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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. He TIL team,please zap this comment too since it was merely marking a scammer and not reflecting on the story. Thanks, happy Monday, keep up the fine work.

  2. You just need my social security number sent to your Gmail account to process then loan, right? Beware scammers indeed.

  3. The appellate court just said doctors can be sued for reporting child abuse. The most dangerous form of child abuse with the highest mortality rate of any form of child abuse (between 6% and 9% according to the below listed studies). Now doctors will be far less likely to report this form of dangerous child abuse in Indiana. If you want to know what this is, google the names Lacey Spears, Julie Conley (and look at what happened when uninformed judges returned that child against medical advice), Hope Ybarra, and Dixie Blanchard. Here is some really good reporting on what this allegation was: http://media.star-telegram.com/Munchausenmoms/ Here are the two research papers: http://www.sciencedirect.com/science/article/pii/0145213487900810 http://www.sciencedirect.com/science/article/pii/S0145213403000309 25% of sibling are dead in that second study. 25%!!! Unbelievable ruling. Chilling. Wrong.

  4. Mr. Levin says that the BMV engaged in misconduct--that the BMV (or, rather, someone in the BMV) knew Indiana motorists were being overcharged fees but did nothing to correct the situation. Such misconduct, whether engaged in by one individual or by a group, is called theft (defined as knowingly or intentionally exerting unauthorized control over the property of another person with the intent to deprive the other person of the property's value or use). Theft is a crime in Indiana (as it still is in most of the civilized world). One wonders, then, why there have been no criminal prosecutions of BMV officials for this theft? Government misconduct doesn't occur in a vacuum. An individual who works for or oversees a government agency is responsible for the misconduct. In this instance, somebody (or somebodies) with the BMV, at some time, knew Indiana motorists were being overcharged. What's more, this person (or these people), even after having the error of their ways pointed out to them, did nothing to fix the problem. Instead, the overcharges continued. Thus, the taxpayers of Indiana are also on the hook for the millions of dollars in attorneys fees (for both sides; the BMV didn't see fit to avail itself of the services of a lawyer employed by the state government) that had to be spent in order to finally convince the BMV that stealing money from Indiana motorists was a bad thing. Given that the BMV official(s) responsible for this crime continued their misconduct, covered it up, and never did anything until the agency reached an agreeable settlement, it seems the statute of limitations for prosecuting these folks has not yet run. I hope our Attorney General is paying attention to this fiasco and is seriously considering prosecution. Indiana, the state that works . . . for thieves.

  5. I'm glad that attorney Carl Hayes, who represented the BMV in this case, is able to say that his client "is pleased to have resolved the issue". Everyone makes mistakes, even bureaucratic behemoths like Indiana's BMV. So to some extent we need to be forgiving of such mistakes. But when those mistakes are going to cost Indiana taxpayers millions of dollars to rectify (because neither plaintiff's counsel nor Mr. Hayes gave freely of their services, and the BMV, being a state-funded agency, relies on taxpayer dollars to pay these attorneys their fees), the agency doesn't have a right to feel "pleased to have resolved the issue". One is left wondering why the BMV feels so pleased with this resolution? The magnitude of the agency's overcharges might suggest to some that, perhaps, these errors were more than mere oversight. Could this be why the agency is so "pleased" with this resolution? Will Indiana motorists ever be assured that the culture of incompetence (if not worse) that the BMV seems to have fostered is no longer the status quo? Or will even more "overcharges" and lawsuits result? It's fairly obvious who is really "pleased to have resolved the issue", and it's not Indiana's taxpayers who are on the hook for the legal fees generated in these cases.

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