First Federal Savings Bank v. Hartley, 85A04-0305-CV-233.

• Decision Date: 24 November 2003
• Docket Number: No. 85A04-0305-CV-233.,85A04-0305-CV-233.
• Citation: 799 N.E.2d 36
• Parties: FIRST FEDERAL SAVINGS BANK, Appellant-Plaintiff, v. Donald HARTLEY and Joyce Hartley, Appellees-Defendants.
• Court: Indiana Appellate Court

799 N.E.2d 36

FIRST FEDERAL SAVINGS BANK, Appellant-Plaintiff, v. Donald HARTLEY and Joyce Hartley, Appellees-Defendants.

No. 85A04-0305-CV-233.

Court of Appeals of Indiana.

November 24, 2003.

Stephen H. Downs, Tiede, Metz & Downs, Wabash, IN, Attorney for Appellant.

Bruce N. Munson, Muncie, IN, Attorney for Appellees.

OPINION

BROOK, Chief Judge.

Case Summary

Appellant-plaintiff First Federal Savings Bank ("the Bank") appeals a judgment in favor of appellees-defendants Donald and Joyce Hartley. We reverse.

Issue

In this foreclosure action, the trial court subordinated the Bank's mortgage lien to the Hartleys' claim for money they spent improving a parcel of real estate on which the Bank has a mortgage. The Bank challenges this priority determination.

Facts and Procedural History

The facts most favorable to the judgment reveal that on October 23, 1996, Gregory Blatz¹ executed a promissory note ("Note") with the Bank for $200,000 to establish a line of credit, which he planned to use to purchase investment real estate. On April 7, 1997, the Bank, pursuant to the note, advanced to Blatz $32,000 to purchase a parcel of real estate located at 8861 Jannie Lane, Silver Lake, Indiana. Blatz signed a mortgage on the Jannie Lane property with the Bank, which in turn properly recorded it on April 22, 1997.

From October 23, 1996 through the date of trial, the balance due on the Note was refinanced into subsequent promissory notes. During that time, Blatz made only interest payments to the Bank except when a particular property was sold, in which case Blatz would deliver the net proceeds to the Bank for release of its mortgage with regard to that particular property. Blatz made no principal payments toward the $32,000 loaned by the Bank for his purchase of the Jannie Lane property. By the time of trial, the Bank's mortgage on the Jannie Lane property remained of record and unsatisfied.

On September 1, 1997, Blatz entered into a land contract to sell the Jannie Lane property to the Hartleys. The land contract, which was recorded on September 5, 1997, states that the property "is presently subject to a mortgage." Appellant-plaintiff's Ex. 8. Indeed, the Hartleys understood that the Jannie Lane property was subject to a mortgage, but did not know which financial institution held the mortgage. Immediately after signing the land contract, the Hartleys moved into the Jannie Lane property. From 1997 until 2001, they made monthly payments under the land contract and spent $6,142.87 on improvements to the property. During that time, the Hartleys did not inquire as to the mortgage's status or attempt to secure a release. On May 15, 2001, the Hartleys delivered to Blatz the $30,0237.13 balance then due and obtained deeds from Blatz for the Jannie Lane property. However, rather than paying the proceeds to the Bank and securing a release of the Bank's mortgage on the Jannie Lane property, Blatz deposited the $30,237.13 into an account at the Bank in the name of Empire Home Buyers.

The Bank was unaware that the Hartleys had any interest in the Jannie Lane property until mid-2001 when it reviewed the results of a title search obtained in anticipation of filing a foreclosure complaint against Blatz. Blatz had defaulted on his payments due under the Note. By October 2002, the balance due thereon was $1,007,796.73, plus interest accruing after October 4, 2002 and attorney's fees. The Bank named the Hartleys as parties to the complaint against Blatz because of their interest in the Jannie Lane property. At the November 14, 2002 trial, the Hartleys asserted a claim seeking reimbursement of the monies they spent on improvements. In its "Findings of Fact, Conclusions of Law and Judgment on Claim Against the Hartleys and on Hartley Counterclaim," the trial court recognized the validity of the Bank's mortgage and foreclosed that mortgage, but held that the first $6,142.87 from the sale of the Jannie Lane property should be paid to the Hartleys. In pertinent part, the judgment reads:

THE COURT NOW CONCLUDES:

18. The Bank's April 7, 1997 mortgage on the Jannie Lane property was recorded prior to the Hartleys' contract, and its mortgage lien is therefore entitled to priority over the interests of the Hartleys, to the extent it secures the purchase price of the Jannie Lane property and other amounts due under the note and mortgage related thereto.

