MEMORANDUM DECISION
Pursuant to Ind. Appellate Rule 65(D), this                   Jun 02 2015, 9:19 am
Memorandum Decision shall not be regarded as
precedent or cited before any court except for the
purpose of establishing the defense of res judicata,
collateral estoppel, or the law of the case.



ATTORNEY FOR APPELLANTS                                   ATTORNEY FOR APPELLEE
F. Harrison Green                                         J. Dustin Smith
Cincinnati, Ohio                                          Plunkett Cooney, P.C.
                                                          Indianapolis, Indiana



                                             IN THE
    COURT OF APPEALS OF INDIANA

The Lewallen Revocable Trust, et                          June 2, 2015
al.,                                                      Court of Appeals Cause No.
                                                          15A01-1409-MF-396
Appellants-Defendants,
                                                          Appeal from the Dearborn Circuit
        v.                                                Court.
                                                          The Honorable James D.
                                                          Humphrey, Judge.
Fifth Third Mortgage Company,
                                                          Cause No. 15C01-1102-MF-38
Appellee-Plaintiff.




Riley, Judge




Court of Appeals of Indiana | Memorandum Decision | 15A01-1409-MF-396 | June 2, 2015   Page 1 of 21
                                   STATEMENT OF THE CASE
[1]   Appellants-Defendants, the Lewallen Revocable Trust, et al. (Trust), appeal the

      trial court’s Amended In rem Judgment and Decree of Foreclosure in favor of

      Appellee-Plaintiff, Fifth Third Mortgage Company (Fifth Third).


      We affirm in part and reverse in part.


                                                    ISSUES

[2]   The Trust raises four issues which we consolidate and restate as the following

      two:


          (1)     Whether the trial court erred when it deemed the Trust continued to

                  exist after the Trust’s one-half interest in the real estate devolved in

                  Randall C. Lewallen (Randall), holder of the other one-half interest in

                  the real estate, as the sole trustee and sole beneficiary; and

          (2)     Whether the trial court erred in concluding that Fifth Third is entitled

                  to a decree of foreclosure as to Randall’s one-half interest in the real

                  estate.




                             FACTS AND PROCEDURAL HISTORY


[3]   On June 28, 2004, Hugh Lewallen (Hugh) and Kay Lewallen (Kay) created the

      Lewallen Revocable Trust (Trust), in which Kay was appointed as the Trustee.

      Court of Appeals of Indiana | Memorandum Decision | 15A01-1409-MF-396 | June 2, 2015   Page 2 of 21
      The Trust Agreement granted the Trustee the right to borrow and secure

      payments of loans by pledging or mortgaging the property in the Trust.

      Randall, Hugh’s and Kay’s son, is the sole beneficiary under the Trust.


[4]   On November 5, 2004, Hugh and Kay conveyed the real estate, commonly

      known as 21596 Weisburg Road, in Sunman, Indiana (the Property) to the

      Trust via warranty deed. Less than three weeks after deeding the Property to

      the Trust, Hugh and Kay, as Trustee, executed and delivered a $50,000

      mortgage to Fifth Third Bank, which is the receiver for Fifth Third.


[5]   On December 21, 2004, Kay, as Trustee, deeded a life estate in the Property to

      Hugh and herself via Trustee’s Deed. On the same day, Kay, as Trustee, quit-

      claimed a one-half interest in the Property to Randall via quitclaim deed, which

      was duly recorded.1 After the recordation of the quitclaim deed, the Trust and

      Randall each held a one-half remainder interest in the Property, while Hugh

      and Kay held a life estate—all of which was subject to Fifth Third’s mortgage in

      the amount of $50,000. Randall understood that when he accepted the

      quitclaim deed, his one-half interest in the Property was subject to a mortgage




      1
       In accordance with the provisions of the Trust, the Trustee can “convey . . . transfer or exchange any
      property held in the trust estates at any time at such prices and upon such terms and conditions and in such
      manner as it may, in its sole discretion, deem advisable.” (Tr. Exh. H). Also, the Trustee is allowed to
      “make, execute and deliver all contracts, deeds, assignments, powers and other instruments, and to do, in
      general, any and all things for the preservation and management of the trust estates which it may, in its sole
      discretion, deem advisable.” (Tr. Exh. H).

      Court of Appeals of Indiana | Memorandum Decision | 15A01-1409-MF-396 | June 2, 2015               Page 3 of 21
      and that, upon the passing of his parents, he would have to continue making the

      mortgage payments.


