Will Mysterious Post-Sale Redemption Statute Be Clarified ... And What About The Treatment Of MERS?

I've learned that, on April 10th, the Indiana Supreme Court granted transfer in the CitiMortgage v. Barabas case about which I've written on four prior occasions, most recently on March 29th:  Indiana Legislation, 2012:  Part 2 of 3 - Obscure Redemption Language Remains.  In Indiana, a decision to grant transfer automatically vacates opinions of the Court of Appeals or, in other words, negates the prior case law.  So, perhaps later this year we'll hear from Indiana's highest court on some important foreclosure-related topics, including post-sale redemption rights and the treatment of MERS.  Interestingly, the opinion will be rendered after the 2012 legislation that amended the operative statute, Ind. Code Section 32-29-8.  It's unclear to me whether or to what extent the Court will take into account or otherwise touch upon the amended statute.  I'll be on the lookout for the Court's decision and will post about it accordingly.    

NOTE:  On 10-4-12, the Supreme Court reversed the trial court.


Indiana Legislation, 2012: Part 1 Of 3 – Abandonment Of Mortgaged Property

The Indiana General Assembly’s 2012 session addressed three noteworthy issues related to Indiana Commercial Foreclosure Law. Today’s post is about House Bill 1238 and its amendment to Indiana Code § 32-29-7-3.

Three-month waiting period. Indiana has a post-complaint, three-month waiting period before sheriff’s sales can be requested. My July 30, 2010 post noted the exception to the three-month rule, which exception did not at the time apply to commercial properties – only residential.

The new I.C. § 32-29-7-3(a)(2). The amended statute, which becomes effective July 1, 2012, revises the exception to the three-month rule to read: “If the Court finds under I.C. 32-30-10.6 that the mortgaged real estate has been abandoned, a judgment or decree of sale may be executed on the date the judgment of foreclosure or decree of sale is entered, regardless of the date the mortgage is executed.” The new statute deletes the “residential” qualification and thus applies to commercial foreclosures now too. Moreover, the statute incorporates a brand new statute – I.C. § 32-30-10.6 – that creates a test and a procedure to determine whether the real estate has been abandoned.

I.C. § 32-30-10.6. This brand new statute is entitled “Determination of Abandonment for Property Subject to a Mortgage Foreclosure Action” and is quite lengthy. If foreclosing lenders or their counsel believe the subject real estate may be abandoned, then this new statute should be studied and followed, assuming there is interest in rushing to a sheriff’s sale. My partner Tom Dinwiddie, who helped draft the legislation, pointed out to me that, in practice, a Section 10.6 motion should be filed with the Complaint or, at the latest, with the Motion for Default Judgment in order to take advantage of the exception to the three-month rule.

Commercial application. As noted by one of my 2006 posts, Indiana’s judicial foreclosure process takes time. In my experience, the three-month waiting period rarely comes into play in commercial actions. Nevertheless, in instances where the commercial property is abandoned, this new legislation establishes a process that, in theory, permits lenders to get the property to a sheriff’s sale faster.


 


In Indiana, Failure To Comply With HUD Servicing Regulations Can Be A Defense To A Foreclosure Action

While not directly applicable to commercial cases, Lacy-McKinney v. Taylor, Bean & Whitaker Mortgage, 937 N.E.2d 853 (Ind. Ct. App. 2010) is worth mentioning here. If you are involved in residential mortgage foreclosures in Indiana, you should be aware of the Lacy-McKinney decision. The case addressed the question of whether a lender/mortgagee’s lack of compliance with federal mortgage servicing responsibilities may be raised as an affirmative defense to the foreclosure of an FHA-insured mortgage.

HUD language. The Lacy-McKinney note and mortgage, which were in default for non-payment, referenced the applicability of HUD regulations to the loan. The terms of the loan documents clearly spelled out that regulations limited the lender’s right to accelerate and foreclose. For example, the borrower claimed that the lender did not satisfy a HUD regulation requiring a face-to-face meeting before the filing of a complaint for foreclosure.

The issue. The main issue in Lacy-McKinney was: are the HUD regulations binding conditions precedent that must be complied with before a lender has the right to foreclose on a HUD-insured mortgage? (Please note that the quarrel over the condition precedent did not affect the validity of the mortgage, but only whether the lender had a right at the time to foreclose on the mortgage.)

First impression. The issue was one of “first impression” in Indiana – meaning that the legal question was entirely novel and could not be governed by any existing Indiana precedent. The opinion thoroughly outlined the background of HUD-insured mortgages and some of the applicable regulations. (Read the opinion for more detail.) The case also discussed other states’ positions on the issue.

Defense recognized. The Court concluded that an affirmative defense should be recognized for non-compliance with HUD regulations under the circumstances:

The above precedents, the language of the HUD regulations, and the public policy of HUD persuade us that the HUD servicing responsibilities at issue in this case are binding conditions precedent that must be complied with before a [lender] has the right to foreclose on a HUD property. As such [borrower] can properly raise as an affirmative defense that [lender] failed to comply with the HUD servicing regulations prior to commencing this foreclosure action.

Summary judgment reversed. The Court went on to hold that the trial court’s summary judgment in favor of the lender should be reversed. “The trial court erred in granting summary judgment in favor of [lender] on its action to foreclose on [borrower’s] HUD-insured mortgage without first determining that [lender] had complied with Subpart C – the conditions precedent to foreclosure.” The Court therefore remanded the case to the trial court for further proceedings – likely a dismissal of the case. Ultimately, the lender in Lacy-McKinney may win the foreclosure war, but the borrower won this battle.

Those who deal in this area, whether they be lenders, borrower or counsel, should be familiar with this case. The loan document provisions and regulations appear to be consistent with 2009 Indiana state and local law developments requiring pre-suit settlement conferences, etc. about which I discussed on March 15, 2009 and June 19, 2009. Depending upon the contents of the loan documents, HUD-related “i’s” need to be dotted and “t’s” need to be crossed before suit can even be filed.


How Long Is Too Long To Wait Before Enforcing A Money Judgment In Indiana?

The question posed in the title of this post is exactly the question stated by the Indiana Court of Appeals in Wilson v. Steward, 937 N.E.2d 826 (Ind. Ct. App. 2010).

Oldie, but a goodie. On July 25, 1989, the Henry Circuit Court held that Father was in contempt for non-payment of child support and ordered that Father pay a lump sum for the arrearage, plus Mother’s attorney fees. Father died in 2009, and an estate was opened in Rush Superior Court. On September 10, 2009, Mother filed a claim against the estate based on the unpaid order from 1989. The estate filed a motion to dismiss and asserted that the claim was barred by statutes of limitations. The trial court denied the motion and awarded Mother the money to which she was entitled over twenty years earlier.

Not child support. The Court of Appeals rejected the idea that the 1989 order was an enforcement of child support obligations, which triggers its own statute of limitations (Ind. Code § 34-11-2-10). If you are a domestic relations lawyer who has stumbled on to my blog, please read the opinion for more on that subject.

Money judgment. The Court held that the Indiana code sections dealing with the enforcement of money judgments applied. “Mother’s claim against the estate is an attempt to enforce the 1989 judgment . . ..” The issue was whether I.C. § 34-11-2-12 barred Mother’s claim. I touched upon this matter in my 2008 post “Time Limitations Upon The Enforcement Of Non-Indiana Judgments In Indiana.” The statute reads: “Every judgment and decree of any court of record of the United States, of Indiana, or of any other state shall be considered satisfied after the expiration of twenty (20) years.”

Unique statute. The Wilson opinion noted that I.C. § 34-11-2-12 contains “unique phraseology” that “sets it apart from all other statutes of limitation listed in Indiana Code Chapter 34-11-2.” In reality, the twenty-year statute is not a statute of limitations but “a rule of evidence that creates a rebuttable presumption.” This means:

A judgment that is less than twenty years old constitutes prima facie proof of a valid and subsisting claim, whereas a judgment that is over twenty years old stands discredited, with the lapse of time constituting prima facie proof of payment. Thus, the party seeking to avail itself of the presumption of satisfaction of a judgment after twenty years have passed must plead payment.

(Prima facie is defined as “a fact presumed to be true unless disproved by some evidence to the contrary.”)

Applying the statute. In Wilson, Mother filed her claim to enforce the 1989 money judgment six weeks after the twenty-year period expired. At the trial court’s hearing in 2010, Mother provided testimony that the 1989 judgment had not been paid. Moreover, the record was devoid of any evidence from the estate asserting payment. The Court of Appeals concluded that “the evidence was sufficient to overcome the presumption of satisfaction of the judgment.” Accordingly, I.C. § 34-11-2-12 did not bar Mother’s claim against the estate.

No absolute bar. Wilson illustrates that Section 12 does not set an outer limit of twenty years on the validity and enforceability of a money judgment. In other words, Section 12 does not constitute an absolute bar to recovery. Rather, it is a rule of evidence creating a rebuttable presumption of satisfaction (payment) by the lapse of time (twenty years). If there is proof of non-payment, particularly in the absence of any proof of payment, then judgments can be enforced outside of the twenty-year period. How long is too long to wait before enforcing a money judgment in Indiana? According to Wilson, it may never be too late, even if the judgment debtor is dead!


Can Witnesses Testify By Telephone At An Indiana Court Proceeding?

In connection with one of my recent hearings on a petition for the appointment of a receiver, the lender sought permission from the trial court to have its representative testify by telephone.  The borrower and the guarantor – my clients – contested the receivership.  One of our first filings was an objection to the lender’s request to allow telephonic testimony.  The issue was a novel one for me.

The lender’s position.  The reasoning behind the lender’s motion was understandable.  The lender’s representative lived in Dallas, the lender anticipated the hearing would be less than an hour, and the defendants conceivably would not even appear.  The obvious motive was to avoid time and expense, and there’s nothing wrong with that.  (As an aside, a lender’s proof generally can be made through an affidavit.  Depending upon the facts and circumstances, however, a lender may want one of its representatives in court to address any surprises or to provide a more compelling presentation of the lender’s position.) 

The defendants’ position.  For a variety of reasons, my clients instructed me to object.  The theory we advanced was that, pursuant to Indiana Rule of Trial Procedure 43(A), “[i]n all trials the testimony of witnesses shall be taken orally in open court . . ..”  And “a hearing [such as a receivership hearing] in which issues of fact will be determined constitutes a trial within the meaning of T.R. 43(A).”  3 William Harvey, Indiana Practice §43.7 (3rd ed. 2002).  In addition, we argued that lender’s representative, testifying by phone, would hinder our and the court’s ability to “observe [the witness’s] demeanor and determine credibility.”  Holman v. Holman, 472 N.E.2d 1279, 1289 (Ind. Ct. App. 1985). 

The rule.  The judge, at the pre-hearing attorney conference, pointed to law to which neither firm had cited:  the Indiana Administrative Rules, which aren’t rules of procedure or evidentiary rules, but which deal with certain administration functions of the courts.  The operative rule was 14 “Use of Telephone and Audiovisual Telecommunication,” which sanctions telephonic testimony under limited circumstances.  Here are the rule's applicable subsections:

(B) Other Proceedings.  In addition, in any conference, hearing or proceeding not specifically enumerated in Section (A) of this rule . . . a trial court may use telephone or audiovisual communications subject to:
(1) the written consent of all the parties, entered on the Chronological Case Summary; or
(2) upon a trial court's finding of good cause, upon its own motion or upon the motion of a party. The following factors shall be considered in determining "good cause":
(a) Whether, after due diligence, the party has been unable to procure the physical presence of the witness;
(b) Whether effective cross-examination of the witness is possible, considering the availability of documents and exhibits to counsel and the witness;
(c) The complexity of the proceedings and the importance of the offered testimony in relation to the convenience to the party and the proposed witness;
(d) The importance of presenting the testimony of the witness in open court, where the fact finder may observe the demeanor of the witness and impress upon the witness the duty to testify truthfully;
(e) Whether undue surprise or unfair prejudice would result; and
(f) Any other factors a trial court may determine to be relevant in an individual case.

Rule 14(B)(3) discusses a motion/hearing process for determining the issue.  The court in our case, after weighing the “good cause” factors in Rule 14(B)(2), held that the lender’s representative had to appear live.

The device.  Parties to litigation, whether plaintiffs or defendants, almost always look for ways to save time and money.  Although Indiana courts are fundamentally opposed to testimony over the phone, Administrative Rule 14 provides narrow exceptions to the rule.  If the two sides can agree on the issue, Rule 14(B)(1) specifically authorizes telephonic testimony.  Even if there is no mutual consent, Rule 14(B)(2) outlines the standards for “good cause” to permit it.  Lenders and borrowers that navigate through Indiana’s judicial foreclosure process, including any receivership proceedings, should be cognizant of the potential benefits of Administrative Rule 14.


What Are A Lender’s Rights As A “Loss Payee” Under An Insurance Policy In Indiana?

If you work for a lending institution that makes secured loans, then you may have heard of the term “loss payee.”  If you are not sure what that means, then the Court’s decision in Monroe Bank v. State Farm, 2010 U.S. Dist. LEXIS 119736 (S.D. Ind. 2010) (.pdf) will help. 

