Two soured senior-living loans, one collection strategy the trial judge said crossed a line
A federal appeals court won't yet say whether an Indiana lender can foreclose and sue the loan's guarantors at the same time.
The August 19, 2026 ruling from the Seventh Circuit leaves Merchants Bank of Indiana in limbo over two soured commercial mortgage loans, and leaves commercial lenders across the state without a clear answer on how aggressively they can pursue borrowers and guarantors in parallel.
The loans date to June 2018. Merchants lent $8,640,000 to one borrower and $14,030,000 to another, two limited partnerships operating under the Avenir Memory Care name that bought assisted living facilities in Fayetteville, Arkansas, and Knoxville, Tennessee. Each borrower signed a promissory note and pledged its property as collateral. The same day, three guarantors signed continuing guaranties, promising to "absolutely, unconditionally and irrevocably" cover every obligation under the notes.
The guaranties were built to favor the lender. The guarantors waived "all defenses based on suretyship or impairment of collateral" and "all rights Guarantor may have under any anti-deficiency statute or other similar protections." On paper, Merchants could go straight at the guarantors without first working through the collateral.
Then the loans went bad. The borrowers defaulted in July 2022. That September, Merchants sued the guarantors in federal court. In March 2023, with those suits still live, the bank filed foreclosure actions on both properties in state courts. By August 2024, the two loans, with recoverable expenses, had grown to $11,039,569.40 and $17,571,920.51.
The guarantors fought back with a statute: Indiana Code § 32-30-10-10, the state's "One Action" rule, which bars a lender from foreclosing while running a separate suit "for the same debt or matter" secured by the mortgage. The trial judge agreed, and went further than either side asked, ruling on his own initiative that the guaranty debt was the "same debt" as the notes and that the guarantors' waivers were void on public policy grounds.
The Seventh Circuit was not convinced either way. It found the statute ambiguous on whether it reaches guaranties at all, and found little Indiana law on whether the protection can be waived. So the panel did not rule. It certified two questions to the Indiana Supreme Court and stayed the appeal until that court answers.
The judges did leave lenders a pointed note. Merchants, they observed, had cleaner routes to its money, sell the properties, finish the foreclosure, or sue the guarantors alone, but chose parallel actions instead, "thus bringing this result upon itself."
Nothing is settled. The merits are stayed, and the reach of Indiana's One Action rule now rests with the state's highest court.
