Neu v. Gibson
| Decision Date | 28 April 2009 |
| Docket Number | No. 49A02-0811-CV-1031.,49A02-0811-CV-1031. |
| Parties | Thomas A. NEU, Elizabeth A. Neu, and Wells Fargo Bank, N.A., Appellants-Defendants, v. Brett GIBSON, Appellee-Plaintiff. |
| Court | Indiana Appellate Court |
Craig D. Doyle, Mark R. Galliher, Kurt V. Laker, Doyle Legal Corporation, Indianapolis, IN, Attorneys for Appellants.
Sean M. Clapp, Sean M. Clapp, LLC, Fishers, IN, Attorney for Appellee.
It has long been held that "equity will not suffer a wrong without a remedy." King v. City of Bloomington, 239 Ind. 548, 159 N.E.2d 563, 564 (1959). The parties in this case are engaged in a dispute regarding the foreclosure of their respective liens upon real estate located on Edgewood Avenue in Indianapolis (real estate). And this appeal follows our ruling in Gibson v. Neu, 867 N.E.2d 188 (Ind.Ct.App.2007).
Appellants-defendants Thomas A. Neu, Elizabeth A. Neu (the Neus), and Wells Fargo Bank (Wells Fargo), N.A., (collectively, the appellants) appeal the judgment in favor of appellee-plaintiff Brett Gibson. The appellants argue that the trial court erred in prohibiting them from obtaining a decree of foreclosure on the real estate following the lien that they had obtained pursuant to the doctrine of equitable subrogation, including amounts owed for attorney's fees and interest at the rate set forth in a prior mortgage. Alternatively, the appellants contend that even if they are not entitled to a foreclosure decree, the trial court erred in refusing to grant their request for a sheriff's sale of the real estate.
Gibson cross-appeals, claiming that the appellants' arguments regarding foreclosure, including the amounts purportedly owed for interest and attorney's fees and a proposed sheriff's sale of the real estate, have been waived and/or cannot be presented in light of the law of the case doctrine.
We conclude that the appellants have properly preserved the issues and hold that the trial court properly determined that they were not entitled to a decree of foreclosure pursuant to their equitable subrogation lien. Also, while we find that the trial court properly denied the appellants' claims for interest amounts and attorney's fees under the terms of the prior mortgage that had been extinguished, remand is appropriate for the trial court to calculate the amount of statutory interest to which the appellants may be entitled. Finally, we conclude that the appellants are entitled to proceed with a sheriff's sale of the real estate. Thus, we affirm in part, reverse in part, and remand with instructions and for further proceedings consistent with this opinion.
On September 22, 2004, Gibson sold to John Nowak all of his stock in Cellular Telephone Centers T.H., Inc., for $350,000. Nowak executed a promissory note payable to Gibson in the amount of $350,000. To secure payment of the note, Nowak granted to Gibson a second mortgage on his residence—the real estate—which was recorded on September 30, 2004, in the Marion County Recorder's Office. This mortgage was second to a mortgage that Nowak had granted to Irwin Mortgage Corporation (Irwin Mortgage) in the amount of $506,900, which had been recorded on April 5, 2004.
Unbeknownst to Gibson, Nowak sold the real estate to the Neus on March 11, 2005 for a net purchase price of $595,391.06. Nowak did not inform Gibson that he was selling the real estate to the Neus. Investors Titlecorp (Investors) acted as the closing agent for the transaction and performed a title search on the real estate. The title search revealed the Irwin Mortgage, but Investors did not find the Gibson-Nowak mortgage.
The Neus used $395,391.06 of their own funds toward the purchase of the home and borrowed $200,000 from Washington Mutual Bank (Washington Mutual) to make up the difference. The Neus executed the mortgage on the real estate in favor of Washington Mutual, which was dated March 11, 2005, and recorded on March 24, 2005. The Neus and Washington Mutual paid $506,016.34 to satisfy the Irwin Mortgage.
Interest accrued under the Irwin Mortgage at the rate of 6.25%. That mortgage included provisions permitting foreclosure in the event of a civil action that could cause forfeiture or impairment of the lender's security interest. The Irwin Mortgage also contained a provision for the collection of attorney's fees incurred in enforcing the lien.
At the closing—in exchange for payment from the appellants—Nowak executed and delivered to the Neus a warranty deed for the real estate and a vendor's affidavit swearing that he had not executed any other mortgages against the real estate. Nowak did not make any payments that were due in June 2005 or after. Thus, neither Nowak's note nor the Gibson-Nowak mortgage were paid and satisfied in connection with the sale.
