Opinion ID: 852017
Heading Depth: 2
Heading Rank: 1

Heading: Citimortgage Has a Property Interest at Stake

Text: As a threshold matter, Citimortgage argues that Sanders and ReCasa waived the right to challenge MERS’s alleged property interest by failing to raise that issue in the trial court. As a prevailing party, however, ReCasa may defend the trial court’s ruling on any grounds, including grounds not raised at trial.6 Thus, we address the merits of this issue. In its motion, Citimortgage premised its right to intervene on its interest in the Madison County property. See Ind. Tr. R. 24(A)(2). Citimortgage alleged that it obtained its interest in the Madison County property mortgage from MERS, stating variously that it is the “successor in interest to MERS” and “the assignee of MERS.” App. at 83–84. The assignee of rights under a contract stands in the shoes of the assignor and can assert any rights that the assignor could have asserted. Lake Cnty. Trust Co. v. Household Merch., Inc., 511 N.E.2d 512, 514 (Ind. Ct. App. 1987). Neither party disputes the validity of the April 1, 2009 assignment from MERS to Citimortgage. Citimortgage’s interest is thus dependent upon MERS’s interest, which arises from the original mortgage contract. We turn now to the interpretation of that contract. The ultimate goal of any contract interpretation is to determine the intent of the parties at the time that they made the agreement. First Fed. Sav. Bank of Indiana v. Key Mkts., Inc., 559 N.E.2d 600, 603 (Ind. 1990). We begin with the plain language of the contract, reading it in context and, whenever possible, construing it so as to render each word, phrase, and term meaningful, unambiguous, and harmonious with the whole. Trustcorp Mortg. Co. v. Metro Mortg. Co., Inc., 867 N.E.2d 203, 213 (Ind. Ct. App. 2007). “A contract is ambiguous if a reasonable person would find the contract subject to more than one interpretation.” Fackler v. 6 In any event, Sanders did raise this argument in the trial court. On February 16, 2010, in a hearing in the Madison Circuit Court, Sanders’s counsel argued that MERS was not entitled to service because the mortgage stated that MERS was only a nominee for the lender and that only the lender was entitled to notice. 10 Powell, 891 N.E.2d 1091, 1096 (Ind. Ct. App. 2008). If we find ambiguous terms or provisions in the contract, “we will construe them to determine and give effect to the intent of the parties at the time they entered into the contract.” George S. May Int’l Co. v. King, 629 N.E.2d 257, 260 (Ind. Ct. App. 1994) (internal citations omitted), trans. denied.
The contract describes MERS as both “nominee for Lender” and “mortgagee” but does not include a definition of either of those terms. App. at 88. As to the first term, Black’s Law Dictionary defines “nominee” as “[a] person designated to act in place of another, usu[ally] in a very limited way” and “[a] party who holds bare legal title for the benefit of others or who receives and distributes funds for the benefit of others.” Black’s Law Dictionary 1149 (9th ed. 2009). Webster’s Dictionary defines “nominee” as “a person in whose name a stock or registered bond certificate is registered but who is not the actual owner.” Webster’s Dictionary, supra, at 1535. Here, Irwin has designated MERS to hold “bare legal title” to the mortgage and to act on its behalf in matters such as foreclosure and cancellation, but MERS is not the actual owner of the note. Thus, all of these definitions are consistent with MERS’s actual role in the mortgage industry generally and in the Barabas mortgage specifically. They are also consistent with an agency relationship. Oil Supply Co., Inc. v. Hires Parts Serv., Inc., 726 N.E.2d 246, 248 (Ind. 2000) (defining agent as “one who acts on behalf of some person, with that person’s consent and subject to that person’s control”). As to the second term, Black’s Law Dictionary defines “mortgagee” as “the mortgage creditor, or lender.” Black’s Law Dictionary, supra, at 1104. Webster’s Dictionary defines “mortgagee” as “a person who takes a mortgage on another’s property as security for a debt or obligation.” Webster’s Dictionary, supra, at 1472. These definitions are less promising. The mortgage clearly states that MERS is not the Lender; rather, Irwin is the Lender. What is more, agency law dictates that MERS cannot be both an agent and a principal with respect to the same right (here, the right to receive service of process in a foreclosure proceeding). Restatement (3d) of Agency §§ 1.01–.02 (2006). 11 The terms “nominee” and “mortgagee,” as used in the Barabas mortgage contract, conflict with each other. A reasonable person, upon reading the contract, could find that the contract is subject to more than one interpretation. It is therefore ambiguous, so we must turn to evidence of the parties’ intent in order to properly construe the ambiguous terms. 