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Recent Indiana Supreme Court Decision Could Have Significant Impact on Mortgage Foreclosure Cases

The Indiana Supreme Court issued an opinion on October 15th that the Chief Justice believes is not consistent with prevailing legal doctrine on mortgages and could "alter the property interests of owners and lenders in billions of dollars of commercial and industrial real estate."  The case, Myers v. Leedy, No. 85S02-0808-CV-487, involved the issue of whether a tenant's leasehold interest in a forfeiture action survives when the land contract vendor (seller) knew or should have known that the tenant was in possession of the property, but the vendor did not name the tenant as a party to the action.

The case involved a land sale contract for 200 acres of farmland in Fulton County. Eli John Yoder agreed to purchase the land from Keith Myers in installments.  Yoder later leased 160 acres of the land to Wesley Leedy. Myers knew that Leedy was farming the land.  Yoder later defaulted on the land sale contract and a trial court found that forfeiture was the appropriate remedy. Myers subsequently ordered Leedy off of the property and rented the land to another party. Leedy brought an action against Myers for not allowing him to finish his farming under the agreement he had with Yoder.

The Indiana Supreme Court held that Leedy's interest was not extinguished by the forfeiture action because he was not made a party to the original contract action between Yoder and Myers. Chief Justice Shepard and Justice Sullivan agreed with the result in the case, but issued a concurring opinion stating that the majority had gone too far when it stated that the ruling also applies to mortgage cases. Justice Shepard remarked, "I perceive that today's ruling is not really consonant with prevailing national doctrine on mortgages, but would put off that debate until such moment as we might have before us parties like mortgage lenders and owners/mortgagors of apartment buildings, shopping centers, or other commercial real estate whose world is being altered by today's declaration."