Mortgage Lender Entitled To Attorneys’ Fees Despite Not Foreclosing Loan Against Borrower

Lesson. Assuming a default, a defendant lender need not file a claim to enforce its loan against a borrower to recover attorneys’ fees incurred for litigation impacting its mortgage lien.

Case cite. Edgerock Dev. LLC v. C.H. Garmong & Son Inc., 227 N.E.3d 907 (Ind. Ct. App. 2024)

Legal issue. Whether a judicial determination of a default is necessary to trigger a lender’s right to recover attorneys’ fees under the loan documents.

Vital facts. In Edgerock, a mortgage lender for the developer of a commercial project was caught up in a construction dispute, which forced the lender to engage in mechanic’s lien litigation and incur attorneys’ fees to protect its lien priority. The lender did not itself appear to file a claim to enforce its rights against the developer/borrower under the subject loan, however, despite the fact that the loan was in default. The Court’s opinion sets out the controlling attorney fee provisions in the loan documents.

Procedural history. Among other things, on cross-motions for summary judgment, the trial court ruled that certain mechanic’s liens had priority over the mortgage. The trial court also denied the lender’s request for attorney’s fees. Certain parties, including the lender, appealed.

Key rules.

In Indiana, the so-called American rule applies to claims for attorneys’ fees, meaning that “in general, a party must pay his own attorneys' fees absent an agreement between the parties, a statute, or other rule to the contrary."

But, a “contract allowing for recovery of attorneys’ fees is enforceable, if the contract is not contrary to law or public policy." (By the way, a mortgage is a contract.)

The amount of fees, if any, awarded “is left to the sound discretion of the trial court,” but must be supported by the evidence.

Holding. The Indiana Court of Appeals held that the mechanic’s liens were invalid, which rendered the lien priority dispute moot. Further, the Court reversed the trial court’s denial of the lender’s claim for fees.

    Note: The case has been appealed to the Indiana Supreme Court, which accepted transfer on 5/23/24, Case No. 24S-PL-184, meaning that for now the opinion has been vacated. In the event the Supreme Court disturbs to Court of Appeals’ ruling on attorneys’ fees, I will follow-up.

Policy/rationale. The Edgerock opinion explained that the premise of the challenge to the recovery of fees was that the lender did not seek a judicial finding that the borrower had defaulted under the loan. However, the operative language in the relevant loan documents did not require such a judicial determination. Instead, the wording simply indicated that fees were “due and payable immediately following a default.” Since the two loan defaults, one of which was a maturity default, were uncontested, the Court concluded: “pursuant to the terms of the [mortgage], [the lender] adequately demonstrated that [borrower] had defaulted on the parties' agreement, and, as a result, is entitled to attorney's fees pursuant to the express terms of the mortgage agreement.”

Related posts.

• Commercial Construction Mortgages Stand Tall Over Later-Recorded Mechanic’s Liens In Indiana
• Attorney Fee Awards in Indiana
• Another Indiana Decision Concerning Attorney’s Fees In A Foreclosure Action
• Lender’s Recovery Of Attorney’s Fees Related To Collateral Actions Denied

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Part of my practice involves representing parties in lien-related disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. 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.

What Is A “Body Attachment” And When Does It Expire?

Lesson. A body attachment is a judicial tool that essentially operates as an arrest warrant for compelling a judgment debtor, who is in contempt, to appear in court. These writs may not issue until a prior “show cause” order to appear has been personally served on the defendant, and ignored by that defendant. If validly issued, a writ of body attachment must sufficiently identify the defendant and state the writ’s expiration date, which is 180 days after its issuance.

Case cite. Murphy v. Cook, 225 N.E.3d 217 (Ind. Ct. App. 2023)

Legal issue. Whether a writ of body attachment was valid.

Vital facts. A small claims court entered a money judgment against Defendant. The court issued an order requiring Defendant to appear in court to answer as to her assets. Having failed to appear, the court next issued a “show cause” order that once again required Defendant to come to court and explain her prior failure to appear. What followed was the court’s issuance of a writ of body attachment. Over a year later, a sheriff’s deputy stopped Defendant because her license plate was not visible. Dispatch advised the deputy that there was an active warrant for a body attachment, so the deputy arrested Defendant, who spent the weekend in jail.

