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 MCSO-SheriffSaleRealEstate@Indy.Gov 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 MCSO-SheriffSaleRealEstate@Indy.Gov 


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, Rachel.Winkler@indy.gov 317-327-2420 and Lori, Lori.Wyeth@indy.gov 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
rachel.winkler@indy.gov

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


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 john.waller@woodenlawyers.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


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 john.waller@woodenmclaughlin.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted 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: Laurie.Gipson@indy.gov<mailto:Laurie.Gipson@indy.gov>

Beth Ash
317-327-2459
Email: Elizabeth.Ash@indy.gov<mailto:Elizabeth.Ash@indy.gov>

Rachel Winkler
317-327-2420
Email: Rachel.Winkler@indy.gov<mailto:Rachel.Winkler@indy.gov>

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.

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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 john.waller@woodenmclaughlin.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


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 john.waller@woodenmclaughlin.com.  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:

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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 john.waller@woodenmclaughlin.com.  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 john.waller@woodenmclaughlin.com.  Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.  


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. 


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.

_______________

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.


Indiana Legislation, 2012: Part 3 Of 3 – Sheriff’s Sale Buyers And Omitted Junior Lien Holders Impacted By Creation Of Strict Foreclosure Statute

Senate Bill 298, which amends Ind. Code § 32-29-8, creates a new section: 4. The legislation responds to the Indiana Supreme Court’s opinion in Citizens State Bank of New Castle v. Countrywide Home Loans, Inc. and the Court of Appeals’ holding in Deutche Bank v. Mark Dill Plumbing. The amendments hit on technical subjects related to Indiana’s strict foreclosure remedy and doctrine of merger. The practical effect is a solution to problems associated with junior liens missed during the foreclosure process.

Citizens and Deutche revised. These are dense topics tough to cover in a single post. For background, please read my 10-07-11 and 07-20-09 posts on Citizens and Deutche, respectively. In Citizens, the Supreme Court applied the doctrine of merger and permitted the omitted junior lien holder to leap frog into a senior priority position. In Deutche, the Court of Appeals concluded there was no merger (leap frog) and discussed remedies for the post-sale title defect. With the new Section 4, it appears that the Citizens merger (and leap frog) would not have occurred. The result in Deutche also would have been different because courts now have a statutory road map for dealing with the aftermath of a foreclosure suit that improperly excluded a junior lien holder.

Section 4. The new statute appears to be effective immediately and can be found at this link: Section 4. Here are the highlights as I read them:

A. Applicable parties: Section 4 applies to two groups, defined as “interested persons” and “omitted parties.” An “interested person,” which I’ll label a “Buyer,” basically includes (1) plaintiff mortgagees, (2) purchasers at a sheriff’s sale or (3) assignees of (1) or (2). An “omitted party,” which I’ll call a “Junior Lienor,” essentially is a junior lien holder improperly omitted from foreclosure proceedings .

B. New cause of action: “At any time” after the entry of a foreclosure judgment, either the Buyer or the Junior Lienor can file an action, the purposes of which are (1) to determine the extent of a Junior Lienor’s lien and (2) to terminate such lien on the mortgaged property sold at a sheriff’s sale. Generally, the action – a lawsuit – is a statutory strict foreclosure case, though the statute does not use that terminology.

C. Junior Lienor’s right to payment: If a Junior Lienor had a right to receive any proceeds from the sheriff’s sale, its lien cannot be terminated until the Junior Lienor is paid for such losses. (The statute does not spell out who must pay. For now, I’ll simply note that sheriff’s sale surpluses are incredibly rare due to the absence of equity in most foreclosed-upon real estate.)

D. Junior Lienor’s right to purchase: There are three key factors a court must consider when determining a Junior Lienor’s right of redemption in the strict foreclosure action. (The “redemption” language used in Section 4 refers to a Junior Lienor’s right to pay off the Buyer and thus acquire title to the property.) Here are the factors: (1) whether the Junior Lienor had actual knowledge of the foreclosure proceedings and an opportunity to intervene, (2) the value of any post-sale improvements made by the Buyer to the property and (3) the amount of the post-sale taxes and interest paid by the Buyer. Factor (1) seems to provide a basis for the right of redemption to be terminated outright, and factors (2) and (3) help make the Buyer whole for any ownership-related carrying costs incurred.

E. Junior lien terminated: If the court concludes the Junior Lienor was entitled to redeem, then the amount the Junior Lienor must pay for redemption cannot be less than the sheriff’s sale price plus statutory interest (8%). (The court also must consider the factors in (D) when determining the amount the Junior Lienor must pay.) The Junior Lienor has ninety days to submit the payoff. If the Junior Lienor does not submit such payment, then the Junior Lienor’s rights will be terminated without compensation, just as they would have been in the foreclosure process.

