Indiana Commercial Foreclosure Law

Indiana County Clerk Liable To Judgment Creditor For Bail Bond Proceeds Released To Judgment Debtor

Lesson. Following the entry of a money judgment, there may be innocent third parties who have money in their possession that they owe to the defendant (aka judgment debtor). If any such third party receives notice of the plaintiff’s (judgment creditor’s) post-judgment claim to such money, the third party should hold the money until the court determines the judgment creditor’s rights to the proceeds. If a third party (known as a garnishee-defendant) pays such money to the judgment debtor, the third party can be liable to the judgment creditor for the amount of money turned over. 

Case cite. Garner v. Kempf, 93 N.E3d 109 (Ind. 2018).

Legal issue. Whether Indiana law permits a judgment creditor to garnish a bail bond that the judgment debtor posted in an unrelated criminal case.

Vital facts. A judgment debtor tendered a cash bail bond in a criminal matter, which was unrelated to the civil matter where the judgment was entered. The judgment creditor tried to garnish the bond to satisfy the unpaid judgment. The clerk of the criminal court, who was named as a garnishee-defendant during proceedings supplemental in the civil case, released the funds to the judgment debtor’s criminal defense attorney. The judgment creditor pursued a claim against the clerk for the amount of the released proceeds.

Procedural history. The trial court ruled that the bond was not subject to garnishment. The judgment creditor appealed all the way to the Indiana Supreme Court, which issued the very comprehensive Garner opinion that is the subject of today’s post.

Key rules.

1. Court clerks are subject to garnishment proceedings.
2. The court that issues the underlying judgment retains jurisdiction over proceedings supplemental, even if there is a parallel action in another court.
3. When a garnishee-defendant receives a summons, it becomes “accountable to the plaintiff in the action for the amount of money, property, or credits in the garnishee’s possession or due and owing from the garnishee to the defendant.”
4. “In effect, upon serving the summons, the judgment-creditor secures a lien on the defendant-debtor’s property then held by the garnishee-defendant.”
5. The garnishee-defendant is liable for paying out funds inconsistent with this lien.

Holding. The Indiana Supreme Court reversed the trial court and held that the clerk was an eligible garnishee-defendant and that the civil judgment was a lien on the criminal bond. The Court went on to find that the clerk was liable to the judgment creditor because the clerk distributed the proceeds before the civil court determined the parties’ rights to them.

Policy/rationale. In Garner, the clerk’s main contention was that she was protected by a separate criminal court order that released the bond to the defendant’s attorney. But the clerk had already received a summons from the civil court in connection with the judgment creditor’s proceedings supplemental. The clerk failed to inform the criminal court of the lien on the bond created by the summons. The Indiana Supreme Court reasoned that the clerk had a duty to hold the cash pending a determination of the judgment creditor’s right to the proceeds to satisfy the judgment. When the criminal judge approved of the defendant’s request to use the cash bond proceeds to pay his defense lawyer, “those proceeds were no longer encumbered to ensure [the defendant’s] appearance at his criminal trial,” at which point the proceeds became subject to the judgment creditor’s preexisting garnishment lien. Since the clerk released the money before the civil court determined the plaintiff/judgment-creditor’s right to the proceeds, the clerk became liable to the creditor for that amount. Please note that Justice David wrote a dissenting opinion that focused on the criminal law aspects of the matters at hand.

Related posts.

• Indiana Supreme Court Rules On Scope Of Trial Court's Authority In Proceedings Supplemental
• Independent Contractor Earnings Are Subject To Garnishment In Indiana

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I represent judgment creditors and lenders in commercial collection actions. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

Post Script: When Can Post-Judgment Collection Efforts Begin In Indiana?

This follows-up last week's post.  Yesterday, I bumped into a lawyer who reads my blog and reminded me that we always must check the local rules of a particular county, including the local smalls claims court rules, for their potential application to a particular situation.  Local rules often supplement, or even trump, the state rules of procedure or case law.  As an example, the Marion County (Indianapolis) Small Claims Court Rules, specifically Rule LR49-SC00-602 provides:

B.  Thirty-Day Rule.  A Motion for Proceedings Supplemental shall not be set until thirty (30) calendar days after the date of judgment, except by order of the Court for good cause shown.

The point is that, in certain Indiana venues, post-collection efforts may not begin immediately.  Thanks to attorney Robert Burt for the feedback on last week's post.  

