In a ruling from the Indiana Supreme Court on an issue of first impression, two of the state's five justices fear a new holding will have far-reaching impact not only on the forfeiture cases at issue, but also mortgage foreclosure cases impacting the commercial and industrial real estate world.
Justices issued a ruling Thursday in Keith Myers v. Wesley C. Leedy, No. 85S02-0808-CV-478, unanimously granting transfer and agreeing in result, but disagreeing on the scope of the ruling issued by the court.
Deciding a Wabash County case, the justices held that a tenant's leasehold interest in a forfeiture action survives when a land contract vendor files suit and knows or should have known that the tenant has possession of the property. Unless of course, that tenant is made a party to pending litigation.
While all five agreed with the end result, Chief Justice Randall T. Shepard and Justice Frank Sullivan issued a concurring opinion that said the majority went too far in issuing a rule that impacts not only forfeiture cases, but also mortgage cases, and the court shouldn't have used this case to "alter the property interests of owners and lenders in billions of dollars of commercial and industrial real estate."
The case involves 200 acres of Fulton County farmland, which Eli John Yoder was buying from Keith Myers in installments. The land included crops that Yoder was supposed to own as soon as the crops came in for the season. Of that total acreage, about 160 acres were tillable soil and Myers then entered a lease agreement with Wesley Leedy to get $100 per acre for the land Leedy was farming. But in late 2004, Myers filed a complaint against Yoder for a breach of the original land sale contract; Leedy wasn't a party to that action. Settlement agreements didn't materialize and Leedy continued farming the property for the 2005 season and the early part of 2006.
Yoder was later found in default of that land sale contract, and the trial court decided his forfeiture of any interest in the property was the most appropriate remedy. When Leedy began farming the property following the court ruling in May 2006, Myers ordered him off the property and then rented the property to someone else for $125 an acre. Claiming damages of $36,760, Leedy filed a complaint against Myers for not allowing him to finish his farming – as the agreement with Yoder would have allowed. The trial court later came back with a judgment in Leedy's favor, finding that Yoder had the right to cash rent the real estate prior to the court ruling and that, since Leedy had started planting in March 2006, his interest survived the later ruling in May – he should have been able to finish the season out, the court ruled.
On appeal, the Indiana Court of Appeals issued a memorandum decision in April 2008 that reversed on grounds the tenancy didn't survive because Leedy had both constructive and actual notice of the breach of contract when he entered into the 2006 lease.
The justices granted transfer and affirmed the trial court, finding that Leedy's property interest wasn't extinguished because he wasn't included in the original breach of land contract action between Myers and Yoder.
But while concurring in result, Chief Justice Shepard and Justice Sullivan disagreed with how far the majority used it to alter the landscape on this issue and even for mortgage foreclosure cases.
"Principles from mortgage foreclosure laws are thus helpful to resolving the present case," the chief justice wrote. "By the same token, the majority makes it quite clear that it intends the legal rule announced in this case to govern future decisions in mortgagor/mortgagee cases, a vastly larger and more complex part of the state's economy."
He continued, "Importing the open-ended idea of equity into the complicated, largely statutory system which governs the massive interests of commercial real estate mortgages, applying it to past and present financial commitments, and declaring that all subordinate unrecorded or informal possessors survive unaffected by foreclosure unless the lender undertakes to obtain service of process on all of them is really quite remarkable.
"I perceive that today's ruling is not really consonant with prevailing national doctrine on mortgages, but would put off that debate until such moment as we might have before us parties like mortgage lenders and owner/mortgagors of apartment buildings, shopping centers, or other commercial or industrial real estate whose world is being altered by today's declaration."