Countrywide Home Loans v. Holland, 993 N.E.2d 184 (Ind. Ct. App. 2013), explores an enterprising individual’s attempt to appropriate a vacant residential property by entering it without invitation and making improvements. Plaintiff gets an “A” for creativity, but an “F” for legal theory. The lender/mortgagee defeated Plaintiff’s efforts to terminate the subject mortgage.
Venture. Plaintiff, a self-titled “Concerned Citizen of Gary,” entered the residential property he claimed created a nuisance and undertook efforts to abate it. The owner/mortgagor had abandoned the real estate after the mortgagee foreclosed, but the mortgagee had not conducted a sheriff’s sale. Plaintiff sought title to the property and compensation by filing an action to quiet title and to foreclose on a purported common-law lien “for costs of abating a nuisance property.”
Quiet title claim. Plaintiff asserted that he was entitled to summary judgment on his quiet title claim, which, if successful, would have extinguished the subject mortgage. In Indiana:
[a] suit to quiet title brings in issue all claims to the property in question. Hence, a plaintiff may recover only upon the strength of his own title. He must show legal title with a present right of possession paramount to the title of the defendant. It is therefore appropriate under the issues for a defendant to prove the plaintiff and those claiming under him do not have title or interest in the property.
Not abandoned. The premise upon which Plaintiff based his quiet title action was that the property had been abandoned. The mortgagee, in turn, contended that Plaintiff had not established a valid legal interest in the property, “and certainly not an interest paramount to [the mortgagee’s].” Plaintiff relied upon cases holding that “[a]bandonment of property divests the owner of his ownership, so as to bar him from further claim to it.” Plaintiff asserted that he may “appropriate property once it is abandoned if it had not already been appropriated by another.” But Plaintiff’s cases addressed personal property, as opposed to real property. With respect to real property “[t]itle in fee simple is not lost by mere abandonment in Indiana,” said the Court, noting that:
Washington, the record owner, and Countrywide, the holder of a mortgage lien, clearly claim superior title to the land than a mere possessor. In sum, these cases simply do not support [Plaintiff’s] assertion that his entry onto and possession of the property immediately wrested legal title from the fee simple owner and transferred it to him.
The Court concluded that Plaintiff “presented no colorable claim to legal title of the property and, consequently, cannot prevail in his action to quiet title.”
No lien. Plaintiff’s second theory was that he had a legal interest in the property by virtue of a common-law lien that arose when he took action to abate the perceived nuisance. Generally, “in Indiana, a ‘lien’ is a claim which a person holds on another’s property as a security for an indebtedness or charge. Without a debt, a lien cannot exist.” Plaintiff’s alleged debt was for the work he put into abating the nuisance the house presented. Insufficient, the Court held: “the allegations set forth in the complaint do not state a factual scenario supporting any claim of a legally actionable debt based on Holland’s actions to abate the alleged nuisance.” No debt, no lien.
Holland did not address the reason why the mortgagee delayed seeking a sheriff’s sale. That delay appears to have opened the door for Plaintiff to try to capitalize on the mortgagor/owner’s abandonment of the real estate. Even though Plaintiff ultimately lost in Holland, the bases of his claims were not entirely unreasonable, in my view. My suggestion for lenders is to move forward with the sheriff’s sale right away. (In 2010, Indiana’s General Assembly passed legislation to deal with delays in sheriff’s sales.)
Like last week, this week’s post arises out of In Re: Cruse, 2013 Bankr. LEXIS 360 (S.D. Ind. 2013) (.pdf). For factual background, please review last week’s entry. Indiana lenders and businesses dealing with timber will gain insight from Cruse.
Vendor’s lien. Today’s discussion surrounds the Creditor’s contention in Cruse that he held an enforceable vendor’s lien against timber that the Debtor cut down from the Creditor’s land. For more on Indiana vendor’s liens, please click on my prior post: What Is A Vendor’s Lien?
Real estate only. The Court in Cruse rejected the Creditor’s argument for the simple reason that “under Indiana law, no vendor’s lien can arise on personal property.” As mentioned last week, the Court held that the timber in Cruse was personal property and thus governed by the Uniform Commercial Code. Indiana law appears to be settled that vendor’s liens only arise in “the context of the sale of real property,” including for instance a land contract. The Cruse contract, however, only involved the trees (a/k/a timber; a/k/a goods).
Timber = personal property. It may be counterintuitive for living trees to be viewed as personal property, as opposed to real property. Yet the result in Cruse and the supporting legal authorities leave no doubt that the UCC and personal property law, not vendor’s liens or real estate law, govern transactions involving timber. Had the heart of the transaction in Cruse been the Debtor’s purchase of the Creditor’s land (including the trees), then there might have been a different outcome – definitely a different legal analysis.
Whereas last week’s post introduced condominium association (“CA”) liens and their priority in title under Indiana law, this week’s post addresses CA liens in connection with a deed-in-lieu of foreclosure (“DIL”). A DIL can be a relatively simple and positive transaction for a secured lender struggling with an unperforming loan. But in cases dealing with a condominium property, lenders need to be careful about inheriting unpaid CA assessments.
Example scenario. My colleague Sierra Bunnell and I recently worked on a foreclosure lawsuit involving a condominium. Settlement discussions led to an agreement for a DIL. Before closing the DIL, our client, the senior lender/mortgagee, learned that there were unpaid and past due CA charges. (The CA had not recorded a formal lien notice.) The question was whether our client could take a DIL without inheriting thousands of dollars owed by its borrower to the CA. (In cases of a recorded CA lien, the foreclosure/settlement analysis would be no different than with any other case involving a recorded lien.) Again, our case dealt with an unrecorded lien – an unusual concept - which we described in last week’s post.
DIL – voluntary. Under both the homeowner’s association (“HOA”) and condominium association statutory regimes in Indiana, a grantee in a voluntary transaction assumes certain liabilities for the subject real estate. The amount assumed by a voluntary grantee for an HOA assessment will be limited to those unpaid assessments for which a notice of lien has been recorded, while the grantee would be liable for all unpaid assessments owed to a CA. See, Indiana Code § 32-25-5-2 (CA) and I.C. § 32-28-14-7 (HOA).
