Court Opinion

ID: 2724473
Source: CourtListenerOpinion
Date Created: 2014-09-08 20:37:43.873267+00
Date Added: 2024-06-11T15:42:38.424999
License: Public Domain

Pursuant to Ind.Appellate Rule 65(D),
this Memorandum Decision shall not be
regarded as precedent or cited before any                                Aug 20 2014, 9:29 am
court except for the purpose of
establishing the defense of res judicata,
collateral estoppel, or the law of the case.

ATTORNEY FOR APPELLANT:                         ATTORNEY FOR APPELLEE:

BRENT WELKE                                     JEFFREY C. GERISH
Indianapolis, Indiana                           Plunkett Cooney
                                                Bloomfield Hills, Michigan

                              IN THE
                    COURT OF APPEALS OF INDIANA

CITI CAPITAL FINANCIAL LLC,                     )
                                                )
       Appellant-Defendant,                     )
                                                )
              vs.                               )      No. 29A02-1307-PL-643
                                                )
HUNTINGTON NATIONAL BANK,                       )
                                                )
       Appellee-Plaintiff.                      )

                    APPEAL FROM THE HAMILTON SUPERIOR COURT
                           The Honorable William J. Hughes, Judge
                       The Honorable William P. Greenaway, Magistrate
                              Cause No. 29D03-0808-PL-1062

                                     August 20, 2014

                MEMORANDUM DECISION - NOT FOR PUBLICATION

BARTEAU, Senior Judge
                              STATEMENT OF THE CASE

       Citi Capital Financial, LLC, appeals from the trial court’s order granting partial

summary judgment in favor of Huntington National Bank in a lien priority dispute between

the two entities, contending that the trial court erred by giving effect to Huntington’s

mortgage notwithstanding the mistaken legal description contained in the mortgage

document, and despite the fact that Mortgage Electronic Registration Systems, Inc.

(“MERS”) was named in the mortgage document as the nominee and mortgagee before

assigning its interest. We affirm.

                        FACTS AND PROCEDURAL HISTORY

       On August 30, 2007, Crown Residential Group, LLC f/k/a Crown Custom Homes,

Charles Brown, Adolph L. Buckner, Aaron Coffer, and Kendrick L. Coleman (collectively

“Crown”) obtained a warranty deed on property purchased from The Marina Limited

Partnership. The legal description of the property was as follows:

       Lot Number Ninety-six (96) in Canal Place, Section Two, a subdivision in
       Hamilton County, Indiana, as per plat thereof, recorded as Instrument NO.
       200400012292 in Plat Cabinet 3 Slide 355, in the Office of the Recorder of
       Hamilton County, Indiana.

Appellant’s App. at 315. In connection with that purchase Crown executed a promissory

note in the amount of $825,000.00 in favor of Huntington. HBI Title Services, Inc.,

Huntington’s full-service title company, was the closing agent for this loan. As such, HBI

provided loan closing, title clearing, and title insurance services, and a HBI escrow agent

was present at the closing. The Huntington Note was secured by a mortgage granted by

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                   1
Crown to MERS as nominee for Huntington on real property commonly known as 10881

Harbor Bay Drive, Fortville, Indiana, 46060-9012. The Huntington Mortgage, however,

contained the following incorrect legal description:

        Lot No. 36 in Section Three of Cardinal Woods, as per plat thereof recorded
        on May 1, 1985 as instrument no. 85-1765 in the office of the Recorder of
        Hancock County, Indiana.

Appellee’s App. at 26. The Huntington Mortgage contained the correct common address

of the real property the parties had agreed would be subject to the mortgage. When the

Huntington Mortgage was recorded on September 6, 2007, as instrument number

2007050747 in the Office of the Recorder of Hamilton County, Indiana, the word

“Hancock” was stricken and the word “Hamilton” was typed below the space where the

word “Hancock” had appeared. Id. The parties do not dispute that the legal description

contained in the Huntington Mortgage is incorrect.

