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A bank’s motion for summary judgment in a foreclosure action involving a Martin County property was erroneously denied, the Court of Appeals of Indiana ruled in a Tuesday reversal.
The case involves real estate in Martin County that is approximately 12.47 acres and is a portion of what was originally a larger parcel, owned by Sarah Spencer beginning in 1962.
According to court records, the real estate was transferred via quitclaim deed to Sarah and Ryan Spencer in 1998. In June of that year, Sarah and Ryan executed a note, secured by the mortgage on the real estate and a security interest in a manufactured home located on the property.
The mortgage was serviced by Green Tree Financial Servicing Company in the sum of $40,811.01.
Ryan conveyed his interest back to Sarah, who then conveyed the real estate to Philip and Mary Sue Spencer on Feb. 10, 2009.
Then on Oct. 15, 2013, U.S. Bank filed a complaint alleging Phillip and Mary Sue were in default and seeking to foreclose on the mortgage for the real estate.
The Spencers filed an answer 10 days later. But in December 2014, U.S. Bank filed a motion to dismiss the action pursuant to Trial Rule 41(A)(1)(a), erroneously asserting the Spencers had not filed an answer.
The Martin Circuit Court granted the motion the same day and, without further explanation, issued an order dismissing the action without prejudice.
On Dec. 2, 2014, 16 days before its motion to dismiss in the first foreclosure action, U.S. Bank filed a second foreclosure action. The bank filed a motion for summary judgment in the second action in May 2015.
The parties agreed to attempt mediation, which subsequently failed.
In January 2017, the trial court entered an order denying U.S. Bank’s motion for summary judgment with respect to the first count of the complaint, which sought to foreclose the mortgage, but granted summary judgment on the second count, which sought replevin of the manufactured home.
U.S. Bank then filed a renewed motion for summary judgment in April 2017. The trial court denied that motion, finding that there was a genuine issue of material fact with respect to the location of the real estate.
In September 2020, U.S. Bank filed its third attempt to foreclose the mortgage on the real estate. The bank moved for summary judgment in September 2021.
After a hearing on the motion, the trial court denied the motion for summary judgment in an order containing no findings of fact or conclusions of law.
The case then went to a bench trial, after which the trial court found for the Spencers.
U.S. Bank appealed and requested that the appellate court reverse the trial court’s order denying its motion for summary judgment and order the trial court to enter summary judgment in favor of U.S. Bank.
The appellate court reversed and remanded the case to the trial court with instructions to vacate the judgment, enter partial summary judgment in favor of U.S Bank and conduct further proceedings consistent with the opinion.
Judge Peter Foley wrote the opinion for the appellate court.
According to Foley, the trial court offered three reasons for granting judgment in favor of the Spencers: that under Indiana Code § 26-1-9.1-620(g), the Spencers’ mortgage obligation was satisfied in full via replevin judgment against the manufactured home; that U.S. Bank came to the latest foreclosure action with unclean hands; and that the instant case is barred on the basis of the voluntary motion for dismissal in the second foreclosure action
Foley first looked at the statute, which provides, “In a consumer transaction, a secured party may not accept collateral in partial satisfaction of the obligation it secures.”
“From this, the trial court deduces that the manufactured home must have been accepted in full satisfaction of the mortgage obligation when U.S. Bank obtained the replevin judgment against the manufactured home. Therefore, the reasoning goes, U.S. Bank may not foreclose: the Spencers do not owe them anything,” Foley wrote.
The COA disagreed with that reasoning, finding the statute does not apply to the instant case and cannot serve as a sufficient basis for concluding that U.S. Bank was precluded from foreclosing on the real estate.
“Here, the security agreement covers both the manufactured home (which is personalty) and the Real Estate,” Foley wrote. “U.S. Bank chose to proceed — in the second litigation — against both the Real Estate and the personalty, prevailing in the latter and voluntarily dismissing with respect to the former.”
The appellate court also disagreed with the trial court’s conclusion that U.S. Bank “acted with unclean hands throughout the matter.”
“First, we note that the Spencers did not raise the unclean hands doctrine as a defense in their answer to the complaint, though it does appear that they raised it during the bench trial. Second, the trial court’s analysis regarding unclean hands appears to stray beyond the boundaries of the evidentiary record,” Foley wrote. “Third … U.S. Bank is in its current position at least in part because of discretionary determinations made by the trial court. And fourth and finally, though U.S. Bank’s conduct in the prior cases was no model of efficient litigation practices, we do not find factual support that its actions constitute intentional misconduct.”
Finally, the COA determined that Trial Rule 41(A)(1)(a) is inapplicable and that the second foreclosure action was actually dismissed under Trial Rule 41(A)(2).
According to Foley, it is clear that the order to dismiss was expressly entered without prejudice.
“A dismissal without prejudice is not a judgment on the merits of the dismissed claims, and the dismissal does not bar a future case raising those same claims,” he wrote.
On the overall question of whether the trial court erred in denying summary judgment for U.S. Bank, the COA concluded, “U.S. Bank made a prima facie case of default, and the Spencers offered no rebuttal. Thus, U.S. Bank is entitled to partial summary judgment on its foreclosure action.”
But the court added, “(T)he correct amounts owed under the note and mortgage is not conclusively dictated by the designated evidence. That amount must be determined by further proceedings.”
Judges Nancy Vaidik and Elizabeth Tavitas concurred in U.S. Bank National Association as Trustee for Manufactured Housing Contract Senior/Subordinate Pass-Through Certificate Trust 1998-7 v. Mary Sue Spencer and Phillip L. Spencer, 22A-MF-2184.
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