The loan and the loss.  In Monroe, the lender funded a loan to the borrower that was secured by a lien on the borrower’s boat.  The loan agreement between the lender and the borrower called for the borrower to obtain insurance for the boat and to name the lender as a “loss payee.”  The borrower did just that.  Thereafter, the boat fell on hard times, so to speak, by being stolen twice and ultimately suffering severe damage.  As a result, both the borrower and the lender filed an insurance claim but, for reasons not explained in the Court’s opinion, the insurer denied the claim. 

Loss payee definition.  Black’s Law Dictionary defines “loss payee” as a “person named in insurance policy to be paid in event of loss or damage to property insured.”  For more background, here is a link to Wikipedia’s definition of a “loss payee clause.” 

Direct suit by lender.  Due to the damage to its loan collateral, and in light of the insurer’s denial of the claim, the lender filed suit against the insurer.  Specifically, the lender filed a breach of contract claim and sought damages for its losses associated with the damage to the boat.  The insurer filed a motion to dismiss under Rule 12(b)(6) and advanced two arguments in support. 

    Direct action rule.  The insurer’s first argument rested upon Indiana’s “direct action rule” that “prohibits a third party or judgment creditor from directly suing a judgment debtor’s insurance carrier to recover an excess judgment.”  The Court, concluding that the direct action rule did not apply, rejected the argument.  The lender in Monroe was not a “third party,” but rather a loss payee under the policy.  As such, the lender “was a third party beneficiary of the contract between [the insurer] and [the borrower].” 

    Suit limitations clause.  In the alternative, the insurer contended that the policy’s suit limitations clause barred the lender’s claim.  The clause stated that “no action shall be brought unless there has been compliance with the policy provisions.  The action must be started within one year after the date of loss or damage.”  The premise of the insurer’s argument was that the lender had to include the borrower in the suit.  In Monroe, the borrower was not included in the suit, and it was undisputed that more than one year had elapsed since the date of loss.  Again, the insurer’s argument failed, and the reason was that the insurer “ignored the fact that as a loss payee, [lender] is a third party beneficiary to the insurance contract.”  In Indiana, as a third party beneficiary, the lender can sue the insurer directly to enforce the insurance contract. 

Rights, generally.  I am no insurance law expert.  Such matters for our firm generally are handled by my partner, Dale Eikenberry.  Nevertheless, it is important for attorneys like me, who handle litigation involving secured loans, to be conversant with insurance fundamentals.  Similarly, representatives of secured lending institutions need to know the basics.  Hence this post about Monroe, which teaches us that, generally, in Indiana a secured lender, named as a loss payee under its borrower’s insurance policy, can as the situation warrants file suit directly against the insurer if a claim is wrongfully denied. 


Certain Summonses In Indiana Residential Mortgage Foreclosure Cases Deemed Confidential

Indiana’s General Assembly passed legislation in 2009, in the midst of the residential mortgage foreclosure crisis, that included the “Foreclosure Prevention Agreements for Residential Mortgages” found at Indiana Code § 32-30-10.5. (See my 2009 blog post about this.) The 2009 laws affected only residential (consumer) mortgage foreclosure litigation and did not apply to commercial matters. See, I.C. § 32-30-10.5-5.

Amendment. In 2011, the General Assembly tweaked certain portions of I.C. § 32-30-10.5 to include, among other things, a limited requirement of confidentiality regarding a borrower/defendant’s address on a summons. See, I.C. § 32-30-10.5-8(d). If a lender files suit to foreclose a residential mortgage, the borrower’s mailing address must be omitted from the summons if “the last known mailing address of the [borrower] in the [lender’s] records indicates that the mailing address . . . is other than the address of the mortgaged property.” I.C. § 32-30-10.5-8(b)(2). I.C. § 5-14-3-4(a)(13) declares such last known mailing address to be confidential:

Since such an address may need to be used on a summons, Indiana’s “Green Paper Rule,” which governs confidential information, mandates that the address be omitted from the summons and set forth on a separate accompanying document in light green paper pursuant to Trial Rule 5(G)(2).

In practice. Documentation on light green paper can be provided to the sheriff, in cases where the sheriff will be effectuating service of process, and then returned to the clerk’s confidential file following service. Evidently county clerks have been directed to advise lenders filing residential mortgage foreclosure cases to follow the green paper rule by submitting the summons on green paper when the last known mailing address of the borrower on the lender’s records is not the address of the mortgaged property. For more on service of process and summons issues, click here. I would like to thank Lori Schein, Boone County Bar Association officer and Deputy Prosecutor, for distributing this information to the Association’s membership.

Residential foreclosures involve all sorts of administrative headaches (or consumer protections, depending upon your point of view) of which lenders must be aware. But, again, for purposes of this blog, neither this new change, nor Indiana Code § 32-30-10.5 in general, applies to Indiana commercial foreclosure cases or, in other words, to foreclosures involving business-related real estate.

Happy Thanksgiving.


Court Clarifies Its Reasoning In CitiMortgage/Redemption Case - Did It Help?

On August 2nd, I discussed how the Indiana Court of Appeals precluded MERS and its assignee from asserting an interest in the mortgaged property due to timeliness issues. Here's my post: Senior Mortgagee Time Barred. The outcome of the decision rested in part on Ind. Code 32-29-8-3 and a mysterious (to me) post-sheriff's sale right of redemption.

Correction. On rehearing, the Court, on October 20th, issued an opinion in the case that, in part, cleared up the statutory redemption issue:

We agree that the correct interpretation of the statute is that the one-year redemption period begins after the sale of the property [the sheriff's sale], not after Citi first acquired an interest in the property.

Nevertheless, the decision against the senior mortgagee remained the same. As noted in my August 2nd post, the concept of redemption as it might apply to the CitiMortgage case was admittedly confusing and surprising to me. And I'm not sure the opinion on rehearing helped too much, other than to clarify the date upon which the clock should start ticking.

Application. I conducted some limited research for case law on this statutory section and found very little decisional law interpreting it. All I can conclude is that there may be a limited, extraordinary post-sheriff's sale right of redemption for assignees of mortgages whose assignments were not recorded before the filing of the foreclosure complaint. The redemption right clearly does not apply to borrowers or mortgagors.

Know it's there. I welcome emails or comments about CitiMortgage or Ind. Code 32-29-8-3. The point for secured lenders - specifically, assignees of mortgages - is that an unknown foreclosure sale may not be immediately fatal to your mortgage interest if the assignment wasn't recorded. On the flip side, sheriff's sale purchasers - thinking they hold title free and clear of all liens - could under narrow circumstances be in for a surprise. My head starts to spin when I consider all the logistics that could come in to play. Lesson: always buy an owner's policy of title insurance....

NOTE: See my March 29, 2012 post re: new legislation amending Section 3 and my 4-21-12 post noting that transfer has been granted by the Supreme Court.  On 10-4-12, the Supreme Court reversed the trial court. 

 


Reprint: Pro Hac Vice Admission In Indiana And The Role Of Local Counsel

Please forgive the lack of new content over the past several days.  I'm in the middle of what appears will be at least a nine-day trial.  New posts will be back soon, but for now here is a re-post of one of my more frequently-read articles.  Thanks for surfing to my blog, and for your patience....

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You’re an out-of-state lawyer with a client who needs to enforce a loan in Indiana.  You’re not licensed to practice in the state, and no one in your firm is admitted in Indiana.  You don’t want to relinquish control over the case, but instead wish to be in charge of representing your long-standing client in its important matter.  What you need is to be admitted pro hac vice in the Indiana court.  

More Latin.  “Pro hac vice” in English means “for this turn; for this one temporary occasion.”  Black’s Law Dictionary.  In the legal context, the phrase refers to the limited admission to practice in a court.  Admission pro hac vice is governed by the Indiana Rules for Admission to the Bar and the Discipline of Attorneys, including specifically Rule 3, which was substantially amended in 2007. 

The 7 hoops.  Indiana’s rules require prospective pro hac vice admitees to jump through a number of hoops.  The rules mandate filings with both the Clerk of the Indiana Supreme Court ("Clerk") and with the particular trial court.  According to Rule 3(2)(a), here’s what needs to be done:

  1. Hire a member of the bar of the State of Indiana to act as co-counsel and ensure he or she has an appearance on file.
  2. Pay the Clerk a registration fee of $130.  See, Rule 2(b).  The registration fee must be paid annually until the proceeding has concluded.  See, Rule 3(2)(c). 
  3. Provide the Clerk with a copy of the Rule 3(2)(a)(4) Verified Petition for Temporary Admission ("VPTA") that will be filed with the trial court. 
  4. Procure from the Clerk a temporary admission attorney number and payment receipt. 
  5. File the VPTA with the trial court, co-signed by Indiana co-counsel, setting forth the nine specific disclosures articulated in Rule 3(2)(a)(4). 
  6. Obtain from the trial court an order granting the VPTA.
  7. File with the Clerk a Notice of Temporary Admission that includes a statement of good standing issued by the highest court in each jurisdiction in which the attorney is admitted to practice law, a copy of the VPTA and a copy of the order granting the VPTA.   

After successfully jumping through these hoops, counsel may file an appearance in the trial court.

Further handling of the case.  Beware of Rule 3(2)(d), which mandates that all papers filed in the cause of action be co-signed by the Indiana co-counsel.  On the other hand, unless ordered by the trial court, local counsel need not be personally present for court appearances. 

Indiana's philosophy.  Here is an excellent article entitled Taking the vice out of pro hac vice:  temporary admission and local counsel from the October, 2006 issue of Res Gestae, the official publication of the Indiana State Bar Association.  Donald R. Lundberg, the Executive Secretary of the Indiana Supreme Court Disciplinary Commission at the time, is the author.  The article describes the January 1, 2007 changes to the rules.  It also explains why Indiana co-counsel cannot be a “potted plant,” but instead must play a meaningful role in the case, particularly with written submissions.  In response to those who feel that Indiana’s procedural requirements for admission pro hac vice may be burdensome, Mr. Lundberg makes a great point:  “would you rather take the bar exam?”

[.PDF note:  if the article won't open, try right clicking on the link and then clicking on "save target as."  The saving and opening process should permit you to access the document.  Failing that, email me, and I'll email the article to you.  Some Adobe/TypePad issue has created problems with some of my .pdf's of late.]

The General and the Lieutenant.  My standard approach to serving as local counsel is based on the notion that, as with most cases, there needs to be a General and a Lieutenant.  Someone - one person – should be in charge, and others should follow that person’s orders.  Otherwise, the “too many cooks in the kitchen” syndrome develops, followed by reduced efficiency and increased costs to the client.  Usually, but not always, my primary purpose as local counsel is to support the out-of-state lawyer – to be a Lieutenant – regardless of the age or experience of the non-Indiana attorney.  Most good local counsel set their egos aside and do as little (or as much) as the lead counsel wants.  To me, the main objective of any out-of-state, lead attorney should be to hire a responsive, cost-effective role player with local knowledge of the law and procedures.  Certainly I’m always ready, willing and able to be lead counsel, and there are times when the referring attorney hires me to serve in that capacity.  But most of the time, out-of-state Generals simply want a local Lieutenant, which is fine with me.


Reprint: Indiana Foreclosure Process And Timing - The Basics

I'm busy preparing for a trial that starts a week from tomorrow, so I thought I'd repost one of my more popular articles from way back in November, 2006.  All in all, based upon my experience, I'd say the points I made almost five years ago have stood the test of time. 

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Need a handle on how long it will take to liquidate your borrower’s collateral in Indiana?  Since the foreclosure process officially starts with the filing of a complaint, my timelines start there.  A complaint cannot be filed until there has been a default under the terms of the real estate mortgage or personal property security agreement.  Needless to say, many weeks if not months might pass between the initial loan default and the decision to file suit. 

The timing of the foreclosure process largely depends upon whether and to what extent the borrower contests the proceeding:   

Uncontested Foreclosure:  4½ - 6 months minimum.  If a business debtor does not contest foreclosure (but will not agree to a deed in lieu), the process can move relatively quickly.  Here are the major steps and applicable ranges of time:

1. Filing of the Complaint
2. Service of process on the debtor:  occurs in 5-10 days unless service by publication
3. Application for default judgment:  can be sought 21-24 days after service of process
4. Entry of default judgment and decree of foreclosure:  should occur within approximately 30 days after the Application is filed
5. Praecipe for Sheriff’s sale, including notice of same:  by statute, cannot be filed until 3 months after the Complaint
6. Sheriff’s sale:  happens about 45-90 days from Praecipe, depending on the county

Contested Foreclosure:  6-9 months minimum.  Given the vagaries of litigation, it’s virtually impossible to conclusively estimate how long a contested foreclosure case may last.  Much depends upon how clear the default and the damages are.  Perhaps the most significant factor relates to the time associated with workout negotiations.  In that regard, each case is different.  Here are the main steps of a fairly quick contested foreclosure:

1. Filing of the Complaint
2. Service of process on the debtor:  occurs in 5-10 days unless service by publication
3. Appearance of debtor’s attorney and motion for one or more 30-day extensions of time to respond to the Complaint:  filed 20-23 days after service of process
4. Answer to Complaint:  filed 30 days after filing of Appearance and expiration of last motion for extension
5. Motion for summary judgment:  can be filed immediately after the filing of the Answer
6. Objection to motion for summary judgment:  due 30 days after the filing of the motion for summary judgment
7. Summary judgment hearing:  usually held 75-120 days after the motion is filed
8. Entry of judgment and decree of foreclosure:  occurs on day of hearing, or soon thereafter, unless the motion is vigorously contested with viable defenses
9. Praecipe for Sheriff’s sale:  can be submitted immediately after the entry of judgment assuming more than 3 months have passed since the complaint was filed
10. Sheriff’s sale:  takes place 45-90 days from Praecipe, depending on the county

Judicial sales.  Indiana law requires a judicial sale in order to foreclose a mortgage.  I.C. 32-29-7-4 is a nice option for creditors looking to expedite a sale.  The statute permits, under certain limited circumstances, the sheriff’s sale to be conducted by a private auctioneer on the civil sheriff’s behalf.  This may be advisable in counties without regularly-scheduled sheriff’s sales.  (I should note that, as to personal property security interests, UCC/Article 9.1 and/or the terms of a security agreement may allow the creditor to repossess the collateral without a sheriff’s sale.) 

