Drake Investments, LTD and Paul D. Huntley v. Peter Ballatan (mem. dec.) , 130 N.E.3d 1213 ( 2019 )

MEMORANDUM DECISION
Pursuant to Ind. Appellate Rule 65(D), FILED
this Memorandum Decision shall not be Aug 23 2019, 5:32 am
regarded as precedent or cited before any
CLERK
court except for the purpose of establishing Indiana Supreme Court
Court of Appeals
the defense of res judicata, collateral and Tax Court
estoppel, or the law of the case.
ATTORNEYS FOR APPELLANTS ATTORNEYS FOR APPELLEE
J.F. Beatty Kurt V. Laker
Kathryn Merritt-Thrasher Mark S. Gray
Landman Beatty, Lawyers Doyle & Foutty, P.C.
Indianapolis, Indiana Indianapolis, Indiana
IN THE
COURT OF APPEALS OF INDIANA
Drake Investments, LTD and August 23, 2019
Paul D. Huntley, Court of Appeals Case No.
Appellants-Defendants, 18A-PL-2775
Appeal from the Marion Superior
v. Court
The Honorable Cynthia Ayers,
Peter Ballatan, Judge
Appellee-Plaintiff Trial Court Cause No.
49D04-1709-PL-34217
May, Judge.
[1] Drake Investments and Paul D. Huntley (“Doug”) (collectively “Appellants”)
appeal the trial court’s entry of summary judgment in favor of Peter Ballatan.
Appellants raise two issues on appeal, which we restate as whether the trial
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court erred in denying their motion for summary judgment and granting
Ballatan’s motion for summary judgment. We affirm.
Facts and Procedural History
[2] On September 28, 2007, Ballatan obtained a judgment in the amount of
$125,438.43 against Joanne Huntley (“Joanne”) in a civil case, Cause No.
49D03-0403-PL-000625 (“Cause 0625”). The judgment represented lost rental
income and travel expenses incurred by Ballatan in a real estate dispute with
Joanne. At the time of that dispute, Joanne owned four parcels of land in
Indianapolis, Indiana: 460 North Kealing Avenue; 6464 Brookville Road; 5235
East Washington Street; and 5269 East Washington Street (collectively,
“Properties”).
[3] However, while Cause 0625 was pending, Joanne purported to grant mortgages
on each of the Properties to her son, Doug. The mortgages were executed on
March 1, 2007, via three mortgage documents. The mortgage documents
consist of pre-printed forms with blank spaces for the parties to insert the
requisite information. Each document consisted of one substantive page.
[4] Joanne and Doug completed the documents by hand and had them notarized.
The mortgage documents indicate that Joanne agreed to pay Doug $80,000.00
secured by the Kealing Avenue property, $250,000.00 secured by the Brookville
Road property, and $500,000.00 secured by the two Washington Street
properties (hereinafter collectively, “Huntley Mortgages”). Each document
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states that Joanne “mortgage[s] and warrant[s] to Paul Douglas Huntley” the
Properties. (Appellants’ App. Vol. II at 131, 134, & 137.) The boilerplate
language of each document states
the mortgagor expressly agree [sic] to pay the sum of money
above secured, without relief from valuation or appraisement
laws; and upon failure to pay any one of said notes, or any part
thereof, at maturity, or the interest thereon, or any part thereof,
when due, or the taxes or insurance as hereinafter stipulated,
then all of said notes are to be due and collectible, and this
mortgage may be foreclosed accordingly. And it is further
expressly agreed, that until all of said notes are paid, said
mortgagor will keep all legal taxes and charges against said
premises paid as they become due, and will keep the buildings
thereon insured for the benefit of the mortgagee, as h [sic]
interest may appear and the policy duly assigned to the
mortgagee, to the amount of [sic] Dollars, and failing
to do so, said mortgagee, may pay said taxes or insurance, and
the amount so paid, with per cent interest thereon, shall be a part
of the debt secured by this mortgage.
Id.
[5] In his affidavit designated at summary judgment, Doug averred Joanne
“mortgaged to me the properties . . . in exchange for me taking care of her
living expenses, including making monthly payment to her lender for her
personal residence in Johnson County, ensuring that all property taxes,
insurance and her other daily living expenses were paid timely.” (Id. at 108 ¶
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7.) 1 On or about August 27, 2008, Joanne transferred ownership in the
Properties from herself as an individual to herself as trustee of the Joanne B.
