Lesson. In Indiana, the equitable defense of unclean hands requires proof of intentional misconduct.
Case cite. United States Bank Nat’l Ass’n v. Spencer, 214 N.E.3d 1017 (Ind. Ct. App. 2023)
Legal issue. Whether Lender had unclean hands that precluded foreclosure.
Vital facts. Spencer was the subject of last week’s post, so click here for background about the case. Beginning in 2013, Lender filed, and then for a variety of reasons, dismissed two prior foreclosures before pursuing this one in 2020. As it relates to this post, the trial court made the following finding:
[Lender] has sought foreclosure of the 12.47 acres in equity, but, it has not done equity at all, nor does [Lender] have clean hands. [Lender] filed multiple lawsuits, voluntarily dismissed the 2014 case because it could not provide an appropriate address for the property secured by the mortgage, secured a judgment in rem against the mobile home, failed and refused to sell the mobile home in 2017, failed to make claims for vandalism of the mobile home, which was or clearly should have been disclosed by the inspections, and in short acted with unclean hands throughout the matter.
Procedural history. The trial court entered judgment for the Borrowers that essentially voided the mortgage. Lender appealed the court’s prior denial of its summary judgment motion.
Key rules.
Indiana common law is well settled that the “unclean-hands doctrine is an equitable tenet that demands one who seeks equitable relief to be free of wrongdoing in the matter before the court.” The doctrine’s purpose “is to prevent a party from reaping benefits from his or her misconduct.”
To establish the defense, “the alleged wrongdoing must be intentional and must have an immediate and necessary relation to the matter being litigated.” Indiana courts apply the doctrine “with reluctance and scrutiny.”
Holding. The Indiana Court of Appeals reversed the trial court’s summary judgment ruling on the issue of liability.
Policy/rationale.
The Court rejected the finding of unclean hands that “appear[ed] to stray beyond the boundaries of the evidentiary record.” This suggest that at least a portion of the trial court’s decision may not have come from any evidence admitted at the trial. Furthermore, Lender’s procedural posture was, in part, due to “discretionary determinations” made by prior trial courts. Perhaps most importantly, despite Lender’s “conduct in the prior cases [being] no model of efficient litigation practices, we do not find factual support that its actions constitute intentional misconduct.”
Related posts.
- Lender’s Redirection Of Rents Does Not Constitute “Unclean Hands” When Supported By Loan Documents
- Defendants’ “Unclean Hands” Defense Fails In Lender’s Indiana Foreclosure Case
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I represent parties in disputes arising out of secured loans. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.