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 P aul M. Hebert Law Center,

teaching the course on UC C 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 UCC

Implementation 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 93 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 wa s first enacted under Act No. 135, § 3,

1989 La. Acts 417, effective January 1, 1990, and was subsequently a mended

and reenacted under Act No. 128, §1, 2001 La. Acts 206, effective July 1, 2001.