People’s National Bank, N.A. v. Banterra Bank

Federal 7th Circuit Court
Civil Court
Secured Interests
Case Number: 
No. 12-3079
Decision Date: 
May 20, 2013
Federal District: 
S.D. Ill.
Dist. Ct. erred in reversing Bankruptcy Ct. order in favor of plaintiff in complaint seeking declaration that plaintiff’s 2004 mortgage had priority to $388,500 in proceeds of sale of debtor’s home over defendant-bank’s $296,000 mortgage to debtor’s home enacted in 2008 where: (1) terms of plaintiff’s 2004 mortgage included cross-collateralization clause that provided that debtor’s home would also serve as collateral to any future obligations arising between debtor and plaintiff (up to $214,044.26 amount of first mortgage); and (2) debtor and plaintiff had taken out second, 2007 mortgage of $400,000. Terms of cross-collateralization clause clearly covered plaintiff’s second $400,000 mortgage (up to $214,044.26 limit of first mortgage) even though defendant was unaware of plaintiff’s 2007 mortgage at time it loaned debtor $296,000 in 2008. Ct. of Appeals rejected defendant’s argument that plaintiff’s 2004 mortgage was insufficient to impart record notice of plaintiff’s 2007 mortgage, after noting that: (1) defendant’s actual notice of cross-collateralization clause provided defendant with requisite inquiry notice to discover existence of other obligations covered by first mortgage; and (2) reasonable investigation would have disclosed existence of 2007 mortgage that covered debtor’s home.