VL Davis Properties v. Deutsche Bank National Trust Company, as Indenture Trustee, on behalf

• Court: Indiana Court of Appeals
• Decided: August 21, 2024
• Docket: 23A-MF-02224
• Status: Published

Opinion

IN THE

Court of Appeals of Indiana FILED V.L. Davis Properties, Aug 21 2024, 9:07 am

CLERK Appellant-Defendant, Indiana Supreme Court Court of Appeals and Tax Court

v.

Deutsche Bank National Trust Company, as Indenture Trustee, on Behalf of the holders of the Accredited Mortgage Loan Trust 2004-3 Asset Backed Notes, Appellee-Plaintiff

August 21, 2024 Court of Appeals Case No. 23A-MF-2224 Appeal from the Jennings Superior Court The Honorable Gary L. Smith, Judge Trial Court Cause No. 40D01-2104-MF-4

Opinion by Judge May Judges Vaidik and Kenworthy concur.

May, Judge.

Court of Appeals of Indiana | Opinion 23A-MF-2224 | August 21, 2024 Page 1 of 14 [1] V.L. Davis Properties (“Davis”) appeals following the trial court’s denial of the

motion to correct error that Davis filed after the trial court granted summary

judgment in favor of Deutsche Bank National Trust Company (“Bank”) and

entered a decree of foreclosure related to a property on Blossom Court in North

Vernon, Indiana (“Blossom Court Property”). Davis presents one issue for our

review, which we revise and restate as whether a prior foreclosure action

extinguished Bank’s interest in the Blossom Court Property when Bank’s agent

was not served in that prior action. We affirm.

Facts and Procedural History [2] On July 30, 2004, Accredited Home Lenders, Inc. (“AHL”) lent $83,600.00 to

Dan Dulong and Robin K. Townsley Dulong (“the Dulongs”) for the purchase

of the Blossom Court Property. The Dulongs executed an adjustable rate note

secured by a mortgage in which the Dulongs agreed to repay AHL the amount

of the loan plus interest. The adjustable rate note also gave AHL the authority

to transfer its right to repayment under the note. The security instrument

outlined the terms of the mortgage and defined several key terms including:

(B) “Borrower” is ROBIN K. TOWNSLEY-DULONG AND DAN DULONG, WIFE AND HUSBAND[.] Borrower is the mortgagor under this Security Instrument.

(C) “MERS” is Mortgage Electronic Registration Systems, Inc. MERS is a separate corporation that is acting solely as a nominee for Lender and Lender’s successors and assigns. MERS is the Mortgagee under this Security Instrument.

Court of Appeals of Indiana | Opinion 23A-MF-2224 | August 21, 2024 Page 2 of 14 *****

(D) “Lender” is Accredited Home Lenders, Inc. . . . a Corporation organized and existing under the laws of the State of California[.]

(App. Vol. 2 at 47-48) (emphasis in original). 1 The instrument also provided:

TRANSFER OF RIGHTS IN THE PROPERTY

This Security Instrument secures to Lender: (i) the repayment of the Loan, and all renewals, extensions and modifications of the Note; and (ii) the performance of Borrower’s covenants and agreements under the Security Instrument and the Note. For this purpose, Borrower does hereby mortgage, grant and convey to MERS (solely as nominee for Lender and Lender’s successors and assigns) and to the successors and assigns of MERS, the [Blossom Court Property.] . . . Borrower understands and agrees that MERS holds only legal title to the interests granted by Borrower in this Security Instrument, but, if necessary to comply with law or custom, MERS (as nominee for Lender and Lender’s successors and assigns) has the right: to exercise any or all of those interests, including, but not limited to, the right to foreclose and sell the Property; and to take any action required of Lender including, but not limited to, releasing and canceling this Security Instrument.

(Id. at 49.)

1 Several documents included in Davis’s Appendix are mostly illegible, and we were required to access the documents via Odyssey to read them. We nonetheless provide pinpoint citations to those documents in the Appendix to convey the precise document being referenced.

Court of Appeals of Indiana | Opinion 23A-MF-2224 | August 21, 2024 Page 3 of 14 [3] On May 20, 2016, CSL Community Association Inc. (“CSL”), the

homeowners association for the subdivision where the Blossom Court Property

is located, filed a complaint against the Dulongs under cause number 40D01-

1605-PL-051 (“Cause 051”). CSL alleged the Dulongs were delinquent in their

payment of dues and assessments. Consequently, CSL asserted that it

possessed a lien on the Blossom Court Property, and CSL asked that its lien be

foreclosed and the property sold at a Sheriff’s sale. CSL later amended its

complaint to include AHL as a defendant so that AHL could assert any interest

or claims it had in the Blossom Court Property. CSL never named MERS as a

defendant.

