Purchaser Secures Surplus Funds Following HOA Lien Foreclosure Sale

Lesson. Depending on the nature of the lien foreclosure action, former property owners may not always get the surplus sheriff’s sale proceeds – equity can play a role.

Case cite. Brent St. John v. Carnoustie Circle Owners Ass'n Inc., 235 N.E.3d 204 (Ind. Ct. App. 2024)

Legal issue. Whether the distribution of excess sheriff’s sale proceeds following an HOA lien foreclosure was contrary to law.

Vital facts. Purchaser acquired title to a condo at a sheriff’s sale resulting from a homeowners association’s (HOA) lien foreclosure. The plaintiff HOA conceded that the sale was subject to Mortgagee’s senior lien on the subject property, but the judgment did not provide for payment of any sale proceeds to Mortgagee. Instead, the judgment stated that residual net proceeds were to be paid into court “subject to further order.” Following the sale and satisfaction of the HOA’s judgment and other minor liens, about $100K in surplus proceeds remained.

Procedural history. Former Owner filed a petition claiming entitlement to the surplus. Mortgagee, which had been defaulted prior to the judgment entry, in turn, filed a notice asserting its senior lien, but did not make a claim for any proceeds. Purchaser, in turn, objected to any funds being distributed to Former Owner and argued that the proceeds should instead be redirected to Purchaser to pay down the mortgage. The trial court sided with Purchaser, and Former Owner appealed.

Key rules. Former Owner relied upon Indiana Code Section 32-30-10-14 (“Section 14”) and the 2016 Edler opinion, which deal with the distribution of surplus funds after a mortgage foreclosure sale. I discussed Section 14 and Edler in the first “related post” below.

The Indiana Court of Appeals found it significant that HOA liens are governed by statutes outside of mortgage-related statutes. See, Indiana Code Section 32-25-6. Further, the Court noted that, in Indiana, “a lien for unpaid [HOA] assessment may be foreclosed by a lawsuit ‘under laws of Indiana governing mechanics’ and materialmen’s liens.’”

Holding. The Indiana Court of Appeals, in an unpublished opinion, affirmed the trial court.

Policy/rationale. The Court distinguished this case from the Edler case, which involved Section 14 and the disposition of sheriff’s sale proceeds in mortgage foreclosure matters. Since Brent St. John was an HOA lien foreclosure, Indiana Code Section 32-25-6-3 and corresponding mechanic’s lien laws and procedure controlled. Those laws/procedures aren’t particularly relevant, because the case frankly involved a unique set of facts. The bottom line is the Court found a way to bypass Section 14’s rule that any surplus funds should be paid back to the mortgage debtor (here, Former Owner). The trial court’s ruling did not specify the statute upon which it relied but merely decided to allocate funds “to the sole party having the incentive to clear title to the property [Purchaser].” The Court of Appeals embraced that concept when it concluded that “[Purchaser] was equitably entitled to the [net sale proceeds].” Thus, as a practical matter, Purchaser got most of its money back after satisfying other liens on the property. Because the outcome of Brent St. John was based on equitable principles, the result conceivably could be different under a separate set of circumstances.

Related posts.

• If A Sheriff’s Sale Is "Subject To" A Senior Mortgage, The Senior Lender Gets None Of The Sale Proceeds, Even If There Is A Surplus
• Statutory Disposition of Foreclosure Sale Proceeds
• Mortgagee Prevails In Claim For Indiana Tax Sale Surplus
• Priority Of HOA Liens In Indiana

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Part of my practice involves representing parties in sheriff's sale matters. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Sheriff's Sale Surplus Goes To Owner/Borrower

My news feed this week produced this article from Fox59:  Surplus Funds After Foreclosure: Key Facts and Recovery Options for Homeowners.  The article is not state-specific, so I thought I'd build on the piece by commenting on Indiana law.

In the event an Indiana sheriff's sale produces surplus (excess) proceeds (money), by statute those funds belong to the owner.  Indiana Code 32-30-10-14 "Application of proceeds of sale; disposition of excess proceeds" provides:

the surplus must be paid to the clerk of the court to be transferred, as the court directs, to the mortgage debtor, mortgage debtor's heirs, or other persons assigned by the mortgage debtor.

For more on this subject, click on my prior post:  Statutory Disposition of Foreclosure Sale Proceeds.

While we're on this topic, the result in an Indiana tax sale, albeit a much more complex process than a foreclosure sale, essentially is the same.  See:  Indiana Code 6-1.1-24.7(c).   

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Part of my practice involves representing parties at sheriff’s sales. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Marion County (Indianapolis) Sheriff's Office Updates

Teena Willard, who essentially headed up the Marion County Civil Sheriff's foreclosure division, retired in June.  We wish Teena well.

Lesley Lavender and Funke Idowu have taken over the reins.  All emails must be sent to them at:  [email protected].

The office is at the new Indianapolis Justice Center, 695 Justice Way, Indianapolis, IN 46203.  The phone number is:  317-327-2459.  

The foreclosure division rolled out an updated website in June.  Click here for the link.  The site is very helpful and should be studied by any party or lawyer involved in a sheriff's sale in our county.  The site provides virtually all the forms and information one needs, and my experience has been that the staff is always been helpful in answering questions attorneys and bidders might have. 

As a reminder, not all of Indiana’s 92 counties have a website as extensive as Marion County’s.  But, many of our sheriff’s offices do in fact have a sale web page. Make sure to investigate in advance of your sale. Just as importantly, every county has a sheriff’s sale contact person willing and able to assist in preparing for a foreclosure sale. Finally, don’t forget that local rules, customs and practices control the nitty gritty of the sale process.

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Part of my practice involves representing parties at sheriff’s sales. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Notices of Sheriff’s Sales: Some Reminders

I received an email last week from the Marion County (Indianapolis) Sheriff’s Office advising that the real estate division “is making advancements in technology” that have led to a new notice of sheriff’s sale. Click here for the form in Word that will be required beginning with the June 21, 2024 sale.

For more background on Indiana law surrounding the sale notice requirement, please review these posts:

• Publishing Notices Of Sheriff's Sales In Indiana
• Indiana Notices Of Sheriff’s Sale Must Identify All Property Being Offered

While I’m at it, remember that the Marion County Sheriff has a great website to help parties navigate through the sale process. The staff provides virtually all the forms and information one needs, and my experience has been that the staff is always been helpful in answering questions attorneys and bidders might have. Click here for that website.

Although not all of Indiana’s 92 counties have a website as extensive as Marion County’s, many of our sheriff’s offices do in fact have a sale web page. Make sure to investigate in advance of your sale. Just as importantly, in my experience every county has a sheriff’s sale contact person willing and able to assist in preparing for a foreclosure sale. Finally, don’t forget that local rules, customs and practices control the nitty gritty of the sale process.
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Part of my practice involves representing parties at sheriff’s sales. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Replevin Action To Repossess Model Of Picasso Sculpture Succeeds

Lesson. In Indiana auction sales of goods, the auction is final by the fall of the auctioneer’s hammer or other customary manner.

Case cite. Terrault v. Scheere, 200 N.E.3d 490 (Ind. Ct. App. 2022)

Legal issue. Whether a second auction of a good could be negated through a replevin action filed by the winning bidder in the first auction.

Vital facts. Auction Company sold a scaled model of a Picasso sculpture that had been donated to a school. A participant in the auction via telephone was the highest bidder at $20,000, and Auction Company announced the item as sold. The bidder then wired the necessary funds.

About a month later, a dispute arose in which certain city officials claimed there was inadequate or improper notice before the auction. The notice procedure is not pertinent to this post. The point is that the sale process was disputed, and the Auction Company held a second auction. A second individual placed a winning bid of $40,500 that he paid to the school. This second winning bidder then picked up the item.

Procedural history. The original bidder filed suit to obtain possession of the item. One of his claims was for replevin, and he filed a motion for summary judgment. The trial court granted the motion and ordered the subsequent bidder to relinquish possession of the model Picasso to the first bidder.

Key rules. Ind. Code § 26-1-2-328(2) provides in part that "[a] sale by auction is complete when the auctioneer so announces by the fall of the hammer or in other customary manner." This statute is a UCC “Sales” (Article 2) provision applicable to the sale of a “good.”

Holding. The Indiana Court of Appeals affirmed the trial court.

Policy/rationale. At the heart of the dispute were statutory notice requirements applicable to a “distressed political subdivision” – an area of law far afield from my practice or this blog. What triggered my interest in Terrault was the replevin claim generally and the finality of the first auction specifically. The Court stated:

while the conditions to which (bidder 1) agreed when registering for the auction provided that the auctioneer may determine the successful bidder, continue bidding, cancel the sale, or reoffer an item, they do not provide that the School and [Auction Company] were able to take such actions after the winning bidder was determined. Indeed the terms provide that the highest bidder acknowledged by the auctioneer will be the purchaser and [Auction Company] acknowledged [bidder 1] as the highest bidder and received payment from him. Based on the designated evidence, the [city] and [Auction Company] had the authority to sell the model on behalf of the School, and the sale of the model on January 19, 2019, to [bidder 1] was valid.

The outcome here is consistent with sheriff’s sale case law in Indiana. As noted in my 11/15/19 post, In Re Collins, 2005 Bankr. LEXIS 1800 (S.D. Bankr. 2005) provided that: “[o]nce a sheriff’s sale takes place, a mortgage-debtor is no longer the title holder....” Judge Coachys concluded, in Collins, that a sheriff’s sale is complete when the hammer falls and that the actual delivery of the sheriff’s deed is purely ministerial.

Related posts.

• What Is A Replevin Action?
• Possessory Interest Key To Indiana Replevin (Repossession) Action

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I represent parties involved in connection with replevin actions and sheriff’s sales. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Apparent Windfall Not Enough to Set Aside Federal Foreclosure Sale or Negate Deficiency Judgment

Lesson. Judgment debtors (defendants) concerned about liability for a post-sheriff’s sale deficiency judgment should closely monitor the sale process and, if possible, take action to maximize the value of the real estate.

Case cite. United States v. Fozzard, 2022 U.S. Dist. LEXIS 226668 (N.D. Ind. Dec. 16 2022)

Legal issue. Whether an inequitable windfall resulted from a foreclosure sale.

Vital facts. This is my second post about Fozzard. To better understand it, please review my 3/9/23 post. The evidence indicated that GPOA, defendant Fozzard’s condo owner's association/junior secured creditor, and GRC, the developer of Fozzard’s condo complex, were related entities. Fozzard owed GPOA, not GRC, a debt. He focused much of his defense on the fact that the VP of the GPOA, who was also a principal of GRC, tendered the winning bid for GRC (not GPOA) at the sale. The Court captured the essence of Fozzard’s theory: “because GRC had won the property at an apparent discount, Fozzard should not have to pay the alleged debt to GPOA, which was supposed to come out of the sale proceeds.”

Procedural history. GPOA moved for an entry of judgment on its damages, and the Court found that Fozzard owed GPOA nearly $78k. Fozzard objected.

Key rules. Fozzard identified a number of defenses to support his theory, but the Court held that none of them applied. Indiana’s doctrine of “unclean hands” is not favored and is applied “with reluctance and scrutiny.” The defense of “equitable estoppel” requires, among other findings, a showing that the defendant relied on the plaintiff’s conduct “to act in a way that changed his position prejudicially.” Finally, “laches” does not focus only on timing - “prejudice or injury is necessary.”

Holding. The United States District Court for the Northern District of Indiana, over Fozzard’s objection, entered judgment in favor of GPOA and against Fozzard for $77,799.13.

Policy/rationale. Fozzard’s arguments centered on the notion that defendant/cross-claim plaintiff GPOA failed to obtain a judgment on its cross-claim before plaintiff SBA’s foreclosure sale. Fozzard’s thinking was (a) GPOA, a junior creditor, was required to proceed on the same track as senior creditor SBA; (b) GPOA then should have tendered a judgment/credit bid at the sale and obtain title to the property; and (c) GPOA ultimately should have sold the property to GRC for the amount GRC offered Fozzard two years earlier ($160k). Instead, according to Fozzard, GPOA received a windfall because GRC purchased the property at a severe discount while GPOA obtained a judgment against Fozzard for the full amount owed. Basically, Fozzard believed that GPOA was set up to receive a double recovery.

The following is a summary of the key points behind the Court’s rejection of Fozzard’s defenses:

    Delay in seeking judgment: “Certainly, GPOA did not move for entry of judgment according to Fozzard’s preferred (when viewed in retrospect) timeline, but the Court sees no misconduct here, much less intentional misconduct, so Fozzard does not prevail.”

    GPOA’s lack of bid: “Perhaps GPOA may have been able to realize a profit if it undertook these actions, but the Court sees no reason to find that GPOA had a duty to act in this manner. By not bidding on the property, GPOA accepted the risk that it may never recoup damages from Fozzard, as not all judgments that are entered are ultimately paid by the debtors. By bidding on the property, GPOA would have accepted the risk that it may not be able to find a buyer for the property or that the property would not yield a sale price sufficient to cover GPOA’s damages. The Court sees no reason to impose on GPOA the duty to accept one of these risks over the other.”

    Windfall to GPOA: “Though the evidence shows that GRC and GPOA have the same directors, the entities are not the same. GRC may be the beneficiary of buying (at a fairly conducted marshal’s sale) a piece of property at a discounted price, but this does not alter the fact that GPOA has incurred damages through Fozzard’s breach of the contract between him and GPOA. A judgment that awards damages to GPOA to make it whole is not a windfall. It is justice.”

Note: The decision has been appealed to the 7th Circuit. If and when an opinion results from the appeal, I will follow up here.

Related posts.

• What Is A Credit Bid?
• An Indiana Deficiency Judgment Arises Out Of The Foreclosure Judgment Itself, Not A Separate Action

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I represent parties involved in foreclosure sales. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Federal Foreclosure Sale Upheld – 15% Of Fair Market Value Did Not “Shock The Conscience”

Lesson. In Indiana, foreclosure sales are not designed, nor required, to net the fair market value of the real estate.

