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Casenotes

Indiana

Foreclosure

Neu v Gibson, 905 NE2d 465 (Ind Ct App 2009).

Facts:John Nowak originally owned the property in question in this case. Nowak granted a mortgage to the Irwin Mortgage Corporation (Irwin), which was recorded in April 2004. In September 2004, Nowak bought all of the stock in Cellular Telephone Centers T.H., Inc. owned by Brett Gibson for $350,000. Nowak executed a promissory note for this amount to Gibson and secured it with a second mortgage on the property, which was recorded on September 30, 2004.

Without notice to Gibson, Nowak proceeded to sell the property to Thomas and Elizabeth Neu for $595,391.06. Gibson did not indicate that a second mortgage was attached to the property, and the title search did not reveal the mortgage held by Gibson. The Neus proceeded to purchase the home, borrowing part of the funds from Washington Mutual Bank, to whom they executed a new mortgage on the property, recorded March 2005. The mortgage was subsequently acquired by the Wells Fargo Bank.

When Nowak stopped making payments on his loan with Gibson, Gibson filed for foreclosure against the Neus, Nowak, and the bank. Nowak filed for bankruptcy. Through a series of motions, hearings, and appeals, Wells Fargo was granted equitable subrogation and retained the first priority lien in place of Irwin. The Neus and Wells Fargo then filed a summary judgment motion for the foreclosure of the lien or, in the alternate, for a sheriff's sale of the property; Gibson opposed this on the grounds that neither Wells Fargo nor the Neus have proper standing to demand a foreclosure. The trial court granted summary judgment in favor of Gibson.

Holding:Affirmed in part; reversed in part; remanded for further proceedings.

The court disagreed with the notion brought forth by Gibson that equitable subrogation only gave rise to priority and no other rights. As such, the court concluded that Wells Fargo inherited some of the rights granted to Irwin by the mortgage between it and Nowak. Because Nowak's mortgage was paid off at closing with the Neus, however, Nowak could not be in default, and Wells Fargo could not use its subrogation of the Irwin mortgage to springboard a foreclosure.

The court, however, found that Indiana statutes, particularly Indiana Code Section 32-29-7-3, gave the right to demand a sheriff's sale to all parties who may enforce judgment, rather than the party entitled to foreclosure, or the prevailing party. As such, the Neus and Wells Fargo were parties entitled to enforcement of the judgment because all parties in this case received enforceable rights through the judgment of the trial court. The fact that they did not prevail did not, according to the court's interpretation of the statute, bar them from demanding a sheriff's sale.

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[Last update: 10-21-09]