Be prepared for delays.  Although the basic procedure is the same throughout Indiana, the timing can be impacted dramatically by the dockets of the individual courts and/or the schedules of the individual civil Sheriffs’ offices.  The periods described are the minimum time periods.  The actual time usually is longer.  This is especially true if there are multiple creditors named in the lawsuit.  Further, in contested cases involving debtors represented by counsel, opposing attorneys can prolong the process in a variety of ways, including multiple motions for extensions of time, requests for discovery and vigorous challenges to a motion for summary judgment.  In the event a trial must occur, a resolution of the case can be delayed several months if not years.  In addition, a bankruptcy can be filed up until the time when the Sheriff’s sale begins, and that can delay the foreclosure process indefinitely.

Depending on the goals of the lender, the lawyer representing the lender can push the case aggressively toward a sale.  Or, counsel can be more passive to give the parties time to assess whether a refinancing arrangement may be warranted.  The parties can settle, or the debtor can redeem - real estate / I.C. § 2-29-7-7; personal property / I.C. § 26-1-9.1-623 - right up to the sale or disposition of the collateral.  Debtors’ attorneys know this, so don’t be surprised if a borrower waits until the eve of sale either to file for bankruptcy protection, redeem or yield to the lender’s loan modification terms.


For The First Time, Indiana Court Tackles MERS: Part I, Senior Mortgagee Time Barred

The confusing role of Mortgage Electronic Registration Systems, Inc. (“MERS”) in the holding of mortgages has been a hot topic across the country for the last few years.  The May 17, 2011 opinion by the Indiana Court of Appeals in CitiMortgage v. Barabas, 2011 Ind. App. LEXIS 892 (.pdf) is the first instance in which Indiana has spoken definitively about MERS – “little more than a ‘straw man’ for lenders,” according to the Court.  Here, in Part I about CitiMortgage, we look at the Indiana statute that dictates the parties, including assignees, to be named in a foreclosure suit. 

The history.  CitiMortgage arose out of a foreclosure case, which made its way to the Court of Appeals by virtue of the trial court’s refusal to set aside a default judgment that terminated the senior mortgage on the property.  The 2005 senior mortgage was given to MERS, “as nominee” of Irwin, the lender.  In June, 2008, junior mortgagee ReCasa initiated a foreclosure action and named only Irwin (not MERS), the purported senior mortgagee, as a defendant.  Irwin promptly filed a disclaimer of interest and was dismissed from the case.  The trial court entered a default judgment for ReCasa in September, 2008.  ReCasa acquired the property at the January, 2009 sheriff’s sale and sold the property to third-party Sanders two months later.

The rub.  A month after the March, 2009 Sanders sale, Citi recorded an assignment of the MERS/Irwin mortgage, even though the evidence showed that Citi acquired an interest in the mortgage as early as July, 2008.  In October, 2009, Citi moved to intervene in the ReCasa foreclosure action, requested relief from the default judgment and sought to set aside the sheriff’s sale.  Citi asserted that, as assignee of MERS, it held a first-priority mortgage on the property.  The fundamental question was whether ReCasa’s failure to name MERS as a defendant rendered ReCasa’s foreclosure judgment ineffective as to Citi.  (See, 12-21-06 post.)

The critical statutes.  Ind. Code § 32-29-8 “Parties to Foreclosure Suit; Redemption” controlled the Court’s analysis.  Here are all three sections of the statute:

Mortgagee or assignee; purchaser at judicial sale
 Sec. 1. If a suit is brought to foreclose a mortgage, the mortgagee or an assignee shown on the record to hold an interest in the mortgage shall be named as a defendant.

Failure to record or join foreclosure action
 Sec. 2. A person who fails to:
  (1) have an assignment of the mortgage made to the person properly placed on the mortgage record; or
  (2) be made a party to the foreclosure action;
is bound by the court's judgment or decree as if the person were a party to the suit.

Good faith purchaser at judicial sale
 Sec. 3. A person who purchases a mortgaged premises or any part of a mortgaged premises under the court's judgment or decree at a judicial sale or who claims title to the mortgaged premises under the judgment or decree, buying without actual notice of an assignment that is not of record or of the transfer of a note, the holder of which is not a party to the action, holds the premises free and discharged of the lien. However, any assignee or transferee may redeem the premises, like any other creditor, during the period of one (1) year after the sale.

The ruling, and Section 3.  CitiMortgage relied heavily on Section 3.  The Court denied the relief requested by Citi and reasoned that:

over a year after ReCasa first foreclosed on the Property [filed suit] and nearly six months after the Property was sold and recorded, Citi sought to assert its interest in the first mortgage.  Based on this information, it is clear that the trial court did not abuse its discretion when it found that I.C. § 32-29-8-3 precluded Citi’s claim because it failed to intervene until more than a year after it first acquired interest in the Property. 

Citi’s intervention, in October, 2009, was indeed over a year after Citi first acquired an interest in the property –July, 2008 or earlier.  But interestingly those facts don’t track the language in Section 3, which speaks to redeeming – not intervening – within a year of the sheriff’s sale – not the assignment date. 

The redemption right.  Admittedly, I don’t fully grasp the Court’s suggestion that Citi somehow had a right of redemption but failed to exercise it within a year.  The CitiMortgage sheriff’s sale was in January of 2009, and Citi moved to intervene nine months later.  Perhaps I’m misinterpreting the Court’s rationale.  I further confess that I’m having trouble reconciling the last sentence in Section 3, particularly the “like any other creditor” phrase, with well-settled Indiana law providing that a sheriff’s sale terminates the right of redemption.  (See, 5-15-08 post.)  This assignee-related/redemption wrinkle will have to be a topic for another day…. 

The Section 2 impact.  It appears to me that Section 2, not Section 3, more clearly supports the Court’s conclusion because Citi failed to timely record the assignment of mortgage and intervene sooner.  There was evidence that Citi knew about ReCasa’s foreclosure action long before it intervened.  Reading between the lines, perhaps CitMortgage’s ultimate lesson is that assignees should record their assignments immediately and then promptly intervene in a known foreclosure action.  (See, 5-28-09 and 10-14-09 posts.)

In the second part of the CitiMortgage opinion, which I’ll discuss next week, the Court specifically hashes out the enigma that is MERS and rejects Citi’s argument around Section 3. 

Note:  The Court, on rehearing, clarified its reasoning related to Section 3.  Here's my 11-1-11 follow-up post.  Furthermore, on 4-10-12, the Supreme Court granted transfer, and on 10-4-12 reversed the trial court.


Identify All Defaults For Your Foreclosure Counsel

As a mortgage lender, once you decide to foreclose on your borrower’s commercial real estate loan collateral, you need to provide certain information and documentation to counsel so he or she can file suit (or perhaps negotiate a workout).  On January 16, 2007, I discussed what the lender’s “care package” for its counsel should contain, and why.

ID the breaches.  One of the items I mentioned was the identification of all defaults.  While the most common defaults are for non-payment, there may be other breaches of the loan documents.  All such defaults should be identified in the Complaint.  You can assist your lawyer, who is new to the loan, with his or her default analysis if you’re able to convey a listing of any and all contract breaches, with operative dates and perhaps even citations to loan documents.  Or, a mere recitation of the key facts/loan history will help your lawyer determine your potential rights and remedies as provided under the documents.

Notice/cure.  The nature of the breach may also bear upon whether, or to what extent, the borrower has rights to notice and an opportunity to cure.   

Breach statute.  For a handy legal citation when dealing with defaults, remember Indiana Code 32-30-10-3(a) , which states:

Subject to IC 32-30-10.5 with respect to mortgage transactions described in IC 32-30-10.5-5, if a mortgagor defaults in the performance of any condition contained in a mortgage, the mortgagee or the mortgagee's assigns may proceed in the circuit court of the county where the real estate is located to foreclose the equity of redemption contained in the mortgage.

(I.C. 32-30-10.5 deals only with residential mortgages.)

Not every commercial foreclosure case involves a matured loan or a payment default.  The more quickly your foreclosure counsel can obtain the information relative to the underlying defaults, the more efficient your counsel will be in getting the result you’re seeking.   


In Indiana, Insufficiency Of Service Of Process Is Waived Upon The Filing Of An Appearance And A Responsive Pleading

This follows up my December 17, 2010 post entitled “Service of Process” Fundamentals For The Plaintiff Lender.  In that post, I discussed how and why the delivery of a summons and complaint triggers the foreclosure process.  I also mentioned that ineffective service of process prohibits a trial court from having personal jurisdiction over a defendant.  At times, challenges with service of process result in questions about whether a plaintiff lender can or should proceed to judgment.  Today, I tackle the question of what to do about service of process once the defendant files an appearance and responds to the complaint without asserting a claim that service was insufficient.  The answer is – the adequacy of service of process should no longer be a concern.

Trial Rule 12(H)(1).  Indiana Rule of Trial Procedure 12(B)(4) recognizes the defense of “insufficiency of process.”  But, pursuant to Section (H)(1), the defense can be waived:

A defense of lack of jurisdiction over the person, . . . insufficiency of process, insufficiency of service of process, . . . is waived to the extent constitutionally permissible:
(b)  if it is neither made by motion under [Rule 12] nor included in a responsive pleading [such as an answer] . . ..

Waiver.  Trial Rule 12(H)(1) has been interpreted by the Indiana Court of Appeals in at least the following two cases:  Hill v. Ebbets Partners, 812 N.E.2d 1060 (Ind. Ct. App. 2004) and Phillips v. Great Lakes Health Congress, 354 N.E.2d 307 (Ind. Ct. App. 1976).  In Hill, the defendant on appeal contended that the trial court did not have personal jurisdiction over her because the summons was not served properly and, as such, the summary judgment entered against her was void.  The Court disagreed and cited to T.R. 12(H)(1), which “effectively requires that a party desiring to assert the defense of lack of personal jurisdiction must do so in either the answer or in a separate motion filed before the answer.”  Although service of process may not have been properly effectuated, the defendant appeared at the trial court and filed a response to the plaintiff’s claim.  Because she did not bring any jurisdictional challenge before the appeal, defendant “waived the right to raise this issue.”  Similarly, in Phillips, the Court said “where the party in question has formally appeared and elected to answer the complaint, there is no constitutional bar to the court’s jurisdiction over the person.” 

Move on.  Workout professionals and counsel prosecuting foreclosure actions may sometimes be anxious about the sufficiency of service.  In the past, I’ve had lingering questions concerning, for instance, whether we had a valid address for a targeted defendant.  But, under Indiana law, once that defendant files an appearance in the action and fails to attack the issue of service of process, either in a responsive pleading or in a separate T.R. 12(B) motion to dismiss, we can be assured that the validity of service of process is no longer an issue.  In that case, whether the defendant was actually served is irrelevant.


Pro Hac Vice Admission In Indiana And The Role Of Local Counsel

You’re an out-of-state lawyer with a client who needs to enforce a loan in Indiana.  You’re not licensed to practice in the state, and no one in your firm is admitted in Indiana.  You don’t want to relinquish control over the case, but instead wish to be in charge of representing your long-standing client in its important matter.  What you need is to be admitted pro hac vice in the Indiana court.  

More Latin.  “Pro hac vice” in English means “for this turn; for this one temporary occasion.”  Black’s Law Dictionary.  In the legal context, the phrase refers to the limited admission to practice in a court.  Admission pro hac vice is governed by the Indiana Rules for Admission to the Bar and the Discipline of Attorneys, including specifically Rule 3, which was substantially amended in 2007. 

The 7 hoops.  Indiana’s rules require prospective pro hac vice admitees to jump through a number of hoops.  The rules mandate filings with both the Clerk of the Indiana Supreme Court ("Clerk") and with the particular trial court.  According to Rule 3(2)(a), here’s what needs to be done:

  1. Hire a member of the bar of the State of Indiana to act as co-counsel and ensure he or she has an appearance on file.
  2. Pay the Clerk a registration fee of $130.  See, Rule 2(b).  The registration fee must be paid annually until the proceeding has concluded.  See, Rule 3(2)(c). 
  3. Provide the Clerk with a copy of the Rule 3(2)(a)(4) Verified Petition for Temporary Admission ("VPTA") that will be filed with the trial court. 
  4. Procure from the Clerk a temporary admission attorney number and payment receipt. 
  5. File the VPTA with the trial court, co-signed by Indiana co-counsel, setting forth the nine specific disclosures articulated in Rule 3(2)(a)(4). 
  6. Obtain from the trial court an order granting the VPTA.
  7. File with the Clerk a Notice of Temporary Admission that includes a statement of good standing issued by the highest court in each jurisdiction in which the attorney is admitted to practice law, a copy of the VPTA and a copy of the order granting the VPTA.   