Options. If a lender/mortgagee is considering a DIL in a condo case, it should undertake the following steps vis-à-vis the CA to guard against unwittingly exposing itself to liability for an unrecorded lien:
1. Obtain a payoff letter from the CA and determine whether there are any past due and unpaid charges owed by the borrower. Lenders are entitled to such statements and will not be liable for any unpaid assessments in excess of the stated amount. I.C. § 32-25-5-2. Lenders should then weigh the amount of outstanding assessments against the costs involved with the foreclosure. Remember, a foreclosure and resulting sheriff’s sale (an involuntary transaction) will terminate any lien. Depending upon the amount due, the time and expense of foreclosure may be warranted.
2. One way to avoid foreclosure is to obtain, from the county recorder’s office or a title insurance company, the recorded condominium “declaration,” which is “like the constitution of a condo.” Review the declaration for lien subordination language. Declarations may expressly terminate a CA’s lien on the property (not the debt owed by borrower) in favor of a first mortgagee taking title through a DIL. If that option is available, a lender can avoid liability for the debt altogether. This is what occurred in Sierra’s and my case, and our title company insured the transaction.
Again, I appreciate the assistance of Sierra Bunnell with my last two posts.
I’ve previously written about the priority of homeowner’s association (“HOA”) liens. Today’s post relates to similar, but not identical, liens arising out of unpaid condominium association (“CA”) fees/assessments. Like HOAs, CAs also can foreclose their liens. Because a lender/mortgagee may, in its own foreclosure case, discover a recorded CA lien on the subject real estate, mortgagees and their foreclosure counsel should be mindful of the distinctions between the HOA and CA statutes and how the CA laws affect priority in title.
Priority of unrecorded liens. Unlike an HOA lien, a CA, or a so-called “association of co-owners,” maintains a continuous lien against the subject real estate from the date of the assessment of fees, without regard to whether the CA has recorded a lien notice with the county recorder’s office. By statute, this CA lien “has priority over all other liens except tax liens and all sums unpaid on a first mortgage of record.” I.C. § 32-25-6-3(a). Indiana’s recording statute, I.C. § 32-21-4-1(b), does not apply to these liens, which is to say a lender’s mortgage does not take priority according to the date of its filing, but rather takes senior priority automatically by operation of Indiana Code § 32-25-6-3(a)(2). This means that, when a lender forecloses, the lender will always enjoy priority over any unrecorded claim for past-due charges owed to a CA. Further, it would not appear that a foreclosing lender needs to name the CA as a defendant to answer as to its unrecorded lien.
Priority of recorded liens. The CA has the authority per I.C. § 32-25-6-3(b) to record a lien on the subject real estate and then foreclose upon it, which foreclosure is governed by Indiana’s mechanic’s lien statute. (In instances where a CA has recorded a lien, a foreclosing mortgagee should include the CA as a defendant in the foreclosure suit to ensure the CA’s lien is terminated by virtue of the sheriff’s sale.) If the mortgage’s recording date precedes the recording of the CA’s lien, then the mortgage will have priority over the CA’s lien. But if a CA records a lien notice before a lender records its mortgage, the priority rule becomes less clear. The statutory language contains some contradictions on this point. In the final analysis, I and my colleague Sierra Bunnell, who assisted with this post and the client’s case giving rise to it, believe that the CA’s prior recorded lien will maintain priority over a subsequently-recorded mortgage. We believe this conclusion is reasonable given the policy of the recording statute, and recommend that a potential lender regard a prior recorded CA lien as an encumbrance on title. Please comment below or email me if you have a different point of view.
Sheriff’s sale purchaser’s exposure. I.C. § 32-25-6-3(a) provides that “if the mortgagee of a first mortgage of record or other purchaser of a condominium unit obtains title to the unit as a result of foreclosure of the first mortgage, the acquirer of title . . . is not liable for the share of the [CA charges applicable to that unit] due before the acquisition of title to the unit by the acquirer.” While that language would seem to provide that the pre-sheriff’s sale charges disappear, the statute goes on to state that the unit’s charges fall back into a pool collectible from all co-owners, including the sheriff’s sale purchaser. We read this to mean that, although a foreclosing mortgagee will not be on the hook for the full extent of the borrower’s unpaid CA charges, the mortgagee may be responsible for its pro rata portion as a new co-owner.
Next week, in Part II, we will address how to approach CA liens when a lender is considering a deed in lieu of foreclosure. Thanks to my colleague Sierra Bunnell for her research and input.
This is my third and final post about the relevant Indiana legislation arising out of this year’s session. At issue is House Bill 1079 and Indiana Code § 32-28-4-1 through 3, which deal with the expiration of mortgage liens, together with the statutes of limitations applicable to foreclosure actions. Today’s post will supplement my September 3, 2010 post that touches upon the prior statutory language. (For more on statutes of limitations, including the statute applicable to promissory notes, please read my March 9, 2009 post.)
Lien expiration/bar date. There are two components to the provisions in I.C. § 32-28-4. The first deals with the expiration of a mortgage lien (general rule). The second involves the deadline to file a foreclosure action (exception to general rule). In either instance, the applicable time period is the same. (HB 1079 and I.C. § 32-28-4 also apply to vendor’s liens, which were the topic of my August 7, 2012 post.)
I.C. § 32-28-4-1: maturity date identified. As of July 1, 2012, the general rule is that a mortgage lien expires ten years after the maturity date stated in the recorded mortgage. The exception is if the mortgagee files a foreclosure action within that ten-year period.
I.C. § 32-28-4-2(a): maturity date not identified. If the recorded mortgage does not identify a maturity date (articulated as when “the last installment of the debt secured by the mortgage lien becomes due”), then the expiration of the mortgage depends on the date of the mortgage. If the parties created the mortgage before July 1, 2012, the lien expires 20 years after the mortgage execution date, unless the mortgagee files a foreclosure action within that 20-year period. If the parties created the mortgage after June 30, 2012, the mortgage lien expires 10 years after the mortgage execution date, unless the mortgagee files a foreclosure action within that 10-year period. (Please note that amended I.C. §§ 32-28-4-1(b) and (c) deal with instances in which there is no date of execution in the document.)
I.C. § 32-28-4-3: affidavit of maturity date. Indiana law provides a remedy for situations in which a mortgage fails to identify a maturity date. The solution is to record an affidavit stating a maturity date. Such filing triggers the application of 10-year/20-year rules.