19. Any title delivered to the Hartleys by the Blatz deeds is likewise subject to the Bank's mortgage lien.

20. There was no evidence presented at trial which permits the Court to find that any of the following allegations of the Hartleys have been proven 20.1 the Bank intentionally interfered with the Contract between the Hartleys and Greg Blatz;

20.2 the Bank's mortgage was unconscionable;

20.3 the Bank had an obligation to notify the Hartleys of its mortgage lien;

20.4 the Bank made a virtual debtor out of the Hartleys;

20.5 the Bank violated the Uniform Consumer Credit Code;

20.5[sic] the Bank had an obligation to provide the Hartleys with notice of Blatz's default;

20.6 the Bank precluded [the] Hartleys' ability to make payments directly to the Bank;

20.7 the Bank had reason to know that the $30,237.13 paid by Hartleys was deposited into an account at the Bank under the name of the Empire Home Buyers;

20.8 the Bank should have seized the $30,237.13 from the Empire Home Buyers' account even though Empire Home Buyers was not indebted to the Bank;

20.9 the Bank should have credited the $30,237.13 deposited into the Empire Home Buyers account against the April 30, 2001 promissory note and delivered its release of mortgage on the Jannie Lane property, even though that amount was withdrawn from the Empire Home Buyers account and never applied against the indebtedness secured by the Jannie Lane mortgage; and/or

20.10 the Bank has an obligation to release its mortgage on the Jannie Lane property even though that mortgage has not been paid.

21. The Hartleys shall take nothing by way of their counter-claims.

22. However, the Hartleys' improvements to and maintenance of the real estate were of benefit to the Bank, and it would be inequitable not to reimburse [the] Hartleys for those improvements under the circumstances presented to the Court by this case.

IT IS THEREFORE ORDERED ADJUDGED AND DECREED AS FOLLOWS:

1. Judgment on the above findings and conclusions is now entered in favor of the Bank and against the Hartleys.

2. Upon this court entering its decree of foreclosure providing for the sale of the Jannie Lane property via sheriff's sale, the decree shall provide that the proceeds of sale be paid in the following order:

a. To the payment of the costs of this action, together with the costs and expenses of the Sheriff's sale of the property.

b. To the payment of the Hartleys in the amount of $6,142.87.

c. To the payment of the Bank in the amount of $32,000 plus interest on said sum at the rate provided for in the April 30, 2001 promissory note until entry of a decree of foreclosure, and at the statutory rate of interest thereafter, plus payment of the Bank's attorney's fees and expenses incurred in this cause in relation to the Jannie Lane property.

d. To the payment of the Hartleys in the amount of any judgment entered in this cause in their favor and against Greg Blatz.

Appellant's App. at 24-26 (emphasis added) (footnote omitted). The Bank appeals.

Discussion and Decision

Our standard of review provides that we "shall not set aside the findings or judgment unless clearly erroneous, and due regard shall be given to the opportunity of the trial court to judge the credibility of the witnesses." See Ind. Trial Rule 52(A). In applying this rule, we employ a two-tiered standard of review. OVRS Acquisition Corp. v. Community Health Servs., Inc., 657 N.E.2d 117, 123-24 (Ind.Ct.App. 1995),trans. denied. First, we consider whether the evidence supports the findings, construing the findings liberally in support of the judgment. Id. at 124. The findings are clearly erroneous only when a review of the record leaves us firmly convinced a mistake has been made. Id.

Next, we determine whether the findings support the judgment. A judgment is clearly erroneous when it is unsupported by the findings of fact and conclusions thereon. In applying this standard, we will neither reweigh the evidence nor judge the credibility of the witnesses. Rather, we consider the evidence that supports the judgment and the reasonable inferences to be drawn therefrom. We must affirm the judgment of the trial court unless the evidence points incontrovertibly to an opposite conclusion.

Wagner v. Estate of Fox, 717 N.E.2d 195, 200 (Ind.Ct.App.1999) (citations omitted).

Neither party disputes the findings of facts. Hence, we focus our review upon the latter tier of the analysis, whether the findings support the judgment. Specifically, we concentrate upon conclusion number 22, in which the court stated: "However, the Hartleys' improvements to and maintenance of the real estate were of benefit to the Bank, and it would be inequitable not to reimburse [the] Hartleys for those improvements under the circumstances presented to the Court by this case."

"[T]he vast weight of authority holds that foreclosure actions are essentially equitable." Songer v. Civitas Bank, 771 N.E.2d 61, 69 (Ind.2002); see also Smith v. Federal Land Bank of Louisville, 472 N.E.2d 1298, 1302 (Ind.Ct.App. 1985)

("In Indiana, `there is no doubt' that an action to foreclose a mortgage or lien is essentially equitable.")...