Huntley Trust. The purported mortgage interests conveyed by the Huntley
Mortgages were not recorded until October 15, 2009.
[6] On February 17, 2011, Doug paid Joanne $30,000.00, and Joanne transferred
her ownership interests in the Properties to Doug, who purchased the Properties
for investment purposes. On May 22, 2017, Doug transferred his ownership
interest in the Properties to Drake Investments, LTD. Doug is the president of
Drake Investments.
[7] On September 7, 2017, Ballatan filed his complaint to renew and foreclose
judgment lien against real property from Cause 0625. Doug asserted in his
affidavit that he did not know about Ballatan’s judgment in Cause 0625 until
Ballatan filed suit on September 7, 2017. Joanne died on September 25, 2017.
She did not make any payment to Ballatan toward satisfaction of the judgment
before her death.
1
The Appellants’ Brief describes the arrangement as such:
The undisputed material fact is that the Huntley Mortgages secured a debt owed by
Joanne Huntley to Doug Huntley. While the specific nomenclature is not used, it
appears from the undisputed facts the Huntley Mortgages were intended to serve as
‘reverse mortgages’ in which the Real Estate at Issue would secure payments made by
Doug Huntley on behalf of Joanne Huntley as part of her retirement and/or estate plan.
(Appellants’ Br. at 16 n.5.)
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[8] Ballatan moved for summary judgment on April 3, 2018. Appellants responded
to Ballatan’s motion for summary judgment and cross-moved for summary
judgment on June 2, 2018. The trial court held a hearing on the cross-motions
for summary judgment on September 25, 2018. The trial court issued findings,
granted Ballatan’s motion for summary judgment, and denied Appellants’
cross-motion for summary judgment on October 23, 2018. The trial court
ordered the Properties be sold and the proceeds used to satisfy the sums due to
Ballatan.
Discussion and Decision
[9] When reviewing the grant or denial of a motion for summary judgment, we
apply the same standard as the trial court: whether there is a genuine issue of
material fact and whether the moving party is entitled to judgment as a matter
of law. Monroe Guar. Ins. Co. v. Magwerks Corp., 829 N.E.2d 968, 973 (Ind.
2005). We grant summary judgment “only if the evidence sanctioned by
Indiana Trial Rule 56(C) shows that there is no genuine issue of material fact
and the moving party deserves judgment as a matter of law.” Id. Further, we
construe all evidence in favor of the nonmoving party and resolve all doubts as
to the existence of a material issue of fact against the moving party. Id. While
the moving party must first put forth evidence to support the motion, “the
opposing party may not rest on his pleadings, but must set forth specific facts,
using supporting materials contemplated by Trial Rule 56, which demonstrate
that summary judgment is not appropriate.” Conrad v. Waugh, 474 N.E.2d 130,
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134 (Ind. Ct. App. 1985). “A genuine issue of material fact exists where facts
concerning an issue which would dispose of the litigation are in dispute or
where the undisputed material facts are capable of supporting conflicting
inferences on such an issue.” Poyser v. Peerless, 775 N.E.2d 1101, 1105 (Ind. Ct.
App. 2002).
[10] We do not resolve questions of credibility or weigh evidence at the summary
judgment stage of proceedings. See Kader v. State, 1 N.E.3d 717, 727 (Ind. Ct.
App. 2013) (“Assessments of credibility and weight are the province of the fact-
finder at trial, not the trial court at summary judgment.”). Summary judgment
is not meant to be a substitute for trial and should not be granted merely
because the party appears likely to prevail at trial. Hughley v. State, 15 N.E.3d
1000, 1005 (Ind. 2014).
[11] We do not modify our standard of review when the parties make cross motions
for summary judgment. State Auto Ins. Co. v. DMY Realty Co., LLP, 977 N.E.2d
411, 419 (Ind. Ct. App. 2012). “Instead, we must consider each motion
separately to determine whether the moving party is entitled to judgment as a
matter of law.” Id. The trial court’s entry, in its summary judgment order, of
findings of fact and conclusions of law does not change our standard of review.
Id. We are not bound by the trial court’s findings of fact and conclusions of
law. Id. However, they may aid our review. Id.