Retroactive? The General Assembly placed an effective date on the amendment of July 1, 2012. As a matter of law, post-2012 mortgages omitting a maturity date will expire in 10 years, unless a Section 3 affidavit is recorded. It’s my understanding there was some confusion about whether a prior change in the law (from 20 years to 10 years) could have applied to pre-2012 mortgages. The concern was that mortgages over 10 years old suddenly expired with the enactment of the law. I’m told that, through some litigation that has since been dismissed, the Indiana Attorney General has opined that retroactive application of the date change would be unconstitutional. In practice, therefore, the 10-year rule does not apply to pre-2012 mortgages (without maturity dates).
Pointers. The critical lesson here is that secured lenders should always identify a maturity date in an Indiana mortgage. Additionally, parties holding mortgages would be wise to examine their Indiana mortgage portfolios to ensure that all mortgages have a maturity date defined. If the mortgage omits such date, mortgagees should take steps to record the necessary affidavit to protect their lien.
Distressed loans secured by commercial property often involve delinquent sewer fee liens, which I discussed in my 10/24/08 post. These liens typically go hand-in-hand with delinquent real estate taxes. Workout professionals should remain mindful of this possibility as they analyze their collateral and make decisions concerning the enforcement of the loan. Questions I’m frequently asked are whether the lender should pay the real sewer fees liens and, if so, when.
Prior procedure. Indiana law historically required the plaintiff/lender, assuming it was the winning bidder at the sheriff’s sale, to pay any delinquent sewer fees, along with real estate taxes, immediately after the sale. In the case of a cash bidder (third party), sewer liens would be paid off the top or, in other words, the county treasurer got the first cut of the sale proceeds.
2011. We then noticed that some county sheriff’s offices started to require the plaintiff/lender to pay delinquent real estate taxes and sewer fee liens before the sale. In 2011, prepayment of delinquent real estate taxes became a statutory requirement by virtue of Ind. Code § 32-29-7-8.5 “Requirements for Payment of Property Taxes and Real Estate Costs Before Sheriff’s Sale.” See my 1/21/11 post for more.
2013. In this year’s session, Indiana’s General Assembly enacted HB 1132, which added delinquent sewer fee liens to the mix. HB 1132 amends Ind. Code Sec. 32-29-7-8.5 and will be effective July 1, 2013. The statute will now state, in pertinent part, that “the party that filed the praecipe for the sheriff’s sale shall pay . . . all delinquent property taxes, sewer liens described in IC 36-9-23-32, special assessments, penalties, and interest that are due and owing on the property on the date of the sheriff’s sale.” A failure to pay will result in the cancellation of the sale.
Policing the issue? Beginning in January 2011 in Marion County (Indianapolis), the Treasurer, in conjunction with the Sheriff, required that a Tax Clearance Form be (a) completed by the party requesting the sale, (b) stamped by the Treasurer’s Office and (c) then submitted to the Sheriff’s Office with the written bid. I’ve seen other counties utilizing forms like this. I suspect any such forms will be amended to include a statement about sewer fee liens. Please remember to confer with the particular county sheriff’s office in advance because rules and procedures may vary by county.
Build into judgment. Since I.C. § 32-29-7-8.5 will require sewer fee liens to be satisfied before the sale, the amount of any such lien that either has been or will be paid by the lender should be an item of damages identified in the judgment. Before the statutory change, borrowers theoretically could attack that damage figure as being speculative. Some borrowers claimed that, because the lender had not actually incurred the loss at the time of the entry of judgment, courts could not award the damages. Hypothetically, the borrower might later pay the fees or a third-party buyer might pay them Now, because the foreclosing lender is compelled to advance payment of the sewer fee liens, courts in turn should be compelled to include such losses in the calculation of damages.
Sewer connection penalties? On 8/1/12, I wrote about liens arising out of sewer connection penalties, which are similar to sewer fee liens. The 2013 amendment to Ind. Code Sec. 32-29-7-8.5 does not appear to require connection liens to be paid before the sheriff’s sale.
Plan ahead. Lenders and their foreclosure counsel should make it their routine practice, when calculating the debt, to verify with the county treasurer the status of both the real estate taxes and sewer fee liens. Indeed a sewer fee lien should be identified in a title commitment. As a practical matter, these liens will be a component of the amount owed by the borrower (and guarantor).
This follows up last week’s post about Hair v. Schellenberger, 2012 Ind. App. LEXIS 158 (Ind. Ct. App. 2012) and digs deeper into the bona fide purchaser doctrine. The purported judgment lien holder (“Judgment Creditor”) in Hair contended that the buyer of the subject real estate (“Purchaser”) was not a bona fide purchaser (“BFP”) and thus acquired the real estate subject to the Judgment Creditor’s interests. The result in Hair was the opposite of that in Lobb, which was the topic of my post Known Judgment Lien Is Purchaser’s Downfall In Recent Lien Enforcement Case.
BFP basics. To be a BFP, one must purchase real estate in good faith, for valuable consideration, and without notice of the outstanding rights of others. Judgment Creditor argued that Purchaser had notice of Judgment Creditor’s outstanding rights against the subject property. In Indiana:
A purchaser of real estate is presumed to have examined the records of such deeds as constitute the chain of title thereto under which he claims, and is charged with notice, actual or constructive, of all facts recited in such records showing encumbrances, or the non-payment of purchase-money.
Prospective purchasers are on notice of any outstanding encumbrances, such as judgment liens, that appear in the appropriate county indices. But “a record outside the chain of title does not provide notice to bona fide purchasers for value.”
Issue. The critical question in Hair was whether the Judgment Creditor’s 2006 judgment became a lien on the subject real estate before Purchaser bought it in 2007. Judgment liens are statutory in Indiana and depend upon the clerk of the courts timely and properly indexing of them. In Indiana, “courts cannot create judgment liens.” Their “very existence is dependent upon compliance with the statutory requirements.”
No notice. In Hair, the former owners conveyed the real estate to a third party (a land trust) after Judgment Creditor’s judgment had been rendered, but neither the county docket nor the index contained any entry indicating that Judgment Creditor had obtained a money judgment against the former owners. (Judgment Creditor’s judgment arose out of a cross claim. Since Judgment Creditor was not the named plaintiff in the suit, but instead a defendant, the clerk likely overlooked the entry in Judgment Creditor’s favor.) In 2007, when Purchaser bought the subject real estate, after the property had been foreclosed upon by the prior mortgagee, there was nothing in the county records that would have placed Purchaser on notice of Judgment Creditor’s interest in the parcel. “[Judgment Creditor’s] 2006 judgment simply was not there . . ..”
