First Federal Bank of the Midwest v. Karen S. Greenwalt and Farm Credit Services of Mid-America
2015 Ind. App. LEXIS 536
| Ind. Ct. App. | 2015Background
- In 2000 Great Lakes Ag. Supply executed a $300,000 revolving promissory note to First Federal; David Greenwalt personally guaranteed and David and Karen Greenwalt executed a mortgage granting First Federal a security interest in two tracts (Mortgaged lien expressly limited to $300,000).
- The spouses divorced in 2000; Karen received Tract One (subject of this suit) and David received Tract Two.
- First Federal repeatedly renewed/consolidated Great Lakes’ indebtedness and in 2002–2004 added/rolled over additional credit, producing aggregate indebtedness in excess of $300,000 at times; the line was later converted to a closed-end loan and the 2009 renewal changed payments to monthly principal plus interest with a large balloon payment.
- David filed Chapter 7 bankruptcy in 2011; First Federal liquidated available collateral (except Tract One) and applied sale proceeds to various Great Lakes obligations.
- First Federal sued in 2011 to foreclose Tract One for remaining debt; Karen (Greenwalt) denied the mortgage applied to her tract and moved for summary judgment arguing material, unauthorized alterations to the underlying loan discharged her suretyship and the mortgage lien.
- Trial court granted Greenwalt’s cross-motion for partial summary judgment, finding First Federal materially altered the loan and discharged Greenwalt and Tract One; this appeal followed.
Issues
| Issue | Plaintiff's Argument (First Federal) | Defendant's Argument (Greenwalt) | Held |
|---|---|---|---|
| Whether creditor’s post-closing renewals/credit extensions and conversion of the line constituted a material alteration of the principal debtor’s obligation that discharged the surety and released the mortgage on Tract One | Renewals, consolidations, and added credit did not materially alter the original secured obligation; lien remains enforceable (and, if any alteration occurred, mortgage should be capped at outstanding principal at that time) | First Federal’s unauthorized extensions, consolidations, and conversion of the revolving line into a closed-end/installment loan materially altered the debtor’s obligation without Greenwalt’s consent and thus discharged her suretyship and released the mortgage | Court held the changes (including conversion to installment payments) materially altered the underlying obligation, increased Greenwalt’s risk, and discharged her suretyship and Tract One from the mortgage lien; affirmed summary judgment for Greenwalt |
Key Cases Cited
- Manley v. Sherer, 992 N.E.2d 670 (Ind. 2013) (standard of review for summary judgment)
- Keesling v. T.E.K. Partners, LLC, 861 N.E.2d 1246 (Ind. Ct. App. 2007) (material alteration rule for guarantors/sureties)
- Ind. Telco Fed. Credit Union v. Young, 297 N.E.2d 434 (Ind. Ct. App. 1973) (surety discharged when lender alters repayment terms without surety’s consent)
- Owen Cnty. State Bank v. Guard, 26 N.E.2d 395 (Ind. 1940) (person furnishing collateral with creditor’s knowledge stands as surety)
- Am. States Ins. Co. v. Floyd I. Staub, Inc., 370 N.E.2d 989 (Ind. Ct. App. 1977) (unauthorized material alteration releases surety)
- SPCP Grp., LLC v. Dolson, Inc., 934 N.E.2d 771 (Ind. Ct. App. 2010) (mortgagor who mortgages land to secure another’s debt is treated as surety)