Louisiana Future Advance Mortgages: A 20-Year Retrospective

• Author: David S. Willenzik
• Position: Special Counsel to Jones Walker, LLP, New Orleans LA, and Adjunct Professor of Law, Louisiana State University Paul M. Hebert Law Center, teaching the course on UCC Article 9 secured transactions. Mr. Willenzik chaired the committee that drafted the original 1990 version of Louisiana UCC Article 9 enacted under Act No. 135, §3, 1989 La. Acts 41...
• Pages: 613-695

Louisiana Future Advance Mortgages: A 20-Year Retrospective David S. Willenzik  TABLE OF CONTENTS Introduction ..........................................................................615 I. Louisiana Collateral Mortgages ...........................................617 A. History and Purpose .......................................................618 B. How Future Advance Louisiana Collateral Mortgages Work ............................................................621 C. 1990 Changes in Governing Law...................................623 1. Louisiana UCC Article 9 Applicable to Post-1989 Louisiana Collateral Mortgages ..............625 2. The Louisiana Collateral Mortgage Statute .............626 D. Provisions of Revised Louisiana UCC Article 9 and the Louisiana Collateral Mortgage Statute that Apply to Post-1989 Collateral Mortgages .....................627 1. Definitions ................................................................627 2. Ability of Post-1989 Collateral Mortgages to Secure Multiple Present and Future Cross-Collateralized Debt ..................................................627 3. Possession Perfection Required: Loss of Possession and Its Legal Consequences ..................629 4. Future Advance Priority Rights of Post-1989 Collateral Mortgages ................................................632 5. No Loss of Priority in Lapsed Credit Situations ......634 6. Effectiveness of a Collateral Mortgage in a Delayed, Anticipatory Credit Situation When There is No Contemporaneous Loan or Forward Commitment to Lend at a Later Date.......................638 Copyright 2015, by DAVID S. WILLENZIK.  Special Counsel to Jones Walker, LLP, New Orleans LA, and Adjunct Professor of Law, Louisiana State University Paul M. Hebert Law Center, teaching the course on UCC Article 9 secured transactions. Mr. Willenzik chaired the committee that drafted the original 1990 version of Louisiana UCC Article 9 enacted under Act No. 135, §3, 1989 La. Acts 417, and the 1989 UCCImplementation Act enacted under Act No. 137, 1989 La. Acts 527. 614 LOUISIANA LAW REVIEW [Vol. 75 II. Significant Collateral Mortgage Case Law Developments Since 1994 ............................................................................642 A. Diamond Services Corporation v. Benoit .......................642 1. Facts and Disposition ...............................................643 2. The Third Circuit’s Decision in Benoit .....................643 3. The Louisiana Supreme Court’s Decision in Benoit .......................................................................644 4. Critique of Benoit ......................................................646 5. Additional Comments ..............................................649 6. Significance of Benoit ..............................................652 B. Alaska Southern Partners v. Baxley ...............................652 C. Hibernia National Bank v. Contractor’s Equipment & Supply, Inc . ................................................................652 D. Ellis Construction, Inc. v. Vieux Carre Resort Properties, L.L.C. ...........................................................653 E. Gutierrez v. Baldridge ...................................................654 F. Sciortino v. Bank of Louisiana .......................................655 III. Multiple Indebtedness Mortgages ........................................655 A. History and Purpose .......................................................655 B. Ability to Secure Future Advances on a Retroactive Priority Basis ..................................................................656 C. Comparison with Collateral Mortgages .........................659 D. Form and Content Requirements Applicable to Multiple Indebtedness Mortgage Agreements ...............661 1. Title and Definition of Mortgagee ...........................661 2. Definition of the Secured Indebtedness ...................662 3. Grant of Mortgage ....................................................664 4. Declaration of Intent that the Mortgage Secure Future Advances ......................................................665 5. Duration of Mortgage ..............................................666 6. Mortgage Cancellation .............................................667 7. No Ne Varietur Paraph .............................................667 IV. Significant Multiple Indebtedness Mortgage Cases ............668 A. In re Hari Aum ...............................................................668 1. Facts and Disposition ...............................................668 2. The Bankruptcy Court’s Decision............................669 3. The Fifth Circuit’s Decision ....................................673 2015] LOUISIANA FUTURE ADVANCE MORTGAGES 