COA reverses in foreclosure dispute

The Indiana Court of Appeals reversed the denial of a couple’s motion for relief from judgment and request for attorney fees in a foreclosure dispute, finding the couple established the party seeking to foreclose on their property acted in bad faith.

Through a business transaction, John Nowak gave Brett Gibson a promissory note in the amount of $350,000 for stock. To secure payment of the note, Nowak granted Gibson a second mortgage against his home in Indianapolis and against his vacation property in Michigan. Irwin Mortgage Corp. held a prior mortgage on the Indiana real estate. Nowak sold the Indiana property six months later to Thomas and Elizabeth Neu. A title search did not reveal Gibson’s mortgage on the property.

Nowak defaulted on the promissory note to Gibson, so Gibson sought to foreclose on the Indiana and Michigan properties. Gibson obtained a judgment foreclosure in the Michigan case and purchased the property at a public auction. When Gibson filed a motion in 2007 requesting the Indiana trial court grant him a foreclosure judgment against the Neus’ property, he mentioned the Michigan property but did not say that a sheriff’s sale had taken place and he was the winning bidder.

The Indiana trial court eventually entered a judgment of foreclosure against the Indiana property in favor of Gibson for more than $380,000 plus interest, attorney fees and costs. The trial court also denied the Neus’ request for a sheriff’s sale. The Indiana Supreme Court affirmed. The Neus then filed a motion for relief from judgment and for attorney fees, asking the court to deem Gibson’s foreclosure decree fully satisfied because Gibson had reduced his promissory note to judgment in Michigan and bid the full amount of that judgment to acquire his Michigan collateral at a sheriff’s sale.

After deducting the amount of Gibson’s bid to purchase the Michigan real estate, the trial court ordered the balance due on his judgment was $74,716.

In Thomas A. Neu and Elizabeth A. Neu, and Wells Fargo Bank, N.A. v. Brett Gibson, No. 49A02-1109-MF-842, the appellate court found that the proceedings dealing with the Indiana property became fully satisfied when Gibson got the foreclosure judgment on the Michigan property and submitted a full credit bid based on the same promissory note that was the basis of the Indiana foreclosure proceedings. The judges also found the Neus established bad faith when Gibson failed to disclose the Michigan foreclosure judgment and sheriff’s sale. They ordered the trial court determine reasonable attorney fees in favor of the Neus starting from Aug. 8, 2007, the date of the Michigan sheriff’s sale.