2. The Parties Intended to Designate MERS as the Lender’s Agent The mortgage contract states that MERS has “legal title to the interests granted by Borrower in this Security Instrument.” App. at 89. It also states that MERS may exercise many of Lender’s rights, including the right to foreclose and sell. Foreclosure proceedings are initiated in the form of a lawsuit in Indiana, and the right to file a lawsuit is a “constitutionally recognized property interest.” Phillips Petroleum Co. v. Shutts, 472 U.S. 797, 807 (1985). Additionally, MERS’s own rules of membership state that “[e]ach Member hereby appoints ‘Mortgage Electronic Registration Systems, Inc.,’ as its nominee (as a limited agent) with respect to each mortgage that such Member registers on the MERS® System.” MERSCORP, INC., Rules of Membership, R. 2, § 6.7 The rules state further that MERS will comply with any instructions it receives from its principals regarding registered mortgages. Id. Most pertinently, the rules state that MERS “shall within two (2) business days forward to the appropriate Member or Members . . . all properly identified notices, payments, and other correspondence” related to mortgages for which MERS serves as the record mortgagee. Id. at R. 3, § 1. Much in the same way that a nonresident who drives a car in Indiana appoints the Indiana Secretary of State as his or her agent for service of process in any resultant tort claim, see Ind. Code § 34-33-3-1(b), a MERS member bank appoints MERS as its agent for service of process in any foreclosure proceeding on a property for which MERS holds the mortgage. 7 As of July 5, 2012, these rules were available at http://www.mersinc.org/Foreclosures (link to “Rules of Membership”), but they have since been removed. 12 Taken together, MERS’s rights under the terms of the Barabas mortgage and MERS’s own rules indicate that the parties intended to designate MERS as an agent of the lender.8 This agency relationship conferred various rights upon MERS, including rights that constitute protected property interests sufficient to entitle MERS—and Citimortgage standing in the shoes of MERS—to meet the first requirement for intervention of right. Finally, ReCasa asserts that even if MERS did have rights under the mortgage contract, those rights were derivative of Irwin’s rights and thus extinguished when Irwin disclaimed its interest. MERS, however, has an agency relationship with all of its member banks, not solely with Irwin. The mortgage contract states that MERS holds the mortgage “as nominee for Lender . . . and Lender’s successors and assigns.” App. at 88 (emphasis added). Thus, Irwin’s disclaimer would have been effective against MERS’s rights only if no other MERS member bank had an interest in the mortgage. There is no evidence that was the case; on the contrary, Citimortgage, a MERS member, claimed an interest. Thus, MERS’s interest survived through its other principals, including Citimortgage. B. Disposition of the Foreclosure Case May Impair Citimortgage’s Interest and No Other Party is Adequately Representing That Interest There is little dispute as to the remaining two requirements for intervention. As to the first, if the default judgment is permitted to stand, Citimortgage’s interest would be destroyed entirely. Thus, it is certain that resolution in Citimortgage’s absence will “impair” its interest. 8 Although their decision is not binding upon us, we are gratified to note that our federal colleagues share our view of the relationship between MERS and its member banks. See Mortg. Elec. Registration Sys., Inc. v. Estrella, 390 F.3d 522, 525 (7th Cir. 2004) (“[MERS] is a nominee only, holding title to the mortgage but not the note. Each lender appears to be entitled not only to payment as the note’s equitable (and legal) owner but also to control any litigation and settlement.”). Other state courts agree. See, e.g., Landmark Nat. Bank v. Kesler, 216 P.3d 158, 166 (Kan. 2009); Mortg. Elec. Registration Sys., Inc. v. Sw. Homes of Ark., Inc., 301 S.W.3d 1, 3–4 (Ark. 2009). 13 As to the second, Irwin expressly disclaimed its interest in the debt that now belongs to Citimortgage. Since filing that disclaimer, Irwin has taken no part in the litigation. The remaining parties, Sanders and ReCasa, are actively advocating against Citimortgage’s interest. No current party is representing Citimortgage’s interest. C. Citimortgage’s Motion to Intervene Was Timely ReCasa argues that even if Citimortgage satisfies the requirements to intervene of right, we nevertheless should uphold the trial court’s denial of Citimortgage’s motion on the alternative ground that it was untimely. ReCasa did not raise this issue in the trial court, nor did the court rely upon it in its decision to deny Citimortgage’s motion. Nevertheless, as a prevailing party, ReCasa may defend its judgment on any ground.9 Ind. Trial Rule 59(G). When, as here, we are presented with a new issue on appeal, we will decide the issue so long