Court Opinion

ID: 4017844
Source: CourtListenerOpinion
Date Created: 2016-07-21 15:04:36.663669+00
Date Added: 2024-06-11T12:17:53.677345
License: Public Domain

FILED
                                                      Jul 21 2016, 9:51 am

                                                          CLERK
                                                      Indiana Supreme Court
                                                         Court of Appeals
                                                           and Tax Court

ATTORNEY FOR APPELLANT                                      ATTORNEYS FOR APPELLEE,
Rudolph Wm. Savich                                          REGIONS BANK
Bloomington, Indiana                                        Libby Y. Goodnight
                                                            Kay Dee Baird
                                                            Lauren C. Sorrell
                                                            Kreig DeVault, LLP
                                                            Indianapolis, Indiana

                                                            ATTORNEY FOR APPELLEE,
                                                            JENNER PROPERTIES, LLC

                                                            Edward McCrea
                                                            McCrea & McCrea
                                                            Bloomington, Indiana

                                            IN THE
    COURT OF APPEALS OF INDIANA

Manee Edler,                                                July 21, 2016
Appellant-Defendant,                                        Court of Appeals Cause No.
                                                            53A01-1512-MF-2264
        v.                                                  Appeal from the Monroe Circuit
                                                            Court
Regions Bank,                                               The Honorable E. Michael Hoff,
Appellee-Plaintiff, and                                     Judge
                                                            Trial Court Cause No.
Jenner Properties, LLC,                                     53C01-1306-MF-1096

Appellee-Intervenor.

Court of Appeals of Indiana | Opinion 53A01-1512-MF-2264 | July 21, 2016                 Page 1 of 11
      Barnes, Judge.

                                               Case Summary
[1]   Manee Edler appeals the denial of her motion to correct error, which sought to

      set aside the payment of mortgage foreclosure surplus proceeds to Regions

      Bank (“Regions”). We reverse and remand.

                                                       Issue
[2]   The sole issue we address is whether the trial court’s disbursement of the

      foreclosure sheriffs’ sale surplus proceeds complied with applicable statutes.

                                                       Facts
[3]   Edler and her now-deceased husband, John,1 owned a house in Bloomington.

      Regions held both a first mortgage on the property, securing the Edlers’

      promissory note executed in 2003 for a principal amount of $95,250.00, and a

      second mortgage, related to a home equity line of credit with a limit of

      $30,000.00. After John developed cancer, the Edlers fell behind on both

      mortgage payments. On June 7, 2013, Regions filed a complaint to foreclose

      the second mortgage only, alleging the Edlers were in default on it and had an

      outstanding balance of $22,933.56. The foreclosure complaint mentioned the

      1
          John passed away on September 9, 2015.

      Court of Appeals of Indiana | Opinion 53A01-1512-MF-2264 | July 21, 2016   Page 2 of 11
      first mortgage but did not allege the Edlers were in default or list any

      outstanding balance thereon.

[4]   On December 20, 2013, the trial court entered a judgment and decree of

      foreclosure. The total judgment amount was $27,160.32. The decree also

      stated “that the second mortgagee lien of the plaintiff is superior to all other

      liens and claims of the defendants, except the first mortgage lien of Regions

      Bank . . . .” App. p. 40. The decree further directed that the property be sold

      by the sheriff and that after the sale, “a proper deed or deeds be issued

      according to law to the purchaser or purchasers at such sale or sales; subject to

      the first mortgage lien of Regions Bank . . . .” Id. at 41. The foreclosure decree

      did not state that the Edlers were in default on the first mortgage or mention

      any amount due under that instrument or accompanying promissory note. The

      decree concluded in part:

              That the proceeds of such sale shall be applied first to the costs of
              this action, next to the payment of real estate taxes due and
              owing at the time of sale and the amount of redemption in the
              event the parcel has been sold at tax sale, before deed to the tax
              sale purchaser, next to the payment of the amount due plaintiff
              on the judgment rendered herein in its favor, and the balance, if
              any, to be paid to the Clerk of the Court, subject to further Order
              of the Court.

      Id.

[5]   John filed for bankruptcy in April 2014, which automatically stayed the

      foreclosure proceedings, but the bankruptcy court lifted the stay with respect to

      Court of Appeals of Indiana | Opinion 53A01-1512-MF-2264 | July 21, 2016    Page 3 of 11
      selling the property. On November 21, 2014, Jenner Properties, LLC

      (“Jenner”) purchased the property at a sheriff’s sale for $82,600.00. Jenner’s

      owner, David Jenner, later claimed he was unaware of the outstanding first

      mortgage held by Regions when he purchased the property. The sheriff’s deed

      issued to Jenner reflected that the property was subject to the first mortgage.

