Reprint: Indiana Foreclosure Process And Timing - The Basics

I'm busy preparing for a trial that starts a week from tomorrow, so I thought I'd repost one of my more popular articles from way back in November, 2006.  All in all, based upon my experience, I'd say the points I made almost five years ago have stood the test of time. 

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Need a handle on how long it will take to liquidate your borrower’s collateral in Indiana?  Since the foreclosure process officially starts with the filing of a complaint, my timelines start there.  A complaint cannot be filed until there has been a default under the terms of the real estate mortgage or personal property security agreement.  Needless to say, many weeks if not months might pass between the initial loan default and the decision to file suit. 

The timing of the foreclosure process largely depends upon whether and to what extent the borrower contests the proceeding:   

Uncontested Foreclosure:  4½ - 6 months minimum.  If a business debtor does not contest foreclosure (but will not agree to a deed in lieu), the process can move relatively quickly.  Here are the major steps and applicable ranges of time:

1. Filing of the Complaint
2. Service of process on the debtor:  occurs in 5-10 days unless service by publication
3. Application for default judgment:  can be sought 21-24 days after service of process
4. Entry of default judgment and decree of foreclosure:  should occur within approximately 30 days after the Application is filed
5. Praecipe for Sheriff’s sale, including notice of same:  by statute, cannot be filed until 3 months after the Complaint
6. Sheriff’s sale:  happens about 45-90 days from Praecipe, depending on the county

Contested Foreclosure:  6-9 months minimum.  Given the vagaries of litigation, it’s virtually impossible to conclusively estimate how long a contested foreclosure case may last.  Much depends upon how clear the default and the damages are.  Perhaps the most significant factor relates to the time associated with workout negotiations.  In that regard, each case is different.  Here are the main steps of a fairly quick contested foreclosure:

1. Filing of the Complaint
2. Service of process on the debtor:  occurs in 5-10 days unless service by publication
3. Appearance of debtor’s attorney and motion for one or more 30-day extensions of time to respond to the Complaint:  filed 20-23 days after service of process
4. Answer to Complaint:  filed 30 days after filing of Appearance and expiration of last motion for extension
5. Motion for summary judgment:  can be filed immediately after the filing of the Answer
6. Objection to motion for summary judgment:  due 30 days after the filing of the motion for summary judgment
7. Summary judgment hearing:  usually held 75-120 days after the motion is filed
8. Entry of judgment and decree of foreclosure:  occurs on day of hearing, or soon thereafter, unless the motion is vigorously contested with viable defenses
9. Praecipe for Sheriff’s sale:  can be submitted immediately after the entry of judgment assuming more than 3 months have passed since the complaint was filed
10. Sheriff’s sale:  takes place 45-90 days from Praecipe, depending on the county

Judicial sales.  Indiana law requires a judicial sale in order to foreclose a mortgage.  I.C. 32-29-7-4 is a nice option for creditors looking to expedite a sale.  The statute permits, under certain limited circumstances, the sheriff’s sale to be conducted by a private auctioneer on the civil sheriff’s behalf.  This may be advisable in counties without regularly-scheduled sheriff’s sales.  (I should note that, as to personal property security interests, UCC/Article 9.1 and/or the terms of a security agreement may allow the creditor to repossess the collateral without a sheriff’s sale.) 

Be prepared for delays.  Although the basic procedure is the same throughout Indiana, the timing can be impacted dramatically by the dockets of the individual courts and/or the schedules of the individual civil Sheriffs’ offices.  The periods described are the minimum time periods.  The actual time usually is longer.  This is especially true if there are multiple creditors named in the lawsuit.  Further, in contested cases involving debtors represented by counsel, opposing attorneys can prolong the process in a variety of ways, including multiple motions for extensions of time, requests for discovery and vigorous challenges to a motion for summary judgment.  In the event a trial must occur, a resolution of the case can be delayed several months if not years.  In addition, a bankruptcy can be filed up until the time when the Sheriff’s sale begins, and that can delay the foreclosure process indefinitely.

Depending on the goals of the lender, the lawyer representing the lender can push the case aggressively toward a sale.  Or, counsel can be more passive to give the parties time to assess whether a refinancing arrangement may be warranted.  The parties can settle, or the debtor can redeem - real estate / I.C. § 2-29-7-7; personal property / I.C. § 26-1-9.1-623 - right up to the sale or disposition of the collateral.  Debtors’ attorneys know this, so don’t be surprised if a borrower waits until the eve of sale either to file for bankruptcy protection, redeem or yield to the lender’s loan modification terms.