        Jennifer J. Hayden, the Hamilton County Recorder at the time, averred in her

affidavit that although the Huntington Mortgage was recorded in Hamilton County, it was

not indexed against any lot in Hamilton County because the legal description could not be

matched with any parcel of real estate there. Appellant’s App. at 148.

        Crown executed a balloon promissory note in the amount of $350,000.00 in favor

1
  “In the mid-1990s . . . a consortium of investment banks created Mortgage Electronic Registration
Systems, Inc. (MERS). MERS maintains ‘a computer database designed to track servicing and ownership
rights of mortgage loans anywhere in the United States.’ MERS member banks list MERS as both
‘nominee’ for Lender and as ‘mortgagee’ on their mortgage documents. MERS member banks can then
buy and sell the note among themselves without recording an assignment of the mortgage. In the event of
default, MERS simply assigns the mortgage to whichever member bank currently owns the note, and that
bank forecloses on the borrower. Today, about 60 percent of the nation’s residential mortgages are recorded
in the name of MERS rather than in the name of the bank, trust, or company that actually has a meaningful
economic interest in the repayment of the debt.” Citimortgage v. Barabas, 975 N.E.2d 805, 809 (Ind. 2012)
(internal citations omitted).

                                                    3
of Citi Capital. The Citi Capital Note referred to the correct legal and common description

of the property. The Citi Capital Note was secured by an open line of credit mortgage on

the property and also contained the correct legal and common description of the property

to be encumbered. The Citi Capital Mortgage was recorded on February 20, 2009 as

instrument number 2009008665 in the Hamilton County Recorder’s Office.

       Citi Capital’s managing member and authorized signer was Steven M. Rosenbaum.

Rosenbaum was also a realtor and acted as an originator or broker regarding financing for

houses. Rosenbaum and Brown, who was the general manager of Crown, had been

business associates for a number of years. Rosenbaum had presented the purchase of the

property to Brown and was present at the closing of the construction loan Crown executed

with Huntington.

       On October 6, 2008, Crown granted a mortgage on the property to Greenfield

Banking Company in the amount of $72,000.00, which partially secured a promissory note

executed on that date by Crown in the principal amount of $491,881.69. The Greenfield

Mortgage was recorded on October 20, 2008 as instrument number 2008052814 in the

Hamilton County Recorder’s Office.

       MERS assigned the Huntington Mortgage to Huntington in a document dated May

28, 2009.   The assignment was recorded in Hamilton County on June 16, 2009 as

instrument number 2009036245.

       In his deposition, Rosenbaum stated that after Huntington had advanced

approximately $670,000.00 toward construction costs, a question arose about the social

security number Brown had supplied to Huntington. Thereafter, Huntington ceased to

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allow Crown to draw for construction costs. Without that funding, Crown did not pay

several contractors. Five of those contractors filed mechanic’s liens against the property

in the Hamilton County Recorder’s Office.                  The trial court ultimately granted the

mechanic’s lienholders’ motions for summary judgment in their foreclosure actions,

finding that the liens were superior to other liens because they had been validly entered on

the correct legal description prior to other liens, and that the lienholders should share on a

pari passu basis. The judgments on those mechanic’s liens were assigned to Lawyers Title

Insurance Corporation. Fidelity National Title Insurance Company is the successor by

merger with Lawyers.

        Huntington did not defend in the action involving the mechanic’s liens, but filed an

action against all other parties, except for Citi Capital, on June 5, 2009. Huntington’s

action was consolidated with the prior action involving the mechanic’s liens. Citi Capital

filed motions to intervene in both actions, and sought relief from judgment contending that

while its mortgage was inferior to the mechanic’s liens, its mortgage was superior to the

Huntington (MERS) Mortgage. Citi Capital was allowed to intervene, and an order was

entered on August 5, 2009, for a sheriff’s sale of the property. On September 24, 2009,

two of the mechanic’s lienholders filed a motion to strike Huntington’s complaint2 alleging

that Huntington did not have a lien on the actual premises. The trial court struck the

complaint by order entered on October 20, 2009.

