Material alteration of terms sufficient for dismissal of foreclosure

July 28, 2015

A trial court properly ruled against a financial institution in a mortgage foreclosure action because terms of the surety’s contract were materially altered over time, the Indiana Court of Appeals ruled Tuesday.

Karen Greenwalt and her then-husband David Greenwalt in 2000 exectued a promissory note on behalf of Great Lakes Ag. Supply Inc., with First Federal Bank of the Midwest. The bank issued a note establishing a line of credit up to $300,000, secured by a 121-acre property and a 40-acre property. The couple later divorced, and Karen received the larger property.

Great Lakes, which was owned by David, renegotiated the note several times over the years, which in 2009 was converted into a closed-end line of credit. David sold the smaller parcel, and proceeds were applied to a single-term note rather than the mortgage.

In 2011, First Federal liquidated all Great Lakes collateral known to exist during bankruptcy, and applied proceeds. First Federal then brought the instant suit, First Federal Bank of the Midwest v. Karen S. Greenwalt and Farm Credit Services of Mid-America, 21A01-1408-MF-344.  

“To the extent First Federal argues that, even if material alterations were made to the underlying obligation, the effect of the alterations should be to limit the lien of the Mortgage at an amount equal to the outstanding principal at the time of the material alteration, it does not point to relevant authority to support its position,” Judge Elaine Brown wrote for the panel, affirming summary judgment in favor of Greenwalt. “We have stated that a surety is exonerated when a lender and principal debtor, without the surety’s consent, materially alter the debtor’s obligation.  

“Based upon the record, we conclude that the alteration of the loan terms between Great Lakes and First Federal constituted material alterations of the underlying obligation and the loan agreement guaranteed by Greenwalt and that, as a result, Greenwalt as a surety and (the larger tract) were discharged,” Brown wrote.



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