Case cite. United States v. Fozzard 2022 U.S. Dist. LEXIS 226668 (N.D. Ind. Dec. 16 2022)

Legal issue. Whether a foreclosure sale should have been set aside based on an inadequate sale price.

Vital facts. Fozzard purchased a condo to operate a business using a Small Business Administration (SBA) loan. The condo was subject to the regulations of The Galleria Property Owners Association, Inc. (GPOA), which required the property to be kept in a reasonable condition. Fozzard defaulted on his SBA loan and fell behind on the fees he owed to GPOA, which discovered the condo to be empty, leaking and growing mold. This led to GPOA taking possession of the condo and incurring expenses to clean the unit and stabilize the temperature. GPOA placed a lien on the condo for the unpaid expenses.

Meanwhile, the SBA filed suit to foreclose its mortgage. GPOA filed a cross-claim to foreclose its lien. Settlement discussions ensued. The condo had a fair market value between $155k and $170k. Galleria Realty Corporation (GRC), the developer of the condo complex, offered Fozzard $160k for the unit, but Fozzard declined.

The SBA and Fozzard entered into an agreed judgment for $172k that permitted the U.S. Marshals to auction the condo to satisfy the judgment. (In federal court foreclosures, the U.S. Marshals Service handles foreclosure sales – not county sheriffs.) The judgment was silent as to the interests of GPOA, however. By the sale, Fozzard’s debt to the SBA had been paid down to about 19k. At the sale, the VP of GPOA, who was also a principal of GRC, attended the sale for GRC (not GPOA) and tendered the winning bid of $19,697.46. Fozzard did not object to the SBA’s motion to confirm the sale.

Procedural history. After the sale, the Court found that Fozzard owed GPOA nearly $78k. Fozzard objected and requested that the sale be set aside.

Key rules. Under Indiana law, “[w]here it appears that the results of a sale are such that entry of a deficiency judgment is shocking to the court's sense of conscience and justice, the sale may be set aside or the request for a deficiency judgment denied."

The U.S. Supreme Court has held: "market value . . . has no applicability in the forced-sale context; indeed it is the very antithesis of forced-sale value. . . . '[F]air market value' presumes market conditions that, by definition, simply do not obtain in the context of a forced sale."

The Seventh Circuit has stated that “bidders should be able to rely on the results of judicial sales; if the auction is properly noticed and conducted, ‘[t]he sale, for all concerned, should be final.’"

Holding. The United States District Court for the Northern District of Indiana overruled Fozzard’s objection to the sale price of the condo.

Policy/rationale. One of Fozzard’s contentions was that the sale “shock[ed] the conscience” because the price was less than 15% of the appraised value. Indeed, the fair market value of the condo was sufficient to retire Fozzard’s debts to both the SBA and GPOA. Instead, GRC acquired title to a $160k condo for less than $20k, while Fozzard remained on the hook to GPOA for nearly $80,000. A tough pill for Fozzard to swallow, but the Court reasoned that a comparison of the sale price to the market value was “irrelevant” under the law. The Court also pointed to Fozzard’s failure to object to the motion to confirm the sale. Finally, the Court noted there was “no reason to doubt the integrity” of the public auction or the related notices leading up to it.

Fozzard waged a handful of additional attacks on the outcome that I will address in my next post about this case.

Note: The decision has been appealed to the 7th Circuit. If and when an opinion results from the appeal, I will follow up here.

Related post.  How Much Should A Lender/Senior Mortgagee Bid At An Indiana Sheriff’s Sale?

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I represent parties involved in foreclosure sales. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Lender Permitted To Praecipe For Sheriff’s Sale 12 Years Post-Judgment

Lesson. Sheriff’s sales can occur even after an Indiana judgment lien expires.

Case cite. U.S. Bank Tr. Bank Tr. Nat'l Ass'n v. Dugger, 193 N.E.3d 1015 (Ind. Ct. App. 2022).

Legal issue. Whether a mortgage lender’s right to a sheriff’s sale ceased to exist ten years after the entry of judgment.

Vital facts. Original lender obtained a foreclosure decree against Joshua Dugger (“Joshua”) in 2009. Three subsequent sheriff’s sales were cancelled. In 2010, Joshua filed a Chapter 7 bankruptcy and received a discharge in January 2011. Joshua transferred the mortgaged property to Steven Dugger (“Steven”) in 2016. Later, the Baldridges (“Owners”) purchased the real estate from Steven. Apparently nothing of any significance occurred in the foreclosure case until 2021, at which point the current lender (“Lender”) acquired the original lender’s interest in the mortgage, appeared in the action, and asked the court for permission to praecipe for a sheriff’s sale. Notably, Lender’s initiative in 2021 occurred over ten years after the entry of judgment in 2009.

Procedural history. The trial court denied Lender’s motion for leave to file a praecipe for a sheriff’s sale.

Key rules.

Indiana Code 34-55-9-2 states that final judgments for money create a lien that exists for ten years. Importantly, however, “although the judgment lien expires after ten years, [the] judgment still exists for at least another ten years.”

I.C. 34-55-1-2(a) essentially provides that execution on a judgment over ten years old can occur but only “on leave of court” (i.e., a judge’s permission). The court’s ruling on such a motion is discretionary. The Court in Dugger explained:

[A] creditor holding a judgment that is more than ten years old may, only with leave of court, execute the judgment against the debtor's real estate during the remainder of the life of the judgment. See, e.g., Ind. Code § 34-55-1-3(1) (1998) (one of three kinds of execution of judgments is execution against property of judgment debtor).

Here is a reminder of the dual nature of most mortgage foreclosure judgments:

    “A mortgage is an interest in real property that secures a creditor’s right to repayment.” As such, a party’s action to foreclose a mortgage is, by definition, an in rem (i.e. against the property) proceeding.

    Creditors also may pursue a debtor’s in personam (i.e. personal) liability for under a promissory note or credit agreement. This includes the enforcement of a judgment against the debtor’s personal property assets.

    A debtor may protect herself from this personal liability only by obtaining a Chapter 7 bankruptcy discharge. A mortgage lien, which is a right against real estate, survives and remains enforceable, however.

Holding. The Indiana Court of Appeals reversed the trial court, paving the way for a sheriff’s sale.

Policy/rationale. Owners first contended that Lender’s judgment ceased to exist because Lender did not “renew” the lien before the ten-year deadline. The Court reasoned that, while a judgment may be renewed, there is no legal requirement to do so. Lender’s course of action in Dugger was thus appropriate.

Owners’ second allegation was deception on the part of Lender when it requested the court to convert the 2009 judgment into an in rem judgment. However, the judgment had both in personam and in rem elements. When Joshua received his Ch. 7 BK discharge, the law eliminated only his personal liability under the loan. Lender’s right to collect against the mortgaged real estate still was enforceable. As such, Lender’s request to amend the judgment - which in my opinion probably was unnecessary - nevertheless did not constitute deception.

Related posts.

• An “In Rem” Judgment Limits Collection To The Mortgaged Property
• Contents of Indiana Foreclosure Judgment/Decree
• Mortgage Liens Survive Chapter 7 Bankruptcy Discharge, Allowing In Rem Foreclosures
• Indiana Judgment Lien (10 Years) and Judgment Enforcement (20 Years) Statutes Of Limitation

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I represent parties involved in disputes arising out of loans that are in default. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

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

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

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

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

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

***

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

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

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

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

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

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

No more. Since the Indiana General Assembly mandates that county treasurers automatically collect delinquent real estate taxes whenever there is a foreclosure sale, the time and expense of naming counties is neither required nor, frankly, advisable. This is true with both commercial and residential foreclosures.
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Part of my practice includes representing parties in connection with sheriff’s sales. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Indiana Receiver Sales: Why ... Why Not?

I wanted to post some content before leaving on a vacation to celebrate my 25th wedding anniversary. Today’s article incorporates material first published back in 2015 and relates to my prior post - Receiver Not Authorized To Sell Property Without Mortgagor’s Consent - which followed another post - Can Indiana receivers sell the subject real estate?  Those pieces begged the question: When would a lender/mortgagee in a commercial foreclosure case want to pursue a receiver’s sale in the first place?

Why? There are a multitude of factors involved in a lender’s decision to pursue a receiver’s sale of the mortgaged real estate. The pros and cons are almost endless and vary depending upon the lender, the borrower, the extent of any competing liens, the nature of the real estate, the purpose of the borrower’s business, if any, that operates on the property and the costs of the auctioneer. With those factors in mind, based upon my experience the following is a list of considerations in favor of seeking a receiver’s sale:

• The plaintiff lender has no interest in taking title to the real estate.
• The plaintiff lender desires to quickly cut off its interest in, and thus the attendant expenses associated with ownership of, the real estate. Costs may include real estate taxes, hazard insurance premiums and receivership expenses (for the maintenance/management of the property).
• The plaintiff lender has reason to believe that there are interested buyers.
• A defendant junior lien holder may be particularly interested since it should have a greater chance of being paid. A receiver’s sale, due to enhanced and targeted marketing, coupled with a more organized transaction, should net more proceeds than a standard sheriff’s sale.
• Similarly, a defendant guarantor of the debt may be especially attracted to this option. Since a receiver’s sale theoretically will result in a higher price, the deficiency judgment (if any) should be lower. In other words, a guarantor’s personal liability could be reduced or even eliminated.
• In complex cases involving multiple competing liens, the replacement of the real estate with a cash fund often triggers, simplifies and expedites a global settlement of the litigation. (Remember that a foreclosure case could last many months, meaning that a sheriff’s sale may be delayed indefinitely.)

Why not? Factors weighing against a receiver’s sale include, but are not limited to:

• The lender (or current owner of the loan) desires to take ownership of the property.
• The real estate taxes, hazard insurance and receivership/management costs are tolerable.
• There is no known, immediate market for the property.
• Attorney’s fees to obtain court authority for the receiver’s sale, coupled with the fees associated with closing the sale, are higher and otherwise unnecessary in a standard foreclosure case. Also, sheriff’s sales are cheap – a few hundred dollars.
• The foreclosure case is either uncontested, or there is a realistic possibility for some kind of settlement.
• Perhaps most importantly, one or more parties, particularly the owner/mortgagor, objects to the receiver’s sale. (Objections to the sale, especially from the mortgagor/owner, create an insurmountable obstacle to obtaining court authority for the sale.)

Hybrid? My old post In Indiana Sheriff’s Sale, Consider The Option Of Using A Private Auctioneer addressed a kind of hybrid between a receiver’s sale and a sheriff’s sale. And, unlike receiver’s sales, there is no question as to the statutory authority for this relief, and mortgagor/owner consent generally isn’t needed. We have not seen many of these types of sheriff’s sales in recent years – (or many commercial foreclosures period due to the healthy economy) – but this statutory alternative should not be forgotten.
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Part of my practice includes representing parties in connection with sheriff’s sales. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Date Of Sheriff Sale Fee Increase Varying By County

In follow-up to my post on Monday the 27th - County Sheriff Sale Fees Increasing to $300 - it appears the actual date upon which the fee increase will apply may vary by county.  The quote below is an email to local lawyers I received from the Marion County Civil Sheriff's Office on the matter:

We are starting to get questions regarding the increase in the User fee that was effective on July 1st.

Our Attorney reads the new law as the effective date of the increase to be when the praecipe was filed. So the User fee will increase for Marion County once we see that the praecipe date is after July 1st. Looks like increase of user fee will start with some sales in September.

We heard other counties in the state have already raised theirs. All depends on how each county interprets the new law.

Always check with county officials and websites to confirm the local process because in Indiana Sheriff's Sales: Local Rules, Customs and Practices Control.  The fee increase is an example of this.

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Part of my practice includes representing parties in connection with sheriff’s sales. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

County Sheriff Sale Fees Increasing to $300

I've been peppered with emails from various Indiana county sheriff's departments advising that the foreclosure sale fees are about to increase to $300.  This is consistent with the enactment of House Bill 1048, about which I wrote back in March:  Upcoming Changes To Indiana Sheriff's Sales.  Please re-read that post for information about other rules that become effective July 1st.

NOTE:  See follow-up post, Date Of Sheriff Sale Fee Increase Varying By County

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Part of my practice includes representing parties in connection with sheriff’s sales. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Upcoming Changes To Indiana Sheriff's Sales

In this year’s Indiana legislative session, the General Assembly enacted House Bill 1048, which becomes effective July 1, 2022. Here are some of the changes that will impact Indiana foreclosure law.

Electronic sales. HB 1048 amended I.C. 32-29-7-3 to provide that sheriff’s sales may be conducted electronically as long as they comply with all other sale requirements under the statute. Electronic sales include the ability for sheriffs to receive electronic payments for the real estate. The amended statute says nothing further about the electronic sale process. Thus, the local sheriff’s offices will set up their own rules and regulations related to such things as bidding procedures and closing on the sales. The new law would appear to open the door for an online auction to be conducted by a private auctioneer in conjunction with I.C. 32-30-10-9.

Fees. I.C. 32-29-7-3(j) increases the sheriff’s sale administrative fee from $200 to $300 “for actual costs directly attributable to the administration of the sale….” The fee is payable by the plaintiff and is due before the sale.

Bad actors. HB 1048 added I.C. 29-7-4.5. This is the so-called “bad actor” or “slum lord” measure that caught the attention of the media this year. The language of the new law is quite dense and does not apply to plaintiffs or lenders foreclosing on mortgages but only to third-party bidders. Essentially, the act attempts to exclude certain third parties from participating in sheriff’s sales who, for example, are delinquent in the payment of real estate taxes on other property they own.

    Affirmation. To that end, the new I.C. 32-29-7-4.6 provides that any person bidding at a sheriff’s sale must sign a statement that says:

Indiana law prohibits a person who owes delinquent taxes, special assessments, penalties, interest, or costs directly attributable to real property under IC 6-1.1 from bidding on or purchasing property at a sheriff's sale. I hereby affirm under the penalties for perjury that I am not prohibited from bidding under IC 32-29-7-4.5 and that I do not owe delinquent taxes, special assessments, penalties, interest, costs directly attributable to real property under IC 6-1.1, amounts from a final adjudication in favor of a political subdivision, any civil penalties imposed for the violation of a building code or county ordinance, or any civil penalties imposed by a county health department. I also affirm that I am not purchasing property on behalf of or as an agent for a person who is prohibited from bidding under IC 32-29-7-4.5. I further acknowledge that a person who knowingly or intentionally provides false information on this affidavit commits perjury, a Level 6 felony.