Lesson to judgment holders. The Indiana Court of Appeals concluded that Purchaser was a BFP as a matter of law and that Purchaser did not acquire the real estate subject to [Judgment Creditor’s] judgment against the former owners of the property.” Here is the Court’s rationale:
In sum, as between these two relatively innocent parties . . . we find that the equities favor [Purchaser]. As a BFP, [Purchaser] could be responsible only for what was in the county records at the time Lawyers Title searched the county records. He could not cure deficiencies in the records of which he was totally unaware. In contrast, as a judgment holder, [Judgment Creditor] could have taken steps to cure the deficiencies, i.e., he could have checked the records to ensure that his judgment was on record and perfected, . . .. In short, he was in a better position to prevent the dispute at hand.
In Indiana, one expects a judgment to be automatically indexed, but Hair tells us that mistakes occur and that follow-up is prudent.
Can attorneys for parties to Indiana commercial foreclosure actions file liens for unpaid legal fees? Miller v. Up In Smoke, 2011 U.S. Dist. LEXIS 80684 (N.D. Ind. 2011) (rt click/save target as for pdf) sheds light on the matter.
Context. In Miller, the Court ultimately appointed a receiver to oversee the management and operation of a defendant company. Attorneys representing the defendants contested the receivership proceedings. The attorneys did not get paid and filed notices of attorney fee liens in the case. The attorneys then filed a motion to enforce their liens. The receiver opposed the motion, resulting in the Miller opinion.
Retaining lien. Indiana law recognizes only two kinds of attorney’s liens. The first is a “retaining” lien, which prevents a client from utilizing materials held by the attorney until the client either settles the fee dispute or posts security for payment. The existence of a retaining lien depends upon the attorney’s possession “of money, property or papers of the client.” Basically, attorneys can retain their clients’ stuff until they get paid. As a practical matter, this lien acts as a leverage tool, but is unlike a more traditional lien that can be foreclosed.
Charging lien - generally. The second and potentially more meaningful lien is a “charging” lien for “services rendered in a particular cause of action or proceeding to secure compensation for obtaining a judgment, award or decree on the client’s behalf.” Indiana case law says that an attorney “has a lien for his costs upon a fund recovered by his aid, paramount to that of the persons interested in the fund or those claiming as their creditors.” This lien is based upon the idea that “the client should not be allowed to appropriate the whole of the judgment without paying for the services of the attorney who obtained it.” The Court explained that “an attorney’s charging lien attaches to the fruits of the attorney’s skill and labor . . . [but] if the attorney’s work produces no fruit, then the attorney has no lien.”
Charging lien - statute. Indiana’s charging lien is statutory: Ind. Code § 33-43-4. The statute provides that an attorney “may hold a lien for the attorneys’ fees on a judgment rendered in favor of a person employing the attorney to obtain the judgment.” The lien arises if the attorney files a written notice on the docket of an intention to hold a lien on the judgment, along with the amount of the claim, no later than sixty days after the date of the entry of judgment. I.C. § 33-43-4-2. I.C. § 33-43-4-1 expressly states that “no lien can be acquired before judgment . . ..” Indiana law strictly enforces this “judgment” requirement.
No judgment = no charging lien. The attorney fee claim in Miller was an alleged charging lien. But the services of the attorneys did not produce a “fund” upon which they sought to impose the lien. The alleged fund was the receivership estate (property of) the defendant company. The attorneys’ efforts, however, did not secure or create the receivership estate. If anyone deserved a lien, it would be the receiver and the receiver’s counsel, not the counsel of the defendants, who resisted the appointment of the receiver.
Lender’s counsel. Miller tells us that lender’s counsel can file a charging lien against a judgment that counsel secures for its client. Miller even hints that lender’s counsel could file a lien on real estate acquired by the client at a sheriff’s sale. The point is that plaintiff lenders can be exposed to attorney/charging liens if they don’t pay their lawyers. Alas, lenders typically possess both the willingness and capacity to pay.
Borrower’s counsel. Unlike lenders, defendant borrowers and guarantors come to attorneys already in financial distress. Getting paid can be a challenge, no question. As stated in Miller, very rarely can defense counsel assert a charging lien. Essentially, counsel must obtain an affirmative judgment in favor of their client, such as in a case of set-off or counterclaim. (The Court cited to a Georgia case for the proposition that a defense attorney could obtain a lien on a client’s land if he successfully defended an adverse claim on such land.) The bottom line is that, even assuming the defendant won the case, there still must be a judgment or fund to which a defense counsel’s charging lien could attach. This is why, in the vast majority of cases, defense counsel at best may have a retaining lien on the client’s money, property or papers (usually, the file and attorney work product), but this lien is not particularly valuable. Hence the need for up-front retainers.
I previously wrote about the priority of federal and state income tax liens on title to mortgaged real estate. Generally, an Indiana mortgage lien on title to real estate will trump a tax lien, assuming the lender recorded the mortgage before the taxing authority recorded its lien. The recent decision in Bloomfield State Bank v. United States of America, 644 F.3d 521 (7th Cir. 2011) involved a priority dispute over rental income arising out of the mortgaged real estate.
Rents. In Bloomfield, the borrower, who defaulted, granted the lender a mortgage on the borrower’s real estate plus “all rents . . . derived or owned by the Mortgagor directly or indirectly from the Real Estate or the Improvements” on it. The IRS filed its 26 U.S.C. § 6321 lien for taxes against the subject real estate several years after the lender recorded its mortgage but before the filing of the foreclosure suit. The receiver, during the pendency of the foreclosure case, decided to rent some of the real estate and collected about $80,000 in rents.
Contentions. The IRS claimed that its tax lien took priority over the mortgage lien on the rentals because they were received after the filing of the tax lien. The argument of the IRS focused on 26 U.S.C. § 6323(h)(1), which gives a mortgage interest in rentals priority over a tax lien only if the property secured by the mortgage was “in existence” when the federal tax lien was filed. The IRS asserted that the relevant property was the rentals – which did not exist at the time the federal tax lien attached. The lender, on the other hand, claimed that the relevant property was the real estate - which did exist
What existed and when? The Court sorted through the “existence” issue:
The “property” that must be in existence for a lender’s lien to take priority over a federal tax lien is the property that, by virtue of a perfected security interest in it, is a source of value for repaying a loan in the event of a default; it is not the money the lender realizes by enforcing his security interest.