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Validity of Huntley Mortgages
[12] The parties do not dispute that Ballatan’s judgment is a valid lien against the
Properties pursuant to Indiana Code section 34-55-9-2. 2 However, Appellants
assert that Doug’s purported mortgage interests should take priority over
Ballatan’s judgment lien, because Indiana law places judgment liens
subordinate to other liens. See Huntingburg Prod. Credit Ass’n v. Griese, 456
N.E.2d 448, 452 (Ind. Ct. App. 1983) (“Liens for judgments are subordinate to
all prior legal or equitable liens[.]”). Ballatan asserts the Huntley Mortgages
cannot have priority over his judgment lien because these purported mortgages
are invalid.
[13] A “mortgage” is defined as a “conveyance of title to property that is given as
security for the payment of a debt or the performance of a duty and that will
become void upon payment or performance according to the stipulated terms.”
MORTGAGE, Black’s Law Dictionary (11th ed. 2019). The term “mortgage”
is also used to refer to the instrument specifying the terms of such a transaction.
Id. In Indiana, the proper form for mortgages is defined by a statute that states:
A mortgage of land that is:
worded in substance as “A.B. mortgages and warrants to C.D.”
(here describe the premises) “to secure the repayment of” (here
2
That statute provides, in relevant part: “All final judgments for the recovery of money or costs . . . constitute
a lien upon real estate and chattels real liable to execution in the county where the judgment has been duly
entered and indexed.” Ind. Code § 34-55-9-2.
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recite the sum for which the mortgage is granted, or the notes or
other evidences of debt, or a description of the debt sought to be
secured, and the date of the repayment); and
dated and signed, sealed, and acknowledged by the grantor;
is a good and sufficient mortgage to the grantee and the grantee’s
heirs, assigns, executors, and administrators, with warranty from
the grantor (as defined in IC 32-17-1-1) and the grantor’s legal
representatives of perfect title in the grantor and against all
previous encumbrances. However, if in the mortgage form the
words ‘and warrant’ are omitted, the mortgage is good but
without warranty.
Ind. Code § 32-29-1-5.
[14] All mortgages must be secured by a debt. Plummer & Co., Inc. v. Nat’l Oil & Gas.
Inc., 642 N.E.2d 291, 292 (Ind. Ct. App. 1994), trans. denied. The debt need not
be described with literal accuracy but it “must be correct so far as it goes, and
full enough to direct attention to the sources of correct information in regard to
it, and be such as not to mislead or deceive, as to the nature or amount of it, by
the language used.” Bowen v. Ratcliff, 39 N.E. 860, 862 (Ind. 1895). It is
necessary for the parties to the mortgage to correctly describe the debt “so as to
preclude the parties from substituting debts other than those described for the
mere purpose of defrauding creditors.” Plummer & Co., Inc., 642 N.E.2d at 292.
As our federal sister court has observed, “most Indiana cases have examined
the description of the debt as a whole to decide whether it puts a potential
purchaser on in essence inquiry notice of an encumbrance, and whether it is
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specific enough to prevent the substitution of another debt.” In re Kraft, LLC,
429 B.R. 637, 653 (Bankr. N.D. Ind. 2010) (emphasis in original).
[15] In SPCP Group, LLC v. Dolson, Inc., Earlene Holland owned four lots in Jasper,
Indiana. 934 N.E.2d 771, 772-773 (Ind. Ct. App. 2010). She leased the
property to Dolson, Inc., and Dolson’s president and secretary/treasurer,
Shanna and Maurice Doll, signed the lease. Id. at 773. On December 24, 2001,
Holland and Dolson purported to execute a new mortgage in favor of Terre
Haute First National Bank for the purpose of refinancing. Id. The mortgage
document described the secured debt by referencing a promissory note dated
December 27, 2001, and executed by the two Dolls and C. Wayne Thompson.
Id. The Dolls executed a promissory note, but Thompson did not execute the
note. Id. at 774. Terre Haute First National Bank assigned its interests to
SPCP, and SPCP initiated a foreclosure action against Holland and others. Id.
The trial court granted summary judgment in favor of Holland and against
Dolson after concluding the December 24, 2001, mortgage was invalid because
the debt was not accurately described. Id. at 775.
