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Thursday, October 04, 2012

Ind. Decisions - Supreme Court decides one today - important ruling re MERS' interest in property

In Citimortgage, Inc. v. Shannon S. Barabas a/k/a Shannon Sheets Barabas, ReCasa Financial Group, LLC, and Rick A. Sanders, a 19-page, 4-0 opinion, Justice Massa writes:

Shannon Barabas had two mortgages on her Madison County home. The second mortgagee foreclosed on the property without notice to the first. The first mortgagee sought to intervene and obtain relief from the foreclosure judgment, but the trial court denied its motion. We reverse. * * *

C. Statutory and Constitutional Claims

Citimortgage argues that its agent, MERS, enjoys a statutory entitlement to notice under Indiana Code § 32-29-8-1 because it is a “mortgagee.” That is a bridge too far. * * *

Ultimately, we do not believe that the authors of the original version of this statute, writing in 1877, would have understood the term “mortgagee” to include an entity like MERS that neither holds title to the note nor enjoys a right of repayment. Thus, our decision here should not be taken to mean that MERS is a “mortgagee” as the term is used in Indiana Code § 32-29-8-1. All we hold today is that because Citimortgage never received proper notice of the foreclosure proceeding, it lay beyond the jurisdiction of the trial court, and the default judgment is thus void as to Citimortgage’s interest in the Madison County property.

As to ReCasa’s arguments regarding the possibility of redemption under Indiana Code § 32-29-8-3, it would be inappropriate to address them here, as we have decided the question before us on other grounds. We therefore express no opinion as to whether Citimortgage had the right to redeem the property under that statute. We emphasize, however, that when we granted transfer in this case, the opinion of the Court of Appeals was vacated in its entirety. Ind. Appellate Rule 58(A).

Similarly, in keeping with our longstanding principle of constitutional avoidance, we decline to address Citimortgage’s constitutional claims. Snyder v. King, 958 N.E.2d 764, 768 (Ind. 2011) (citing State v. Darlington, 153 Ind. 1, 4, 53 N.E. 925, 926 (1899) (reiterating rule against deciding constitutional questions that are not “absolutely necessary to a disposition of the cause on its merits.”)).

We note in closing that it is both difficult and undesirable to apply such superannuated statutes to the modern mortgage industry. The drafters of the original 1877 version of Indiana Code § 32-29-8-1 envisioned a drama for two, or at most three, actors: Borrower, Mortgagee, and possibly Assignee. They could not have imagined our present-day multi-trillion-dollar international mortgage market. The statute that they drafted, and under which Indiana mortgage transactions still take place, thus leaves unaddressed many issues important to contemporary practice. We recognize that the General Assembly may soon find it necessary to modernize the statutory script to accommodate this new and larger cast of characters.

Conclusion. On these facts, we hold that the trial court’s denial of Citimortgage’s motion to intervene and obtain relief from the foreclosure judgment was based on a misinterpretation of the law and thus an abuse of discretion. We therefore reverse that ruling and remand with instructions to grant the motion to intervene and amend the default judgment to provide that ReCasa took the Madison County property subject to Citimortgage’s lien.

ILB: See the May 17, 2011 COA 2-1 opinion here, and the 2-1, Oct. 20, 2011 opinion on rehearing here.

See also p. 8 of today's Supreme Court opinion re the 2-1 COA ruling.

Posted by Marcia Oddi on October 4, 2012 03:19 PM
Posted to Ind. Sup.Ct. Decisions