615 4. Significance of Hari Aum ........................................674 5. Critique of Hari Aum ...............................................675 6. Question Raised by Hari Aum : Is It Necessary or Good Practice for the Mortgagor to Execute an Acknowledgement of Mortgage Each Time that an Additional Advance is Made? ......................678 B. KeyBank National Association v. Perkins Rowe Associates, LLC ....................................................679 1. Facts and Disposition ...............................................679 2. The District Court’s Decision ..................................681 3. Significance of the KeyBank Decision .....................685 4. Question: Can Mortgage Priority Rights be Transferred on a Naked Assignment Basis Independently of the Secured Debt? ........................687 5. Additional Concerns ................................................692 C. JAB of Oakdale, LLC v. Oakwood Inn Development Corp . ........................................................693 1. Facts and Disposition ...............................................693 2. The Third Circuit Decision ......................................693 V. Are Collateral Mortgages Obsolete? ....................................694 INTRODUCTION This Article is an update and expansion of two previous 1994 articles on future advance Louisiana collateral mortgages and multiple indebtedness mortgages: D. Willenzik, Future Advance Priority Rights of Louisiana Collateral Mortgages: Legislative Revisions, New Rules, and a Modern Alternative , 1 and M. Rubin, D. Willenzik, and M. Moore, Is the Collateral Mortgage Obsolete? 2 Both of these articles were published at a time when the original 1990 version of Louisiana UCC Article 9 3 and the Louisiana 1. See generally 55 LA. L. REV. 1 (1994) [hereinafter Willenzik, Future Advance Priority Rights or “1994 Willenzik Article”]. This article updates and expands upon, and is intended to be read in conjunction with, the 1994 Willenzik Article. 2. See generally Michael Rubin, David Willenzik, & M. Moore, Is the Collateral Mortgage Obsolete? , 41 LA. B.J. 529 (1994). 3. LA. REV. STAT. ANN. §§ 10:9-101 to 10:9-710 (2002). Louisiana Revised Statutes section 10:9-101 was first enacted under Act No. 135, § 3, 1989 La. Acts 417, effective January 1, 1990, and was subsequently amended and reenacted under Act No. 128, §1, 2001 La. Acts 206, effective July 1, 2001. 616 LOUISIANA LAW REVIEW [Vol. 75 collateral mortgage statute 4 had been in effect for less than five years, and at a time when the 1991 comprehensive revisions to the mortgage articles of the Louisiana Civil Code 5 had been in effect for less than three years. Louisiana collateral mortgage law has undergone significant changes over the past 20 years. The most important of these changes was the enactment of the 2001 comprehensive revisions to Article 9 of the Uniform Commercial Code, 6 which apply to post-July 1, 2001 UCC pledges of Louisiana collateral mortgage notes and accessory collateral mortgages. Part I of this Article discusses the sections of Revised Louisiana UCC Article 9 and the Louisiana collateral mortgage statute that apply to post-July 1, 2001 collateral mortgages. 7 Part II discusses significant Louisiana collateral mortgage case law developments over the past 20 years, including critical analysis of the Louisiana This statute is known as the “Louisiana UCC,” or “Louisiana UCC Article 9,” or sometimes “Revised Louisiana UCC Article 9.” The Louisiana UCC was previously known as the “Louisiana Commercial Laws.” See LA. REV. STAT. ANN. § 10:1-101 (1974); see also LA. REV. STAT. ANN. § 10:1-101 ( amended by Act No. 533, § 1, 2006 La. Acts 2041) (changing the name of Title 10 of the Louisiana Revised Statutes to the Louisiana Uniform Commercial Code). This article intentionally refers to the Uniform Commercial Code using the acronym “UCC” (without periods) rather than the abbreviation “U.C.C.” (with periods). UCC is the preferred reference to the Uniform Commercial Code. This article also intentionally refers to the parts of the Louisiana UCC as “Articles”; whereas Title 10 of the Louisiana Revised Statutes refers to the parts of the Louisiana UCC as “Chapters” so as not to cause confusion with articles of the Louisiana Civil Code and with the articles of the Code of Civil Procedure. “Articles” is the preferred reference to the parts of the UCC. Unless otherwise indicated, all references to the sections of Louisiana UCC Article 9 in this article refer to Revised Louisiana UCC Article 9, effective July 1, 2001. The sections of Revised Louisiana UCC Article 9 are cited in the text of this article as “Louisiana UCC § 9-___.” Similarly, the sections of the multi-state version of UCC Article 9 (as distinguished from the Louisiana UCC) are cited in the text of, and in the footnotes to this article as “UCC § 9-___.” 4. See LA. REV. STAT. ANN. § 9:5550 (1990) (enacted under Act No. 137, §7, 1989 La. Acts 527, effective January 1, 1990). 5. LA. CIV. CODE arts. 3278–3298 ( amended by and reenacted under Act No. 652, §1, 1991 La. Acts 2068). 6. Article 9 of the UCC was totally revised on a nation-wide basis effective as of July 1, 2001. The Louisiana...