2
   Although the motions to strike filed on September 24, 2009, make reference to an “amended complaint,”
it is apparent from the record before us that the motions referred to the original complaint filed on June 5,
2009. Huntington’s “Amended Complaint” was not filed until October 6, 2009, and the order granting the
motions was entered on October 19, 2009, and filed on October 20, 2009. All parties have proceeded as if
the Amended Complaint filed on October 6, 2009, is the pertinent complaint giving rise to these issues.

                                                     5
       Huntington filed an amended complaint to foreclose on the property naming

additional parties on October 6, 2009. Attached to the complaint was the mortgage with

MERS listed as nominee for Huntington and with the county name “Hancock” stricken and

the word “Hamilton” typed underneath. Despite the change to attempt to reflect the correct

county, the legal description remained incorrect in all other respects in that mortgage. Also

in the amended complaint, was the valid legal description of the property intended to be

encumbered by the Huntington Mortgage and a request for reformation of the mortgage to

correct the “scrivener’s error.” Appellant’s App. at 98, 103.

       On December 3, 2009, a joint motion for summary judgment was filed against

Huntington, alleging that the actual property could not be located with certainty based on

the legal description provided in the Huntington Mortgage. The trial court entered a

judgment finding that the interests of the mechanic’s lienholders was superior to those of

the remaining parties, Citi Capital, Huntington, and Greenfield, but without determining

the validity and priority of those other mortgages.

       Huntington and Citi Capital filed cross motions for summary judgment to resolve

the issue of lien priority. In June of 2010, Greenfield filed a stipulation of lien priority in

which Greenfield and Huntington agreed that Huntington’s mortgage took priority over

Greenfield’s mortgage. In an order from a hearing held on November 15, 2011, the trial

court concluded that Huntington’s mortgage created a valid security interest in the property

that had lien priority over the mortgage held by Citi Capital. The trial court later entered

an order on June 28, 2013, declaring its prior order to be a final appealable order. Citi

Capital now appeals.

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                            DISCUSSION AND DECISION

      This appeal is from an order on cross-motions for summary judgment. Our analysis

proceeds from the premise that “[s]ummary judgment is a lethal weapon and courts must

be ever mindful of its aims and targets and beware of overkill in its use.” Schrum v.

Moskaluk, 655 N.E.2d 561, 564 (Ind. Ct. App. 1995) (citing Place v. Sagamore Ctr, Inc.,

604 N.E.2d 671, 673 (Ind. Ct. App. 1992), trans. denied).          Summary judgment is

appropriate only if there are no genuine issues of material fact and the moving party is

entitled to judgment as a matter of law. Ind. T.R. 56(C); Brown v. Banta, 682 N.E.2d 582,

584 (Ind. Ct. App. 1997).

      In the instant case, the trial court entered specific findings of fact and conclusions

of law thereon. Although such findings aid appellate review, they are not binding on this

court. Reid v. Ragsdale, 702 N.E.2d 367, 369 (Ind. Ct. App. 1998) (citing Althaus v.

Evansville Courier Co., 615 N.E.2d 441, 444 (Ind. Ct. App. 1993)). Instead, when

reviewing an entry of summary judgment, we stand in the shoes of the trial court. Simms

v. Schweikher, 651 N.E.2d 348, 349 (Ind. Ct. App. 1995), trans. denied. We do not weigh

the evidence but will consider the designated facts in the light most favorable to the

nonmoving party. Id. (citing Reed v. Luzny, 627 N.E.2d 1362, 1363 (Ind. Ct. App. 1994),

trans. denied). All doubts as to the existence of a factual issue must be resolved in the

nonmovant’s favor. Schrum, 655 N.E.2d at 564 (citing Thornhill v. Deka-Di Riding

Stables, 643 N.E.2d 983, 986 (Ind. Ct. App. 1994), trans. denied), trans. denied.