The Court reasoned that there essentially is no difference between lien-enforcement proceeds taken the form of sale income versus rental income. “To say that a parcel of land is ‘sold’ rather than ‘rented’ just means that the owner sells the use of the land forever rather than for a limited period.” In Bloomfield, the real estate that generated the subject rental income existed when the borrower granted the mortgage (and thus before the tax lien attached). The rental income was proceeds of the such property, which preexisted the tax lien.
Not like A/R. The result would have been different had accounts receivables been the lender’s collateral. The Court noted that a security interest in accounts receivables does not exist and thus does not trump a subsequently-filed federal tax lien “until a buyer of goods or services from the grantor of the security interest becomes indebted to the grantor.” If the lender in Bloomfield did not have a mortgage on its borrower’s real estate, but just a lien on rentals, then until the rentals were received “the property on which the bank had a lien would not have come into existence.” Instead, the lender had a lien on the real estate. The rentals provision in the mortgage “created a perfected security interest in rentals received at any time.” Ind. Code § 32-21-4-2(c). The Court said:
By virtue of the rental-income provision in the mortgage, the bank had a separate lien on the rents, but that is not the lien on which it is relying to trump the tax lien. The lien on which it is relying is a lien on the real estate. If an asset that secures a loan is sold and a receivable generated, the receivables become the security, substituting for the original asset. The sort of receivable to which the statute denies priority over a federal tax lien is one that does not match an existing asset; a month’s rent is a receivable that matches the value of the property for that month.
The lender thus prevailed in its priority dispute with the IRS. Bloomfield reminds us that, generally, Indiana is a “first in time is first in right” state. More specifically, the opinion points out that in Indiana a mortgage attaches, not only to the land and improvements, but also to any proceeds from the sale or rental of the real estate.
Workout professionals and their foreclosure counsel often encounter unexpected liens on, or claims to, the subject real estate. One of the purposes of my blog is to identify such liens and discuss recent Indiana case law dealing with them. Wachovia v. Dune Harbor, 2011 Ind. App. LEXIS 712 (Ind. Ct. App. 2011) is one such case, and the opinion teaches us about a “vendor’s lien,” something that we certainly don’t encounter every day.
Setup. If you are interested in learning about the convoluted facts, circumstances and cast of characters in Wachovia, I recommend that you read the opinion. Here is how the Court summarized the case and the issue:
This case involves lenders who contend priority for their liens in the foreclosure of a failed real estate development project . . .. [Lender] appeals from a trial court’s summary judgment in favor of Lefty’s Co-Ho Landing, Inc. (“Lefty’s”). [Lender] raises four issues for our review, of which we find the first dispositive and restate as: whether a vendor’s lien was created in favor of Lefty’s and in force when [Lender]recorded its mortgages.
Lien for unpaid purchase price. The Wachovia Court articulated Indiana’s general rules related to this uncommon claim against real estate:
Ordinarily a vendor (seller) of realty has an implied lien for the amount of the unpaid purchase price. A vendor’s implied lien, as distinguished from a lien expressly reserved, or from the security which the vendor has while he holds the legal title under an unexecuted contract to convey, is the equitable right, which by implication is accorded to one who has conveyed the title to land without reserving a lien thereon, and has taken no security for the purchase money other than the personal obligation of the purchaser, to subject the land in equity to the payment of the purchase price. The lien is not dependent on any agreement between the parties other than the contract to pay the purchase money, and it is presumed to exist in all cases in which such a lien is allowed by law in the absence of a showing of an intent to the contrary.
In Wachovia, the alleged vendor’s lien arose out of an exercised option to purchase real estate. The heart of the case involved an examination of the option’s language, or lack thereof, and the actions or inactions of the parties in the wake of its execution.
Created upon transfer. As noted in Wachovia, a vendor’s lien is created “when title to land is transferred before payment is completed . . ..” Under such circumstances, “the seller has lent money to the buyer in the form of a purchase-money mortgage, and the seller retains an automatic security interest in the property.” The creation of a vendor’s lien occurs “at the moment the seller of the land completes a transfer of title to the buyer and the purchase price or a portion thereof remains unpaid.” It’s like an invisible mortgage.
Unrecorded, and thus problematic. The Court confirmed that, to be effective, a vendor’s lien does not need to be recorded:
We also acknowledge the controversy surrounding vendors’ lien law, particularly the relatively unique characteristic that vendor’s liens need not be recorded to be effective . . .. The Seventh Circuit Court of Appeals has commented on a related quandary: “[t]he doctrine [of a vendor’s lien] arbitrarily advances the vendor over the vendee’s other creditors, and complicates real estate financing. It has been abolished in a number of states, but not in Indiana.”
Release? Once created , a vendor’s lien “may be expressly or impliedly abandoned or extinguished, thereby cutting off any future obligations to the vendor.” The Wachovia opinion wrestled with whether the vendor’s lien had been abandoned or extinguished before the date of the lender’s mortgages. The inquiry is fact sensitive.
Wachovia holding. Genuine issues of fact remained as to whether a vendor’s lien was created in favor of Lefty’s, and if so, whether it was abandoned or extinguished before Lender recorded its mortgages. Due to the claimed vendor’s lien, the Court remanded the case for trial. I’m sure the Lender never expected such a mess when it made its loan.
In 2008, I wrote about the Indiana Supreme Court’s decision in Pinnacle Properties v. City of Jeffersonville, which related to delinquent sewer fee liens. In Baird v. Lake Santee Regional Waste and Water District, 2011 Ind. App. LEXIS 535 (Ind. Ct. App. 2011), the Court of Appeals addressed liens for sewer connection penalties. There are many different debts that can lead to a lien against real estate, and a sewer connection penalty, not unlike a sewer fee, is one such debt.
The dispute. In 1999, the Lake Santee Regional Waste and Water District (“District”), an Indiana municipal corporation formed under I.C. § 13-26, adopted three ordinances requiring owners of real estate to discontinue use of septic tanks and to connect to a sewer system. The ordinances established connection fees and corresponding penalties for the failure to connect. Defendant Baird did not connect to the sewer system. The District assessed statutory penalties and later recorded liens on her real estate. The District then filed a complaint to foreclose the liens that eventually led to the Baird opinion.
Broad powers. Baird contested the District’s scheme on constitutional due process grounds. I’ll spare you the technical analysis. Essentially, the Court in Baird held that a municipality’s liens against property for utility fees are constitutional. The Court concluded that there is no significant difference between unpaid penalties for failure to connect to a sewer system and unpaid sewer fees. I.C. § 13-26, including specifically §§ 5-2, 12, and 14-1, established the District’s right to set up penalties, impose liens and foreclose. The ordinances, including the $25 per-day penalty, were “rationally related to [legitimate legislative goals of public health, safety and welfare].”
