Following A Dismissal, Lenders Generally Are Able To Refile Foreclosure Actions Based On New Defaults
In Indiana, if a mortgage foreclosure action gets dismissed, even with prejudice, the lender usually has the right to file another action if there is a subsequent and separate loan default. The Indiana Court of Appeals in Deutsche Bank v. Harris, 2013 Ind. App. LEXIS 150 (Ind. Ct. App. 2013) touches upon this rule.
Procedural posture. For a multitude of reasons not pertinent to this post, the trial court in Harris dismissed the lender’s foreclosure case, pursuant to Indiana Trial Rule 41(E), for an alleged failure to prosecute. The appeal explored whether the trial court abused its discretion in denying the lender’s Trial Rule 60(B) motion for relief from the adverse judgment. The main point here is that the trial court dismissed, with prejudice, the lender’s mortgage foreclosure suit, and even went so far as to enter an order quieting title per the borrower’s counterclaim.
Reinstitution possible. The Court of Appeals reversed the trial court’s decision for a number of reasons, one of which was the borrower’s “incorrect argument that the [lender] could not reinstitute an action under the Note and Mortgage based upon a new default.” Indiana case law provides that, where the initial foreclosure action by the lender was dismissed with prejudice pursuant to Trial Rule 41(E), a lender is not barred from initiating successive foreclosure actions for “subsequent and separate” alleged defaults by a borrower under a promissory note. “Subsequent and separate alleged defaults under notes create a new and independent right in the mortgagee to accelerate payment on the note in a subsequent foreclosure action,” the Court said.
Upshot. The Court of Appeals held that the lender “would not be precluded from later filing a claim under the Note and Mortgage for subsequent and separate alleged defaults” by the borrower. Based on that and other reasons, the Court reversed the trial court’s entry dismissing the lender’s lawsuit, and the Court remanded with instructions that the trial court reinstate the lender’s cause of action.
Impact of rule. Without doing more exhaustive research, it is not entirely clear to me, based upon the Harris opinion alone, whether the “right to refile” rule is limited to dismissals under Trial Rule 41(E). The opinion did not specify whether (or not) the rule also applies to other dismissals, for instance those under a borrower’s motion to dismiss under Trial Rule 12(B)(6) or motion for summary judgment under Trial Rule 56.
In my view, a technical, procedural dismissal will not, in Indiana, prevent lenders from suing on future loan defaults. The dismissal of a lender’s mortgage foreclosure action should not, in and of itself, terminate a mortgage or release the borrower from obligations under a promissory note. For that to occur, my opinion is that a court would need to enter a specific judgment or decree reaching that conclusion, and would need legal justification to do so. A mere dismissal of a foreclosure lawsuit, without some corresponding adjudication on the merits that the mortgage is terminated and/or that the note is cancelled, should not bar a lender from subsequently trying to foreclose.