A Possible Reprieve Under Senate Enrolled Act 298?
June 11, 2012
July 1, 2012, is set as a day of reckoning for many lenders due to Senate Enrolled Act 298 (“Act”) becoming effective on that date. The Act shortens the expiration period of mortgages from twenty (20) years to ten (10) years and, on its face, creates potential problems for mortgages executed before July 1, 2002, without a maturity date listed for the debt it secures, and for mortgages with a stated maturity date for the debt on or before July 1, 2002 (a more thorough explanation of the Act and its consequences can be found at www.rubin-levin.com/news). However, a recent lawsuit filed by the Indiana Bankers Association against the State of Indiana in the United States District Court for the Southern District of Indiana (the “Court”) appears on the surface to give some reprieve to mortgages executed before July 1, 2012. Yet on close examination, that reprieve may not be forthcoming.
The Indiana Bankers Association argued the Act should not apply to mortgages executed before July 1, 2012. The State of Indiana apparently agreed as the Indiana Bankers Association and State of Indiana filed a joint motion for dismissal with prejudice of the case. In the Court’s order granting the joint motion to dismiss (“Order”), the Court “recognizes” that the Indiana Bankers Association and the State of Indiana stipulate and agree the Act is not to be retroactively applied before July 1, 2012, and the Act does not contain any express statement that it is to be retroactively applied. Thus it is prospective in nature. However, this Order appears to fall woefully short in accomplishing the goals the Indiana Bankers Association attempted to accomplish by the filing of the lawsuit.
First, while there is no provision within the Act that it is retroactively applied, there is no carve-out for mortgages executed before July 1, 2012, either. The current law under Indiana Code § 32-28-4-1, essentially has a carve-out for mortgages that were created before September 1, 1982. Currently the law provides that a mortgage expires ten years after the due date of the debt contained in the mortgage. However, for mortgages executed before 1982, the ten year expiration does not apply and a twenty year expiration period applies. If the legislature wanted to ensure this Act would not apply to a lien or mortgage created before July 1, 2012, it could have done so, just as it had done in the past. In fact, the Act is now doing away with the carve-out for mortgages executed before 1982. Therefore, to rely on the Court’s “recognition” may be somewhat risky.
Keep in mind, the legislature did not give lenders ample time to address the consequences of the Act. Instead it provided a mechanism to ensure existing mortgages would not expire, i.e. the affidavit. The fact that lenders have a mechanism in place to avoid the expiration of these mortgages may indicate this law is to apply to all mortgages, regardless of when they were executed.
Second, the Court’s Order is not definitive. The Order arose from the approval of an order submitted by the parties regarding a joint motion for dismissal with prejudice. There were no findings of fact by the Court. In addition, the “recognitions” by the Court are not conclusions of law. Furthermore, the order is not binding on any other courts. It is likely that the issue of whether or not this Act applies to mortgages executed before July 1, 2012, will not come from a lender challenging the State. Instead, a mortgagor will likely challenge a lender claiming that its mortgage has now lapsed. The mortgagor will not be bound by the Order. If the Act is deemed to be ambiguous as to whether or not it applies to mortgages executed before July 1, 2012, the courts will likely look at the legislative intent and not at the Court’s Order in determining how the Act should be applied.
In conclusion, while the Court’s Order can be somewhat comforting, there is simply too much risk in taking it as the definitive answer that the Act does not apply to mortgages executed before July 1, 2012, as it is not binding on any other court. Therefore, it would be proper and in the lender’s best interest to simply continue with identifying mortgages executed before July 1, 2012, and filing affidavits where necessary.
These materials are intended for general informational purposes only. Accordingly, they should not be construed as legal advice or legal opinion on any specific facts or circumstances. Instead, you are urged to consult counsel on any specific legal questions you may have concerning your situation.
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