[16] On appeal, we first assessed the accuracy of the description of the debt and
concluded the description was inaccurate because Thompson did not execute
the note and therefore was not a primary obligor. Id. at 776. Thompson was a
guarantor rather than a co-maker of the note. Id. Next, we looked to see
whether the inaccuracy was sufficiently material to mislead or deceive as to the
nature and amount of the debt. Id. We concluded that it was sufficiently
material to mislead because it permitted SPCP to release Thompson while
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seeking recovery of the debt from Holland. Id. at 777. Also, Thompson’s status
as guarantor rather than co-maker of the note altered Holland’s remedies
against Thompson in the event of default. Id.
[17] The Huntley Mortgage documents describe three debts Joanne purportedly
owed to Doug as debts for $80,000.00; $250,000.00; and $500,000.00
respectively. The Huntley Mortgage documents refer to notes evidencing these
debts, (see Appellants’ App. Vol. II at 131, 134, & 137 (“[M]ortgagor expressly
agrees to pay the sum of money secured, without relief from valuation or
appraisement laws; and upon failure to pay any one of said notes, or any part
thereof…then all of said notes are to be due and collectible.”)), but Doug did
not designate the notes purportedly referred to in the Huntley Mortgage
documents. Instead, Doug’s affidavit and his averments in his appellate brief
reveal the true nature of the debts – the mortgages were not meant to secure
monetary loans he gave to Joanne; rather, the amounts listed represented
expected future expenses Doug would incur in covering Joanne’s living
expenses. (See Appellants’ App. Vol II at 108 ¶ 7.) See supra n.1.
[18] Like in SPCP Group, LLC, the Huntley Mortgage documents fail to accurately
describe the debt. The Huntley Mortgage documents describe the debt in a
misleading and deceiving manner because, on their face, Joanne “expressly
agree[s] to pay the sum of money above secured.” (Appellants’ App. Vol. II at
131, 134, & 137.) However, Joanne did not owe money to Doug; Doug was
paying Joanne’s future living expenses. Further, the Huntley Mortgage
documents do not include a date of repayment as required by Indiana Code
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section 32-29-1-5. Therefore, one cannot tell from looking at the Huntley
Mortgage documents when Doug’s purported mortgage interest in the
Properties was scheduled to expire. See In re Canaday, 376 B.R. 260, 270
(Bankr. N.D. Ind. 2007) (listing failure to include the date of repayment secured
by a purported mortgage in the mortgage instrument as one of the reasons a
purported mortgage did not satisfy the requirements of the statute). In short,
the descriptions of the debts in the Huntley Mortgage documents are
inaccurate.
[19] Next, we evaluate whether the inaccuracies are sufficiently material to mislead
or deceive as to the nature and amount of the debt. The Huntley Mortgage
documents make no mention of Doug’s agreement to cover his mother’s living
expenses in exchange for mortgage interests in the Properties. Further, the
Huntley Mortgage documents do not connect the debts described therein with
the expenses intended to be incurred in covering Joanne’s living expenses. The
descriptions of the debts are so vague that they do not preclude Joanne and
Doug from substituting other debts for the debts described. Thus, the
inaccuracies contained in the Huntley Mortgage documents are materially
misleading regarding the nature and amount of the debt, and we therefore hold
the Huntley Mortgages are invalid. See SPCP Group, LLC, 934 N.E.2d at 779
(holding plaintiff could not foreclose on mortgage because it contained an
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inaccurate and materially misleading description of the debt it purported to
secure). 3
Bona Fide Purchaser Status
[20] Nevertheless, we must still evaluate whether a genuine issue of material fact
exists regarding whether Doug and/or Drake Investments were bona fide
purchasers when they took ownership of the Properties. The bona fide
purchaser doctrine protects a bona fide purchaser against prior interests in land.
Clarkson v. Neff, 878 N.E.2d 240, 244 (Ind. Ct. App. 2007), trans. denied. A bona
fide purchaser buys real estate “in good faith, for . . . valuable consideration,
and without notice of the outstanding rights of others.” Keybank Nat. Ass’n v.