as there is no dispute as to any material fact. State v. Kokomo Tube Co., 426 N.E.2d 1338, 1348 (Ind. Ct. App. 1981). There is no such dispute, so we proceed to consider whether Citimortgage’s motion to intervene was timely. Timeliness is a discretionary determination that depends entirely upon the facts of the case at hand. Herdrich Petroleum Corp. v. Radford, 773 N.E.2d 319, 325 (Ind. Ct. App. 2002), trans. denied. The requirement that a motion to intervene be “timely” is “intended to insure that the original parties should not be prejudiced by an intervenor’s failure to apply sooner, and that the orderly processes of the court are preserved.” Id. (quoting Bryant v. Lake Cnty. Trust Co., 166 Ind. App. 92, 101, 334 N.E.2d 730, 735 (Ind. Ct. App. 1975)). It is not intended to “be employed as a tool to sanction would-be intervenors who are tardy in making their application.” Id. (quoting Bryant, 166 Ind. App. at 101, 334 N.E.2d at 735). Although post-judgment 9 Counsel for Citimortgage, perhaps believing that ReCasa had waived this argument by not raising it in the trial court, declined to address it on reply. 14 intervention is generally “disfavored,” it is appropriate in certain “extraordinary and unusual circumstances,” particularly when “the petitioner’s rights cannot otherwise be protected.” Bd. of Comm’rs of Benton Cnty. v. Whistler, 455 N.E.2d 1149, 1153–54 (Ind. Ct. App. 1983). Here, the default judgment was entered on September 16, 2008. Citimortgage filed its motion to intervene thirteen months later, on October 23, 2009. This delay, although considerable, was attributable to ReCasa’s failure to provide Citimortgage (or its agent MERS) with notice of the foreclosure suit. It would be both unfair and inconsistent with the purpose of the timeliness requirement to deny Citimortgage’s right to intervene under these circumstances. Thus, we find that Citimortgage’s motion to intervene was timely. The Default Judgment Is Void as to Citimortgage Citimortgage brought its motion for relief from judgment under Trial Rule 60(B)(6), alleging that the default judgment was void for lack of personal jurisdiction because it had no notice of the foreclosure proceeding. We agree. A. Citimortgage’s Motion for Relief from Judgment Was Timely As in its challenge to Citimortgage’s motion to intervene, ReCasa alleges that Citimortgage’s motion for relief was untimely. Motions for relief under Rule 60(B)(6) “shall be filed within a reasonable time.” In the past, we have found such motions timely even when filed nearly two years after the entry of default judgment, where the moving party lacked notice of the proceeding and was thus outside the court’s jurisdiction. See, e.g., Shotwell, 572 N.E.2d at 490 (noting that plaintiff failed to make good-faith effort either to serve defendants with process or to meet requirements of relevant service statute). Here, as we have already discussed, Citimortgage filed its motion quite some time—thirteen months—after the entry of default judgment. We find this delay was reasonable, however, because Citimortgage never received notice of the proceeding. Its motion for relief under Rule 60(B)(6), therefore, was timely. 15 B. The Trial Court Had No Personal Jurisdiction Over Citimortgage Rule 60(B)(6) provides for relief from judgments that are “void.” Shotwell, 572 N.E.2d at 489–90. A judgment issued without personal jurisdiction is void, and a court has no jurisdiction over a party unless that party receives notice of the proceeding. Id. at 489. It is undisputed that Citimortgage never received proper notice of the foreclosure proceeding. Thus, the trial court never had jurisdiction over Citimortgage, and the default judgment is therefore void as to Citimortgage. ReCasa argues that its failure to serve process on MERS or Citimortgage should be overlooked because of the letter that its counsel sent on September 23, 2008 to a different attorney representing Citimortgage in Barabas’s federal bankruptcy proceeding. That letter, ReCasa argues, was sufficient to provide Citimortgage with actual knowledge of the foreclosure proceeding. Under the circumstances, it wasn’t. As a rule, “actual knowledge of the suit does not satisfy due process or give the court in personam jurisdiction.” Overhouser v. Fowler, 549 N.E.2d 71, 73 (Ind. Ct. App. 1990) (quoting Glennar Mercury Lincoln, Inc. v. Riley, 167 Ind. App. 144, 152, 338 N.E.2d 670, 675 (1975)). “This is, of course, particularly true for service of process and other such notice of initial pleadings.” Abrahamson Chrysler Plymouth v. Ins. Co. of N. Am., 453 N.E.2d 317, 321 (Ind. Ct. App. 1983). Thus, even if the September 23 letter had provided someone representing Citimortgage in another matter in federal bankruptcy court with actual knowledge of the foreclosure proceeding, it would still have been insufficient to confer jurisdiction upon the trial court to adjudicate Citimortgage’s interest in the Madison County