First Federal Savings and Loan Association of Gary v. Arena
Indiana Court of Appeals
406 N.E.2d 1279 (1980)
Michael and Grace Arena (plaintiffs) took two mortgages from First Federal Savings and Loan (defendant) in 1965 and 1966, then sold the mortgaged property to Richardson in 1969, subject to those mortgages. The same day, without the Arenas' knowledge or consent, Richardson and First Federal modified the mortgages by extending the payment period and raising the interest rate from 6% to 7.25%. When Richardson defaulted in 1975, First Federal sued to foreclose against both Richardson and the Arenas, and the Arenas argued their potential surety liability was discharged by the unconsented-to modification. The trial court dismissed the action against the Arenas, and First Federal appealed.
Whether a prior borrower who assigns a mortgage is discharged from personal liability for material changes made to the mortgage by the lender and the assignee without the prior borrower's consent.