NBD Bank, 699 N.E.2d 322, 327 (Ind. Ct. App. 1998). It is an equitable
doctrine that recognizes “every reasonable effort should be made to protect a
purchaser of legal title for . . . valuable consideration without notice of a legal
defect.” Id. A person may have either constructive or actual notice of prior
interests in the land. Id. “Constructive notice is provided when a deed or
mortgage is properly acknowledged and placed on the record as required by
statute.” Id. Actual notice occurs
when notice has been directly and personally given to the person
to be notified. Additionally, actual notice may be implied or
inferred from the fact that the person charged had means of
3
For the same reasons we reject Appellants’ arguments that these documents are legal mortgages, we also
decline to hold the Huntley Mortgages could survive as equitable mortgages. 59 C.J.S. Mortgages § 148 (“A
mortgage[,] to be effective, must describe or identify the debt or liability intended to be secured thereby.”)
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obtaining knowledge which he did not use. Whatever fairly puts
a reasonable, prudent person on inquiry is sufficient notice to
cause that person to be charged with actual notice, where the
means of knowledge are at hand and he omits to make the
inquiry from which he would have ascertained the existence of a
deed or mortgage. Thus, the means of knowledge combined with
the duty to utilize that means equates with knowledge itself.
Whether knowledge of an adverse interest will be imputed in any
given case is a question of fact to be determined objectively from
the totality of the circumstances.
Id. (internal citations omitted).
[21] Ballatan contends that because his judgment against Joanne was a matter of
public record, Doug should be charged with knowledge of the judgment lien. A
judgment lien is statutory. Lobb v. Hudson-Lobb, 913 N.E.2d 288, 295 (Ind. Ct.
App. 2009). The statute provides: “All final judgments for the recovery of
money . . . constitute a lien upon real estate . . . in the county where the
judgment has been duly entered and indexed in the judgment docket as
provided by law . . . after the time the judgment was entered and indexed.”
Ind. Code § 34-55-9-2. Here, the judgment was duly entered and indexed in the
judgment docket of the Marion County Clerk. (See App. Vol. II at 200-204).
Therefore, the judgment lien became effective when it was entered and indexed.
[22] Doug avers he did not know about Ballatan’s judgment lien before Ballatan
filed his complaint in the case at bar on September 7, 2017. Nevertheless, the
records of the Marion County Clerk are available for public inspection. “Public
records are notice to the world, and it is not necessary to prove that a man has
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examined a record in order to bind him with notice of its contents.” Keesling v.
Doyle, 35 N.E. 126, 127 (Ind. Ct. App. 1893). 4
[23] Doug does not argue or designate any facts that would have called into question
his ability to obtain knowledge of the judgment. Therefore, as a matter of law,
knowledge of the judgment can be imputed to him. See State v. Cox, 377 N.E.2d
1389, 1392 (Ind. Ct. App. 1978) (holding that subsequent purchaser acquired
land with notice of and subject to State’s judgment lien when State’s lien was
recorded in judgment docket and order book). As Doug’s assertion that he did
not know about the judgment lien does not create a genuine issue of material
fact about whether knowledge of the judgment lien can be imputed to him,
summary judgment for Ballatan was not erroneous. See Herron v. First Financial
Bank, N.A., 91 N.E.3d 994, 999 (Ind. Ct. App. 2017) (holding judgment lien
that attached to property has priority over subsequent mortgage). 5
Conclusion
[24] The Huntley Mortgages are invalid because they fail to accurately describe the
debts to be repaid and the inaccuracies are sufficiently material to mislead or
4
As Ballatan observes, if knowledge of a public record cannot be imputed to a subsequent purchaser, “then
any purchaser subsequent to the attachment of the judgment could defeat the lien merely by ignoring
(declining to search) the county judgment docket.” (Appellee’s Br. at 13.)
5
Because Doug is the president of Drake Investments, it also could not be a bona fide purchaser, and
summary judgment for Ballatan was appropriate against Drake Investments for the same reasons it was
appropriate against Doug.
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deceive others regarding the nature of the debt. 6 Additionally, Doug was not a
bona fide purchaser when he purchased the Properties and subsequently
conveyed them to Drake Investments. Therefore, we affirm the trial court’s
grant of summary judgment to Ballatan.
[25] Affirmed.
Mathias, J., and Brown, J., concur.
6
Because we hold the Huntley Mortgages were invalid from the beginning, we need not address whether
Ballatan is barred from asserting the Huntley Mortgages are fraudulent, whether Doug’s mortgage interests
merged with his ownership interests when he bought the Properties, or whether Doug is a bona fide
mortgagee who takes free of later claims. The Huntley Mortgages simply do not have priority over Ballatan’s
judgment lien because the purported mortgages are invalid.
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