Priority. Unlike Pinnacle Properties, Baird did not deal with the issue of priority, namely whether the liens maintain a super priority status. I am currently involved in a case where another such district has asserted similar penalties and has claimed that its liens have priority over our client’s mortgage lien. Although the law is not 100% clear, there appears to be a solid argument that liens of this nature are treated like delinquent real estate taxes so as to hold senior lien status. (See my October 24, 2008 post for more.)
Unlike sewer lien fees, which typically are fairly nominal, these connection penalties can become quite substantial given their per-day calculation. In a foreclosure scenario, unless a third party acquires the property at the sheriff’s sale, as a practical matter lenders will get stuck with these penalties. Secured lenders in Indiana should proceed with their eyes wide open accordingly.
Last week’s post dealt with a lien priority dispute between a mortgagee and a commercial property management association. I thought that a natural follow-up post would be to clarify priorities between a more traditional residential homeowner’s association’s lien and a mortgage. Secured lenders may from time to time foreclose upon its real estate loan collateral and discover that homeowner’s association liens have also been recorded on the subject property. These issues are not exclusive to consumer foreclosures. The can bubble up in commercial cases such as foreclosures upon failed residential subdivision developments.
HOA statute. Indiana has a separate and distinct statute devoted to homeowner’s association liens at Ind. Code § 32-28-14. Homeowner’s associations (HOAs) may claim an interest in real estate that is the subject of a lender’s foreclosure case, and the HOA may even file its own case pursuant to I.C. § 32-28-14-8.
Priority. In determining priority, the critical question is - when did the HOA record its lien on a particular lot? Pursuant to I.C. § 32-28-14-5, the priority of the lien of the HOA “is established on the date the notice of the lien is recorded . . ..” See also, I.C. § 32-28-14-6. Pursuant to Indiana’s recording statute, I.C. § 32-21-4-1(b), a lender’s mortgage will take priority according to the date of its filing. Thus both liens take priority according to their filing/recording. If the mortgage filing predated the filing of the HOA lien, then the mortgage will hold priority. If, on the other hand, the HOA lien was recorded before the mortgage, then the HOA lien will have priority.
Nothing unique. HOA liens carry no special weight or any kind of super priority in Indiana. Like most other liens, Indiana law determines the priority of an HOA lien based upon the date of its recording.
PNC v. IRC, 2011 U.S. Dist. LEXIS 12389 (S.D. Ind. 2011) (.pdf) involved a priority dispute between a junior mortgagee and a property management company, both of which possessed recorded liens on commercial real estate subject to a foreclosure case. The issue was whether the junior mortgagee’s lien recorded in 2003 had priority over the management company’s lien recorded in 2009.
The covenants and restrictions. The subject real estate was an office park overseen by a property management company that I’ll call the “Association”. The Association recorded certain covenants and restrictions against the real estate in 1991 pertaining to property maintenance and tenant behavior. The covenants and restrictions provided that the Association could assess fees to cover administration of common areas and further provided that, if an owner failed to pay an assessment, the Association could file a lien against the owner’s parcel within the park. The covenants and restrictions also stated that such lien “shall be subordinate only to the first mortgage, if any, which was on the Parcel at the time the assessments became due and payable.”
The liens. The borrower/mortgagor/owner in PNC failed to pay an assessment by the Association, resulting in the Association’s execution of a Notice of Association Lien that the Association recorded in 2009. The competing lien holder, the United States Small Business Administration (“SBA”), in connection with a loan to the owner, recorded a junior/second mortgage on the subject property in 2003. (There was no dispute that PNC, the first mortgagee, had the senior lien.)
The Association’s contention. Even though its lien did not attach until 2009, the Association claimed that its lien should be senior to the SBA’s lien based upon the 1991 recordation of the covenants and restrictions. The Association reasoned that “any party who might take an interest in the [property] after that date did so subject to the provisions of the [covenants and restrictions].” The Association went on to claim that all parties with an interest in the case were on notice of the Association’s lien for any outstanding balance in a priority afforded to it by virtue of the 1991 recording. The 2009 filing, according to the Association, simply was “a notice to the world of the balance existing under the [covenants and restrictions] at that moment in time.” In short, 1991, not 2009, was the operative recording date.
The Court’s finding. The Association and the SBA had competing summary judgment motions on the matter of priority. Judge Lawrence of the United States District Court for the Southern District of Indiana noted that there was no Indiana case law directly on point. He relied upon an Oregon decision, which essentially held, in the context of residential homeowner’s association fees, that there could be no debt and thus no lien until the Association exercised its power to make an assessment. Applying the Oregon precedent to the facts of PNC, Judge Lawrence concluded:
Although the [covenants and restrictions] give [the Association] the authority to file a lien against a property owner who fails to pay his or her assessments, the [covenants and restrictions] themselves are not a lien. No lien existed on the [property] until 2009. Thus, [the Association’s] priority is based on the 2009 attachment. This renders its lien junior to that of the SBA.
The Court granted summary judgment in favor of the SBA accordingly. 2009, not 1991, was the date of the recording that ultimately mattered.
First in time. At its core, the Court basically applied Indiana’s “first to file” rule based upon Ind. Code § 32-21-4-1(b), which provides that mortgages take priority according to the date of their filing. Since the filing (recording) of the SBA’s mortgage lien predated the filing (recording) of the Association’s assessment lien, the SBA prevailed. The prior, 1991 recordation of the covenants and restrictions was of no moment. Generally, therefore, a maintenance-related lien like that in PNC will be junior to a mortgage, assuming the mortgage gets recorded first.
Do federal or state income tax liens trump your Indiana mortgage lien? Not if you recorded your mortgage first. In Indiana, first in time is first in right.
Priority of state income tax liens. Indiana is a “first to file” state. Under the Indiana recording statute, a mortgage takes priority according to the date of its filing. Ind. Code § 32-21-4-1(b). Unlike Indiana’s statutory treatment of delinquent real estate taxes , which are given a super-priority at foreclosure sales, there is no such statutory treatment of state income tax liens. To my knowledge, Indiana’s tax code is silent with regard to the priority of state income tax liens. Indeed a state tax lien is akin to a run-of-the-mill judgment lien. I.C. § 6-8.1-8-2(e)(2) provides that a tax warrant for unpaid income taxes becomes a “judgment” against the person owing the tax and results in the creation of a judgment lien. In Indiana, judgment liens, which are purely statutory, are subordinate to all prior or equitable liens, including mortgage liens.