Procedural history. Defendant later moved to set aside the writ of body attachment. The trial court denied Defendant’s motion.

Key rules. In instances of collection proceedings, a writ of body attachment essentially is an arrest warrant for a judgment debtor to be hauled into court. For example, if a judgment debtor failed to be present for post-judgment collection proceedings, the court could issue a body attachment.

Indiana Trial Rule 64(A) controls. Subsections (2) and (4) were at issue in Murphy. Two key components of the rule are (a) the pre-writ “show cause” order must be served upon the defendant personally and (b) the writ automatically expires after 180 days, which expiration must appear on the face of the writ. In addition, the writ must sufficiently identity the defendant.

Holding. The Indiana Court of Appeals reversed the trial court’s order and remanded the case for purposes of setting aside the body attachment.

Policy/rationale. Writs of body attachment are a judgment creditor’s last resort to get a judgment debtor in court to answer as to his or her assets. They usually come into play after the judgment debtor has ignored at least two orders to appear. In Murphy, however, not only were the requirements of Rule 64(A) not satisfied, but the writ, even if valid, had expired at the time of the arrest. The Court’s opinion, prompted by an appeal handled by Indiana Legal Services, a charitable organization, serves as a cautionary tale:

[we] urge [trial] courts to be mindful of the provisions and requirements of Trial Rule 64(A) with respect to issuing a body attachment including the provision that such an attachment for a person expires 180 days after it is issued and the requirement that the expiration date shall appear on the face of the writ.

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Part of my practice involves representing parties in post-judgment collection proceedings. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. 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.

When Does The Defense Of “Laches” Apply?

Lesson. Laches, based on the maxim that equity does not aid those who slumber on their rights, does not apply to claims for the recovery of money (i.e. promissory note enforcement). The doctrine of laches may come into play in actions for equitable relief (i.e. mortgage foreclosure), however. Among other things, a defendant must show a delay that was unreasonable and that caused prejudice or injury.

Case cites. Forty Acre Coop. v. Delliquadri, 225 N.E.3d 175 (Ind. Ct. App. 2023) and Foster v. First Merchs. Bank N.A., 235 N.E.3d 1251 (Ind. 2024)

Legal issue. Whether the doctrine of laches operated to bar a plaintiff’s claim.

Vital facts. The recent Forty Acre and Foster cases have materially different sets of facts, but both disputes involved the enforcement of promissory notes and how the defense of laches might affect the outcome. Both cases dealt generally with delays by the plaintiffs in asserting their rights.

Procedural history. In Forty Acre, an Indiana Court of Appeals opinion, defendant sought to set aside a default judgment based on laches. Foster, a decision by the Indiana Supreme Court, examined a trial court’s order dismissing an action by junior lienholders against a bank. The junior lienholders claimed the bank failed to conduct a commercially reasonable sale of the underlying loan collateral. The Foster dismissal in favor of the bank was grounded on laches.

Key rules.

The Foster opinion noted that the doctrine of laches “bars a plaintiff from seeking equitable relief.”

The doctrine's "principal application was, and remains, to claims of an equitable cast for which the Legislature has provided no fixed time limitation." Because the [junior lienholders] are seeking legal relief in the form of money damages, they argue that laches does not apply. The bank does not squarely address this argument, responding instead that the [junior lienholders] "abandoned" their claim and thus laches applies as an "equitable defense." But "abandonment" is not an explicit element of laches.

The Forty Acre opinion summarized Indiana’s doctrine of laches:

The doctrine of laches may bar a plaintiff's claim if a defendant establishes the following three elements of laches: (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. A mere lapse of time is not sufficient to establish laches; it is also necessary to show an unreasonable delay that causes prejudice or injury. Prejudice may be created if a party, with knowledge of the relevant facts, permits the passing of time to work a change of circumstances by the other party.

