Bank of New York v. Nally
| Decision Date | 03 July 2003 |
| Docket Number | No. 29A02-0212-CV-1057.,29A02-0212-CV-1057. |
| Citation | 790 N.E.2d 1071 |
| Parties | BANK OF NEW YORK, Trustee, Appellant-Plaintiff, v. Stephen H. NALLY; Hiram Nally; Eileen Nally; State of Indiana; Marina Limited Partnership, Appellees-Defendants. Tod D. Owens and Pamela E. Owens, Appellees-Third-Party Plaintiffs, v. Stephen N. Nally, Bank of New York Trustee, Shae Wiles, Michael Mize, Internal Revenue Service, et al., Appellees-Third-Party Defendants. |
| Court | Indiana Appellate Court |
Craig D. Doyle, Joanne B. Friedmeyer, James L. Shoemaker, Doyle & Friedmeyer, P.C., Indianapolis, IN, Attorneys for Appellant Bank of New York, Trustee.
Patrick R. Ragains, Smith & Ragains, Anderson, IN, Attorney for Appellees.
The Bank of New York ("Bank") appeals the grant of summary judgment in favor of Tod D. and Pamela E. Owens (collectively "Owens"). In particular, the Bank argues that its mortgage should have been given priority over the mortgage given to Owens—even though the mortgage to Owens was recorded before the mortgage to the Bank—because the mortgage to Owens was not recorded in the grantor-grantee index. The Bank also argues that it is entitled to protection under the doctrine of equitable subrogation. Because Indiana Code § 36-2-11-12(b) requires the maintenance of separate indexes for mortgages and deeds, we find that in addition to searching the grantor-grantee index, a purchaser is required to search the mortgagor-mortgagee index and is held to constructive notice of those documents recorded in both indexes. In addition, because it was "culpably negligent" by not locating the mortgage to Owens, the Bank is not entitled to the remedy of equitable subrogation, and we affirm.
The following material facts are not in dispute. On December 16, 1996, Owens conveyed real property located at 24 Point Lane, Arcadia, Indiana ("real estate") by warranty deed to Stephen H. and Jennifer R. Nally (collectively "Nally"). In exchange, Nally executed a promissory note to Owens for a portion of the purchase price. In particular, the promissory note required Nally to pay Owens $24,490.91 plus 21% annual interest prior to maturity on January 16, 1997, and 24% annual interest after maturity until paid. On the same day, Nally executed a mortgage in favor of Owens ("Owens mortgage") to secure payment of the note and also executed a mortgage for the real estate in favor of Amtrust Financial Services, Inc. ("Amtrust mortgage") for $204,000.00.
On December 26, 1996, Owens recorded the Owens mortgage in Hamilton County, Indiana. Then, on January 21, 1997, Amtrust recorded in Hamilton County the warranty deed conveying the property from Owens to Nally and the Amtrust mortgage. Amtrust had assigned the Amtrust mortgage to Standard Federal Bank pursuant to a corporation assignment of mortgage agreement, which it also recorded on that same day.
Years later, Stephen Nally executed another mortgage on the real estate in favor of Equivantage, Inc. ("Equivantage mortgage") in the amount of $265,500.00. The Equivantage mortgage was recorded in Hamilton County on June 12, 1998, and its funds were used to pay the balance of the Amtrust mortgage, closing costs, multiple creditors, and Stephen Nally. Equivantage later assigned the Equivantage mortgage to the Bank of New York ("Bank"), who recorded the assignment on March 17, 2000, in Hamilton County, Indiana.
Thereafter, Nally stopped making regular mortgage payments, and the Bank filed a complaint to foreclose its mortgage. Owens filed a motion to intervene, which was granted, and then filed a counterclaim and cross-claim to foreclose the Owens mortgage. The Bank filed a motion for summary judgment, and Owens filed a cross-motion for summary judgment. After a hearing, the trial court granted Owens' motion and denied the Bank's motion. This appeal ensued.
The Bank appeals the denial of its motion for summary judgment and the grant of summary judgment for Owens. In particular, the Bank argues that it is a bona fide purchaser for value without notice of the Owens mortgage. As such, the Bank argues that its mortgage had priority over the Owens mortgage, even though the Owens mortgage was recorded before its mortgage. In the alternative, the Bank claims protection under the doctrine of equitable subrogation. We address each argument in turn.
When reviewing the grant or denial of summary judgment, this Court applies the same legal standard as the trial court: summary judgment is appropriate where no designated genuine issues of material fact exist and the moving party is entitled to judgment as a matter of law. Munsell v. Hambright, 776 N.E.2d 1272, 1278 (Ind. Ct.App.2002), trans. denied. The standard of review is not altered by cross motions for summary judgment on the same issues. Id. The party appealing the denial of summary judgment carries the burden of persuading this Court that the trial court's decision was erroneous. Id.
