Indiana Foreclosures Can Occur Outside Of Probate

This is a short follow-up to my March 19th post:  Indiana’s Claims Deadlines Against An Estate Of A Deceased Borrower.  As my partner Amy VonDielingen pointed out, an additional statute, Ind. Code 29-1-14-16, has some bearing on foreclosures.  The provision, entitled "Liens and mortgages, enforcement; sale of real estate; exception," specifies a waiting period before one can commence a mortgage foreclosure action and requires that the personal representative of the estate be a party to any foreclosure.  

The statute does not require a secured lender to timely file a claim in the estate, however, which was one of the matters addressed in my prior post.  Amy and I both continue to believe that in rem mortgage foreclosure claims (judgments as to the real estate, not the individual) can be brought outside of probate proceedings.

Indiana’s Claims Deadlines Against An Estate Of A Deceased Borrower

First Merchants Bank v. Tolley, 982 N.E.2d 1061 (Ind. Ct. App. 2013) is a hybrid of probate and secured collections law.  The opinion helps guide secured lenders when an Indiana borrower, who is in default under a mortgage loan, passes away and an estate is opened.  Specifically, Tolley addresses the applicable deadlines to file a claim against the estate. 

The chronology.  In Tolley, co-borrower (Husband) died 11/17/10.  An Estate was opened on 12/17/10, and counsel for the Estate called Lender to notify Lender that Husband had died and that estate proceedings had begun in Miami County.  On 12/31/10 and again on 01/07/11, the Estate published a statutory “notice of administration” in a local newspaper.  On 07/26/11, Lender filed a claim against the Estate related to notes and mortgages co-signed by Husband and Wife. 

Trial court’s summary judgment.  The Estate filed a motion for summary judgment seeking to strike Lender’s two claims because they were not filed within three months after the date of the first published notice to creditors.  Lender countered by filing its own summary judgment motion asserting that its claims were timely filed within nine months of the date of death.  The trial court sided with the Estate, but the Court of Appeals later ruled for Lender.

Indiana probate-related notice requirements.  The Court of Appeals discussed at length the difference between a “nonclaim statute” and a “statute of limitation,” which analysis may only be stimulating to attorneys.  (FYI, at issue in Tolley were nonclaim statutes.)  I.C. § 29-1-14-1(d) bars claims against an estate if they are not filed within nine months after the death.  On the other hand, I.C. § 29-1-14-1(a) bars claims unless they are filed within three months after the first published notice of the death to (generally unknown) creditors.  But subsection (a) must be read in conjunction with I.C. § 29-1-7-7, which also governs notice and which relates to known creditors. 

Parties’ contentions.  Lender argued that subsection (d) of I.C. § 29-1-7-7 required the Estate to provide Lender, a known creditor, notice by direct mail or other written means, not merely by publication in a newspaper.  Lender asserted a constitutional due process-like argument.  On the other hand, the Estate argued that I.C. § 29-1-7-7 did not require direct written notice and that, in this case, notice was immaterial because Lender already knew about the death and the opening of the Estate.  Since Lender did not file any claim until almost seven months after the first published notice to creditors, the claims should fail, according to the Estate. 

Holding and rationale.  The Court reversed the trial court and granted summary judgment in favor of Lender.  The Court “[could not] say that [Lender] received proper notice.”  As such, Lender’s claims, which Lender filed within nine months of Husband’s death, were timely filed.  The Court reasoned that the nine-month deadline, as opposed to the three-month deadline, applied.  This is because I.C. § 29-1-7-7(d) requires a written, detailed notice to be served on each creditor “who is known or reasonably ascertainable” and, in Tolley, Lender fit that description.  The phone call from the attorney for the Estate did not meet the statutory notice requirements, which include notice of the time period for the filing of a claim. 

Inapplicable to foreclosures.  As an aside, the Estate in Tolley conceded that, should the probate-related claims be dismissed, Lender would not be prevented from foreclosing the mortgages or from recovering any deficiency from the surviving co-borrower.  Thus the lessons from Tolley really only apply to collection of a deficiency from the estate of a borrower.  In rem mortgage foreclosure claims (judgments as to the real estate, not the individual) can be brought outside of probate proceedings. 

Thanks to my partner Amy VonDielingen, who handles both creditor’s rights and probate matters at our firm, for her input into today’s post.

Execution Upon Indiana Real Estate Owned As “Tenancy By The Entireties”

Is real estate that spouses own jointly subject to execution to satisfy a judgment entered against only one of the spouses?  Not in Indiana.

Definition.  Black’s Law Dictionary’s definition of “tenancy by the entireties” is:

A tenancy which is created between a husband and wife and by which together they hold title to the whole with right of survivorship . . ..  It is essentially a “joint tenancy,” modified by the common-law theory that husband and wife are one person, and survivorship is the predominant and distinguishing feature of each.

Indiana’s rules.  As a matter of law, real estate owned by a husband and wife is held under a form of ownership known as “tenancy by the entireties.”  There are only two requirements for a tenancy by the entireties to exist:  (1) that spouses be legally married at the time of the conveyance; and (2) that the deed include both spouse’s names.  No “magic language” is required on the deed.  If, for example, the deed states that the grantor conveys the real estate “to Eddie Doe and Betty Doe, husband and wife,” then under Indiana law the couple owns the real estate as tenants by the entireties.

Exempt.  In Indiana, a creditor of one spouse cannot execute upon real estate owned as tenants by entireties.  See Ind. Code § 34-55-10-2(C)(5); see also Diss v. Agri Bus. Int’l, 670 N.E.2d 97, 99 (Ind. Ct. App. 1996) (“A tenancy by the entirety is immune from seizure in satisfaction of the individual debts of either of the co-tenant spouses.”).  Thus, any real estate owned jointly as spouses is exempt from collection by any creditor that obtains a judgment against one spouse individually. 

Sale proceeds/rents.  As a general rule, proceeds arising from the sale of entireties property also are exempt from collection by the creditors of one spouse.  Thus, where entireties property is sold, the sale proceeds do not lose their exemption protection so long as no action is taken contrary to treatment as entireties property (i.e., the proceeds are not split, divided or otherwise designated to either spouse’s individual creditors) and/or there is a particular statement by the couple that they intend the proceeds to be, and are, held as entireties property.  Whitlock v. Public Service Company of Indiana, Inc., 159 N.E.2d 280 (Ind. 1959).  On the other hand, rents are not immune. 

Co-borrowers/guarantors.  These laws protect an innocent spouse or, in other words, a spouse that was not a defendant in the lawsuit or a party to the underlying transaction.  The entireties exemption explains why, on the front-end of a deal, a lender might insist upon spouses co-signing a note or require guaranties from both spouses, even though only one of the spouses is in the business.  If both spouses are judgment debtors, co-borrowers or co-guarantors, then their real estate held as tenancy by the entireties is not shielded from post-judgment collection. 

Thanks to my colleague Matt Millis for his input into this post.  He took the lead with the legal research this week and, as always, is an effective post-draft editor for me.