    Foreign Businesses. Moreover, the new I.C. 32-29-7-4.7 prohibits non-Indiana businesses from bidding at an Indiana sheriff’s sale. This rule does not apply to a party foreclosing on a mortgage, however, such as a plaintiff lender or a defendant mortgagee.
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Part of my practice includes representing parties in connection with sheriff’s sales. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Marion County (Indianapolis) Sales Disclosure Forms Effective 1/1/21

The Marion County Assessor’s Office is employing a new procedure for the completion of a sales disclosure form (SDF). This is relevant to the foreclosure process because parties pursuing sheriff’s sales in Marion County must tender SDFs as part of their pre-sale bid package.

For more on SDFs, see my prior posts:

• Recording Deeds In Indiana: Don't Forget The Sales Disclosure Form
• Recording Deeds In Indiana: Don't Forget The Sales Disclosure Form (Revised)
• The Pesky Sales Disclosure Form - Marion County (Indianapolis) Update

Go to the Assessor’s system “Properly” to create the SDF. The Assessor circulated great step-by-step instructions for completing SDFs on line on Properly. Click here for those instructions.

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I represent parties in connection with foreclosure cases and sheriff’s sales. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

2021 Marion County (Indianapolis) Sheriff's Sale Calendar, Procedure Reminders

The Marion County Sheriff's Office recently circulated its 2021 calendar, which sets out the relevant pre-sale and sale dates.  Click here for the Excel spreadsheet issued by the Sheriff.  The Office reminded parties that, through March, the sales will be on Friday in Room T230 of the City/County Building.  

One universal takeaway from Marion County's schedule is that all Indiana counties, by statute, must follow certain basic steps in order to properly tee up a sale.  Although each particular county will have its own sale dates and slightly different pre-sale deadlines, all counties will have (1) a cutoff date to file a praecipe for sale in order to meet a future sale date, usually about two months down the road, (2) a deadline for the submission of notices of sale, (3) an advertising/publication period, and (4) a deadline for the so-called bid package, which includes the sale-related documents and any costs/fees.   

Although I've said this before here, it's worth repeating:  while the Indiana Code covers the fundamentals of the sheriff's sale process, the specific rules and procedures vary by county.  There are 92 counties in Indiana and therefore 92 different sets of customs and practices applicable to sheriff's sales.  My advice is to call the local civil sheriff or visit sheriff's website to confirm the hoops through which you must jump, and when, to start and finish a successful sheriff's sale.

Happy New Year,

John

Indiana Sheriff's Sale Update

The COVID-related impact upon Indiana sheriff's sales has had a few layers:

    1.    The first involved Governor Holcomb's moratorium on residential foreclosure activity. Click here for more on that subject. That ended July 31, 2020, and some sheriff’s sales occurred in August. For example, after cancelling its monthly sales from March through July, the Marion County (Indianapolis) civil sheriff held a sale on August 21st. Click here for more information on Marion County sales.

    2.    The second layer surrounded the federal mandate. Despite the expiration of the state suspension, there still is a moratorium on sales of (and, in fact, foreclosure actions involving) FHA-insured mortgages. This freeze extends to year-end. Click here for a press release and here for my 4/6/20 post about the CARES Act.

    3.    The third is that neither the federal nor the state orders impacted commercial (business) foreclosures or sales. Nevertheless, it does not appear that any commercial foreclosure sales occurred this Spring or early Summer. I could be wrong, but as a practical matter, my understanding is that sheriff’s sales simply stopped, even for commercial real estate.

    4.    The fourth and more subtle layer of COVID's impact upon Indiana sheriff’s sales relates, not to economic relief, but to safety and social distancing. (This might explain why no commercial sales happened.) As I’ve written here previously: local rules, customs, and practices control county sheriff’s sales. Thus, there is a certain degree of latitude that each county has, or is taking, with respect to whether to proceed with sales during the pandemic. A quick survey of the websites of SRI and Lieberman, two private companies that hold sheriff’s sales for select counties, shows that several sheriff’s offices in Indiana still are not having sales, despite the termination of the state and federal moratoria. My understanding is that these continued delays are based upon public health reasons and/or a county sheriff's interpretation of local social distincing guidelines.  

The upshot is to contact the county sheriff’s office, either by phone or via the internet, to determine exactly what’s going on with your particular case as the COVID situation continues to unfold.

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I represent parties in connection with foreclosure cases and sheriff’s sales. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Marion County (Indianapolis) Sheriff's Sales Will NOT Start Back Up In July

Following-up last week's post (below), we learned this morning that the sheriff's office has postponed the July sale "due to the extended evictions and foreclosures issued by Gov Eric Holcomb through August 1st."  No sale in July.

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Following the COVID-19 cancellations of the March, April, May, and June sales, the Marion County Civil Sheriff's Office is back in business.  The first sale since February will occur on July 15th.  Here is an email distributed by the Real Estate team this morning:

NEW RULES, REGULATIONS AND LOCATION FOR THE JULY SALE.

NEW LOCATION FOR THE JULY SALE - 8115 E. Washington St, Indianapolis IN 46219. Great parking.

SEVERAL WAYS TO LEAVE YOUR DEPOSIT:
You may come between 8:00 a.m. and 10:00 a.m. the morning of the sale, July 15th at 8115 E. Washington St and leave your deposit. However, we will end this process at 10:00 a.m. So if you are in line and the time hits 10:00 a.m. you will not be able to leave your deposit. So our suggestion is that you still come to the City-County Building at 200 E. Washington St 11th Floor conference room the day before the sale between 8:00 a.m. and Noon. Only one person allowed in the conference room at a time. Please social distance in the hallway of 6 feet.

For those of you that are in the pilot program you may still continue to send your registration form and check via email. Teena will stay one hour after the sale at 8115 E Washington St for you to bring your check back or you may also take it downtown to the City County Building right after the sale and Lori will be there to also take your check. Your choice.

It is mandatory that you stay and pick up your check if you did NOT win a bid. We will instruct you on this process the day of the sale.

SOCIAL DISTANCING:

A mask is required at the new location and in the City County Building.
Only bidders that have a paddle will be allowed in the bidding room. Other guest and attorney’s not bidding must go into the conference room. You will be able to hear the bidding process in that room. The conference room is not very large and may be difficult to social distance as per the recommendations of CDC. Please take this into consideration when choosing on whether or not you would like to attend since only 1 bidder is allowed in the bidding room per company/investor.

We will update the website soon as well with these changes. Please feel to contact us with any questions.

RE Team

Please visit our website: https://www.indy.gov/activity/sheriff-real-estate-sales

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I represent parties in connection with foreclosure cases and sheriff’s sales. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Status Of Indiana Sheriff's Sales

For what it's worth, the Marion County (Indianapolis) Civil Sheriff's Office announced last week that its May 2020 sale has been cancelled.  (The sheriff previously cancelled the April sale.)  The email from Marion County indicated that the June 2020 sale is still a go - at least for now.  The Marion County situation seems to be consistent with both our Governor's order and the CARES Act, Sections 4022 and 4023, to the extent those apply to a particular case.  

Always remain mindful that, although the Indiana Code covers the fundamentals of the sheriff's sale process, the specific procedures vary by county.  Local rules, customs, and practices control.  There is a saying in Indiana that there are 92 counties and therefore 92 different sets of rules applicable to sheriff's sales.  My point is that, if you have questions, you should call the local civil sheriff's office to confirm the status of its foreclosure sale activities (publications, notices, sales, etc.)  during the COVID-19 pandemic.  

Marion County (Indianapolis) Sheriff's Sale Website And Other Tidbits

Shame on me for not more quickly updating the link to the Marion County Civil Sheriff's foreclosure sale website to your left (under the heading "Indiana Courts/Govt.").  We're good now.  Marion County has a slick new website with lots of useful information about the local sheriff's sale process.  The site also has links to many critical form documents.    Any party or lawyer navigating through a sheriff's sale in Indianapolis should study this website.  Click here for the full site.

As a reminder, in Indiana, mortgage foreclosures are judicial or, in other words, through the court system.  As a general proposition, real estate collateral must be sold, pursuant to a judge's decree, by the county civil sheriff's office.  Although the Indiana Code covers the fundamentals of the sheriff's sale process, the specific rules and procedures vary by county.  I once presented at a foreclosure-related seminar, and one of my co-presenters accurately stated, in essence, that there are 92 counties in Indiana and therefore 92 different sets of rules applicable to sheriff's sales. 

My advice is to call or visit the local civil sheriff's office to confirm the hoops through which you must jump, and when, to start and finish a successful sheriff's sale.  Many if not most counties now have websites similar to Marion County's that are very helpful or at a minimum provide contact information.  Despite information that may be available on the internet, I've found it to be invaluable to talk to, and form a working relationship with, the sheriff's staff member who will be handling your sale.

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My practice includes the representation of parties involved in, or who wish to bid at, sheriff's sales.  If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected].  You can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on the top left of my home page.

From Marion County Sheriff's Sale Team - Recording of Plaintiff's Deeds

I received the attached email blast from the MCSO Sheriff’s Sale Real Estate Team today:

The Marion County Sheriff’s Office (“MCSO”) requires that the successful bidder notify the MCSO Sheriff’s Sale Real Estate team within one week of the recording date once each deed has been recorded by the Marion County Recorder’s Office.

Effective 10.18.2018 Sheriff sale, please email [email protected] within one week of the deed’s recording date with the:

1. Sheriff’s File #
2. Date the deed was recorded

If you have multiple deeds being recorded, we would ask that you still report each deed within the requested timeframe.

Please submit all questions and/or comments to this email address [email protected] 

Indiana Sheriff's Sale Buyers Beware: Meth Labs

Yikes.  Did you know that Indiana has a set of regulations that deal with the cleanup of properties contaminated by the manufacture of illegal drugs?  Did you know that, for instance, an innocent buyer at a sheriff's sale arguably could be compelled by the State of Indiana to cleanup a house previously utilized as a meth lab?  

The Law.  Title 410 of the Indiana Administrative Code, Article 38, entitled Inspection and Cleanup of Property Contaminated with Chemicals Used in the Illegal Manufacture of Controlled Substance, governs this matter.  Even though the regulation never mentions mortgage foreclosures or sheriff's sales, a handful of key provisions point to the idea that even a totally innocent buyer at a sale, with no prior knowledge of any contamination, could be required to pay for a cleanup before either living in the house or, perhaps more on point here, liquidating the post-foreclosure.  410 IAC 39-2-18-1 defines "owner" as "a person having an ownership interest in the contaminated property."  410 IAC 38-3-2 goes on to require the owner to cleanup the property before occupying it or "transferring any interest in the property to another person." 

The Impact.  Other than a client once asking me to interpret the law, admittedly I've never had to litigate this issue, nor have I been involved in a dispute with the State surrounding the law's applicability.  Nevertheless, it seems to me that residential mortgage loan servicers should be aware of these rules in the event they learn, either pre or post-sheriff's sale, that they service a mortgage on a house contaminated by the manufacture of illegal drugs (i.e. a meth lab).  By foreclosing on a meth lab, the lender/mortgagee could end up with an expensive mess on its hands.     

The Rub.  The potential exposure to cleanup liability is similar to the environmental exposure discussed in my 9/24/09 post Always Consider An Environmental Liability Analysis, geared more toward commercial foreclosures.  (See also, Real Estate Appraisals Are Important, But Not Required, In Indiana Foreclosures.)  One difference between the environmental topic I previously discussed and today's subject is that it may be difficult if not impossible for a foreclosing lender or a sheriff's sale buyer to know about a meth lab before the sheriff's sale.  Ideally, a foreclosing mortgagee or potential buyer would inspect the interior of the house before any sale, but that's not always possible absent consent by the owner/mortgagor or perhaps a clear abandonment by the occupant. 

More Info.  I understand that the State agency that oversees these matters is the Indiana State Department of Health, Environmental Public Health Division.  For details about the State's program, the Division's website has a plethora of information.  Start by clicking here, but note the "Cleanup and Inspection of Illegal Drug Labs" button on the left side of the home page. 

Restraining Order To Enjoin Sheriff's Sale Denied

Hollowell v. Bornkempt, 2017 WL 3446676 (N.D. Ind. 2017) (pdf) is an Indiana federal court opinion following an Indiana state court foreclosure case wherein the borrower's property was slated for a sheriff's sale.  The pro se borrower filed the federal court action seeking a temporary restraining order (TRO) to prevent the sale.  For the following reasons, the Court denied the borrower relief:

1.    The borrower did not convince the Court that the standard for an injunction was met.  Primarily, the Court found the borrower was not reasonably likely to succeed on the merits of his claims (for FDCPA and TILA) violations.  

2.    The TRO was barred by the Rooker-Feldman doctrine.  

3.    There was no evidence that the borrower gave prior notice to the defendants of the TRO as the law required him to do.

Here are links to two other posts dealing with similar issues:

*    Indiana Federal Court Denies Request For Injunction To Stop Sheriff’s Sale

*    Assets Cannot Be Frozen By An Injunction

Changes to Rules/Procedures for Marion County (Indianapolis) Sheriff's Sales

Rachel Winkler of the Marion County Civil Sheriff’s Office recently circulated an email to the local foreclosure community of lawyers, investors and bidders about some immediate changes to the local sheriff’s sale rules and procedures. Since the Office wants to spread the word to future participants in the mortgage foreclosure sale process, consider this a public service announcement.

Below is a verbatim copy of her email, and I’ve provided links to the various .pdf’s and the home page:

Greetings Attorneys/Investors/Bidders,

We want to include all because the adjustments we are working on and toward affect all.

Some highlights of these adjustments to our process are:

Interest will now come from Attorneys; please consider including these on the added cost sheet.

