Is Your Mortgage Lien Protected?

Governor Mitch Daniels has signed into law Indiana Senate Enrolled Act No. 298 (Act), which amends IND. CODE §§32-28-4-1 through 32-28-4-3 to, among other things, cut in half the duration of a lien for a recorded mortgage that fails to include a final payment date for the obligation it secures.

Current Indiana law dictates that a mortgage lien expires 10 years after the final payment date reflected in the mortgage for the obligation secured by the mortgage, but, in the event a mortgage fails to include a final payment date, then the mortgage lien expires 20 years following the earlier of the date of execution or the date of recordation of the mortgage. Rare is the case in which a foreclosure action for a mortgage is not initiated within 20 years of its execution or recordation. Accordingly, in its present form, this statute has not had significant impact of the dealings between mortgage lenders and borrowers.

The Act’s most significant amendment reduces the duration of a mortgage lien where the mortgage fails to include a final payment date for the obligation it secures from 20 years to 10 years from the earlier of the date of execution or recording of the subject mortgage. This amendment will greatly increase the number of mortgages affected and, therefore, will also likely increase the number of attempts in the future by borrowers (or bankruptcy trustees) to utilize this statute to invalidate mortgage liens held by unsuspecting lenders.

Mortgage holders may extend the statutory duration of a lien for a mortgage which omits the final payment date for the obligation it secures until the actual final payment date by filing an affidavit identifying (1) the mortgage, (2) the holder, and (3) the actual final payment date for the obligation secured. However, such an affidavit must be filed before statutory expiration of the mortgage lien (or ten years from the earlier of the date of execution or the date of recording for a mortgage which omits a final payment date).

Senate Enrolled Act No. 298 becomes effective July 1, 2012. There are no exemptions for, or “grandfathering” of any existing mortgages. Therefore, mortgage lenders must be vigilant to review their portfolios to determine (1) if their mortgages contain final payment dates for the obligations they secure, and (2) if not, for each noncompliant mortgage, file with the recorder’s office an affidavit identifying the holder, the mortgage and the accompanying actual final payment date for the obligation secured, all before the statutory duration for these liens is reduced substantially on July 1, 2012.

The Act can be found online at: www.in.gov/legislative/bills/2012/SE/SE0298.1.html