May 13, 2013
2013 Legislation Ends Post-Sale Redemption Discussion

Last year, the Indiana General Assembly amended Ind. Code 32-29-8-3.  For more, please read my 3-29-12 post.  But the Court of Appeals' 2011 opinion in CitiMortgage v. Barabas and 2012 statutory amendment left open the question of whether Indiana had a limited post-sheriff's sale right of redemption.   

When the Indiana Supreme Court issued its 2012 opinion on transfer in the CitiMortgage v. Barabas case, the Justices answered some important questions about Indiana mortgage law, including the role of MERS, but as I wrote on 10-12-12 the post-sale redemption question was not one of them.  Some confusion remained.  (Note:  federal tax liens give the IRS a post-sale right of redemption, which is the only such right of which I'm aware in Indiana.)

In this year's session, the General Assembly in Senate Bill 279 finally axed the statutory language that purported to grant a one-year post-sale right of redemption to certain parties.  Ind. Code 32-29-8-3 has been amended, effective July 1, 2013, as follows:  

Sec. 3. A person who:
         (1) purchases a mortgaged premises or any part of a mortgaged premises under the court's judgment or decree at a judicial sale or who claims title to the mortgaged premises under the judgment or decree; and
         (2) buys the mortgaged premises or any part of the mortgaged premises without actual notice of
             (A) an assignment that is not of record; or
             (B) the transfer of a note, the holder of which is not a party to the action;
holds the premises free and discharged of the lien. However, any assignee or transferee may redeem the premises, like any other creditor, during the period of one (1) year after the sale or during another period ordered by the court in an action brought under section 4 of this chapter, but not exceeding ninety (90) days after the date of the court's decree in the action.

For parties involved in Indiana foreclosure actions, the bottom line is this:  a foreclosure sale cuts off a the right of redemption.  Parties can redeem right up to the sheriff's sale, but the game ends there.  End of discussion.    

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Posted at 10:02 PM in Notable News , Redemption  |  Permalink

May 01, 2013
Failure To Docket Judgment Lien Dooms Creditor And Opens Door For Bona Fide Purchaser Defense

This follows up last week’s post about Hair v. Schellenberger, 2012 Ind. App. LEXIS 158 (Ind. Ct. App. 2012) and digs deeper into the bona fide purchaser doctrine.  The purported judgment lien holder (“Judgment Creditor”) in Hair contended that the buyer of the subject real estate (“Purchaser”) was not a bona fide purchaser (“BFP”) and thus acquired the real estate subject to the Judgment Creditor’s interests.  The result in Hair was the opposite of that in Lobb, which was the topic of my post Known Judgment Lien Is Purchaser’s Downfall In Recent Lien Enforcement Case.

BFP basics.  To be a BFP, one must purchase real estate in good faith, for valuable consideration, and without notice of the outstanding rights of others.  Judgment Creditor argued that Purchaser had notice of Judgment Creditor’s outstanding rights against the subject property.  In Indiana:

A purchaser of real estate is presumed to have examined the records of such deeds as constitute the chain of title thereto under which he claims, and is charged with notice, actual or constructive, of all facts recited in such records showing encumbrances, or the non-payment of purchase-money.

Prospective purchasers are on notice of any outstanding encumbrances, such as judgment liens, that appear in the appropriate county indices.  But “a record outside the chain of title does not provide notice to bona fide purchasers for value.” 

Issue.  The critical question in Hair was whether the Judgment Creditor’s 2006 judgment became a lien on the subject real estate before Purchaser bought it in 2007.  Judgment liens are statutory in Indiana and depend upon the clerk of the courts timely and properly indexing of them.  In Indiana, “courts cannot create judgment liens.”  Their “very existence is dependent upon compliance with the statutory requirements.” 

