Third-Party Cash Purchasers and Indiana’s Post-Sale Collection Processes

Like most states, Indiana has experienced a dramatic increase in housing values over the past five years. While high prices have become the norm for home buyers, sellers, mortgage originators, and title companies, the effect of this increased value has been slow to hit the default market because of Covid-19 foreclosure moratoriums.

Now that moratoriums have ended, the rise in property valuations has caused dramatic increases in third-party purchases of properties taken to sheriff sale. This changing dynamic poses both new benefits and risks to default servicers. Because of that, default servicers should familiarize themselves with the Indiana post-sale process and the potential issues that third-party investor cash outbids can cause.  

‍Indiana Has No Post-Sale Confirmation Process

‍When I last wrote in 2016 about the issues facing foreclosure plaintiffs after a third-party sale, MDK had seen a 60% increase in third-party sales over the previous year. That increase equated to approximately 30% of all properties sold at sheriff sale selling to third parties for cash.  

In 2019, 42% of all properties MDK  sold at sheriff sale were to third-party cash bidders. As of September 1, 2022, 56% of the sheriff sale properties have sold to third parties for cash.  

While many judicial foreclosure states have post sale confirmation process, suitable for handling the complexities of increasing cash purchases, Indiana has no post-sale confirmation process. The sheriff sale itself marks the end of any redemption period and the foreclosure process. Nonetheless, if a cash sale occurs, a post-sale process begins for default servicers seeking to obtain those cash funds as payment of debt.  

This process is not governed by any Indiana statute, which makes the pleadings, evidence, and time frames required in any particular case dependent on the sheriff, judges, and court clerks in each county. Each of Indiana’s 92 counties has its own processes and preferences, and that variety can create confusion and inconsistent results for servicers seeking proceeds.  

‍Breaking Down the Typical Decree

In this vein, it’s important to understand what’s in a typical Indiana judgment and foreclosure decree. Unlike other types of monetary judgments, the judgment itself doesn’t necessarily cut off the plaintiff’s right to collect additional debt beyond post-judgment statutory interest. Instead, because the mortgage terms guide the right to collect debt (within reason), most foreclosure plaintiffs have the right to add any amounts paid to protect the lender’s security interest to the total indebtedness – even after judgment has been entered. A typical judgment and decree of foreclosure will acknowledge and provide for this contractual provision.

As a result, the specified and evidenced debt at judgment may not reflect the total indebtedness when the sheriff sale is held. Not only can and will additional interest accrue, but lenders will often have more expenses related to property preservation, insurance, and taxes during the period between judgment and the sheriff sale.  

It is this difference that most often requires foreclosure plaintiffs to seek additional judicial orders following third-party cash outbids at sheriff sale. Higher property values and the corresponding increasing third-party bids, combined with foreclosure cases that may have been subject to moratoria for several years, create a perfect storm of potential process confusion and scrutiny.  

‍Three Primary Procedures for Processing Third-Party Cash Sales

Lacking any regulated process, Indiana courts have developed three main procedures for processing third-party cash sales. Which one is used depends on the county and jurisdiction.  

‍Procedure 1

Lake and Marion, two of Indiana’s largest counties, use the first procedure: Foreclosing plaintiffs provide the sheriff with a detailed listing of the total debt at the time of sale, including sums added to the debt post judgment. The sheriff then directly distributes cash proceeds according to priorities ordered by the foreclosure judgment, up to and including the total debt amounts provided.  

‍Procedure 2

Most counties use another, more complicated procedure: The sheriff pays only the specified amount listed in the judgment entry to the foreclosure plaintiff directly, then sends the remaining sums to the court clerk to distribute under a supplemental court order.  In this process, foreclosure plaintiffs must file a petition for distribution that cites specific fees and costs incurred between the effective date of the judgment entry and sheriff sale date. A hearing may or may not be required. The additional court order goes to the clerk, who distributes any additional amounts. In this case, the foreclosure plaintiff may receive two separate payments that together equal the cash sums paid by the buyer up to the total debt of the foreclosure plaintiff, whichever is less.  

‍Procedure 3

In the third procedure, the sheriff sends all cash proceeds to the clerk of courts. Any interested party, including the judgment plaintiff, files a petition to distribute funds, even to collect those sums already ordered by the judgment entry itself.  

As a result, parties must account for additional debt beyond the sums itemized in the judgment entry with all three processes. However, when and how to provide the accounting varies.  

In the first procedure, foreclosure plaintiffs provide an accounting to the sheriff via an itemized breakdown, but no additional evidence is required unless post-sale litigation arises. In the second and third procedures, the itemized accounting is provided in a petition for distribution filed by the foreclosure plaintiff after the sheriff sale. Whether an affidavit from the foreclosure plaintiff is required to verify those sums formally varies from judge to judge.  

‍Process Needs Professionals and Patience

Clearly, it is important for loan servicers and foreclosure plaintiffs to understand that in Indiana, foreclosure case post-sale processes may vary considerably. These variations could increase or decrease timelines, require more or less involvement from the loan servicer, result in additional attorney fees, and subject some post-judgment debt to additional scrutiny.  Servicers need experienced, knowledgeable, and respected preferred counsel to advise the promptest course of action to conclude each foreclosure matter. Having patience while sheriffs, judges, and clerks continue to modify their processes for handling unprecedented amounts of cash proceeds from third-party sales also goes a long way.