F. Anti-merger statute: Section 4 specifically provides that there is no merger of the senior lien and title to the property until a Junior Lienor’s interest is terminated. This new legislation appears to resolve many uncertainties surrounding Indiana’s common law doctrine of merger. Thus the Buyer, which presumes that it’s acquiring title free and clear, has protections it did not previously have.

G. Other Buyer safeguards: Section 4 also states that the Buyer’s senior interest in the property cannot be denied even if the Buyer had (1) had actual or constructive notice of the Junior Lienor’s interest, (2) been negligent in examining county title records, (3) been engaged in the business of lending or (4) obtained a title insurance policy commitment. This language constitutes a preemptive strike against any defenses to the strict foreclosure action, and without these carve outs Section 4 would be meaningless.

I’m planning a follow-up post to identify some holes in SB 298. For today, it’s important for secured lenders and other lien holders to know that Indiana now has a statutory method to clear up title when a buyer learns that a junior lien survived a sheriff’s sale. While Section 4 is not perfect, I agree with my partner Tom Dinwiddie that this was a necessary and fair bill that protects both buyers and junior lien holders.


Indiana Legislation, 2012: Part 2 Of 3 – Obscure Redemption Language Remains

The second noteworthy issue arising out of the General Assembly’s 2012 session surrounds Senate Bill 298, which amends Indiana Code § 32-29-8 “Parties to Foreclosure Suit; Redemption,” including Section 3. This post revisits CitiMortgage v. Barabas, including the mystery that is I.C. § 32-29-8-3, about which I wrote last year: Post 1, Post 2 and Post 3. Unfortunately, even though the legislature amended Section 3, the 2012 session didn’t directly tackle Section 3’s obscure redemption provision. Questions arising out of CitiMorgage linger.

New Section 3. Here is Section 3 of I.C. § 32-29-8, as amended by the italicized language, effective July 1, 2012:

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.

Redemption/strict foreclosure tweak. The underlined portion above is the source of some uncertainty and was not modified by the General Assembly this year. The critical purpose of the amendment to I.C. § 32-29-8 surrounds section 4 and what amounts to a brand new statutory strict foreclosure action. I.C. § 32-29-7-13 has been amended to state “there may not be a redemption from the foreclosure of a mortgage executed after June 30, 1931, on real estate except as provided in this chapter and in IC 32-29-8.” The new “and in IC 32-29-8” language refers to Section 4, which is momentous legislation related to Indiana mortgage foreclosure law that I will discuss in my next post.

Status. One interpretation of Section 3 and CitiMortgage, which dealt with a rare set of facts, is that a buyer at a sheriff’s sale could acquire the property, only to learn within a year after the sale that a senior mortgagee, by virtue of a previously-unrecorded assignment, could surface and assert an interest in the property. I do not believe that the 2012 statutory amendments directly impact, or help clarify, the CitiMortgage holding. Even with the new Section 4, I.C. § 32-29-8, Section 3, needs a little more attention from the General Assembly. I’m afraid Section 3 unwittingly opens the door to litigation concerning post-sale rights of redemption in Indiana.  (Note:  On 4-10-12, the Supreme Court granted transfer in CitiMortgage.)

Borrowers unaffected. The General Assembly’s amendments do not (should not) affect a mortgagor’s (owner’s) right of redemption. Such parties still need to redeem before the sheriff’s sale. If not, Indiana law provides that a mortgagor’s right to or interest in the subject real estate will be fully and finally terminated – even though, interestingly, there is no specific statute stating as much. The rule is inferred from the totality of I.C. § 32-29-7 and confirmed by case law.


Indiana Notices Of Sheriff’s Sale Must Identify All Property Being Offered

What must be included in a statutory notice of sheriff’s sale? If you, as a secured lender, intend to sell both the real estate and any business personal property on the premises, the notice must identify both the business personal property and the real estate. Property excluded from any notice is in jeopardy of being excluded from the sheriff’s sale. The recent Indiana Court of Appeals opinion in Surrisi v. Bremner explains why.

The judgment. Surrisi involved a $100,000 loan secured by, among other things, (1) real estate upon which the borrower operated a restaurant and (2) business personal property on site. The borrower defaulted on the loan, and the parties entered into an agreed judgment that granted the lender a money judgment, together with the right to sell the real estate and the business personal property to satisfy the debt.

