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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. Frankly, it is tragic that you are even considering going to an expensive, unaccredited "law school." It is extremely difficult to get a job with a degree from a real school. If you are going to make the investment of time, money, and tears into law school, it should not be to a place that won't actually enable you to practice law when you graduate.

  2. As a lawyer who grew up in Fort Wayne (but went to a real law school), it is not that hard to find a mentor in the legal community without your school's assistance. One does not need to pay tens of thousands of dollars to go to an unaccredited legal diploma mill to get a mentor. Having a mentor means precisely nothing if you cannot get a job upon graduation, and considering that the legal job market is utterly terrible, these students from Indiana Tech are going to be adrift after graduation.

  3. 700,000 to 800,000 Americans are arrested for marijuana possession each year in the US. Do we need a new justice center if we decriminalize marijuana by having the City Council enact a $100 fine for marijuana possession and have the money go towards road repair?

  4. I am sorry to hear this.

  5. I tried a case in Judge Barker's court many years ago and I recall it vividly as a highlight of my career. I don't get in federal court very often but found myself back there again last Summer. We had both aged a bit but I must say she was just as I had remembered her. Authoritative, organized and yes, human ...with a good sense of humor. I also appreciated that even though we were dealing with difficult criminal cases, she treated my clients with dignity and understanding. My clients certainly respected her. Thanks for this nice article. Congratulations to Judge Barker for reaching another milestone in a remarkable career.

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