On June 3, 2005, Gibson filed a complaint against Nowak, the Neus, and Washington Mutual, for a judgment on the promissory note and to foreclose on the real estate. The complaint alleged that
5. [T]he Plaintiff is entitled to recover from the Defendant John Nowak the principal balance of ... $336,148.93 plus interest at the rate of ... 6.5% per annum plus reasonable attorney fees and its cost in this action.
6. That on March 11, 2005, Defendant John Nowak sold said real estate in derogation of Plaintiff's rights to [the Neus] ... as shown by Warranty Deed dated March 11, 2005 and recorded March 25, 2005
7. That Washington Mutual Bank holds a mortgage executed by [the Neus] on March 11, 2005 and recorded on March 24, 2005, ... which mortgage is second, subsequent and inferior to Plaintiff's mortgage.
8. That the Plaintiff's mortgage is a first lien upon the real estate described in said mortgage, and Plaintiff is entitled to foreclose this mortgage.
9. That pursuant to the agreements of said mortgage the Plaintiff elects to accelerate the entire amount due on this mortgage and the same is now declared in default.
10. That Plaintiff's mortgage is a first lien on the real estate described herein, prior to and superior to all the other claims of liens, if any, of the Defendants, and each of them and each an all of the claims of each and all of the persons claiming by, through or under each of all of the Defendants herein.
In October 2005, Nowak filed for bankruptcy, and the promissory note and the mortgage remained unpaid. At some point, Wells Fargo accepted an assignment of the Washington Mutual loan and became the holder of the Neus' mortgage on the real estate.
On July 21, 2006, the trial court approved an entry of summary judgment in favor of the Neus and their lender, determining that Gibson was required to release his mortgage and that the Neus and their lender had a lien in the amount of $506,016.34 on the real estate superior to Gibson's under the doctrine of equitable subrogation. Gibson appealed, and this court reversed the trial court's determination that Gibson was required to release his mortgage. Gibson, 867 N.E.2d at 193. Specifically, we observed that
We need not address whether Nowak had "defaulted in his obligation" because he was not current in his payments at the time he sold the property to the Neus on March 11, 2005, and was consistently behind in his payments during the following months until he stopped making payments altogether after June 17, 2005. As a result, Gibson was not required to release the Gibson mortgage.
Id. at 196. We then affirmed the determination that the Neus and Washington Mutual were entitled to equitable subrogation over Gibson's mortgage. Id. at 202. In so concluding, we observed that
The classic formulation of the doctrine of equitable subrogation in the case of a purchaser of a note and mortgage for value is that the "purchaser's right of subrogation to the mortgage he or she discharged includes its priority over junior liens of which he or she did not have actual knowledge, [and] where he or she was not culpably negligent in failing to learn of the junior lien." Bank of New York v. Nally, 820 N.E.2d 644 (Ind. 2005). Under this formulation, the Neus and Washington Mutual would be entitled to equitable subrogation if they discharged the entire Irwin mortgage, did not have actual knowledge of Gibson's mortgage, and were not culpably negligent in failing to learn of Gibson's mortgage. However, the Indiana Supreme Court revised this formulation in Nally.
Here, subrogation would place Gibson in the same position as he was in prior to the sale to the Neus. When he placed the mortgage on the property, Gibson had a mortgage second in priority to Irwin's $506,016.34 mortgage. Allowing the Neus and Washington Mutual to be equitably subrogated to the extent of the Irwin mortgage would place Gibson in the same position as before the sale, and he would not be prejudiced. In fact, denying the Neus and Washington Mutual equitable subrogation would result in a windfall to Gibson.
Gibson argues that the Neus and Washington Mutual would not be prejudiced by awarding his mortgage first priority because they had title insurance. See, e.g., Wilshire Servicing Corp. v. Timber Ridge Partnership, 743 N.E.2d 1173, 1179-1180 (Ind.Ct.App.2001) (). As it relates to Washington Mutual, this issue is addressed in Ind.Code § 32-29-1-11, which provides:
(d) Except for those instances involving liens defined in IC 32-28-3-1 [mechanic's liens], a mortgagee seeking equitable subrogation with respect to a lien may not be denied equitable subrogation solely because:
(1) the mortgagee:
(A) is engaged in the business of lending; and
(B) had constructive notice of the intervening lien over which the mortgagee seeks to assert priority;
(2) the lien for which the mortgagee seeks to be subrogated was released; or (3) the mortgagee obtained a title insurance...
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