The problem. After the entry of judgment, the lender filed a praecipe for sheriff’s sale – a simple filing – but the praecipe identified only the real estate. More importantly, the notice of sheriff’s sale – another fairly straightforward form – failed to mention the personal property. (These omissions are somewhat understandable, given that the vast majority of praecipes and sale notices involve only real estate. Sheriff’s sales in mortgage foreclosure cases typically deal only with real estate and fixtures. Indeed, overall, the statutory framework is geared to real estate, and specifics regarding personal property are hard to come by.) The Court of Appeals ultimately concluded that the omissions in Surrisi were fatal to the personal property aspect of the sheriff’s sale. (My June 13, 2011 post discussed a notice case, but the result was different.)

The sale and following events. The sheriff’s sale occurred, and the lender was the winning bidder. The bill of sale issued by the sheriff identified both the real estate and the business personal property. The lender, thinking that it had acquired title to everything, subsequently sold the restaurant and the business personal property to a third party. At some point – the timing is not entirely clear from the opinion – the borrower filed a motion to set aside the sheriff’s sale as it related to the business personal property. The borrower contended that the business personal property was not sold.

The legal question. The issue was whether the sheriff’s bill of sale was faulty so as to negate the personal property side of the sale. The outcome focused on the fact that the praecipe, notice and sales disclosure form identified only the real property.

The statute. Notices of sheriff’s sales are creatures of statute in Indiana. Ind. Code § 32-29-7-3(g) states that notices “must contain a statement, for informational purposes only, of the location of each property by street address, if any, or other common description of the property other than legal description.” The statute also expresses this qualification: “A misstatement in the informational statement under this subsection does not invalidate an otherwise valid sale.” In practice, plaintiff lenders prepare the notices and provide them to the sheriff’s offices for use in connection with the sheriff’s statutory publication obligations.

The interpretation of the statute. In Surrisi, the lender seized upon the statute’s qualifying language and argued that the failure to mention the business personal property in the notice of sale was a misstatement that should not otherwise invalidate the sale. The Court rejected the argument. The Surrisi notice did not involve a “misstatement” in the information about the property “but rather what property was offered for sale.” The Court apparently could not get over the notice flaw, which was compounded by the fact that the praecipe for sale requested only the real property to be sold by the sheriff. There also was evidence that the sales disclosure form completed by the lender specifically indicated that personal property was not included in the transfer. The Court further noted that the agreed judgment did not require the real and personal property to be sold at the same sale.

The outcome. Perhaps the most interesting piece of the Surrisi opinion was its final sentence: “On remand, the trial court should determine the amount of compensation due to the [borrowers] for the loss of their business personal property.” The result suggests that the lender made a full judgment/credit bid at the sale. As previously explained here, such a bid equates to the complete satisfaction of the debt – no deficiency. If there was a deficiency, then the Court would not have remanded the case to determine compensation for the borrower. Instead, the remand would have been to determine whether, or to what extent, the deficiency judgment should be extinguished. Remember the lender got a judgment against the borrower. The irony is that the Court of Appeals has paved the way for the borrower to recover money from the lender for the value of the business personal property. Although the value was not mentioned in the opinion, what a turning of the tables!

The lesson. If personal property is to be a part of any sheriff’s sale, then the notice of the sale should contain a “common description” of such property. While less important, to be consistent, the personal property should also be identified in the praecipe for sheriff’s sale and the sales disclosure form. These seemingly innocuous oversights in Surrisi proved to be quite problematic for the lender, particularly considering that, unlike real estate, to my knowledge the lender couldn’t get any kind of title insurance to cover the personal property piece of the transaction.


Marion County (Indianapolis) Sheriff's Sales Now Being Recorded

Quickly, I attended the monthly Marion County Sheriff's sale yesterday for a client, and the staff (Pam) announced that the sheriff's office is now recording the oral auction phase of the sale.  Microphones have been placed in the room.  It's my understanding that the purpose of the recordings is to verify the bids if a dispute later arises over a bid amount or the identify of a bidder.  The recordings will not be made available to the public, however.   


Indiana’s Requirement For Pre-Sale Payment Of Delinquent Property Taxes

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.


Indiana Real Estate Taxes And Sheriff's Sales

Today, in the wake of new statutory language for 2011 -- Ind. Code 32-29-7-8.5 -- I revised  and re-posted three prior articles related to Indiana sheriff's sales and the role of delinquent real estate taxes in such sales.  I'll try to bring things together in a separate post next week and comment upon this week's experience with Marion County's brand-spanking-new Tax Clearance Form.  More to come.... 