[4] On October 3, 2017, CSL moved for permission to serve AHL by publication

because CSL’s previous attempts at service had been unsuccessful. The trial

court granted CSL’s motion, and CSL published notice in the North Vernon

Sun for three successive weeks in December 2017. Neither the Dulongs nor

AHL answered CSL’s complaint, and CSL moved for a default judgment on

August 15, 2018. The trial court granted CSL’s motion and entered default

judgment on August 21, 2018. The Jennings County Sheriff then conducted a

Sheriff’s sale, and Davis purchased the Blossom Court Property. The Sheriff’s

Deed was executed on February 28, 2020, and recorded on March 12, 2020.

On May 16, 2020, Davis sold the Blossom Court Property to Samuel and

Michelle Hadley.

Court of Appeals of Indiana | Opinion 23A-MF-2224 | August 21, 2024 Page 4 of 14 [5] On January 28, 2021, Bank and MERS recorded a corporate assignment of

mortgage regarding the Blossom Court Property with the Jennings County

Recorder. The Assignment stated:

Assignor: MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC. (“MERS”), AS MORTGAGEE, AS NOMINEE FOR ACCREDITED HOME LENDERS, INC. A CALIFORNIA COPORATION, ITS SUCCESSORS AND ASSIGNS

Assignee: DEUTSHE BANK NATIONAL TRUST COMPANY, AS INDENTURE TRUSTEE, ON BEHALF OF THE HOLDERS OF THE ACCREDITED MORTGAGE LOAN TRUST 2004-3 ASSET-BACKED NOTES

For value received, the Assignor does hereby grant, assign, transfer and convey, unto the above-named assignee all interest under that certain Mortgage Dated: 7/30/2004, in the amount of $83,600.00, executed by ROBIN K. TOWNSLEY-DULONG AND DAN DULONG, WIFE AND HUSBAND to MORTGAGE ELECTRONIC REGISTRATION SYSTEMS, INC. (“MERS”) AS NOMINEE FOR ACCREDITED HOME LENDERS, INC. A CALIFORNIA CORPORATION, ITS SUCCESSORS AND ASSIGNS and Recorded: 8/19/2004, Document # 2004004441 in JENNINGS County, State of Indiana.

(Id. at 66) (emphasis in original) (assignor and assignee addresses omitted).

[6] On April 26, 2021, Bank filed the instant action under cause number 40D01-

2104-MF-000004 (“Cause 004”) against the Dulongs, Davis, and other entities

Court of Appeals of Indiana | Opinion 23A-MF-2224 | August 21, 2024 Page 5 of 14 that might have had an interest in the Blossom Court Property. 2 Bank alleged

that the Dulongs had failed to meet their obligations under the adjustable rate

note and mortgage and that they were in default. Bank asked the court to enter

judgment against the Dulongs and foreclose on the Blossom Court Property.

Bank moved for summary judgment on September 19, 2022. Bank asserted

there was no genuine issue of material fact that the Dulongs defaulted and its

interest was entitled to first priority. Davis responded to Bank’s motion on

December 5, 2022, and asserted Bank’s interest was extinguished by the default

judgment in Cause 051. Bank filed a reply on January 12, 2023, in which it

asserted that MERS 3 was the mortgagee, and because CSL did not serve MERS

in Cause 051, the trial court’s decree in that case did not extinguish Bank’s

interest.

[7] The trial court held a hearing on Bank’s motion for summary judgment on June

2, 2023. The trial court granted Bank’s motion for summary judgment on July

20, 2023, and ordered the Blossom Court Property be sold at a Sheriff’s sale.

Davis subsequently filed a motion to correct error reasserting its argument in

opposition to Bank’s summary judgment motion, and the trial court denied

Davis’s motion. Davis also filed a motion to stay the Sheriff’s sale pending the

2 The Dulongs and these other entities did not appear before the trial court and do not participate in this appeal. 3 In its reply in support of its motion for summary judgment, Bank refers to the entity “Mortgage Electronic Services” as “MERS.” (App. Vol. 2 at 163.) We presume that this is a scrivener’s error and Bank intended to refer to Mortgage Electronic Registration Systems, Inc. as “MERS.”

