The Indiana Court of Appeals reversed the holding of a Lake County court that allowed the mortgage holder of a restaurant in Merrillville to immediately take possession of the parcel of land. Under Indiana law, the parcel should go into a sheriff’s sale, the majority held.
In Merrillville 2548, Inc. successor to Merrillville GC 2548, Inc.v. BMO Harris Bank N.A. f/k/a Harris N.A., as the assignee of the Federal Deposit Insurance Corporation as the receiver for Amcore Bank, 45A03-1409-MF-345, Merrillville 2548 Inc., referred to in the opinion as GC 2548, appealed the decision by the trial court that it had failed to establish equitable assignment of a lease had occurred. MCSS Merrillville LLC executed a promissory note and mortgage with a bank, which were later assigned to BMO Harris Bank N.A. The lease, which allowed for the operation of a Golden Corral, prohibited MCSS from assigning the lease or subletting the parcel. But for the majority of the time the mortgage was in place, GC 2548 has actually operated the restaurant. It was never made party to the lease and there was no assignment of rights under the lease from MCSS to GC 2548.
In 2013, BMO Harris sued for breach of contract, to foreclose on the property and appointment of receiver. GC 2548 intervened, but the trial court ruled that the bank’s default judgment against borrower allowed it to foreclose on its interest in the parcel; Article 9.1 of the Indiana Uniform Commercial Code dictated the results of this case; and GC 2548 had 30 days to vacate the parcel.
The Court of Appeals concluded that GC 2548 had preserved its equitable assignment claim for appellate review, but that it failed to show the trial court erred in finding that equitable assignment of the lease did not occur. The judges pointed out that there is no evidence that GC 2548 made a single payment on the note, and the fact that the company had made improvements to the parcel does not necessarily support that it had taken over the parcel.
But the trial court erred in finding Article 9.1 of the UCC applies to leasehold mortgages. By ruling that it does, the trial court allowed for BMO Harris to immediately take possession of the parcel. But Article 9.1 does not include leaseholds on real property, so it does not apply to leasehold mortgages, Judge Cale Bradford wrote. A leasehold mortgage foreclosure is governed by Indiana statutory law regarding real estate mortgages, so I.C. 32-30-10 applies. The majority ordered the parcel of land to be placed in a sheriff’s sale, pursuant to I.C. 32-30-10.
Chief Judge Nancy Vaidik dissented on this issue, writing that GC 2548 is at best a month-to-month tenant, not a lessee or mortgagor, so it lacks any interest in the parcel that certain mortgage foreclosure proceedings are designed to protect.
“As a month-to-month tenant, GC 2548’s interest in the property was thirty days’ possession, and had there been no mortgage-foreclosure action, GC 2548 would have been entitled to thirty days’ notice before eviction, nothing more,” she wrote, noting she would affirm the bank’s right to take possession of the land in 30 days time.