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Indiana

Fraud

Sutton Funding, LLC v Jaworski, 945 NE2d 705 (Ind Ct App, 2011).

Facts: In Janusz Jaworski took out a mortgage with First Midwest bank in 2004 and executed a promissory note for $325,000. In 2006, Jaworski sought to refinance the mortgage with a broker, Hartland Mortgage Centers, Inc. Hartland contacted First Midwest about the status of Jaworski's loans and First Midwest informed Hartland only of the 2004 loan for $325,000. After securing funding for Jaworski's refinance with EquiFirst Corporation, Hartland requested a formal payoff statement for the 2004 mortgage from First Midwest. The payoff statement, provided on February 6, 2007, stated that the payoff on Jaworski's loan was $268,000. The day after receiving the payoff statement, the parties proceeded with the closing; and Towne and Country Land Title Agency, Inc. was the title agent. Jaworski borrowed $292,050 from EquiFirst, with $268,000 going to pay off the 2004 mortgage with First Midwest. First Midwest accepted the payment but did not release the mortgage. EquiFirst later assigned the 2007 mortgage to Sutton Funding.

Soon after, Jaworski defaulted on the 2007 mortgage and Sutton Funding brought a foreclosure action against him and First Midwest. First Midwest filed counter and cross claimed, alleging s in which it alleged that Jaworski still owed money on the 2004 mortgage. It claimed that Jaworski had taken out a second mortgage on the property with First Midwest for $118,944.91.

First Midwest argued in a summary judgment motion that it misstated the payoff amount in the statement to Hartland and that because money was still owed on the 2004 mortgage, First Midwest should be in first lien position on Jaworski's property. Sutton argued that First Midwest was obligated to release the mortgage based on Indiana Code Section 32-29-6-13 (Section 13). The trial court granted summary judgment in favor of First Midwest and Sutton appealed.

Holding: Reversed and remanded. Section 13 is part of the Indiana version of the Residential Mortgage Satisfaction Act. It states, "A creditor or mortgage servicer may not withhold the release of a mortgage if the written mortgage payoff statement misstates the amount of the payoff and the written payoff is relied upon in good faith by an independent closing agent without knowledge of the misstatement." There was no dispute about the fact that First Midwest misstated the amount of the payoff in its statement to Hartland. However, First Midwest argued that the payoff statement was not relied on in good faith or without knowledge. It pointed to several factors that it claimed should have put Hartland and the independent closing agent, Towne and Country, on notice. First, there was a cross-collateralization provision in the 2004 mortgage, which First Midwest argued should have been an indication that the mortgage secured other debt. In addition, First Midwest sent Hartland a Mortgage Verification form in November 2006, which showed the remaining balance on the mortgage to be $346,000. First Midwest argued that when the payoff statement, sent only a few months later, indicated a payoff amount of $268,000, the discrepancy should have put Hartland on notice that a mistake had been made.

The court of appeals rejected both of these arguments. It held that a party is entitled to rely on a payoff statement and that "to put the burden on them to notice discrepancies and raise questions would defeat the purpose of payoff statements altogether." The court found that there was no evidence of knowledge of the mistake or of bad faith on the part of Hartland or Towne and Country. There was evidence on the record that the parties relied on the payoff statement and would not have proceeded with the 2007 mortgage without it. Thus, Section 13 prevented First Midwest from withholding the 2004 mortgage. The court did note that First Midwest was not without remedy because Section 13 does not preclude it from collecting the full amount still owed by Jaworski.

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