Plaintiff Bid Forms; Treasurer’s Tax Clearance Forms; Removal Letters; Assignment of Judgment/Bids and Added Costs Sheets are due no later 3:00 p.m. two business days prior to the respective sale date.

Cost checks for User Fees, Sheriff’s fees and Publication Fees (including Sheriff’s File Number on checks) are also due and requested no later 3:00 p.m. two business days prior to the respective sale date.

Cost checks will now be cashed and applied as part of the Sheriff Sale process. Please be sure to consider these costs as part of the minimum bid amount and Plaintiff’s written bid as applicable.

Attorneys are responsible for preparing all Sheriff’s Deeds, Clerk Returns and Sales Disclosure Forms for all sales including third party purchases.

All information is included in the document called Marion County Sheriff's Sale Real Estate Rules Requirements for Plaintiffs.Attorneys.Revised 05.04.2018.

Bidders, please come with document Marion County Sheriff's Sale Real Estate Sales Disclosure Information.Revised 05.4.2018 already prepared for each property you plan to purchase. If the property is sold to you, please submit the corresponding document at the completion of the oral auction.

Please visit our website: http://www.indy.gov/eGov/County/MCSD/Services/RealEstate/Pages/home.aspx

Please direct your questions, comments and concerns to myself, [email protected] 317-327-2420 and Lori, [email protected] 317-327-2405.

More to follow…

Rachel Winkler
Marion County Sheriff's Office
Judicial Enforcement Division
200 E. Washington St.
Suite 1122
Indianapolis, IN 46204
Office – (317) 327-2420
Fax – (317) 327-2465
[email protected]

Here are the other .pdf’s that Ms. Winker attached to her email:

• Cost sheet sample: Sample of Marion County Sheriff's Sale Real Estate Costs Sheet with Star
• Sale dates:  Marion County Sheriff's Sale.2018 Real Estate Sales Dates.Revised
• Bid form: Marion County Sheriff's Sale Real Estate Bid Form.Revised
• Bidder SDF: Marion County Sheriff's Sale Real Estate Sales Disclosure Information.Revised
• Bidder instructions: Marion County Sheriff's Sale Real Estate Instructions to Bidders.Revised
• Assignment: Marion County Sheriff's Sale Real Estate Assignment of Judgement-Bid.Revised
• Cost sheet form: Excel Marion County Sheriff's Sale Real Estate Costs Sheet with Star.
• Attorney rules:  Marion County Sheriff's Sale Real Estate Rules Requirements for Plaintiffs.Attorneys.Revised

Publishing Notices Of Sheriff's Sales In Indiana

We’ve got a sheriff’s sale next month, in connection with a commercial foreclosure case, in Montgomery County. There, like many counties in Indiana, the sheriff’s office contracts with a third-party company that serves as the sheriff’s agent for purposes of preparing for, and holding, sheriff’s sales. In Montgomery County, the vendor is SRI. Other counties use Lieberman Technologies. Many county sheriff’s departments, such as Marion County’s here in Indianapolis, still run all aspects of the sale internally, however.

Check county rules. Don’t forget that local rules, customs and practices control (pardon any outdated links from that 2010 post). For our sale next month, Montgomery County requires the plaintiff/lender to handle the pre-sale notice publication process. Many if not most counties will cover publication, and then invoice you for the costs. The need for us to do this particular step caused me to dust off the applicable statute to make sure we published the sale notice properly, and timely.

Publication laws. The three critical elements of publication are: (1) advertising in a newspaper circulated in the county where the real estate is located, (2) running the ad for three successive weeks and (3) initiating the first ad at least thirty days befor the sale. Here is the pertinent statutory provision, Ind. Code 32-29-7-3(d):

Before selling mortgaged property, the sheriff must advertise the sale by publication once each week for three (3) successive weeks in a daily or weekly newspaper of general circulation. The sheriff shall publish the advertisement in at least one (1) newspaper published and circulated in each county where the real estate is situated. The first publication shall be made at least thirty (30) days before the date of sale.

Notice to owner. Section 3(d) goes on to require that:

at the time of placing the first advertisement by publication, the sheriff shall also serve a copy of the written or printed notice of sale upon each owner of the real estate. Service of the written notice shall be made as provided in the Indiana Rules of Trial Procedure governing service of process upon a person.

(See, Service of Process” Fundamentals for the Plaintiff Lender.) My understanding is that, in most instances when a sheriff or its agent requires the plaintiff/lender to handle publication, the sheriff or agent still will perfect service upon the owner themselves. Normally, this is done by certified mail or hand delivery. By the way, if counsel represents the owner, I always include notice to the attorney.
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I represent lenders, as well as mortgage loan servicers, in connection with foreclosure cases and sheriff’s sales. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

From Marion County (Indianapolis) Civil Sheriff's Office: Judgment Assignment and Costs Forms

This post essentially is a copy and paste of Laurie Gipson's email from last Friday.  You can download the two forms by clicking each hyperlink:

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Good afternoon!

Attached, please find two forms to be included with your sale documents beginning with the February 21, 2018 Sheriff Sale and all future Sheriff Sale dates.

The first form is the Assignment of Judgment Cover Sheet that should accompany each individual sale #. The specific language and format that we have provided you in the Assignment of Judgment Cover Sheet may be incorporated within the filed Assignment of Judgment and/or may be attached as a cover sheet with a copy of the filed Assignment of Judgment for verification of the same. This format will eliminate any confusion that may exist within our interpretation, allowing us clear documentation of your intent and help us all to be firm, fair and consistent across the board.

The second form is the Added Costs Sheet which should be used for your added costs for each individual sale #.

All bids; tax clearance forms; cost checks; added costs sheets (to include bid justification); assignment of judgments; and assignment of judgment cover sheets are due in our office no later than 3:00 p.m. on the day prior to the respective Sheriff Sale date.

Deeds; Clerk Returns; Sales Disclosure Forms; recording checks; and removal checks are due in our office no later than 3:00 p.m. the Friday after the respective sale.

Please pass this information along to all it my concern.

If you have any questions, please feel free to contact us.

Thank you for your cooperation,
Laurie

Laurie Gipson
Marion County Sheriff’s Office
Judicial Enforcement Division

Real Estate/Mortgage Foreclosures:  (317) 327-2450

Redemption From Tax Sale - Interest On Surplus Now 5%, Not 10%

In 2010, I posted Indiana Tax Sales, Part II: Redemption, which discussed how parties can redeem real estate from a tax sale.  Lenders who lose mortgaged property at a tax sale have the ability to redeem, and one of the issues always is amount of money needed to do so.  My prior post includes a discussion of the amounts needed to redeem.  One of the elements is interest on any surplus.  The purpose of today's post is advise that, as of July 1, 2014, the per annum interest redeemers must pay on the tax sale surplus is 5%.  Previously, the amount was 10%.  So, it's now less expensive to redeem.   

To review the entire Indiana statutory provision applicable to the amount of money required for redemption, click on Ind. Code 6-1.1-25-2. 

Enjoy the Patriots loss on Sunday....

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I often represent lenders, as well as their servicers, entangled in loan-related litigation, including disputes arising out of tax sales. If you need assistance with such a matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted to your left.

 

Marion County (Indianapolis) Civil Sheriff's Office Changes

Foreclosure sales for Indianapolis properties occur through the Marion County Civil Sheriff’s Office. We recently received word of a handful of changes within the department.

First, Tammy Pickens is leaving at the end of the year. Tammy was a pro, was great to deal with and will be missed.

Second, Beth Ash, Rachel Winkler and Laurie Gipson will be the contacts for sheriff’s sales going forward. Here is their contact information:

Laurie Gipson
317-327-2450
Email: [email protected]<mailto:[email protected]>

Beth Ash
317-327-2459
Email: [email protected]<mailto:[email protected]>

Rachel Winkler
317-327-2420
Email: [email protected]<mailto:[email protected]>

Laurie’s email about these changes emphasized that parties should include all three contacts in any emails. Otherwise, there could be a delay of questions, concerns and/or documents being received.

Click here for the sheriff's Real Estate Sales website, with relevant links/forms.  As I’ve said before, there is no better run County agency than our civil sheriff’s office. The staff is always professional, courteous and prepared.

Happy Thanksgiving.

How Long Until The Sheriff’s Sale? Marion County (Indianapolis) Example

A common question we get from clients and out-of-state counsel is: when will the sheriff’s sale be? The answer depends upon a couple key variables: (1) the date the court enters the judgment and (2) the particular rules and customs of the local sheriff’s office.

Judgment First

Since Indiana is a judicial foreclosure state, there cannot be a foreclosure sale until after the court enters a judgment and decree. A plaintiff lender cannot praecipe for a sale until that occurs. From that point, depending upon how quickly the praecipe is filed, on average the sale will occur in 2 to 3 months.

Publication/Notice

The post-judgment delay initially arises out of basic administrative issues surrounding the handling and processing by the clerk’s and sheriff’s offices of paperwork. But the critical matter is the thirty-day statutory publishing/notice requirement. Ind. Code 32-29-7-3(d) says:

Before selling mortgaged property, the sheriff must advertise the sale by publication once each week for three (3) successive weeks in a daily or weekly newspaper of general circulation. The sheriff shall publish the advertisement in at least one (1) newspaper published and circulated in each county where the real estate is situated. The first publication shall be made at least thirty (30) days before the date of sale.

Marion County Example

The Marion County Civil Sheriff’s Office recently circulated the sale cut-off date list for 2018.  Here it is.  The noted “clerk’s cut-off” date is the deadline to praecipe for the sale in order to be slotted for the next sale date. Marion County, as with most if not all Indiana counties, have sheriff’s sales monthly, usually on a set day. For example, Marion County sales happen on the third Wednesday of the month.

Using the 2018 cut-off date list, here are a couple illustrations for the April 18, 2018 sale date. If judgment were entered on March 7th and if you were able to praecipe for sale the same day, the sale would be April 18th – 70 days. If, however, judgment were entered one day later, March 8th, then the sale would not be until May 16th – 98 days. Averaging those two figures results in 84 days. In most counties other than Marion, I would expect the post-judgment “time to sale” average to be slightly less.

2-3 Months

So, the 2-3 month rule of thumb essentially stems from the notice requirement and the time to process all the paperwork. Many counties have far few sales than Indianapolis, which holds hundreds each month. Some counties have less stringent deadlines and may be able to hold a sale within forty-five days of the judgment date.

If A Sheriff’s Sale Is "Subject To" A Senior Mortgage, The Senior Lender Gets None Of The Sale Proceeds, Even If There Is A Surplus

Lesson.  In Indiana, mortgage foreclosure sale surplus proceeds generally go back to the mortgagor/owner.

Case cite.  Edler v. Regions, 60 N.E.3d 288 (Ind. Ct. App. 2016)

Legal issue.  Whether, in connection with a junior mortgagee’s foreclosure case, the trial court’s disbursement of sheriff’s sale surplus proceeds to the senior mortgagee violated Indiana’s mortgage foreclosure statutes and laws.

Vital facts.  The owner of the mortgaged real estate had a senior mortgage loan, as well as a home equity line of credit (a junior mortgage loan), with the same lender. After the owner defaulted, the lender foreclosed on the second (junior) mortgage only. The foreclosure decree ordered a sheriff’s sale of the real estate subject to the senior mortgage lien. The judgment did not award any damages associated with the senior loan or otherwise identify the senior debt amount. The judgment/decree only dealt with the home equity line of credit/junior mortgage. Following the sheriff’s sale, about $50,000 in excess proceeds remained after payment of the judgment amount.

Procedural history.  The lender moved for an order that this surplus be disbursed to the lender toward payment of the senior mortgage debt. The owner argued that the surplus should have been released to her because the sale was specifically subject to the first mortgage. The trial court awarded the mortgage foreclosure surplus proceeds to the senior lender, and the owner appealed.

Key rules. 

• Indiana case law provides, generally, that when a sheriff’s sale purchaser buys subject to a prior mortgage, the purchaser takes the land “charged with the payment of the debt.” This does not equate to personal liability for the debt, however. “The land itself is the primary fund out of which the debt is payable.”
• In Edler, the Indiana Court of Appeals relied upon mortgage foreclosure statutes, including Ind. Code 32-29-7-9(b), which states that if property is sold at a foreclosure sale “the sheriff shall pay the proceeds as provided in I.C. 32-30-10-14.”
• Section 14 states, in pertinent part, that sale proceeds “must” be applied as outlined and that “in all cases in which the proceeds of sale exceed the amounts described in subdivisions (1) through (4), the surplus must be paid to the clerk of the court to be transferred, as the court directs, to the mortgage debtor….”
• Case law also says that “lienholders whose rights have not been adjudged or foreclosed in the foreclosure action have no right to share in the proceeds of the sale.”

Holding.  The Court of Appeals reversed the trial court and ordered the surplus proceeds to be paid to the mortgagor/former owner.

Policy/rationale. The owner contended that, because the sale was expressly subject to the first mortgage, the surplus could not be used as a partial payment toward that mortgage. The Court agreed and noted that the lender chose not to foreclose its senior mortgage and “could not essentially reverse course by seeking the surplus sale proceeds” in contravention of Indiana foreclosure laws. (The Court declined to get into how else the lender might have been able to collect the outstanding debt, and the opinion seemed critical of the lender’s decision not to foreclose the senior mortgage simultaneously with the junior mortgage. The record was unclear as to why this did not occur.)

Related posts.

• Statutory Disposition of Foreclosure Sale Proceeds
• Mortgagee Prevails In Claim For Indiana Tax Sale Surplus

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I represent both senior and junior lenders, as well as mortgage loan servicers, in connection with foreclosure cases and sheriff’s sales. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Foreclosing Party, As Owner, May Evict Tenants In Breach

Secured lenders repossessing real estate collateral at a sheriff’s sale normally keep tenants in place to maintain income.  There are instances, however, when a plaintiff lender, or a third-party sheriff’s sale purchaser, may desire to evict a tenant.  Ellis v. M&I Bank, 960 N.E.2d 187 (Ind. Ct. App. 2011) sheds light on a new owner’s rights, following a sheriff’s sale, vis-à-vis tenants. 

