LLC v. Indiana Housing and Community Development Authority, Appellee-Defendant (2026)

MEMORANDUM DECISION

Case Summary

[1] The Bank of New York Mellon (“Mellon”), which held a senior mortgage on property owned by Darby Grim (“the Property”), filed a foreclosure action. Indiana Housing and Community Development Authority (“IHCDA”) held a junior mortgage on the Property and was named as a defendant in Mellon's foreclosure action. IHCDA failed to file an appearance, answer, or any response in the action prior to the trial court's entry of judgment on the foreclosure. Mellon filed a motion for default judgment against all defendants. The trial court entered a default judgment in favor of Mellon, as first and prior lienholder, and an order for a sheriff's sale to satisfy the judgment.

[2] Grim assigned his foreclosure surplus proceeds, if any, from the future sheriff's sale to Indy House Husband LLC (“IHH”), and the sheriff's sale was held the next day. The Property was sold, and, following the satisfaction of Mellon's lien, there was a surplus of $21,000. IHCDA filed an appearance in the foreclosure action, and IHH intervened as Grim's assignee. Both IHCDA and IHH subsequently requested disbursement of the surplus to themselves. Following a hearing, the trial court ordered that the surplus be disbursed first to IHCDA to satisfy its lien, with the remaining surplus to IHH.

[3] IHH now appeals the disbursement order, asserting that IHCDA was not entitled to any of the surplus funds because it was defaulted in the foreclosure action. IHH also seeks attorney fees. We agree that IHCDA was defaulted in the foreclosure action, and we therefore reverse the order disbursing surplus funds to IHCDA. However, we deny IHH's request for attorney fees.

Facts and Procedural History

[4] Grim acquired fee-simple title to the Property by quitclaim deed that was recorded on April 26, 2004. The senior mortgage on the Property eventually held by Mellon was recorded on January 20, 2005. On October 12, 2023, IHCDA recorded its junior mortgage securing an Indiana Homeowner Assistance Fund loan in an amount up to $50,000. IHCDA's junior mortgage required Grim to functionally assign his interest in the net proceeds from any judicial sale of the Property to IHCDA by requiring him to “pay IHCDA the ‘Net Proceeds’ from the sale of the Mortgaged Property up to the unforgiven amount of the loan.” Appellee's App. at 3.

[5] On July 10, 2025, Mellon filed its foreclosure complaint in which it named IHCDA, among others, as a defendant. On July 17, Mellon served IHCDA with the foreclosure complaint but did not serve the Indiana Attorney General per Indiana Rule of Trial Procedure 4.6(A)(3).¹ On September 9, Mellon filed its motion for a default judgment against all defendants, including IHCDA, on the ground that all the defendants had “failed to answer or otherwise defend as to Plaintiff's Complaint.” Appellant's App. at 22. Mellon served the motion for default on all defendants, including IHCDA, but did not serve it on the Attorney General. On September 22, the trial court conducted a hearing on the motion for default, but none of the defendants appeared.

[6] On that same date, the trial court granted Mellon's motion and entered “[d]efault [j]udgment” as to all named defendants. Id. at 6. The “Entry of Judgment and Order for Possession” stated, in relevant part, that:

IHCDA had been served with the complaint by process server on July 17, 2025;

All of the defendants, including IHCDA, had “failed to appear[,] answer[,] or otherwise defend” in the foreclosure action;

Mellon's lien on the Property was superior to “all other liens, claims, and interests in the [Property]”;

Mellon's mortgage was foreclosed “as a first and prior lien, and the equity of redemption of all Defendants ․ are forever barred and foreclosed”;

The Property shall be sold by the sheriff to satisfy the sums due to Mellon;

“The proceeds of said sale shall be applied first to the cost of this action[,] second to the payment of sums due [to Mellon,] including interest, advances[,] and costs accruing after judgment, and finally the balance [is] to be distributed and paid according to law.”

Id. at 24-26. The order was served upon all defendants, including IHCDA.

[7] On October 6, IHCDA filed an appearance in the foreclosure action. On January 15, 2026, Grim assigned his “foreclosure surplus proceeds[,]” if any, from the future sheriff's sale to IHH. Id. at 35. The sheriff's sale was conducted the next day and resulted in the sale of the Property for $124,555.94. On January 20, IHH filed its appearance and motion to intervene, the latter of which was granted that same day. On February 4, IHCDA filed its answer to Mellon's foreclosure complaint, affidavit of Grim's indebtedness to IHCDA, and motion for disbursement of the surplus funds to IHCDA. IHH subsequently filed an objection to IHCDA's motion for disbursement and filed its own motion to “release surplus funds” to itself as Grim's assignee. Id. at 52.

[8] IHCDA filed a response to IHH's objection and asserted, in part, that “[t]he Attorney General was never served with a copy of the summons and complaint in violation of Indiana Rule of Trial Procedure 4.6(A)(3).” Appellee's App. at 16. However, IHCDA did not seek to overturn the September 22, 2025, judgment of foreclosure on the ground of insufficient service; rather, it sought to enforce that judgment and the order for sheriff's sale by having the surplus funds disbursed to it.