[6]   In the summer of 2005, Kay sought to refinance the debt underlying the $50,000

      mortgage. In contemplation of entering into a mortgage-loan, Fifth Third

      intended the forthcoming mortgage to be in first lien position and fully secure in

      the Property. At the time of the refinancing, Randall was aware that his mother

      was seeking another mortgage on the Property but considered this to be “her

      deal,” which did not matter to him. (Appellants’ App. p. 296). Thus, on July

      21, 2005, Kay, individually and as power of attorney for Hugh, closed on the

      refinance with her execution and delivery of a $100,000 Note to Fifth Third. As

      security for the Note, Kay, as Trustee, executed and delivered a $100,000

      mortgage to Fifth Third, with the mortgage being duly recorded. Even though

      Randall drove Kay to the closing of the loan documents, he did not inform

      Fifth Third of his one-half interest in the Property.


[7]   After the initial closing, it was discovered that Kay, in her individual capacity,

      Hugh, and Randall had not executed the mortgage. In a situation where not all

      the parties with an interest in the real estate execute the mortgage, it is Fifth

      Third’s custom to return the original, executed mortgage to the title company

      and have the mortgage executed by all persons having an interest in the real

      estate. At some point after the initial closing, Hugh and Kay, in her individual

      capacity, executed the $100,000 mortgage. Although Randall’s signature

      purports to appear on the $100,000 mortgage, Randall denies ever having

      executed the document. After its second execution, the mortgage was re-

      Court of Appeals of Indiana | Memorandum Decision | 15A01-1409-MF-396 | June 2, 2015   Page 4 of 21
      recorded. The proceeds underlying the $100,000 Note and mortgage satisfied

      the $50,000 mortgage to Fifth Third Bank; paid down over $20,000 in

      unsecured debts owed by Kay and Hugh; and resulted in $27,160.72 being

      deposited in Randall’s bank account, which he spent in less than five months.


[8]   Hugh and Kay both passed away in 2010. After their deaths, the life estate

      reserved for Hugh and Kay terminated, such that the title to the Property

      became vested in the Trust, as to a one-half interest, and in Randall, as to a one-

      half interest. Pursuant to the terms of the Trust, the Trust’s one-half interest in

      the Property was bequeathed to Randall, making him both the Trustee and the

      sole beneficiary of the Trust’s assets. The Note and mortgage went into default

      shortly after Hugh and Kay passed away. On January 17, 2011, Fifth Third

      mailed a notice of default to Kay and Hugh at a PO Box in Sunman, Indiana.


[9]   On February 24, 2011, Fifth Third filed its Complaint against Kay, Hugh,

      Randall, and Unknown Occupants, seeking to foreclose the $100,000 mortgage

      against the Property. On April 25, 2011, Fifth Third filed its Amended

      Complaint, adding the Trust as a party to the cause. On May 17, 2011, Randall

      filed his Answer to the Amended Complaint, as well as a counterclaim,

      asserting that his signature on the $100,000 was forged and seeking damages for

      spoliation of evidence, defamation, malicious prosecution, and fraud. Fifth

      Third filed its Reply to the counterclaim on June 7, 2011, followed by an

      Amended Reply nine days later. On June 16, 2014, the trial court conducted a

      hearing on the Complaint and counterclaim. On August 26, 2014, the trial

      court entered an Amended In Rem Judgment and Decree of Foreclosure in the

      Court of Appeals of Indiana | Memorandum Decision | 15A01-1409-MF-396 | June 2, 2015   Page 5 of 21
       principal amount of $92,920.09 in favor of Fifth Third. The trial court

       concluded, in pertinent part:

