Source: https://commercialforeclosureblog.typepad.com/indiana_commercial_forecl/tax-sales/
Timestamp: 2019-12-10 22:44:34
Document Index: 782461756

Matched Legal Cases: ['§ 6', '§ 6', '§ 6', '§ 6', '§ 6', '§ 6', '§ 6']

Tax Sales - Indiana Commercial Foreclosure Law
IBJ.com: Marion County reschedules canceled tax sale for early 2020
The Indianapolis Business Journal is reporting that Marion County (Indianapolis) has canceled its fall real estate tax sales (with a combined value of at least $6MM) due to a clerical error. The 2019 sales will occur 2/14/20. Here is the story. Click here for a post of mine from earlier this year talking about Indiana tax sales and notice-related issues. The "clerical error" leading to the postponement of the sales appears to be related to perfecting the statutory notice required for the sales to be valid. Better to have a do over now instead of dealing with potentially hundreds of tainted sales later.
Posted by John Waller on October 11, 2019 at 08:46 AM in News, Tax Sales | Permalink | Comments (0)
Mortgagor/Owner Compelled To Turnover Tax Sale Surplus Funds To Mortgagee/Judgment Creditor
Lesson. Indiana law may obligate an owner/mortgagor to turnover real estate tax sale surplus funds to his judgment lien creditor or mortgagee.
Case cite. 2444 Acquisitions v. Fish, 84 N.E.3d 1211 (Ind. Ct. App. 2017).
Legal issue. Whether a lender/mortgagee could compel his borrower/mortgagor to turnover previously-refunded surplus funds arising out of a county’s tax sale of the mortgaged real estate.
Vital facts. This case involved a private loan from Plaintiff to Defendant that was secured by a mortgage on Defendant’s real estate. Following a loan default, Plaintiff obtained a judgment and foreclosure decree against Defendant in state court. Before the sheriff’s sale, Defendant filed a Chapter 11 bankruptcy case. In connection with that proceeding, the bankruptcy court ordered the County to turnover surplus funds, from a prior real estate tax sale, to counsel for Defendant to be held in trust. The bankruptcy case later was dismissed, and Defendant’s counsel transferred the tax sale surplus to his client.
Procedural history. Plaintiff filed a motion in the state court case for the Defendant to turnover the tax sale surplus funds. The trial court granted Plaintiff’s motion, and Defendant appealed.
Key rules. Ind. Code 6-1.1-24-7(c) authorizes who can make a claim for a refund in the event of a tax sale surplus. Although that statute does not expressly authorize a mortgagee or judgment creditor to obtain a surplus, Indiana courts have held that persons “with an interest in the real estate, including those who did not own the real estate at the time of the tax sale or who did not purchase the real estate at the tax sale, may assert a claim for a tax sale surplus directly with the trial court.” Indiana case law provides that a mortgagee qualifies as a person with a substantial property interest of public record.
Holding. The Indiana Court of Appeals affirmed the trial court’s order granting Plaintiff’s motion for turnover.
Policy/rationale. One of Defendant’s challenges was that Plaintiff could not file a motion against Defendant to recover the surplus but that Plaintiff instead was limited to proceedings supplemental for any relief. The nuance here is that prior Indiana case law (see post below) dealt with a mortgagee’s pursuit of funds still held by the County, not funds already refunded to the owner. The Court rejected the Defendant’s contention because the statute does not specify the procedural conduit to file the claim, which essentially is one for an equitable declaratory judgment. The Court reasoned that, because Plaintiff held a lien against the real estate subject to the tax sale, Plaintiff’s interest in the real estate had priority over the interest of the property’s owner, Defendant. The Court concluded that, since Plaintiff “has a more substantial interest in the tax sale surplus funds than [Defendant], we find that equity requires the disbursement of the funds to [Plaintiff].” The Defendant asserted other technical bases for a reversal, all of which the Court rejected.
Related post. Mortgagee Prevails In Claim For Indiana Tax Sale Surplus
I represent lenders, as well as their mortgage loan servicers, entangled in tax sale disputes and contested foreclosures. 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.
