Indiana Legislation, 2012: Part 2 Of 3 – Obscure Redemption Language Remains

The second noteworthy issue arising out of the General Assembly’s 2012 session surrounds Senate Bill 298, which amends Indiana Code § 32-29-8 “Parties to Foreclosure Suit; Redemption,” including Section 3. This post revisits CitiMortgage v. Barabas, including the mystery that is I.C. § 32-29-8-3, about which I wrote last year: Post 1, Post 2 and Post 3. Unfortunately, even though the legislature amended Section 3, the 2012 session didn’t directly tackle Section 3’s obscure redemption provision. Questions arising out of CitiMorgage linger.

New Section 3. Here is Section 3 of I.C. § 32-29-8, as amended by the italicized language, effective July 1, 2012:

A person who:

(1) 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; and

(2) buys the mortgaged premises or any part of the mortgaged premises without actual notice of:
(A) an assignment that is not of record; or
(B) 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 or during another period ordered by the court in an action brought under section 4 of this chapter, but not exceeding ninety (90) days after the date of the court’s decree in the action.

Redemption/strict foreclosure tweak. The underlined portion above is the source of some uncertainty and was not modified by the General Assembly this year. The critical purpose of the amendment to I.C. § 32-29-8 surrounds section 4 and what amounts to a brand new statutory strict foreclosure action. I.C. § 32-29-7-13 has been amended to state “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 and in IC 32-29-8.” The new “and in IC 32-29-8” language refers to Section 4, which is momentous legislation related to Indiana mortgage foreclosure law that I will discuss in my next post.

Status. One interpretation of Section 3 and CitiMortgage, which dealt with a rare set of facts, is that a buyer at a sheriff’s sale could acquire the property, only to learn within a year after the sale that a senior mortgagee, by virtue of a previously-unrecorded assignment, could surface and assert an interest in the property. I do not believe that the 2012 statutory amendments directly impact, or help clarify, the CitiMortgage holding. Even with the new Section 4, I.C. § 32-29-8, Section 3, needs a little more attention from the General Assembly. I’m afraid Section 3 unwittingly opens the door to litigation concerning post-sale rights of redemption in Indiana.  (Note:  On 4-10-12, the Supreme Court granted transfer in CitiMortgage.)

Borrowers unaffected. The General Assembly’s amendments do not (should not) affect a mortgagor’s (owner’s) right of redemption. Such parties still need to redeem before the sheriff’s sale. If not, Indiana law provides that a mortgagor’s right to or interest in the subject real estate will be fully and finally terminated – even though, interestingly, there is no specific statute stating as much. The rule is inferred from the totality of I.C. § 32-29-7 and confirmed by case law.