               B. As to [the Trust’s] ½ interest in the [Property], [Fifth Third] is
               hereby granted a Decree of Foreclosure declaring its [m]ortgage to be
               facially valid as to said ½ interest in the [Property] (hereinafter referred
               to as “the Mortgaged Property”); (2) foreclosing the equity of
               redemption of each Defendant in the Mortgaged Property, and any
               person or entity claiming from, under or through any named
               Defendant, upon expiration of the redemption period, (3) ordering the
               Sheriff of this County to sell the Mortgaged Property to satisfy the
               sums due and owing to [Fifth Third] pursuant to this judgment as soon
               as said sale can be had under the laws of the jurisdiction governing
               foreclosure sales of Mortgaged Property; (4) ordering the Sheriff of this
               County or his/her representative to accept notice of cancellation from
               [Fifth Third] prior to the time of the scheduled sale without further
               order of court; (5) instructing the Sheriff of this County to issue a
               proper deed or deeds to the purchaser(s) at said sale; (6) authorizing
               [Fifth Third] to bid for the Mortgaged Property or any part thereof
               with the indebtedness due to it pursuant to this judgment, said
               indebtedness to be credited to the bid of [Fifth Third]; (7) declaring the
               sale to be conducted without relief from valuation and appraisement
               laws; (8) ordering that the proceeds generated from said sale be
               distributed pursuant to [Ind Code] § 32-30-10-14, first to the costs of
               the Sheriff’s Sale and any real estate taxes due and owing relating to
               the Mortgaged Property, second to [Fifth Third] to satisfy the sums
               due and owing pursuant to this judgment.
               C. As to [Randall’s] ½ interest in the [Property], [Fifth Third] is
               granted a decree of foreclosure as a result of [Randall] being estopped
               from retaining the benefit of the loan proceeds underlying the $100,000
               Note and mortgage such that [Fifth Third] is entitled to foreclose the
               first $27,160.72 of sheriff’s sale proceeds as to said ½ interest.
                                                       ***
               F. [Randall’s] counterclaims are dismissed with prejudice.
       (Appellants’ App. pp. 301-03).


[10]   The Trust now appeals. Additional facts will be provided as necessary.
       Court of Appeals of Indiana | Memorandum Decision | 15A01-1409-MF-396 | June 2, 2015   Page 6 of 21
                                   DISCUSSION AND DECISION

[11]   An action in rem is a proceeding that takes no cognizance of the owner but

       determines the right in specific property against all of the world, equally binding

       on everyone. Flesch v. Circle City Excavating & Rental Corp., 210 N.E.2d 865, 700

       (Ind. Ct. App. 1965) (citing 1 Am.Jur.2d, Actions, § 40). As such, “Actions in

       rem involve or determine the status of a thing, and therefore the rights of

       persons generally with respect to that thing.” R & D Transport, Inc. v. A.H., 859

       N.E.2d 332, 335 (Ind. 2006) (citing BLACK’S LAW DICTIONARY 809 (8th ed.

       2004). In an action in rem against land, “it is sufficient, in making any one a

       party defendant, to allege that he has or claims to have some interest in the

       property described in the complaint. It devolves upon a person thus made a

       defendant to assert whatever title he may have, or claim to have, if he shall

       desire to make a defense, or to rely upon his title.” Otis v. De Boer, 19 N.E. 317,

       319 (Ind. 1889) (internal references omitted).


[12]   The dispute before us centers on the rights vested in the Property, of which one-

       half interest was held by the Trust and one-half interest by Randall. By virtue of

       the $100,000 mortgage on the Property, the trial court granted Fifth Third a

       Decree of Foreclosure on both halves.


                                            I. Standard of Review

[13]   Where, as here, the trial court entered findings of fact and conclusions of law

       thereon pursuant to Ind. Trial Rule 52(A), our standard of review is two-tiered.

       Dallas v. Cessna, 968 N.E.2d 291, 296 (Ind. Ct. App. 2012). We first determine

       Court of Appeals of Indiana | Memorandum Decision | 15A01-1409-MF-396 | June 2, 2015   Page 7 of 21
       whether the evidence supports the trial court’s findings and second, we

       determine whether the findings support the judgment. Briles v. Wausau Ins.

       Companies, 858 N.E.2d 208, 212 (Ind. Ct. App. 2006). Findings of fact are

       clearly erroneous if they are unsupported by the findings and conclusions which

       rely upon those findings. Id. In establishing whether the findings or the

       judgment are clearly erroneous, we consider only the evidence favorable to the

       judgment and all reasonable inferences to be drawn therefrom. Id. While

       conducting our review, we cannot reweigh the evidence or judge the credibility

       of any witnesses, and must affirm the trial court’s decision if the record contains

       any supporting evidence or inferences. Dallas, 969 N.E.2d at 296. However,

       while we defer substantially to findings of fact, we do not do so for conclusions

       of law. Id. We evaluate conclusions of law de novo and owe no deference to a

       trial court’s determination of such questions. Id.


                                  II. The Continued Existence of the Trust2

[14]   Relying on the fact that he is the sole beneficiary of the Trust, Randall contends

       that “[t]he whole title of the trust assets, equitable as well as legal, unified in the

       same person, Randall, as the trustee and beneficiary, by the operation of law.