Court of Appeals of Indiana | Opinion 23A-MF-2224 | August 21, 2024 Page 6 of 14 outcome of this appeal, and the trial court granted that motion on September

28, 2023.

Discussion and Decision [8] Davis asserts the trial court erred in denying its motion to correct error because

the trial court’s entry of summary judgment in favor of Bank was contrary to

law. We generally review a trial court’s ruling on a motion to correct error for

an abuse of discretion. Spaulding v. Cook, 89 N.E.3d 413, 420 (Ind. Ct. App.

2017), trans. denied. An abuse of discretion occurs when “the trial court’s

decision is clearly against the logic and effect of the facts and circumstances

before it or is contrary to law.” Id. In determining whether a trial court’s order

on a motion to correct error is contrary to law, we must often consider the

standard of review for the underlying order. Brewer v. Clinton Cnty. Sheriff’s Off.,

206 N.E.3d 1158, 1164 (Ind. Ct. App. 2023), trans. denied. Our standard of

review following a trial court’s order on a motion for summary judgment is

well-settled:

When we review a grant or denial of a motion for summary judgment, our standard of review is the same as it is for the trial court. The moving party must show there are no genuine issues of material fact and [it] is entitled to judgment as a matter of law. If the moving party carries its burden, then the nonmoving party must present evidence establishing the existence of a genuine issue of material fact. In deciding whether summary judgment is proper, we consider only the evidence the parties specifically designated to the trial court. We construe all factual inferences in favor of the non-moving party and resolve all doubts regarding the existence of a material issue against the moving party.

Court of Appeals of Indiana | Opinion 23A-MF-2224 | August 21, 2024 Page 7 of 14 Asklar v. Gilb, 9 N.E.3d 165, 167 (Ind. 2014) (internal citations omitted).

[9] Davis asserts that at the time CSL initiated its foreclosure action, AHL “was

the real party in interest as the mortgagee,” (Appellant’s Br. at 9), and the trial

court’s decree of foreclosure in Cause 051 extinguished AHL’s interest in the

Blossom Court Property, such that there was no interest to transfer to Bank. In

response, Bank asserts the facts of this case are closely analogous to those in

CitiMortgage v. Barabas, 975 N.E.2d 805 (Ind. 2012), reh’g denied, and the decree

of foreclosure in Cause 051 did not extinguish Bank’s interest because the trial

court in Cause 051 never acquired personal jurisdiction over Bank.

[10] In Barabas, Shannon Barabas had two mortgages on her home in Madison

County. Id. at 808. Barabas’s first mortgage was through Irwin Mortgage

Corporation (“Irwin”) and her second mortgage was through ReCasa Financial

Group, Inc. (“ReCasa”). Id. at 809-10. The Irwin mortgage stated: “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.” Id. at 809. The mortgage also

designated Irwin as the “Lender.” Id. at 810. Barabas fell behind in the

payments on her second mortgage, and ReCasa filed a complaint seeking to

foreclose on her house. Id. ReCasa served both Irwin and Barabas in that

lawsuit, but ReCasa did not serve MERS. Id. Irwin filed a notice in which it

stated that it disclaimed any interest, and the trial court entered default

judgment against Barabas and ordered that her property be sold at a Sheriff’s

sale. Id. at 810-11. The Sheriff’s sale occurred in January 2009, and an

Court of Appeals of Indiana | Opinion 23A-MF-2224 | August 21, 2024 Page 8 of 14 assignment of the Irwin mortgage to Citimortgage was recorded in the office of

the Madison County Recorder on April 20, 2009. Id. at 811. Citimortgage then

“filed a motion pursuant to Indiana Trial Rules 24(A) and 60(B) seeking to

intervene in ReCasa’s foreclosure lawsuit and requesting that the court modify

its judgment to provide that the judgment granted to ReCasa Financial is

subject to the mortgage now held by Citimortgage.” Id. (internal quotation

marks omitted). The trial court refused to modify its judgment. Id. at 811. A

panel of this court affirmed that decision in a split decision, and Citimortgage

appealed to our Indiana Supreme Court. Id. at 811-12.

[11] Our Supreme Court began its opinion by explaining why MERS was created

and its role in the modern mortgage industry. Id. at 808. The traditional

mortgage involved just a lender and a borrower. Id. “Lender, a bank, raised

funds through customer deposits and loaned those funds out to Borrower.