After successfully jumping through these hoops, counsel may file an appearance in the trial court.

Further handling of the case.  Beware of Rule 3(2)(d), which mandates that all papers filed in the cause of action be co-signed by the Indiana co-counsel.  On the other hand, unless ordered by the trial court, local counsel need not be personally present for court appearances. 

Indiana's philosophy.  Here is an excellent article entitled Taking the Vice Out of Pro Hac Vice:  Temporary Admission and Local Counsel from the October, 2006 issue of Res Gestae, the official publication of the Indiana State Bar Association.  Donald R. Lundberg, the Executive Secretary of the Indiana Supreme Court Disciplinary Commission at the time, is the author.  The article describes the January 1, 2007 changes to the rules.  It also explains why Indiana co-counsel cannot be a “potted plant,” but instead must play a meaningful role in the case, particularly with written submissions.  In response to those who feel that Indiana’s procedural requirements for admission pro hac vice may be burdensome, Mr. Lundberg makes a great point:  “would you rather take the bar exam?”

The General and the Lieutenant.  My standard approach to serving as local counsel is based on the notion that, as with most cases, there needs to be a General and a Lieutenant.  Someone - one person – should be in charge, and others should follow that person’s orders.  Otherwise, the “too many cooks in the kitchen” syndrome develops, followed by reduced efficiency and increased costs to the client.  Usually, but not always, my primary purpose as local counsel is to support the out-of-state lawyer – to be a Lieutenant – regardless of the age or experience of the non-Indiana attorney.  Most good local counsel set their egos aside and do as little (or as much) as the lead counsel wants.  To me, the main objective of any out-of-state, lead attorney should be to hire a responsive, cost-effective role player with local knowledge of the law and procedures.  Certainly I’m always ready, willing and able to be lead counsel, and there are times when the referring attorney hires me to serve in that capacity.  But most of the time, out-of-state Generals simply want a local Lieutenant, which is fine with me.

(This updates my 1-1-07 post and incorporates rules effective through 1-1-11.) 


“Service Of Process” Fundamentals For The Plaintiff Lender

Earlier this year, the Indiana Court of Appeals, on the same day, issued two opinions setting aside default judgments entered in favor of lenders in mortgage foreclosure actions.  The reason - inadequate service of process on the borrowers.  The two cases were:  Elliott v. JPMorgan Chase Bank, 920 N.E.2d 793 (Ind. Ct. App. 2010) (.pdf) and Yoder v. Colonial National Mortgage, 920 N.E.2d 798 (Ind. Ct. App. 2010) (.pdf).  As I reviewed the cases, it occurred to me that a blog post about service of process could benefit workout professionals. 

Job 1.  Service of process involves the delivery of a summons and the complaint to a defendant.  (Here is a form summons.)  Service of process is a necessary and critical initial step in any loan enforcement litigation.  “Ineffective service of process prohibits a trial court from having personal jurisdiction over a defendant, and a judgment rendered without personal jurisdiction over a defendant violates due process and is void.”  Elliott v. JPMorgan Chase Bank.  Constitutional law (notice and an opportunity to be heard) is at the heart of the service of process requirements. 

Types and manner of service.  In Indiana state law, “process” is governed by the Trial Rule 4 series, which starts with Rule 4 and ends with Rule 4.17.  Loan enforcement actions typically involve service upon adult individuals and/or organizations such as limited liability companies.  Service upon individuals is governed by Rule 4.1, and service upon organizations, such as LLCs, is governed by Rule 4.6.  Organizations can be served a number of ways, most notably by service on the “registered agent” designated  with the Indiana Secretary of State

Perhaps the simplest and cheapest way to serve either an individual or an organization is by certified mail.  A sometimes more effective approach is to have service of process accomplished by the county sheriff, which is an option available to plaintiffs in every county in the State.  Service by certified mail is covered by Rule 4.11.  Service by sheriff is covered by Rule 4.12.  Service by publication is covered by Rule 4.13.

Case study – copy service.  Elliott involved the Court’s reversal of a default judgment due to defective “copy service.”  Copy service typically refers to “leaving a copy of the summons and complaint” at an individual’s dwelling, house or usual place of abode.  Rule 4.1(A)(3).  In Elliott, the county sheriff’s office served the summons by leaving a copy at the defendant’s residence.  But, there was no evidence that the sheriff complied with Rule 4.1(B)’s second step (U.S. Mail) in the two-step copy service procedure:

the person making [copy] service also shall send by first class mail, a copy of the summons without the complaint to the last known address of the person being served, and this fact shall be shown upon the return.

Case study – publication.  In Yoder, the Court reversed the default judgment because service by publication pursuant to Rule 4.13 was insufficient.  Service by publication is just that – publication of the summons and related information in a newspaper circulated where the defendant resides.  This is a last resort method of service.  Plaintiffs in Indiana really cannot utilize the service by publication option unless they have used “due diligence to locate” the defendant first so as to actually deliver the summons.  In Yoder, the Court outlined how the plaintiff’s “cursory attempt to locate [the defendant did] not constitute a diligent search.”  Before turning to service by publication, it’s advisable to consider personal delivery by the sheriff or a private process server at any last-known address that can be reasonably found either in your files, through the Secretary of State’s office (if an organization) and/or an internet search tool, such as that offered by LexisNexis. 

Client’s decision.  The manner of service (certified mail, sheriff, private process server, etc.) may be dictated by the lender’s cost tolerance and/or sense of urgency to enforce the loan (or get the defendant’s attention).  Lenders and their counsel should discuss this issue around the time they are finalizing the complaint.  More often than not, certified mail service (handled by the clerk’s office) will work.  If, however, you don’t have a good mailing address and/or have reason to believe the particular defendant may avoid signing for the package, then the potential for delay may justify the costs of hiring a process server to get the job done. 

NOTE:  For more, see my 2-2-13 post.


Contractual Venue Provisions Enforceable In Indiana

I previously posted that parties can contractually stipulate to jurisdiction in Indiana.  For example, lenders can bring lawsuits against out-of-state guarantors in Indiana, assuming that’s what the guaranty says.  In Sunburst Chemical v. Acorn Distributors, 2010 Ind. App. LEXIS 280 (2010) (.pdf), the Indiana Court of Appeals confirmed that venue also can be dictated by contract.

Venue vs. jurisdiction.  Workout specialists should know the difference between the terms “venue” and “jurisdiction.”  Sunburst Chemical helps with the distinction:  “jurisdiction involves the court’s ability to hear a particular case, whereas venue concerns the proper situs for trial.”  With regard to state-court litigation, “jurisdiction” basically refers to the state, and “venue” refers to the county.  (“Jurisdiction” actually has a more comprehensive meaning.  “Venue,” on the other hand, is a more specific concept and, as noted by Black’s Law Dictionary, means “the particular county . . . in which a court with jurisdiction may hear and determine a case.”) 

Venue.  Ind. Trial Rule 75(A) spells out Indiana’s venue requirements.  The question in Sunburst Chemical was whether a suit to enforce a credit agreement should have been heard in Allen County (the location of the defendant) or Marion County (where the credit agreement’s contractual venue provision stated the case should be).  In a case like Sunburst Chemical, by rule the proper venue would be Allen County – the county of the defendant’s residence.  But in Sunburst Chemical, the credit agreement had a Marion County venue stipulation.  In Indiana, contractual venue provisions are enforceable.  Although the venue provision in Sunburst Chemical was somewhat vague, the Court ultimately concluded that the “agreement established venue in Marion County, and the trial court did not err by denying Sunburst’s motion to transfer venue.” 

Mortgages.  Sunburst Chemical was not a mortgage foreclosure case but rather a suit on a credit agreement for the collection of money.  In cases involving the foreclosure of a mortgage, plaintiffs in Indiana may file suit in the county where the real estate is located.  Ind. Code § 32-30-10-3(a); I.C. § 32-29-7-6(a).  Venue thus focuses, not on the residence of a party, but on the location of the subject real estate. 

Why choose?  Indiana law in this area is favorable to creditors.  Assuming clear language in the contract, an out-of-county resident or company can be forced to defend a suit in a foreign county - usually the county in which the creditor resides or is located.  For plaintiffs/creditors, contractual venue provisions result in the savings of time and expense through the centralization of litigation in one’s own backyard.  And, at least in theory, they may secure some level of “home court advantage.”


With Affidavits Of Debt, Remain Mindful Of The Evidentiary Requirements

Yesterday's MarketWatch.com had an article concerning "the growing controversy about so-called 'robo-signers' in the foreclosure process, during which staffers sign thousands of mortgage-related documents a month."  Here's a link to the story:   "Robo-signer" controversy spreads

One lesson here for secured lenders and their lawyers is to follow the rules of procedure and ensure, among other things, that those who sign affidavits in support of motions for summary judgment have the requisite personal knowledge of the facts and/or that they have reviewed and, as needed, attached records of regularly-conducted business activities in support of the facts.  See, Indiana Rules of Evidence 602 and 803(6).


Credit Card Debt's 6-Year Statute Of Limitations Held To Commence When Account Due

Quickly, and noting this is off topic, I wanted to post about the Indiana Court of Appeals' decision in Smithner v. Asset Acceptance, 2010 Ind. App. LEXIS 4 (.pdf) in which the Court granted summary judgment in favor of the defendant/borrower based upon the running of the six-year statute of limitations.  As outlined here, promissory notes also involve a six-year limitations period, but the Court in Smithner concluded that a credit card account is an "open account" governed by Ind. Code 34-11-2-7(1) that deals with "actions on accounts and contracts not in writing."  This distinction affects the date upon which the statute is triggered. 

Generally, "the date the account is due" is when the statute of limitations commences for an action on an open account.  In Smithner, the borrower last made a payment on 2-9-2000, and the plaintiff/lender requested a minimum payment on the account by 3-11-2000.  The borrower never made another payment.  Because the Court considered the statute to have begun running either on the date of the last payment or the date the next payment was due, the lender's suit filed 5-30-2006 was beyond the six-year deadline and thus time-barred.  Please review the decision for possible exceptions to the rule or facts that could affect the relevant dates, however.     


Contents of Indiana Foreclosure Judgment/Decree

Once a secured lender and its counsel have filed the complaint for foreclosure, and assuming service of process has been perfected on all parties, it’s time to reduce the lender’s claims to a judgment.  Indeed, that is the purpose of filing suit.

Three methods.  There are three basic ways to obtain a judgment:  (1) a default judgment, (2) a motion for summary judgment and (3) a trial.  I previously wrote about default judgments on August 2, 2007 and about summary judgments on November 28, 2006.  On June 18, 2008, I compared those two options and concluded that, in Indiana, a summary judgment is preferable to a default judgment.

Trial.  If motions for default and/or summary judgment are denied, the secured lender’s only recourse is to try the case (or settle).  Mortgage foreclosure actions are equitable and, as such, are tried to the bench (see my October 23, 2009 for more on that issue).  Normally, the need for a trial will stem from a common law contract defense or, more likely, a counterclaim asserted by a defendant.  Typically, straight forward commercial mortgage foreclosures are ready-made for motions for summary judgment, so trials are rare. 

Form of judgment.  Regardless of the type of judgment, ultimately you and your counsel will want to submit a proposed judgment to the court at the time of, or immediately after, the filing of a motion for default judgment, a motion for summary judgment or any trial of the action.  It is advisable to articulate findings of fact and conclusions of law upon which the judgment is based.  We always attach as an exhibit to the judgment/decree a legal description of the real estate, which will be used by the sheriff’s office and in connection with the sheriff’s sale process.   

One component to any Indiana foreclosure judgment will relate to the promissory note and personal liability for the debt, sometimes called an in personam judgment, to be collected from the borrower/mortgagor after the sheriff’s sale, assuming there is a deficiency.  (A deficiency is the amount of money still owed after the sheriff’s sale or, in other words, the result of subtracting the sheriff’s sale price from the judgment amount.)  A second component to any judgment will relate to the mortgage, sometimes called an in rem judgment, meaning that the judgment amount may be satisfied through the sale of the real estate. 

Priority.  The judgment will include a decree of foreclosure that details the rights and priorities of the parties to the real estate and orders the sheriff’s sale.  The priority, in turn, will dictate the order of payment of any proceeds from the sheriff’s sale, a topic I discussed on January 9, 2007.

Relevant statutes.  Here are some of the statutes that pertain to foreclosure judgments: 

• I.C. § 32-30-10-5 “Judgment of Foreclosure; Personal Judgment; Sale of Property”
• I.C.§ 32-30-12-1 and 2 “Final Judgment Given in First Instance” and “Sale of Mortgaged Property Ordered in all Cases”
• I.C.§ 34-54-1-1 “Execution”
• I.C.§ 34-54-10-2 “Mortgage Actions”

Again, on Indiana, the custom and practice is for lender’s counsel to prepare and submit the proposed judgment/decree for the court to execute and enter.  This is a critical part of the process and a necessary expense.  There is important language that should be included in every decree, so ensure that your counsel is familiar with the terms of the relief provided by your loan documents and Indiana law.


