Article courtesy of Michael D. Robson (Greenberg Traurig)
U.S. Bank National Association as Trustee for Manufactured Housing Contract Senior/Subordinate Pass-Through Certificate Trust v. Spencer, 214 N.E.3d 1017 (Ind. Ct. App.).
In a dispute between U.S. Bank National Association (“US Bank”) and Mary Sue Spencer and Philip L. Spencer (the “Spencers”) on appeal from the Circuit Court of Martin County, the Indiana Court of Appeals held that US Bank was not precluded from foreclosing on the Spencers’ real property based on the fact that they foreclosed on the Spencers’ manufactured home under Indiana law and also found that US Bank did not act with unclean hands in its third foreclosure action because the prior two foreclosure actions had been dismissed without prejudice and without an adjudication on the merits.
This dispute stems from a series of foreclosure actions between US Bank and the Spencers regarding certain real property located in Martin County, Indiana and the Spencers’ house built on the real property. US Bank had accepted a mortgage as collateral for the real property and the house located thereupon, which was conveyed to the Spencers from their family members in 2009. In the first foreclosure action in 2013, US Bank filed a complaint alleging that the Spencers were in default and sought to foreclosure on the mortgage. The Spencers filed an answer, and US Bank subsequently filed a motion to dismiss the action, which was granted by the trial court without prejudice. Meanwhile, sixteen days before the motion to dismiss the first foreclosure action, US Bank filed a second foreclosure action in 2014, and the Spencers filed to dismiss the case given that there was an identical pending action – that is, the first foreclosure action. US Bank subsequently filed a motion for summary judgment in the second foreclosure action in 2015, but its motion was denied because the trial court found that there was a genuine issue of material fact with respect to the location of the real property. Over a year later, US Bank filed a motion of voluntary dismissal which was granted without prejudice, but the Spencers argued that the dismissal should have been with prejudice because US Bank had not complied with the trial court’s orders during the course of the foreclosure litigation.
In the third foreclosure action, US Bank filed a new complaint to foreclose the mortgage on the Spencers’ property, which the Spencers responded to within a month. Over a year later, US Bank filed another motion for summary judgment, which was denied by the trial court given that there were no findings of fact or conclusions of law. At trial, the court found in favor of the Spencers as to their ownership of the real property and held that their mortgage obligation had been satisfied in full by virtue of the replevin judgment against their manufactured house. The trial court also held that the third foreclosure action was barred by prejudice based on US Bank’s notice of voluntary dismissal filed in the second foreclosure action. On appeal, the Indiana Court of Appeals considered whether the replevin judgment against the manufactured home satisfied the Spencers’ mortgage obligation in full and whether US Bank acted with “unclean hands” during the series of foreclosure actions.
First, the Court of Appeals considered the trial court’s conclusion that the Spencers’ mortgage obligation had been satisfied in full via the replevin judgment on the home based on the Indiana statute that prohibits a secured party from accepting collateral in partial satisfaction of the obligation it secures in a consumer transaction. However, the appellate court looked to another Indiana statute that allowed a secured party to proceed in accordance with the rights with respect to real property if the relevant security agreement covers both real and personal property. I.C. § 26-1-9.1-604(a). Here, the appellate court found that based on the fact that the present case involved both real and personal property, the appellate court found the trial court’s reasoning insufficient to preclude US Bank from foreclosing on the Spencers’ real property because the case involved both real and personal property. Thus, the replevin judgment on the Spencers’ personal property – the manufactured house – did not prohibit US Bank from seeking foreclosure on the Spencers’ real property.
Second, the Court of Appeals addressed the trial court’s holding that US Bank had acted with unclean hands throughout the foreclosure litigation. The appellate court noted that “the purpose of the unclean-hands doctrine is to prevent a party from reaping benefits from his or her misconduct” and that for the doctrine to apply, “the alleged wrongdoing must be intentional and must have an immediate and necessary relation to the matter being litigated.” 214 N.E.3d 1026. The Court of Appeals found that there was insufficient evidence to conclude that US Bank had acted with unclean hands for four reasons: (1) the Spencers did not previously raise the unclean hands doctrine as a defense in their answer to US Bank’s complaint, (2) the trial court’s determination regarding unclean hands went beyond the bounds of the evidentiary record, (3) US Bank was in its current position at least partially due to the determinations of the trial court and only solely by virtue of its own actions and (4) while US Bank’s course of action was not efficient, its inefficient actions were not sufficient to constitute intentional wrongdoing.
The Court of Appeals also addressed the trial court’s decision that the present case was barred because the dismissal in the second foreclosure action was made with prejudice. The appellate court acknowledged the purpose of limitations on dismissals was to “prevent unreasonable abuse and harassment by plaintiffs securing numerous dismissals without prejudice.” Id. at 1027. However, the Court of Appeals rejected the trial court’s ruling, finding that the trial court relied on the rule governing dismissals that do not implicate the discretion of the trial court. In the second foreclosure action, US Bank and the Spencers had not only litigated the matter for several years, but the parties also filed multiple motions for summary judgment, which necessarily implicated the trial court’s discretion. After years of litigation involving the trial court, US Bank filed its motion for voluntary dismissal, which the trial court granted. The Court of Appeals overruled the trial court’s decision, reasoning that the trial court’s grant of US Bank’s motion to voluntarily dismiss the prior case “dissolved any and all interlocutory orders” and “put the parties back into the position of the suit never having been filed and rendered any contested issues as to the dismissed claims moot.” Id. at 1028. The Court of Appeals expressly stated that the trial court’s decision in the second foreclosure action was granted without prejudice, and thus, the present, third foreclosure was not and could not be barred based on a dismissal made with prejudice.