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

This follows-up my August 14, 2009 post - New Marion County (Indianapolis) Sheriff's Sale Requirements- and fulfills my promise, while presenting at last last year's foreclosure CLE/seminar, to provide a sale checklist.  The following 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 last week's 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

13.  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).
14.  Submit to sheriff:
    (a) Bid form with sheriff’s fees/costs check;
    (b) Deed with recorder’s fee check;
    (c) Clerk return;
    (d) Sales disclosure form with auditor’s fee check; and
    (e) Tax Clearance Form.

Sale Day

15.  Attend auction at City/County Building. 

After Sale

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

(This revises/updates my 3-7-10 post.)

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


Statutory Disposition of Foreclosure Sale Proceeds

When foreclosing on a borrower’s loan collateral, it’s no secret that banks and commercial lending institutions ultimately are seeking money.  Normally, they hope to dispose of the collateral and, ideally, become whole from the proceeds of the sale.  A senior lien holder will obtain most, but not all, of any such proceeds.  In Indiana, statutes govern specifically who gets the cash.

Mortgages.  Ind. Code § 32-30-10 outlines the procedures for mortgage foreclosure actions.  The distribution of proceeds from a judicial sale are statutorily mandated.  First Federal Savings Bank v. Hartley, 799 N.E.2d 36, 40 (Ind. Ct. App. 2003).  According to I.C. § 32-30-10-14, which should be used as a template when preparing the section of any proposed foreclosure decree/order dealing with the disposition of sheriff’s sale proceeds, the money must be applied as follows:

1.  Sale expenses.  The first payout is to the civil sheriff for its fees and notice/advertising costs.  A sheriff’s sale in Indiana costs a few hundred dollars.  Under certain circumstances, Indiana law allows a mortgage foreclosure sale to be conducted by a private auctioneer, and the fees of the auctioneer would be a part of this payout.

2.  Senior mortgage debt.  The payment of the outstanding principal, interest and costs to the senior lien holder comes second.  This almost always will be the full, accelerated debt as articulated in the judgment.  (2010 statutory revisions did away with post-sale payment of taxes.  If the senior mortgagee prepaid any delinquent real estate taxes, its counsel should attempt to build those losses into the judgment.) 

3.  Junior liens.  Any payments of amounts owed to any junior lien holders are next, in accordance with their legal priority and as articulated in the court's decree.

4.  Surplus to mortgagor.  Lastly, if any sale proceeds remain, that "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." 

Security Interests.  The disposition of collateral under Indiana’s UCC, Article 9.1 (Secured Transactions), is slightly different and will depend upon the nature of the collateral.  Article 9.1 should be reviewed in detail for each specific case and the particular collateral in question, because there are many different rules that could apply.  With certain collateral (accounts receivable, for instance), disposition by sale normally will not occur.  On the other hand, sales of tangible personal property collateral, like inventory or equipment, are common.  I.C. § 26-1-9.1-610 speaks to disposing of collateral after default.  Unlike with mortgages, in Indiana a judicial sale of personal property collateral is not required.  Lenders may choose to conduct the sale privately, although it may make sense to group the personal property with any real estate that is being sold at a sheriff’s sale.  I.C. § 26-1-9.1-615 governs how to apply the proceeds: 

1.  Sale Expenses.  First, proceeds are applied to the reasonable expenses of retaking, holding, preparing for disposition and reasonable attorney’s fees and expenses incurred by the secured party.  This would include payment of the sheriff’s fees if the civil sheriff is conducting the sale, or to private auctioneers upon a private sale.

2.  The Debt.  Second, payment goes to the satisfaction of the obligation secured by the security interest.

3.  Junior Liens.  The third payment, if any, would be for the satisfaction of the obligation secured by any subordinate security interest.

4.  Debtor.  Finally, any remaining proceeds go to the debtor.

So, if and to the extent there are cash proceeds from an Indiana foreclosure sale of loan collateral, the debt of the plaintiff lender will not be satisfied until after the sale-related expenses are reimbursed.  Also, lenders should not receive a windfall from a sale because the borrower generally receives any surplus, but that normally is a very remote possibility.    

(This revises/updates my 1-9-07 post.)


(Tax) Lessons Learned From A Marion County (Indianapolis) Sheriff's Sale

In February of 2010, I wrote about Indiana Sheriff's Sales - Local Rules, Customs and Practices Control.  For secured lenders and their counsel preparing for a mortgage foreclosure sale in Marion County (Indianapolis), Indiana, I thought I'd expand upon that post and convey a handful of things about which I was reminded during recent experiences.  I'm directing this post mainly to plaintiffs/first mortgagees, who hold a judgment/foreclosure decree and who are "first in line" to make a judgment bid (credit bid) at the sale.  Because this post discusses cash that bidders must bring to the sale, however, the information will also be relevant to junior lien holders seeking to bid.   

