January-February Vol. 5, No. 1

Casenotes

Indiana

Foreclosure

Citimortgage, Inc v Barabas, 950 NE2d 12 (Ind Ct App, 2011).

Facts: Shannon Barabas took out a $154,111 mortgage on her property in 2005. The mortgage stated that the "Security Instrument is given to Mortgage Electronic Registration Systems, Inc. (MERS)" but that the lender for the mortgage was Irwin Mortgage Corporation. In 2007, Barabas took out an additional mortgage with ReCasa Financial Group. In less than a year, Barabas defaulted on that loan and ReCasa foreclosed on her property.

Irwin Mortgage was named as a defendant but the company filed a disclaimer of interestt in the property. The disclaimer read as follows: "COMES NOW the Defendant, Irwin Mortgage Corporation, by counsel, and hereby disclaims any interest in the real estate which is the subject of Plaintiffs Complaint. WHEREFORE, the Defendant, Irwin Mortgage Corporation, prays that the Plaintiff take whatever relief it is entitled to by virtue of its Complaint and seeks all other relief proper in the premises." The trial court entered a default judgment and ordered that Barabas' property be auctioned. ReCasa purchased the property at a sheriff's sale.

However, after the foreclosure and sale of the property, MERS assigned the original mortgage on the property to Citimortgage, Inc. After becoming the owner of the mortgage, Citimortgage sought relief from the judgment that had been entered in ReCasa's foreclosure action. Citimortgage argued that as the assignee of MERS it was the holder of the first mortgage, and that the property ReCasa had purchased after foreclosing on Barabas was still subject to Citimortgage's interest. Citimortgage sued Barabas, ReCasa and Rick Sanders (who had subsequently purchased the property from ReCasa) to have ReCasa's default judgment set aside.

The trial court held that Citimortgage was precluded from bringing the foreclosure action. The court looked at Indiana Code Section 32-29-8-3 to reach its decision. The statute deals with situations in which as buyer purchases at a judicial sale. If it turns out there is an additional mortgage on the property, but the buyer has no notice of that when he or she purchases the property, then the buyer "holds the premises free and discharged of the lien." The statute allows an assignee or transferee of a mortgage to intervene and keep its interest in the property, but the assignee or transferee must do it within one year after the sale.

The trial court held that because one year had passed since ReCasa had foreclosed on the property, Citimortgage had lost its right to intervene and no longer had an interest in the property. Citimortgage appealed.

Holding: Affirmed. The court of appeals held that the trial court did not abuse its discretion when it declined to set aside ReCasa's default judgment. The statute required Citimortgage to intervene one year after the sale of the property and its failure to intervene precluded its claim against ReCasa.

Citimortgage argued that the statute should not apply because MERS was not named as a defendant in ReCasa's foreclosure action. Because ReCasa named Irwin Mortgage, and not MERS, as a defendant, Citimortgage claimed that MERS did not get proper notice of the lawsuit. Because MERS did not get notice, Citimortgage did not get notice as MERS' assignee and therefore the statutory one year requirement should not apply. The court rejected this argument because it found that MERS was not entitled to receive notice. The court acknowledged that this was a case of first impression of Indiana and so it looked to similar cases in other jurisdictions for guidance. It found that in other cases, the kind of relationship MERS had with lenders was an agency relationship.

In a Kansas case that the Indiana Court of Appeals found to be instructive, Landmark Nat'l Bank v Kesler, 289 Kan 528 (2009), it was held that MERS "was little more than a 'straw man'" for the lender. The Indiana Court of Appeals agreed with the Kansas Supreme Court's reasoning and held that the relationship between MERS and Irwin Mortgage was an agency relationship. Because MERS was only an agent of the lender, it was proper for the lender to be named as a defendant and not MERS.

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