 

When Can Post-Judgment Collection Efforts Begin In Indiana?

How long must the holder of an Indiana judgment wait before executing on the judgment?  The answer depends on whether the case is in state or federal court.  Two opinions by Magistrate Judge Cherry address that issue and other proceedings supplemental basics:  Artmann v. Center Garage, 2012 U.S. Dist. LEXIS 153966 (N.D. Ind. 2012) (“Artmann I” - .pdf) and 2012 U.S. Dist. LEXIS 160908 (N.D. Ind. 2012) (“Artmann II” - .pdf). 

Procedural posture.  In Artmann I, the U. S. District Court for the Northern District of Indiana entered judgment in plaintiff’s favor, and one day later plaintiff filed its motion seeking to freeze, and collect upon, defendant’s bank accounts pursuant to Ind. Code §§ 28-9-3-4 and 28-9-4-2.  The opinion dealt with plaintiff’s motion and defendant’s corresponding motion to quash plaintiff’s motion. 

14 days.  The defendant contended that plaintiff’s efforts were premature.  Specifically, Federal Rule 62(a) provides for a 14-day stay of execution on a judgment.  The purpose of the rule is to “afford litigants an ample period of time to consider whether to appeal, to file a motion for new trial and/or to seek a stay of execution of judgment.”  Plaintiff argued that the rule did not bar its request for interrogatories and a hold because plaintiff sought only to “preserve” defendant’s property for eventual satisfaction.  Plaintiff stipulated that it would not actually collect any money until after the 14-day stay had expired. 

Yes and no.  The Court concluded that it could not permit garnishment proceedings before the expiration of the 14-day stay.  As such, plaintiff filed its motion too early.  Clearly the Court could not issue any order granting the motion until the stay ended.  Having said that, the ultimate result in Artmann I was a practical one in that the Court allowed plaintiff’s motion to remain pending until the expiration of the stay period.  (I learned that the Court granted plaintiff’s motion on day 15.) 

State law.  Indiana state court Rule 62(A) does not articulate a 14-day automatic stay of execution, or any stay whatsoever.  Historically, the Indiana state rule provided for a 60-day automatic stay, which later evolved into a 30-day stay and ultimately to no stay at all.  As such, the Artmann I holding only applies in federal court proceedings.  Plaintiffs in Indiana state courts may undertake post-judgment collection efforts immediately.  (Note:  In instances of enforcing a foreign judgment in Indiana, the domestication process cannot commence until 21 days after the entry of the judgment in the original [non-Indiana] court.)      

Pro supp basics.  Artmann II dealt with defendant’s contention that plaintiff’s Artmann I motions did not follow certain technical requirements for proceedings supplemental.  The Artmann II opinion provides a nice summary for judgment creditors and their counsel struggling with the nuts and bolts of proceedings supplemental in federal court.  Specifically, judgment creditors need to remain mindful that, under Indiana law, before courts can entertain a garnishment motion under I.C. §§ 28-9-3-4 and 28-9-4-2, creditors must first (or simultaneously) file a separate motion for proceedings supplemental.

Pro supp relief.  Finally, for those wondering what “proceedings supplemental” can accomplish, the Artmann II opinion noted the three fundamental types of relief available:  (1) requiring a judgment debtor (a defendant) to appear in court for an examination as to available property, (2) requiring a judgment debtor to apply particular property to satisfy the judgment and (3) joining a third-party (a garnishee) to the action and requiring that party to answer as to property held by that party for the judgment debtor.   For more posts on garnishment and proceedings supplemental, including freezing bank accounts, please click on the those Categories to your right.

Data Suggests Housing Recovery Complete

Click on the following link for an article from the Jacksonville Daily Record about the status of the recovery from the housing market collapse:  Black Knight data shows the housing recovery finally is complete

The conclusions in the story are consistent with recent comments from one of our mortgage servicer clients.  He told me that virtually all of the foreclosures from the early 2010's have been processed and that the market is back to more normal default levels.

(For a little different spin on the story, here is a link to my 9/6/18 post:  Housing Crisis Revisited In Long-Form Article, With Video)

Mortgage Lien Second In Line, Because Small Claims Court Judgment Never Fully Satisfied

Lesson. Look for a filed satisfaction of judgment to conclusively determine whether a judgment lien has been extinguished. A small claims court judgment, properly indexed and unreleased, will have senior priority over a subsequently-recorded mortgage.