Domesticating An Out-Of-State Judgment In Indiana

Recently, the Indiana State Bar Association's listserve for the Bankruptcy and Creditor's Rights section had an inquiry regarding other lawyer's experiences with domesticating foreign judgments under the relatively new statute Ind. Code Section 34-54-11.  I've written about the statute and procedure here, most recently in my post dated 2/4/11 "6 Steps to Enforce a Foreign Judgment in Indiana."

Evidently, the reviews of the statute are mixed, due in large part to clerk's offices and court's staffs either not being familiar with the new statute or not fully understanding its meaning and purpose.  Admittedly, the procedure called for under the statute is quite unique.  I've seen where some lawyers have abandoned the new procedure in favor of the "old school" method of filing a new action (complaint). 

For what it's worth, we've encountered some questions from clerks and courts, but we've been able to work through those questions without too much trouble.  We've found that I.C. 34-54-11 has been an expeditious and cost-effective way to get the job done.  The statute has some quirks and kinks that hopefully will be resolved over time, but overall we recommend that out of state judgment creditors utilize this "new school" mechanism to enforce their judgments.  As always, I welcome emails or comments on the matter. 

Indiana’s Take On MERS, Part II: The “Straw Man”

This follows up last week’s post regarding CitiMortgage.  In an effort to defeat ReCasa’s Ind. Code § 32-29-8-3 argument, Citi contended that an analysis of Section 3 was not necessary for the reason that the mortgagee of record was MERS.  Citi claimed that MERS, not Irwin, should’ve been given notice of ReCasa’s foreclosure suit.  See, I.C. § 32-29-8-1.  The Court didn’t bite.

Notice language.  Remember that MERS/Citi claimed that they did not receive proper notice of the foreclosure suit.  But, their own mortgage had the following language with respect to notice:

Any notice to Lender shall be given by first class mail to Lender’s address stated herein or any address Lender designates by notice to Borrower.  Any notice provided for in this Security Instrument shall be deemed to have been given to Borrower or Lender when given as provided in this paragraph.

The mortgage defined the lender as Irwin and provided Irwin’s address.  The mortgage also provided that Barabas owed Lender (thus Irwin, not MERS) money. 

Mortgage language.  The mortgage stated that MERS served “solely as nominee” for Irwin.  It appears that much of the confusion in the litigation arose out of the ambiguities in the mortgage.  Read the language for yourself: 

This Security Instrument is given to Mortgage Electronic Registration Systems, Inc. (“MERS”), (solely as nominee for Lender, as hereinafter defined, and Lender’s successors and assigns), as mortgagee. 

Irwin the mortgagee.  To determine whether MERS or Irwin was the mortgagee, the Court focused heavily on a 2009 decision by the Kansas Supreme Court Landmark v. Kesler, 216 P.3d 158 (Kan. 2009).  “The Kansas Supreme Court found that in this case, MERS was little more than a ‘straw man’ for [the lender].”  For more in-depth analysis, read CitiMortgage.  The Indiana Court of Appeals affirmed the trial court’s ruling, which declined to set aside ReCasa’s default judgment that placed ReCasa’s mortgage in first position.  The Court held:

When Irwin Mortgage filed a petition and disclaimed its interest in the foreclosure, MERS as mere nominee and holder of nothing more than bare legal title to the mortgage, did not have an enforceable right under the mortgage separate from the interest held by Irwin Mortgage.

Who to sue?  As a litigator, the role of MERS has always struck me as odd.  In practice, MERS may be a nice vehicle for commerce involving mortgage loans.  But, once the loans go into default and the mortgages must be judicially enforced, problems with interpreting the documents’ language have bubbled to the surface.  If, in the future, you or your foreclosure counsel struggle with whether to name MERS as a defendant, perhaps to be safe you should name both the identified lender and MERS, even though the CitiMortgage opinion suggests that MERS need not be named.  (CitiMortgage also demonstrates the need for a title commitment and an owner’s policy.  The commitment should help lenders decide whether to name MERS.) 

I understand Citi has filed a petition to transfer the case to the Indiana Supreme Court, so our State may not be done with creating law about MERS (transfer granted 4-10-12).  For more insight into how MERS views some of these issues, please see these links to its website:

• MERS as original mortgagee
• MERS foreclosures/bankruptcy
• Judicial decisions
• Case law outlines

NOTE:  On 10-4-12, the Indiana Supreme Court reversed the trial court. 

For The First Time, Indiana Court Tackles MERS: Part I, Senior Mortgagee Time Barred

The confusing role of Mortgage Electronic Registration Systems, Inc. (“MERS”) in the holding of mortgages has been a hot topic across the country for the last few years.  The May 17, 2011 opinion by the Indiana Court of Appeals in CitiMortgage v. Barabas, 2011 Ind. App. LEXIS 892 (.pdf) is the first instance in which Indiana has spoken definitively about MERS – “little more than a ‘straw man’ for lenders,” according to the Court.  Here, in Part I about CitiMortgage, we look at the Indiana statute that dictates the parties, including assignees, to be named in a foreclosure suit. 