Black’s Law Dictionary helps explain the important distinction between an “equitable” claim and a “legal” claim. “Equitable relief” means “that species of relief sought in a court with equity powers as, for example, in the case of one seeking an injunction or specific performance instead of money damages.”

Holding. The Court of Appeals affirmed the trial court’s denial of defendant’s motion to set aside a default judgment in Forty Acre. In Foster, our Supreme Court reversed the trial court’s dismissal of the junior lienholder’s case. Both opinions rejected the application of laches.

Policy/rationale.

The Indiana Supreme Court in Foster articulated its rationale as follows:

The [junior lienholders] seek damages for the bank's alleged failure to conduct a commercially reasonable sale—a claim for legal, not equitable, relief. The bank has not identified a single case from our appellate courts, and we are aware of none, in which laches barred an otherwise timely legal claim for money damages. Though we recognize that other jurisdictions have held that laches can apply to some legal claims ... the U.S. Supreme Court has consistently "cautioned against invoking laches to bar legal relief." The bank has provided no reason either below or on appeal for us to disregard that caution here.

The Court in Forty Acre explained its decision as follows:

There is no indication that [Plaintiff], with knowledge of the relevant facts, permitted the passing of time to work a change of circumstances by the other party…. Moreover, we see nothing in the record that could reasonably be characterized as an implied waiver of a known right by [Plaintiff]…. Punishing [Plaintiff] for granting [Defendants] an additional two months in which to respond to [the] complaint—when they were under no obligation to do so and when there is no evidence that [Defendants] were prejudiced thereby—would be anything but equitable.

Related posts.

• Apparent Windfall Not Enough to Set Aside Federal Foreclosure Sale or Negate Deficiency Judgment
• Are Borrowers Entitled To Jury Trials On Their Counterclaims?

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My practice involves representing parties in disputes arising out of loans that are in default. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. 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.

Marion County (Indianapolis) Sheriff's Office Updates

Teena Willard, who essentially headed up the Marion County Civil Sheriff's foreclosure division, retired in June.  We wish Teena well.

Lesley Lavender and Funke Idowu have taken over the reins.  All emails must be sent to them at:  [email protected].

The office is at the new Indianapolis Justice Center, 695 Justice Way, Indianapolis, IN 46203.  The phone number is:  317-327-2459.  

The foreclosure division rolled out an updated website in June.  Click here for the link.  The site is very helpful and should be studied by any party or lawyer involved in a sheriff's sale in our county.  The site provides virtually all the forms and information one needs, and my experience has been that the staff is always been helpful in answering questions attorneys and bidders might have. 

As a reminder, not all of Indiana’s 92 counties have a website as extensive as Marion County’s.  But, many of our sheriff’s offices do in fact have a sale web page. Make sure to investigate in advance of your sale. Just as importantly, every county has a sheriff’s sale contact person willing and able to assist in preparing for a foreclosure sale. Finally, don’t forget that local rules, customs and practices control the nitty gritty of the sale process.

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Part of my practice involves representing parties at sheriff’s sales. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. 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.

Plaintiffs Cannot Lock Down Defendants’ Assets By Simply Filing A Lawsuit

Lesson. As a general rule, a plaintiff cannot inquire about a defendant’s assets or seek a security bond until a judgment has been entered.

Case cite. Busbin v. Excavator's Transp. LLC, 2023 U.S. Dist. LEXIS 202598 (S.D. Ind. 2023)

Legal issue. Whether a plaintiff can attach a defendant’s property to secure a yet-to-be-entered judgment by filing a simple motion.

Vital facts. The underlying case arose out of Plaintiff’s employment-related claims against his employers.

Procedural history. Plaintiff moved to set a security bond and/or attach certain property of Defendants to secure a future judgment. More specifically, Plaintiff asked “the Court to order Defendant … to appear at a hearing and bring information regarding [Defendant’s] bank accounts, real and tangible property, and people or entities that owe Defendants money.”

Key rules. Plaintiff cited to Indiana Trial Rule 64 "Seizure of person or property" in support of the motion.