       As a result of the merger of the equitable and legal title of the trust assets to the




       2
         Randall commences his appellate brief by contending that the mortgage is not enforceable because he and
       the Trust never received pre-suit notice of the foreclosure proceedings pursuant to Ind. Code § 32-30-10.5-8.
       We decline to address this argument as it was never raised before the trial court but rather it was presented
       for the first time on appeal. See McKibben v. Hughes, 23 N.E.3d 819, 828-29 (Ind. Ct. App. 2014) (an appellant
       who presents an issue for the first time on appeal waives the issue for purposes of an appellate review), reh’g
       denied.

       Court of Appeals of Indiana | Memorandum Decision | 15A01-1409-MF-396 | June 2, 2015              Page 8 of 21
       same person, the Trust ceased to exist. Therefore, any foreclosure proceeding

       against the Trust is void.” (Appellants’ Br. p. 13).


[15]   In support of his argument, Randall primarily relies on the combined effect of

       two sources. First, he refers to Ind. Code § 30-4-2-8, which provides, in

       pertinent part, that “if the title to the trust property and the entire beneficial

       interest becomes united in one (1) person, the trust terminates.” And secondly,

       Randall cites to Ellsworth v. Homemakers Fin. Srvc., Inc., 424 N.E.2d 166 (Ind. Ct.

       App. 1981), reh’g denied, where this court held that “the mortgagee’s acquisition

       of the fee simple title results in a merger of the mortgage and the legal title, thus

       vesting the mortgagee with the complete title, and extinguishing the mortgage.

       However, merger does not necessarily follow from the acquisition of the land

       by the mortgagee where, for example, it would work an injustice or violate well

       established principles of equity.” Id. at 168 (internal references omitted).


[16]   Nevertheless, we find the reported authorities not dispositive to the case at

       hand. In order for the mortgage to extinguish, as Randall suggests, the fee

       simple title and legal title must be acquired by the mortgagee. See id. Here,

       Fifth Third, as mortgagee, never obtained the fee simple title to the Property,

       which under the provisions of the Trust, was acquired by Randall. Moreover,

       merely because the Trust ceased to exist by virtue of the transfer of the Trust

       assets to Randall, it does not invalidate Fifth Third’s mortgage on the one-half

       interest of the Property, which was held by the Trust. See, e.g., Condo v. Barbour

       et al., 200 N.E. 76, 78 (Ind. Ct. App. 1936)(“[T]he title to personal property of a

       deceased vests in the administrator or executor and the title to real estate vests

       Court of Appeals of Indiana | Memorandum Decision | 15A01-1409-MF-396 | June 2, 2015   Page 9 of 21
       in the heirs of such decedent, subject to any debts that the deceased might have

       had at the time of his death[.]”). Accordingly, Fifth Third can pursue

       foreclosure proceedings on the one-half interest in the Property that the Trust

       held prior to the merger of the fee simple title in Randall.


                               III. Randall’s One-Half Interest in the Property3

[17]   Randall’s main contention focuses on the trial court’s conclusion, awarding

       Fifth Third a Decree of Foreclosure with respect to Randall’s one-half interest

       in the Property on the ground that Randall is estopped from retaining the

       benefit of the loan proceeds underlying the $100,000 mortgage. Specifically,

       Randall makes a two-fold argument. First, he asserts that because he did not

       sign the instrument, the mortgage did not secure his one-half of the Property.

       While Fifth Third does not dispute the trial court’s finding that Randall did not

       execute the Mortgage, it relies on the doctrine of equitable subrogation to assert

       its entitlement to foreclose on the entire Property. Second, Randall contends

       that by including his alleged signature on the mortgage document without his

       knowledge or consent, Fifth Third altered the mortgage document and therefore

       he maintains that the mortgage is void with respect to him. In turn, Fifth Third

       reiterates the trial court’s argument and maintains that Randall is estopped from




       3
         Randall asserts that the trial court found him “personally liable.” (Appellants’ Br. p. 17). However, the
       findings of the trial court belie his assertion as these explicitly state that Randall “is not personally liable on
       the Note and did not sign the Note.” (Appellants’ App. p. 297).

       Court of Appeals of Indiana | Memorandum Decision | 15A01-1409-MF-396 | June 2, 2015                   Page 10 of 21
       claiming an unburdened one-half interest in the Property. We will address each

       argument in turn.


                                                  A. Estoppel


[18]   Without any further explanation, the trial court concluded in its Decree that

       Randall is “estopped from retaining the benefit of the loan proceeds”

       underlying the mortgage. (Appellants’ App. p. 302). In its Appellee’s Brief,

       Fifth Third expands on the trial court’s conclusion and relies on Wienke v.