Lender retained both the mortgage and the promissory note until Borrower had

paid his debt in full.” Id. (internal citation omitted). However, the

development of a secondary market for mortgages altered the nature of the

traditional mortgage transaction and led to the creation of MERS:

The change began in the 1970s with the invention of the mortgage-backed security, a financial instrument that allowed investors to trade mortgages in the same way that they traded stocks and bonds. First, a borrower works with a broker to obtain a loan from a lender, who receives credit from an investment bank to fund the loan. The lender then sells the loan back to the investment bank, which bundles it together with a few thousand others and divides the bundle into shares. These shares are sold to investors, who receive a certain amount of the Court of Appeals of Indiana | Opinion 23A-MF-2224 | August 21, 2024 Page 9 of 14 income that the bundle earns every month when borrowers make their mortgage payments.

This process, called “securitization,” used to require multiple successive assignments, each of which had to be recorded on the county level at considerable inconvenience and expense to the investment banks involved. In the mid-1990s, seeking to ameliorate those evils, a consortium of investment banks created Mortgage Electronic Registration Systems, Inc. (MERS). MERS maintains a computer database designed to track servicing and ownership rights of mortgage loans anywhere in the United States. MERS member banks list MERS as both “nominee” for Lender and as “mortgagee” on their mortgage documents. MERS member banks can then buy and sell the note among themselves without recording an assignment of the mortgage. In the event of default, MERS simply assigns the mortgage to whichever member bank currently owns the note, and that bank forecloses on the borrower.

Id. at 808-09 (internal citations, quotation marks, and footnote omitted).

MERS was created to serve as a clearinghouse to essentially hold thousands of

mortgages as various financial institutions traded interests in the mortgages

among themselves.

[12] Because Citimortgage claimed its interest was assigned to it through MERS,

our Supreme Court evaluated what interest Barabas’s mortgage contract

assigned to MERS. Id. at 813. The Court determined that the mortgage

contract’s reference to MERS as both “nominee for Lender” and “mortgagee”

was ambiguous because the common definition of “nominee” referred to “[a]

person designated to act in place of another, usu[ally] in a very limited way”

and the common definition of “mortgagee” referred to “the mortgage creditor, Court of Appeals of Indiana | Opinion 23A-MF-2224 | August 21, 2024 Page 10 of 14 or lender.” Id. at 813-14 (quoting Black’s Law Dictionary 1149 & 1104 (9th ed.

2009)) (brackets in original). The two definitions conflicted because the Irwin

mortgage document clearly indicated that Irwin was the lender and because

agency law prohibits an entity – in this context, MERS – from serving as both

agent and principal. Id. at 814.

[13] The Court therefore looked to other evidence of the parties’ intentions in order

to properly construe the ambiguous terms. Id. The Court noted that the

contract granted MERS legal title over the interests Barabas granted to Irwin in

the mortgage contract and among those interests was the right to foreclose and

sell. Id. Thus, the Court concluded that MERS had a property interest in

Barabas’s house because “[f]oreclosure proceedings are initiated in the form of

a lawsuit in Indiana, and the right to file a lawsuit is a ‘constitutionally

recognized property interest.’” Id. (quoting Phillips Petroleum Co. v. Shutts, 105

S. Ct. 2965 (1985)). The Court also noted that MERS’s own rules of

membership required MERS to “‘forward to the appropriate Member or

Members . . . all properly identified notices, payments, and other

correspondence’ related to mortgages . . .” Id. (quoting MERSCORP, INC.,

Rules of Membership, R. 2 § 6). In this way, MERS serves as an agent for

service of process purposes for all its member banks regardless of which

member bank holds the mortgage interest at the time, just as “a nonresident

who drives a car in Indiana appoints the Indiana Secretary of State as his or her

agent for service of process in any resultant tort claim[.]” Id. (citing Ind. Code §

34-33-3-1(b)). “Taken together, MERS’s rights under the terms of the [Irwin]

Court of Appeals of Indiana | Opinion 23A-MF-2224 | August 21, 2024 Page 11 of 14 mortgage and MERS’s own rules indicate that the parties intended to designate

MERS as an agent of the lender.” Id. Moreover, while Irwin disclaimed its

interest, the disclaimer was only effective as to Irwin and not the other MERS

member banks. Id. at 815. “Thus, MERS’s interest survived through its other

principals, including Citimortgage.” Id. Because Citimortgage did not have

notice of the foreclosure proceeding, the Court held that the trial court lacked

personal jurisdiction over it, and therefore, the judgment was void as to

Citimortgage. Id. at 816. The Court reversed the trial court’s ruling denying

Citimortgage’s motion to intervene and motion for relief from judgment and

remanded “with instructions to grant the motion to intervene and amend the

default judgment to provide that ReCasa took the Madison County property

subject to Citimortgage’s lien." Id. at 818.