Indiana Has Three-Month Waiting Period Before Sheriff's Sales Can Be Triggered

Workout specialists from commercial lending institutions often ask me how quickly they can repossess their real estate loan collateral here in Indiana. One of my very first posts, back in November of 2006, generally addressed that question: Basic Foreclosure Process/Timing In Indiana. As I've mentioned before, to the chagrin of secured lenders, particularly when they're facing loans in default with no hope of a turnaround, mortgage foreclosures must be judicial or, in other words, through the court system. Foreclosures are lawsuits, with all the attendant delays and expense.

Three months post-complaint. Generally, real estate collateral must be sold, pursuant to a judge's decree (a judgment), by the county civil sheriff. Before triggering the post-judgment sale process, lenders and their counsel should remain mindful that Indiana has a statutory three-month waiting period that must first expire. Ind. Code 32-29-7-3(a) states:

In a proceeding for the foreclosure of a mortgage executed on real estate, process may not issue for the execution of a judgment or decree of sale for a period of three (3) months after the filing of a complaint in the proceeding.

As noted, the period starts with the filing of the complaint.

Rare. My experience has been that this rule will be a non-issue in the vast majority of cases. As a practical matter, this grace period should only come into play in situations involving motions for default judgment, which I normally don't recommend in commercial foreclosure cases anyway.

Exception. There is an exception to the three-month rule in I.C. 32-29-7-3(a). Subsection (2) says:

if the court or an enforcement authority ... finds that the mortgaged real estate is residential real estate and has been abandoned, a judgment or decree of sale may be executed on the date the judgment of foreclosure or decree of sale is entered, regardless of the date the mortgage is executed.

As noted, this exception does not apply to commercial properties. For residential/consumer cases involving vacant/abandoned houses, you and your counsel should ensure the court includes these factual findings in your foreclosure decree so as to avoid the grace period.

Even though this three-month requirement will rarely be an obstacle in a commercial foreclosure, it's still important to know that it exists as you and your counsel consider how long it may be before there will be a sheriff's sale.

NOTE: I.C. 32-29-7-3 was amended in 2012. See my March 23, 2012 post.


Despite Lis Pendens, Onus Generally On Plaintiffs (Mortgagees), Not Tenants, To Deal With Leasehold Interests In Mortgage Foreclosure Actions

This follows-up my June 28th post about Myers v. Leedy, “To Terminate Post-Mortgage Leases, Tenants Generally Must Be Named In Foreclosure Actions.”  What actions must the tenant take if it knows or should know about a pending foreclosure action? 

Seller’s contention.  One of the arguments of the land contract seller on appeal of the Myers case was that the tenant had both constructive and actual knowledge of the pending breach of contract action at the time the tenant entered into the lease for the 2006 crop season.  The seller claimed it should not have been forced to name the tenant as a defendant in the action; rather, the tenant should himself have intervened in that action in order to protect his interests. 

Lis pendens, generally.  The seller’s argument triggered the Court’s analysis of Indiana lis pendens law.  See, Ind. Code §§ 32-30-11-1 to 10 and Indiana T. R. 63.1.  “Lis pendens” is Latin for “pending suit.”  The Court outlined that, historically, lis pendens provided that one who acquires an interest in real estate during the pendency of a lawsuit concerning the title to that real estate takes notice of such lawsuit and has to take its interest in the real estate subject to any subsequent judgment.  Ind. Code § 32-30-11-2 modified the common law and requires that the plaintiff file a separate, written notice with the county clerk’s office to perfect the lis pendens protections.  (I also wrote about lis pendens on 12-27-07 and 9-20-07.) 

Lis pendens, exception.  Statutory written notice is not required if the suit is founded upon a written instrument executed by the party having title to the real estate (like a mortgage) as appears from the properly-filed county records.  Thus the filing of the mortgage foreclosure complaint itself will provide the requisite constructive notice to post-suit claimants.  From the Court: 

We have no quarrel with the general proposition that the commencement of a foreclosure action standing alone provides third parties with constructive notice of a pending lawsuit. 

Constructive notice, but . . ..  In Myers, the seller retained legal title to the subject real estate, which interest was reflected by the memorandum of contract recorded in the county recorder’s office.  Under Indiana lis pendens law, therefore, the tenant was deemed to have constructive notice of the suit on the land contract against the buyer commenced two years before the subject lease.  But the Court did not adopt the seller’s lis pendens-related argument, reasoning that it “makes no sense” to say that a lis pendens notice of a foreclosure proceeding should bind a tenant already in possession.  To hold otherwise, a tenant in possession “must regularly check the records of the County Recorder’s office to determine whether a foreclosure action has been filed.” 

Actual notice side-stepped.  The Court also addressed the issue of the tenant’s alleged actual notice of the underlying lawsuit.  Should the tenant have intervened in the pending litigation of which he was aware?  In the final analysis, it appears that the Court may have simply concluded that the evidence was not altogether clear on whether, or to what extent, the tenant knew of the suit as it may have related to the real estate and his rights.  The Court ultimately affirmed the trial court’s finding that, among other things, the tenant should have been allowed to finish planting and harvesting his crop in 2006.  The Court had to choose a side, and it did.

“Should have known.”  As noted in my June 28th post, one of the critical factors in the Court’s decision was that the seller had actual knowledge that the tenant was farming the property at the time seller filed suit.  Thus the Court did not expand on the “upon reasonable diligence should have known” part of the test.  The Court appears to be deliberate in its requirement of notice of a tenant’s “possession” of the property.  The Court’s charge seems to be that lenders must undertake reasonable measures to determine whether there is a tenant in possession of the property.  To me, this implies observing the real estate.  Perhaps a site visit or property inspection may need to occur.  Having said that, we must remember that Myers was not a mortgage foreclosure case and dealt with the unique situation of a single tenant (farmer) on the property.  Ultimately, a secured lender’s “reasonable diligence” will need to be evaluated on a case-by-case basis. 

Business decision.  As a practical matter, in most commercial mortgage foreclosure actions the lender/mortgagee will not want to terminate any of the existing leases.  The leases generate income and thus increase the value of the property.  There are, however, instances where one or more tenants of a subject property may be undesirable and thus the target of termination.  If a business decision is made to terminate such post-mortgage leasehold interests, I recommend that you and your counsel ensure that those tenants are named as defendants in the foreclosure action. 


To Terminate Post-Mortgage Leases, Tenants Generally Must Be Named In Foreclosure Actions

Secured lenders struggling with the question of whether tenants must be parties to Indiana commercial mortgage foreclosure suits have been given a fairly definitive answer by the Indiana Supreme Court in Myers v. Leedy, 2009 Ind. LEXIS 1370 (Ind. 2009) (.pdf).  Myers actually involved the enforcement of a land contract, not a mortgage, but to the chagrin of Chief Justice Shephard, who concurred in the result, the Myers opinion applies with equal vigor to mortgage foreclosures.  In most instances, if a business decision is made to end a post-mortgage leasing relationship, the tenant in possession should be included in the litigation.

Myers particulars.  In August of 2002, two individuals entered into a land contract for the purchase of farmland and had a memorandum of that contract recorded.  In 2004, the land contract vendee (“buyer”) entered into a written lease with a third party to rent the tillable soil.  That third party (“tenant”) farmed the land in 2004, and the owner/land contract vendor (“seller”) had actual knowledge of this.  Leases between the same parties for the same purpose were entered into in 2005 and in 2006, again with the actual knowledge of the seller.  (The leases were not recorded, however.)

Proceedings.  In December of 2004, the seller sued the buyer for breach of the land contract but did not name the tenant as a defendant.  On May 17, 2006, the trial court ruled that the buyer had defaulted under the land contract and ordered the forfeiture of the buyer’s interest in the real estate.  On May 20, 2006, pursuant to the previously-existing lease, the tenant began farming the property.  The next day, the seller ordered the tenant off the property, and the tenant never returned.  Later, the tenant sued the seller because the seller prohibited the tenant from farming the property in 2006. 

The question.  The Myers case presented a matter of first impression: 

Whether a tenant’s leasehold interest in property survives a land contract vendee’s forfeiture when the tenant was not made a party to the forfeiture action and where the vendor had actual knowledge that the tenant was in possession of the property.

To answer that question, the Court examined whether a tenancy survives a foreclosure action.  The Court explained that, for purposes of its holding, there was no reason for treating forfeiture and foreclosure cases differently. 

Test for inclusion.  The Court in Myers set out the following test for inclusion of a tenant in a foreclosure action:

Where at the time a mortgagee files suit for foreclosure it knows, or upon reasonable diligence should have known, that a tenant is in possession of the property, the tenant’s leasehold interest survives the foreclosure action unless the tenant is made a party to that action.

The Court noted that the “weight of authority” provides that “a lease is terminated by the foreclosure of a prior mortgage if, and only if, the tenants are made parties to the foreclosure proceedings.” 

An aside.  Please note that the subject lease came into existence after the subject land contract.  Thus the Myers case speaks to post-mortgage leases, not leases executed before the recordation of the mortgage.  It is my understanding that, in Indiana, a foreclosing mortgagee generally will acquire the real estate collateral subject to any preexisting, recorded leases, regardless of whether the tenants are defendants in the action.  Whether a foreclosing mortgagee would acquire the property subject to any preexisting unrecorded leases is a post topic for another day . . ..)

Read all docs.  Footnote 2 on pp. 5-6 of the Court’s opinion acknowledges that the rights of the parties may otherwise be defined or governed by contract or subordinated without the need for joinder of the tenant.

Actual knowledge.  In Myers, the evidence was not in dispute that the seller had actual knowledge that the tenant was farming the subject property at the time he filed the breach of contract action against the buyer.  Because the seller failed to join the tenant in the action, the subsequent forfeiture of the buyer’s interest in the property did not extinguish the tenant’s leasehold interest.

I’m not finished with Myers … and will be posting one or two more articles based upon this significant opinion rendered by the Indiana Supreme Court….


Real Estate Appraisals Are Important, But Not Required, In Indiana Foreclosures

You work for a bank or commercial lending institution.  You oversee a loan secured by commercial real estate that is underperforming or nonperforming.  You are considering your options and have referred, or will be referring, the matter to outside counsel.  One of your questions is whether to order an appraisal of the loan collateral.  The answer is -- you should strongly consider it but don’t have to.

Big picture.  Before entering into workout negotiations and/or filing a foreclosure complaint, it is advisable that lenders and their counsel undertake certain steps to analyze the loan collateral.  This would include a determination of priority in title and value.  For example, my September 14, 2009 post states that secured lenders should always consider an environmental liability analysis of commercial real estate collateral.  In the same vein, my October 14, 2009 post talks about obtaining a title commitment.  Likewise, a property appraisal should be on one’s list of things to consider. 

Not necessary.  Similar to a Phase I, we recommend that lenders contemplate getting an appraisal even though an appraisal is not legally or procedurally required to initiate a mortgage foreclosure suit, to obtain a judgment or to acquire the real estate at a sheriff’s sale.  Appraisals can be expensive, and the benefits of obtaining an appraisal should be weighed against the costs.  Depending upon the age of the loan, a prior appraisal report already in a lender’s file could provide sufficient data going forward.  Having said that, the valuation landscape, particular with regard to commercial property, has changed substantially over the last several months.

Caveat.  Although not legally required for purposes of foreclosure, clients have told me that bank regulators and examiners, or perhaps internal bank policies, mandate that at a certain stage in the process an appraisal must be obtained.  But please do not mistake this post as an opinion about regulatory matters.  This article is limited to what Indiana state court mortgage foreclosure law requires in terms of filing the lawsuit, obtaining a judgment and bidding at the sheriff’s sale.  An appraisal technically is not required at any stage.  (Caveat No. 2:  as articulated in my April 22, 2008 post “How Much Should A Lender/Senior Mortgagee Bid At An Indiana Sheriff’s Sale?”, an appraisal could play a role in the lender’s bid at the sheriff’s sale.)

Wise.  Although not necessary, lenders should strongly consider an appraisal of the property.  Along these same lines, depending on the particular type and location of the real estate, an inspection of the property also may be warranted.  A determination of the market value and condition of the property may drive decisions with regard to pre-suit settlement or subsequent workout negotiations, or whether to move forward with a foreclosure in the first place.  Foreclosure and repossession often may not the best options. 

The bottom line is that it is good practice, when dealing with problem loans, to have an understanding of the value of the loan collateral vis-à-vis the amount of the debt.  Knowing the present value of the collateral (is that possible these days?) will be helpful with decisions regarding its disposition and will assist in estimating the potential amount of a deficiency judgment.  It’s all about putting yourself in the best position to evaluate the further handling of the case.    


Contractual Waiver Of Right To Jury Trial

Secured lenders involved in litigation in Indiana may know that loan enforcement lawsuits they file never get set for a jury trial.  The recent decision in Pringle v. Garcia, 2009 U.S. Dist. LEXIS 47112 (N.D. Ind. 2009) (.pdf) helps explain why.