       Lynch, 407 N.E.2d 280 (Ind. Ct. App. 1980), to maintain that Randall is

       estopped from asserting a one-half interest in the Property “free and clear”

       because he “failed to say anything to Fifth Third or [the title company] when

       his mother’s $100,000 mortgage-loan closed or before the filing of affirmative

       claims herein.” (Appellee’s Br. pp. 16 & 17).


[19]   In Wienke, a husband and wife owned property as tenants by the entireties. Id.

       at 282. The wife conveyed property to another without the husband’s signature

       on the deed. Id. At closing, husband was informed that his presence was not

       needed and to wait outside. Id. Husband and wife divorced and five years after

       wife’s conveyance of the property, husband sought to quiet title to the property,

       claiming a legal interest therein. Id. Responding to husband’s claim that the

       conveyance by one tenant of the entireties is void and therefore no equitable

       defenses can be asserted by the grantee, we agreed that “the entireties

       relationship could not be severed by the unilateral action by one tenant.” Id. at

       283. We cautioned that “a finding that the conveyance is ineffective, however,


       Court of Appeals of Indiana | Memorandum Decision | 15A01-1409-MF-396 | June 2, 2015   Page 11 of 21
       does not lead to the conclusion that the underlying legal interest is immune

       from equitable defenses of laches and acquiescence.” Id. Applying laches, we

       could not “say as a matter of law that a five year delay does not constitute

       laches. It is the inequity of the delay resulting in prejudice, more so than the

       extent of the delay, that is pertinent. We defer to the trial court’s apparent

       satisfaction of the element of delay.” Id. at 284.


[20]   While we agree with Randall that, unlike the unseverable tenants by the

       entireties relationship, the interest at hand is a separate right held by Randall in

       his own name, which was granted to him by quitclaim deed. Nevertheless, as

       we noted in Wienke, equitable doctrines “are directed at the actions, not the

       legal interest of the party against whom they are raised.” Id. at 284. As such,

       the trial court and Fifth Third rely on equitable estoppel 4 to place an affirmative

       duty on Randall “to speak up” at the closing. (Appellee’s Br. p. 17).


[21]   Estoppel is a judicial doctrine sounding in equity. Brown v. Branch, 758 N.E.2d

       48, 51 (Ind. 2001). It is a concept by which one’s own acts or conduct prevents

       the claiming of a right to the detriment of another party who was entitled to and

       did rely on the conduct. Id. at 51-52. There are a variety of estoppel doctrines




       4
        Laches and estoppel are distinct and separate equitable defenses. Ryason v. Dunten et al., 73 N.E.74, 77 (Ind.
       1905). Laches is an equitable doctrine, and requires: (1) inexcusable delay in asserting a known right; (2) an
       implied waiver arising from knowing acquiescence in existing conditions; and (3) a change in circumstances
       causing prejudice to the adverse party. Town of New Chicago v. City of Lake Station ex. Rel. Lake Station Sanitary
       Dist., 393 N.E.2d 638, 652 (Ind. Ct. App. 2010). Here, the trial court explicitly concluded that Randall was
       “estopped” from retaining the benefit of the loan proceeds[.]” Accordingly, we will not address the equitable
       doctrine of laches.

       Court of Appeals of Indiana | Memorandum Decision | 15A01-1409-MF-396 | June 2, 2015                Page 12 of 21
       including: estoppel by record, estoppel by deed, collateral estoppel, equitable

       estoppel (also referred to as estoppel in pais), promissory estoppel, and judicial

       estoppel. Id. at 53 (citing 28 Am.Jur.2d Estoppel & Waiver § 2 (2000)). All,

       however, are based on the same underlying principle: one who by deed or

       conduct has induced another to act in a particular manner will not be permitted

       to adopt an inconsistent position, attitude, or course of conduct that causes

       injury to such other. Id. (citing 31 C.J.S. Estoppel & Waiver § 2 (1996)).

       “Estoppels are as readily and fully recognized in courts of law as in courts of

       equity.” 28 Am.Jur.2d Estoppel & Waiver § 3.