Unusual circumstance.  In Ellis, a developer leased the subject real estate to tenants (husband and wife), but then defaulted on its line of credit.  As a result, the developer’s lender foreclosed and ultimately acquired the real estate at a sheriff’s sale.  The court’s decree of foreclosure was against the developer and the husband only, not the wife/co-tenant.  When the lender pursued a writ of assistance to evict the tenants, the wife asserted that her interest in the real estate had not been extinguished in the mortgage foreclosure case.  She was right.   

To terminate, name tenants.  The Court in Ellis noted that, in Indiana, the purchaser at a sheriff’s sale “steps into the shoes of the original holder of the real estate and takes such owner’s interest subject to all existing liens and claims against it.”  Because the lender did not make the wife a party to the foreclosure case, the sheriff’s sale could not be enforced against her.  This is because, in Indiana, “where a mortgagee knows or should know that a person has an interest in property upon which the mortgagee seeks to foreclose, but does not join that person as a party to the foreclosure action, and the interested person is unaware of the foreclosure action, the foreclosure does not abolish the person’s interest.”  See my 10/07/11 and 07/09/10 posts for more on this area of the law.  Because the wife was not named or served in the foreclosure action, the trial court found that her interest was not extinguished by the foreclosure judgment and that the lender’s interest in the real estate remained subject to her leasehold interest. 

How did the lender obtain possession of the real estate from the wife?

Option 1 – strict foreclosure.  One option available to the lender was to terminate the interest of the wife through a strict foreclosure action.  I have written about this remedy, including Indiana’s 2012 legislation, extensively.  Please click on the category Strict Foreclosure to your right for more.  The lender in Ellis did not pursue this option. 

Option 2 - eviction.  The lender elected, as the then-owner of the real estate, to pursue eviction based upon the subject lease agreement.  The eviction action was separate and distinct from the foreclosure action.  The evidence in Ellis was clear that the tenants had breached the lease and that the lender had the corresponding right to terminate.  The trial court entered an order of possession for the lender based on the lease, and the Court of Appeals affirmed. 

Plaintiff lenders, after the entry of the foreclosure decree and sheriff’s sale, usually can evict parties in possession of the subject real estate through the mechanism of a writ of assistance, about which I have written in the past, assuming the mortgage lien is senior to the possessory interest.  That remedy generally is effective only when the targets of the writ of assistance were made parties to the underlying action.  The rub in Ellis was that one of the parties in possession of the real estate (the wife) was not named in the case.  Rather than embarking on what may have been a relatively costly, complicated and lengthy strict foreclosure action, the lender in Ellis chose a simpler approach by filing a straightforward landlord/tenant eviction action based upon the terms of the subject lease.  This turned out to be a good solution to the problem caused by failing to name the wife.

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Part of my practice is to protect the interests of lenders in contested foreclosures.  If you need assistance with such matters in Indiana, please call me at 317-639-6151 or email me at [email protected].  Also, you can receive my blog posts on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

What Is A Credit Bid?

Today’s post is a brief vocabulary lesson.  In the event you are involved in an Indiana’s sheriff’s sale, it’s likely that you’ll hear the terminology “credit bid” as you prepare for the sale.  What’s it mean?  The Indiana Court of Appeals in R.P. Leasing v Chemical Bank, 47 N.E.3d 1211 (Ind. Ct. App. 2015) tells us:

A “credit bid” refers to a situation in which a judgment creditor (e.g. a bank holding the mortgage) is the purchaser at its own foreclosure sale and bids the judgment instead of cash.  Such a bid is as effective as payment in actual money would have been, and the amount of the judgment must be reduced by the amount of the credit bid.

A credit bid is the same thing as a “judgment bid,” and we use those terms interchangeably.  This is because the party holding the judgment can bid up to the full amount of the judgment without depositing cash with the sheriff.  Judgments are like prepaid debit cards.  You can buy the real estate cash-free.  Unless the judgment creditor intends to bid more than the amount of the judgment, the judgment creditor, unlike a third-party bidder, is not required to bring cash to the sale. 

For more on this subject, please see these posts:

• An Indiana Deficiency Judgment Arises Out Of The Foreclosure Judgment Itself, Not A Separate Action
• Sheriff’s Sale Credit Bid: Ensure Post-Judgment Damages Are Readily Ascertainable And Undisputed
• Full Credit (Judgment) Bid in Michigan Extinguishes Debt and Mortgage in Indiana
• Full Judgment Bid = Zero Deficiency
• How Much Should A Lender/Senior Mortgagee Bid At An Indiana Sheriff’s Sale?

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My practice includes representing judgment creditors, judgment debtors and third-party bidders in connection with sheriff’s sales.  If you need assistance with such matters, please call me at 317-639-6151 or email me at [email protected].  Also, you can receive my blog posts on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Can The SBA's Right Of Redemption Be Purchased After A Sheriff's Sale?

The situation.  A client engaged me to bid for a commercial property at a recent sheriff’s sale, but another party outbid us.  However, the sale was unusual in that the Small Business Association (SBA), which was a junior mortgagee, retained a post-sale one-year statutory right redemption under 28 U.S.C. 2410(c).  (The SBA essentially is the U.S. Government.)  The right arose out of the SBA’s loan to the borrower secured by a second mortgage on the subject real estate.  The client and I wondered whether we could acquire title to the property through the purchase of the SBA’s right of redemption, which would enable us to redeem the property from the sheriff’s sale (pay off the sheriff’s sale buyer) and slide into ownership. 

Redemption law.   As noted by my prior posts of 2/1/08 and 5/15/08, generally there is no post-sale right of redemption in Indiana.  The sheriff’s sale is the end of the line for the borrower and all other lienholders.  There are, however, various federal statutes granting the U.S. Government a post-sale right of redemption, and those rights typically will be spelled out in the foreclosure decree (as they were in my recent matter).  See, for example, my 7/23/10 post dealing with a federal tax lien.  In my case, the SBA’s right stemmed from the junior mortgage and Section 2410.

Transferrable?  Candidly, we didn’t know whether we could buy the SBA’s judgment and, most importantly, its right of redemption.  Why not?  We thoroughly researched the subject but could find no law definitively answering the question one way or the other.  In other words, we could find no statute and no case law saying that we couldn’t do this.  So, the client decided to move forward, and we were able to connect with the right people at the SBA to initiate negotiations.    

SBA’s position.  We formally offered to buy out the SBA (at a discount).  Whether by virtue of the law, policy, or a combination of the two, here is how the SBA’s in-house legal department politely responded to us (paraphrased):

The SBA cannot sell its right of redemption to the unsuccessful bidder; we can only release it or execute upon it.  This is because the right of redemption is specific to SBA and is not transferrable.  The unsuccessful bidder could enter into an agreement with the SBA to redeem the property in exchange for the escrow of the judgment amount, plus costs, interest, and the SBA’s full principal and interest balance.  The SBA can then assign all the other loan documents, but your client, the unsuccessful bidder, won’t need the mortgage because, once SBA redeems, your client will become the owner.  Once these funds are escrowed, the SBA goes into court and redeems, gets title and then turns around and resells the property to the party that puts up the funds (your client).

In the end, our client could accomplish its objective – just not how we originally thought.  We would never actually buy the redemption right but instead would enter into an agreement with the SBA to essentially purchase the property from the SBA after the SBA exercised its right of redemption.  The scenario really was better for us because the SBA, not the client, would take the lead with exercising the right of redemption.   

Outcome.  Unfortunately for the client, our case took an unexpected turn when the successful bidder at the sheriff’s sale got wind of our plan and negotiated with the SBA himself.  We understand he offered to pay off the SBA in exchange for its release of the right of redemption – a simpler transaction - at a price our client was unwilling to pay.  What we’ll never know is whether the SBA would have negotiated down off of its demand for full payment of its junior debt in order to deal with us.  We assume in certain cases that the SBA would do so, but in our unique case apparently the winning bidder was willing to pay full value, or at least far more money than what our client had offered (and what the property was worth).  As an aside, by virtue of the sheriff’s sale and the post-sale SBA transaction, the winning bidder made both the plaintiff/senior mortgagee and the SBA/junior mortgagee whole – a rarity in commercial foreclosure cases. 

What did we learn?  In concept, a third party can in fact deal with the SBA with respect to its right of redemption.  As such, there is a path to post-sale ownership.  Of course any such third party will, at a minimum, be required to pay off in full the winning bidder for the price paid at the sheriff’s sale.  The amount required to pay the SBA, however, appears to be negotiable and will vary depending upon the circumstances of the particular case.  An investor would only consider this if he or she perceived there to be value in the property over and above the price paid at the sheriff’s sale – which again would be a rare case. 

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I frequently represent investors who acquire real estate at sheriff’s sales or who purchase senior commercial mortgage loans that I subsequently foreclose.  If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected].  Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.  

The Latest Marion County (Indianapolis) Sheriff's Sale Links/Forms

Our firm recently re-learned the hard way that Marion County's monthly sheriff’s sales have been bumped up an hour from 3:15pm to 2:15pm, which is when the oral auction starts.  Fortunately, no harm, no foul. 

In the recent past, Marion County mandated that third party (non-plaintiff) bids over and above the plaintiff’s posted bid must be tendered by 2pm instead of 3pm (with cash on deposit by then).  As always, the plaintiff’s (the mortgagee's) bid package still must be submitted the day before the sale.

1:  Click here for a link to the Marion County Sheriff’s home page dealing with sheriff’s sales.

2:  Click here for a link to their forms page, including instructions/rules for plaintiffs and third-party bidders.

Be advised – as of today’s date, many of the links along the left side of the sheriff’s website (#1 above) contain old forms indicating that bidding is open until 3:00pm.  Don’t use those forms or that information.  Use the links in #2 above, which also are in the body/center of link #1.  I mentioned the problem to the staff today, and they indicated that the county’s web provider is or should be in the process of fixing the problem.

Finally, don't forget that no two counties are the same.  Although this 2/28/10 post needs to be updated, the theme that "local rules, customs and practices control" remains true today.  Check with your specific county to confirm when sheriff's sales begin because times vary across the state.

Carry on….   

An Indiana Deficiency Judgment Arises Out Of The Foreclosure Judgment Itself, Not A Separate Action

I am sometimes asked by out-of-state lawyers or clients whether Indiana has a separate process for the entry of a deficiency judgment.  The answer is no. 

My definition.  The terminology “deficiency judgment” refers to the amount of the money judgment remaining after deducting the price paid at the sheriff’s sale.  More generically, the word "deficiency" describes the difference between the debt amount and the value of the collateral securing the debt.  Think of it as negative equity.   

Indiana’s process.  It’s my understanding that some states require a post-sale action to obtain a deficiency judgment.  Not in Indiana.  Here, a judgment entered in a mortgage foreclosure action typically is comprised of two elements.  The first is a money judgment on the promissory note and/or guaranty, and the second is a decree of foreclosure based on the mortgage.  The deficiency is a product of the sheriff’s sale.  In Indiana, a deficiency judgment isn’t a technical or statutory term.  The label simply describes the net amount owed by a borrower or guarantor following a sheriff’s sale.

One judgment.  So, as to Indiana, unlike some other states, personal liability for a judgment (against a borrower or a guarantor) for any post-sale deficiency effectively occurs immediately upon the entry of the foreclosure judgment itself - before the sheriff’s sale even takes place.  There is no second procedural step or subsequent process to establish a deficiency judgment. 

For more on this topic, see the following posts:

Full Judgment Bid = Zero Deficiency

How Much Should A Lender/Senior Mortgagee Bid At An Indiana Sherriff’s Sale?

Full Credit (Judgment) Bid in Michigan Extinguishes Debt and Mortgage in Indiana

Guarantor Wins Res Judicata Battle, Loses Deficiency War

Indiana Federal Court Denies Request For Injunction To Stop Sheriff’s Sale

Lesson.  Federal courts generally won’t stay a sheriff’s sale ordered by an Indiana state court.

Case cite.  Sims v. New Penn, 2015 U.S. Dist. LEXIS 85498 (N.D. Ind. 2015) (.pdf) .

Legal issue.  Whether a federal district court should grant or deny a temporary restraining order (TRO) enjoining a sheriff’s sale decreed by an Indiana state court.

Vital facts.  Lender/mortgagee sought and obtained, in state court, a judgment and decree of foreclosure in a residential/consumer case.  In a subsequent federal court action, the plaintiffs, who lived in the house, sued the servicer of the mortgage upon which the prior foreclosure action was based.  The plaintiffs’ complaint asserted a multitude of consumer finance-based claims.  The underlying allegations in the plaintiffs’ federal court complaint are not particularly germane here, however.  In a nutshell, the plaintiffs felt wronged by the servicer’s alleged unlawful refusal to permit them to assume the subject mortgage. 

Procedural history.  The plaintiffs sought a TRO barring an upcoming sheriff’s sale.  The Sims opinion is the United States District Court’s ruling on the TRO request.

Key rules. 

• One seeking a TRO must show that he or she is “reasonably likely to succeed on the merits, is suffering irreparable harm that outweighs any harm the [defendant] will suffer if the injunction is granted, there is no adequate remedy at law, and an injunction would not harm the public interest.” 
• In Indiana, a sheriff’s sale only occurs following the entry of a judgment.  Ind. Code 32-30-10-5; 32-30-10-8. 
• The Rooker-Feldman doctrine, discussed on this blog many times, precludes federal courts from exercising jurisdiction over cases brought by “state-court losers complaining of injuries caused by state-court judgments….”

Holding.  The Court concluded that the plaintiffs in Sims, to the extent they sought to enjoin the sheriff’s sale, were attempting to relitigate the merits of the prior foreclosure action and, as such, the Court lacked jurisdiction to do so.  Stated another way, the plaintiffs were unlikely to succeed on the merits of their claim.  For this and other reasons, “the standards for issuance of a [TRO were] not met….”  The Court denied the TRO.

Policy/rationale.  A TRO is an extreme remedy granted only under limited circumstances.  I’m not saying that a TRO request should be denied in every conceivable circumstance, but it’s hard to imagine a scenario where a federal court would stop a sheriff’s sale ordered by a state court.  Attempts to obtain such relief should be focused in the original, state court action through appeal or otherwise. 

