Blair v. EMC Mortg., LLC

• Citation: 139 N.E.3d 705
• Decision Date: 17 February 2020
• Docket Number: Supreme Court Case No. 19S-MF-530
• Parties: Dean BLAIR and Paula Blair, Appellants/Cross-Appellees (Defendants) v. EMC MORTGAGE, LLC, Appellee/Cross-Appellant (Plaintiff)
• Court: Indiana Supreme Court

139 N.E.3d 705

Dean BLAIR and Paula Blair, Appellants/Cross-Appellees (Defendants)

v.EMC MORTGAGE, LLC, Appellee/Cross-Appellant (Plaintiff)

Supreme Court Case No. 19S-MF-530

Supreme Court of Indiana.

Argued: November 7, 2019

FILED February 17, 2020

ATTORNEY FOR APPELLANTS: Robert R. Faulkner, Faulkner Law Office, Evansville, Indiana

ATTORNEYS FOR APPELLEE: David J. Jurkiewicz, Bryan H. Babb, Nathan T. Danielson, Christina M. Bruno, Bose McKinney & Evans LLP, Indianapolis, Indiana

Rush, Chief Justice.

A closed installment contract, such as a mortgage or promissory note, is one in which a borrower agrees to make a series of payments to a lender on specific dates. Suits to enforce obligations under these contracts are subject to multiple statutes of limitations.

Here, borrowers ask us to impose an additional rule of reasonableness, insisting that their lender waited too long to sue them for amounts owed under a mortgage and promissory note. The lender urges us to affirm the trial court's order, which granted it partial relief.

We find that imposing additional, judicially created time constraints upon a lender's ability to bring a claim on a closed installment contract is neither necessary nor wise. Applicable statutes of limitations already keep a lender from waiting indefinitely to sue for a borrower's default. And these statutes are triggered at multiple points in time, leaving the lender empty-handed if it delays too long. Imposing a further rule of reasonableness could spur lenders to sue borrowers prematurely, depriving them of the opportunity to first negotiate repayment.

Finding that the lender filed suit within the applicable statutes of limitations, we affirm.

Facts and Procedural History

On December 21, 1992, Dean and Paula Blair executed a note and mortgage to be paid in monthly installments over fifteen years, beginning in February 1993. The note gave the holder the option to accelerate the debt after a default and require immediate payment on the full amount due.

In June 1995, the Blairs made their last payment on the note. The original lender filed for bankruptcy; and the note and mortgage were eventually assigned to EMC Mortgage, LLC, in July 2000. Although the note matured on January 1, 2008, EMC didn't sue the Blairs to recover on the note and foreclose the mortgage until July 3, 2012.

After a bench trial, the trial court issued an order foreclosing the mortgage. But it held, in part, that EMC was entitled to recover only payments and interest that accrued after July 3, 2006—due to Indiana's six-year statute of limitations to bring an action on the note underlying a mortgage.

The Court of Appeals reversed, finding that "a party is not at liberty to stave off operation of the statute [of limitations] inordinately by failing to make demand." Blair v. EMC Mortgage, LLC , 127 N.E.3d 1187, 1195, 1198 (Ind. Ct. App. 2019) (alteration in original) (quoting Smither v. Asset Acceptance, LLC , 919 N.E.2d 1153, 1161 (Ind. Ct. App. 2010) ). And because EMC did not accelerate the note within six years of the Blairs' initial default, the panel held that EMC waited "an unreasonable amount of time" and could not recover. Id. at 1197–98.

We granted transfer, vacating the Court of Appeals opinion. Ind. Appellate Rule 58(A).¹

Standard of Review

We will set aside the trial court's findings and judgment only if they are clearly erroneous. Fraley v. Minger , 829 N.E.2d 476, 482 (Ind. 2005). But here, we focus on the trial court's conclusion on whether EMC's claim was time-barred—and determining when a cause of action accrues under a particular statute of limitations is a question of law reviewed de novo. Cooper Indus., LLC v. City of South Bend , 899 N.E.2d 1274, 1280 (Ind. 2009) ; Imbody v. Fifth Third Bank , 12 N.E.3d 943, 945 (Ind. Ct. App. 2014).

Discussion and Decision

A promissory note is a negotiable instrument that accompanies a mortgage. It is an installment contract that contains a maturity date—usually fifteen or thirty years past its date of execution—when the full balance owed becomes due. Such a note may also include a provision, known as an acceleration clause, that gives the lender the option to immediately demand payment on the full loan amount if the borrower fails to pay one or more installments.

The Blairs argue that the applicable statute of limitations requires an acceleration option to be exercised within six years following a borrower's first default. And because EMC failed to do so, the Blairs contend that it waited an unreasonable amount of time to sue for payment under the note and thus its suit is time-barred.