Perfection of state liens. Logistically, the Department of Revenue will file a “tax warrant” in the county clerk’s office. The clerk will then automatically enter the tax warrant into the judgment records so as to create the judgment lien on real estate owned by the taxpayer in that particular county.
Priority of federal income tax lien. The United States Code contains a provision governing actions affecting real estate on which the IRS has a lien. 28 U.S.C. § 2410(a) states, in pertinent part, that the United States “may be named a party in any civil action . . . (2) to foreclose a mortgage or other lien upon . . . real property on which the [United States] has a . . . lien.” With regard to the question of priority, § (c) provides:
a judgment or decree in such action or suit shall have the same effect respecting the discharge of the property from the mortgage or other lien held by the United States as may be provided with respect to such matters by the local law of the place where the court is situated.
In other words, state law generally governs, meaning the “first to file” statute, I.C. § 32-21-4-1(b), applies. See, Religious Order of St. Matthew v. Brennan, 1995 U.S. Dist. LEXIS 8909 (N.D. Ind. 1995) (“in general, the long-established priority rule with respect to federal tax liens is ‘first in time is first in right’”); see also, Citimortgage Inc. v. Sprigler, 209 U.S. Dist. LEXIS 27866 (S.D. Ind. 2009) (summary judgment order identifying second priority federal tax lien vis-à-vis mortgage).
To perfect its lien, the IRS will record a notice of federal tax lien with the county recorder’s office.
Federal right of redemption. The unique twist to the federal tax lien is the statutory right of redemption. Judge Barker identified this in her summary judgment opinion in Citimortgage in which she cited to 28 U.S.C. § 2410 for the proposition that the United States retains a 120-day right of redemption from the sheriff’s sale. It’s my understanding that this federal statutory right of redemption trumps Indiana’s redemption statute found at I.C.§ 32-29-7-7, which holds that a right of redemption is terminated immediately upon the foreclosure sale. Unlike mortgagors and other parties, therefore, Uncle Sam gets to redeem up to four months after the sale.
Federal redemption amount. 28 U.S.C. § 2410(d) describes how to calculate the redemption amount:
In any case in which the United States redeems real property under this section . . . the amount to be paid for such property shall be the sum of-
(1) the actual amount paid by the purchaser at such sale . . .
(2) interest on the amount paid . . . at 6 percent per annum from the date of such sale, and
(3) the amount (if any) equal to the excess of
(A) the expenses necessarily incurred in connection with such property, over
(B) the income from such property plus (to the extent such property is used by the purchaser) a reasonable rental value of such property.
So, in the event of a redemption, the lender would receive cash for the amount of its bid, and then some.
Thanks to our firm’s summer associate, Adam Wanee, for helping with this research.
Judgment liens and the bona fide purchaser doctrine are topics in the Indiana Court of Appeals’ decision in Lobb v. Hudson-Lobb, 2009 Ind. App. LEXIS 1630 (Ind. Ct. App. 2009) (Lobb.pdf) . The case arises out of a trial court’s order to sell real estate to satisfy a judgment lien created by a prior divorce decree. As explained, the purchaser acquired the property subject to an enforceable judgment lien.
The setting. Lobb involved Husband, Wife and the husband’s Parents. Husband filed for divorce, which resulted in a decree that in part granted Husband title to real estate previously owned jointly by the couple. The decree also provided that Wife receive $50,000 for her interest in the real estate, plus another $167,000 in cash. Wife deeded her interest in the real estate to Husband and received the required $50,000. Although Wife received additional cash payments, the entire amount owed by Husband remained unpaid when Husband deeded the real estate to Parents. Wife later filed the subject action against Parents to foreclose her judgment lien on the real estate. The trial court rendered a foreclosure judgment in favor of Wife that led to the subject appeal.
Valid lien? The first issue addressed in the Lobb opinion was whether the money judgment in the divorce decree constituted an enforceable judgment lien. Parents contended that the lien was not valid because it was not recorded with the county recorder’s office. In Indiana, a judgment lien is purely statutory, and Ind. Code § 34-55-9-2 provides that all final judgments for the recovery of money constitute a lien upon real estate in the county where the judgment has been “entered and indexed . . ..” T.R. 58(A) states, in part, that the court shall promptly prepare and sign the judgment, and “the clerk shall thereupon enter the judgment in the Record of Judgments and Orders” (commonly known in Indiana as the “judgment docket”). This step is an act to be performed by the county clerk, not the parties. As such, Wife was not required to cause the decree to be entered in the judgment docket. Perfection of judgment liens in Indiana essentially occur automatically and do not involve recordation in the recorder’s office.
BFP defense defeated. The Lobb opinion suggests that it was not entirely clear whether the divorce decree had been entered into the judgment docket. Nevertheless, the Parents lost the case because it was clear that they had prior, actual knowledge of Wife’s judgment lien. Parents asserted that Wife’s foreclosure action should be defeated because Parents were bona fide purchasers without notice - a doctrine I’ve discussed here previously. But the Court noted that “the controlling and dispositive fact is that the [Parents] had actual notice of Wife’s judgment lien.” Before buying the real estate, Parents had a copy of the decree and knew the decree awarded wife $167,000. In Indiana, “a person with actual notice is bound by the terms of a valid instrument, even when that instrument has not been recorded so as to provide constructive notice.” The Court concluded Parents were bound by such decree:
[Parents] are not bona fide purchasers and, thus, they have not shown that they are exempt from execution levy. In sum, this case does not involve a good faith purchaser of the property for value and without notice, and our holding is limited to situations in which the purchaser of the property has actual knowledge of the unsatisfied judgment lien.
Points. The primary thing secured lenders can take away from Lobb is that any money judgment they obtain in Indiana automatically becomes a lien on real estate owned by the defendant in the county where the judgment was entered. Unlike with mortgages, deeds, etc., there is no need in Indiana to separately record the judgment with the recorder’s office. A secondary point from Lobb is that proof of a purchaser’s actual knowledge of an adverse lien will prevent the purchaser from utilizing the bona fide purchaser defense to defeat the lien enforcement action.