[9] Following a hearing, the court issued its “Order on Motions for Disbursement of Surplus Funds” on April 6. Appealed Order at 1. The court noted that the surplus was $21,000, and it ordered the Clerk to pay $18,747.74 of the surplus to IHCDA based on its mortgage interest. It ordered the Clerk to pay the remaining $2,252.26 of the surplus to IHH. IHH's subsequent Motion to Correct Error was denied on June 23, and this appeal ensued.

Discussion and Decision

Surplus Funds

[10] IHH appeals the denial of its motion to correct error in the order disbursing the surplus funds. We review such a denial for an abuse of discretion. See, e.g., Edler v. Regions Bank, 60 N.E.3d 288, 290 (Ind. Ct. App. 2016). An abuse of discretion occurs when the trial court's decision is contrary to the logic and effect of the facts and circumstances before it or the reasonable inferences therefrom, or the trial court has misinterpreted the law. Id.

[11] IHH challenges the trial court's order disbursing the surplus funds from sale of the Property following foreclosure on the ground that IHCDA was defaulted in the latter proceeding. In response, IHCDA contends that it never received proper service in the foreclosure action because, although a representative of IHCDA was served with notice of the action, Mellon never served the Indiana Attorney General with such notice.

[12] Indiana Rule of Trial Procedure 4.6(A)(3) provides that, in legal actions against a state governmental organization, process must be served upon the organization's executive officer “and also upon the Attorney General.” Such service on the Attorney General is required, not merely permissive. See Evans v. State, 908 N.E.2d 1254, 1258 (Ind. Ct. App. 2009) (citing Smock v. State ex rel. Cohen, 272 N.E.2d 611, 613 (Ind. 1971)). Moreover, “[g]enerally speaking, ineffective service of process prohibits a trial court from having personal jurisdiction over a defendant.” Ind. Bureau of Motor Vehicles v. Watson, 70 N.E.3d 380, 387 (Ind. Ct. App. 2017); see also Guy v. Comm'n of Ind. Bureau of Motor Vehicles, 937 N.E.2d 822, 825 (Ind. Ct. App. 2010) (finding lack of personal jurisdiction and vacating an order where plaintiff served the agency but not the Attorney General). And a decision rendered without personal jurisdiction is void. See, e.g., Parkview Hosp., Inc. v. Am. Fam. Ins. Co., 151 N.E.3d 1218, 1225 (Ind. Ct. App. 2020), trans. denied.

[13] IHCDA is a governmental organization to which Trial Rule 4.6(A)(3) applies, and it is undisputed that Mellon never served the Attorney General in the foreclosure action. However, a defendant “can waive the lack of personal jurisdiction and submit himself to the jurisdiction of the court if he responds or appears and does not contest the lack of jurisdiction.” Parkview, 151 N.E.3d at 1225. And “a party shall be estopped from challenging the trial court's jurisdiction where the party has voluntarily availed itself or sought the benefits of the court's jurisdiction.” Harris v. Harris, 31 N.E.3d 991, 995 (Ind. Ct. App. 2015) (citation modified).

[14] Such is the case here. Although IHCDA asserts that Mellon failed to properly serve it, it does not assert that the foreclosure entry should be void for lack of personal jurisdiction.² In fact, in the trial court and on appeal, IHCDA has sought to enforce the foreclosure judgment and seek a portion of the proceeds from the subsequent sheriff's sale. By responding to this action, failing to contest personal jurisdiction, and actively seeking the benefit of the court's jurisdiction, IHCDA has waived any alleged lack of personal jurisdiction.

[15] Moreover, IHCDA has been defaulted in this foreclosure action and, as such, is not entitled to any of the surplus proceeds from sale of the foreclosed Property. “[W]hen a party is made a defendant to answer to his interest in a property that is the subject of a mortgage foreclosure action, he must defend his interest in the property, or it may be lost.” Centex Home Equity Corp. v. Robinson, 776 N.E.2d 935, 946 (Ind. Ct. App. 2002), trans. denied. “A party's default under such circumstances ought to be construed as an admission that at the time he failed to appear, as required, he had no interest in the property in question.” Id. (citation modified). And “it is long-settled Indiana law that lienholders whose rights have not been adjudged or foreclosed in the foreclosure action have no right to share in the proceeds of the sale.” Edler, 60 N.E.3d at 292 (citation modified).

[16] IHCDA contends that the September 22, 2025 “Judgment does not state that IHCDA was in default.” Appellee's Br. at 15. However, IHCDA provides no legal authority in support of that claim,³ nor any explanation as to why the court's order on Mellon's motion for default is not a default judgment. Furthermore, we note that “[t]he CCS is the official record of a trial court's actions,” Baker v. State, 255 N.E.3d 1199, 1205 (Ind. Ct. App. 2025) (citing Berry v. State, 23 N.E.3d 854, 857 (Ind. Ct. App. 2015), trans. denied, and Ind. Trial Rule 77(B)), and the CCS in this case states that the September 22, 2025, order is an “Order Granting Motion for Default Judgment,” and that, on that date, “Default Judgment [was] entered[.]” Appellant's App. at 6.