property. C. Statutory and Constitutional Claims Citimortgage argues that its agent, MERS, enjoys a statutory entitlement to notice under Indiana Code § 32-29-8-1 because it is a “mortgagee.” That is a bridge too far. 16 We have stated that the relationship between Citimortgage and MERS was one of principal and agent. Clearly, one of the primary purposes of that agency relationship was to facilitate efficient service of process. The rapid and piecemeal transfer of mortgages on the secondary market creates a strong presumption that the original lender will quickly transfer its interest in the debt. Hudspeth, supra, at 8. Notice to the lender in such a situation is, as here, ineffective to inform the real party in interest. By designating MERS as an agent for service of process, as Irwin did in the Barabas mortgage, lenders can have their cake and eat it too; they free themselves from burdensome, expensive recording requirements but still receive notice when another lienholder seeks to foreclose on a property in which they have a security interest. And now we come to the reason that the mortgage describes MERS as both “nominee” and, less convincingly, as “mortgagee.” Having created this agency relationship, MERS and its member banks wished to ensure that third parties would respect it. By including the words “as mortgagee” in the description of MERS in the mortgage contract, MERS and Irwin likely sought to bring MERS under the scope of state statutes like Indiana Code § 32-29-8-1: “If a suit is brought to foreclose a mortgage, the mortgagee or an assignee shown on the record to hold an interest in the mortgage shall be named as a defendant.”10 That statute gives a foreclosing party two options as to whom to sue: 1) the mortgagee or 2) an assignee of record. The entire purpose of MERS is to eliminate record assignments, which renders the second option useless. Therefore, in order to be entitled to named defendant status (and thus to notice) under the statute, MERS has to be the “mortgagee,” and that is why the mortgage contract so identifies it. Ultimately, we do not believe that the authors of the original version of this statute, writing in 1877, would have understood the term “mortgagee” to include an entity like MERS 10 This statute was originally enacted in 1877 and has since been subject only to cosmetic amendments. 1877 Ind. Acts ch. 58, § 2 (“And in a suit to foreclose said mortgage, it shall be sufficient to make the mortgagee, or the assignee shown by said record to hold an interest therein, defendants.”). 17 that neither holds title to the note nor enjoys a right of repayment. Thus, our decision here should not be taken to mean that MERS is a “mortgagee” as the term is used in Indiana Code § 32-29-8-1. All we hold today is that because Citimortgage never received proper notice of the foreclosure proceeding, it lay beyond the jurisdiction of the trial court, and the default judgment is thus void as to Citimortgage’s interest in the Madison County property. As to ReCasa’s arguments regarding the possibility of redemption under Indiana Code § 32-29-8-3, it would be inappropriate to address them here, as we have decided the question before us on other grounds. We therefore express no opinion as to whether Citimortgage had the right to redeem the property under that statute. We emphasize, however, that when we granted transfer in this case, the opinion of the Court of Appeals was vacated in its entirety. Ind. Appellate Rule 58(A). Similarly, in keeping with our longstanding principle of constitutional avoidance, we decline to address Citimortgage’s constitutional claims. Snyder v. King, 958 N.E.2d 764, 768 (Ind. 2011) (citing State v. Darlington, 153 Ind. 1, 4, 53 N.E. 925, 926 (1899) (reiterating rule against deciding constitutional questions that are not “absolutely necessary to a disposition of the cause on its merits.”)). We note in closing that it is both difficult and undesirable to apply such superannuated statutes to the modern mortgage industry.11 The drafters of the original 1877 version of Indiana Code § 32-29-8-1 envisioned a drama for two, or at most three, actors: Borrower, Mortgagee, and possibly Assignee. They could not have imagined our present-day multi-trillion-dollar 11 Indiana is not alone in this regard; other state courts have noted “the difficulty of attempting to shoehorn a modern innovative instrument of commerce into a nomenclature and legal categories which stem essentially from the medieval English land law.” Mortg. Elec. Registration Sys., Inc. v. Revoredo, 955 So.2d 33, 34 (Fla. Ct. App. 2007). 18 international mortgage market. The statute that they drafted, and under which Indiana mortgage transactions still take place, thus leaves unaddressed many issues important to contemporary practice. We recognize that the General Assembly may soon find it necessary to modernize the statutory script to accommodate this new and larger cast of characters.