In the case of Pinnacle Properties v. City of Jeffersonville, 893 N.E.2d 726 (Ind. 2008) (Pinnacle.pdf), the Indiana Supreme Court on September 17, 2008 handed down an informative opinion indirectly applicable to lenders who foreclose upon, and ultimately own, commercial real estate collateral. There are many different liens that can be asserted against real property. Delinquent sewer fees is one of them.
The dispute. The City of Jeffersonville provided sewer service and billed tenants directly for the service. The issue was whether the city could transfer a tenant’s delinquent balance to the landlord’s (property owner’s) account without notice.
The holding. Indiana’s highest court held that the city could do so “because the property owner is ultimately responsible for payment of sewer fees.” Note the following general rule:
Although the statutes do not specifically authorize a municipality to transfer tenants’ delinquent sewer balances to the property owner’s account, the liability is the owner’s. Billing the tenant is a convenience afforded the owner, but the owner is ultimately responsible for the sewer service.
The Court concluded:
In sum, the statutes provide that owners are responsible for fees incurred by renters, and those fees can be collected from the deposit or by a civil action. However, the statutes do not require municipalities to collect delinquent fees from tenants. Ultimately, whoever owns the property at the time fees are incurred remains responsible for the fees, and the municipality can foreclose a lien against the property.
The statute. The statute in question was Ind.Code § 36-9-23 et. seq., which generally authorizes recovery of delinquent fees and penalties through the filing by the municipality of a lien against the property served. The lien “may be foreclosed to satisfy fees, penalties, and reasonable attorney’s fees.” I.C. § 36-9-23-34(a). When notice of a lien is filed with the county recorder, the lien attaches “and becomes enforceable by foreclosure against the property.” I.C. § 36-9-23-32(a).
The priority. I.C. § 36-9-23-32(a) provides that such “lien is superior to all other liens except tax liens.” Thus a municipality’s sewer lien will have priority over a lender’s mortgage lien, regardless of the recording dates. However, a lien is not enforceable against a “subsequent owner of property unless the lien for the fee was recorded with the county recorder before the conveyance to the subsequent owner.” I.C. § 36-9-23-32(b).
The “subsequent owner” and sheriff’s sale. In the commercial mortgage foreclosure context, the “subsequent owner” noted in Section 32(b)’s recording provision usually will be the lender/mortgagee. Although I found no case law to support this proposition, logic dictates that the “conveyance” under that statue would be the sheriff’s sale. It follows that, to be enforceable against a lender, the lien must be recorded before the sheriff’s sale.
Notably, I.C. § 36-9-23-33(i) provides that these liens “shall be collected by the county treasurer in the same way that delinquent property taxes are collected.” At least in Marion County (Indianapolis), therefore, sewer liens, like real estate taxes due and owning, will be paid at the sheriff’s sale. (For more on this payment, please see my January 9, 2007 post: Statutory Disposition Of Foreclosure Sale Proceeds.) Sewer liens are never going to be a big deal in terms of dollars. When I’ve seen these, the lien amount has been limited to the hundreds. Nevertheless, they are a potential cost of doing business in Indiana of which secured lenders should be aware. As a practical matter, unless a third party acquires the property at the sheriff’s sale, lenders will get stuck with these fees.
Although the Miller’s Turnkey v. Cybertek case from the Indiana Court of Appeals may not directly affect most commercial lenders, the case does speak to the enforcement of an Indiana lien under the Uniform Commercial Code. If you happen to be involved in, or want to learn about, the foreclosure of a warehouseman’s lien in Indiana, you or your counsel should review Miller’s Turnkey, 878 N.E.2d 280 (Ind. Ct. App. 2007) (Miller'sOpinion.pdf).
Punch. Plaintiff Miller owned a warehouse and stored defendant Cybertek’s equipment for a fee. Cybertek delivered the equipment to Miller but never paid rent. Miller sued Cybertek and obtained a judgment for $23,600, presumably the amount owed for storage fees, and a decree authorizing the foreclosure of the possessory lien held by Miller. To satisfy the judgment, Miller sold Cybertek’s equipment for $45,000 to a third party in a private sale. (Miller put the proceeds in escrow.)
Counterpunch. Thereafter, Cybertek pursued a counterclaim against Miller for damages due to alleged non-compliance with Indiana’s Uniform Commercial Code in the sale of the equipment. Cybertek’s action sought damages for what it claimed to be the fair market value of the goods - $93,500. At issue was Indiana Code § 26-1-7-210, which deals with the enforcement of a warehouseman’s lien in Indiana.
Knockdown. The Indiana Court of Appeals concluded that defendant Cybertek was correct in that plaintiff Miller didn’t follow the rules when it disposed of the equipment. First, the Court found Miller did not provide the appropriate notice to Cybertek with regard to the sale. Second, the Court found that the sale was not “commercially reasonable” as required by statute. Finally, the Court found that there was sufficient evidence to support the contention that the fair market value of the goods was $93,500, not the $45,000 received in the Miller’s private sale. The opinion provides a road map for parties and their counsel who need to enforce a warehouseman’s lien, including how to establish a proper sale and sale price. Please read the opinion for more details.
Split decision. Although plaintiff/creditor Miller, the warehouse owner, ultimately was defeated by defendant Cybertek, the debtor who did not pay rent, all was not lost. At the end of the day, Miller will forfeit about $25,000, not $93,500. This is because Miller will get a credit for the initial $23,600 judgment it obtained against Cybertek. Furthermore, Miller’s private sale of the equipment, albeit defective, netted $45,000, which will be used to pay Cybertek. $93,500 – ($23,600 + $45,000) = $24,900, the net amount Miller will be out of pocket to Cybertek.
Lest we forget the attorneys’ fees and litigation costs both parties incurred in fighting one another. Neither the trial court nor the Court of Appeals awarded Cybertek attorney’s fees as a part of the judgment against Miller. Cybertek, in the end, probably lost money because it likely spent more than $25,000 in defending Miller’s lien foreclosure claim and in prosecuting its counterclaim. The same can be said for Miller –not only did it lose net $25,000, but it surely lost more when attorney’s fees and litigation costs were considered. The result of this case brings to mind a quote from our sixteenth president, Abraham Lincoln: “Discourage litigation. Persuade your neighbors to compromise whenever you can. As a peacemaker the lawyer has superior opportunity of being a good man. There will still be business enough.” Perhaps the lawyers followed Lincoln’s advice in Miller’s Turnkey. Maybe the parties – the litigants themselves – just didn’t heed it.