Related posts. 

• Res Judicata, Specifically Claim Preclusion, And How To Dismiss A Borrower’s Post-Foreclosure Case
• Assets Cannot Be Frozen By An Injunction
• Indiana Foreclosure Sale Terminates The Right Of Redemption

Even If Real Estate Taxes Are Delinquent, Don't Name The County In The Foreclosure Complaint

"Old school" Indiana foreclosure procedure required a plaintiff lender/mortgagee to name the county in cases where there were delinquent real estate taxes.  The county would answer the complaint and document its super-priority lien in the amount of the past due taxes.  The foreclosure decree, in turn, would order that the county must be paid first out of any sheriff's sale proceeds, which as a practical matter meant that the lender advanced the delinquent taxes to the county at the time of the sheriff's sale. 

All that changed in 2011.  I'm "reprinting" my 1/21/11 post below that explains this.  Counties no longer need to be named because, as a matter of law, the sheriff's sale cannot even be scheduled until the plaintiff pays the taxes.  Despite this, I still see confusion with judges and counsel regarding the treatment of counties in foreclosure litigation.  Again, as explained below, my opinion is that Indiana law is crystal clear that counties, which are owed taxes, no longer need to be parties to foreclosure cases.

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Distressed loans secured by commercial property often involve delinquent real estate taxes.  Workout professionals should remain mindful of this possibility as they analyze their collateral and make decisions concerning the enforcement of the loan.  Questions I’m frequently asked are whether the lender should pay the real estate taxes and, if so, when. 

Prior procedure.  Indiana law historically required the plaintiff/lender, assuming it was the winning bidder at the sheriff’s sale, to pay any delinquent real estate taxes immediately after the sale.  In the case of a cash bidder (third party), taxes would be paid off the top or, in other words, the county treasurer got the first cut of the sale proceeds.   

2011.  In recent years, we noticed that some county sheriff’s offices started to require the plaintiff/lender to pay delinquent real estate taxes before the sale.  This has now become a formal, statutory requirement by virtue of Ind. Code § 32-29-7-8.5 “Requirements for Payment of Property Taxes and Real Estate Costs Before Sheriff’s Sale.”  The statute states, in pertinent part, that “the party that filed the praecipe for the sheriff’s sale shall pay . . . all delinquent property taxes, special assessments, penalties, and interest that are due and owing on the property on the date of the sheriff’s sale.”  A failure to pay will result in the cancellation of the sale.

Policing the issue?  Beginning in January 2011 in Marion County (Indianapolis), the Treasurer, in conjunction with the Sheriff, requires that a Tax Clearance Form (.pdf) be (a) completed by the party requesting the sale, (b) stamped by the Treasurer’s Office and (c) then submitted to the Sheriff’s Office with the written bid.  The form must be stamped regardless of whether delinquent taxes were ever an issue.  Lender’s counsel needs to complete the information at the top of the form (the date of the sheriff’s sale, file number, owner, address and parcel number), as well as the contact information at the bottom of the form.  The Treasurer’s Office completes everything else.  Note that one form needs to be completed for each parcel number (i.e. 4 parcels, 4 forms). 

As I’ve said on this blog many times, please be sure to confer with the particular county sheriff’s office in advance because rules and procedures may vary by county.  Perhaps other counties will follow Marion County’s lead in terms of documenting the status of the real estate taxes.  For now, call ahead to see what is needed. 

Timing.  At last week’s Marion County sales, we were able to submit payment for delinquent property taxes and obtain the stamped clearance form on the same day.  The better approach would be to allow yourself and your foreclosure counsel a few days before the sale to address the matter in case there are problems or the Treasurer’s Office is congested.  Without the stamped form, the Sheriff will not hold the sale.  It is my understanding that the Treasurer may set up an e-mail address so these forms can be submitted and completed via e-mail.  I will provide more information as it becomes available. 

Build into judgment.  Since I.C. § 32-29-7-8.5 now requires real estate taxes to be satisfied before the sale, the amount of any delinquent real estate taxes that either have been or will be paid by the lender should be an item of damages identified in the judgment.  Before the statutory change, borrowers theoretically could attack that damage figure as being speculative.  Some borrowers claimed that, because the lender had not actually incurred the loss at the time of the entry of judgment, courts could not award the damages.  Hypothetically, the borrower might later pay the taxes or a third-party buyer might pay the taxes.  Now, because the foreclosing lender is compelled to advance the taxes, courts in turn should be compelled to include such losses in the calculation of damages.

Plan ahead.  In the past, delinquent real estate taxes may have popped onto the lender’s radar in the days leading up to the sheriff’s sale.  Now, that issue should be addressed at the time of the filing of a motion for default judgment, motion for summary judgment or trial.  Lenders and their foreclosure counsel should make it their routine practice, when calculating the debt, to verify with the county treasurer the status of the real estate taxes generally and the amount of any delinquent real estate taxes specifically.  (As an aside, delinquent taxes frequently are identified in a title commitment.)   

For more on this subject, please see my November 16 and November 24, 2010 posts that deal with tax sales.

Sheriff's Sale Checklist - Marion County (Indianapolis) Illustration

This post should be read with post - New Marion County (Indianapolis) Sheriff's Sale Requirements.  The following check list includes many of the key steps but is not an exhaustive list of considerations.  So, please make sure you and your counsel independently review the applicable statutes and rules as you prepare for your own sale.  Please also glance at my prior post - Indiana Sheriff's Sales: Local Rules, Customs and Practices Control - for further advice/tips.

Upon Entry Of Judgment/Pre-Sale

1. Praecipe for sale at clerk’s office; submit first page of complaint/two copies of judgment.
2. Obtain sale date and sale number from sheriff.
3. Submit notice of sheriff’s sale to sheriff.
4. Request bidding instructions from client.
5. Obtain sale data sheet from sheriff.
6. Prepare bid form.
7. Obtain check for sheriff’s costs/sale fees.
8. Draft sheriff’s deed and request check for recorder’s fee.
9. Draft clerk’s return.
10. Draft sales disclosure and request check for auditor’s fee.
11. Obtain statement for any delinquent real estate taxes from treasurer’s office.
12. Request check from client to treasurer for any delinquent taxes.

Day Before Sale

1. If applicable, pay any delinquent taxes and secure receipt from treasurer; obtain stamped  Tax Clearance Form from treasurer (regardless of whether there were any delinquent taxes).
2. Submit to sheriff:    

• Bid form with sheriff’s fees/costs check;    
• Deed with recorder’s fee check;    
• Clerk return;    
• Sales disclosure form with auditor’s fee check; and    
• Tax Clearance Form.

Sale Day

        Attend auction at City/County Building.

After Sale

1. If client purchases, obtain all file-marked conveyance documents and clerk’s return.
2. If third party purchases, obtain check for sale proceeds from sheriff.

Note:  Initiating Marion County (Indianapolis) Sheriff's Sales

Sheriff’s Sale Credit Bid: Ensure Post-Judgment Damages Are Readily Ascertainable And Undisputed

If, as a lender, you tender a full credit bid at your sheriff’s sale, make sure you don’t unwittingly overbid.  If you do, you later could be forced to pay cash to cover the difference.  This is what happened in Stoffel v. JPMorgan Chase, 2014 Ind. App. LEXIS 34 (Ind. Ct. App. 2014). 

Setting.  Stoffel arose out of a post-sale motion by a borrower/mortgagor to compel the plaintiff lender/mortgagee to pay an alleged surplus.  In Indiana, the sheriff must pay any surplus back to the mortgagor.  The borrower in Stoffel wanted to recover the alleged “difference between the face amount of the judgment and the amount bid at the sheriff’s sale,” even though the sheriff did not hold any excess sale proceeds. 

Foreclosure judgment.  The lender and the borrower in Stoffel entered into an agreed foreclosure judgment that awarded the amount of the debt, together with “any additional costs of collection, expense, and disbursements incurred from the date of the [lender’s pre-judgment affidavit of debt] to the date of the Sheriff’s Sale, including, but not limited to, Sheriff’s Sale costs, disbursements for real estate taxes, bankruptcy fees and costs, and disbursements for hazard insurance premiums.”  These additional items could not be specified until the sale. 

Credit bid.  The lender submitted a winning “credit bid” (a/k/a “judgment bid”) in the amount of $152,121.72.  The Court noted that a “credit bid” is made “by the judgment creditor in which no money is exchanged.”  The bid is not backed up by cash but rather the amount of the judgment.  The lender in Stoffel believed that the judgment amount was enough to cover its bid. 

Post-sale proceeding.  At a hearing on the borrower’s motion, the lender explained how its credit bid had been calculated.  The lender offered documents to verify certain post-judgment recoverable costs incurred by the lender.  The trial court denied the borrower’s motion, and the borrower appealed. 

Evidence.  The Court of Appeals pointed out what usually happens when amounts need to be added to a judgment after the fact: 

We acknowledge that judgment creditors routinely include post-judgment costs and expenses in their sheriff’s sale bids and demonstrate those calculations by affidavit.  In a typical case, the judgment creditor’s post-judgment costs and expenses are easily determined and the mortgage foreclosure proceeding ends with the issuance of a sheriff’s deed.  And where, as here, post-judgment costs and expenses are awarded in the foreclosure judgment, there is no question that the judgment creditor is entitled to recover those costs and expenses, which are usually readily ascertainable and undisputed. 

The problem in Stoffel was that the judgment included elements that were not really “readily ascertainable and undisputed.”  After delving into a technical discussion about the inadmissibility of the lender’s evidence, the Court concluded that much of the evidence was inadmissible.  For example, to prove certain facts, the lender simply tendered a letter instead of a sworn affidavit. 

Shortfall.  The lender paid the price, albeit a small price, for its technical error.  The Court studied the terms of the judgment and applied the limited amount of admissible evidence to those terms.  The Court calculated the amount of the judgment at the time of the sheriff’s sale and held that the lender overbid.  Ironically, in a case where the borrower owed the lender $152,121.72, the Court entered a post-sale judgment against the lender in the amount of $374.58. 

Takeaway.  Lenders and their counsel should articulate damages elements within the judgment with as much simplicity and clarity as possible.  Any contingent amounts should be written so the sheriff and the trial court can later plug and chug the numbers with ease - eliminating room for interpretation or proof hurdles.  For example, lenders must pay any delinquent real estate taxes before the sale.  Frequently, the amount of the tax liability is unknown at the time of the judgment and will not be paid until the day before the sale.  Judgments can (and should) grant an award for tax advancements, which will be readily ascertainable and undisputed.  On the other hand, the less ascertainable and more disputed the post-judgment damages items are, the more lenders set themselves up for scrutiny and proof problems later. 

Initiating Marion County (Indianapolis) Sheriff's Sales

Back in January of 2011, I posted:  Sheriff's Sale Checklist - Marion County (Indianapolis) Illustration.  Step 1 was to "praecipe" for the sale.  (In August of 2010, I answered the question:  What's A "Praecipe"?) 

For years in Marion County, we praeciped for sales by filling out by hand an entry into a formal praecipe book found in the Marion County Clerk's Office on the 1st Floor of the City-County Building.  In all other counties, we prepare a written pleading entitled "praecipe" and have it file-stamped by the Clerk for placement into the trial court's record.   

Recently, we had a case in Marion County in which our praecipe via the book apparently got lost somewhere between the Clerk's Office and the Sheriff's Office.  Innocent mistake - it happens - but the client was not happy.  So, we inquired into whether we could trigger the sale process without utilizing the book.  We can.  

Here is an information sheet prepared by Marion County that speaks to how to get a sheriff's sale by bypassing the praecipe book process:  (.pdf):

1. Submit an original and two copies of the praecipe
2. Attach to the praecipe one copy of the foreclosure judgment/decree
3. Submit a check for $1.00 for certification of the judgment/decree
4. Attach to the praecipe a copy of the first page of the complaint
5. Submit one self-addressed stamped envelope

Items 1-5 should be submitted to:

Marion County Clerk's Office

Attn:  Rosalinda Sanchez

200 East Washington Street, Room W-140

Indianapolis, Indiana 46204  

Rosalinda made it clear to me that, if you submit a typed praecipe, you do not praecipe with the book.  "You choose one or the other," she said.

Although Marion County's book system would seem to have a 99% success rate, my sense is that the submission of a typed praecipe, which looks and feels more like a formal pleading, could close that 1% gap.  For what it's worth, from now on we're going to follow the steps in Rosalinda's handout.  

As a reminder, a word to the wise:  Indiana Sheriff's Sales:  Local Rules, Customs and Practices Control.  Find the Rosalinda in each county with which you're unfamiliar, and make her your friend....

Foreclosing On Contaminated Real Estate (Brownfields), Part II: Are Purchasers Of Distressed Loans Protected?

This follows-up last week’s post that introduced foreclosure-related environmental issues and focused on liability exposure for conventional lenders.  This week’s post centers on environmental liability risks that purchasers of distressed loans may face.  In this situation, the traditional secured lender exemption discussed in my last post may not apply because of the investor’s intent to hold the property rather than to divest itself of the property as early as commercially reasonable.  Can liability still be avoided?

Successor lenders.  When an investor takes assignment of a distressed mortgage loan, thereby becoming the mortgagee (the lender), the investor’s objectives may be of critical importance in the context of potential environmental liability.  Some investors acquire a distressed loan with the goal of obtaining a payoff of the loan with interest.  They do not seek to own the underlying property through foreclosure, and if they do ultimately foreclose, they want to sell the property as soon as possible.  These types of investors are very similar to conventional lenders and, as such, the secured lender exemption discussed in last week’s post should apply.  Having said that, the law is not crystal clear on this point.

Investors/Developers.  Some investors acquire a distressed loan with the intention owning the mortgaged real estate.  In other words, they want the project – not the income from the loan.  Some call this a “loan-to-own” foreclosure.  Such purchasers of loans in default have developer-like aims, and it is these types of investors, and the transactions in which they engage, that are the real focus of today’s post.  The loan-to-own investors probably fall outside the CERCLA secured lender exemption because they are not seeking to divest themselves of the property “as early as commercially practicable.” 

