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The Difference Between An Execution Sale And A Foreclosure Sale In Indiana

In Dempsey v. JP Morgan Chase Bank, 2007 U.S. Dist. LEXIS 58449 (S.D.Ind. 2007) (Dempsey.pdf), which involves litigation that also was the subject of my March 2, 2007 post about writs of assistance, Judge Tinder of the Southern District of Indiana issued another opinion concerning Dempsey’s disputes with his creditors.  Today’s post explains what an execution sale is and also touches upon lis pendens

Dempsey’s ongoing saga.  Many of Dempsey’s problems began when a state court entered a judgment against him and in favor of the Carters.  To satisfy the judgment, the state court ordered an execution sale on real estate owned by Dempsey on which Chase Bank held a mortgage.  At the execution sale, Chase Bank bid the amount of its mortgage and, with no other bids, took title to the property immediately.  This is when Chase obtained a writ of assistance to evict Dempsey and his tenants from the property.  (See, my March 2, 2007 post.) 

Judgment enforcement v. mortgage enforcement.  Dempsey continued to pursue relief associated with the loss of his real estate by asserting claims based upon language in his mortgage agreement.  But, as Judge Tinder observed, the mortgage-based equitable arguments were not applicable to Dempsey’s situation because “this was not a mortgage foreclosure.”  Id. at 6.  Dempsey believed, incorrectly, that the execution sale was like a mortgage foreclosure.  “However, these are distinct procedures in Indiana.”  Id.  For more background, compare I.C. § 32-30-10 “Mortgage Foreclosure Actions” with I.C. § 34-55-6 “Sale of Property on Execution”.  Judge Tinder pointed out perhaps the main distinction between the two types of sales.  “While mortgage foreclosure provides a right of redemption, execution on a judgment does not.”  Id.; I.C. § 32-30-10-11;Ind. Trial Rule 69(A).  In Dempsey, lender Chase Bank was not foreclosing its mortgage on Dempsey’s property.  Rather, Chase was a lien holder bidding at the sale of an asset of Dempsey’s, which sale was designed to satisfy the money judgment held by the Carters.  Judge Tinder rejected Dempsey’s theory that the execution sale should be undone, on page 6 of the opinion:

  There is nothing inherently inequitable about a lien holder
  bidding at an execution sale or, upon buying the property,
  refusing to give back the property to the previous owner
  who lacks a right of redemption.

An aside, lis pendens discussion.  One other point of interest in Judge Tinder’s opinion surrounds the validity of two lis pendens notices Dempsey filed on the property at issue.  Generally, “lis pendens is a way to give notice to the public, and in particular to potential buyers, that litigation is pending which may affect the rights in a piece of property.”  Id. at 12.  Rules applicable to lis pendens are statutory in Indiana, and a link to I.C. § 32-30-11 is permanently placed along the left side of my blog’s home page.  Dempsey had two related state court actions pending that, theoretically, could affect title to the property.  In the federal court case, Chase argued that it was entitled to have the lis pendens notices removed because a determination had been made that Dempsey has no interest in the subject property.  I.C. § 32-30-11-7.  Unfortunately for Chase, Judge Tinder, on a procedural technicality, had to punt the issue to state court for resolution.  Importantly, however, Judge Tinder did offer that “it appears that Dempsey had no right to use lis pendens in the manner that he did . . ..”  Id. at 13.  The Dempsey opinion illustrates that, generally, lis pendens notices are inappropriate encumbrances on title when the party filing the notice has no interest in the property or when litigation that may affect the rights in a piece of property has been concluded.

In sum.  In the unlikely event a commercial lender/mortgagee gets involved in another creditor’s judgment enforcement action seeking to execute on the borrower/mortgagor’s real estate, the lender, not unlike with mortgage foreclosure sale, can bid at the auction and ultimately may be able to acquire title to the property.  Unlike a mortgage foreclosure sale, however, the borrower/mortgagor does not have the right at the last minute to redeem (pay off) the mortgage and retain title to the property.  Certainly that could be negotiated, but the statutes applicable to execution sales do not require it.  Always make sure you are familiar with the rules pertinent to your type of sale.