No notice.  In Hair, the former owners conveyed the real estate to a third party (a land trust) after Judgment Creditor’s judgment had been rendered, but neither the county docket nor the index contained any entry indicating that Judgment Creditor had obtained a money judgment against the former owners.  (Judgment Creditor’s judgment arose out of a cross claim.  Since Judgment Creditor was not the named plaintiff in the suit, but instead a defendant, the clerk likely overlooked the entry in Judgment Creditor’s favor.)  In 2007, when Purchaser bought the subject real estate, after the property had been foreclosed upon by the prior mortgagee, there was nothing in the county records that would have placed Purchaser on notice of Judgment Creditor’s interest in the parcel.  “[Judgment Creditor’s] 2006 judgment simply was not there . . ..” 

Lesson to judgment holders.  The Indiana Court of Appeals concluded that Purchaser was a BFP as a matter of law and that Purchaser did not acquire the real estate subject to [Judgment Creditor’s] judgment against the former owners of the property.”  Here is the Court’s  rationale: 

In sum, as between these two relatively innocent parties . . . we find that the equities favor [Purchaser].  As a BFP, [Purchaser] could be responsible only for what was in the county records at the time Lawyers Title searched the county records.  He could not cure deficiencies in the records of which he was totally unaware.  In contrast, as a judgment holder, [Judgment Creditor] could have taken steps to cure the deficiencies, i.e., he could have checked the records to ensure that his judgment was on record and perfected, . . ..  In short, he was in a better position to prevent the dispute at hand.

In Indiana, one expects a judgment to be automatically indexed, but Hair tells us that mistakes occur and that follow-up is prudent.

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Posted at 06:48 PM in Other Liens  |  Permalink

April 25, 2013
Indiana Fraudulent Transfer Act: Statute Of Limitations And Bona Fide Purchaser Defenses

Fraudulent transfer claims have a shelf life and do not necessarily extend to all subsequent transferees.  Hair v. Schellenberger, 2012 Ind. App. LEXIS 158 (Ind. Ct. App. 2012), which dealt with Indiana’s Uniform Fraudulent Transfer Act, Ind. Code § 32-18-2 (“UFTA”), explains some of the parameters of these cases.  Hair was a dispute over who had superior title to certain real estate – a subsequent purchaser (“Purchaser”) or a purported judgment lien holder (“Judgment Creditor”). 

Judgment lien.  By statute, “all final judgments for the recovery of money . . . constitute a lien upon real estate . . . in the county where the judgment has been duly entered and indexed in the judgment docket as provided by law . . . after the time the judgment was entered and indexed.”  I.C. § 34-55-9-2.  Judgment Creditor held a money judgment against the former owners of the subject real estate that should have created a lien on the property, but the clerk of the court failed to properly index the judgment.  

Acquisition.  The lender for the former owners of the subject real estate foreclosed and took ownership of the property via sheriff’s deed – after the Judgment Creditor obtained her judgment.  A few months later, Purchaser bought the foreclosed property from the lender following a title search that did not disclose Judgment Creditor’s judgment.   

The transfer.  In an effort to enforce her lien, Judgment Creditor brought a claim against Purchaser based on the theory that the former owners had fraudulently conveyed the real estate to a third party (a land trust) about three months following the date of the judgment and several months before the subject sheriff’s sale.  If the former owners - the judgment debtors - fraudulently conveyed the subject real estate to the land trust, could the Court set aside the subsequent transfer to Purchaser? 

Statute of limitations.  The first issue in Hair was whether Judgment Creditor’s claim was time-barred.  The UFTA establishes a statute of limitations “at the later of four years after the transfer was made or one year after the transfer was or could reasonably have been discovered by the claimant.”  I.C. § 32-18-2-19.  Judgment Creditor did not raise the claim until May, 2010, which was more than four years after the November, 2005 conveyance to the land trust and more than one year after the July 2006 recording of the deed to the land trust “which was the date upon which [Judgment Creditor] could have reasonably discovered the transfer.”  The fraudulent conveyance claim was time barred.

BFP defense.  The Court in Hair also noted that a fraudulent conveyance “is a contract for sale or conveyance of property with intent to hinder or delay creditors.”  The UFTA, at I.C. § 32-18-2-18(a), states:

A transfer or an obligation is not voidable under [the UFTA] against a person who took in good faith and for a reasonable equivalent value or against any subsequent transferee or obligee.