Jury trial vs. bench trial.  A “jury trial” is a “trial of matter or cause before a jury as opposed to trial before judge.”  Black’s Law Dictionary.  In Indiana, juries consist of six residents of a particular county who are at least 18 years of age.  The right to a trial by jury is protected by the Bill of Rights and Indiana’s state constitution.  According to Black’s, a “trial by jury” is “a trial in which the issues of fact are to be determined by the verdict of the jury . . ..” 

On the other hand, a “court trial” a/k/a “bench trial” is simply a “trial held before [a] judge sitting without a jury; jury waived trial.”  In other words, the trial court judge makes determinations of both law and fact and decides the case on his or her own.  From a secured lender’s perspective, the conventional wisdom is that cases involving bench/court trials will conclude more quickly and will be resolved more inexpensively than jury trials.   

Motion to strike jury demand.  In Pringle, the plaintiff filed a complaint against the defendants seeking money damages (under certain loan documents), replevin, the foreclosure of a security interest and the appointment of a receiver.  One of the loan documents was a Guaranty and Collateral Agreement, which included a specific provision entitled “Waiver of Jury Trial” that detailed the parties’ expressed waiver of any right to a trial by jury in legal proceedings to enforce the agreement.  The defendants filed an answer to the complaint in which they requested a jury trial.  The plaintiffs responded by filing a motion to strike the jury demand,  claiming that the defendants waived their right to a jury trial under the Guaranty and Collateral Agreement. 

Waiver.  Here is what Judge Cherry said about the applicable law:

The Seventh Amendment provides a right to jury trial in any civil suit in which the amount in controversy exceeds twenty dollars.  U.S. CONST., Amend. VII.  However, a party may contract to waive its right to a jury trial without having to show extra negotiation or evidence of voluntariness beyond what is required to make the rest of the contract legally effective . . ..  Indiana courts have, however, upheld numerous contractual provisions that, in one way or another, limit the legal avenues available to a party when such provisions are freely negotiated and not unjust or unreasonable. . . .

The Judge found that there was no indication the defendants were unsophisticated parties or that they did not have the opportunity to read the Guaranty and Collateral Agreement.  The jury trial waiver provision was written such that it drew more attention to it than the rest of the contract.  Moreover, the provision was mutual as to all parties, and the overall agreement itself appeared to be enforceable.  As such, the Court held that the waiver of jury trial clause was valid and enforceable since “the agreement to resolve a dispute in a bench trial is no less valid than the rest of the contract in which the agreement appears . . ..”  The point here is that, under Indiana law, the constitutional right to a jury trial can be waived in civil cases by a written agreement.

Equitable vs. legal remedy.  Without getting too bogged down in legalese, the Pringle case also explains that certain cases by their very nature will not result in a jury trial.  “The right to a jury trial embraces all suits in which legal rights are adjudicated, as opposed to actions where equitable rights alone are at issue and equitable remedies are sought.”  If an equitable remedy is at issue, there can be no jury trial, regardless of whether it has been waived by agreement.  One example of an equitable remedy would be the foreclosure of a real estate mortgage.  In Pringle, Count III of plaintiff’s complaint requested the appointment of a receiver, which is “a remedy that is equitable in nature, and defendants have no right to a jury trial on [such] claim.”  One example of a legal remedy would be the money damages sought in an action for breach of a promissory note.  

Replevin carved out.  Pringle had one interesting result.  Count II of the plaintiff’s complaint was for replevin and dealt with the foreclosure of a chattel (non-real estate) mortgage.  Click here to learn more about replevin in Indiana.  The Court noted that, under Indiana law, an action for replevin was an action at law as opposed to an action in equity.  Thus the right to a jury trial applied, and the Court declined to strike the jury demand as to that count.  I’m frankly not sure why the waiver clause in the Guaranty and Collateral Agreement did not apply to the replevin count, but my assumption is that the Judge concluded the clause did not clearly and unambiguously apply to the replevin aspect of the case.   

If lenders want a jury trial waived as to the entirety of their loan enforcement action, the loan documents should spell out very clearly that the borrowers and guarantors are waiving their right to a jury trial as to any and all loan enforcement-related legal proceedings.  Such written contract provisions generally are enforceable in Indiana. 


Marion County (Indianapolis) Local Rule: Mandatory Settlement Conferences In Mortgage Foreclosure Cases

Marion County has issued a new local rule, which I understand is already in effect, relating to mandatory settlement conferences.  The rule is limited to owner-occupied residential cases and does not apply to commercial real estate foreclosures.  It will be interesting to see whether, or to what extent, this procedural change will help with the residential foreclosure crisis. 

It's my understanding Indiana's General Assembly is considering a foreclosure-related bill that would include a similar rule, which bill conceivably could eclipse Marion County's new rule.  See, House Bill 1633.      

You can access copies of the Marion County rule and related forms by clicking on these links:    

- LR49 TR85 Rule 231

Notice and Order for Settlement Conference

Borrower Financial Information

Confirmation of Attendance at Settlement Conference

I'd like to thank Kelly Angelmeyer, Director of Operations for the Marion Superior Court, for providing copies of these materials to me.


Writ Of Assistance: Timing And Other Practical Tips

This will expand upon my March 2, 2007 and April 28, 2008 posts relating to Indiana Trial Rule 70(A) writs of assistance, a tool secured lenders can use when they've acquired a sheriff's deed but have been unable to secure possession of the property.  Essentially, a writ of assistance is the method by which one can evict those unlawfully on, or in control of, the real estate.  The prior posts dealt with how writs of assistance can and should be executed.  The subject of today's post is more practical in nature.  The question is how quickly can the writ be executed or, in other words, once one triggers the process, how long will it take before the eviction occurs. 

Recent experience.  Last Fall, I tried a contested residential foreclosure case in Marion Superior Court (Indianapolis) and, with the help of my colleague Jeff Hammond, prevailed on all issues.  A sheriff's sale occurred, and our client obtained a sheriff's deed to the property at the sale.  The defendant/borrower refused to vacate the premises, so we initiated writ of assistance proceedings with the Marion County Civil Sheriff's Office.  Here is a brief summary of the steps involved:

  1. A $100 fee had to be paid;
  2. The sheriff sent a letter to the borrower, almost immediately, informing the borrower that she had ten days to vacate the property;
  3. About three days after the mailing of the letter, a deputy went to the property and posted a notice on the front door informing the borrower that she must vacate;
  4. On about the eleventh day, a deputy went back out to the property to determine whether it had been vacated; since in our case it was not, the sheriff scheduled a "move out date"; the sheriff determined the move out date by the volume of move out orders, usually seven to fourteen days later;
  5. Before the move out date, we (the plaintiff) had to contract with, and schedule, a bonded mover and locksmith to be present (a client represented had to be scheduled to be present at the move); and
  6. On the move out date, a deputy was present to ensure the borrower vacated all persons from the property and stayed to oversee the removal of the personal property and the changing of the locks. 

All told, in our case, it took twenty-nine days to evict the borrower and repossess the property. 

Remember, this was in Marion County, and, as noted in my April 14, 2008 post Indiana Sheriff's Sales - Local Rules, Customs and Practices Control, there are ninety-two counties in Indiana and thus ninety-two different sets of applicable rules.  As such, the timing may and likely will vary from county to county.   

Skip a step.  With the standard language we built into the post-trial order signed by the judge, we were not required to separately file for a writ of assistance in order to trigger the process.  According to the Marion County Sheriff, the order had already provided the office with the authority to proceed.  Here's what our order said:

Immediately after the sale and foreclosure, the Sheriff of Marion County, Indiana shall execute and deliver to the purchaser a deed of conveyance to the Real Estate and upon the request of the purchaser, shall eject and remove [defendant/borrower] and any party claiming from or through her that occupies any part of the Real Estate, and shall remove therefrom the personal property of any such person or entity and shall, in all other respects, deliver and place the purchaser in possession.

I would encourage the use of such language as it should enable one to bypass a step in the process.

Commercial cases too.  At the end of the day, in the vast majority of commercial mortgage foreclosure actions, the borrower will cooperate and surrender the property.  Having said that, one never knows when a unique case will arise in which a secured lender may need to resort to the remedy of a writ of assistance.  Thanks to Jeff Hammond for his input into this post.   


No Answer To Complaint = No Lien On Property

My June 18 post theorized that summary judgment may be preferable to a default judgment in commercial foreclosure proceedings.  The May 23 decision by the Court of Appeals in Irmscher Suppliers v. Capital Crossing, 887 N.E.2d 97 (Ind. Ct. App. 2008) (Irmscher.pdf) supports the notion that an Ind. Trial Rule 56 motion for summary judgment is appropriate against a party eligible to be defaulted.  Specifically, Irmscher illustrates how a competing lien holder’s failure to answer another lien holder’s complaint can result in a summary judgment that negates the competing lien. 

Capital Crossing’s complaint.  Irmscher, a contractor, recorded a mechanic’s lien on the subject property on September 25, 2006.  Capital Crossing, a mortgage lender, recorded a mortgage lien on the subject property on March 6, 2006.  Part of the Court’s opinion deals with the fact that Irmscher and Capital Crossing had each filed their own foreclosure lawsuits within a few weeks of one another.  That procedural wrangling is not particularly relevant to this blog, however.  What is relevant is that, in the suit filed by Capital Crossing, Capital Crossing named Irmscher as a defendant to answer as to its interest in the real estate.  Because Capital Crossing recorded its mortgage before Irmscher recorded its mechanic’s lien, Capital Crossing alleged that the mechanic’s lien was subject and subordinate to the mortgage.  (That may or may not be true – see my July 3, 2007 post “Construction Mortgage vs. Mechanic’s Lien:  Win, Lose or Draw?” and my follow-up post “Lien Priority Follow-up:  The Operative Statutes.”  As you’ll see, we’ll never know who was right in Irmscher.) 

Irmscher’s response, or lack thereof.  Counsel for Irmscher appeared in Capital Crossing’s foreclosure case, but Irmscher never filed an answer to the complaint.  Capital Crossing filed a motion for summary judgment seeking, among other things, a determination that its mortgage lien was a first lien on the subject real estate.  (This is the tactic discussed in my June 18 post.)  Although Irmscher filed a brief in opposition to the motion and a designation of evidence, the Court did not address any evidence in the opinion.  The Court merely mentioned Irmscher’s statement in its brief that the case should be decided in the separate foreclosure action filed by Irmscher.  In any event, counsel for Irmscher did not appear at the hearing on Capital Crossing’s summary judgment motion.  The trial court entered a judgment of foreclosure and decree of sale, finding that Irmscher had no interest in the subject property.  Irmscher appealed. 

Silence equals admission.  On appeal, Irmscher contended that the trial court erred when it found Irmscher had no interest in the real estate.  No so fast, said the Court of Appeals:  “Irmscher did not file an answer to Capital Crossing’s amended complaint and therefore admitted, at the very least, to the superiority of Capital Crossing’s mortgage.”  The Court cited an Indiana Supreme Court decision from 1886:

As applicable however, to a suit to foreclose a mortgage, and other kindred suits in the nature of a proceeding in rem, where a party is made a defendant to answer as to his supposed or possible, but unknown or undefined, interest in the property, we think that, as against him, a default ought to be construed as an admission that, at the time he failed to appear as required, he had no interest in the property in question, and hence as conclusive of any prior claim of interest or title adverse to the plaintiff. 

Ouch.  When a plaintiff lien holder files an action and asserts facts placing the validity, priority and amount of a mortgage lien in issue, a named defendant must file an answer to assert whatever interest it has in the property.  If it fails to do so, the lien of the defendant will be extinguished as a matter of law.  In Irmscher, the Court of Appeals held “in this case, although Irmscher’s counsel entered an appearance, Irmscher failed to file an answer asserting whatever interest it had in the property.  As such, we conclude that the trial court did not err in finding that Irmscher had no interest in the property.” 

Today’s lesson.  The Irmscher opinion is useful to both junior and senior lenders.  If you have a junior lien and are named as a defendant in a senior lien holder’s lawsuit, you need to appear in the action and answer the complaint to assert your interest in the subject real estate.  If you don’t, you can kiss your lien goodbye.  On the flip side, in instances where a defendant has not answered the complaint, senior lien holders involved in Indiana enforcement actions can cite to Irmscher in their summary judgment briefs to persuade the trial court that the defendant’s lien should be extinguished as a matter of law.


In Indiana, A Summary Judgment Is Preferable To A Default Judgment

There are occasions when a defendant does not appear in a lien enforcement lawsuit or otherwise timely respond to the complaint.  Many of us intuitively consider the next step to be an application for default judgment pursuant to Indiana Trial Rule 55.  Recently, my colleague Chris Jacobson and I discussed the benefits of foregoing a T.R. 55 motion and proceeding directly with a T.R. 56 motion for summary judgment.  Secured lenders and their counsel should consider this approach in Indiana matters.

