Tax Deed Denied Because Redemption Notice Suggested The Amount To Redeem Included Surplus Funds

Lesson. A tax sale purchaser may not obtain a tax deed if the statutory redemption notice inflates the redemption amount. Such notices should not include any overbid/surplus funds as being required for redemption.

Case cite. Pinch-N-Post, LLC v. McIntosh, 132 N.E.3d 14 (Ind. Ct. App. 2019)

Legal issue. Whether tax sale purchaser’s post-sale statutory redemption notice substantially complied with Indiana law despite erroneously including purchaser’s overbid amount.

Vital facts. Tax sale purchaser (“Purchaser”) timely sent the post-sale statutory redemption notice to the owner/tax payer (“Owner”). This is sometimes referred to as the “4.5 Notice” based upon the relevant statute. Owner did not redeem the property from the tax sale.  The contents of the 4.5 Notice were at issue in McIntosh. Purchaser bought the tax sale certificate for $8752.00, which included an overbid (surplus) amount of $4679.29. The 4.5 Notice erroneously listed the overbid as a component of the redemption amount.

Procedural history. Purchaser filed a petition for tax deed, and Owner objected. After a hearing, the trial court denied the petition, and Purchaser appealed.

Key rules. The Indiana Court of Appeals summarized the tax sale process:

the sale proceeds first satisfy the property tax obligation for the property, then satisfy certain other qualifying tax obligations of the property owner, with any surplus going into the Surplus Fund. In other words, the Surplus Fund is comprised of the overbid. The Surplus Fund may also be used to satisfy taxes or assessments that become due during the redemption period. Finally, if the property is redeemed, the tax-sale purchaser has a claim on whatever is in the Surplus Fund, and, if a tax deed is issued, the original owner does.

A 4.5 Notice arises out of Indiana Code 6-1.1-25-4.5. The notice must include, among other things, “the components of the amount required to redeem” the property from the sale. Indiana Code 6-1.1-24-6.1(b) details those components. The overbid/surplus is not one of the components.

Holding. The Court affirmed the denial of the petition for tax deed but remanded the case with instructions for the trial court to order a new 120-day redemption period with a new 4.5 Notice.

Policy/rationale. The trial court found that the 4.5 Notice “greatly overstated” the redemption amount. The Court of Appeals agreed that the notice “would have led a reasonable person to conclude that the total redemption amount was far greater than it actually was….” The Purchaser made a number of arguments in support of its theory that the 4.5 Notice substantially complied with the applicable statutes and was not inaccurate. However, the Court rejected the Purchaser’s position and reasoned that the notice “asked [Owner] to jump through too many hoops to discover the true redemption amount, a situation that only existed because [Purchaser] - misleadingly and without justification – included the overbid in the first place.”

Related posts.

• Court Rejects Property Owner’s Plea To Set Aside Tax Sale
• Indiana Tax Sales, Part II: Redemption

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I sometimes am engaged by mortgage loan servicers or title companies to represent lenders/mortgagees in real estate-related disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Court Invalidates Mortgages In Favor Of Creditor In Judgment Lien Foreclosure Action

Lesson. If you are trying to collect a judgment and suspect the judgment debtor granted a bogus mortgage to neutralize the judgment lien, then study the description of the purported debt in the mortgage and investigate the debt’s nature. You may be able to invalidate the mortgage lien.

Case cite. Drake Investments v. Ballatan, 138 N.E.3d 964 (Ind. Ct. App. 2019) (unpublished, memorandum decision)

Legal issue. Whether the subject mortgages were invalid, rendering priority in title to the judgment lien.

Vital facts. Judgment creditor Ballatan obtained a 125k judgment against Huntley on 9/28/07. While the underlying action was pending but before the entry of judgment, Huntley granted mortgages to her son on four parcels of real estate. The one-page mortgages indicate that Huntley agreed to pay her son an aggregate amount of 830k secured by the real estate. The son testified that Huntley granted the mortgages “in exchange for [son] taking care of [mom’s] living expenses….” Three years later, the son paid Huntley 30k for title to all the real estate. Then, the son transferred ownership of the four parcels to Drake Investments. The son was the president of Drake.

Procedural history. Ballatan filed suit to foreclose his judgment lien against the real estate formerly owned by Huntley, the judgment debtor. Drake asserted that the mortgages had priority over the judgment lien. The trial court granted summary judgment in favor of Ballatan and against Drake, which appealed.

Key rules.

Indiana Code 32-29-1-5 defines the proper form for mortgages in Indiana.