      When a trial court grants summary judgment, we carefully scrutinize that

determination to ensure that a party was not improperly prevented from having his or her

                                            7
day in court. Cox v. N. Ind. Pub. Serv. Co., Inc., 848 N.E.2d 690, 695-96 (Ind. Ct. App.

2006). In this case, the parties filed cross-motions for summary judgment. However, the

fact that cross-motions for summary judgment were made does not alter our standard of

review. Mahan v. Am. Standard Ins. Co., 862 N.E.2d 669, 676 (Ind. Ct. App. 2007), trans.

denied. “Instead, we must consider each motion separately to determine whether the

moving party is entitled to judgment as a matter of law.” Ind. Farmers Mut. Ins. Group v.

Blaskie, 727 N.E.2d 13, 15 (Ind. Ct. App. 2000).

         “In order for a mortgage to be effective, it must contain a description of the land

intended to be covered sufficient to identify it.” Keybank Nat. Ass’n v. NBD Bank, 699

N.E.2d 322, 326 (Ind. Ct. App. 1998). “The test for determining the sufficiency of a legal

description is whether the tract intended to be mortgaged can be located with certainty by

referring to the description.” Id.

         The purpose of the recording statute, IND.CODE § 32-1-2-16,3 is to provide
         protection to subsequent purchasers, lessees, and mortgagees. Instruments
         will have priority according to the time of the filing thereof. A record outside
         the chain of title does not provide notice to bona fide purchasers for value.
         The recording of an instrument in its proper book is fundamental to the
         scheme of providing constructive notice through the records. The duty rests
         on the lienholder to ensure that his mortgage is properly recorded within the
         chain of title.

Id. at 327 (internal citations omitted and footnote added).

         It is undisputed that the legal description in the Huntington Mortgage does not

describe the property to be encumbered by the mortgage. At the hearing on the motion for

summary judgment, counsel for Huntington conceded that the mortgage was not in the

3
    Now located at Ind. Code §32-21-4-1 (2008).

                                                  8
chain of title for the property. Therefore, Huntington also conceded that it could not rely

on constructive notice to support its argument in favor of lien priority, but instead was

relying on actual notice. Huntington claims that because Rosenbaum was present at the

closing, he had actual notice of the existence of the Huntington Mortgage, and as he was

Citi Capital’s only employee, Citi Capital had actual notice as well. Evidence designated

to the trial court supports a finding that Rosenbaum was present at the closing and had

actual notice of the Huntington Mortgage. Consequently, Citi Capital had actual notice of

the Huntington Mortgage.

       Actual knowledge of the intention to hold a mortgage, however, does not cure the

defective legal description contained in the mortgage document, such that the mortgage is

considered to be valid. Huntington sought reformation of the mortgage to reflect the

correct legal description, but the trial court’s order did not explicitly grant that equitable

remedy. Our Supreme Court has stated,

       It is undoubtedly the law that an erroneous description of real estate in a
       mortgage that is full, and consistently complete within itself, and clearly and
       correctly identifies another body of land, will not be reformed to embrace an
       entirely different tract, to the prejudice of a subsequent mortgagee, who
       accepted his mortgage in ignorance of the mistake, and in bona fide reliance
       upon the appearance of the public record.

Rinehardt v. Reifers, 64 N.E. 459, 459 (Ind. 1902).

       Although Huntington requested reformation based on what it characterized as a

scrivener’s error, the legal description here contains more than a typographical error, see

Keybank, 699 N.E.2d at 326 (typographical error did not nullify mortgage), and does not

simply encompass more property than was intended to be encumbered, see Matter of Estate

                                              9
of Lawrence, 565 N.E.2d 357, 359 (Ind. Ct. App. 1991) (legal description encompassing

more property than intended to be encumbered nonetheless valid). The mortgage although

recorded, albeit outside the chain of title, could not be indexed. The mortgage would seem

to be invalid. However, additional designated evidence supports the trial court’s decision

on these fairly unique facts.