Is it proper?  The first question is whether a plaintiff can file a motion for summary judgment before an answer, or even an appearance, has been filed by a defendant.  The answer appears to be yes.  T.R. 56(A) states that “a  party seeking to recover upon a claim . . . may, at any time after the expiration of twenty (20) days from the commencement of the action . . . move . . . for summary judgment in his favor upon all or any part thereof.”  (Under T.R. 3, an action is commenced by the filing of a complaint, by paying the filing fee and by furnishing the clerk with the required copies of the complaint and summons.)  Nothing in T.R. 56 (or T.R. 55) suggests that a motion for summary judgment cannot be utilized when an application for default judgment could be.  Case law supports the notion that a T.R. 56 motion is appropriate against a party eligible to be defaulted.  Anderson v. The Broadmoor Corporation, 363 N.E.2d 1042 (Ind. Ct. App. 1977); see also, Royalty Vans v. Hill Brothers, 605 N.E.2d 1217, 1219 (Ind. Ct. App. 1993):

[Defendant] very well might have been vulnerable to the entry of a default judgment in this case . . . ..  However, the court clearly acted pursuant to [Plaintiff’s] motion for summary judgment and entered judgment only after [Plaintiff] had met its burden of demonstrating that there was no genuine issue of material fact for trial.

Is it better?  Applying for a default judgment is fairly quick and easy, and courts essentially focus only on whether there has been good service of process and whether the defendant has failed to timely respond to the complaint.  It’s sort of a technical knockout.  (See my post, “What If A Borrower Ignores A Lender’s Foreclosure Suit?”)  A summary judgment, while a bit more labor intensive to obtain, provides a more definitive result.  The court’s decision is on the merits.  The court in Anderson, 363 N.E.2d at 294-95 noted, for example:

A summary judgment qualifies as a final judgment and a trial court may award “the relief to which the party in whose favor it is rendered is entitled, even if the party has not demanded such relief in his pleadings.”  A T.R. 55 judgment is limited to the amount prayed for in the pleadings.   

In addition, Indiana courts are geared toward setting aside default judgments.  T.R. 55 has a specific subsection about setting aside a default and specifically refers to T.R. 60(B).  T.R. 60(B) also applies to summary judgments, but the cases we’ve reviewed show quite clearly that setting aside a summary judgment is a more difficult proposition.  Furthermore, Indiana has specific legal policies stating that default judgments are not favored.  There is a strong judicial preference for deciding cases on their merits and for giving litigants their day in court.  Summary judgments tend to meet those standards.  Default judgments tend not to.

Is notice documented?  An important matter, implicit in the Anderson opinion, is to prove that the defendant had notice of the summary judgment proceedings.  In instances of unrepresented parties, one way to do this is to provide the party, by certified mail, with copies of the motion and any order setting the matter for hearing.  (A hearing is not mandated by T.R. 56, unless a party requests one, but it is fairly common for Indiana trial courts to hold a hearing.)  Lender’s counsel then can attach the letter(s), with the certified mail return receipt(s), to an affidavit for submission to the court.  If the plaintiff can show that the defendant had actual notice of the proceedings, but failed to take any action, then such proof reduces dramatically the chances of setting aside the judgment in the trial court or overturning the judgment on appeal.  Conversely, the easiest way for a defendant to get a second chance is to convince a court that it did not know about a motion or a hearing. 

Think MSJ.  There is no right or wrong answer to the question of whether to pursue relief through a default judgment or a summary judgment.  The circumstances of the particular case should guide the decision.  A T.R. 55 default judgment arguably can occur more quickly and with less expense.  Having said that, a summary judgment, as opposed to default judgment, should result in more conclusive, definitive relief that is less prone to being set aside on technical grounds.  In such cases, the defendant’s recourse may be limited to an appeal, which should be futile if the undisputed facts and the law support the judgment.  Ultimately, my advice for secured lenders and their counsel is to bypass a default and to seek a summary judgment.  (For more on summary judgments in the foreclosure context, please see my post, “Motion For Summary What?”)

I would like to thank my colleague Chris Jacobson for her thoughts on this issue, and I would like to credit our summer associate, Julia Bochnowski, for assisting me with the research for this post, particularly while I was on vacation last week. 


Seventh Circuit: Indiana Writs of Assistance Do Not Need To Be Executed In A Commercially-Reasonable Manner

This supplements my March 2, 2007 post:  The execution of a writ of assistance need not be "commercially reasonable."  Please click here for that post, which in part dealt with the federal district court's February 16, 2007 conclusion that Indiana Trial Rule 70(A) writs of assistance should be executed by the county sheriff immediately and without regard to commercially-reasonable standards.  The Seventh Circuit agreed with the opinion of Judge Tinder (who is, incidentally, now a Seventh Circuit Judge).

Affirmed.  At issue was the timing of an eviction of a property owner after after an execution sale of the real estate.  The owner, Mr. Dempsey, cried foul because JP Morgan Chase refused to delay the eviction to allow Mr. Dempsey to attend a funeral.  Here's what the Seventh Circuit said regarding the appeal of that issue: 

We likewise agree with the district court that there is no merit to Dempsey’s claim that the writ of assistance was executed unfairly because Chase refused to delay the eviction to allow Dempsey to attend a funeral. Dempsey has provided no support whatsoever for his contention that the writ must be executed in a commercially reasonable manner. “A writ of assistance is an equitable remedy used to transfer real property, the title of which has been previously adjudicated, as a means of enforcing the court’s own decree” where the party that the writ is issued against has refused to obey that decree—like Dempsey did here. See TeWalt v. TeWalt, 421 N.E.2d 415, 418 (Ind. Ct. App. 1981); see also IND. R. TRIAL P. 70(A). Thus, it is not surprising that the sheriff has the “right and duty” to execute the writ immediately upon receiving it. 7 C.J.S. Writ of Assistance § 14. As the district court noted, “Dempsey could have avoided his trouble by moving out voluntarily and promptly when Chase obtained title to the property as opposed to forcing Chase to utilize the sheriff’s department to enforce the court’s decision.”

For a .pdf of the entire March 31, 2008 decision in Dempsey v. JP Morgan Chase, 2008 U.S. App. LEXIS 7707 (7th Cir. 2008) click here.pdf.

Tool for creditors.  Again, if you acquired title to real estate at a sheriff's sale and if the owner will not vacate voluntarily, your remedy is a writ of assistance.  Dempsey provides powerful legal precedent, favorable to creditors, associated with how Indiana writs of assistance can and should be executed.


What If A Borrower Ignores A Lender's Foreclosure Suit?

Can a borrower in default simply disregard a lawsuit?  Of course not.  If the plaintiff/lender properly serves the borrower with a Summons and the Complaint, and if the borrower/defendant takes no action, then the borrower will face a "default judgment."  A July 23, 2007 opinion from the U.S. District Court for the Northern District of Indiana in United States of America v. Sheetz, 2007 U.S. Dist. LEXIS 53918 illustrates this. 

Rules.  The procedural rule giving courts the power to enter default judgments is Rule 55.  Click here for the federal rule.  Click here for the Indiana rule.  The rules essentially are the same.  Sheetz is a federal court action and thus applies the federal version of the rule. 

The Sheetz opinion on page 2 outlines the following guidelines utilized by federal courts asked to enter a default judgment:

  1. The entry of default is discretionary - a judgment call by the court.
  2. Factors that will be considered include (a) the amount of money involved, (b) whether there are issues of fact, (c) whether substantial public importance is in question, (d) whether the default is "largely technical", (e) whether the plaintiff has been prejudiced by the delay caused by the defendant and (f) whether the grounds for default are "clearly established or are in doubt." 

(Indiana state courts articulate the guidelines slightly differently, and that case law will be the subject of a future post.)

Liability.  Sheetz was an easy call for Judge Simon.  The defendant borrower had defaulted on a student loan.  The circumstances satisfied each of the factors.  Given the lender's motion and supporting materials, there were no issues of fact, and the grounds were clearly established.  The default went beyond a mere technicality as three months had passed since the defendant was served.  "Defendant cannot be allowed to completely ignore this suit."  Id at 2.  Finally, the money involved was a relatively small figure (under 10k). 

Damages.  A lawsuit usually concerns a determination of two basic things:  liability and damages.  The first question is whether the borrower owes the money.  The second question surrounds the amount of money owed (and, in foreclosure cases, the nature and extent of the lien).  A motion for a default judgment is way to expedite those determinations.  The motion triggers the same two-step analysis. 

Sometimes, a court will grant a default judgment (determine liability) on the pleadings, without a hearing, but later conduct an evidentiary hearing to determine damages.  However, sometimes a court will determine damages immediately and without a hearing.  Sheetz is one of those cases.  At least in federal court, if damages are "capable of ascertainment from definite figures contained in the documentary evidence or in detailed affidavits," then a hearing isn't necessary.  The key is whether the court has the information it needs to calculate damages.  Id. at 3.  The plaintiff/lender in Sheetz (the United States) properly filed an affidavit (sworn written statement) outlining the debt and how the final amount should be calculated based on the loan documents.  Judge Simon saw no reason to hold a hearing, and the plaintiff got its final, enforceable judgment as to both liability and damages quickly and without a court appearance. 

When faced with a borrower ignoring a foreclosure suit, and after you've assured yourself that service of process has been perfected and the appropriate time has passed, you or your counsel should follow Rule 55 and the Sheetz road map to reduce your claim to a judgment quickly and with limited expense. 


THE EXECUTION OF A WRIT OF ASSISTANCE NEED NOT BE “COMMERCIALLY REASONABLE”

A recent federal court case addressed an Indiana writ of assistance, an infrequently-used yet useful tool for commercial lenders and judgment creditors who have acquired title to real estate at a sheriff’s sale but are having trouble getting possession.  The opinion, dated February 16, 2007, is from Judge Tinder of the Southern District of Indiana.  Here's a .pdf: DempseyOpinion.pdf.  The legal “drama” involved mortgagee Chase and mortgagor Dempsey.

Writ of assistance.  “Writ” is a fancy word for a court order “requiring the performance of a specified act, or giving authority to have it done.”  Black’s Law Dictionary.  A “writ of assistance” is a particular kind of court order “to transfer real property, the title of which has been previously adjudicated, as a means of enforcing the court’s own decree.”  Dempsey at 15.  In other words, the writ compels compliance with a prior order that directed action, such as the transfer of possession of real property. 

Indiana Trial Rule 70(A).  Writs of assistance are governed by T. R. 70(A), which states in part:  “When any order or judgment is for the delivery of possession, the party in whose favor it is entered is entitled to a writ of . . . assistance . . . directing the sheriff or other enforcement officer to deliver possession upon application to the clerk.”  Writs of assistance avoid the unnecessary expense and delay of the filing of a new lawsuit because the relief simply is triggered by an “application” (a motion) filed in the original action.  The application is a supplemental proceeding to enforce a prior court order.  The writ is enforced, in most cases, by the sheriff.  Harvey, Indiana Practice Series, Volume 4(A), Section 70.3.

The Dempsey circumstances.  The litigation concerned a property used by Dempsey and his professional service corporation as an office, which contained two additional rental units.  Chase held a mortgage on the property, but the underlying state court case was not a mortgage foreclosure action.  Chase became involved when a judgment creditor compelled a judicial sale of Dempsey’s building.  Chase ultimately purchased the property by bidding its indebtedness at the sheriff’s sale.  The problem was that Dempsey would not vacate the premises.  So, Chase petitioned the state court for a writ of assistance to take possession of the property.  Chase got the writ, and a Marion County Sheriff kicked Dempsey and his two tenants out.  In the subsequent federal court action, Dempsey contended that he should be awarded the property back, or at least compensated for the loss, due to the allegedly improper execution of the writ. 

Commercially unreasonable?  A few days before the July 19, 1995 eviction date, Dempsey left a phone message with Chase explaining that the visitation for his deceased cousin was July 19 and that the funeral was the next day.  Dempsey wanted more time.  His sympathy pleas were ignored, however.  In the federal court case, Dempsey argued it was “commercially unreasonable” for Chase not to wait a couple days before taking possession of the property.  Dempsey based his position on a standards found in Indiana’s Uniform Commercial Code.  For instance, one section in the Code requires the disposition of collateral after default to be done in a “commercially reasonable” manner.  I.C. 26-1-9.1-610.  The execution of a writ of assistance and the disposition of collateral are two different things, however.  Here, the sheriff already had disposed of the collateral via a sheriff’s sale.  Besides, Article 9.1 of the UCC “does not apply to writs of assistance anyway.”  Dempsey at 15, n.8.

Game over.  Judge Tinder held that there is no requirement to execute a writ of assistance in a commercially reasonable manner.  The sheriff has the “right and duty” to execute the writ immediately upon receiving it.”  Dempsey at 15.  Thus there was no obligation under Indiana law for Chase to wait a few extra days due to a death in Dempsey’s family.  “Chase’s right to the property had already been adjudicated.  Dempsey could have avoided his trouble by moving out voluntarily and promptly when Chase obtained title to the property as opposed to forcing Chase to utilize the Sheriff’s Department to enforce the court’s decision.”  Id.  The Dempsey decision is important because it rejects a reasonableness standard, or any standard for that matter, for the execution of writs of assistance.  Once the writ is issued, the party’s over.  The writ should be executed immediately.  In practice, execution will depend upon the availability of the civil sheriff, but execution will not depend upon the sob stories of the judgment debtor. 

Go get a writ.  If you’re a foreclosing commercial lender or judgment creditor, if you have a foreclosure decree, if you acquired the subject property at a sheriff’s sale and if the borrower/judgment debtor will not vacate the premises, your remedy in Indiana is a writ of assistance under T. R. 70(A).  The county sheriff has a duty to execute the writ immediately and without regard to commercially reasonable standards. 


