This post should be read in conjunction with my April 12th post: Indiana Legislation, 2012: Part III of III – Sheriff’s Sale Buyers And Omitted Junior Lienholders Impacted By Creation Of Strict Foreclosure Statute. The good news is that the legislation resolved many important foreclosure and title-related issues that bubbled up over the last few years. Like most legislation, however, Senate Bill 298, which amends Ind. Code § 32-29-8 by adding a new section 4, contains a handful of holes:
1. Interested persons. Section 4’s “interested person” (the “Buyer” in my April 12th post) does not appear to include a plaintiff mechanic’s lien holder. This suggests that the strict foreclosure remedy may not be available in the wake of a sheriff’s sale resulting from a mechanic’s lien action. Does the Section 4 action apply only to mortgage foreclosure sales?
2. Omitted parties. Section 4’s definition of “omitted party” (the “Junior Lienor” in my prior post) appears to exclude senior mortgagees. Thus the strict foreclosure remedy may not relate to situations in which a plaintiff junior mortgagee sues to foreclose, leading to a sheriff’s sale subject to a senior lien not included in the suit. See my 05-07-08 post regarding sheriff’s sales subject to senior mortgage liens. Does Section 4 impact the Indi Investments holding?
3. Forever? The strict foreclosure action can be filed “at any time” after the entry of a foreclosure judgment. Does this mean until the end of time, without any restrictions?
4. No merger, ever? Similarly, Section 4’s anti-merger language provides that “until an omitted party’s interest is terminated . . . any owner of the property as holder of a sheriff’s deed [Buyer] . . . or any person claiming by, through or under such owner is an equitable owner of the senior lien upon which the foreclosure action was based and has all rights against an omitted party as existed before the judicial sale.” The terminology “claiming by, through or under such owner” suggests that the equitable, senior lien endlessly runs with the land or, in other words, inures to the benefit of all subsequent owners holding a link in the chain of title starting with the sheriff’s deed. Is that the intent, with no limitations?
5. Right of payment, generally. The “omitted party” (Junior Lienor) is entitled to payment for any sheriff’s sale proceeds on which it lost out. But the statue does not identify who must pay. My 01-13-11 post notes that any post-sale surplus (a rarity) is paid to the clerk and, in turn, to the mortgagor/owner. Is that who pays? Good luck collecting from that party. Does the “interested person” (Buyer) bear the loss? Will a title policy cover the loss?
6. Right of payment, parity. Mechanic’s lien holders can be Junior Lienors (“omitted parties”) under Section 4. As noted in my 07-03-07 post, in certain circumstances a mechanic’s lien holder and a mortgagee will have equal priority. Section 4 contemplates problems related to senior and junior liens but does not appear to explicitly deal with parity scenarios. Unlike a surplus, sales where parity should have applied are more common and thus could be fertile ground for the losses identified in the statute. Is a clearer identification in the statute of who should pay warranted?
Finally, I’m also left to wonder how strategies of foreclosing lenders and prospective sheriff’s sale buyers, as well as title insurance coverage, might be shaped by the new protections offered by the statute. For example, speed is always a compelling issue for plaintiff lenders. In cases involving multiple liens and thus multiple defendants, Indiana’s judicial foreclosure process can get bogged down, to the chagrin of secured lenders seeking prompt payment or possession. A plaintiff mortgagee theoretically could bypass such delays and foreclose only against the owner/mortgagor so as to more quickly reduce the debt to a money judgment and repossess the property. To clear up title, a subsequent post-sale strict foreclosure action could then be instituted. These and other new approaches could arise out of Section 4.