COA: Woman, not bank, entitled to foreclosure surplus funds

A trial court misapplied the law regarding disbursement of surplus sale proceedings from a sheriff’s sale when it ordered the full surplus to the bank that owned the first mortgage on the home, the Indiana Court of Appeals held. The law requires the surplus to go to the mortgage debtor.

John and Manee Edler had two mortgages through Regions Bank on their Bloomington home, the first mortgage was on the property; the second mortgage was related to a home equity line of $30,000.

In June 2013, Regions Bank alleged the Edlers were in default on the second mortgage only, with a balance of $22,933.56. The complaint did not allege any default regarding the first mortgage. In a foreclosure decree, the judge stated the second mortgage is superior to all other liens and claims, except the first mortgage. The decree ordered the home sold in a sheriff’s sale, which David Jenner bought for $82,600.

Regions petitioned for a portion of that amount to cover the second mortgage and then the rest of the surplus to be applied to the first mortgage. The court granted the full $82,600 to Regions. The Edlers filed a motion to correct, which was denied, seeking the surplus. John Edler passed away while this appeal was pending.

Judge Michael Barnes turned to Indiana Code 32-30-10-14, which governs mortgage foreclosure sales and surplus sales proceeds. This statute requires surplus directed to the “mortgage debtor, mortgage debtor’s heirs, or other persons assigned by the mortgage debtor.” The COA also cited two cases from the 19th century to support its reversal.

“This case is slightly unusual in that Regions obviously had notice of the foreclosure action on the second mortgage but chose to make no effort to foreclose on the first mortgage or otherwise have its rights adjudicated with respect to the first mortgage. Having chosen this course of action, Regions could not essentially reverse course by seeking the surplus sales proceeds, in clear contravention of the foreclosure statutes and relevant case law,” Barnes wrote.

He also noted how Regions now decides to collect the debt associated with first mortgage is beyond the scope of this opinion. Manee Edler v. Regions Bank, and Jenner Properties, LLC, 53A01-1512-MF-2264, is remanded with instructions to distribute the surplus sale proceeds to Manee Edler.