Posted by John Waller on September 10, 2018 at 11:29 AM in Tax Sales | Permalink | Comments (0)
Even Though Loan Was Non-Recourse, Court Awards Lender Real Estate Tax Refund Due To Borrower
Lesson. Depending of course upon the language in a particular mortgage, lenders generally hold a security interest in real estate tax refunds owed to borrowers – even in cases of non-recourse loans.
Case cite. 2513-2515 South Holt Road Holdings v. Holt Road, 40 N.E.3d 859 (Ind. Ct. App. 2015).
Legal issue. Whether, in the context of a non-recourse loan, the foreclosing lender could recover a $307,193.76 refund paid to the borrower following a successful appeal of a real estate tax assessment.
Vital facts. Holt Road was a commercial foreclosure case concerning a non-recourse loan. Black’s defines such a loan as a “type of security loan which bars the lender from action against the borrower if the security value falls below the amount required to repay the loan.” In the commercial real estate context, this means that the lender’s recovery of the debt is limited to the mortgaged property. If there is a deficiency, the borrower, personally, is not on the hook. What made Holt Road unique was that, during the foreclosure case, the borrower received a sizable refund of real estate taxes (aka property taxes) from the county as a result of a tax appeal. Since the sheriff’s sale of the mortgaged real estate resulted in a deficiency, the lender sought recovery of the refund paid by the county in further satisfaction of the judgment/debt.
Procedural history. The trial court entered judgment in the borrower’s favor on the tax refund question, and the lender appealed. The Holt Road opinion is from the Court of Appeals. Following the opinion, the Indiana Supreme Court granted transfer, which automatically vacated the opinion. However, the Supreme Court later reinstated the Court of Appeals opinion, which today is good law.
Key rules. Holt Road is not rule heavy. The opinion slices and dices language in the mortgage. The Court cites to dictionaries more than law.
Holding. The Court reversed the trial court and bought the lender’s argument that the tax refund fell within its security interest, as articulated in Paragraph (K) of the mortgage dealing with “funds,” “claims,” and “general intangibles.” The Court awarded the refund, which was being held in escrow, to the lender.
Policy/rationale. The borrower asserted that the refund was a personal asset that was protected by the non-recourse nature of the deal – sort of like income. Arguably the outcome was contrary to the essence of a non-recourse loan. But the lender’s winning argument was that the funds were connected to the real estate, over which the lender held a broadly-defined security interest. The Court examined in detail the language in the mortgage and found the tax refund to fall within the scope of the applicable lien provisions. Close call.
Posted by John Waller on May 23, 2016 at 01:19 PM in Mortgages, Tax Sales | Permalink | Comments (0)
Merritt pointed to another culprit [of blight] — the length of the state’s mortgage foreclosure process, which he thinks contributed to the huge number of vacant properties following the housing crisis. He wants to move Indiana away from its judicial foreclosure process toward a [faster] non-judicial system, as is used in both California and Texas.
Due in part to the Star’s work, Indiana lawmakers will be looking at reforming Indiana’s tax sale system. The nature of the reforms is not altogether clear or settled. If and to the extent changes to Indiana’s tax sale or foreclosure systems are made, particularly if they effect commercial real estate, I’ll write about them here.
Posted by John Waller on December 10, 2015 at 08:08 PM in News, Tax Sales | Permalink | Comments (0)
Indiana Supreme Court Upholds Tax Sale Notice Statute Applicable To Mortgagees
When real estate taxes become delinquent, the real estate becomes eligible for a tax sale. The problem is that, in Indiana, only borrowers (mortgagors), and not lenders (mortgagees), automatically receive notice of an upcoming tax sale. In M&M Investment Group v. Ahlemeyer Farms, 994 N.E.2d 1108 (Ind. 2013), a lender, to no avail, challenged the constitutionality of this scheme.
Trump. I post about tax sales because they terminate mortgage liens on the real estate. Best practices for secured lenders are to monitor tax payments and ensure tax sales do not occur without your knowledge. Since a lender’s first-priority mortgage lien suddenly can be subordinated by a tax sale in Indiana – or even negated after a period of time - it is important to monitor the status of the real estate taxes and take action (read: advance the taxes), if warranted. Although the lender can redeem, the expense for redemption is greater than the payment required to avoid the tax sale in the first place.
