something was amiss, the judge continued.

Although Trustcorp couldn't have had constructive notice because Benjamin failed to file the lis pendens, the record contains sufficient evidence to support a finding of inquiry notice. Richard was the only person present when the lien was notarized, even though Benjamin supposedly signed it. Second, the lien had an incorrect number and Trustcorp had the means to verify it.

The same evidence supports the finding the mortgage was obtained by fraud, rendering it invalid, the appellate court concluded.

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  1. So that none are misinformed by my posting wihtout a non de plume here, please allow me to state that I am NOT an Indiana licensed attorney, although I am an Indiana resident approved to practice law and represent clients in Indiana's fed court of Nth Dist and before the 7th circuit. I remain licensed in KS, since 1996, no discipline. This must be clarified since the IN court records will reveal that I did sit for and pass the Indiana bar last February. Yet be not confused by the fact that I was so allowed to be tested .... I am not, to be clear in the service of my duty to be absolutely candid about this, I AM NOT a member of the Indiana bar, and might never be so licensed given my unrepented from errors of thought documented in this opinion, at fn2, which likely supports Mr Smith's initial post in this thread: http://caselaw.findlaw.com/us-7th-circuit/1592921.html

  2. When I served the State of Kansas as Deputy AG over Consumer Protection & Antitrust for four years, supervising 20 special agents and assistant attorneys general (back before the IBLE denied me the right to practice law in Indiana for not having the right stuff and pretty much crushed my legal career) we had a saying around the office: Resist the lure of the ring!!! It was a take off on Tolkiem, the idea that absolute power (I signed investigative subpoenas as a judge would in many other contexts, no need to show probable cause)could corrupt absolutely. We feared that we would overreach constitutional limits if not reminded, over and over, to be mindful to not do so. Our approach in so challenging one another was Madisonian, as the following quotes from the Father of our Constitution reveal: The essence of Government is power; and power, lodged as it must be in human hands, will ever be liable to abuse. We are right to take alarm at the first experiment upon our liberties. I believe there are more instances of the abridgement of freedom of the people by gradual and silent encroachments by those in power than by violent and sudden usurpations. Liberty may be endangered by the abuse of liberty, but also by the abuse of power. All men having power ought to be mistrusted. -- James Madison, Federalist Papers and other sources: http://www.constitution.org/jm/jm_quotes.htm RESIST THE LURE OF THE RING ALL YE WITH POLITICAL OR JUDICIAL POWER!

  3. My dear Mr Smith, I respect your opinions and much enjoy your posts here. We do differ on our view of the benefits and viability of the American Experiment in Ordered Liberty. While I do agree that it could be better, and that your points in criticism are well taken, Utopia does indeed mean nowhere. I think Madison, Jefferson, Adams and company got it about as good as it gets in a fallen post-Enlightenment social order. That said, a constitution only protects the citizens if it is followed. We currently have a bevy of public officials and judicial agents who believe that their subjectivism, their personal ideology, their elitist fears and concerns and cause celebs trump the constitutions of our forefathers. This is most troubling. More to follow in the next post on that subject.

  4. Yep I am not Bryan Brown. Bryan you appear to be a bigger believer in the Constitution than I am. Were I still a big believer then I might be using my real name like you. Personally, I am no longer a fan of secularism. I favor the confessional state. In religious mattes, it seems to me that social diversity is chaos and conflict, while uniformity is order and peace.... secularism has been imposed by America on other nations now by force and that has not exactly worked out very well.... I think the American historical experiment with disestablishmentarianism is withering on the vine before our eyes..... Since I do not know if that is OK for an officially licensed lawyer to say, I keep the nom de plume.

  5. I am compelled to announce that I am not posting under any Smith monikers here. That said, the post below does have a certain ring to it that sounds familiar to me: http://www.catholicnewworld.com/cnwonline/2014/0907/cardinal.aspx

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