In re Hershman

Decision Date31 March 2009
Docket NumberBankruptcy No. 07-22840 JPK.,Adversary No. 07-2128.
PartiesIn re Charles Adam HERSHMAN, Debtor. Stacia L. Yoon, Trustee, Plaintiff, v. National City Mortgage Co. d/b/a Commonwealth United Mortgage Co. and Charles Adam Hershman, Defendants.
CourtUnited States Bankruptcy Courts. Seventh Circuit. U.S. Bankruptcy Court — Northern District of Indiana

Stacia L. Yoon, Esq., Merrillville, IN, for the Chapter 7 Trustee.

Jennifer McNair, Esq., Indianapolis, IN, for the defendant, National City Mortgage Co. d/b/a Commonwealth United Mortgage Co., n/k/a National City Real Estate Services, LLC.

Scott J. Fandre, Esq., South Bend, IN, for the defendant, National City Mortgage Co. d/b/a Commonwealth United Mortgage Co., now known as National City Real Estate Services, LLC.

Sheila A. Ramacci, Esq., Highland, IN, for the debtor, Charles Adam Hershman.



This adversary proceeding was initiated by a complaint filed by Stacia L. Yoon, as Trustee of the Chapter 7 bankruptcy estate of Charles Adam Hershman, ("Trustee") on December 6, 2007. The focus of the complaint is the Trustee's assertion that a mortgage granted by the Chapter 7 debtor Hershman to National City Mortgage Co. d/b/a Commonwealth United Mortgage Co., now known as National City Real Estate Services, LLC ("National") is avoidable by her utilization of the "strong arm" powers of a Chapter 7 Trustee. The defendant National, and the debtor Hershman as well, oppose the Trustee's contentions.


Hershman initiated his Chapter 7 case by the filing of a petition on October 18, 2007. On December 6, 2007, the Trustee initiated this adversary proceeding. National filed its answer on February 6, 2008. Hershman, who was granted leave to intervene as a party defendant by the court's order entered on February 28, 2008, filed his answer on March 3, 2008. On June 3, 2008, the court entered an order which directed the submission of the case on a stipulated factual record; this record was filed on July 14, 2008. The parties then filed their respective memoranda of law stating their respective positions regarding the issues framed by the complaint and the answers.

This adversary proceeding is now at issue on the stipulated evidentiary record provided by the parties, and the legal arguments advanced by the parties in their respective memoranda.

The court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 1334(b), 28 U.S.C. § 157(a) and (b), and N.D.Ind.L.R. 200.1. This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(K).


As provided by the court's order entered on July 1, 2008, the entire factual record for submission of this adversary proceeding to the court for final judgment is the parties' "Joint Stipulation of Fact" filed on July 14, 2008. That stipulation is, in its entirety, the following:

1. The Trustee brings this action pursuant to her avoidance powers under 11 U.S.C. § 544.

2. On October 18, 2007, the Debtor filed his petition for relief under Chapter 7 of the United States Bankruptcy Code.

3. On the petition date, the Debtor possessed a fee simple interest in real estate located at 810 Jay Street, Griffith, Indiana, 46319 (the "Real Estate").

4. On March 31, 2003, the Debtor purchased the Real Estate from Timothy M. Zaberdac who conveyed the property to the Debtor by warranty deed; a true and accurate copy of the warranty deed is attached as Exhibit "1."

5. To purchased the Real Estate, on or about March 31, 2003, the Debtor executed and delivered to National a note and mortgage for the Real Estate; true and accurate copies of which are attached to the Trustee's Complaint as Exhibits "A" and "B".

6. The acknowledgment of the mortgage reads:

7. The note and mortgage were recorded with the Lake County, Indiana Recorder on April 4, 2003.


The sole issue is the following:

A. To what extent is the mortgage granted to Countrywide avoidable pursuant to 11 U.S.C. § 544(a)(3), particularly in light of provisions of Indiana law stated in I.C. 36-2-11-16 and I.C. 32-21-4-1.


The crux of this adversary proceeding is whether or not the mortgage interests of National with respect to real property commonly described as 810 Jay Street, Griffith, Indiana, are avoidable pursuant to 11 U.S.C. § 544(a)(3), so that the Chapter 7 estate of Hershman assumes the position of Countrywide pursuant to 11 U.S.C. § 551.

Let's start from square one. The mortgage which is at the core of this adversary proceeding has no acknowledgment whatsoever with respect to Charles Adam Hershman: The acknowledgment states that Timothy M. Zaberdac—a total stranger to the instrument—appeared and acknowledged the execution of the mortgage. Without belaboring the point, as a result of that deficiency, the mortgage interest of National in the bankruptcy estate's interest in the subject real estate (the fee simple interest of Hershman) is entirely avoidable pursuant to 11 U.S.C. § 544(a)(3), subject only to the potential impact of provisions of I.C. 36-2-11-16 and I.C. 32-21-4-1. The authority upon which avoidance is sustained under the common law of Indiana, as construed and applied by both Indiana state courts and federal courts which have followed Indiana law, is more than amply stated in In re Stubbs, 330 B.R. 717 (Bkrtcy.N.D.Ind., 2005), aff'd 2006 WL 2361814 (N.D.Ind. 2006).