      After purchasing the property, Jenner invested approximately $100,000.00 in

      renovating the property and reached an agreement to sell it to a third party for

      $199,000.00.

[6]   On March 12, 2015, Regions filed a petition for disbursement of the foreclosure

      sale proceeds. First, Regions sought $31,539.50 to satisfy the foreclosure

      judgment on the second mortgage. Second, Regions also requested “that the

      Court disburse the excess sale proceeds in the amount of $51,060.50 as payment

      toward the amount due and owing Regions Bank pursuant to the first mortgage

      dated April 21, 2003.” Id. at 44. With this petition, Regions submitted

      documentation related to the first mortgage showing that it had a current payoff

      amount of $60,327.93. On March 17, 2015, the trial court ordered the full

      $82,600.00 from the sheriff’s sale disbursed to Regions. On March 31, 2015,

      Jenner agreed to pay $3,457.82 to Regions in exchange for its release of the first

      mortgage from the property.

[7]   On April 16, 2015, the Edlers filed a motion to correct error. In it, the Edlers

      argued it was erroneous for the trial court to disburse the $51,060.50 foreclosure

      surplus to Regions because the second mortgage foreclosure judgment and

      sheriff’s sale were specifically made subject to the first mortgage. The Edlers

      Court of Appeals of Indiana | Opinion 53A01-1512-MF-2264 | July 21, 2016   Page 4 of 11
      argued that the surplus should have been released to them instead. After

      conducting a hearing on the matter, the trial court denied the Edlers’ motion.

      Manee now appeals; both Regions and Jenner have filed appellee’s briefs.

                                                    Analysis
[8]   When reviewing denial of a motion to correct error, we review the trial court’s

      ruling for an abuse of discretion. Old Utica Sch. Pres., Inc. v. Utica Twp., 7
N.E.3d 327, 330 (Ind. Ct. App. 2014), trans. denied. “An abuse of discretion

      occurs when the trial court’s decision is contrary to the logic and effect of the

      facts and circumstances before it or the reasonable inferences therefrom.” Id. A

      trial court also abuses its discretion in making a ruling if it has misinterpreted

      the law. Kosarko v. Padula, 979 N.E.2d 144, 146 (Ind. 2012).

[9]   Manee argues that because the foreclosure decree and subsequent sheriff’s sale

      of the property were clear that the property was being sold “subject to”

      Regions’s first mortgage, the surplus proceeds from that sale could not be used

      to partially pay off the first mortgage. Manee relies in part upon Cook v.

      American States Insurance Co., 150 Ind. App. 88, 95, 275 N.E.2d 832, 836 (1971),

      which held that, “whether the purchaser assumes the payment of a prior

      mortgage or the purchaser buys merely subject to such mortgage, that in each

      case the purchaser takes the land charged with the payment of the debt.”

      Moreover, the general rule is that, if a purchaser merely buys land subject to a

      mortgage and does not assume the mortgage, the buyer is not subject to

      personal liability for payment of the debt secured by the mortgage; rather, the

      Court of Appeals of Indiana | Opinion 53A01-1512-MF-2264 | July 21, 2016    Page 5 of 11
       land itself “is the primary fund out of which the debt is payable.” Springer v.

       Foster, 27 Ind. App. 15, 20, 60 N.E. 720, 722 (1901); see also First Fed. Sav. &

       Loan Ass’n of Gary v. Arena, 406 N.E.2d 1279, 1284 (Ind. Ct. App. 1980).

       Regions and Jenner respond that cases such as Cook, Springer, and Arena are not

       controlling or are distinguishable and that the trial court had the equitable

       discretion to order disbursement of the surplus foreclosure funds to Regions to

       go towards payment of the first mortgage.

[10]   None of the parties has discussed the relevant statutes and case law governing

       mortgage foreclosures. Although not cited by Manee, we cannot ignore the

       statutes governing mortgage foreclosure sales and surplus sales proceeds. First,

       Indiana Code Section 32-29-7-9(b) provides that if property is sold at a sheriff’s

       foreclosure sale, “the sheriff shall pay the proceeds as provided in IC 32-30-10-

       14.” Indiana Code Section 32-30-10-14 in turn provides:

               The proceeds of a sale described in IC 32-29-7 or section 8 or
               12(b) of this chapter must be applied in the following order:

               (1) Expenses of the offer and sale, including expenses incurred
               under IC 32-29-7-4 or section 9 of this chapter (or IC 34-1-53-6.5
               or IC 32-15-6-6.5 before their repeal).