Indiana common law provides that mortgages must secure a debt that must be described in the document:

The debt need not be described with literal accuracy but it ‘must be correct so far as it goes, and full enough to direct attention to the sources of correct information in regard to it, and be such as not to mislead or deceive, as to the nature or amount of it, by the language used.’ It is necessary for the parties to the mortgage to correctly describe the debt ‘so as to preclude the parties from substituting debts other than those described for the mere purpose of defrauding creditors.’ As our federal sister court has observed, ‘most Indiana cases have examined the description of the debt as a whole to decide whether it puts a potential purchaser on in essence inquiry notice of an encumbrance, and whether it is specific enough to prevent the substitution of another debt.’

Holding. The Indiana Court of Appeals affirmed the trial court and held that the mortgages were invalid.

Policy/rationale. The Court’s opinion has a lengthy and thorough discussion of what constitutes a valid mortgage in Indiana, in particular the requirement for the description of the underlying debt. In Drake, the mortgages referred to promissory notes for the purported debts, but Drake never produced the notes. In fact, the only evidence was that the mortgages secured payment of future living expenses for Huntley. In other words, Huntley did not owe her son money upon execution of the mortgages. The mortgages also failed to include a date for repayment as required by statute. “One cannot tell from looking at the [mortgages] when [son’s] purported mortgage interest … was scheduled to expire.” Thus, the descriptions of the debts were inaccurate. Further, the Court concluded that the inaccuracies were “sufficiently material” to mislead or deceive as to the nature and amount of the debt. The mortgages made no connection between, or mention of, the debt and the living expenses. “The descriptions of the debts are so vague that they do not preclude [Huntley] and [son] from substituting other debts for the debts described.”

Related posts.

• Judgment Lien Principles Courtesy Of The Indiana Supreme Court
• To Be Enforceable, An Indiana Mortgage Must Adequately Describe The Debt It Purports To Secure

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I represent judgment creditors and lenders, as well as their mortgage loan servicers and title insurers, entangled in lien priority disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Indiana's Recording Law Change, Effective July 1

I'm passing along information distributed by the Indiana State Bar Association.  For today's content, all the credit goes to the ISBA:   

On July 1, 2020, an obscure change to an Indiana recording statute becomes effective, requiring lawyers to change how they prepare deeds, mortgages, powers of attorney, affidavits, and other instruments that must be recorded in an Indiana County recorder’s office.

The ISBA has drafted a directive to provide significant guidance to all members about this change and the sufficiency of signatures and notarial certificates for recording any deed, mortgage, or other paper or electronic instrument after June 30, 2020.

Click here for the ISBA's directive.  

Governor Holcomb's June 30 Order Extending Residential Foreclosure Moritoriaum

Section 1 of the Governor's order addresses residential mortgage foreclosures and follows-up his order order from March 19th, which was the subject of my March 28th post.  Here are the highlights:

1. Residential mortgage foreclosure actions based upon nonpayment cannot be filed until August 1.
2. This does not change the federal order that prevents FHA-insured mortgages from being foreclosed through August 31.
3. Foreclosure actions on vacant or abandoned property can proceed.

Lender’s Failure To Comply With HUD’s Face-To-Face Meeting Requirement Dooms Indiana Mortgage Foreclosure Action

Lesson. A borrower/mortgagor may be able to defeat a foreclosure action if a lender/mortgagee does not comply with HUD regulations designed to be conditions precedent to foreclosure. For example, in certain cases, a failure to have an in-person meeting with the borrower/mortgagor before the borrower becomes more than three full months delinquent in payments, could lead to the dismissal of a subsequent foreclosure case.

Case cite. Gaeta v. Huntington, 129 N.E.3d 825 (Ind. Ct. App. 2019). NOTE: Gaeta is a so-called “memorandum decision,” meaning that, under Indiana law, the opinion is not supposed to be regarded as precedent or cited before any court. Nevertheless, the analysis and outcome are noteworthy.

Legal issue. Whether, in the context of a HUD-insured loan, a lender violated 24 C.F.R. 203.604 by failing to have a face-to-face meeting with the borrower before three monthly installments due on the loan went unpaid and, if so, whether the violation constituted a defense to the lender’s subsequent foreclosure suit.

Vital facts. The nine pages summarizing the underlying facts and the litigation in the Gaeta opinion tell a long and complex story. From the view of the Indiana Court of Appeals, the keys were: (1) the borrower defaulted under the loan by missing payments, (2) the lender failed to have a face-to-face interview with the borrower before three monthly installments due on the loan went unpaid, and (3) the lender filed a mortgage foreclosure action without ever having the face-to-face meeting.