Purchaser was a “BFP” (a purchaser in good faith, for valuable consideration, and without notice of the outstanding rights of others) and thus was not subject to avoidance of the transfer of the real estate from the former owners to the land trust.  Purchaser’s title search “did not require inquiry into the legitimacy of the [former owners’] transfer of the property to the land trust.”  Even if the former owners’ transfer was fraudulent and even if Judgment Creditor’s claim was not time-barred, such transfer was not voidable vis-à-vis Purchaser. 

For lenders and other parties seeking to recover debts from individuals or entities that have transferred assets with the intent to avoid collection, Hair reminds us that (1) an Indiana UFTA claim generally must be brought within four years of the transfer or one year from when one could reasonably have discovered the transfer and (2) a claim generally is not enforceable against an innocent purchaser for value. 

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Posted at 01:49 PM in Fraudulent Transfer Act  |  Permalink

April 16, 2013
Innocent Purchaser Of Motorcycle Loses To Secured Party In Replevin Action

The vernacular of “foreclosure” typically relates to real estate, while “replevin” normally pertains to personal property.  For more, click on my prior post What Is Replevin?  In Dawson v. Fifth Third Bank, 965 N.E.2d 730 (Ind. Ct. App. 2012), the Indiana Court of Appeals teaches us that security interests in personal property generally will not be extinguished even if the ownership of that loan collateral changes. 

Situation.  In Dawson, Buyer purchased a motorcycle from Seller, who had given Buyer a certificate of title showing the motorcycle was free of any lienholders.  Buyer later learned that Seller fraudulently obtained the title and that the current certificate of title listed Bank as a lienholder.  Which party - Buyer or Bank - was entitled to possession of the motorcycle free and clear of all liens?

Replevin 101.  Replevin is a statutory remedy allowing one to recover possession of property “wrongfully held or detained” by another.  Ind. Code § 32-35-2 is the Indiana statute.  The elements of a replevin action require the plaintiff to prove (a) its title or right to possession, (b) that the property is unlawfully detained and (c) that the defendant wrongfully holds possession.  In the secured lending context, Indiana law is clear that, upon default, a creditor has the right to take possession of the collateral securing its claim and in accordance with the agreement with the defaulting party.

Competing rights.  Bank held a security interest in the motorcycle based upon Seller’s promissory note and security agreement.  The most current certificate of title on file with the Bureau of Motor Vehicles reflected Bank’s security interest.  Bank had never released its lien.  In what proved to be a fatal error, Buyer purchased the motorcycle without checking with the BMV to verify that the certificate of title supplied by Seller was the most recent one.  Since Seller was in default under the security agreement based upon non-payment, Bank, as the secured party, had the right to take possession of the motorcycle.  Ind. Code § 26-1-9.1-609(a).  Buyer did not dispute Bank’s rights.  Rather, Buyer contended that its purchase, and thus ownership, of the motorcycle precluded Bank from arguing that Buyer wrongfully held possession of the motorcycle – one of the elements of an Indiana replevin claim.  Bank, while not contesting ownership, asserted that such ownership was subject to Bank’s lien. 

Ownership immaterial.  A security agreement is effective against purchasers of collateral.  Ind. Code § 26-1-201-9.1.  Third-party purchasers are therefore at risk if they buy encumbered personal property from a seller/debtor in default.  Although Buyer had an interest in the motorcycle as its purchaser, the interest was not superior to Bank’s perfected security interest.  The Court affirmed the trial court’s summary judgment for Bank accordingly. 

Perfection.  Footnote 4 of the Dawson opinion contains lots of information related to certificates of title and the issue of perfecting Bank’s security interest.  Bank’s perfection was a non-issue, but the Court’s remarks are informative.

Equitable estoppel.  The Court in Dawson devoted a portion of its opinion to Buyer’s claim for equitable estoppel.  The discussion focused on certificates of title and which party was in the best position to protect itself based upon the public records.  The opinion is helpful for those who deal with motor vehicle transactions.  In the end, Bank was not responsible for Seller’s loss. 

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Posted at 12:18 PM in Replevin , UCC/Security Interests  |  Permalink