The legal document outlines a case involving Citimortgage, Inc. as the appellant against Shannon S. Barabas (defendant), Recasa Financial Group, LLC (appellee), and Rick A. Sanders (third-party defendant). The appeal arises from a foreclosure proceeding in Madison County, where the second mortgagee foreclosed without notifying the first mortgagee. The trial court denied the first mortgagee's motion to intervene and seek relief from the foreclosure judgment, prompting an appeal. The Indiana Supreme Court, presided over by Justice Massa, reversed the trial court's decision.
The excerpt also provides context regarding the evolution of mortgage transactions, highlighting the shift from traditional borrower-lender relationships to a complex system involving multiple parties, such as loan servicers, title companies, and mortgage brokers. This transformation began in the 1970s with the introduction of mortgage-backed securities, which enabled the trading of mortgages akin to stocks. The need for a streamlined process led to the establishment of Mortgage Electronic Registration Systems, Inc. (MERS) in the mid-1990s, which maintains a database for tracking mortgage servicing and ownership rights across the United States.
MERS member banks designate MERS as both the "nominee" for the lender and the "mortgagee" in mortgage documents, allowing them to transfer the mortgage note without recording assignments. In the event of default, MERS assigns the mortgage to the bank that owns the note, enabling foreclosure. Currently, approximately 60% of residential mortgages are recorded under MERS, including the mortgage at issue.
On August 8, 2005, Shannon S. Barabas obtained a $154,111 mortgage from Irwin Mortgage Corporation for property in Madison County, Indiana. The mortgage document indicates that MERS acts solely as the nominee for the lender, securing the repayment of the debt, and granting MERS the legal title to the property rights, including the ability to foreclose.
Barabas later took a second mortgage of $100,000 from ReCasa Financial Group, Inc. on February 26, 2007, which was recorded shortly thereafter. After a subsequent modification of the note on July 23, 2007, Barabas defaulted, leading ReCasa to file a foreclosure suit on June 13, 2008. Irwin Mortgage Corporation subsequently filed a “Disclaimer of Interest” in the court, stating it disclaimed any interest in the property involved in the lawsuit.
On July 15, 2008, Barabas filed for bankruptcy in the Southern District of Indiana, failing to respond to ReCasa’s foreclosure complaint. Consequently, on September 9, 2008, a default judgment was entered against her. Following Barabas's discharge from debt on September 16, the Madison County trial court amended the judgment to mandate the sale of her property at a sheriff's sale. On September 22, Citimortgage filed a motion for relief from the automatic stay, asserting a security interest in the property that predated Barabas's bankruptcy. ReCasa notified Citimortgage of its foreclosure actions on September 23.
The bankruptcy court discharged Barabas from personal liability on October 29, and ReCasa included her husband, Brian, as a guarantor in the lawsuit, though his claim is not part of this appeal. The sheriff's sale occurred on January 23, 2009, with ReCasa purchasing the property for $65,000 and subsequently recording the deed on March 4, 2009. ReCasa sold the property to Rick A. Sanders on March 17, 2009.
On April 1, 2009, MERS assigned the Irwin mortgage to Citimortgage, which was recorded on April 20. On October 23, 2009, Citimortgage sought to intervene in ReCasa’s foreclosure case, claiming the default judgment was void due to lack of personal jurisdiction. The court granted Citimortgage’s motion to intervene, vacating ReCasa’s judgment concerning Citimortgage’s interest. Citimortgage subsequently filed a motion to vacate the sheriff’s deed, followed by its own foreclosure complaint on December 8, 2009. ReCasa objected to Citimortgage’s intervention on December 23, 2009.
After a hearing on February 16, 2010, the trial court ruled on March 18 that Citimortgage was bound by the amended default judgment as its assignment was not properly recorded. The court also determined that Citimortgage failed to redeem the property within one year following the judicial sale, denying its motion and reinstating the amended default judgment. Citimortgage appealed, but on May 17, 2011, the Court of Appeals upheld the trial court’s decision, concluding that Citimortgage's claim was barred by statute for not intervening within the required timeframe and that MERS was not entitled to notice of the foreclosure since it only held bare legal title. Judge Brown dissented on both issues.
Judge Brown noted that Citimortgage's intervention occurred within the one-year statutory redemption period following the property's sale. MERS was recognized as having a legitimate interest in the property, supported by the mortgage language identifying MERS as both nominee and mortgagee, as well as its assignment to Citimortgage. Upon rehearing, the court clarified that the one-year redemption period starts with the sale, not with Citimortgage's acquisition of interest, but reaffirmed its stance on MERS's interest. The court granted transfer, vacating the Court of Appeals' opinion, and reversed the trial court's decision.
Standard of Review indicates that under Indiana Trial Rule 24(C), a party may intervene post-judgment to file a motion under Rule 60. To intervene as of right under Rule 24(A), a party must demonstrate (1) a property interest in the case, (2) that the outcome may impair that interest, and (3) inadequate representation by existing parties. The trial court's discretion in determining intervention eligibility is subject to abuse of discretion review, assuming all motion facts are true. Notably, default judgments are viewed unfavorably and should only be applied when a party fails to engage in the suit.