Procedural history. This residential mortgage foreclosure case proceeded to a bench trial, and the court entered a money judgment for the lender and a decree foreclosing the mortgage. The borrower appealed.

Key rules.

24 C.F.R. 203.604(b) requires certain lenders to engage in specific steps before they can foreclose. One of those steps is to seek a face-to-face meeting with the mortgagor (borrower) “before three full monthly installments due on the mortgage are unpaid….” Click here for the entire reg.

There are exceptions to the face-to-face requirement, one of them being if the parties enter into a repayment plan making the meeting unnecessary. See, Section 604(c)(4).

The Court cited to and relied upon its 2010 opinion in Lacy-McKinney v. Taylor, Bean & Whitaker Mortgage, 937 N.E.2d 853 (Ind. Ct. App. 2010). Please click on the “related post” below for my discussion of that case.

“Noncompliance with HUD regulations [can constitute] the failure of the mortgagee to satisfy a HUD-imposed condition precedent to foreclosure.”

Not all mortgages are subject to HUD regs – only loans insured by the federal government.

Holding. The Court of Appeals reversed the trial court’s in rem judgment that foreclosed the mortgage. However, the Court affirmed the money judgment.

Policy/rationale. The Court concluded that the lender’s failure to conduct, or even attempt to conduct, a face-to-face meeting with the borrower before he became more than three months delinquent was a “clear violation” of applicable HUD regs. The lender made several arguments – very compelling ones in my view – as to why it substantially complied with the reg or did not violate the reg to begin with. The trial court agreed. The Court of Appeals disagreed, choosing to apply a strict reading of the law.

See the opinion for more because no two cases are the same, and the outcome could be different in your dispute. The silver lining, if there was one, for the lender was that the in personam judgment on the promissory note stood and thus created a judgment lien on the subject property. The debt was not extinguished - only the mortgage.

Related post. In Indiana, Failure To Comply With HUD Servicing Regulations Can Be A Defense To A Foreclosure Action 
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Part of my practice includes representing lenders, as well as their mortgage loan servicers, entangled in contested residential foreclosures and servicing disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Marion County (Indianapolis) Sheriff's Sales Will NOT Start Back Up In July

Following-up last week's post (below), we learned this morning that the sheriff's office has postponed the July sale "due to the extended evictions and foreclosures issued by Gov Eric Holcomb through August 1st."  No sale in July.

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Following the COVID-19 cancellations of the March, April, May, and June sales, the Marion County Civil Sheriff's Office is back in business.  The first sale since February will occur on July 15th.  Here is an email distributed by the Real Estate team this morning:

NEW RULES, REGULATIONS AND LOCATION FOR THE JULY SALE.

NEW LOCATION FOR THE JULY SALE - 8115 E. Washington St, Indianapolis IN 46219. Great parking.

SEVERAL WAYS TO LEAVE YOUR DEPOSIT:
You may come between 8:00 a.m. and 10:00 a.m. the morning of the sale, July 15th at 8115 E. Washington St and leave your deposit. However, we will end this process at 10:00 a.m. So if you are in line and the time hits 10:00 a.m. you will not be able to leave your deposit. So our suggestion is that you still come to the City-County Building at 200 E. Washington St 11th Floor conference room the day before the sale between 8:00 a.m. and Noon. Only one person allowed in the conference room at a time. Please social distance in the hallway of 6 feet.

For those of you that are in the pilot program you may still continue to send your registration form and check via email. Teena will stay one hour after the sale at 8115 E Washington St for you to bring your check back or you may also take it downtown to the City County Building right after the sale and Lori will be there to also take your check. Your choice.

It is mandatory that you stay and pick up your check if you did NOT win a bid. We will instruct you on this process the day of the sale.

SOCIAL DISTANCING:

A mask is required at the new location and in the City County Building.
Only bidders that have a paddle will be allowed in the bidding room. Other guest and attorney’s not bidding must go into the conference room. You will be able to hear the bidding process in that room. The conference room is not very large and may be difficult to social distance as per the recommendations of CDC. Please take this into consideration when choosing on whether or not you would like to attend since only 1 bidder is allowed in the bidding room per company/investor.

We will update the website soon as well with these changes. Please feel to contact us with any questions.

RE Team

Please visit our website: https://www.indy.gov/activity/sheriff-real-estate-sales

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I represent parties in connection with foreclosure cases and sheriff’s sales. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.