National and Hershman contend that I.C. 32-21-4-1(c), and/or I.C. 36-2-11-16(f), both as effective on July 1, 2007, preclude the avoidance of National's mortgage interest in this adversary proceeding.

We'll turn first to I.C. 32-21-4-1. At the outset, the amendment of I.C. 32-21-4-1(c) effective as of July 1, 2008— which added the sentence: "This subsection applies regardless of when a mortgage was recorded" to the first sentence of I.C. 32-21-4-1(c)—has no application in this case. The issue regarding an amended statute's application with respect to actions pending before the court does not involve any amendment which became effective after the matter involving the statute which was the subject of the amendment was initiated; See, In re Kenneth E. Groves and Lori E. Groves, debtors; Kenneth E. Groves, et al., plaintiffs v. Citifinancial Mortgage Company, Inc., defendant; decision of the Honorable Robert E. Grant entered on June 6, 2008 in adversary proceeding number 07-4020; Debra L. Miller v. LaSalle Bank National Association, as Trustee, et al., decision of the Honorable Harry C. Dees entered on March 24, 2009 in adversary proceeding number 08-3018. Both the debtor's case and this adversary proceeding were filed well in advance of the effective date of the 2008 amendment. However, as will be seen, the 2008 amendment to I.C. 32-21-4-1 does play into the interpretation of the retroactive affect of the 2007 amendment made by the Indiana Legislature to that statute.

By amendment effective July 1, 2007, I.C. 32-21-4-1 was amended by the addition of the following:

(c) This subsection applies only to a mortgage. If:

(1) an instrument referred to in subsection (a) is recorded; and

(2) the instrument does not comply with the:

(A) requirements of:

(i) I.C. 32-21-2-3; or

(ii) I.C. 32-21-2-7; or

(B) technical requirements of I.C. 36-2-11-16(c); the instrument is validly recorded and provides constructive notice of the contents of the instrument as of the date of filing.

Both defendants of course maintain that this amendment was intended by the Indiana Legislature to have a retroactive effect, by which it would be applicable to all mortgages recorded prior to its effective date.

The critical issue in this context is whether the 2007 amendment to I.C. 32-21-4-1 was intended by the Indiana Legislature to be applicable to mortgages recorded prior to the effective date of the amendment.

The general test to determine the retroactive effect of an amendatory statute was stated as follows in Martin v. State of Indiana, Ind., 774 N.E.2d 43, 44 (2002):

The general rule is that unless there are strong and compelling reasons, statutes will normally be applied prospectively. Metro Holding Co. v. Mitchell, 589 N.E.2d 217, 219 (Ind.1992). An exception to this general rule exists for remedial statutes, which are statutes intended to cure a defect or mischief that existed in a prior statute. Bryarly v. State, 232 Ind. 47, 111 N.E.2d 277, 278-79 (1953); Ind. Dep't of State Revenue v. Estate of Riggs, 735 N.E.2d 340, 344 (Ind. Tax Ct.2000). When a remedial statute is involved, a court must construe it to "effect the evident purpose for which it was enacted[.]" Conn. Mut. Life Ins. Co. v. Talbot, 113 Ind. 373, 14 N.E. 586, 589 (1887). Accordingly, remedial statutes will be applied retroactively to carry out their legislative purpose unless to do so violates a vested right or constitutional guaranty.FN1 Id.

FN1. We acknowledge that a number of decisions have stated that if a remedial statute violates vested rights or creates new rights, then it cannot be applied retroactively. See, e.g., Samm v. Great Dane Trailers, 715 N.E.2d 420, 423 (Ind.Ct.App.1999), trans. denied; Deasy-Leas v. Leas, 693 N.E.2d 90, 92 (Ind. Ct.App.1998), trans. denied; Estate of Robinson v. C & I Leasing, Inc., 691 N.E.2d 474, 476 (Ind.Ct.App.1998), trans. denied; R.L.G. v. T.L.E., 454 N.E.2d 1268, 1270 (Ind.Ct.App. 1983); McGill v. Muddy Fork of Silver Creek Watershed Conservancy Dist., 175 Ind.App. 48, 370 N.E.2d 365, 370 (1977); Malone v. Conner, 135 Ind.App. 167, 189 N.E.2d 590, 591 (1963), trans. denied. However, this formulation is inconsistent with this Court's precedent.

As further stated by the Indiana Supreme Court in Bourbon Mini-Mart, Inc. v. Gast Fuel and Services, Inc., Ind. 783 N.E.2d 253, 260 (2003):

The general rule is that unless there are strong and compelling reasons, statutes will not be applied...

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  • Estate of Moreland v. Dieter
    • United States
    • U.S. Court of Appeals — Seventh Circuit
    • August 11, 2009
    ...(Ind.Ct. App.1990) (denying retroactive effect under circumstances logically equivalent to the Estate's argument); In re Hershman, 403 B.R. 597, 601-06 (Bkrtcy.N.D.Ind. 2009) (same). The Estate cannot overcome the presumption against retroactivity simply by disregarding it. Nor is the argum......

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