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Appellate ruling addresses priority rights

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In reversing summary judgment for a home loan company on its complaint for strict foreclosure, the Indiana Court of Appeals specifically adopted the reasoning set forth in a federal decision involving priority rights on liens.

In Citizens State Bank of New Castle v. Countrywide Home Loans, Inc., et al., No. 76A03-0909-CV-423, Citizens State Bank appealed summary judgment in favor of Countrywide Home Loans on its complaint for strict foreclosure and the denial of the bank's motion for summary judgment on its complaint to foreclose judgment lien against Federal National Mortgage Association.

Countrywide held a mortgage on property in which Citizens obtained a default judgment against the owners, which was properly recorded. Just a few months later, Countrywide filed to foreclose on the property and didn't name the bank as a defendant in its complaint to foreclose. Countrywide then got the title to the property at a sheriff's sale, recorded it, and then transferred it to FNMA. After learning about the bank's judgment lien against the property, Countrywide filed its complaint for strict foreclosure against the bank. Citizens State Bank filed its complaint to foreclose its judgment lien on the property against FNMA.

The issue on appeal is what rights, if any, Countrywide or FNMA has regarding Countrywide's attempt at strict foreclosure. Strict forclosure permits a party who has acquired title through or after a foreclosure sale or gotten the title through a deed in lieu of foreclosure to cut off the interests of any junior lienholders who weren't parties to the foreclosure action.

The appellate court relied on Deutsche Bank National Trust Co. v. Mark Dill Plumbing Co., 903 N.E.2d 116 (Ind. Ct. App. 2009), and Brightwell v. United States, 805 F. Supp. 1464 (S.D. Ind. 1992), to overturn the trial court's ruling. In Deutsche, the appellate court held that a lender could not by strict foreclosure simply remove the liens of junior lienholders from the lender's title to the real estate. Brightwell addressed how to determine priority rights of superior and junior lienholders in cases where the superior lienholder has acquired fee simple title by foreclosure sale and no longer holds a mortgage. It also discussed merging the mortgage with the title.

Although the Court of Appeals hasn't had occasion to do so until now, it specifically adopted the reasoning set forth in Brightwell to determine priority rights.

"In light of the purpose of the anti-merger rule, which is to protect the mortgagee's priority and give the mortgagee 'first crack' at a full recovery, there is no valid reason for that mortgage-assertion right to pass to subsequent purchasers or transferees," wrote Judge Terry Crone. "To hold otherwise would permit for double recovery of the mortgage indebtedness, a result clearly not favored in equity and not intended by the anti-merger rule."

By transferring the property to FNMA, Countrywide had first crack at a full recovery ahead of any junior lienholders and no longer had any interest in the property to protect. As such, there was no basis for its mortgage-assertion right to pass to FNMA, the judge continued.

Brightwell correctly states Indiana law regarding priority rights when a foreclosing mortgagee sells the property to a third party.

"When property is transferred for value or resold to a third party, that party cannot then assert what was formerly a superior mortgage lien position against the judgment lien. Rather, the third party takes the property subject to the valid judgment lien. This is fair and just," the judge wrote.

The appellate court remanded with instructions to enter summary judgment for Citizens on Countrywide's complaint and to enter summary judgment for the bank on its complaint to foreclose judgment lien.

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  1. This law is troubling in two respects: First, why wasn't the law reviewed "with the intention of getting all the facts surrounding the legislation and its actual impact on the marketplace" BEFORE it was passed and signed? Seems a bit backwards to me (even acknowledging that this is the Indiana state legislature we're talking about. Second, what is it with the laws in this state that seem to create artificial monopolies in various industries? Besides this one, the other law that comes to mind is the legislation that governed the granting of licenses to firms that wanted to set up craft distilleries. The licensing was limited to only those entities that were already in the craft beer brewing business. Republicans in this state talk a big game when it comes to being "business friendly". They're friendly alright . . . to certain businesses.

  2. Gretchen, Asia, Roberto, Tonia, Shannon, Cheri, Nicholas, Sondra, Carey, Laura ... my heart breaks for you, reaching out in a forum in which you are ignored by a professional suffering through both compassion fatigue and the love of filthy lucre. Most if not all of you seek a warm blooded Hoosier attorney unafraid to take on the government and plead that government officials have acted unconstitutionally to try to save a family and/or rescue children in need and/or press individual rights against the Leviathan state. I know an attorney from Kansas who has taken such cases across the country, arguing before half of the federal courts of appeal and presenting cases to the US S.Ct. numerous times seeking cert. Unfortunately, due to his zeal for the constitutional rights of peasants and willingness to confront powerful government bureaucrats seemingly violating the same ... he was denied character and fitness certification to join the Indiana bar, even after he was cleared to sit for, and passed, both the bar exam and ethics exam. And was even admitted to the Indiana federal bar! NOW KNOW THIS .... you will face headwinds and difficulties in locating a zealously motivated Hoosier attorney to face off against powerful government agents who violate the constitution, for those who do so tend to end up as marginalized as Paul Odgen, who was driven from the profession. So beware, many are mere expensive lapdogs, the kind of breed who will gladly take a large retainer, but then fail to press against the status quo and powers that be when told to heel to. It is a common belief among some in Indiana that those attorneys who truly fight the power and rigorously confront corruption often end up, actually or metaphorically, in real life or at least as to their careers, as dead as the late, great Gary Welch. All of that said, I wish you the very best in finding a Hoosier attorney with a fighting spirit to press your rights as far as you can, for you do have rights against government actors, no matter what said actors may tell you otherwise. Attorneys outside the elitist camp are often better fighters that those owing the powers that be for their salaries, corner offices and end of year bonuses. So do not be afraid to retain a green horn or unconnected lawyer, many of them are fine men and woman who are yet untainted by the "unique" Hoosier system.

  3. I am not the John below. He is a journalist and talk show host who knows me through my years working in Kansas government. I did no ask John to post the note below ...

  4. "...not those committed in the heat of an argument." If I ever see a man physically abusing a woman or a child and I'm close enough to intercede I will not ask him why he is abusing her/him. I will give him a split second to cease his attack and put his hands in the air while I call the police. If he continues, I will still call the police but to report, "Man down with a gunshot wound,"instead.

  5. And so the therapeutic state is weaonized. How soon until those with ideologies opposing the elite are disarmed in the name of mental health? If it can start anywhere it can start in the hoosiers' slavishly politically correct capital city.

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