Reversal: Bank loses in lengthy foreclosure battle

The Indiana Court of Appeals reversed judgment awarded to a bank against a former homeowner who filed for bankruptcy, finding that because the man had been discharged of any liability on the mortgage, the judgment was in error.

After Michael Mannion filed for bankruptcy on a residence he owned in Kokomo, he received a discharge from the mortgage debt and stopped making payments on the mortgage. During the next decade, Mannion faced three foreclosure actions brought against him by predecessors in interest, two of which were dismissed.

The third, brought by Wilmington Savings Fund Society FSB, survived the Howard Superior Court after Wilmington claimed that its foreclosure action was based upon a default by Mannion that occurred after the dismissal of the first foreclosure action, and was therefore not barred by res judicata. The trial court granted Wilmington’s motion for summary judgment and denied Mannion’s, also entering a separate in rem summary judgment and decree of foreclosure in favor of Wilmington.

The Indiana Court of Appeals reversed, finding the trial court erred in awarding summary judgment to Wilmington. The appellate court first noted that it was not a novel concept that because Mannion had received discharge in bankruptcy before the initiation of the first foreclosure, he was no longer personally liable for the debt secured by the mortgage.

“Wilmington’s assertion ignores the undisputed fact that Mannion’s personal liability under the mortgage had been discharged in bankruptcy,” Senior Judge John Sharpnack wrote. “The essentials of the controversy are the same in both foreclosure actions: the debt is unpaid; Mannion is discharged from liability for the debt; the creditor can foreclose on the property; and the creditor is seeking an in rem judgment. Thus, both foreclosure actions were based on the nonpayment of the mortgage due to the mortgagor’s discharge in bankruptcy.”

Additionally, the appellate court pointed out in Michael J Mannion v. Wilmington Savings Fund Society FSB,19A-MF-00446, that different amounts alleged in each of the foreclosure actions were of no consequence.

“Due to the creditors’ lack of success in their attempts to foreclose, the litigation has spanned many years, thus increasing the amount of the debt; this does not create a new and independent basis for foreclosure,” the panel wrote.

“Finally, Wilmington includes a public policy argument that Mannion should not receive the property ‘free and clear’ of its lien. However, where, as here, the creditor created the situation as a direct result of its failure to prosecute, and the homeowner obtained a judgment on the merits, the judgment should have its full res judicata effect in accordance with res judicata principles.”

The appellate court therefore remanded with instructions for judgment to be entered in Mannion’s favor.