Pre-sale sheriff's notice.  About fifteen days before a sheriff's sale, the Civil Sheriff's Office will send to the lawyer for the plaintiff/first mortgagee a sheet outlining certain information about the sale.  Click here for an example notice.  The notice includes such data as the sale number, the court cause number, the names of the plaintiff and the plaintiff's attorney, the parcel number and, perhaps most importantly, the current judgment amount, including interest, upon which the plaintiff is entitled to make a credit bid.  Finally, the notice lists the sale fees/costs and, as in my case, any delinquent property taxes.

Deposit.  Pursuant to Marion County's custom and practice, in order to perfect a bid, the plaintiff/bidder must deposit with the sheriff a check for the user fee, sheriff fee and advertising cost, which in my client's case was $608.40. The sale fees/costs must be paid to the "Marion County Sheriff."   (Remember that junior lien holders or third parties also must have on deposit with the sheriff’s personnel a certified check or cashiers check equal to or in excess of the amount of any bid submitted.)  

Taxes.  Beginning in 2011, Ind. Code 32-29-7-8.5 mandates that any delinquent real estate taxes, which by the way include delinquent sewer lien fees, be paid by the plaintiff/senior mortgagee before the sale.  In the past, checks for taxes were tendered with the sale bid, or in some counties taxes could be paid by the successful bidder after the sale.  Now (2011), Indiana statute requires the taxes to be current by the date of the sale, or the sale will be cancelled.  Proof of payment can come from a receipt from the County Treasurer's office.  However, in Marion County (Indianapolis), local procedure dictates that a Tax Clearance Form, stamped by the Treasurer's office, be provided to the sheriff with the presale bid package.      

Source of delinquent tax figure.  Without boring you with the details, I've learned the hard way that delinquent tax figures provided by the sheriff's office on its presale notice often are slightly inaccurate.  I would recommend that lenders or their lawyers go directly to the county treasurer's office in order to confirm (in writing, if possible) the amount of any delinquent taxes or fees. 

(This updates/revises my 12-15-08 post.)


2011 Indiana County Sheriff's List

Thanks to Cindy Edmiston of SRI, Incorporated for circulating the attached list of Indiana sheriffs for 2011.  Sheriff's sale documents, such as the notice, clerk return and deed, should identify the county sheriff.  Evidently, there will be forty-six new sheriffs in 2011.  Mortgagees and their foreclosure counsel should update certain forms accordingly. 


What's A "Praecipe"?

It's helpful for representatives of commercial lending institutions to know some "legalese" when dealing with their foreclosure counsel and the various governmental entities involved with the Indiana foreclosure process.  Today's vocabulary lesson surrounds what it means to "praecipe`" (pronounced "press-ah-pee") for a sheriff's sale of real estate loan collateral.

Trigger.  Once the secured lender and its counsel have received a judgment and foreclosure decree, and after observing the three-month waiting period (if applicable), it's time to sell the real estate for purposes of satisfying all or part of the judgment.  In Indiana, to trigger the sheriff's sale process, Ind. Code 32-29-7-3(b)requires the lender/mortgagee/plaintiff/judgment creditor to file a praecipe for sheriff's sale with the clerk of the court.  Upon the filing of a praecipe, the clerk "shall promptly issue and certify to the sheriff of that county a copy of the judgment and decree under the seal of the court."

Definition.  A praecipe is a fancy (actually, a Latin) word for a written request.  Black's Law Dictionary defines the term, in pertinent part, as follows:  "includes an order to the clerk of court to issue an execution on a judgment already rendered....  Also an order, written out and signed, addressed to the clerk of a court, and requesting him to issue a particular writ." 

Details vary.  The logistics of the praecipe for sheriff's sale may vary by county and will depend upon how a particular court, clerk or sheriff's office conducts its business.  For example, a separate writ of execution may need to be filed.  Or, the praecipe itself may need to attach copies of the judgment and/or involve the tender of sale fees in advance.  As written here before, I strongly advise contacting your civil sheriff's office to confirm the who, what, when, where, why and how of putting the sheriff's sale's wheels into motion.  

As an aside, I'd like to mention that the frequency of my posts has dipped this month due to some pre-planned time away from the office, as well as preparation for and participation in a five-day jury trial that concluded this past Monday.  I plan on getting back on track with weekly posts in September.  As always, thanks for reading, commenting and emailing....    