Citimortgage moved to intervene under Indiana Trial Rule 24(A), asserting its property interest. The court addressed Citimortgage's argument that opposing parties waived their challenge to MERS's interest, allowing Citimortgage to rely on its claimed interest in the Madison County property, derived from MERS. The assignment from MERS to Citimortgage on April 1, 2009, was undisputed, establishing Citimortgage’s rights as a successor and assignee of MERS, thereby affirming its interest dependent on MERS’s original mortgage rights.
The interpretation of the contract aims to ascertain the parties' intent at the time of agreement. The process begins with analyzing the plain language of the contract in context to ensure each term is meaningful and unambiguous. A contract is deemed ambiguous if reasonable interpretations exceed one. In this case, the mortgage contract is ambiguous, particularly regarding the roles of MERS as both nominee for the Lender and mortgagee, without clear definitions provided for these terms.
MERS is defined as holding bare legal title and acting on behalf of the Lender, Irwin, but is not the actual owner of the note. The definitions of "nominee" and "mortgagee" conflict, as MERS cannot simultaneously act as both an agent and a principal concerning the same right, such as receiving service of process in foreclosure. Consequently, the ambiguity necessitates examining the parties' intent.
The parties intended for MERS to function as the Lender’s agent, as indicated in the mortgage contract that grants MERS legal title to the interests conveyed by the Borrower and delineates MERS's rights, including foreclosure. Additionally, MERS’s membership rules specify that members designate MERS as a limited agent for registered mortgages and require MERS to act according to its principals' instructions. This collective evidence illustrates that MERS was intended to be the agent of the Lender, granting it protected property interests and enabling MERS—and Citimortgage as its representative—to fulfill the criteria for intervention of right.
ReCasa contends that even if MERS had rights under the mortgage contract, those rights were extinguished when Irwin disclaimed its interest. However, MERS maintains an agency relationship with all its member banks, not just Irwin. The mortgage contract specifies that MERS acts as a nominee for the Lender and its successors, meaning Irwin’s disclaimer would only affect MERS’s rights if no other MERS member bank had an interest in the mortgage. Citimortgage, a member bank, claimed an interest, indicating that MERS’s rights persisted through its other members.
Citimortgage seeks intervention in the foreclosure case, arguing that a default judgment would eliminate its interest, which is not being represented by the other parties involved, namely Sanders and ReCasa. Although ReCasa asserts that Citimortgage’s motion to intervene was untimely, this issue was not raised in the trial court. The court can still address it as ReCasa, as a prevailing party, can defend its judgment on any grounds. Generally, post-judgment intervention is disfavored unless extraordinary circumstances exist. Citimortgage filed its motion to intervene thirteen months after the default judgment, but this delay was due to ReCasa's failure to notify Citimortgage of the foreclosure suit. Thus, denying the motion would be unfair, leading to the conclusion that Citimortgage’s motion was timely.
Citimortgage also filed a motion for relief from judgment under Trial Rule 60(B)(6), claiming the default judgment was void due to lack of personal jurisdiction stemming from not receiving notice of the foreclosure. ReCasa challenges the timeliness of this motion as well; however, the court has previously accepted motions filed nearly two years after a default judgment when the moving party lacked notice. Therefore, Citimortgage’s motions for both intervention and relief from judgment were deemed timely, and the default judgment is considered void concerning Citimortgage.
Citimortgage's motion for relief from a default judgment, filed thirteen months after the judgment, was deemed timely as it had not received notice of the foreclosure proceeding. The trial court lacked personal jurisdiction over Citimortgage, rendering the judgment void since proper notice is essential for jurisdiction. ReCasa's argument that a letter sent to a different attorney representing Citimortgage constituted sufficient notice was rejected, as actual knowledge does not meet due process requirements for jurisdiction. Citimortgage contends that MERS, as its agent, is entitled to notice under Indiana law, but this claim was deemed excessive. The agency relationship aimed to facilitate service of process, and the rapid transfer of mortgages implies that notice to the lender is inadequate for informing the true party in interest. While MERS is named as a mortgagee in the mortgage contract to align with statutory requirements for notice, the system designed by MERS eliminates the need for record assignments, complicating the entitlement to defendant status in foreclosure actions.
The authors of the original 1877 statute did not intend for the term “mortgagee” to include entities like MERS, which do not hold the note's title or possess repayment rights. The ruling clarifies that Citimortgage did not receive proper notice of the foreclosure, rendering the trial court's jurisdiction ineffective and the default judgment void concerning Citimortgage’s interest in the Madison County property. The court refrains from addressing ReCasa’s arguments about redemption rights under Indiana Code 32-29-8-3, as the decision is based on different grounds. The court also vacated the Court of Appeals' opinion entirely and chose not to consider Citimortgage’s constitutional claims, adhering to a principle of constitutional avoidance. The court critiques the outdated nature of the statute in the context of the modern mortgage industry, suggesting that the General Assembly may need to update the law to reflect the complexities of the current market. Ultimately, the court finds that the trial court abused its discretion by denying Citimortgage’s motion to intervene and remands the case with instructions to grant that motion and amend the default judgment, ensuring ReCasa's acquisition of the property is subject to Citimortgage’s lien.