Defendant pointed to Indiana Code §§ 34-25-2-1 and 4 related to “prejudgment attachment.” Section 4 “requires that a plaintiff seeking remedies such as those sought by Plaintiff make an affidavit showing: (1) the nature of the claim; (2) that the claim is just; (3) the amount to be recovered; and (4) that one of the grounds for an attachment enumerated in Indiana Code § 34-25-2-1 is present.”

I wrote about Section 1 in my 11/20/23 post The Challenges Of Obtaining Prejudgment Attachment.

Holding. The Court denied Plaintiff’s motion.

Policy/rationale. Plaintiff failed to meet the high burden of establishing the right to pre-judgment attachment. The Court reasoned:

[The applicable law]—in addition to common sense—support the conclusion that Plaintiff cannot simply file a motion, cite to Indiana Trial Rule 64, and insist that Defendants be ordered into court with bank and other records, secure a bond, and/or have property attached based solely upon the fact that Plaintiff has filed suit against Defendants. Plaintiff needs to make a more significant showing to justify the relief sought, and Plaintiff has fallen far short of doing so.

Related posts. My blog’s category Attachment/Garnishment has several posts dealing with these issues.
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I represent parties involved in commercial collection actions. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. 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.

Reminder: As A Defendant Lien Holder, Answer The Complaint To Protect Your Interests

My June 18, 2008 post No Answer To Complaint = No Lien On Property remains true over 15 years later.

Irmscher Suppliers v. Capital Crossing, 887 N.E.2d 97 (Ind. Ct. App. 2008) illustrates how a defendant lien holder’s failure to answer another lien holder’s complaint can result in the termination of the defendant’s lien.

Complaint. Irmscher, a contractor, recorded a mechanic’s lien on the subject property. Capital Crossing, a mortgage lender, recorded a mortgage lien on the subject property a few months earlier. Capital Crossing named Irmscher as a defendant in its foreclosure action to answer as to its interest in the real estate.

Response, or lack thereof. Counsel for Irmscher appeared in Capital Crossing’s foreclosure case, but Irmscher never filed an answer to the complaint. Capital Crossing filed a motion for summary judgment seeking, among other things, a determination that its mortgage lien was a first lien on the subject real estate. Although Irmscher filed a brief in opposition to the motion and a designation of evidence, the Court’s opinion did not mention any evidence tendered by Irmscher. Irmscher’s position was that the case should be decided in a separate foreclosure action filed by Irmscher. Counsel for Irmscher did not appear at the hearing on Capital Crossing’s summary judgment motion. The trial court entered a judgment of foreclosure and decree of sale, finding that Irmscher had no interest in the subject property. Irmscher appealed.

Silence equals admission. On appeal, Irmscher contended that the trial court erred when it found Irmscher had no interest in the real estate. The Court of Appeals disagreed: “Irmscher did not file an answer to Capital Crossing’s amended complaint and therefore admitted, at the very least, to the superiority of Capital Crossing’s mortgage.” The Court cited an Indiana Supreme Court decision from 1886:

As applicable however, to a suit to foreclose a mortgage, and other kindred suits in the nature of a proceeding in rem, where a party is made a defendant to answer as to his supposed or possible, but unknown or undefined, interest in the property, we think that, as against him, a default ought to be construed as an admission that, at the time he failed to appear as required, he had no interest in the property in question, and hence as conclusive of any prior claim of interest or title adverse to the plaintiff.

Lesson. When a plaintiff lien holder files an action and asserts facts placing the validity, priority or amount of a lien in issue, a named defendant must file an answer to assert whatever interest it has in the property. If it fails to do so, the lien of the defendant will be extinguished as a matter of law. In Irmscher, the Court of Appeals held “in this case, although Irmscher’s counsel entered an appearance, Irmscher failed to file an answer asserting whatever interest it had in the property. As such, we conclude that the trial court did not err in finding that Irmscher had no interest in the property.”  Irmscher is still good law in Indiana. Thus, if you have a lien and are named as a defendant in a foreclosure lawsuit, you need to appear in the action if you wish to preserve your interest in the subject real estate. If you ignore the suit, the court can extinguish your lien through a default or summary judgment.

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Part of my practice involves representing parties in lien-related disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. 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.