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

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

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

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

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

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

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

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

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

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

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


Sheriff's Deeds In Marion County (Indianapolis): One-Page Rule

On March 7, 2010, I provided a Sheriff's Sale Checklist - Marion County Illustration.  As noted, one of a foreclosing lender's tasks is to tender a sheriff's deed (click for local form) to the sheriff's office to perfect the sale bid.  Last August, the Marion County Sheriff's Office revised some of its sale rules and requirements.  Here is a link to the office's site on that issue:  Real Estate Rules for Attorneys.

Rules.  With respect to the sheriff's deed form, the Marion County Sheriff's website says:  

Notices, deeds clerk returns and bid forms must be on 8 ½” by 11” paper.  All forms must have the Sheriff’s file number in the upper right corner.  Documents without the file number in the upper right corner will NOT be processed.  All forms MUST be completely filled out with accurate information.  Deeds must be one (1) page.  If second page is needed, the legal description may be an attachment, BUT the street address and parcel number must be spelled out in the area where deed indicates legal description is attached.  Deeds without the signature/notary page on front will NOT BE SIGNED!

As noted, deeds should be one page.

Rejection.  In the past, absent a very short legal description of the property, our firm routinely tendered sheriff's deeds with the legal description attached as an exhibit.  At a sale last month, for the first time the sheriff's office rejected our deed and required us to provide another deed with the legal description contained on its face.  The one-page rule was enforced.  (Lesson learned.) 

Rationale.  In speaking with the sheriff's office, I was told that the primary reason for the one-page requirement is to ensure that legal descriptions don't get misplaced or lost.  The goal is to protect the integrity of the deed.  Since Marion County processes 400-600 deeds for each month's sale, the one-page guideline is understandable.

Exception?  In order to squeeze our legal on last month's deed, my secretary had to work some magic with fonts, margins, etc.  She got it done, and the sheriff evidently has accepted our revised deed.  But what if the legal simply is too long to insert into a one-page deed?  I'm informed by the sheriff's office that the incorporation of an exhibit will be acceptable in those instances.  The rules above support this, but note that the street address and parcel number must still be typed on the face of the deed. 

Plan and discuss.  In the end, common sense should and likely will prevail, but clearly the "default" (preferred) approach by the Marion County Sheriff is to limit the deed to one page, without any attached exhibits.  Because local rules, customs and practices prevail in each county, I recommend that you or your lawyer contact the county sheriff's offices in advance of your sales to ensure you are complying with sale details, such as the form of deed.  In the meantime, please email me or post a comment with regard to your experiences with attaching legal descriptions to sheriff's deeds in counties other than Marion, thanks.    


The Pesky Sales Disclosure Form - Marion County (Indianapolis) Update

I posted a sheriff's sale checklist on March 7, 2010, and I've written about the sales disclosure form (SDF) component to the sheriff's sale process previously.  The involvement and handling of SDF's in connection with the sheriff's sale of your real estate loan collateral continues to evolve.  Please remain mindful that local rules, customs and practices control.  To fully prepare for the sale, contact your county civil sheriff's office in advance.  

The Marion County Civil Sheriff's Office now requires that, before they will accept the SDF, it must first be submitted and completed on line.  Here is a link to the site for submission:  SDF Link.  I'm also providing a .pdf of a cheat sheet, with contact information, regarding this process:  SDF .pdf.  The plaintiff/mortgagee/bidder at the sheriff's sale must complete the SDF on line and then submit the printed form (with the auditor's fee check) to the sheriff's office at the time one submits the sale bid.  (This has something to do with the fact that the on line form, once printed, contains data in the upper right corner that shows the appropriate on line submission.)  Please note that the form itself will not be fully completed since the sheriff will need to execute it post-sale.  

Please email or post a comment if you or your foreclosure counsel have had a different experience.  I have not yet seen this on line requirement in other counties, but perhaps this is changing across the state.  As I've posted before, in other counties, including Marion County, a hard copy of the blank form could be completed and submitted to the sheriff.

Enough about SDF's -- I'm now going on a family vacation and will post something again during the week of June 14th, if not before....   


Indiana Sheriff's Sales: Local Rules, Customs and Practices Control

This replaces my April 14, 2008 post and includes the most current links to various Indiana county sheriff's offices.  In Indiana, mortgage foreclosures must be 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. 

County-specific.  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.

State link.  Many Indiana counties provide at least some guidance through the internet.  The Indiana Courts home page, for which I have a permanent link on the left side on my blog's home page, has an "information by county" menu on the left that allows you to surf through county websites to determine whether the local sheriff's office has any on-line sale information.

