Ruling for homeowner in quiet title action after bankruptcy vacated

An Indiana trial court order in favor of a Hammond homeowner in her quiet title action following a bankruptcy was vacated Friday by the Indiana Court of Appeals, which found the trial court lacked jurisdiction.

The Indiana Court of Appeals vacated summary judgment for the homeowner in Ocwen Loan Servicing, LLC v. Dorothy Chambliss, 20A-PL-1050, and remanded to the Lake Superior Court with directions to dismiss the action.

Dorothy Chambliss and her husband bought the property in question 50 years ago but refinanced multiple times before they filed a Chapter 13 bankruptcy petition in 2004. The Northern District of Indiana Bankruptcy Court discharged the petition in 2009, after which they continued to make mortgage payments. Chambliss’ husband died in 2011.

In 2014, Chambliss secured a mortgage loan modification with a principal balance of more than $65,000, monthly payments of $335 for three years, followed by a balloon payment for the balance. However, the modification was never recorded, so Chambliss moved for a quiet title. She and Ocwen both moved for summary judgment, and the trial court ruled in Chambliss’ favor.

“The parties agreed that the issue before the trial court turned on an interpretation of Chambliss’ bankruptcy case to determine whether Ocwen had a valid lien on the Property, or stated differently, whether the Mortgage executed by Chambliss in 2002 had survived the Chapter 13 bankruptcy,” Judge Rudy Pyle III wrote. Ocwen presented evidence that the mortgage survived discharge of the bankruptcy petition. Chambliss contended that Ocwen had failed to protect its security interest because it had failed to record the mortgage.

But the COA found the trial court lacked jurisdiction altogether.

“By filing her complaint to quiet title, Chambliss commenced an adversarial proceeding to challenge the viability of Ocwen’s secured claim following her Chapter 13 bankruptcy. Essentially, Chambliss attempted to use a quiet title action as a sword to cut off Ocwen’s rights under the Mortgage by asserting that her Chapter 13 bankruptcy had extinguished the Mortgage and Ocwen’s rights thereunder,” Pyle wrote.

“If — after paying on the Mortgage for more than eight years after her bankruptcy discharge, including three years of paying on the Loan Modification Agreement — Chambliss was unclear regarding the legal effect of her Chapter 13 bankruptcy discharge order in relation to the Mortgage with Ocwen, she should have sought relief or clarification from the bankruptcy court that had entered the order at issue instead of filing a state court action seeking to have the trial court interpret the legal effect of her bankruptcy cause.”

The COA cited Goodman v. Serine, 6 N.E.3d 481, 483-84 (Ind. Ct. App. 2014) to illustrate the limited jurisdiction Indiana trial courts have over bankruptcy proceedings. “Because this appeal solely involves a bankruptcy matter that was subject to the bankruptcy court’s jurisdiction, we vacate the trial court’s judgment and direct it to dismiss this quiet title action,” the panel concluded.