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Res Judicata, Specifically Claim Preclusion, And How To Dismiss A Borrower’s Post-Foreclosure Case

Lesson.  Absent an appeal, borrowers generally cannot obtain relief following an unsuccessful defense to a state court foreclosure action.  If a borrower files a subsequent case that is, essentially, an attempt at a do-over, Indiana courts very likely will dismiss it.  

Case cite.  Thomas v. Deutsche Bank, 2014 U.S. Dist. LEXIS 131081 (N.D. Ind. 2014) (.pdf).

Legal issue.  Whether the borrower’s federal court complaint was barred by res judicata (claim preclusion).   

Vital facts.  The defendants were a lender/mortgagee and its loan servicer.  The lender filed an action in state court against the borrower seeking to foreclose on the mortgaged property.  The borrower appeared in the action and filed a counterclaim.  The state court entered judgment, which the borrower sought to set aside to no avail.  She even filed a post-judgment complaint, which the state court struck.  Next, the borrower filed a new action in state court with a pleading identical to the complaint struck by the prior court.  The new action then was removed to federal court. 

Procedural history.  The Thomas opinion arose out of the lender’s Rule 12(b)(6) motion to dismiss for failure to state a claim.   

Key rules.  Thomas dealt with the claim preclusion component of res judicata in which four factors must be present:  (1) the former judgment was entered by a court of competent jurisdiction, (2) the former judgment was rendered on the merits, (3) the current matter in question was, or could have been, determined in the prior case and (4) the controversy adjudicated in the prior action was between the parties to the present suit or their privies.  A “privy” includes one that controls an action, although not a party to it, and one whose interests are represented by a party to the action. 

Holding.  The federal district court in Thomas granted the motion to dismiss and concluded that the four prongs of claim preclusion were satisfied.  “[Lender] obtained a final, favorable judgment by a court of competent jurisdiction, and [borrower] missed her opportunity to raise her allegation at that time.”  The servicer, although not a party to the former action, also was dismissed because it was in privy with the lender.

Policy/rationale.  The borrower sought to raise issues that were or could have been adjudicated in the foreclosure proceeding.  She challenged the lender’s interest in the property and its status as the holder of the loan.  Yet, the foreclosure action determined ownership and interest.  “[Borrower] had an opportunity to dispute the ownership in the prior proceeding before the [state court].”  Her contentions were, or should have been, resolved in the former case.

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