Marion County.  I'm located in Indianapolis, Marion County, Indiana, and our civil sheriff has a helpful site - click here - that I've permanently linked to on my home page. 

Contiguous counties.  Here are links to sheriff's sites in the seven counties contiguous to Marion County:

Other counties and third party servicers.  The following are links to sheriff's sites in some of the larger counties in Indiana:

As you'll see, some of the counties provide more information and forms than others.  In addition, many Indiana counties (about 17, including Boone and Vigo), outsource all or a portion of the sheriff's sale process through SRI, Inc.  Another contractor, Lieberman Technologies, serves six Indiana counties, including Shelby and Vanderburgh.

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 representatives who will be handling your sale.


Always Consider An Environmental Liability Analysis

Before a secured lender decides to move forward with the filing of a lawsuit to foreclose its mortgage, a variety of matters should be considered.  Generally, for example, the loan collateral should be analyzed.  If the loan collateral is real estate, the analysis should include, among other things, a determination of value.  More than likely, in Indiana the foreclosure suit will result in the lender/mortgagee taking title to the real estate at the post-judgment sheriff's sale.  In other words, the lender will become the owner.  This begs the question of whether the benefits of owning the property outweigh the costs.  

Environmental liability.  Since the Indiana commercial foreclosure process could transform the secured lender into the property owner, before the case is even filed some thought should be devoted to ordering an environmental liability analysis (aka a "Phase I").  An environmental assessment company can examine the property and the public environmental records relating to the property.  While environmental issues and liabilities go beyond the scope of this blog, secured lenders and their counsel should be aware that there are federal and statue statutes pertaining to such liability, including CERCLA, 42 U.S.C. 9601, et. seq.  

Subsequent owners.  Generally, the law imposes liabilities on owners or operators of properties for the cost of remedial action when there is an actual or threatened release of hazardous substances.  The key is that environmental liability exposure extends to subsequent owners of the real estate, so lenders need to be cognizant of any such liability exposure and to factor such exposure into the lender's workout decisions.  The potential costs associated with any environmental issues should be measured against the ultimate benefits of repossessing the property at the sheriff's sale (or by deed-in-lieu).  Depending upon the nature and scope of the environmental contamination, foreclosure may not be warranted.  

Not required.  Although we recommend that lenders consider a Phase I, environmental work is not a requirement to foreclose, and common sense should prevail.  Phase I's are not cheap.  Certainly not all properties or locations pose a significant risk for environmental problems.  Moreover, depending upon the age of the loan, a recent environmental assessment conducted in connection with the funding of the loan may provide sufficient comfort going forward.  

Assignment.  One way to mitigate against liability exposure is for the lender to take title at the sheriff's sale through an entity that is different than the plaintiff/judgment creditor (the lender/mortgagee).  This can be accomplished by a pre-sale assignment of the judgment and the loan documents.  There are other business reasons why lenders may seek to hold title to real estate in the name of a separate entity, and some of our clients have set up such entities to own and control their "REO" (real estate owned) properties. 

If you have questions about the nuances of environmental matters, as they relate to the acquisition of real estate, I can put you in touch with one of my real estate transactional partners.  For more in-depth environmental questions, my partner Dale Eikenberry is experienced in this area and can assist.  If you'd like to contact an environmental firm directly, August Mack Environmental is a nice regional environmental group, and Cassie Anderson can help you.  Her email is candersson@augustmack.com, and August Mack has a blog at http://blog.augustmack.com/blog/re-start-for-forecloseddistressed-properties.                  


New Marion County (Indianapolis) Sheriff's Sale Requirements

This post will supplement the following, prior posts related to Indiana sheriff's sales, including specifically sales in Indianapolis, Marion County:  "(Tax) Lessons Learned from Marion County, Indiana Sheriff's Sale" and "Recording Deeds in Indiana: Don't Forget the Sales Disclosure Form" (Part I and Part II.) 

Effective August 1, 2009, the Marion County Sheriff's Department has revised some of its sale requirements, which you can review by clicking here.  After speaking to the department's staff yesterday, in connection with a sale next week, the following appear to be the most significant changes:

  1. County Fees:  The winning bidder must tender checks payable to the county auditor and recorder for the fees associated with filing the sheriff's deed and the sales disclosure form.  It appears that, going forward, the sheriff's office will take the lead with processing these documents through the various county offices.  Before August 1st, lender's counsel would receive the deed and the sales disclosure form from the sheriff, after the sale, and then process those documents themselves.
  2. Taxes:  If the plaintiff/judgment holder (usually the senior mortgagee/lender) wants to bid, it must pay, in advance, any delinquent real estate taxes and submit written verification of such payment to the sheriff prior to bidding.  Before August 1st, bidders were only required to tender a check to the sheriff, which check would only be submitted to the treasurer if the bidder acquired the property.
  3. Assignments:  If the bidder received an assignment of the judgment, then a file-marked copy of the assignment of judgment (a/k/a notice of assignment of judgment) must be tendered to the sheriff before the assignee can bid.  (We attach the notice as an exhibit to the written bid form that we submit to the sheriff's staff the day before the sale.)  Before August 1st, the sheriff did not routinely or expressly require this documentation.