EMC counters that there are three possible points in time when the statute of limitations could have been triggered: (1) as each installment payment became due; (2) upon an exercise of the optional acceleration clause, had it chosen to accelerate; or (3) upon loan maturity. And EMC argues that its claim was timely because it was asserted within six years of many of the Blairs' missed installment payments and within six years of the note's maturity date. Yet, EMC refrains from asking for full relief, rather urging us to affirm the trial court's order that it is entitled to recover only some of the amount due.

We grant EMC's request for two reasons.

First, there is no need to impose a rule of reasonableness when a lender sues to enforce installment obligations on a closed installment contract, such as a mortgage or a promissory note. Unlike credit cards or other open accounts, a closed installment contract contemplates payment of a certain sum over a fixed period of time, which means a lender cannot wait indefinitely to sue for missed installments.

Second, under either of the applicable statutes of limitations, a cause of action for payment upon a promissory note with an optional acceleration clause can accrue on multiple dates—including when the note matures. See Ind. Code § 34-11-2-9 (2019) ; Ind. Code § 26-1-3.1-118(a) (2019). Thus, EMC would be entitled to full relief under either statute.

However, EMC not only expressly disclaimed any argument for full relief; but it also urged us to affirm the trial court's order that it was entitled to partial relief. Under these particular circumstances, we affirm the trial court's order.

I. There is no need to judicially create additional time constraints on a lender's ability to bring an action upon a closed installment contract.

The Blairs claim that, when a lender such as EMC has the option to accelerate payments but is not required to do so, some reasonableness limitation is necessary to ensure that "the creditor is not at liberty to stave off operation of the limitations period inordinately by failing to make demand." The Blairs direct us to three cases in support of their argument: Smither v. Asset Acceptance, LLC , 919 N.E.2d 1153 (Ind. Ct. App. 2010) ; Heritage Acceptance Corp. v. Romine , 6 N.E.3d 460 (Ind. Ct. App. 2014), trans. denied ; and Stroud v. Stone , 122 N.E.3d 825 (Ind. Ct. App. 2019).

In Smither , the Court of Appeals determined that a creditor's claim against a borrower for "any portion" of the borrower's credit card debt was time-barred. 919 N.E.2d at 1162. The panel treated the credit card agreement as an open account—"an account with a balance which has not been ascertained and is kept open in anticipation of future transactions." Id. at 1159 (quoting 1 Am. Jur. 2d Accounts and Accounting § 4 (2005) ). The panel also observed that the statute of limitations for the entire balance began to run either at the time of the borrower's first default or the next payment due date thereafter. Id. at 1160–62. And because the statute of limitations had already run, the creditor could not have invoked the credit card agreement's optional acceleration clause within a reasonable amount of time. Id. at 1161–62.

Later, in both Romine and Stroud , the Court of Appeals applied Smither 's rationale in the context of a closed installment contract. Romine , 6 N.E.3d at 463–64 ; Stroud , 122 N.E.3d at 831–32. But, as explained below, we find Smither distinguishable; and we disapprove Romine and Stroud .

Smither noted that "credit card accounts are unlike promissory notes or installment loans, such as mortgages, student loans, and car loans." 919 N.E.2d at 1159. The court explained that with a promissory note or mortgage, "the total amount of indebtedness and a defined schedule of repayment, including precise dates for payment and the amount of each payment until the debt is fully repaid, typically are included in the loan document from the outset." Id. On the other hand, from the outset of a credit card agreement, the total amount of indebtedness is unknown, making it appropriate to treat these agreements like open accounts—instead of promissory notes—for purposes of the statute of limitations. Id. at 1160. Thus, Smither recognized critical differences between open accounts and closed installment contracts and how those differences should impact the application of statutes of limitations.

Despite Smither emphasizing these differences, both Romine and Stroud applied Smither 's reasoning to a claim involving a closed installment contract. Romine , 6 N.E.3d at 463–64 ; Stroud , 122 N.E.3d at 831–32. Romine first applied Smither 's rule of reasonableness to find that a lender's cause of action on a closed installment contract for a car loan was barred due to its long delay. 6 N.E.3d at 464. Then, Stroud specifically held that a mortgage lender could not demand payment on a promissory note more than six years after the borrower's first default. 122 N.E.3d at 831. The panel determined that the statute of limitations for the entire amount owed on the promissory note began to run at that first default, and thus, the lender's claim for payment nearly eight years after the default was unreasonable and time-barred. Id.

Because we find that, for purposes of the statute of limitations, closed installment contracts should be treated differently than open accounts, we disapprov...