3 Notices. In Indiana, there are three statutory tax sale-related notices. The first relates to the sale itself and is controlled by Ind. Code § 6-1.1-24-4(a). This initial sale notice, from the county auditor, only goes to the property owner. The second notice is from the party that purchases the property at the tax sale and is the notice of the right of redemption pursuant to I.C. § 6-1.1-25-4.5. The third notice again is from the tax sale purchaser and is the notice of filing of a petition for tax deed per I.C. § 6-1.1-25-4.6(a). Mortgagees (secured lenders) generally only get the second and third notices.
Written request. Lenders can receive the first notice, however, if, on an annual basis, they send a letter to the county auditor pursuant to I.C. 6-1.1-24-3(b) and/or 1(d). Upon request, the lender should then automatically receive written notice of both the property’s eligibility for a tax sale and of the date of the tax sale itself. The burden is on the lender to cover this, and my sense is that the option is rarely exercised.
Constitutional. The M&M opinion addressed the issue of whether this statutory procedure is permissible under the Due Process Clause of the Fourteenth Amendment. In M&M, the bank failed to submit the required form to the county auditor and therefore was not notified that its mortgaged property was tax-delinquent until after it had been sold and the buyer had a tax deed. The operative question was whether it is constitutionally permissible for the statute to condition the first-class mailing of actual notice on a requirement that the lender first affirmatively request such notice by way of a form. The Indiana Supreme Court thought so, reasoning:
In short, the only reasonably certain way for an auditor to know who has a viable mortgage on a property so that adequate notice may be sent to the proper party is for the mortgagee to complete a simple form and submit it to the auditor. Whether mortgagees do this on their own, or an entity similar to MERS steps in and performs the task as an agent, this is hardly an onerous burden in light of the benefit obtained; and is far less onerous than the burdens the alternative would place on the State in exchange for a far lower degree of benefit.
The Court held that the requirement does not violate the Constitution.
Heads up. Whether the benefits of requesting the statutory notices exceed the costs of sending the annual letters is unknown to me and may depend upon the size and nature of a lender’s portfolio. The important point is that the option is available. Otherwise, lenders need to be proactive with both the borrower and the county treasurer to ensure that the taxes are being paid and, if not, to determine when the tax sale is will be. Indiana simply does not deem it reasonable or necessary for counties to incur the time and expense of notifying lenders of tax sales. On the other hand, lenders ultimately are protected because they are entitled to the second and third notices and thus can redeem the property from a sale, thereby avoiding mortgage lien termination.
Posted by John Waller on February 25, 2015 at 02:41 PM in Tax Sales | Permalink | Comments (0)
This is my third post dealing with an owner’s effort to set aside a tax sale. My 08/31/13 post involved a case where the owner won. My 12/14/12 post addressed a case where the owner lost. Prince v. Marion Co. Auditor, 992 N.E.2d 214 (Ind. Ct. App. 2013) is another case where the owner lost. The issue in all these cases surrounds notice.
Notice particulars. Cases attacking the validity of a tax sale necessarily are fact sensitive as they relate to whether, or to what extent, the owner (or the mortgagee) received adequate notice of the tax sale proceedings. Prince is no different. The owner in Prince held title to an Indiana apartment building. He moved to California and provided the county auditor with a post office box address for receipt of correspondence. The first of the three statutorily-required notices to the owner went to the California post office box by both first class and certified mail. The owner received a copy of the notice sent to the post office box by certified mail and signed for the package. (He claimed this notice was stolen out of his car before he opened it.) The notice sent by first class mail was not returned to the auditor. The auditor also sent notice to the common address for the apartment building, which notice came back to the auditor “return to sender, vacant, unable to forward.”
Notice rules. The owner alleged that the county failed to provide him with adequate notice so as to deprive him of constitutional due process, which I discussed in my 12/14/12 post about the Indiana Supreme Court’s decision in Sawmill. Importantly, due process does not require actual notice, but rather notice “reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections.” Further, Indiana law merely provides that notices must be in “substantial compliance” with statutory requirements - not perfect compliance.
