Many questions, few answers in home lawsuit

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Ignorance of the law is no defense. But how about the facts?  How long, for example, can a lender feign ignorance of the facts and collect on a mortgage loan after the underlying debt has been satisfied by a deed in lieu of foreclosure?

The answer: As long as the borrower continues to pay, U.S. District Judge Joseph F. Anderson Jr. held recently in Martin v. American General Finance Inc., a case that aptly depicts the confusion resulting when a note and mortgage go their separate ways.

In 1993, Melinda Martin and her husband bought a three-bedroom house in Winnsboro at a foreclosure sale. In 1996, they took out a mortgage with First Family Financial Services. In 1999 they executed a deed in lieu of foreclosure to First Family, which First Family then filed with the county clerk.

The lender, however, never took possession of the property.  In 2000 the couple separated and, in the subsequent divorce decree, the husband was awarded the home.  He continued making payments until 2006, when he turned over possession to his ex-wife.

First Family apparently never treated the loan as satisfied and at some point sold the loan, but not the title, to American General Finance.  American General sent loan statements to Melinda Martin, who continued making some payments and then rented the house to a couple who likewise made some payments.  When those tenants stopped paying, Martin tried to evict them.  It was then, she claimed, that she first learned she didn’t own the property.

Martin sued American General for conversion, misrepresentation, unfair trade practices and violations of the Fair Debt Collections Act, and sought to recover approximately $40,000 she claimed had been paid to American General from 2000 through 2010.

American General disputed the amount of payments actually made by Martin and others and claimed that, in any event, it had no knowledge that the underlying loan had been satisfied and thus no obligation to return any of the payments.  Relying on a 1929 case, Schockley v. Wickliffe, American General argued that Martin made those payments voluntarily and with the knowledge — actual or imputed — that she had no obligation to make them.

Anderson agreed, finding that Martin signed the deed in lieu and knew or should have known the ramifications.  And on a factual record giving rise to more questions than answers, the judge granted summary judgment to American General.

What about First Family?  How much time passed from when First Family took back title and American General took over the loan?  Why did First Family never take possession?  What representations did it make to Martin before it sold the loan to American General?  Does it still hold title to the property?

And what about American General? Just as Martin was charged with knowledge of the import of a deed in lieu of foreclosure, shouldn’t American General have likewise been charged with knowledge of facts that were public record since 1999 – that the loan had been extinguished and title returned to First Family?  What do documents between the two banks reveal?

The record is silent about what transpired between the banks, and counsel for both parties – Glenn Walters from Orangeburg for Martin, and A. Parker Barnes III from Haynsworth Sinkler Boyd in Columbia for the bank – did not return calls for comment.

Settlement Report

Case name: Martin v. American General Finance, Inc.

Court: U.S. District Court, District of South Carolina

Judge: Joseph F. Anderson, Jr.

Attorneys for plaintiff: Glenn Walters (Orangeburg)

Attorneys for defendant: A. Parker Barnes III (Columbia)

Issue: Can a debtor recover loan payments made to an assignee bank on a note extinguished by a deed in lieu of foreclosure given to the predecessor bank?

Holding: No. The debtor is charged with knowledge that the underlying debt is extinguished by the deed in lieu of foreclosure.  Any payments made thereafter are voluntary and not recoverable.