Single Note/Multiple Mortgages In Different States: Can The Indiana Mortgage Be Foreclosed And, If So, When?
March 11, 2016
Facts: A prospective lender client was considering a high-dollar commercial loan to be documented by a single promissory note secured by several mortgages in several states, including Indiana. In the event of a default under the note, the lawsuit to enforce the note – the action to obtain the judgment under the note – would not be in Indiana.
Issues: The lender generally wanted to know whether the Indiana mortgage would be enforceable. Since Indiana law requires mortgages to be foreclosed in the county where the mortgaged real estate is located (Ind. Code 32-30-10-3), one of my first questions was how, if at all, could the Indiana mortgage be foreclosed, given that the action on the note would be pursued in a different state? My next thought concerned how any Indiana foreclosure action would be impacted by the promissory note case in the other state?
Statutes: I reviewed several Indiana statutes for answers, including I.C. 32-30-10 (Mortgage Foreclosure Actions) and I.C. 32-29 (Mortgages). According to my research, there are no statutes directly on point. None of the statutes contemplate what to do when there are multiple mortgages in different states securing a single note, although from experience I understand that a debt can be secured by multiple mortgages. Generally, the structure appeared to be sound. The enforcement of a default was the trickier matter. Other than I.C. 32-30-10-3 mentioned above, the only other instructive Indiana statute was I.C. 32-30-10-10, which says in pertinent part:
A plaintiff may not:
(1) proceed to foreclose the mortgagee’s mortgage:
(A) While the plaintiff is prosecuting any other action for the same debt or matter that is secured by the mortgage; [or]
(B) While the plaintiff is seeking to obtain execution of any judgment in any other action
(2) Prosecute any other action for the same matter while the plaintiff is foreclosing the mortgagee’s mortgage or prosecuting a judgment of foreclosure.
What I think this statute says is that a lender cannot, in one suit, pursue a judgment under the promissory note while at the same time, in a separate suit, foreclose the mortgage securing the note. The two actions must occur simultaneously within the same case, or they must be done sequentially – with the note action first to establish the debt to be foreclosed. Having said this, as noted below, Indiana case law either interpreting or applying Section 10 is extremely limited. Further, it’s frankly unclear to me what the words “matter” or “same matter” mean in Section 10.
Case law: The good news is that there are five Indiana Supreme Court cases that deal with the concepts in Section 10, and one of those cases actually cites to an older version of the statute. The bad news is that all of the five cases are from the 1800’s. Assuming the 21st Century courts follow the 19th Century decisions, a lender should be able to obtain a judgment on a note without abandoning its mortgage lien on the mortgaged premises. In other words, recovery of a judgment on a debt is not a bar to a subsequent action to foreclose the mortgage. Moreover, a lender, holding a judgment on a debt, may proceed to foreclose the mortgage without going through the judgment execution process.
Conclusions: Indiana law appears to be settled that there can be two suits – one on the note and one on the mortgage – as long as the two suits are not pending at the same time. This principle seems to be supported by the Setree opinion, which I discussed last year - Full Faith And Credit: Indiana Foreclosure’s Die Was Cast By Kentucky Judgment. Referring back to the original issues above, my opinion is that the Indiana mortgage generally should be enforceable but that the Indiana foreclosure action cannot be commenced until after the entry of the out-of-state judgment on the promissory note. The unresolved question in my mind is whether the post-judgment Indiana foreclosure action could be prosecuted simultaneously with foreclosure actions in other states.
If you are aware of any case law to the contrary or have litigated these matters previously, please post a comment or email me at firstname.lastname@example.org. I’d be curious as to any thoughts or input.
Now, back to March Madness….