CitiMortgage, Inc. v. Barabas, No. 48A04-1004-CC-232, __ N.E.2d __ (Ind. Ct. App., May 17, 2011)


On August 8, 2005, Shannon Barabas (Barabas) executed a $154,111 mortgage securing property commonly known as 8285 South Firefly Drive (the Property) in Pendleton, Madison County, Indiana. The mortgage states in pertinent part:

This Security Instrument is given to Mortgage Electronic Registration Systems, Inc. (“MERS”), (solely as nominee for Lender, as hereinafter defined, and Lender’s successors and assigns), as mortgagee. MERS is organized and existing under the laws of Delaware, and has an address and telephone number of P.O. Box 2026, Flint, MI 48501-2026, tel. (888) 679-MERS. Irwin Mortgage Corporation.

(Appellant’s App. p. 88) (emphasis in original). The mortgage also defines the lender in the mortgage, Irwin Mortgage Corporation (Irwin Mortgage), stating that it “is organized and existing under the laws of [t]he State of Indiana, and has an address of 10500 Kincaid Drive, Fishers, IN 46038.” (Appellant’s App. p. 88). The mortgage also provides that

“Borrower [Barabas] owes Lender the principal sum of [$154,111].” (Appellant’s App. p. 88). Additionally, with respect to notice, the mortgage provides that:

Any notice to Lender shall be given by first class mail to Lender’s address stated herein or any address Lender designates by notice to Borrower. Any notice provided for in this Security Instrument shall be deemed to have been given to Borrower or Lender when given as provided in this paragraph.

(Appellant’s App. p. 93) (emphasis added). The mortgage was recorded on August 19, 2005 in the Madison County Recorder’s Office.

On February 26, 2007, Barabas financed with ReCasa two additional mortgages: a first mortgage on property in Marion County and a second mortgage on the Property in Madison County in the amount of $100,000. [Footnote omitted.]  The mortgage was recorded on May 11, 2007, in the Madison County Recorder’s Office. On July 23, 2007, Barabas increased the principal sum of the ReCasa mortgages to $129,600. Nearly a year later, Barabas defaulted on the underlying loan to ReCasa and on June 13, 2008, ReCasa foreclosed on the Property. ReCasa named Irwin Mortgage as a defendant; however, on June 23, 2008, Irwin Mortgage filed a disclaimer of interest, which states:

COMES NOW the Defendant, Irwin Mortgage Corporation, by counsel, and hereby disclaims any interest in the real estate which is the subject of Plaintiff’s Complaint.

WHEREFORE, the Defendant, Irwin Mortgage Corporation, prays that the Plaintiff take whatever relief it is entitled to by virtue of its Complaint and seeks all other relief proper in the premises.

(Appellant’s App. p. 51). 4

On September 9, 2008, the trial court entered a default judgment in the foreclosure lawsuit. Barabas had previously been discharged of her debt in bankruptcy, so an amended default judgment reflecting that fact was entered on September 16, 2008.  [Footnote omitted.] The judgment ordered the Property to be auctioned at a sheriff’s sale, and the Property was sold back to ReCasa for $65,000. The sheriff’s deed was issued and recorded on March 4, 2009. Thereafter, on March 20, 2009, ReCasa sold and then deeded the Property to Sanders.

A month after the Property had been sold, in April 2009, MERS assigned the MERS mortgage to Citi. That assignment was recorded on April 20, 2009, in the Madison County Recorder’s Office. On October 23, 2009, Citi filed a motion to intervene and for relief from the amended default judgment. Citi’s motion argued that as the assignee of MERS, it could assert any and all rights of MERS, and as a result, it was the holder of the first mortgage on the Property.

. . . .

Citi goes on to argue that I.C. § 32-29-8-3 does not apply because MERS [Mortgage Electronic Registration Systems] —as the mortgagee on record—should have been given notice of ReCasa’s initial foreclosure lawsuit instead of Irwin Mortgage. As a result, Citi maintains that its interest in the Property was not eliminated by ReCasa’s foreclosure. This argument requires us to look at the relationship between MERS and Irwin Mortgage, which is a matter of first impression in Indiana. ReCasa and Sanders direct us to a factually similar case outside of our jurisdiction. While we note that this case is not binding on our court, we nevertheless find it instructive to our analysis.

In Landmark Nat’l Bank v. Kesler, 216 P.3d 158, 161 (Kan. 2009), the homeowner, Boyd Kesler (Kesler), obtained a loan from Landmark National Bank (Landmark). That loan was secured by a properly recorded mortgage to Landmark. Id. Approximately one year later, Kesler obtained a loan from Millennia Mortgage Corp. (Millennia). Id. To secure this loan, Kesler granted a second mortgage to MERS, who “act[ed] solely as the nominee” for Millennia. Id. This mortgage was also properly recorded. Id. The second note was then assigned to Sovereign Bank, although that assignment was never recorded. Id. MERS remained the mortgage holder of record. Id. Landmark filed a petition to foreclosure on its mortgage, serving and naming as defendants Kesler and Millennia, but not MERS. Id. Neither Kesler nor Millennia answered. Id. The trial court entered a default judgment, and the property was subsequently sold at a sheriff‟s sale on November 14, 2006. Id.