[17] This case is similar to Edler and Centex, where one Mortgagor X (here, IHCDA) clearly had notice of another Mortgagor Y's (here, Mellon's) foreclosure action “but chose to make no effort to foreclose on [X's] first mortgage or otherwise have its rights adjudicated with respect to [X's] first mortgage” as required by the foreclosure statutes. Edler, 60 N.E.3d at 292; see also I.C. §§ 32-29-7-1 et seq. Having made that choice, like the Mortgagors in Edler and Centex, IHCDA cannot “essentially reverse course by seeking the surplus sales proceeds, in clear contravention of the foreclosure statutes and relevant case law.” Id. at 293. As was the case in Edler, IHCDA essentially is attempting to foreclose on its mortgage “without following the procedures for such a foreclosure.” Id.; see also Centex, 776 N.E.2d at 948 (Mortgagor X having failed to respond to Mortgagor Y's foreclosure action and seek therein a determination regarding its own lien, Mortgagor X's lien “was extinguished.”); cf., e.g., Sanders v. U.S. Bank Tr. Nat'l Ass'n, 268 N.E.3d 803, 811 (Ind. Ct. App. 2025) (Mortgagor X was permitted to seek surplus sale proceeds where it did appear in Mortgagor Y's foreclosure action and obtain a determination that it had a valid lien against the property that was subordinate to that of Mortgagor Y).

[18] Because IHCDA was defaulted in Mellon's foreclosure action, it is not entitled to any of the surplus funds from the subsequent sheriff's sale. The trial court erred when it held otherwise.

Attorney Fees

[19] IHH seeks an award of attorney fees pursuant to Indiana Appellate Rule 66(E) and Indiana Code Section 34-52-1-1, alleging it is entitled to such fees because IHCDA's pursuit of the surplus funds in the trial court and on appeal was “frivolous[.]” Appellant's Br. at 13. We may award attorney fees under Rule 66(E) “if an appeal, petition, or motion, or response, is frivolous or in bad faith.” And attorney fees may be awarded to a prevailing party in a civil action under Indiana Code Section 34-52-1-1 if a claim or defense is “frivolous, unreasonable, or groundless” or litigated “in bad faith.”

[20] As another panel of this Court recently noted,

[a] claim is ‘frivolous’ if it is made primarily to harass or maliciously injure another; if counsel is unable to make a good faith and rational argument on the merits of the action; or if counsel is unable to support the action by a good faith and rational argument for extension, modification, or reversal of existing law. A claim is ‘unreasonable’ if, based upon the totality of the circumstances, including the law and facts known at the time, no reasonable attorney would consider the claim justified or worthy of litigation. A claim or defense is groundless if no facts exist which support the legal claim relied on and presented by the losing party. Further, bad faith is demonstrated where the party presenting the claim is affirmatively operating with furtive design or ill will.

Cnty. Materials Corp. v. Ind. Precast, Inc., 187 N.E.3d 253, 261 (Ind. Ct. App. 2022) (citation modified), trans. denied. However, this Court “must use extreme restraint when exercising th[e] power [to award fees] because of the potential chilling effect upon the exercise of the right to appeal.” Benziger v. Radabaugh, 267 N.E.3d 1149, 1159 (Ind. Ct. App. 2025) (citation modified). “Thus, we do not impose sanctions to punish mere lack of merit; rather, we do so when faced with something more egregious.” Id. (citation modified).

[21] Here, IHCDA actually prevailed on its pursuit of the surplus funds in the trial court. Moreover, its defenses on appeal—while unsuccessful—are not irrational or unjustified. Nor is there any indication that its defenses are unworthy of litigation or made with furtive design or ill will. Accordingly, we deny IHH's request for attorney fees.

Conclusion

[22] IHCDA is estopped from challenging the trial court's personal jurisdiction because it has failed to contest personal jurisdiction and has actively sought the benefit of it. However, the trial court erred when it awarded surplus funds from the sale of the Property to IHCDA because IHCDA had been defaulted in the foreclosure action prior to the sale. Therefore, we reverse and remand for a redistribution of the surplus funds that is consistent with this decision. And we deny IHH's request for attorney fees, as IHCDA's defenses are not frivolous, unreasonable, groundless, or litigated in bad faith.

[23] Reversed and remanded.

FOOTNOTES

1.   Neither party's appendix includes copies of the returns of service in the foreclosure action. However, we were able to access those documents via the Odyssey case management system.

2.   It appears that IHCDA raises the failure of service under 4.6(A)(3) for the sole purpose of arguing that it is an “omitted party” in the foreclosure proceedings that is entitled to seek disbursement of the surplus from the sheriff's sale proceeds. See Appellee's Br. at 10-14 (citing Ind. Code § 32-29-8-4 (defining interested and omitted parties)). However, as we discuss further below, we do not reach the merits of the order distributing the surplus funds, as IHCDA was defaulted in the foreclosure action.

3.   IHCDA states several alleged legal propositions in this section of its brief without citation to any supporting legal authority. See Appellee's Br. at 15, 16.

Bailey, Judge.

Bradford, J., and Altice, J., concur.