[22]   Specifically, equitable estoppel is available only as a defense. 28 Am.Jur.2d

       Estoppel & Waiver § 35. “The party claiming equitable estoppel must show its (1)

       lack of knowledge and of the means of knowledge as to the facts in question, (2)

       reliance upon the conduct of the party estopped, and (3) action based thereon of

       such a character as to change his position prejudicially.” Money Store Inv. Corp.

       v. Summers, 849 N.E.2d 544, 547 (Ind. 2006). The party claiming estoppel has

       the burden to show all facts necessary to establish it. Story Bed & Breakfast, LLP

       v. Brown Cnty Area Plan Comm’n, 819 N.E.2d 55, 67 (Ind. 2004). Equitable

       estoppel may arise from silence or acquiescence as well as from positive

       conduct. City of New Albany v. Cotner, 919 N.E.2d 125, 133-34 (Ind. Ct. App.

       2009), reh’g denied, trans. denied. However, silence will not form the basis of an

       estoppel unless the silent party has a duty to speak. Id. at 134.


[23]   Without having to examine more than the first requirement of estoppel, we

       conclude that Fifth Third is not eligible to rely on the doctrine as a defense.
       Court of Appeals of Indiana | Memorandum Decision | 15A01-1409-MF-396 | June 2, 2015   Page 13 of 21
       After Kay quitclaimed one-half of the interest to Randall, the deed was duly

       recorded. “Deeds and mortgages, when properly acknowledged and placed on

       record as required by statute, are constructive notice of their existence.”

       Wienke, 407 N.E.2d at 286. As such, Fifth Third was constructively aware and

       had the means of knowledge that Randall possessed a one-half interest in the

       Property. See Money Store Inv. Corp, 849 N.E.2d at 547. Accordingly, Fifth

       Third cannot now invoke the equitable defense of estoppel.


                                            B. Equitable Subrogation


[24]   Our supreme court redefined the doctrine of equitable subrogation, which has

       been recognized in Indiana for more than a century, in Bank of New York v.

       Nally, 820 N.E.2d 644, 651 (Ind. 2005). “The nature of equitable subrogation

       is, as its name indicates, equity.” Neu v. Gibson, 938 N.E.2d 556, 560 (Ind.

       2010). “Subrogation arises from the discharge of a debt and permits the party

       paying off a creditor to succeed to the creditor’s rights in relation to the debt.”

       Nally, 820 N.E.2d at 651 (citation omitted). In other words, “[t]he doctrine

       substitutes one who fully performed the obligation of another, secured by a

       mortgage, for ‘the owner of the obligation and the mortgage to the extent

       necessary to prevent unjust enrichment.’” Neu, 938 N.E.2d at 560 (quoting

       Restatement (Third) of Property § 7.6(a) (1997)); see also Nally, 820 N.E.2d at

       653. “This avoids an inequitable application of the general principle that

       priority in time gives a lien priority in right.” Neu, 928 N.E.2d 560 (citation

       omitted). “In considering whether to order subrogation and thus bypass the

       general principle of priority, courts base their decisions on the equities,

       Court of Appeals of Indiana | Memorandum Decision | 15A01-1409-MF-396 | June 2, 2015   Page 14 of 21
       particularly the avoidance of windfalls and the absence of any prejudice to the

       interests of junior lienholders.” Id.; see also Nally, 820 N.E.2d at 653. Equitable

       subrogation is “a highly favored doctrine which is to be given a liberal

       application.” Nally, 820 N.E.2d at 652 (quoting Osterman v. Baber, 714 N.E.2d

       735, 738 (Ind. Ct. App. 1999), trans. denied).

[25]           Perhaps the case occurring most frequently is that in which the payor
               [i.e., the party asserting a right to equitable subrogation] is actually
               given a mortgage on the real estate, but in the absence of subrogation it
               would be subordinate to some intervening interest, such as a junior
               lien. Here subrogation is entirely appropriate, and by virtue of it the
               payor has the priority of the original mortgage that was discharged.
               This priority is often of critical importance, since it will place the
               payor’s security in a position superior to intervening liens and other
               interests in the real estate. The holders of such intervening interests
               can hardly complain of this result, for it does not harm them; their
               position is not materially prejudiced, but is simply unchanged.
       Id. at 653 (quoting Restatement (Third) of Property § 7.6 cmt. e). Applying the

       doctrine to a conventional refinancing, the Nally court noted:

               A lender providing funds to pay off an existing mortgage expects to
               receive the same security as the loan being paid off. Refinancings are
               commonplace in today’s economy. Permitting a junior lienholder to
               leapfrog the priority of the current senior mortgage would impair the
               owner’s access to more favorable interest rates. Unless a junior
               lienholder is disadvantaged by permitting subrogation, we see no
               reason to give the junior lienholder in effect the right to block or object
               to the refinancing. We conclude that a mortgagee who refinances an
               existing mortgage is entitled to equitable subrogation even if it had
               actual or constructive knowledge of an existing lien on the property
               unless the junior lienholder is disadvantaged or the mortgagee is
               “culpably negligent” . . . , but this remedy is subject to the rights and
               limitations of the subrogor.