Thereafter, Sovereign filed an answer to the foreclosure petition, claiming a second mortgage on the property as the successor in interest to Millennia. Id. at 161-62. Sovereign also filed a motion to set aside or vacate the default judgment on the basis that MERS was a contingently necessary party pursuant to Kansas statute.  [Footnote omitted.]  Id. at 162. Sovereign claimed that because Landmark failed to name MERS as a defendant, Sovereign did not receive notice of the proceedings. Id.

On appeal, the Kansas supreme court discussed the nature of MERS relative to the lender for whom it served as a nominee. Id. at 166. The court took note of Black’s Law Dictionary, which defines a nominee as “’[a] person designated to act in place of another, usu. in a very limited way’ and as ‘[a] party who holds bare legal title for the benefit of others or who receives and distributes funds for the benefit of others.’” Id. (quoting BLACK’S LAW DICTIONARY 1086 (8th Ed. 2004)). The court also cited various cases from other jurisdictions in which courts have interpreted the relationship of MERS and a lender as an agency relationship. Id. See In re Sheridan, 2009 WL 631355, at *4 (Bankr.D.Idaho March 12, 2009) (MERS “acts not on its own account. Its capacity is representative.”); Mortgage Elec. Registration System, Inc. v. Southwest, 301 S.W.3d 1, 4 (Ark. 2009) (“MERS, by the terms of the deed of trust, and its own stated purposes, was the lender‟s agent”); LaSalle Bank Nat’l Ass’n v. Lamy, 12 Misc. 3d 1191, 824 N.Y.S.2d 769, 2006 WL 2251721, at *2 (Sup. 2006) (unpublished opinion) (“A nominee of the owner of a note and mortgage may not effectively assign the note and mortgage to another for want of an ownership interest in said note and mortgage by the nominee.”).

Ultimately, the Kansas supreme court found that in this case, MERS was little more than a “straw man” for Millennia (and later Sovereign). Id. at 166. The supreme court also noted that the mortgage repeatedly referenced the lender—not MERS—with respect to how notice was to be provided. Id. at 165-166. As such, the supreme court held that

[e]ven if MERS was technically entitled to notice and service in the initial foreclosure action—an issue we do not decide at this time—we are not compelled to conclude that the trial court abused its discretion in denying the motion to vacate default judgment and require joinder of MERS and Sovereign.

Id. at 168.5

We choose to follow the persuasive reasoning of the Landmark case because it is factually similar to the present case. Like Landmark, Citi seeks to have the default judgment set aside based on the fact that it received its interest from MERS, which served as the mortgagee “solely as nominee” for Irwin Mortgage. (Appellant’s App. p. 88). Thus, when Irwin Mortgage filed a petition and disclaimed its interest in the foreclosure, MERS, as mere nominee and holder of nothing more than bare legal title to the mortgage, did not have an enforceable right under the mortgage separate from the interest held by Irwin Mortgage. With respect to notice, just as the mortgage in Landmark referenced all notice to be sent to the lender, here, too, the mortgage states that notice to the lender should be sent to the lender’s address, or “10500 Kincaid Drive, Fishers, IN 46038,” which is the address of Irwin Mortgage. (Appellant’s App. p. 88). Thus, we find that the trial court did not abuse its discretion when it declined to set aside ReCasa’s amended default judgment.  [Footnote omitted.]

Robb, C.J., concurs.

BROWN, J., dissents with separate opinion:

Unlike in Landmark, the mortgage in this case was “given to Mortgage Electronic Registration Systems, Inc. (‘MERS’), (solely as nominee for Lender, as hereafter defined, and Lender’s successors and assigns), as mortgagee.” Appellant’s Appendix at 88 (emphasis added). This language is set forth on the first page of the mortgage. (App. at 88) While there may be some ambiguity by the use of both the words “nominee” and “mortgagee” in the sentence here, the mortgage nevertheless does identify MERS, not lender Irwin Mortgage, as the mortgagee. (Appellant’s Appendix at 88-94 (mortgage))

Moreover, two facts here—that MERS, not Irwin Mortgage, assigned the mortgage to Citi, and Irwin Mortgage’s disclaimer of interest—indicate that MERS was more than a “straw man” and that MERS had a real interest in the Property. (App. at 127 (assignment), 51 (disclaimer))

I also observe that, while the notice provision relied upon in part by the majority specifies that “[a]ny notice to Lender shall be given . . . to Lender’s address,” see Appellant’s Appendix at 93 (emphasis added), the mortgage also provided an address for MERS. (Appellant’s App. at 88 (MERS address))

For the foregoing reasons, I would find that Ind. Code § 32-29-8-3 does not preclude Citi’s claim and that MERS was not a “straw man” but had an enforceable right under the mortgage.

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