Justices affirm trial court in mortgage acceleration clause case

The Indiana Supreme Court has affirmed a trial court’s order that foreclosed a couple’s interest in two mortgaged properties, concluding that the lender filed suit against the borrowers within the applicable statutes of limitations.

In Dean Blair and Paula Blair v. EMC Mortgage, LLC, 19S-MF-530, Dean and Paula Blair executed a note and mortgage on two Evansville properties to be paid in monthly installments over 15 years, beginning in February 1993. The note gave the holder the option to accelerate the debt after a default and require immediate payment on the full amount due.

The Blairs made their last payment on the note in June 1995, and when the original lender filed for bankruptcy, the Blairs’ note and mortgage were eventually assigned to EMC Mortgage, LLC. Although the note matured on Jan. 1, 2008, EMC didn’t sue the Blairs to recover on the note and foreclose the mortgage until July 3, 2012.

The Vanderburgh Superior Court issued an order foreclosing the mortgage following a bench trial, but held, in part, that EMC was entitled to recover only payments and interest that accrued after July 3, 2006 due to the six-year statute of limitations in Indiana Code section 34-11-2-9. In a reversal of that decision, the Indiana Court of Appeals found EMC was unreasonably delayed in accelerating the note and mortgage. By failing to make demand within a reasonable time, the appellate court concluded EMC’s rights were time-barred.

Supreme Court justices granted transfer in the case and affirmed the trial court in a Monday decision, finding that EMC filed suit within the applicable statutes of limitations. It rejected the Blairs’ request to impose an additional rule of reasonableness on the assertion that EMC waited an unreasonable amount of time to sue for payment under the note.

“We find that imposing additional, judicially created time constraints upon a lender’s ability to bring a claim on a closed installment contract is neither necessary nor wise,” Chief Justice Loretta Rush wrote for the unanimous high court. “Applicable statutes of limitations already keep a lender from waiting indefinitely to sue for a borrower’s default. And these statutes are triggered at multiple points in time, leaving the lender empty-handed if it delays too long. Imposing a further rule of reasonableness could spur lenders to sue borrowers prematurely, depriving them of the opportunity to first negotiate repayment.”

In granting EMC’s request to affirm the trial court’s order that it is entitled to partial relief, the justices concluded that for purposes of the statute of limitations, closed installment contracts should be treated differently than open accounts. It therefore disapproved of the Blair’s reliance on Heritage Acceptance Corp. v. Romine, 6 N.E.3d 460 (Ind. Ct. App. 2014) and Stroud v. Stone, 122 N.E.3d 825 (Ind. Ct. App. 2019). It also declined to apply the rationale under Smither v. Asset Acceptance, LLC, 919 N.E.2d 1153 (Ind. Ct. App. 2010).

The high court next found Indiana’s two applicable statutes of limitations recognize three events triggering the accrual of a cause of action for payment upon a promissory note containing an optional acceleration clause.

“First, a lender can sue for a missed payment within six years of a borrower’s default. Second, a lender can exercise its option to accelerate and fast-forward to the note’s maturity date, rendering the full balance immediately due. The lender must then bring a cause of action within six years of that acceleration date. Or, third, a lender can opt not to accelerate and sue for the entire amount owed within six years of the note’s date of maturity,” the high court wrote.

Although EMC sued the Blairs well within six years of the note’s 2008 maturity date, the justices concluded that the unique posture of the case compelled it to affirm the trial court’s award of only partial relief. It thus declined to grant EMC relief beyond what was sought