       Court of Appeals of Indiana | Memorandum Decision | 15A01-1409-MF-396 | June 2, 2015   Page 15 of 21
       Id. at 653-54. Accordingly, as long as the refinancing lender is not culpably

       negligent, the refinancing lender is entitled to stand in the shoes of the senior

       lien and retain its priority status. Id. at 654.


[26]   Here, it is undisputed that as part of the refinancing process, Fifth Third paid

       off the $50,000 mortgage to Fifth Third Bank. Accordingly, unless Fifth Third

       Bank was prejudiced or Fifth Third was culpably negligent, Fifth Third, as the

       refinancing lender, is entitled to stand in the shoes of Fifth Third Bank up to the

       amount of $50,000 as to Randall’s one-half interest in the mortgage.


[27]   One charged with “culpable negligence” may not be entitled to equitable

       subrogation. Finance Center Federal Credit Union v. Brand, 967 N.E.2d 1080, 1084

       (Ind. Ct. App. 2012). Culpable negligence “contemplates action or inaction

       which is more than mere inadvertence, mistake, or ignorance” and “focuses on

       the activity of the party asserting subrogation.” Id. (quoting Nally, 820 N.E.2d

       at 654). While preserving the rights of intervening creditors who record their

       interests is “plainly equitable,” leapfrogging a senior claim is “precisely what

       equitable subrogation is designed to prevent.” Nally, 820 N.E.2d at 655.


[28]   Although Fifth Third realized that it had made a mistake by omitting the

       signatures on the original refinancing documents, it attempted to cure this

       omission by returning the originally executed mortgage documents to the title

       company and having the mortgage executed by Hugh, Kay, in her individual

       capacity, and Randall. Asserting that his signature was forged, Randall

       contends that Fifth Third’s reliance on a document that includes a forged


       Court of Appeals of Indiana | Memorandum Decision | 15A01-1409-MF-396 | June 2, 2015   Page 16 of 21
       signature amounts to culpable negligence under the doctrine. In particular,

       Randall notes that Fifth Third, as the lender who hired the title company, is

       responsible for the title company’s act of including a forged signature on the

       mortgage documents.


[29]   While not disputing the forged nature of Randall’s signature, Fifth Third

       responds that there is no evidence supporting Randall’s agency argument. We

       agree. In order to be held responsible for the acts of the title company, Fifth

       Third must “give [the title company] authority to act on [its] behalf.” Mullen v.

       Cogdell, 643 N.E.2d 309, 398 (Ind. Ct. App. 1994), reh’g denied, trans. denied. To

       establish an agency relationship three elements must be shown: (1) a

       manifestation of consent by the principal, (2) an acceptance of the authority by

       the agent, and (3) control exerted by the principal over the agent. Id. These

       elements can be proven by circumstantial evidence. Id. at 398. Here, evidence

       was presented that Fifth Third instructed the title company to have the

       $100,000 mortgage re-executed after the initial closing. Even if we consider this

       evidence sufficient to establish an agency relationship, Randall failed to present

       evidence that Fifth Third instructed the title company to forge his signature. See

       Mid-Continent Paper Converters, Inc. v. Brady, Ware & Schoenfeld, Inc., 715 N.E.2d

       906, 909 (Ind. Ct. App. 1999) (citing Conrad v. Olds, 37 N.E.2d 297, 303 (Ind.

       Ct. App. 1941) (holding that the agent’s knowledge will not be imputed to the

       principal if the agent acts in the adverse interest of the principal)). Accordingly,

       as Fifth Third refinanced the underlying $50,000 mortgage and in the absence




       Court of Appeals of Indiana | Memorandum Decision | 15A01-1409-MF-396 | June 2, 2015   Page 17 of 21
       of culpable negligence, the bank is entitled to equitable subrogation and to

       assert a priority over the mortgagee of the $50,000 mortgage.


                               C. Alteration of the Mortgage Document


[30]   Although we find that Fifth Third did not commit culpable negligence and is

       subrogated to stand in the shoes of the first mortgage holder; nevertheless,

       Randall contends that the re-execution of the $100,000 mortgage by Fifth Third

       constitutes a material alteration of the instrument which rendered it void.


