Citizens State Bank of New Castle v. Countrywide Home Loans, Inc.
2011 Ind. LEXIS 570
| Ind. | 2011Background
- Countrywide obtained a first mortgage on real estate of the Clouds in April 2005 and foreclosed in 2006, taking title at a sheriff's sale and later transferring to FNMA in 2007.
- Citizens State Bank had a recorded judgment lien against the Clouds from 2006 for approximately $110,000 and was not named in Countrywide's foreclosure action.
- The foreclosure court entered judgment for Countrywide in 2006; Citizens Bank had a properly recorded judgment lien.
- Countrywide discovered Citizens Bank's lien after foreclosure and filed a strict foreclosure action seeking to foreclose Citizens Bank's lien.
- The trial court granted summary judgment against Citizens Bank; the Court of Appeals reversed, and this Court granted transfer to resolve merger/anti-merger questions.
- Countrywide contends merger did not extinguish Citizens Bank's lien; Citizens Bank argues merger did extinguish or that strict foreclosure was appropriate to preserve the lien.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether merger extinguishes the junior lien | Citizens Bank argues merger preserved the junior lien | Countrywide contends merger extinguishes the lien upon conveyance | Merger not presumed to extinguish; evidence shows intended merger by transfer to FNMA? |
| Whether Countrywide’s actions created a merger by April 19, 2007 | Citizens Bank relies on deed language and timing to show merger intent | Countrywide argues lack of explicit merger intent is controlling | Record supports merger intent by April 19, 2007; title transfer with full covenants indicates merger. |
| Whether strict foreclosure was an appropriate mechanism given the facts | Citizens Bank could be foreclosed by strict foreclosure | Strict foreclosure is not appropriate where merger issues exist and lien remains | Strict foreclosure not controlling; merger governs outcome; not appropriate here. |
| Effect of omitted party on lien status | Omitted party remains subordinate but preserved | Omitted party should be foreclosed or diluted in priority | Citizens Bank’s lien remains; not extinguished by foreclosure; equitable considerations apply. |
| Relation of prior precedents (Shirk, Oldham) to result | Shirk/Oldham support foreclosure of omitted party interest | Restatement views should apply; merger doctrine controls | Shirk and Oldham support preserving Citizens Bank’s interests via equitable assignment. |
Key Cases Cited
- Ellsworth v. Homemakers Fin. Serv., Inc., 424 N.E.2d 166 (Ind.Ct.App.1981) (merger intent governs whether merger occurs; presumption may be rebutted)
- Jefferson v. Coleman, 11 N.E. 465 (Ind. 1887) (strict foreclosure origin; equity accordingly)
- Shirk v. Andrews, 92 Ind. 509 (Ind. 1884) (foreclosure by senior lienholder may foreclose omitted party's equity)
- Oldham v. Noble, 66 N.E.2d 614 (Ind.App.1946) (omitted-party doctrine; equitable assignment of mortgage rights)
- Deutsche Bank Nat’l Trust Co. v. Mark Dill Plumbing Co., 903 N.E.2d 166 (Ind.Ct.App.2009) (omitted party concept clarified; indexing errors exception discussed)