The unsettled BFPP issue.  We believe that the investor still could avoid liability by going through the steps to become a BFPP (see last week).  The problem is that the BFPP rules require that the investor not have any “affiliation” with a PRP (here, the borrower/mortgagor/prior owner) through “any contractual … relationship ….”  Thus a question arises as to whether the loan documents create some kind of affiliation that defeats the BFPP exemption.  In one written opinion, the Court cited EPA guidance suggesting that “in deciding what ‘affiliations’ are prohibited by CERCLA, courts should be guided by ‘Congress’s intent of preventing transactions structured to avoid liability.’”  Ashley II of Charleston, LLC v. PCE Nitrogen, Inc., 746 F. Supp. 692, 753 (D.N.C. 2010).  Based on that rationale, we are of the view that the BFPP exemption should be available to investors.  Neither a mortgage loan nor a sheriff’s sale are transactions structured to avoid environmental liability.   

The policy argument.  Ultimately, if a court were to find a prohibited “affiliation” between a borrower and a mortgagee-turned developer, so as to defeat the BFPP exemption, such a finding would seem to be inconsistent with the purpose of the CERCLA’s BFPP and secured lender protections—namely, redevelopment of brownfields.  We think that it would be in keeping with CERCLA’s purpose of encouraging redevelopment to allow an investor to foreclose on its mortgage, transform itself into a BFPP and thus avoid liability.  But this is an unsettled area of law that could be highly fact dependent, and as experienced environmental litigators know, avoiding liability under CERCLA is an uphill battle.

Upshot?  Environmental liability related to the purchase and assignment of mortgage loans and subsequent development is clouded and complicated.  However, steps can be taken to ensure that your unique transaction most closely follows the statutory defenses to CERCLA and puts your entity in the best position should an environmental issue arise.  An investigation into environmental issues is advisable if you are interested in purchasing a distressed loan.  For more information on how the secured lender and Bona Fide Prospective Purchaser exemptions apply to your transaction, please contact Leah B. Silverthorn or me.  I’d like to thank Leah for taking the lead with these informative posts.

Foreclosing on Contaminated Real Estate (Brownfields), Part I: Are Banks Protected?

From time to time, banks may be forced to foreclose upon mortgaged real estate with an active environmental problem.  I touched upon this subject back in September of 2009 – Always Consider An Environmental Liability Analysis – but this and next week’s posts provide depth to the topic with the assistance of my colleague Leah Silverthorn, who specializes in environmental law at our Firm. 

Some history on environmental law.  The Comprehensive Environmental Response Compensation and Liability Act, also is known as “Superfund” (“CERCLA”), enacted in 1980, imposes joint, strict, and several liability for releases of hazardous substances upon four categories of parties:  “owners,” “operators,” “transporters,” and “arrangers” (collectively known as potentially responsible parties or “PRPs”).  The statute imposes liability simply by virtue of acquiring a contaminated property.  In 1986, Congress amended CERCLA through the Superfund Amendments and Reauthorization Act (“SARA”), which, among other things established the innocent landowner exemption, the now rarely-invoked precursor to the 2002 exemptions discussed below.   

The exemptions.  CERCLA’s goal is the cleanup of contaminated sites, and, as such, it originally contained virtually no legal defenses.  Because of this harsh liability scheme, both lenders and developers, as well as local municipalities, raised concerns over the disincentive this statute caused for re-development of “brownfields”—a term given to contaminated (or perceived to be contaminated) real estate.  As a result, in 2002, Congress enacted the Small Business Liability Relief and Brownfields Revitalization Act (the “Brownfields Amendment”), adding an exemption to liability for bona fide prospective purchasers (“BFPPs”) and for secured lenders.

    BFPP defense.  The BFPP defense requires a party (a) to conduct all appropriate inquiries (through a Phase I Assessment), (b) not be related to or associated with another PRP and (c) follow post-closing obligations, including notifications, stopping or preventing future releases or exposure, and cooperating with government requests for access, if necessary.  With the enactment of the BFPP exemption, a party can purchase a property with knowledge of environmental conditions and still avoid liability, so long as it takes these steps.  (Aside:  The BFPP defense does not prevent the United States, if it undertakes remediation itself directly, from placing a senior lien on the real estate.  The theory is that the landowner benefitted from such cleanup activities and should not receive a windfall for such benefit.  Care should be taken to ensure that the government does not see a need to undertake a cleanup.) 

    Lender’s exemption, specifically.  The Brownfields Amendment also created an exemption for secured lenders (mortgagees), resulting from financial industry worries that foreclosure would automatically transfer liability for all contamination to a foreclosing mortgagee.  This exemption comes into play when a mortgagee is forced to foreclose on the property and/or take control of the management of the property.  Per CERCLA, lenders typically are exempted from the “owner or operator” definition so long as they “hold indicia of ownership primarily to protect [a] security interest.”  The lender must not “participate in management” of environmental decision making and must “seek[] to sell, re-lease (in the case of a lease-finance transaction)” “at the earliest practicable, commercially reasonable time, on commercially reasonable terms, taking into account market conditions and legal and regulatory requirements.”  A Phase I is not a prerequisite to this exemption. 

Good to go, generally.  In instances where banks immediately intend to liquidate the mortgaged real estate following the sheriff’s sale, the law is relatively clear—banks generally will be exempt from liability.  Since selling the real estate as soon as possible is the modus operendi of virtually all banks and lending institutions, the law provides at least some comfort that conventional banks, in business to enforce their loans through foreclosure and prompt liquidation of their loan collateral, should not be exposed to environmental liability. 

Part II, next week, involves the sticky situation when the foreclosing mortgagee decides to retain ownership of the mortgaged real estate. 

Indiana Deficiency Judgments: Separate Action Not Applicable

 

Last week, an out-of-state lawyer and reader of my blog asked a question I’ve received several times previously – whether Indiana has a separate process for post-sheriff’s sale deficiency suits.  In this instance, he was reading my 4/22/08 post, How Much Should A Lender/Senior Mortgagee Bid At An Indiana Sherriff’s Sale?, and had some follow-up questions. 

My definition.  The terminology “deficiency judgment” refers to the amount of the judgment remaining after deducting the price paid at the sheriff’s sale or, more generally, the difference between the debt amount and the value of the collateral securing the debt.

Indiana’s process.  It’s my understanding that some states require post-sale deficiency actions.  Not in Indiana.  Here, a judgment entered in a mortgage foreclosure action typically is comprised of two elements.  The first is a money judgment on the promissory note and/or guaranty, and the second is a decree of foreclosure based on the mortgage.  The deficiency is a product of the sheriff’s sale.  In Indiana, a deficiency judgment isn’t really a technical or statutory term.  More than anything, the words simply describe the net amount owed by a borrower or guarantor following a sheriff’s sale.

One judgment.  So, as to Indiana, unlike some other states, a personal judgment (against a borrower or a guarantor) for any post-sale deficiency actually occurs before the sheriff’s sale takes place.  There is no second procedural step or subsequent process to establish a deficiency judgment.  In fact, as noted in my 8/1/08 post Full Judgment Bid = Zero Deficiency, ultimately there may be no deficiency (residual money judgment) if the sheriff’s sale price meets or exceeds the amount of the judgment. 

Tim Durham Sheriff's Sale

The Indianapolis Star and the Indianapolis Business Journal recently reported on the March 6th sheriff's sale of Tim Durham's $5.5MM, 10,700 sq. ft. mansion in Hamilton County.  The mortgaged debt appears to be about $4.5MM.  Mr. Durham is serving a 50-year prison sentence for a $200MM Ponzi scheme. 

Here is a link to the Star's article:  Durham.  The IBJ article is premium content, so if you're a subscriber go to IBJ.com for the February 15th piece written by Greg Andrews. 

If you're interested in bidding at the sale, here is a link to the relevant Hamilton County Sheriff's website, and here is a link to the listing, which is on page 86 of 111.   

Full Credit (Judgment) Bid in Michigan Extinguishes Debt and Mortgage in Indiana

Sometimes multiple mortgages on multiple properties secure a single promissory note.  Lenders/mortgagees may pursue separate foreclosure actions against separate properties, but there cannot be a double recovery.  Neu v. Gibson, 968 N.E.2d 262 (Ind. Ct. App. 2012) illustrates this and applies the so-called “full credit bid rule” that was the subject of my post Full Judgment Bid = Zero Deficiency. 

The transaction.  In exchange for the sale of stock, Nowak gave Gibson a promissory note and granted Gibson a mortgage against real estate in both Indiana and Michigan.  Nowak sold the Indiana real estate to Neu but did not inform Gibson of the sale.  Nowak ultimately defaulted on the promissory note to Gibson. 

Suits.  Legal proceedings ensued in Indiana between Gibson and Neu that led to an Indiana Supreme Court decision concerning the doctrine of equitable subrogation, which was the subject of my March 1, 2011 post.  Unbeknownst to Neu, Gibson also pursued a legal proceeding in Michigan with respect to the Michigan real estate.  Gibson obtained a foreclosure judgment in Michigan and made a credit bid at the sale for the full amount of the judgment.  Gibson ultimately acquired title to the Michigan real estate.  The collection proceedings then turned back to Indiana where the issue was whether the Indiana judgment had been satisfied by virtue of the Michigan sale. 

Full credit bid rule.  Neu’s primary argument in the Indiana case focused on Gibson’s entry of a full credit bid in the foreclosure sale of the Michigan real estate.  The question was whether Gibson’s claim against the Indiana real estate, which claim rested on the same debt secured by the Michigan real estate, was barred by the “full credit bid rule.”  (Michigan also recognizes and applies this rule.)  Essentially, the rule provides that the payment of a bid at a sheriff’s sale sufficient to satisfy the judgment extinguishes that judgment.  It follows that, where a judgment creditor has been paid the full amount of the judgment, there is a complete satisfaction of that judgment. 

Rule applied.  In Neu, Gibson obtained a foreclosure judgment on Nowak’s promissory note with regard to the Michigan real estate in the amount of $305,722.48.  A few months later, the Michigan real estate was the subject of a foreclosure sale where Gibson submitted the highest bid of $305,722.48.  The Court said:  “as Gibson purchased the Michigan Real Estate for a price equal to the amount of the foreclosure judgment, the debt became satisfied and the underlying promissory note was extinguished.”  Consequently, the mortgage on the Indiana real estate was terminated. 

Fair market value immaterial.  In an effort to avoid the consequences of the Michigan proceedings, Gibson contended that the Court should use the fair market value of the Michigan real estate – not the full credit bid – in determining the amount still owed in the Indiana action.  Gibson submitted an appraisal of the Michigan real estate stating the property was only worth $72,000.  As discussed in the Titan opinion and my 8/1/08 post, however, the full credit bid rule “precludes a lender for purposes of collecting its debt from making a full credit bid and subsequently claiming that the property was actually worth less than the bid.”  The Court summed up its opinion as follows:

As Gibson purchased the Michigan real estate for a price equal to the amount of the foreclosure judgment, the debt became satisfied and the underlying promissory note was extinguished. . . . With the satisfaction of the underlying promissory note, there is no longer any debt to support the foreclosure on the Indiana real estate.  If, in fact, we were to allow Gibson to foreclose on the Indiana real estate after foreclosing on the Michigan real estate, we would grant him a windfall, which we are not prepared to do.

Takeaway.  One of the lessons of Neu is that judgment creditors probably should not make full judgment (credit) bids at foreclosure sales unless the real estate is worth the amount of the judgment.  On the other hand, if judgment creditors absolutely want the property, and if there are no other assets to pursue, then a full credit bid at a sheriff’s sale makes sense.  But do so knowing that there is no residual debt to collect.  A full credit (judgment) bid resolves the debt and extinguishes any other liens securing such debt.

House Bill 1132: Indiana’s Requirement For Pre-Sale Payment Of Delinquent Sewer Fee Liens

Distressed loans secured by commercial property often involve delinquent sewer fee liens, which I discussed in my 10/24/08 post.  These liens typically go hand-in-hand with delinquent real estate taxes.  Workout professionals should remain mindful of this possibility as they analyze their collateral and make decisions concerning the enforcement of the loan.  Questions I’m frequently asked are whether the lender should pay the real sewer fees liens and, if so, when. 

Prior procedure.  Indiana law historically required the plaintiff/lender, assuming it was the winning bidder at the sheriff’s sale, to pay any delinquent sewer fees, along with real estate taxes, immediately after the sale.  In the case of a cash bidder (third party), sewer liens would be paid off the top or, in other words, the county treasurer got the first cut of the sale proceeds.   

2011.  We then noticed that some county sheriff’s offices started to require the plaintiff/lender to pay delinquent real estate taxes and sewer fee liens before the sale.  In 2011, prepayment of delinquent real estate taxes became a statutory requirement by virtue of Ind. Code § 32-29-7-8.5 “Requirements for Payment of Property Taxes and Real Estate Costs Before Sheriff’s Sale.”  See my 1/21/11 post for more. 

2013.  In this year’s session, Indiana’s General Assembly enacted HB 1132, which added delinquent sewer fee liens to the mix.  HB 1132 amends Ind. Code Sec. 32-29-7-8.5 and will be effective July 1, 2013.  The statute will now state, in pertinent part, that “the party that filed the praecipe for the sheriff’s sale shall pay . . . all delinquent property taxes, sewer liens described in IC 36-9-23-32, special assessments, penalties, and interest that are due and owing on the property on the date of the sheriff’s sale.”  A failure to pay will result in the cancellation of the sale.

Policing the issue?  Beginning in January 2011 in Marion County (Indianapolis), the Treasurer, in conjunction with the Sheriff, required that a Tax Clearance Form be (a) completed by the party requesting the sale, (b) stamped by the Treasurer’s Office and (c) then submitted to the Sheriff’s Office with the written bid.  I’ve seen other counties utilizing forms like this.  I suspect any such forms will be amended to include a statement about sewer fee liens.  Please remember to confer with the particular county sheriff’s office in advance because rules and procedures may vary by county. 