               (2) The payment of the principal due, interest, and costs not
               described in subdivision (1).

               (3) The residue secured by the mortgage and not due.

       Court of Appeals of Indiana | Opinion 53A01-1512-MF-2264 | July 21, 2016     Page 6 of 11
                (4) If the residue referred to in subdivision (3) does not bear
                interest, a deduction must be made by discounting the legal
                interest.

                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, mortgage debtor’s heirs, or other persons
                assigned by the mortgage debtor.

       (Emphases added).2 Foreclosures must follow statutory procedures, including

       those related to the payment of sheriff’s sale surpluses. Patterson v. Grace, 661
N.E.2d 580, 586 (Ind. Ct. App. 1996). Although equity greatly influences

       foreclosure proceedings, trial courts are not free to deviate from clear statutory

       procedures, including those set forth in Indiana Code Section 32-30-10-14. First

       Fed. Sav. Bank v. Hartley, 799 N.E.2d 36, 40 (Ind. Ct. App. 2003).

[11]   In addition to these statutes, we note that generally, when a property lienholder

       is not made a party to a foreclosure suit and is not bound by the foreclosure, a

       foreclosure sale purchaser “simply step[s] into the shoes of the original holder of

       the real estate and [takes] such owners’ interest subject to all existing liens and

       claims against it.” Watson v. Strohl, 220 Ind. 672, 687, 46 N.E.2d 204, 210

       (1943). More to the point for purposes of this case, it is long-settled Indiana law

       that, “[l]ienholders whose rights have not been adjudged or foreclosed in the

       2
         Prior to July 1, 2010, this statute required payment of outstanding property taxes and of any amount of
       redemption where a certificate of sale is outstanding, before payment of the foreclosed mortgage principal
       and interest. Those provisions are now repealed. See P.L. 73-2010 § 9 (eff. July 1, 2010).

       Court of Appeals of Indiana | Opinion 53A01-1512-MF-2264 | July 21, 2016                         Page 7 of 11
       foreclosure action have no right to share in the proceeds of the sale.” 20 IND. LAW

       ENCYC. Mortgages § 175 (citing McKernan v. Neff, 43 Ind. 503 (1873)) (emphasis

       added). In McKernan, there were three mortgages on a property. The most-

       senior mortgagee filed a foreclosure suit, in which the most-junior mortgagee

       was joined; the middle mortgagee was not. After sheriff’s sale of the property,

       the most-senior and most-junior mortgages were paid. The middle mortgagee

       filed suit, seeking entitlement to some of the sheriff’s sale proceeds. Our

       supreme court, noting that the foreclosure sale did not cut off the middle

       mortgagee’s own right of foreclosure, held that the middle mortgagee was not

       entitled to any of the sheriff’s sale proceeds. McKernan, 43 Ind. at 506-07.

[12]   Also instructive here is Firestone v. State ex rel. Liggett, 100 Ind. 226 (1884). In

       that case, Liggett sold property to Firestone, and Firestone assumed a mortgage

       Liggett had previously taken out. Firestone also executed a second mortgage

       on the property in favor of Liggett, junior to the mortgage originally executed

       by Liggett and assumed by Firestone. The senior mortgagee filed a foreclosure

       action against both Firestone and Liggett after Firestone failed to pay on it;

       Liggett made a partial payment on the senior mortgage and obtained dismissal

       of that foreclosure action. Liggett then filed his own foreclosure action against

       Firestone for default on the junior mortgage. A decree of foreclosure was

       entered, the property was sold by the sheriff, and the junior mortgage was paid

       off. A surplus remained after that payment was made. Liggett sought recovery

       of the surplus based on his partial payment towards the senior mortgage; there

       did not seem to be any dispute that Liggett made this payment. Our supreme

       Court of Appeals of Indiana | Opinion 53A01-1512-MF-2264 | July 21, 2016      Page 8 of 11
       court held Liggett was not entitled to the surplus, based on the plain language of

       the statute, then as now, providing for payment of any sheriff’s sale surplus to

       the mortgage debtor, or the debtor’s heirs or assigns. Firestone, 100 Ind. at 229.

