Indiana Commercial Foreclosure Law

Indiana Foreclosure Sale Terminates The Right Of Redemption

Recently, an out-of-state client asked whether the defendant borrower, in an Indiana commercial foreclosure case we're handling, will have the right to redeem the mortgage after the sheriff's sale.  The client was pleased to learn that, even though some states may permit redemption post-sale, Indiana is not one of them. 

Indiana redemption rights.  Indiana does provide a pre-sale right of redemption.  Please see my February 1, 2008 post for details.

Mortgages.  Ind. Code 32-29-7-13 states:  "There may not be a redemption from the foreclosure of a mortgage executed after June 30, 1931, on real estate except as provided in this chapter."  Thus the general statutory rule is that there is no right of redemption.  (My 2-1-08 post addresses the "before the sale" statutory exception, Ind. Code 32-29-7-7.)  Well-settled Indiana case law provides that "a foreclosure sale cuts off a mortgagor's rights of redemption."  Patterson v. Grace, 661 N.E.2d 580, 585 (Ind. Ct. App. 1996); Overmyer v. Meeker, 661 N.E.2d 1271, 1275 (Ind. Ct. App. 1996); Vanjani v. Federal Land Bank of Louisville, 451 N.E.2d 667, 672, n.1 (Ind. Ct. App. 1983).

UCC Security Interests.  Similarly, Indiana's UCC, at Ind. Code 26-1-9.1-623, also covered in my prior post, calls for redemption rights to be terminated upon disposition of the collateral.  The "Official Comment" to the section states that "the debtor or another secured party may redeem collateral as long as the secured party has not collected, disposed of or contracted for the disposition of, or accepted the collateral."  The "Indiana Comment" states that Section 623 "recognizes the right of the debtor and other secured parties to redeem any time after default before disposal of the collateral or rescission under Section 502(2), unless otherwise agreed in writing after default."

When the fat lady sings.  Lenders enforcing mortgage liens or security interests in Indiana can rest assured that, once there is a sheriff's sale or a disposition of personal property collateral, the borrower's/debtor's right of redemption is terminated.  The borrower/debtor no longer owns the property, and no longer has any rights in or to the property.  If warranted, deficiency collection, among other things, can commence.

Do Borrowers Have A Right Of Redemption In Indiana?

If a borrower defaults, and if a secured lender exercises its rights under a mortgage or security agreement to foreclose, the borrower still is able to avoid losing the collateral.  This is because, in Indiana, borrowers have a right of redemption.  “Redeem” means “to buy back.  To free property from mortgage . . . by paying the debt for which it stood as security.”  Black’s Law Dictionary.  Redemption (basically, a payoff) is the way for a borrower to keep the property, end the lien enforcement litigation and free itself of the plaintiff/lender’s mortgage or security interest.  In Indiana, two main statutes cover redemption. 

Real estate.  I.C. § 32-29-7-7 “Redemption by owner before sheriff’s sale” states:

  Before the [sheriff’s] sale under this chapter, any owner or part owner of the real
  estate may redeem the real estate from the judgment by payment to the:

   (1)  clerk before the issuance to the sheriff of the judgment and decree; or
   (2)  sheriff after the issuance to the sheriff of the judgment and decree;

  of the amount of the judgment, interest, and costs for the payment or satisfaction
  of which the sale was ordered.  If the owner or part owner redeems the real estate
  under this section, process for the sale of the real estate under judgment may not
  be issued or executed, and the officer receiving the redemption payment shall
  satisfy the judgment and vacate order of sale . . ..

Personal property.  Indiana provides for the right to redeem non-real estate collateral in its UCC statute, I.C. § 26-1-9.1-623:

  (a)  A debtor, any secondary obligor, or any other secured party or lienholder may
  redeem collateral.
  (b)  To redeem collateral, a person shall tender:

   (1)  fulfillment of all obligations secured by the collateral; and
   (2)  the reasonable expenses and attorney’s fees described in IC 26-1-9.1-
   615(a)(1).

  (c)  A redemption may occur at any time before a secured party:

   (1)  has collected collateral under IC 26-1-9.1-607;
   (2)  has disposed of collateral or entered into a contract for its disposition
    under IC 26-1-9.1-610; or
   (3)  has accepted collateral in full or partial satisfaction of the obligation it
  secures under IC 26-1-9.1-622.

(Click here for I.C. § 26-1-9.1). The rights and time period parallel those associated with mortgages/real estate.  The full amount due must be submitted before repossession or disposition of the property.

Timing.  Under Indiana law, the right to redeem the property from the foreclosure judgment terminates with the sheriff’s sale.  In Re Collins, 2005 Bankr. LEXIS 1800 (S.D. Bankr. 2005).  “Once a sheriff’s sale takes place, a mortgage-debtor is no longer the title holder . . ..”  Id.  Judge Coachys concluded, in Collins, that a sheriff’s sale is complete when the hammer falls and that the actual delivery of the sheriff’s deed is purely ministerial.  Id.  Upon a sale, title is transferred, and the loan is terminated.  To avoid losing the property, the borrower/owner must pay the entire debt (usually, the accelerated amount) before the sale or disposition of the property.  Otherwise, the party’s over.