Build into judgment.  Since I.C. § 32-29-7-8.5 will require sewer fee liens to be satisfied before the sale, the amount of any such lien that either has been or will be paid by the lender should be an item of damages identified in the judgment.  Before the statutory change, borrowers theoretically could attack that damage figure as being speculative.  Some borrowers claimed that, because the lender had not actually incurred the loss at the time of the entry of judgment, courts could not award the damages.  Hypothetically, the borrower might later pay the fees or a third-party buyer might pay them  Now, because the foreclosing lender is compelled to advance payment of the sewer fee liens, courts in turn should be compelled to include such losses in the calculation of damages.

Sewer connection penalties?  On 8/1/12, I wrote about liens arising out of sewer connection penalties, which are similar to sewer fee liens.  The 2013 amendment to Ind. Code Sec. 32-29-7-8.5 does not appear to require connection liens to be paid before the sheriff’s sale. 

Plan ahead.  Lenders and their foreclosure counsel should make it their routine practice, when calculating the debt, to verify with the county treasurer the status of both the real estate taxes and sewer fee liens.  Indeed a sewer fee lien should be identified in a title commitment.  As a practical matter, these liens will be a component of the amount owed by the borrower (and guarantor).       

Discrimination Allegations Unavailing For Borrower In Post-Foreclosure Eviction

Today’s post follows-up on a theme from my February 15th post with respect to evictions following a sheriff’s sale.  That post dealt with eviction of tenants.  Today’s post, regarding United States of America v. Cotton, 2012 U.S. Dist. LEXIS 341 (N.D. Ind. 2012) (rtclick/save target as for .pdf), deals with mortgagors/owners. 

Backdrop.  Borrower owned real estate subject to a bank’s mortgage and a junior mortgage held by the United States Department of Agriculture (“USDA”).  Due to a failure to make payments, the bank filed a foreclosure action against the borrower and obtained a summary judgment that authorized a sheriff’s sale.  At the sale, third-party bidders purchased the real estate.  The USDA thereafter asserted its redemption rights under federal law (28 U.S.C. § 2410(c)).  In exchange for a deed, the USDA paid the purchasers an amount equal to what the purchaser’s paid at the sheriff’s sale, plus interest.  After recording the deed, the USDA sent the borrower a notice to vacate the premises within thirty days.  The borrower refused to comply. 

Procedural maneuvering.  To obtain possession of the real estate, the USDA, in a lawsuit separate from the state court foreclosure, filed a motion for judgment on the pleadings pursuant to F.R.C.P. 12(c).  The Court in Cotton noted that the USDA had to establish “that [bank’s] lien on the [subject real estate] stood in first priority, ahead of the USDA’s; that it timely exercised its redemption right in the [subject real estate]; and that it followed the proper procedures under Indiana law to perfect legal title in the [real estate].”  The Court concluded that the USDA had met its burden.

Right to possession.  The USDA’s right of redemption vested upon the sale of the real estate at the sheriff’s sale.  The USDA timely redeemed the real estate and properly recorded the subject deed.  This served to perfect the USDA’s legal title in the real estate.  In Indiana, property law grants to property owners the absolute and unconditional right “to exclude from their domain those entering without permission.”  The Court stated that:  “as the owner of an undivided fee simple interest in the [real estate], the United States is entitled to permit, or exclude, whomever it desires from the property; including [the borrower].”

Borrower’s contentions.  The borrower did not contest the action upon the legal formalities of the acquisition by the USDA, but rather upon notions of equity.  The borrower asserted that the USDA did not have “clean hands,” an equitable doctrine I discussed in a December, 2012 post.  Generally, “one who seeks relief in a court of equity must be free of wrongdoing in the matter before the court.” 

    First, the borrower argued that the USDA had an obligation to intervene on his behalf and to provide him with legal representation and advice in the state court foreclosure proceedings.  The Court noted that, while the USDA might have an obligation under federal law to assist minority and impoverished individuals in efforts to obtain affordable housing, such obligation does not extend to the requirement to provide free legal services to those persons. 

    Second, the borrower asserted that “because the USDA previously defended against allegations of race discrimination in a class action lawsuit, this alleged misconduct should either be imputed or presumed into the context of the instant case.”  The cases upon which the borrower relied involved alleged racial discrimination in applying for mortgage loans.  In Cotton, the borrower received a mortgage from the USDA without any complications.  The borrower invited the Court “to entertain a presumption that because the USDA discriminated against similarly situated persons in the past, it necessarily follows that he too was a victim of discrimination.  Because the evidence in the pleadings [did] not substantiate this allegation, the Court [was] not inclined to leap to such a conclusion.”

The Court in Cotton held that the actions of the USDA did not make it inequitable for the Court to order the requested relief.  The Court granted the USDA’s motion for judgment on the pleadings and found that the borrower was in wrongful possession of the subject real estate.  The Court ordered him to vacate the premises accordingly.  One point Cotton illustrates is that, in Indiana, a sheriff’s sale terminates the borrower’s (former owner’s) rights to the mortgaged real estate.

Foreclosing Party, As Owner, May Evict Tenants In Breach

Secured lenders repossessing real estate collateral at a sheriff’s sale normally keep tenants in place to maintain income.  There are instances, however, when a plaintiff lender, or a third-party sheriff’s sale purchaser, may desire to evict a tenant.  Ellis v. M&I Bank, 960 N.E.2d 187 (Ind. Ct. App. 2011) sheds light on a new owner’s rights, following a sheriff’s sale, vis-à-vis tenants. 

Unusual circumstance.  In Ellis, a developer leased the subject real estate to tenants (husband and wife), but then defaulted on its line of credit.  As a result, the developer’s lender foreclosed and ultimately acquired the real estate at a sheriff’s sale.  The court’s decree of foreclosure was against the developer and the husband only, not the wife/co-tenant.  When the lender pursued a writ of assistance to evict the tenants, the wife asserted that her interest in the real estate had not been extinguished in the mortgage foreclosure case.  She was right.   

To terminate, name tenants.  The Court in Ellis noted that, in Indiana, the purchaser at a sheriff’s sale “steps into the shoes of the original holder of the real estate and takes such owner’s interest subject to all existing liens and claims against it.”  Because the lender did not make the wife a party to the foreclosure case, the sheriff’s sale could not be enforced against her.  This is because, in Indiana, “where a mortgagee knows or should know that a person has an interest in property upon which the mortgagee seeks to foreclose, but does not join that person as a party to the foreclosure action, and the interested person is unaware of the foreclosure action, the foreclosure does not abolish the person’s interest.”  See my 10/07/11 and 07/09/10 posts for more on this area of the law.  Because the wife was not named or served in the foreclosure action, the trial court found that her interest was not extinguished by the foreclosure judgment and that the lender’s interest in the real estate remained subject to her leasehold interest. 

How did the lender obtain possession of the real estate from the wife?

Option 1 – strict foreclosure.  One option available to the lender was to terminate the interest of the wife through a strict foreclosure action.  I have written about this remedy, including Indiana’s 2012 legislation, extensively.  Please click on the category Strict Foreclosure to your left for more.  The lender in Ellis did not pursue this option. 

Option 2 - eviction.  The lender elected, as the then-owner of the real estate, to pursue eviction based upon the subject lease agreement.  The eviction action was separate and distinct from the foreclosure action.  The evidence in Ellis was clear that the tenants had breached the lease and that the lender had the corresponding right to terminate.  The trial court entered an order of possession for the lender based on the lease, and the Court of Appeals affirmed. 

Plaintiff lenders, after the entry of the foreclosure decree and sheriff’s sale, usually can evict parties in possession of the subject real estate through the mechanism of a writ of assistance, about which I have written in the past, assuming the mortgage lien is senior to the possessory interest.  That remedy generally is effective only when the targets of the writ of assistance were made parties to the underlying action.  The rub in Ellis was that one of the parties in possession of the real estate (the wife) was not named in the case.  Rather than embarking on what may have been a relatively costly, complicated and lengthy strict foreclosure action, the lender in Ellis chose a simpler approach by filing a straightforward landlord/tenant eviction action based upon the terms of the subject lease.  This turned out to be a good solution to the problem caused by failing to name the wife.

How Should A Junior Lender/Mortgagee Respond To An Indiana Foreclosure Suit?

One of our bank clients, which has a home equity line of credit portfolio, recently asked me to give a presentation on how best to deal with foreclosure suits filed by senior lenders (first mortgagees).  Whether junior mortgages are residential or commercial, the basic plan of attack in Indiana is the same:

 1. Email Summons and Complaint filed by senior mortgagee, together with scan of the bank’s loan documents, to foreclosure counsel.  Advise foreclosure counsel of the manner of service of process (certified mail or hand delivery) and date of receipt.

 2. Foreclosure counsel will file an appearance and a motion for extension of time with the court.  Nothing else typically will be due with the court until 50 – 53 days after the date of service of process.

 3. During the 50 – 53 day window, the bank should do the following:

a. Order an appraisal or broker price opinion, and determine the fair market value of the mortgaged property.

b. Create an estimate of the senior mortgagee’s entire indebtedness, including unpaid principal balance, accrued interest, late fees, delinquent real estate taxes, per diem interest and attorney fees/litigation costs.  The complaint will list many of these figures.

c. Create an estimate of carrying costs associated with owning the real estate, including real estate taxes, hazard insurance premiums, maintenance/repair costs, utility expenses and attorney fees/litigation expenses for foreclosure. 

d. Create an estimate of liquidation expenses, including broker fees and closing costs.

e. Determine the bank’s own estimated indebtedness, including unpaid principal balance, accrued interest, per diem interest and late fees.

 4. Before the close of the 50 – 53 day window, the bank should determine whether it would ultimately net any money if it were to acquire the mortgaged property at the sheriff’s sale and then liquidate it.  The question is whether the value of the mortgaged property exceeds the senior mortgagee’s indebtedness, the carrying costs and the liquidation expenses.  Here is a basic formula:  Fair Market Value - (Senior Debt + Carrying Costs + Liquidation Expenses) = Equity.

 5. If the calculation in #4 shows insufficient equity, then the bank should consider instructing foreclosure counsel to file a disclaimer of interest and motion to dismiss.  (The exception to this would be if the bank desires to collect the debt from other assets of the borrower or a guarantor.)  The case might end here.

 6. If the calculation in #4 shows sufficient equity, then the bank should advise foreclosure counsel of its debt figures in #3(e) above and instruct counsel to file an answer to the complaint and a cross claim against the borrower (and guarantor, if applicable).

 7. The bank or foreclosure counsel next should order a title commitment to be effective through the date of the filing of the complaint, and ensure all lien holders are named in the case.

 8. Foreclosure counsel will monitor the lawsuit and obtain judgment/foreclosure decree for the bank.

 9. After the entry of judgment but before the sheriff’s sale, the bank should revisit the equity analysis in #4.  The bank – the junior lender - must decide if it is prepared  to pay off the senior mortgagee’s judgment so that the bank can credit bid its own judgment at the sale. 

 10. The junior lender should communicate its decision regarding #9 to foreclosure counsel, with bidding instructions, if any. 

 11. As applicable, foreclosure counsel will attend the sheriff’s sale, tender a cash deposit sufficient to pay the senior mortgagee’s judgment in full and submit a credit/judgment bid on behalf of the bank, which will acquire title to the property if it’s the winning bidder.  If the bank is outbid, then it will receive cash in the amount of its credit bid (and a refund of the deposit). 

Perhaps the most important thing to bear in mind is that the process requires junior mortgagees to bring enough cash to the sheriff’s sale to pay off the credit (judgment) bid of the senior mortgagee.  A junior lender cannot submit its own credit bid or obtain title to the real estate unless it first outbids the senior lender with cash.  Hence the significance of the analysis in #4. 

Post-Sale Redemption Mystery Unsolved

Last week, the Indiana Supreme Court said much about Mortgage Electronic Registrations Systems, Inc. (“MERS”) in Citimortgage v. Barabas, 2012 Ind. LEXIS 802 (Ind. 2012).  The Court also said a lot about who should receive notice of a foreclosure proceeding.  I hope to discuss those matters next week. 

No comment.  Just as important was what Citimortgage didn’t say.  I’m referring to the issue of the enigmatic post-sheriff’s sale statutory right of redemption found at Ind. Code § 32-29-8-3 entitled “Good faith purchaser at judicial sale; right to redeem of assignee or transferee not made a party.”  For background, please click on my August 2 and November 1, 2011 posts regarding Citimortgage.  Subsequently, the Indiana General Assembly amended portions of Section 3, but as I wrote in March of this year the obscure one-year redemption language remained untouched by the legislature.  Here is the statute, and the key language is underlined: 

     Sec. 3. A person who:
        (1) 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; and
        (2) buys the mortgaged premises or any part of the mortgaged premises without actual notice of:
            (A) an assignment that is not of record; or
            (B) 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 or during another period ordered by the court in an action brought under section 4 of this chapter, but not exceeding ninety (90) days after the date of the court's decree in the action.

When the Supreme Court accepted transfer in Citimortgage, many thought the Court would interpret the redemption language in Section 3.  No such luck.  The Court  expressed “no opinion as to whether Citimortgage had the right to redeem the property under [Section 3].”   This is because the Court decided the case on other grounds.  The opinion provided no help with the confusion and uncertainty created by the analysis of the Court of Appeals in Citimortgage, which precedent has now been vacated.

Status.  It’s my understanding Indiana’s legislature may consider clearing up I.C. § 32-29-8-3 in the 2013 session.  For now, while Indiana law is well settled that a sheriff’s sale terminates the right of redemption for borrowers/mortgagors, the law remains unclear as to whether there exists some kind of post-sheriff’s sale right of redemption for mortgage assignees whose assignments were not recorded before the filing of the foreclosure complaint.  As I often say, foreclosing lenders should invest in a foreclosure (title) commitment, and purchasers at sheriff’s sales should buy title insurance. 

NOTE:  In the 2013 session, Indiana's General Assembly deleted much of Section 3(2)(B) so as to resolve the matter once and for all.  My post. 

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.