Preview:

FOR PUBLICATION

ATTORNEYS FOR APPELLANTS: CRAIG D. DOYLE KURT V. LAKER Doyle Legal Corporation, P.C. Indianapolis, Indiana

ATTORNEY FOR APPELLEE: SEAN M. CLAPP Clapp Ferrucci Fishers, Indiana

FILED
May 10 2012, 9:17 am
of the supreme court, court of appeals and tax court

IN THE COURT OF APPEALS OF INDIANA
THOMAS A. NEU and ELIZABETH A. NEU, Husband and Wife, and WELLS FARGO BANK, N.A., Appellants-Defendants, vs. BRETT GIBSON, Appellee-Plaintiff. ) ) ) ) ) ) ) ) ) ) )

CLERK

No. 49A02-1109-MF-842

APPEAL FROM THE MARION SUPERIOR COURT The Honorable David Dreyer, Judge Cause No. 49D10-0506-MF-21457

May 10, 2012 OPINION - FOR PUBLICATION RILEY, Judge

STATEMENT OF THE CASE Appellants-Defendants, Thomas A. Neu and Elizabeth A. Neu (collectively, the Neus) and Wells Fargo Bank, N.A. (Wells Fargo) (collectively, the Appellants), appeal the trial court's denial of their motion for relief from judgment and their request for attorney fees following Appellee-Plaintiff's, Brett Gibson (Gibson), full credit bid during a sheriff's sale of real property located in Michigan. We reverse and remand for further proceedings consistent with this opinion. ISSUES The Appellants present two issues on appeal, which we restate as: (1) Whether the trial court abused its discretion by failing to declare Gibson's Indiana judgment fully satisfied and released when Gibson obtained a foreclosure judgment in Michigan based on the same promissory note that was the basis of his judgment in Indiana; and (2) Whether the trial court erred when it denied Appellants' request for attorney fees because Gibson failed to disclose the foreclosure judgment obtained in Michigan at the subsequent sheriff's sale. FACTS AND PROCEDURAL HISTORY On September 22, 2004, Gibson entered into a business transaction with John Nowak (Nowak). In exchange for the sale of Cellular Telephone Centers T.H., Inc. stock, Nowak gave Gibson a promissory note in the principal amount of $350,000. To secure repayment of the note, Nowak granted Gibson a second mortgage against his

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residence located in Indianapolis, Indiana (the Indiana Real Estate) and against his vacation property in Oscoda County, Michigan (the Michigan Real Estate). At the time of the transaction, the Irwin Mortgage Corporation held a prior mortgage on the Indiana Real Estate, which secured a loan of $506,900. On March 11, 2005, Nowak sold the Indiana Real Estate to the Neus for $600,000. He did not inform Gibson of the sale. As part of his closing with the Neus, Nowak signed a Vendor's Affidavit stating the Indiana Real Estate was free and clear of "every kind or description of lien, lease or encumbrance except" a "mortgage from [Nowak], a single man[,] to Irwin Mortgage Corporation[.]" Neu v. Gibson, 928 N.E.2d 556, 558 (Ind. 2010). Investors Titlecorp acted as the closing agent for the transaction and

performed a title search on the Real Estate, which revealed the Irwin mortgage but not the Gibson mortgage. The Neus brought $395,391.06 to the closing and borrowed $200,000 from Washington Mutual Bank. Nowak defaulted on the promissory note to Gibson. I. Legal Proceedings in Indiana On June 3, 2005, Gibson filed a Complaint against Nowak, the Neus, and Washington Mutual Bank seeking foreclosure on the Indiana Real Estate, asking for $366,148.93 plus 6.5% interest, attorney fees and costs. On October 14, 2005, Nowak filed for bankruptcy. Gibson and the Neus filed competing motions for summary

judgment. On July 21, 2006, the trial court granted the Neus' motion for summary judgment and required Gibson to release his mortgage on the Indiana Real Estate, finding Nowak had substantially complied with the promissory note's conditions. The trial court 3

also found that "though other findings dispose of this litigation between Gibson and the Neus and Washington Mutual," the Neus and Washington Mutual "would be entitled to assume the first lien position of Irwin Mortgage Corporation, in the amount of $506,016.34 under the doctrine of equitable subrogation." Id. Similarly, the trial court denied Gibson's motion for summary judgment seeking foreclosure. Gibson appealed. In Gibson v. Neu, 867 N.E.2d 188 (Ind. Ct. App. 2007), we reversed the trial court's determination that Gibson was required to release his mortgage on the Indiana Real Estate because we found that Nowak had defaulted by being behind in his payments to Gibson. At the same time, we also reversed the denial of Gibson's summary judgment motion requesting foreclosure but affirmed the trial court's ruling on equitable subrogation. Following this decision, Washington Mutual Bank assigned its interest to Wells Fargo. Wells Fargo was duly substituted as a party in the proceedings. II. Legal Proceedings in Michigan Meanwhile, and unbeknownst to the Neus, Gibson pursued legal proceedings in Michigan with respect to the Michigan Real Estate. On October 27, 2006, approximately fifteen months after Gibson commenced legal proceedings in Indiana, Gibson filed a Complaint for foreclosure in the circuit court for Oscoda County, Michigan, seeking a judgment on his promissory note and foreclosure of his mortgage against the Michigan Real Estate. Nowak did not appear or defend himself in the case. On May 14, 2007, the Oscoda County Michigan Circuit Court held a hearing on Gibson's motion for default judgment. At the close of the hearing, the circuit court entered a judgment of foreclosure in favor of Gibson in the amount of $305,722.48, ordered the sale of the Michigan Real 4

Estate, and ordered that the "upset price"1 for the Real Estate would be $302,386.87, "and shall not be sold for less." (Appellant's App. p. 77). On July 27, 2007, the Oscoda County Sheriff sold the Michigan Real Estate at public auction. Gibson was the high bidder with a bid of $305,722.48. On August 8, 2007, Gibson obtained a sheriff's deed for the Michigan Real Estate. Although Michigan law provides for a six month redemption period during which the former owner may redeem the property from the sale by outbidding the sheriff's sale purchaser, Nowak did not redeem the property. On January 11, 2008, Gibson moved to confirm the sheriff's sale in the Oscoda County Circuit Court. His motion was granted on February 4, 2008. On June 1, 2011, Gibson filed a motion to reopen the case, a motion for relief from court's order, and a brief in support thereof. First American Title Insurance

Company (First American), as underwriter of the Neus's title insurance, sought and was granted leave to intervene. On July 19, 2011, after a hearing, the Oscoda County Circuit Court denied Gibson's motion. On August 5, 2011, Gibson applied for leave to appeal with the Michigan Court of Appeals, which was denied on February 29, 2012, for "lack of merit in the grounds presented." (Appellee's Supp. App. p. 7).

III. Post-Michigan Sheriff's Sale

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Pursuant to Michigan law, an upset price is essentially the minimum amount for which the sheriff may sell the property. It is a discretionary mechanism to prevent properties from being sold at artificially low amounts, exposing debtors to high deficiency judgments. See M.C.L.

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