       “In reviewing a trial court’s grant of summary judgment, we may use alternate legal

theories to affirm the order if they are found in the designated materials.” Squires v.

Utility/Trailers of Indianapolis, Inc., 686 N.E.2d 416, 419 (Ind. Ct. App. 1997) (citing

Snyder v. Cobb, 638 N.E.2d 442, 447 (Ind. Ct. App. 1994)). “Similarly, ‘[w]e will affirm

the grant of summary judgment if it is sustainable on any theory or basis in the evidentiary

matter designated to the court.’” Id. (quoting Short v. Haywood Printing Co., Inc., 667

N.E.2d 209, 211 (Ind. Ct. App. 1996), reh’g denied, trans. denied, 683 N.E.2d 582)).

       Huntington’s amended complaint sought reformation of the mortgage instrument

and set forth the correct legal description of the property to be encumbered in addition to

the incorrect legal description set forth in the mortgage. Brown’s affidavit was also

designated to the trial court. In pertinent part, that affidavit avers as follows:

       3. That closing was held by and all documents prepared by or at the behest
       of HBI Title Services, Inc. and/or Huntington Title Services, Inc., which
       were disclosed by an Affiliated Business Arrangement Disclosure distributed
       in the closing packet to be wholly owned indirect subsidiaries of Huntington.

       4. That neither Brown nor Crown had any input into the preparation of the
       closing documents, but instead relied upon the accuracy and expertise of
       Huntington’s closing subsidiaries, and did not notice at the time that Crown
       would not own the land that would be encumbered of record.

       ....

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      7. Said Mortgage was secured by a purported lien upon the following
      described land:
      “LOT NO. 36 IN SECTION THREE OF CARDINAL WOODS, AS PER
      PLAT THEREOF RECORDED ON MAY 1, 1985 AS INSTRUMENT NO.
      85-1765 IN THE OFFICE OF THE RECORDER OF HANCOCK COUNTY
      INDIANA”

      8. Neither Brown nor Crown participated further in the recording of the
      Mortgage after the closing.

      ....

      10. A great while later Brown learned that the land description on the
      Mortgage as recorded contained an interlineation which changed the county
      as Brown had executed it in Paragraph 7 above from “Hancock” to
      “Hamilton”.

      ....

      12. That neither Brown nor Crown has ever been contacted by Huntington
      or MERS or anyone claiming to be associated with them to correct the
      Mortgage to MERS to cause a replacement mortgage to be executed which
      actually encumbered the property owned by Crown.

      13. That Brown has at all times been aware that at closing Crown signed the
      attached Error and Omissions/Compliance Agreement.

      14. Crown would have signed a replacement mortgage upon request
      pursuant to said Agreement if Huntington or MERS would have first released
      the subject Mortgage and executed or prepared any curative conveyances or
      documents which would release any liability Crown would have to the
      owners of the land described in the aforesaid Paragraph 7, which Brown has
      determined is an actual tract in Hancock County, Indiana, but neither Brown
      nor Crown has ever been called on to perform pursuant to that Agreement.

Appellant’s App. p. 206-07.

      It is clear from those materials that the original mortgage does not describe the

property that the parties intended it to control. We addressed a similar scenario in

Beneficial Financial I Inc. v. Hatton, 998 N.E.2d 232 (Ind. Ct. App. 2013). In that case,

                                           11
the parties were in agreement that the mortgage did not describe the property intended to

be encumbered and reformation was sought. We stated the following:

      Also, the boilerplate law that governs this situation is not in dispute. These
      principles were set out in Estate of Reasor v. Putnam Cnty., 635 N.E.2d 153,
      158 (Ind. 1994), as follows:

             [R]eformation is “an extreme equitable remedy to relieve the
             parties of mutual mistake or of fraud. Board of Comm’rs of
             Hamilton County v. Owens (1894), 138 Ind. 183, 186, 37 N.E.
             602.” The remedy of reformation is extreme because written
             instruments are presumed to reflect the intentions of the parties
             to those instruments.

