A Floyd County trial court cannot order debtors to make monthly payments toward a mortgage, taxes and insurance premiums in a foreclosure case without first holding a hearing on the debtors’ ability to pay, a divided Indiana Court of Appeals held Tuesday.
In November 2004, L. Ray Yeager and Phyllis Yeager executed a promissory note in favor of First Bank Inc., promising to make monthly payments of $1,871.61 and a mortgage granting a security interest in their residential real estate in Floyd County in favor of First Bank and Mortgage Electronic Registration Systems Inc.
A July 2011 assignment of the mortgage assigned it to Deutsche Bank. In January 2012, Deutsche filed a complaint for foreclosure of note and mortgage alleging that the Yeagers had defaulted on the promissory note by failing to make payments. A default judgment and decree against the Yeagers was entered in July 2012.
Then in March 2016, the bank filed for payment of mortgage, taxes and insurance premiums and requested that the Floyd Superior Court issue a provisional order requiring the Yeagers to make payments of$1,871.61 on the note and mortgage, as well as requesting that the couple be ordered to make property tax payments and provide proof of insurance premium payments and of a hazard insurance policy. The trial court issued the provisional order, and the Yeagers provided proof of payment of property taxes and insurance.
The couple then appealed, arguing that the trial court had abused its discretion by failing to conduct an inquiry into their ability to pay prior to issuing the provisional order, thus violating their due process rights. But the bank argued that such a hearing was not required and that the order was authorized by statute. Deutsche Bank also said due process could not have been violated because “no protected interest is implicated” and because the Yeagers failed to “identify injuries to person, property, or reputation.”
Two members of an Indiana Court of Appeals panel agreed with the Yeagers in a Tuesday opinion, writing that the trial court had issued the provisional order before the couple had responded to the bank’s motion. Further, the appellate court pointed out that the relevant statute provides, in part, that “the amount of the monthly payment … shall be determined by the court, which may base its determination on the debtor’s ability to pay.”
“While the statute does not expressly require a hearing, it is implicit that the court have the necessary information on which to base its determination…,” Judge Elaine Brown wrote for the majority. “The record contains no evidence of the Yeagers’ current financial situation, such as earnings from any employment, income from other sources, or other assets.”
Judge Paul Mathias dissented, writing that the majority opinion presumes that trial courts are required to consider a debtor’s ability to pay, when such an obligation does not exist in state statute.
The case is L. Ray Yeager and Phyllis L. Yeager v. Deutsche Bank National Trust Company, as Trustee of the Residential Asset Securitization Trust 2005-A1, Mortgage Pass-Through Certificates, Series 2005-A Under the Pooling and Servicing Agreement Dated March 1, 2005, 22A04-1604-MF-727.