103 F.4th 1088
5th Cir.2024Background
- NB Taylor Bend, DST obtained a $13 million loan from Prudential Mortgage Capital, secured by Mississippi property, with Patrick and Brian Nelson personally guaranteeing the loan via an Indemnity and Guaranty Agreement.
- The Guaranty was absolute and unconditional, explicitly waiving defenses and specifying that it would bind and benefit assigns.
- Prudential assigned the loan and related documents, including the Guaranty, to Liberty Island Group I, LLC, which later assigned them to North American Savings Bank (NASB).
- Taylor Bend defaulted on the loan during the COVID-19 pandemic; after an initial forbearance, default was declared, the debt accelerated, and Taylor Bend converted to an LLC and filed Chapter 11 bankruptcy.
- NASB foreclosed on the Apartments, then affiliated Nor-Am bought them for $8 million and resold them for $10.6 million; NASB credited only the foreclosure price against the Nelsons’ debt.
- NASB sued Patrick Nelson on the Guaranty, winning summary judgment for almost $6 million; Patrick appealed, challenging assignment of the Guaranty, exclusion of certain equitable defenses, and lack of additional credit for property resale proceeds.
Issues
| Issue | Plaintiff Argument | Defendant Argument | Held |
|---|---|---|---|
| Was the Guaranty properly assigned to NASB, granting it standing? | All loan documents, including the Guaranty, were assigned through chain of title to NASB. | The "omnibus" assignment did not include or assign Prudential’s interest in the Guaranty. | Yes; no genuine dispute—assignments were valid. |
| Can Patrick assert equitable defenses based on borrower’s conduct? | Guaranty is absolute/unconditional; Patrick waived such defenses; only default needs proof. | Should be allowed to assert defenses like breach of forbearance or lack of good faith by lender. | No; such defenses are unavailable under Mississippi law. |
| Should $2.6 million from post-foreclosure resale offset the debt? | Only foreclosure sale proceeds must be credited; no obligation to credit subsequent resales. | NASB must offset additional proceeds to avoid windfall; failure to do so is bad faith. | No; Mississippi law requires only credit for foreclosure sale. |
| Was the indemnity agreement between Brian and Patrick enforceable? | Valid and binding contract requires Patrick to indemnify Brian for all litigation obligations. | (Patrick did not contest this ruling on appeal.) | Yes; not contested and district court's ruling affirmed. |
Key Cases Cited
- Brown v. Hederman Brothers, LLC, 207 So. 3d 698 (Miss. Ct. App. 2016) (absolute and unconditional guaranty creates immediate liability upon borrower’s default, waiving certain defenses)
- Woods-Tucker Leasing Corp. of Ga. v. Kellum, 641 F.2d 210 (5th Cir. 1981) (guarantor’s liability is immediate with absolute guaranty of payment)
- Kennedy v. Hall, [citation="680 F. App'x 269"] (5th Cir. 2017) (guarantor immediately liable upon default under Mississippi law)
- Bosarge v. LWC MS Props. LLC, 158 So. 3d 1137 (Miss. 2015) (guarantor’s liability is not dependent on requirement of foreclosure or price fairness)