If you have any questions about items 1-3, I recommend that you call the sheriff's department at either 317-327-2450 or 317-327-2459.  Pam and Tammy can be reached at those numbers, and they have always been very helpful, patient and cooperative.  For more about Marion County sheriff's sales, you can click on its website here.  The sale rules identified on that website can be accessed by clicking here


Recording Deeds In Indiana: Don't Forget The Sales Disclosure Form (Revised)

I have revised my January 23, 2009 post on sales disclosure forms to include these additional thoughts regarding signatures on the forms following sheriff's sales:

Signatures.  Based upon our experience, in the event of a sheriff's sale, the attorney for the "buyer" - usually the lender/mortgagee's attorney - has been able to execute the form for both the both buyer and seller (the sheriff).  This has avoided involving the sheriff's office in the past.  The better practice, however, is to submit the form for the sheriff's signature at the same time the sheriff's deed is tendered for execution.  That way, the sheriff's office can sign both documents at once.  We recently discovered that the Marion County Sheriff's Office provided this form signature page (.pdf) to the assessor's office for purposes of completing sales disclosure forms after sheriff's sales.  The assessor's office has instructed our office to attach this signature to future SDF's filed in Marion County.  

Upon further reflection and investigation, I believe this new information provides more clarity to the issue.  Thanks to my paralegal Mary Schroeder for her help with this subject.  Please email, post a comment or call with any questions or concerns, or different experiences, thanks.


Recording Deeds In Indiana: Don't Forget The Sales Disclosure Form (Revised)

I have revised this post effective 3-23-09:  see the bold text below.

The successful bidder at an Indiana sheriff's sale, following the foreclosure of a mortgage, will obtain a sheriff's deed to the real estate.  Or, mortgagees may obtain a deed-in-lieu of foreclosure.  As the new owner of the property, you, your counsel or your title insurance company must ensure that the deed is recorded in the county recorder's office to perfect title to the real estate.   

Disclosure Form.  Many parties either do not know or sometimes forget that, as a part of the recording process, Indiana law requires a sales disclosure form to be tendered with the deed.  The form can be accessed by clicking on this state website:  http://www.stats.indiana.edu/SDF/

On-line process.  In Marion County (Indianapolis), as noted by this press release, as of 11-1-08 all sales disclosure forms must be submitted on-line through the Indiana Department of Finance via the link above.  After submitting the form on-line, it must be printed, signed by the buyer and seller, and presented to the auditor as noted below.  It's my understanding that, over time, other counties will be utilizing this on-line procedure.

Signatures.  Based upon our experience, in the event of a sheriff's sale, the attorney for the "buyer" - usually the lender/mortgagee's attorney - has been able to execute the form for both the both buyer and seller (the sheriff).  This has avoided involving the sheriff's office in the past.  The better practice, however, is to submit the form for the sheriff's signature at the same time the sheriff's deed is tendered for execution.  That way, the sheriff's office can sign both documents at once.  We recently discovered that the Marion County Sheriff's Office provided this form signature page to the assessor's office for purposes of completing sales disclosure forms after sheriff's sales.  The assessor's office has instructed our office to attach this signature to future SDF's filed in Marion County.  

In cases of agreements for deeds-in-lieu of foreclosure, lenders and their counsel should have the mortgagor sign the sales disclosure form at the time the deed and related settlement documents are signed.   

Other steps.  Although the process can vary from county to county, generally a deed and a sales disclosure form make their way through three county offices:  first the assessor, second the auditor and third the recorder.  If the documents are hand delivered, one can go to each office in succession to complete the transaction.  The process can, however, be accomplished through the mail, and it's our experience that the package should be mailed directly to the recorder's office for handling.  A fee will need to be paid to the county recorder to record the deed.  We recommend that you contact the auditor in advance to determine whether there will be a fee for the filing of the sales disclosure form and, if so, a separate check, payable to the auditor, must be submitted.  Fees for sales disclosures vary depending upon the transaction and by county.  

As always, please call or email me with any questions or comments.