COA reverses priority status for junior creditor in foreclosure

September 22, 2015

A bank that extended a $25,000 home equity line of credit to owners of a Newburgh property that subsequently was foreclosed was not entitled to a court ruling that gave its claim priority status.

The Indiana Court of Appeals reversed summary judgment in favor of German American in long-running litigation that began in March 2008. The financial institution issued the line of credit on a property that had an outstanding mortgage of more than $700,000.

The trial court didn’t abuse its discretion in setting aside default judgment against Bank of Evansville, but the court’s ruling in favor of German American granting its previously subordinate lien a first priority under the merger doctrine was an abuse of discretion.

“Considerations of the doctrines of merger and strict foreclosure played no part in the expectations that German American had when it granted (the former owners) their loan,” Judge James Kirsch wrote for the panel in U.S. Bank, et al. v. R. Glenn Miller, Jr. et al.; German American Bankcorp v. R. Glenn Miller, Jr., et al., 87A01-1409-MF-366.

“Pursuant to I.C. § 32-29-8-4, German American is not entitled to the priority lien it obtained from the trial court. This application of this statute is what our legislature intended and is consistent with an equitable result,” Kirsch wrote.



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