Notice acceptable. In Prince, the Indiana Court of Appeals examined the county’s notices, which the county sent three different ways: (1) to the apartment building, (2) to the owner’s California post office box via certified mail and (3) to the owner’s California post office box via first class mail. Moreover, following the tax sale, but before the issuance of a tax deed, the county obtained a title search on the owner’s Indiana parcels and was unable to locate any additional addresses for him – meaning the county found nowhere else to mail the notices. The Court affirmed the trial court’s denial of the owner’s motion to set aside the tax deed:
In the current case, none of the notices that the Auditor sent to [the owner’s] post office box via first class mail were returned. Furthermore, [the owner] had signed the certified mail receipt for the notice of tax sale, which was also sent to the post office box. Thus, the Auditor knew that service had been accomplished. Furthermore, after the tax sale the Auditor obtained a title search to locate other addresses for [the owner].
The Court reasoned that the county acted “with far more diligence” than in other cases where sales were set aside.
Notice posting? One of the owner’s arguments was that the county should have posted notice at the apartment building, where the owner’s on-site property manager would have seen it. The manager occupied an office in a unit within the apartment building, but the county did not have a specific address or unit number for such office. In rejecting the owner’s position, the Court found that, since all of the notices the auditor had sent to the building had come back indicating that the property was vacant, “it would not be reasonable to require the Auditor to post notice at what was, to the best of the Auditor’s knowledge, vacant property.”
As suggested in my other posts about tax sales, owners need to pay real estate taxes, or face losing title. Owners should ensure that the county has a valid address for tax bills and tax sale notices. Similarly, lenders would be wise to monitor the status of their borrowers' real estate taxes, or face losing their mortgages. Ideally, lenders/mortgagees should ensure that the county has on record the name and address of the mortgage lien holder. See my 12/30/11 post for more on this issue.
Posted by John Waller on October 10, 2014 at 05:47 PM in Tax Sales | Permalink | Comments (0)
I previously addressed the pitfalls facing mortgage lenders when their borrowers fail to pay real estate taxes: see, 11/16/10 and 12/30/11. Iemma v. JPMorgan, 992 N.E.2d 732 (Ind. Ct. App. 2013) is a recent Court of Appeals decision that upheld a tax sale and thus terminated a lender’s mortgage.
The dispute. The fundamental question in Iemma was whether the tax deed issued to the tax sale purchaser (“LRB”) should have been set aside due to LRB’s failure to properly notify the senior mortgagee, Chase, who was the successor-by-merger to Bank One-Merrillville (“BO-M”), the mortgagee identified on the recorded mortgage. Chase filed an action to set aside the tax deed. LRB’s defense to Chase’s case was two-fold: (1) Chase was not entitled to statutory notice because its status as a mortgagee was not of record and (2) LRB’s mailing of notice to BO-M complied with the relevant notice statutes.
Notice statutes. The Court first examined whether LRB complied with the tax sale notice statutes. In connection with LRB’s proceedings for a tax deed, its title search found an unreleased mortgage for the subject real estate in favor of BO-M at an address in Merrillville. By law, BO-M was entitled to notice of the sale. But LRB’s notices sent to BO-M at that address were returned as undeliverable. LRB’s title search also disclosed Chase’s interests in the real estate by virtue of a separate foreclosure suit it had filed. LRB sent the tax sale notices to Chase’s counsel in the foreclosure action, and the notices were delivered and received by Chase’s counsel, who in turn communicated the notices to their client, Chase. The Court basically held that this method of notice complied with the Indiana statutes. Candidly, and respectfully, I do not fully understand the bases of the Court’s conclusion on this particular point because LRB did not, in my view, comply with the technical requirements of the notice statutes. Neither BO-M (non-existent) nor Chase received any direct notice. The real rationale behind the Court’s decision, in my opinion, follows.
Due process. The Court next examined whether LRB complied with constitutional due process, and the opinion turned upon an interpretation of Sawmill, about which I wrote on 12/14/12. Again, LRB sent tax sale notices to Chase through its counsel actively engaged in an existing foreclosure suit that dealt with the subject real estate. The Court felt this was enough: “LRB gave notice to Chase Bank’s counsel, counsel received the notice and passed it along to Chase Bank, and Chase Bank thereafter sat on its rights until after the tax deeds were issued.” The Court went on to state that notice, in tax sale matters, is required by statute, not Indiana’s trial rules, meaning that service of process/summons rules are not applicable:
Such notice can be achieved by yard signs, newspaper notices, and notices on doors; certainly, notice through counsel representing Chase’s property rights on the property is sufficient. More importantly, the issue is not Chase’s actual knowledge; rather, the issue is whether LRB gave notice under the circumstances of this case in a manner reasonably calculated to inform Chase of the pending loss of its interest in the two lots . . .. Under the particularities and peculiarities of this case, LRB has done so.
