Citizens Financial Services, FSB v. Innsbrook Country Club, Inc.
833 N.E.2d 1045, 2005 WL 2155517, 2005 Ind. App. LEXIS 1634 (2005)
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Rule of Law:
Under Indiana Code § 32-30-5-1(4), a court's appointment of a receiver is mandatory, not discretionary, when a mortgagee seeks foreclosure on a non-owner-occupied property and the mortgagor or property owner has agreed in writing to the appointment. An oral agreement to modify a mortgage is unenforceable under the Statute of Frauds unless the party asserting the agreement can prove detrimental reliance on the promise before it was repudiated.
Facts:
- Citizens Financial Services, FSB made two loans to Innsbrook Country Club, Inc., which were secured by mortgages on the country club property.
- Both mortgages contained a clause granting Citizens the right to have a receiver appointed in the event of default.
- Ronald McColly and Jim Gagan formed New Innsbrook Country Club and began negotiations with Citizens to purchase the property and assume the existing loans under modified terms.
- Citizens verbally agreed to allow New Innsbrook to assume the loans with new terms but later, on October 31, 2003, informed McColly that the loans were not assumable and reneged on the verbal agreement.
- On November 12, 2003, after Citizens had reneged on the verbal agreement, the original Innsbrook conveyed the property to New Innsbrook via a warranty deed stating the property was subject to the existing mortgages.
- The loans went into default in October and November 2003.
- After Citizens had backed out of the verbal deal and after New Innsbrook had officially purchased the property, New Innsbrook spent over $1,000,000 on improvements.
Procedural Posture:
- On February 13, 2004, Citizens filed a complaint in an Indiana trial court against Innsbrook and New Innsbrook to foreclose on the mortgages.
- Innsbrook and New Innsbrook filed an answer and counterclaims against Citizens.
- On May 20, 2004, Citizens filed a verified petition with the trial court for the appointment of a receiver.
- The trial court held a hearing and subsequently issued a written order denying Citizens' petition for the appointment of a receiver.
- Citizens filed an interlocutory appeal to the Court of Appeals of Indiana, challenging the trial court's denial.
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Issue:
Does a trial court abuse its discretion by denying a mortgagee's petition for the appointment of a receiver when the statutory requirements for a mandatory appointment, including a written agreement for a receiver in the original mortgage, have been met?
Opinions:
Majority - Sharpnack, J.
Yes, the trial court abused its discretion by denying the petition. The appointment of a receiver is mandatory, not discretionary, once the statutory conditions are met. The relevant statute, Indiana Code § 32-30-5-1(4), uses the word 'shall,' which requires the court to act. The conditions for mandatory appointment were satisfied: (1) Citizens was a mortgagee seeking foreclosure, (2) the property was not an owner-occupied residence, and (3) the original mortgages, to which New Innsbrook took the property subject, contained a written agreement for the appointment of a receiver. The trial court erred in finding an enforceable oral agreement modified the mortgages, as New Innsbrook could not establish promissory estoppel to overcome the Statute of Frauds. New Innsbrook's purchase of the property and subsequent improvements occurred after Citizens had already repudiated the oral promise, meaning there was no reasonable reliance on that promise that could justify its enforcement. Therefore, the original written mortgage terms, including the receiver clause, remained in full effect.
Analysis:
This decision solidifies the mandatory nature of Indiana's receivership statute in foreclosure proceedings, stripping trial courts of discretion when the specified statutory criteria are met. It significantly reinforces the high burden required to invoke promissory estoppel as an exception to the Statute of Frauds, clarifying that any detrimental reliance must occur before, not after, a promise is revoked. The ruling serves as a strong precedent against using equitable arguments, such as the potential futility of a receivership, to circumvent the plain, mandatory language of a statute. Future cases involving oral modifications to credit agreements will face a stricter scrutiny regarding the timing and reasonableness of a party's reliance.