       The court disapproved of Liggett’s attempt to effectively seek foreclosure of the

       senior mortgage upon the surplus fund, as opposed to foreclosure upon the land

       itself. Id.

[13]   This case is slightly unusual in that Regions obviously had notice of the

       foreclosure action on the second mortgage but chose to make no effort to

       foreclose on the first mortgage or otherwise have its rights adjudicated with

       respect to the first mortgage.3 Having chosen this course of action, Regions

       could not essentially reverse course by seeking the surplus sales proceeds, in

       clear contravention of the foreclosure statutes and relevant case law. In

       essence, Regions attempted to foreclose on the first mortgage without following

       the procedures for such a foreclosure. Under the plain language of the statute

       and long-standing case law, the Edlers as mortgage debtors clearly were entitled

       to the sheriff’s sale surplus after satisfaction of the foreclosure judgment on the

       second mortgage only.4 The trial court did not have discretion to rule

       3
         Why Regions did not attempt to seek final adjudication of its rights under the first mortgage during the
       foreclosure proceedings, we do not know. It may have been a strategic decision or a case of the left hand not
       knowing what the right hand was doing; argument by counsel at the motion to correct error hearing suggests
       it was the latter. Also, because Regions was not “omitted” from the original foreclosure action, it would not
       seem to fit the definition of an “omitted party” under the strict foreclosure statute enacted by our legislature
       in 2012. See I.C. § 32-29-8-4(b).
       4
           There is no evidence the Edlers assigned their interest in the surplus to anyone.

       Court of Appeals of Indiana | Opinion 53A01-1512-MF-2264 | July 21, 2016                            Page 9 of 11
       otherwise, in contravention of law and in the name of “equity.” See Hartley,
799 N.E.2d at 40.

[14]   How Regions now decides to collect the debt associated with that mortgage is

       beyond the scope of this opinion, although its rights with respect to the first

       mortgage did not seem to be terminated by foreclosure of the second mortgage,

       given that the sheriff’s sale and subsequent deed were made “subject to” the first

       mortgage.5 See Watson, 220 Ind. at 687, 46 N.E.2d at 210; see also English v.

       Aldrich, 132 Ind. 500, 506, 31 N.E. 456, 458 (1892). Regions and Jenner also

       suggest it would be “inefficient” not to allow Regions to retain the sheriff’s sale

       surplus to put towards the first mortgage and instead to force it to seek other

       collection avenues for that debt, including a possible second foreclosure

       proceeding. We would respond that indeed, it would have been more efficient

       for both the first and second mortgages to be resolved in one proceeding, but

       Regions elected not to seek such resolution. Our supreme court observed long

       ago:

               One of the leading purposes of a suit to foreclose a mortgage is to
               secure such a decree as will enable the plaintiff to sell all the right
               and title that his mortgage covers, and enable a purchaser at the
               sale to ascertain what title it is that he buys. To attain this end it
               is necessary that all the claims held against the mortgaged
               premises should be adjusted in one suit. This the spirit of our
               Code requires, for it makes ample provision for bringing all the
               interested parties into court, and for adjusting all conflicting

       5
         Additionally, we offer no opinion as to the effect of our holding today on Regions’s agreement with Jenner
       to release the first mortgage, or the pending sale of the property by Jenner to a third party.

       Court of Appeals of Indiana | Opinion 53A01-1512-MF-2264 | July 21, 2016                       Page 10 of 11
               claims and equities. The rule is a salutary one. It tends to
               repress litigation, gives confidence in public records, secures
               respect for judgments and decrees, and invests sheriff’s sales with
               strength and certainty that does much to promote the interests of
               both debtor and creditor.

       Craighead v. Dalton, 105 Ind. 72, 73, 4 N.E. 425, 426 (1886).

                                                  Conclusion
[15]   The trial court misinterpreted or misapplied the law regarding disbursement of

       surplus sale proceeds following a sheriff’s foreclosure sale. As such, it abused

       its discretion in denying the Edlers’ motion to correct error. We reverse the

       denial of that motion and remand with instructions that the surplus sale

       proceeds be disbursed to Manee.

[16]   Reversed and remanded.

       Vaidik, C.J., and Mathias, J., concur.

       Court of Appeals of Indiana | Opinion 53A01-1512-MF-2264 | July 21, 2016   Page 11 of 11