This was a tough decision for the lender and seemingly a close call. The compelling factor was that Chase, through its lawyers, received actual notice of the tax sale. If, as a mortgagee or foreclosure counsel, you receive tax sale notices, you need to take action. If you don’t, your mortgage could be extinguished.
Posted by John Waller on September 11, 2014 at 10:02 AM in Tax Sales | Permalink | Comments (0)
The Indiana Court of Appeals opinion in City of Elkhart v. SFS, LLC, 968 N.E.2d 812 (Ind. Ct. App. 2012) is a nice contrast to the Sawmill Creek case discussed in my prior post Tax Sale Bullet Strikes Property Owner. In Sawmill Creek, the Indiana Supreme Court denied a property owner’s motion to set aside a tax sale. In SFS, the Court of Appeals reached the opposite conclusion. At issue is the nature and extent of the notice that must be given to a property owner before the owner loses title. (For rules on notices to mortgagees, please click here for my prior post on that subject.)
Background. SFS involved two tax sales regarding the same property. The dispute was between the first tax sale purchaser and the second tax sale purchaser. The first purchaser alleged that it did not receive notice of the second tax sale, which occurred before the first purchaser recorded its tax deed. For the facts and circumstances surrounding the nature of the notice and its alleged deficiencies, please read the opinion.
Fundamentals. Importantly, Indiana law provides that title conveyed by a tax deed may be defeated if the three required notices were not issued in “substantial compliance” with the statutes. One element that the Court really sliced and diced related to Ind. Code § 6-1.1-25-4.5 and the “ordinary means” requirement for notice. SFS discussed the application of the notice requirements when there are alleged defects in the means used to provide notice.
3 notices. The SFS opinion succinctly outlined the three notices that must be given to property owners in connection with an Indiana tax sale:
1. First, the county auditor must provide notice of the tax sale per I.C. § 6-1.1-24-4.
2. Second, the party that purchases the property at the tax sale must send the notice of the right of redemption pursuant to I.C. § 6-1.1-25-4.5.
3. Third, the party that purchases the property at the tax sale must send the notice of filing of a petition for tax deed per I.C. § 6-1.1-25-4.6(a).
The first tax sale purchaser in SFS did not receive notice #2 from the second purchaser even though the first purchaser had recorded its tax deed from the first sale before the redemption period expired.
Defective notice. In SFS, an employee of the second tax sale purchaser had actual knowledge of the recorded tax deed for the first sale. Accordingly, the second purchaser was on “inquiry notice” of the first purchaser’s correct address more than two months before the redemption period had expired and well before the issuance of the third notice. The second purchaser disregarded such information and resorted to alternative measures to satisfy the statutory notice, which measures were deemed by the Court to be improper and ultimately unconstitutional:
It would not be ordinary but, rather, extraordinary to permit the [second purchaser] to obtain a tax deed after it had failed to send notice to the [first purchaser’s/the owner’s] address as it appears on the public records when it had the means of knowledge at hand two months before the redemption had expired.
As mentioned here before, I periodically write about tax sales for the simple reason that such sales terminate any mortgage liens on the property. Best practices for secured lenders are to monitor tax payments and ensure tax sales do not occur without your knowledge.
Posted by John Waller on August 31, 2013 at 12:26 PM in Tax Sales | Permalink | Comments (2)
Posted by John Waller on June 28, 2012 at 10:58 AM in Mortgages, Tax Sales | Permalink | Comments (1)
Posted by John Waller on December 30, 2011 at 10:39 AM in Tax Sales | Permalink | Comments (3)
Marion County (Indianapolis) information/guidelines. Marion County’s website, http:\\www.indy.gov, has the following information , written in "plain English," that help explain the statutory procedure with regard to tax sales in Indianapolis:
Posted by John Waller on November 24, 2010 at 09:45 AM in Redemption, Tax Sales | Permalink | Comments (1)
Posted by John Waller on November 16, 2010 at 12:00 PM in Tax Sales | Permalink | Comments (2)