Moreover, when the material facts are not in dispute, our review is limited to determining whether the trial court correctly applied the law to the undisputed facts. Am. Family Ins. Co. v. Globe Am. Cas. Co., 774 N.E.2d 932, 935 (Ind.Ct.App. 2002), trans. denied. If there are no disputed facts and the issue presented is purely a question of law, we review the matter de novo. Id. Also, our standard of review is not changed by the trial court's entry of findings of fact and conclusions thereon. Merrill v. Knauf Fiber Glass GmbH, 771 N.E.2d 1258, 1264 (Ind.Ct.App. 2002), trans. denied. Although the findings and conclusions provide valuable insight into the trial court's decision, they are not binding upon this Court. Id.
The Bank argues that as a bona fide purchaser for value without notice of the Owens mortgage, the trial court erred when it granted summary judgment for Owens. Indiana's recording statute offers protection to subsequent purchasers, lessees, and mortgagees. Szakaly v. Smith, 544 N.E.2d 490, 491 (Ind.1989). It states:
A conveyance, mortgage, or lease takes priority according to the time of its filing. The conveyance, mortgage, or lease is fraudulent and void as against any subsequent purchaser, lessee, or mortgagee in good faith and for a valuable consideration if the purchaser's, lessee's, or mortgagee's deed, mortgage, or lease is first recorded.
Ind.Code § 32-21-4-1(b). Generally, where there are two competing mortgages claiming priority in a foreclosure setting, application of the recording statute would resolve the dispute. However, where a purchaser claims status as a bona fide purchaser for value without notice, they may seek equitable protection from application of the recording statute.
Here, the Bank asserted status as a bona fide purchaser for value, and it claimed to have had no notice of the Owens mortgage. To qualify as a bona fide purchaser, one must purchase in good faith, for valuable consideration, and without notice of the outstanding rights of others. Keybank Nat'l Ass'n v. NBD Bank, 699 N.E.2d 322, 327 (Ind.Ct.App.1998). "The theory behind the bona fide purchaser defense is that every reasonable effort should be made to protect a purchaser of legal title for a valuable consideration without notice of a legal defect." Id. The parties do not dispute that the Bank is a purchaser for value; instead, they focus their arguments on whether the Bank had notice of the Owens mortgage.
The law recognizes two forms of notice: constructive and actual. Id. Constructive notice is provided where a deed or mortgage is properly acknowledged and placed on the record as required by statute. Id. Notice is actual if notice has been directly and personally given to the person to be notified. Id.
Given the dearth of cases in Indiana regarding when a subsequent purchaser is held to have constructive notice, the Bank directs our attention to Landis v. Miles Homes Incorporated of Illinois, 1 Ill. App.3d 331, 273 N.E.2d 153 (1971). Based on Landis, the Bank argues that we should adopt a rule that holds a subsequent purchaser to constructive notice of documents only found in the grantor-grantee index.1 In that case, the court held that under Illinois law, the "purchaser of real estate ... is chargeable with knowledge of what appears in the grantor-grantee index, the legal record required to be maintained by the Recorder (Ill.Rev. Stat.1969, ch. 115, par. 12); he is not chargeable with notice of that which appears in other records which may be kept as a convenience, such as a tract index." Id. at 155.
Yet the situation presented by our case differs significantly. In Landis, the controlling Illinois statute defined what knowledge with which a subsequent purchaser is charged. Specifically, the statute charged a subsequent purchaser with knowledge of those records appearing in the grantor-grantee index only. In contrast, Indiana has no such statute defining which indexes one must search or else risk being held to have constructive knowledge thereof. In addition, Indiana Code § 36-2-11-12(b) requires county recorders to maintain a grantor-grantee index and a separate index for mortgagors-mortgagees.2 Even though a record may be considered outside the chain of title because it is not situated in the grantor-grantee index, if the record is located in the mortgagor-mortgagee index, we find that the subsequent purchaser is held to constructive notice of it. Thus, because Indiana Code § 36-2-11-12(b) requires the maintenance of separate mortgage and deed indexes, we hold that in addition to searching the grantor-grantee index, a purchaser is required to search the mortgagor-mortgagee index and is held to constructive notice of those documents recorded in both indexes.3
In this case, the Owens mortgage was not located in the grantor-grantee index because the warranty deed conveying the property from Owens to Nally was recorded after the Owens mortgage...
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