[14] The factual similarities between Barabas and the instant case require that we

reach the same result as our Indiana Supreme Court reached in that case. Like

in Barabas, the security instrument in the instant case defined MERS as the

“nominee for Lender and Lender’s successors and assigns.” (App. Vol. 2 at

48.) In addition, like in Barabas where ReCasa served Irwin but not MERS,

975 N.E.2d at 810, CSL served AHL in Cause 051 but not MERS. The default

judgment in Cause 051 extinguished AHL’s interest in the Blossom Court

Property just as the disclaimer Irwin filed in Barabas extinguished Irwin’s

interest. Id. at 815. However, at the time default judgment was entered in

Cause 051, MERS held the Blossom Court Property mortgage on behalf of all

its member banks who were trading interests in the mortgage. The judgment in

Court of Appeals of Indiana | Opinion 23A-MF-2224 | August 21, 2024 Page 12 of 14 Cause 051 did not extinguish the interests of those member banks because those

banks did not have notice of the lawsuit. See id. (“Irwin’s disclaimer would

have been effective against MERS’s rights only if no other MERS member bank

had an interest in the mortgage. There is no evidence that was the case; on the

contrary, Citimortgage, a MERS member, claimed an interest.”). Had CSL

served MERS, then all MERS member banks would have had notice of the

foreclosure lawsuit, but CSL failed to serve MERS. Consequently, the

foreclosure decree in Cause 051 is void as to Bank because the trial court in

Cause 051 never obtained personal jurisdiction over Bank. 4 Therefore, we

affirm the trial court’s grant of summary judgment in favor of Bank and its

subsequent denial of Davis’s motion to correct error. 5 See id. at 816 (holding

judgment in foreclosure action was void as to Citimortgage because the trial

court never obtained personal jurisdiction over it).

4 Bank also asserts in its brief that MERS was “the mortgagee” and “[a]s such, Indiana law required MERS to be named and served in the CSL foreclosure action.” (Appellant’s Br. at 11.) The Indiana Code requires a party seeking to foreclose on a mortgage to name the mortgagee as a defendant. See Ind. Code § 32-29-8-1 (“If a suit is brought to foreclose a mortgage, the mortgagee or an assignee shown on the record to hold an interest in the mortgage shall be named as a defendant.”). However, our Indiana Supreme Court expressly held in Barbabas that MERS did not enjoy a statutory right to notice because calling it a “mortgagee” as that term is used in Indiana Code section 32-29-8-1 is a “bridge too far.” 975 N.E.2d at 817. Given Bank’s significant reliance on Barbabas in its brief, Bank’s counsel was undoubtedly aware of this negative authority. However, Bank’s counsel did not acknowledge it in its brief despite the fact that Indiana Rule of Professional Responsibility 3.3(a)(2) states: “A lawyer shall not knowingly fail to disclose to the tribunal legal authority in the controlling jurisdiction known to the lawyer to be directly adverse to the position of the client and not disclosed by opposing counsel[.]” Such conduct falls short of what we expect from attorneys who appear before us, and we wish to impress the importance of that duty on Bank’s counsel. 5 We recognize that Davis purchased the property at a Sheriff’s sale and Indiana Code section 32-29-8-3 provides that a person who purchases property at a judicial sale without actual notice of an assignment that is not of record holds the property free and discharged of the lien. However, Davis asserts no argument that when it purchased the Blossom Court Property at a Sheriff’s sale it lacked actual notice of the mortgage’s assignment to MERS.

Court of Appeals of Indiana | Opinion 23A-MF-2224 | August 21, 2024 Page 13 of 14 Conclusion [15] Given the closely analogous fact pattern of the instant case to the facts

presented in Barabas, we reach the same result as our Indiana Supreme Court

did in that case. The trial court in Cause 051 did not have personal jurisdiction

over Bank because CSL did not serve MERS, and therefore, the foreclosure

decree entered in that case did not extinguish Bank’s interest. We accordingly

affirm the trial court.

[16] Affirmed.

Vaidik, J., and Kenworthy, J., concur.

ATTORNEY FOR APPELLANT Bradley K. Kage North Vernon, Indiana

ATTORNEY FOR APPELLEE J. Dustin Smith Manley Deas Kochalski, LLC Indianapolis, Indiana

Court of Appeals of Indiana | Opinion 23A-MF-2224 | August 21, 2024 Page 14 of 14