Case cite. Herron v. First Financial Bank, 91 N.E.3d 994 (Ind. Ct. App. 2017)

Legal issue. The issue in Herron was whether a judgment lien was effective as of May 14, 2013, when a small claims court entered its judgment, or as of November 17, 2015, following an appeal of the small claims court’s ruling during proceedings supplemental. If the judgment lien was effective as of the earlier date, then it would have senior priority over the competing mortgage lien. If the judgment lien was not effective until the later date, then the mortgage lien would have first priority.

Vital facts. Herron, a contractor, repaired a church’s roof in March 2011. In 2013, the Lawrence Township small claims court (Marion County) entered judgment for Herron against the church. The Township recorded the judgment in its Judgment Book on May 14, 2013. There was no appeal. Proceedings supplemental ensued and resulted in payments that satisfied the principal amount of the judgment and filing fees. However, on November 14, 2014, the court awarded additional damages to Herron for attorney’s fees and collection costs. Several months later, the small claims court, apparently sua sponte (on its own), rescinded the November 2014 order. Herron appealed that ruling to the Marion Superior Court, and on November 17, 2015, the superior court (a) reversed the small claims court’s rescission of its 2014 damages ruling and (b) entered a $10,000 award for Herron. Meanwhile, in November 2014, First Financial Bank (FFB) entered into a mortgage loan with the church and recorded its mortgage on February 23, 2015 – after the May 2013 Herron small claims judgment but before the November 2015 superior court judgment.

Procedural history. Herron filed an action to foreclose his judgment lien and named FFB as a defendant. FFB contended that its mortgage was senior to Herron’s lien. Both FFB and Herron filed summary judgment motions claiming that their respective liens had senior priority. The trial court determined that FFB’s mortgage had priority and granted FFB’s motion for summary judgment. Herron appealed.

Key rules. Indiana Code 34-55-9-2 provides that a money judgment becomes a lien on the defendant’s real property when the judgment is entered and indexed in the judgment docket in the county where the property is located. Indiana Code 32-21-4-1 states that a mortgage takes priority according to the time that it was filed in the recorder’s office of the county where the property is located. Generally, in Indiana, “priority in time gives a lien priority in right.” 

Holding. The Indiana Court of Appeals reversed the trial court and held that Herron’s judgment lien was first in time and thus senior to FFB’s mortgage.

Policy/rationale. FFB based its argument on the fact that the file of the small claims court contained a November 7, 2014 receipt that showed the 2013 judgment balance to be zero, which suggested that there was no judgment lien as of that date. FFB further asserted that the November 14, 2014 award for fees during proceedings supplemental constituted a new judgment that was later rescinded. According to FFB, therefore, on November 17, 2015, when the superior court overturned the rescission and awarded damages, a second judgment lien was created, nine months after FFB perfected its mortgage lien.

The Indiana Court Appeals rejected each of FFB’s points. Although the record from the small claims court proceedings was not crystal clear, there was nothing “determinative” showing that the original judgment for Herron had been paid in full or was otherwise satisfied or released. Also, through proceedings supplemental, Herron had an ongoing claim for attorney fees and interest that related back to the original judgment. The Court also found that the small claims court’s rescission of its prior fee award did not go into effect because the superior court ultimately overturned the rescission on appeal. In the end, the Court concluded that Herron had a single judgment lien, created May 14, 2013, which had not been satisfied. As such, Herron’s judgment lien preceded FFB’s February 23, 2015 mortgage lien and had first priority.

Related posts.

• Indiana Supreme Court Discusses Proceedings Supplemental
• Indiana Judgment Lien (10 Years) and Judgment Enforcement (20 Years) Statutes Of Limitation
• Will A Mortgage Granted To Fund Renovation Costs Have Priority Over A Pre-Existing Judgment Against A Mortgagor/Purchaser?
• What Is A “Purchase-Money” Mortgage, And Does It Have Priority Over A Pre-Existing Judgment Against The Mortgagor?

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I represent judgment creditors and lenders, as well as their mortgage loan servicers, entangled in lien priority and title claim disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.

12 Years And Counting

On November 1, 2006, at age 38, I placed my first four posts on this blog.  (I was on fire that month, with 12 posts.)  Although my production varies from month to month, on Monday, at age 50, I'll submit my 553rd post.  And I have no plans to stop.  Thanks for reading, for the feedback and for the referrals. 

John