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Memo To Mortgage Lenders/Servicers/Counsel: Stop Naming County Treasurers In Indiana Mortgage Foreclosure Cases

In connection with my consumer finance/contested foreclosure practice, I continue to see mortgage foreclosure complaints that name the county or the county treasurer when there are delinquent real estate taxes on the mortgaged property. This is a waste of time and money.

Pre-2011. Before 2011, the practice of naming the county was common, if not required. In the event a pre-foreclosure title search disclosed delinquent taxes, which in Indiana are a super-priority lien on the owner’s real estate, the foreclosing plaintiff would name the county as a defendant so the treasurer could formally assert the county’s lien. The foreclosure decree, in turn, would order that the county must be paid first out of any proceeds from the sheriff's sale. As a practical matter, this meant that the lender advanced the delinquent taxes to the county at the time of the sheriff's sale or immediately after. Or, in the case of a cash bidder (third party purchaser), the county treasurer would get the first cut of the sale proceeds.

Post-2011. Even before 2011, we started to see some county sheriffs' offices requiring the plaintiff/lender to pay delinquent real estate taxes before the sale. That became a formal, statutory requirement by virtue of Ind. Code § 32-29-7-8.5, which states, in pertinent part:

(a) Before the date of a sheriff's sale of property under section 3(c) of this chapter, the party that filed the praecipe for the sheriff's sale shall pay the following:


    (2) … all delinquent property taxes, sewer liens described in IC 36-9-23-32, special assessments, penalties, and interest that are due and owing on the property on the date of the sheriff's sale.

(b) If the payments required under subsection (a) are not made in full by the date of the sale, the sheriff:

    (1) shall cancel the sheriff's sale; and
    (2) may conduct the sheriff's sale only:

        (A) upon evidence that the payments required under subsection (a) have been made in full; and
        (B) after a subsequent praecipe is filed, costs are paid, and the sheriff's sale is advertised under this chapter.

In short, if a foreclosing lender does not pre-pay all delinquent real estate taxes, then there will be no sale.

Proof. Depending on the county, the sheriff’s office will require some sort of proof in advance of the sale that there are no delinquent real estate taxes associated with the mortgaged property. Marion County (Indianapolis), for example, mandates that a so-called Tax Clearance Form be (a) completed by the party requesting the sale, (b) stamped by the treasurer’s office and (c) submitted to the sheriff’s office with the pre-sale bid package. The form must be stamped regardless of whether delinquent taxes were ever an issue.

No more. Since the Indiana General Assembly mandates that county treasurers automatically collect delinquent real estate taxes whenever there is a foreclosure sale, the time and expense of naming counties is neither required nor, frankly, advisable. This is true with both commercial and residential foreclosures.
Part of my practice includes representing parties in connection with sheriff’s sales. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. 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.