Foreclosure, judgment for Kokomo property owners reversed

An Indiana trial court must recalculate the amount of damages that must be paid by a couple who defaulted on a real estate contract after an appellate panel determined the trial court erred in allowing for both a forfeiture and foreclosure remedy for the default.

The case of Dr. Curtis K. Deason and Connie S. Deason v. Bill R. McWhorter and Heather McWhorter Revocable Living Trust, Dated January 24, 2003, 18A-PL-270, began in March 2009, when Curtis and Connie Deason signed a real estate contract with the Bill R. McWhorter and Heather McWhorter Revocable Living Trust, allowing the Deasons to purchase property in Kokomo for $490,000. The Deasons paid roughly 4 percent of the total purchase price, and the entire remaining balance was due in in April 2012.

The Deasons were unable to make the April 2012 balloon payment and instead offered a regular monthly payment, breaching the contract. The trust took possession of the property the following May, and the title was placed in Bill McWhorter’s name.

Three years later, the trust filed a complaint for damages against the Deasons, seeking foreclosure and the unpaid principal balance, as well as interest, attorney fees and other expenses. The Howard Superior Court ultimately entered a deficiency judgment against the Deasons for more than $153,000 and foreclosed and extinguished their interest in the property.

On appeal, the Deasons argued the trial court erred by awarding the trust both forfeiture and foreclosure remedies. The Indiana Court of Appeals agreed, with Judge James Kirsch writing Thursday that the trust’s actions indicated a forfeiture did occur.

“When the Deasons defaulted on the Contract, they relinquished possession of the Property, and the Trust took almost immediate possession of the Property with McWhorter residing on the property consistently until the date of the trial,” Kirsch wrote.

“…Not until over three years after the Deasons’ breach of the Contract, did the Trust seek a foreclosure of the Property,” Kirsch continued. “Therefore, the record indicates that the Trust elected to pursue a forfeiture at the time of the breach of the Contract, which cancelled the Contract, and pursuant to (Powers v. Ford, 415 N.E.2d 734 (Ind. Ct. App. 1981)), the Trust was no longer entitled to seek a foreclosure and a deficiency judgment, which would hold the Deasons further liable on the contract.”

Kirsch also pointed to language in the contract that allowed for the contract to be cancelled if the buyers defaulted, did not correct the default within 30 days and had paid less than 25 percent of the principal, all of which occurred here. But the contract only allowed the trust to take additional legal action if the Deasons defaulted and failed to surrender possession of the property, which did not occur.

Thus, the trial court erred when it entered judgment under a foreclosure remedy and awarded a deficiency judgment. The case was remanded for a recalculation of the damages award.