What must be included in a statutory notice of sheriff’s sale? If you, as a secured lender, intend to sell both the real estate and any business personal property on the premises, the notice must identify both the business personal property and the real estate. Property excluded from any notice is in jeopardy of being excluded from the sheriff’s sale. The recent Indiana Court of Appeals opinion in Surrisi v. Bremner explains why.
The judgment. Surrisi involved a $100,000 loan secured by, among other things, (1) real estate upon which the borrower operated a restaurant and (2) business personal property on site. The borrower defaulted on the loan, and the parties entered into an agreed judgment that granted the lender a money judgment, together with the right to sell the real estate and the business personal property to satisfy the debt.
The problem. After the entry of judgment, the lender filed a praecipe for sheriff’s sale – a simple filing – but the praecipe identified only the real estate. More importantly, the notice of sheriff’s sale – another fairly straightforward form – failed to mention the personal property. (These omissions are somewhat understandable, given that the vast majority of praecipes and sale notices involve only real estate. Sheriff’s sales in mortgage foreclosure cases typically deal only with real estate and fixtures. Indeed, overall, the statutory framework is geared to real estate, and specifics regarding personal property are hard to come by.) The Court of Appeals ultimately concluded that the omissions in Surrisi were fatal to the personal property aspect of the sheriff’s sale. (My June 13, 2011 post discussed a notice case, but the result was different.)
The sale and following events. The sheriff’s sale occurred, and the lender was the winning bidder. The bill of sale issued by the sheriff identified both the real estate and the business personal property. The lender, thinking that it had acquired title to everything, subsequently sold the restaurant and the business personal property to a third party. At some point – the timing is not entirely clear from the opinion – the borrower filed a motion to set aside the sheriff’s sale as it related to the business personal property. The borrower contended that the business personal property was not sold.
The legal question. The issue was whether the sheriff’s bill of sale was faulty so as to negate the personal property side of the sale. The outcome focused on the fact that the praecipe, notice and sales disclosure form identified only the real property.
The statute. Notices of sheriff’s sales are creatures of statute in Indiana. Ind. Code § 32-29-7-3(g) states that notices “must contain a statement, for informational purposes only, of the location of each property by street address, if any, or other common description of the property other than legal description.” The statute also expresses this qualification: “A misstatement in the informational statement under this subsection does not invalidate an otherwise valid sale.” In practice, plaintiff lenders prepare the notices and provide them to the sheriff’s offices for use in connection with the sheriff’s statutory publication obligations.
The interpretation of the statute. In Surrisi, the lender seized upon the statute’s qualifying language and argued that the failure to mention the business personal property in the notice of sale was a misstatement that should not otherwise invalidate the sale. The Court rejected the argument. The Surrisi notice did not involve a “misstatement” in the information about the property “but rather what property was offered for sale.” The Court apparently could not get over the notice flaw, which was compounded by the fact that the praecipe for sale requested only the real property to be sold by the sheriff. There also was evidence that the sales disclosure form completed by the lender specifically indicated that personal property was not included in the transfer. The Court further noted that the agreed judgment did not require the real and personal property to be sold at the same sale.
The outcome. Perhaps the most interesting piece of the Surrisi opinion was its final sentence: “On remand, the trial court should determine the amount of compensation due to the [borrowers] for the loss of their business personal property.” The result suggests that the lender made a full judgment/credit bid at the sale. As previously explained here, such a bid equates to the complete satisfaction of the debt – no deficiency. If there was a deficiency, then the Court would not have remanded the case to determine compensation for the borrower. Instead, the remand would have been to determine whether, or to what extent, the deficiency judgment should be extinguished. Remember the lender got a judgment against the borrower. The irony is that the Court of Appeals has paved the way for the borrower to recover money from the lender for the value of the business personal property. Although the value was not mentioned in the opinion, what a turning of the tables!
The lesson. If personal property is to be a part of any sheriff’s sale, then the notice of the sale should contain a “common description” of such property. While less important, to be consistent, the personal property should also be identified in the praecipe for sheriff’s sale and the sales disclosure form. These seemingly innocuous oversights in Surrisi proved to be quite problematic for the lender, particularly considering that, unlike real estate, to my knowledge the lender couldn’t get any kind of title insurance to cover the personal property piece of the transaction.