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Tax Deed Denied Because Redemption Notice Suggested The Amount To Redeem Included Surplus Funds

Lesson. A tax sale purchaser may not obtain a tax deed if the statutory redemption notice inflates the redemption amount. Such notices should not include any overbid/surplus funds as being required for redemption.

Case cite. Pinch-N-Post, LLC v. McIntosh, 132 N.E.3d 14 (Ind. Ct. App. 2019)

Legal issue. Whether tax sale purchaser’s post-sale statutory redemption notice substantially complied with Indiana law despite erroneously including purchaser’s overbid amount.

Vital facts. Tax sale purchaser (“Purchaser”) timely sent the post-sale statutory redemption notice to the owner/tax payer (“Owner”). This is sometimes referred to as the “4.5 Notice” based upon the relevant statute. Owner did not redeem the property from the tax sale.  The contents of the 4.5 Notice were at issue in McIntosh. Purchaser bought the tax sale certificate for $8752.00, which included an overbid (surplus) amount of $4679.29. The 4.5 Notice erroneously listed the overbid as a component of the redemption amount.

Procedural history. Purchaser filed a petition for tax deed, and Owner objected. After a hearing, the trial court denied the petition, and Purchaser appealed.

Key rules. The Indiana Court of Appeals summarized the tax sale process:

the sale proceeds first satisfy the property tax obligation for the property, then satisfy certain other qualifying tax obligations of the property owner, with any surplus going into the Surplus Fund. In other words, the Surplus Fund is comprised of the overbid. The Surplus Fund may also be used to satisfy taxes or assessments that become due during the redemption period. Finally, if the property is redeemed, the tax-sale purchaser has a claim on whatever is in the Surplus Fund, and, if a tax deed is issued, the original owner does.

A 4.5 Notice arises out of Indiana Code 6-1.1-25-4.5. The notice must include, among other things, “the components of the amount required to redeem” the property from the sale. Indiana Code 6-1.1-24-6.1(b) details those components. The overbid/surplus is not one of the components.

Holding. The Court affirmed the denial of the petition for tax deed but remanded the case with instructions for the trial court to order a new 120-day redemption period with a new 4.5 Notice.

Policy/rationale. The trial court found that the 4.5 Notice “greatly overstated” the redemption amount. The Court of Appeals agreed that the notice “would have led a reasonable person to conclude that the total redemption amount was far greater than it actually was….” The Purchaser made a number of arguments in support of its theory that the 4.5 Notice substantially complied with the applicable statutes and was not inaccurate. However, the Court rejected the Purchaser’s position and reasoned that the notice “asked [Owner] to jump through too many hoops to discover the true redemption amount, a situation that only existed because [Purchaser] - misleadingly and without justification – included the overbid in the first place.”

Related posts.

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I sometimes am engaged by mortgage loan servicers or title companies to represent lenders/mortgagees in real estate-related disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


Court Invalidates Mortgages In Favor Of Creditor In Judgment Lien Foreclosure Action

Lesson. If you are trying to collect a judgment and suspect the judgment debtor granted a bogus mortgage to neutralize the judgment lien, then study the description of the purported debt in the mortgage and investigate the debt’s nature. You may be able to invalidate the mortgage lien.

Case cite. Drake Investments v. Ballatan, 138 N.E.3d 964 (Ind. Ct. App. 2019) (unpublished, memorandum decision)

Legal issue. Whether the subject mortgages were invalid, rendering priority in title to the judgment lien.

Vital facts. Judgment creditor Ballatan obtained a 125k judgment against Huntley on 9/28/07. While the underlying action was pending but before the entry of judgment, Huntley granted mortgages to her son on four parcels of real estate. The one-page mortgages indicate that Huntley agreed to pay her son an aggregate amount of 830k secured by the real estate. The son testified that Huntley granted the mortgages “in exchange for [son] taking care of [mom’s] living expenses….” Three years later, the son paid Huntley 30k for title to all the real estate. Then, the son transferred ownership of the four parcels to Drake Investments. The son was the president of Drake.

Procedural history. Ballatan filed suit to foreclose his judgment lien against the real estate formerly owned by Huntley, the judgment debtor. Drake asserted that the mortgages had priority over the judgment lien. The trial court granted summary judgment in favor of Ballatan and against Drake, which appealed.

Key rules.

Indiana Code 32-29-1-5 defines the proper form for mortgages in Indiana.

Indiana common law provides that mortgages must secure a debt that must be described in the document:

The debt need not be described with literal accuracy but it ‘must be correct so far as it goes, and full enough to direct attention to the sources of correct information in regard to it, and be such as not to mislead or deceive, as to the nature or amount of it, by the language used.’ It is necessary for the parties to the mortgage to correctly describe the debt ‘so as to preclude the parties from substituting debts other than those described for the mere purpose of defrauding creditors.’ As our federal sister court has observed, ‘most Indiana cases have examined the description of the debt as a whole to decide whether it puts a potential purchaser on in essence inquiry notice of an encumbrance, and whether it is specific enough to prevent the substitution of another debt.’

Holding. The Indiana Court of Appeals affirmed the trial court and held that the mortgages were invalid.

Policy/rationale. The Court’s opinion has a lengthy and thorough discussion of what constitutes a valid mortgage in Indiana, in particular the requirement for the description of the underlying debt. In Drake, the mortgages referred to promissory notes for the purported debts, but Drake never produced the notes. In fact, the only evidence was that the mortgages secured payment of future living expenses for Huntley. In other words, Huntley did not owe her son money upon execution of the mortgages. The mortgages also failed to include a date for repayment as required by statute. “One cannot tell from looking at the [mortgages] when [son’s] purported mortgage interest … was scheduled to expire.” Thus, the descriptions of the debts were inaccurate. Further, the Court concluded that the inaccuracies were “sufficiently material” to mislead or deceive as to the nature and amount of the debt. The mortgages made no connection between, or mention of, the debt and the living expenses. “The descriptions of the debts are so vague that they do not preclude [Huntley] and [son] from substituting other debts for the debts described.”

Related posts.

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I represent judgment creditors and lenders, as well as their mortgage loan servicers and title insurers, entangled in lien priority disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


Indiana's Recording Law Change, Effective July 1

I'm passing along information distributed by the Indiana State Bar Association.  For today's content, all the credit goes to the ISBA:   

On July 1, 2020, an obscure change to an Indiana recording statute becomes effective, requiring lawyers to change how they prepare deeds, mortgages, powers of attorney, affidavits, and other instruments that must be recorded in an Indiana County recorder’s office.

The ISBA has drafted a directive to provide significant guidance to all members about this change and the sufficiency of signatures and notarial certificates for recording any deed, mortgage, or other paper or electronic instrument after June 30, 2020.

Click here for the ISBA's directive.  


Governor Holcomb's June 30 Order Extending Residential Foreclosure Moritoriaum

Section 1 of the Governor's order addresses residential mortgage foreclosures and follows-up his order order from March 19th, which was the subject of my March 28th post.  Here are the highlights:

  1. Residential mortgage foreclosure actions based upon nonpayment cannot be filed until August 1.
  2. This does not change the federal order that prevents FHA-insured mortgages from being foreclosed through August 31.
  3. Foreclosure actions on vacant or abandoned property can proceed.