Bankruptcy Release of liability.

Byline: Derek Hawkins

7th Circuit Court of Appeals

Case Name: Trinity 83 Development, LLC, v. ColFin Midwest Funding, LLC

Case No.: 18-2117

Officials: EASTERBROOK, BARRETT, and SCUDDER, Circuit Judges.

Focus: Bankruptcy Release of liability

In 2006 Trinity 83 Development borrowed about $2 million from a bank, giving in return a note and a mortgage on certain real property. In 2011 the bank sold the note and mortgage to ColFin Midwest Funding. ColFin relied on Midland Loan Services to collect the payments. In 2013 Midland recorded a document (captioned "satisfaction") stating that the loan had been paid and the mortgage released. But the loan was still outstanding, and Trinity continued paying. In 2015 ColFin realized Midland's mistake and recorded a document cancelling the satisfaction. Soon afterward Trinity stopped paying, and ColFin filed a foreclosure action in state court.

Trinity maintains that the release erroneously filed in 2013 abrogated ColFin's rights. If that's so, then the proceeds from the sale must be distributed among Trinity's other creditors. The bankruptcy judge and district judge concluded, however, that Trinity did not obtain rights from the 2013 filing, for it was unilateral and without consideration. It therefore was not a contract, and because no one (including Trinity) detrimentally relied on the release, ColFin could rescind it. Trinity relies on this clause in the mortgage: "Lender shall not be deemed to have waived any rights under this Mortgage unless such waiver is given in writing and signed by Lender." Trinity treats this as if it read: "Lender shall be deemed to have irrevocably waived any rights under this mortgage whenever it or its agent signs a written document to that effect." But that's not what the clause provides.

According to Trinity, In re Motors Liquidation Co., 777 F.3d 100 (2d Cir. 2015), shows that a...

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