The history.  CitiMortgage arose out of a foreclosure case, which made its way to the Court of Appeals by virtue of the trial court’s refusal to set aside a default judgment that terminated the senior mortgage on the property.  The 2005 senior mortgage was given to MERS, “as nominee” of Irwin, the lender.  In June, 2008, junior mortgagee ReCasa initiated a foreclosure action and named only Irwin (not MERS), the purported senior mortgagee, as a defendant.  Irwin promptly filed a disclaimer of interest and was dismissed from the case.  The trial court entered a default judgment for ReCasa in September, 2008.  ReCasa acquired the property at the January, 2009 sheriff’s sale and sold the property to third-party Sanders two months later.

The rub.  A month after the March, 2009 Sanders sale, Citi recorded an assignment of the MERS/Irwin mortgage, even though the evidence showed that Citi acquired an interest in the mortgage as early as July, 2008.  In October, 2009, Citi moved to intervene in the ReCasa foreclosure action, requested relief from the default judgment and sought to set aside the sheriff’s sale.  Citi asserted that, as assignee of MERS, it held a first-priority mortgage on the property.  The fundamental question was whether ReCasa’s failure to name MERS as a defendant rendered ReCasa’s foreclosure judgment ineffective as to Citi.  (See, 12-21-06 post.)

The critical statutes.  Ind. Code § 32-29-8 “Parties to Foreclosure Suit; Redemption” controlled the Court’s analysis.  Here are all three sections of the statute:

Mortgagee or assignee; purchaser at judicial sale
 Sec. 1. If a suit is brought to foreclose a mortgage, the mortgagee or an assignee shown on the record to hold an interest in the mortgage shall be named as a defendant.

Failure to record or join foreclosure action
 Sec. 2. A person who fails to:
  (1) have an assignment of the mortgage made to the person properly placed on the mortgage record; or
  (2) be made a party to the foreclosure action;
is bound by the court's judgment or decree as if the person were a party to the suit.

Good faith purchaser at judicial sale
 Sec. 3. A person who purchases a mortgaged premises or any part of a mortgaged premises under the court's judgment or decree at a judicial sale or who claims title to the mortgaged premises under the judgment or decree, buying without actual notice of an assignment that is not of record or of the transfer of a note, the holder of which is not a party to the action, holds the premises free and discharged of the lien. However, any assignee or transferee may redeem the premises, like any other creditor, during the period of one (1) year after the sale.

The ruling, and Section 3.  CitiMortgage relied heavily on Section 3.  The Court denied the relief requested by Citi and reasoned that:

over a year after ReCasa first foreclosed on the Property [filed suit] and nearly six months after the Property was sold and recorded, Citi sought to assert its interest in the first mortgage.  Based on this information, it is clear that the trial court did not abuse its discretion when it found that I.C. § 32-29-8-3 precluded Citi’s claim because it failed to intervene until more than a year after it first acquired interest in the Property. 

Citi’s intervention, in October, 2009, was indeed over a year after Citi first acquired an interest in the property –July, 2008 or earlier.  But interestingly those facts don’t track the language in Section 3, which speaks to redeeming – not intervening – within a year of the sheriff’s sale – not the assignment date. 

The redemption right.  Admittedly, I don’t fully grasp the Court’s suggestion that Citi somehow had a right of redemption but failed to exercise it within a year.  The CitiMortgage sheriff’s sale was in January of 2009, and Citi moved to intervene nine months later.  Perhaps I’m misinterpreting the Court’s rationale.  I further confess that I’m having trouble reconciling the last sentence in Section 3, particularly the “like any other creditor” phrase, with well-settled Indiana law providing that a sheriff’s sale terminates the right of redemption.  (See, 5-15-08 post.)  This assignee-related/redemption wrinkle will have to be a topic for another day…. 

The Section 2 impact.  It appears to me that Section 2, not Section 3, more clearly supports the Court’s conclusion because Citi failed to timely record the assignment of mortgage and intervene sooner.  There was evidence that Citi knew about ReCasa’s foreclosure action long before it intervened.  Reading between the lines, perhaps CitMortgage’s ultimate lesson is that assignees should record their assignments immediately and then promptly intervene in a known foreclosure action.  (See, 5-28-09 and 10-14-09 posts.)

In the second part of the CitiMortgage opinion, which I’ll discuss next week, the Court specifically hashes out the enigma that is MERS and rejects Citi’s argument around Section 3. 

Note:  The Court, on rehearing, clarified its reasoning related to Section 3.  Here's my 11-1-11 follow-up post.  Furthermore, on 4-10-12, the Supreme Court granted transfer, and on 10-4-12 reversed the trial court.