             In cases involving mutual mistake such as this one, the party
             seeking reformation must establish the true intentions of the
             parties to an instrument, that a mistake was made, that the
             mistake was mutual, and that the instrument therefore does not
             reflect the true intentions of the parties. As the Court of
             Appeals in Pearson explained:

                    The primary purpose of reformation is to
                    effectuate the common intentions of all parties to
                    an instrument which were incorrectly reduced to
                    writing. It follows that a grant of reformation is
                    necessarily     predicated    upon      a    prior
                    understanding between all parties on essential
                    terms. Otherwise, there would be no standard to
                    which an instrument could be reformed.

             [Pearson v. Winfield, 160 Ind.App. 613, 618-19, 313 N.E.2d
             95, 99 (1974).]

      (Footnote and some citations to authority omitted.) The Court added that “a
      party seeking reformation must also show the original intent or agreement of
      the parties by clear and convincing evidence.” Id. at 159. Thus, in order to
      prevail, it was incumbent upon Beneficial to prove by clear and convincing
      evidence that the original intent of Beneficial and the Hattons was to describe
      a different piece of real estate than that which was in fact described in the
      mortgage instrument.

Beneficial, 998 N.E.2d at 235.

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       Therefore, the trial court’s summary judgment is affirmable because Huntington

established by clear and convincing evidence the intent of the parties, that a mistake was

made that was mutual, and that reformation is appropriate because the legal description

contained in the mortgage does not reflect the true intentions of the parties.

       Citi Capital also argues that its mortgage takes priority for the additional reason that

MERS was the nominee of the Huntington mortgage, and MERS’s assignment of the

mortgage to Huntington determines the relevant date for purposes of lien priority. Citi

Capital asserts that because its mortgage contained the correct legal and common address

for the property and was recorded prior to the MERS assignment, its mortgage has priority.

       In Barabas, our Supreme Court re-emphasized, with respect to an assignment from

MERS to a member bank, that “[t]he assignee of rights under a contract stands in the shoes

of the assignor and can assert any rights that the assignor could have asserted.” 975 N.E.2d

at 813. Here, as in Barabas, the parties intended to designate MERS as an agent of the

lender, in this case, Huntington.        Although the issue in Barabas had to do with

Citimortgage’s ability to intervene in a mortgage foreclosure action, when the mortgage

was assigned from one member bank to another, MERS’s role in the transaction was

defined as that of holding bare legal title to the mortgage, but not as owner of the note, and

as an agent of the holder of the note.

       Additionally, in Lunsford v. Deutsche Bank Trust Co. Americas as Trustee, 996

N.E.2d 815 (Ind. Ct. App. 2013), we were asked to review a lien priority dispute between

a holder of a land contract, Lunsford, and the holder of a promissory note and mortgage,

Deutsche Bank. MERS was the nominee of the original holder of the promissory note, and

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that promissory note and mortgage was recorded. The promissory note ultimately was

endorsed to Deutsche Bank and MERS’s assignment of the mortgage to Deutsche Bank

was recorded. The assignment from MERS occurred after Lunsford recorded the land

contract, which was recorded after the original recording of the promissory note and

mortgage. Lunsford contended that the date of the assignment from MERS to Deutsche

Bank controlled the lien priority issue between him and Deutsche Bank. We concluded,

however, citing Indiana Code sections 32-21-4-1 through 2, that the recording of the

original mortgage perfects a lien on the real estate.      Lunsford, 996 N.E.2d at 822.

Therefore, the recording of the original mortgage, which occurred more than six months

before recording of the land contract, was senior in priority to the land contract. Id.

Similarly here, the recording of the mortgage entitles Huntington to senior priority over

Citi Capital regardless of the date of MERS’s assignment to Huntington.

                                     CONCLUSION

      In light of the foregoing, we affirm the trial court’s judgment.

      Affirmed.

ROBB, J., and BRADFORD, J., concur.

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