[31]   The material alteration of an instrument after its delivery, by a party who claims

       the benefit of it, or by one under whom he claims, made without the consent of

       the party against whom it is sought to be enforced, renders it void. Cochran v.

       Nebeker, 48 Ind. 459, 462 (Ind. 1874). An immaterial alteration, no matter by

       whom made, does not affect the validity of the instrument or the rights of the

       parties. Id. An alteration is an act done upon the instrument by which the

       meaning or language is changed. Id. The term is usually applied to the act of

       the party entitled under the instrument, and imports some fraud or improper

       design to change its effect, and therefore an alteration made by accident or

       mistake could not have the effect to avoid the instrument. Id. Despite Fifth

       Third’s insistence to the contrary, this rule has been made applicable to

       mortgages. See, e.g., Bayse v. McKinney, 87 N.E. 693 (Ind. Ct. App. 1909);

       McKinney v. Cabell, 57 N.E. 598 (Ind. Ct. App. 1900).


[32]   In December of 2004, Kay, as trustee of the Trust, established a life estate on

       the Property for the benefit of herself and her husband. The remainder interest

       Court of Appeals of Indiana | Memorandum Decision | 15A01-1409-MF-396 | June 2, 2015   Page 18 of 21
       of one-half of the Property remained with the Trust, whereas the other one-half

       remainder interest was deeded to Randall by quitclaim deed. This quitclaim

       deed was duly recorded. Accordingly, at the time Kay sought to refinance the

       Property and contemplated entering into a $100,000 mortgage with Fifth Third,

       Fifth Third was constructively aware that both the Trust and Randall held a

       remainder interest in the Property. See Wienke, 407 N.E.2d at 286.

       Nonetheless, only Kay, as trustee of the Trust, executed the $100,000 mortgage

       on July 21, 2005. After the initial closing, it was discovered—the record is

       unclear as to how the discovery was made—that Kay, in her individual

       capacity, Hugh, and Randall, as parties having an interest in the mortgaged

       Property had not executed the mortgage. Accordingly, Fifth Third initiated re-

       execution proceedings during which the signatures of all interested parties were

       purportedly procured. The trial court found—and this finding is uncontested by

       the parties—that Randall “did not execute the [m]ortgage.” (Appellant’s App.

       p. 299).5


[33]   In Nicholson v. Combs et al., 90 Ind. 515, 515 (1883), our supreme court held that

       “[i]t is settled law in this State that the material alteration of a promissory note,

       made at the instance of the payee, and without the knowledge of the maker,

       releases the latter from all liability on the note. It is also firmly settled that the




       5
         Although a signature purporting to be Randall’s appears on the mortgage, the trial court failed to enter any
       findings as to whether the signature was forged and who had committed the forgery.

       Court of Appeals of Indiana | Memorandum Decision | 15A01-1409-MF-396 | June 2, 2015             Page 19 of 21
       addition of the name of a party as maker is a material alteration of the

       instrument.” (internal references omitted).


[34]   The parties do not contest that Kay and Hugh consented to the re-execution of

       the mortgage. As such, the re-execution is valid with respect to the one-half

       interest of the Trust. However, as Randall did not sign the mortgage—despite

       the occurrence of his purported signature on the document—he did not give

       consent nor did he gain knowledge of his incurred responsibility under the

       document. Therefore, as Randall’s name and signature were added to the

       mortgage without his consent or knowledge, the mortgage is void with respect

       to his one-half interest in the Property. Consequently, the Fifth Third mortgage

       with respect to Randall’s one-half interest in the Property is void based on the

       material alteration of the mortgage document. We reverse the trial court’s

       Decree with respect to Randall’s one-half interest in the Property.6


                                                 CONCLUSION

[35]   Based on the foregoing, we affirm the trial court’s Decree of Foreclosure with

       respect to the one-half interest held by the Trust; however, we reverse the trial

       court’s Decree of Foreclosure with respect to Randall’s one-half interest in the

       Property.




       6
        Because we reverse the trial court’s decree in favor of Randall, we need not address his arguments
       contesting the trial court’s dismissal of his counterclaims.

       Court of Appeals of Indiana | Memorandum Decision | 15A01-1409-MF-396 | June 2, 2015            Page 20 of 21
[36]   Affirmed in part and reversed in part.


[37]   Bailey, J. and Barnes, J. concur




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