Court of Appeals Holds Mortgage Lien Superior to Deed Conveyance

In Beneficial Indiana, Inc. v. Joy Properties, LLC, No. 02A05-1005-PL-260, the Indiana Court of Appeals held a mortgagee’s interest in defaulted property to be superior to that of a quitclaim deed beneficiary.

In 2003, Beneficial Indiana was granted a security interest by an executed mortgage relating to real estate owned by Ronald and Cheryl Osten. In 2008, after the Ostens failed to pay property taxes, Allen County held an auction sale to recoup the tax dollars owed. The Ostens failed to exercise their rights to reclaim the property before the expiration of a one-year redemption period, leaving a surplus of $42,462.20. After Beneficial Indiana filed a motion asking for the surplus funds to be held pending court action, citing the Osten’s defaulted mortgage, the Ostens executed a quitclaim deed to Joy Properties granting them their interest to the property.

In an action between the two parties, the court explained that Beneficial Indiana’s security interest in the property was extinguished by the tax sale, but then followed the proceeds and attached to the surplus money. The deed executed by the Ostens only granted Joy Properties an interest in the real estate subject to Beneficial Indiana’s mortgage lien, meaning the surplus should have been given to Beneficial Indiana to satisfy the defaulted mortgage.