THE COMMERCIAL LENDER’S 8-ITEM CARE PACKAGE FOR ITS FORECLOSURE ATTORNEY

As a secured lender, once you decide to foreclose on a business borrower’s loan collateral, you must provide certain information and documentation to your lawyer so he or she can file suit.  The more quickly you send this data, and the more thorough the data is, the more efficient your attorney can be in initiating the action. 

Care Package.  I recommend that lenders develop a practice of compiling a “care package” for their lawyers when assigning a non-performing loan for collection.  The package should include:

1.  Loan documents.  Each and every piece of paper documenting the loan needs to be forwarded.  This would include all promissory notes, mortgages, security agreements, amendments, modifications, assignments, etc.  Not only will the law firm need these materials to analyze the case, but Indiana Trial Rule 9.2(A) requires written instruments, upon which a cause of action is based, to be filed as exhibits to the Complaint.

2.  Defaults.  Although most defaults will be for non-payment, there may be other breaches of the loan documents.  All such defaults need to be identified in the Complaint.  To give your attorney a jump start on the default analysis, a listing of any and all contract breaches, with the operative dates and citations to loan document sections, will be useful. 

3.  Debt figures.  Even though the loss amount may change (increase) over time, the standard practice in Indiana is to specify the debt (damages) as of the filing of the Complaint.  These figures will include any losses recoverable under the loan documents, mainly the entire unpaid principal (assuming the debt is being accelerated), accrued interest and late fees.  A brief calculation of the figures should be explained, including relevant dates, interest rates, etc.

4.  Notice letter.  A copy of the notice and cure letter to the borrower should be provided, assuming that the loan documents required one and that you sent one.  Not only will your counsel need to evaluate the notice and cure element of the case, but it’s good practice to attach the letter as an exhibit to the Complaint.

5.  Title/UCC searches.  If you have a prior title insurance policy and/or UCC search, those materials should be sent with the care package.  Lenders could save some expense simply by ordering an update to the title policy from the same company.  Or, a separate title insurance company may provide a new commitment faster and more cheaply based on a prior policy.

6.  Environmental analysis.  If an environmental liability analysis has been performed, the report should be included in what you send to your counsel.

7.  Appraisals.  If the you had any collateral appraised in the weeks leading up to the decision to foreclose, the appraisal reports should be provided.  Knowing the present value of the collateral may be helpful in work-out negotiations or decisions regarding the disposition of the collateral.

8.  Contact information.  Current contact information for the borrower or, if applicable, the borrower’s counsel should be supplied.  It’s also a good idea to provide a copy of all correspondence between the lender and the borrower (or the borrower’s lawyer) related to pre-suit/work-out discussions.  This information will enable your counsel to understand better the nature of the dispute, and to hit the ground running with future communications.   

Efficiency.  Two things are saved when lenders and their counsel are efficient:  time and expense.  If, at the beginning of an assignment, your staff provides outside counsel with the care package I propose, law firms (at least mine) will initiate the foreclosure action quicker and for less money.  Delays and attorney’s fees can be avoided by bypassing the follow-up that usually is required in obtaining data from the lender – things that can be provided at the outset, even before the lender first contacts its attorney. 


FILING DATE IS WHAT MATTERS WHEN DETERMINING PARTIES TO NAME IN MORTGAGE FORECLOSURE SUIT

When a lender makes the decision to foreclose on its borrower’s real estate collateral in Indiana, the lender must determine who, besides the borrower, claims an interest in the property.  That’s why a title policy (foreclosure) commitment is ordered before the filing of the case.  Clear title cannot be obtained upon a sheriff’s sale unless all lien holders are named as defendants in the suit (so that their interests can be foreclosed).  Recently, the Indiana Court of Appeals reminded us of why and when pre-suit title work must be updated.    

The rule.  In the December 8, 2006 opinion House v. First American Title Company, 2006 Ind. App. LEXIS 2472, the Court of Appeals addressed a dispute between the purchaser of residential real estate (after a sheriff’s sale) and his title insurance company.  Although the issues in the opinion have no real bearing on commercial foreclosure law, a rule cited by the Court in its decision does:  a foreclosure action’s filing date is the “only relevant date used to determine the proper parties to a mortgage foreclosure.”  Third-parties who secure an interest in the mortgaged property after the filing of the foreclosure complaint need not be named in the suit.  Note these comments from House

  Because the judgment of the Dearborn County Health Department
  did not attach until after the foreclosure action was commenced by
  the Bank of New York, any lien which arose as a result of the
  default judgment obtained by the health department was foreclosed
  by the foreclosure sale
and therefore does not affect fee simple title
  to the real estate.

So, lenders need not continuously search title during the course of litigation and worry about adding new parties to their foreclosure complaint.  “The only relevant date” is the foreclosure action’s commencement date – the day the lender filed the complaint.   

Date down.  Invariably, there will be a gap between the completion of the preliminary title search and the initiation of the suit.  Conceivably, liens, etc. could arise during that time.  To cover the gap, lenders must “date down” (update) their title policy commitment to the day of the filing of the complaint.  House confirms that this is the only title update required, and I recommend that it be done shortly after the filing of the complaint.  If any interests arise during that period, the new lien holders must be added to the case.  Should the updated commitment uncover no new interests, the lender can be comfortable proceeding with the original cast of characters. 


MOTION FOR SUMMARY WHAT?

If you’ve heard colleagues or your lawyer mention a “motion for summary judgment” and wondered what exactly it was, allow me to shed some light on the subject in the context of an Indiana commercial foreclosure.  A motion is a request by a party for the trial judge to do something – in this case grant a summary judgment.  A summary judgment is an expedited final ruling by the judge on a claim of a party. 

The basics.  Here are some summary judgment nuts and bolts:

• Courts use summary judgment to address legal issues and reach legal conclusions when the facts are not disputed and only their legal meaning is in question.

• There are two critical elements of a successful motion for summary judgment:  (a) the evidentiary materials of record show that there is no genuine issue as to any material fact and (b) the party filing the motion is entitled to judgment as a matter of law.

• The purpose of summary judgment is to terminate litigation about which there can be no factual dispute and which may be determined as a matter of law. 

William F. Harvey, Indiana Practice Series, Volume 3A. 

Faster.  There is no real difference between a “judgment” and a “summary judgment.”  In both instances, the court adjudicates (determines) a claim or claims.  The main distinction between the two is this – a summary judgment avoids a trial.  A lender can repossess and therefore dispose of the collateral much faster (and with much less expense) than if it had to try the case.

Rule 56.  Motions for summary judgment are governed by Rule 56 of the Indiana Rules of Trial ProcedureBlack’s Law Dictionary explains “summary judgment” as:  “Rule of Civil Procedure 56 permits any party to a civil action to move for a summary judgment on a claim . . . when he believes that there is no genuine issue of material fact and that he is entitled to prevail as a matter of law….”   A “genuine issue of material fact” for purposes of summary judgment is:

In determining what constitutes a genuine issue as to any material fact for purposes of summary judgment, an issue is ‘material’ if the facts alleged are such as to constitute a legal defense or are such nature as to affect the result of the action.  A fact is ‘material’ and precludes grant of summary judgment if proof of that fact would have effect of establishing or refuting one of essential elements of a cause of action or defense asserted by the parties, and would necessarily affect application of appropriate principle of law to the rights and obligations of the parties.  Black’s.

In a typical commercial foreclosure case, there are two fundamental issues for the court to determine:  (1) whether there has been a default under the operative loan documents and (2) what the damages are.  If there is no dispute as to either of those issues, lenders can file a motion for summary judgment. The borrower has thirty days within which to respond to the motion.  It is not unusual for this period to be extended for another thirty days or so.  The plaintiff lender then may file a reply brief, and the court thereafter usually will hold a hearing. 

Supporting materials.  In support of the motion, you need an affidavit (1) to authenticate the loan documents and establish a default and (2) to outline of the amount of money to which the lender is entitled.  Unless the borrower can demonstrate that no default has occurred or that the lender has miscalculated the amount of damages, the court will be compelled to enter summary judgment.  A properly-supported motion for summary judgment could result in the reduction of the lender’s claims to a money judgment/foreclosure decree within a few months.  A resolution of the claims will not be dependent upon the court’s availability to hold a trial, which takes several months if not years. 

The objective.  Should a defendant borrower appear in the suit and answer the complaint, the plaintiff lender will be confronted with a contested, or at least a delayed, foreclosure.  (If there is no appearance in the case or answer to the complaint, lenders can achieve an even quicker judgment by applying for a default judgment under Trial Rule 55.)  In order to turn collateral into cash as quickly as possible, and if a default judgment is unavailable, the lender and its counsel should aggressively pursue summary judgment.  But make sure there will be no factual disputes in connection with proving a default (a breach of the loan documents) or the amount of the debt.  If lenders take debatable or extreme positions as to either of those issues, the motion could be defeated, resulting in delays and compounding financial losses.


BASIC FORECLOSURE PROCESS/TIMING IN INDIANA

Need a handle on how long it will take to liquidate your borrower’s collateral in Indiana?  Since the foreclosure process officially starts with the filing of a complaint, my timelines start there.  A complaint cannot be filed until there has been a default under the terms of the real estate mortgage or personal property security agreement.  Needless to say, many weeks if not months might pass between the initial loan default and the decision to file suit. 

The timing of the foreclosure process largely depends upon whether and to what extent the borrower contests the proceeding:   

Uncontested Foreclosure:  4½ - 6 months minimum.  If a business debtor does not contest foreclosure (but will not agree to a deed in lieu), the process can move relatively quickly.  Here are the major steps and applicable ranges of time:

1. Filing of the Complaint
2. Service of process on the debtor:  occurs in 5-10 days unless service by publication
3. Application for default judgment:  can be sought 21-24 days after service of process
4. Entry of default judgment and decree of foreclosure:  should occur within approximately 30 days after the Application is filed
5. Praecipe for Sheriff’s sale, including notice of same:  by statute, cannot be filed until 3 months after the Complaint
6. Sheriff’s sale:  happens about 45-90 days from Praecipe, depending on the county

Contested Foreclosure:  6-9 months minimum.  Given the vagaries of litigation, it’s virtually impossible to conclusively estimate how long a contested foreclosure case may last.  Much depends upon how clear the default and the damages are.  Perhaps the most significant factor relates to the time associated with workout negotiations.  In that regard, each case is different.  Here are the main steps of a fairly quick contested foreclosure:

1. Filing of the Complaint
2. Service of process on the debtor:  occurs in 5-10 days unless service by publication
3. Appearance of debtor’s attorney and motion for one or more 30-day extensions of time to respond to the Complaint:  filed 20-23 days after service of process
4. Answer to Complaint:  filed 30 days after filing of Appearance and expiration of last motion for extension
5. Motion for summary judgment:  can be filed immediately after the filing of the Answer
6. Objection to motion for summary judgment:  due 30 days after the filing of the motion for summary judgment
7. Summary judgment hearing:  usually held 75-120 days after the motion is filed
8. Entry of judgment and decree of foreclosure:  occurs on day of hearing, or soon thereafter, unless the motion is vigorously contested with viable defenses
9. Praecipe for Sheriff’s sale:  can be submitted immediately after the entry of judgment assuming more than 3 months have passed since the complaint was filed
10. Sheriff’s sale:  takes place 45-90 days from Praecipe, depending on the county

Judicial sales.  Indiana law requires a judicial sale in order to foreclose a mortgage.  I.C. 32-29-7-4 is a nice option for creditors looking to expedite a sale.  The statute permits, under certain limited circumstances, the sheriff’s sale to be conducted by a private auctioneer on the civil sheriff’s behalf.  This may be advisable in counties without regularly-scheduled sheriff’s sales.  (I should note that, as to personal property security interests, UCC/Article 9.1 and/or the terms of a security agreement may allow the creditor to repossess the collateral without a sheriff’s sale.) 

Be prepared for delays.  Although the basic procedure is the same throughout Indiana, the timing can be impacted dramatically by the dockets of the individual courts and/or the schedules of the individual civil Sheriffs’ offices.  The periods described are the minimum time periods.  The actual time usually is longer.  This is especially true if there are multiple creditors named in the lawsuit.  Further, in contested cases involving debtors represented by counsel, opposing attorneys can prolong the process in a variety of ways, including multiple motions for extensions of time, requests for discovery and vigorous challenges to a motion for summary judgment.  In the event a trial must occur, a resolution of the case can be delayed several months if not years.  In addition, a bankruptcy can be filed up until the time when the Sheriff’s sale begins, and that can delay the foreclosure process indefinitely.

Depending on the goals of the lender, the lawyer representing the lender can push the case aggressively toward a sale.  Or, counsel can be more passive to give the parties time to assess whether a refinancing arrangement may be warranted.  The parties can settle, or the debtor can redeem - real estate / I.C. § 2-29-7-7; personal property / I.C. § 26-1-9.1-623 - right up to the sale or disposition of the collateral.  Debtors’ attorneys know this, so don’t be surprised if a borrower waits until the eve of sale either to file for bankruptcy protection, redeem or yield to the lender’s loan modification terms.