FILING DATE IS WHAT MATTERS WHEN DETERMINING PARTIES TO NAME IN MORTGAGE FORECLOSURE SUIT

When a lender makes the decision to foreclose on its borrower’s real estate collateral in Indiana, the lender must determine who, besides the borrower, claims an interest in the property.  That’s why a title policy (foreclosure) commitment is ordered before the filing of the case.  Clear title cannot be obtained upon a sheriff’s sale unless all lien holders are named as defendants in the suit (so that their interests can be foreclosed).  Recently, the Indiana Court of Appeals reminded us of why and when pre-suit title work must be updated.    

The rule.  In the December 8, 2006 opinion House v. First American Title Company, 2006 Ind. App. LEXIS 2472, the Court of Appeals addressed a dispute between the purchaser of residential real estate (after a sheriff’s sale) and his title insurance company.  Although the issues in the opinion have no real bearing on commercial foreclosure law, a rule cited by the Court in its decision does:  a foreclosure action’s filing date is the “only relevant date used to determine the proper parties to a mortgage foreclosure.”  Third-parties who secure an interest in the mortgaged property after the filing of the foreclosure complaint need not be named in the suit.  Note these comments from House: 

  Because the judgment of the Dearborn County Health Department
  did not attach until after the foreclosure action was commenced by
  the Bank of New York, any lien which arose as a result of the
  default judgment obtained by the health department was foreclosed
  by the foreclosure sale and therefore does not affect fee simple title
  to the real estate.

So, lenders need not continuously search title during the course of litigation and worry about adding new parties to their foreclosure complaint.  “The only relevant date” is the foreclosure action’s commencement date – the day the lender filed the complaint.   

Date down.  Invariably, there will be a gap between the completion of the preliminary title search and the initiation of the suit.  Conceivably, liens, etc. could arise during that time.  To cover the gap, lenders must “date down” (update) their title policy commitment to the day of the filing of the complaint.  House confirms that this is the only title update required, and I recommend that it be done shortly after the filing of the complaint.  If any interests arise during that period, the new lien holders must be added to the case.  Should the updated commitment uncover no new interests, the lender can be comfortable proceeding with the original cast of characters.