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In Indiana, mortgage foreclosures must be judicial (through the court system).  As a general proposition, real estate collateral must be sold, pursuant to a judge's decree, by the county civil sheriff's office. 

An alternative.  Although not commonly utilized, Indiana has a statute giving parties the option, in mortgage foreclosure actions, to conduct sheriff's sales through a private auctioneer.  In other words, an outside auctioneer can hold the sheriff's sale on the sheriff's behalf.  The statute is Indiana Code 32-30-10-9(b), which states that either the debtor or a creditor may petition the court to require the property to be sold "by the sheriff through the services of an auctioneer" if: (1) the court determines a sale is economically feasible OR (2) all creditors agree to both the sale method and the auctioneer's compensation.  Even if you can't get all the creditors to consent to the method, I think most courts would permit the use of a private auctioneer absent unique, compelling reasons to the contrary. 

Costs.  The auctioneer's fee must be reasonable and stated in the court's order.  In the unlikely event such a sale occurs without the consent of all creditors, and if the sale price is less than the judgment, then the auctioneer only is entitled to $100 in fees plus any out-of-pocket advertising expenses.  Amounts due the auctioneer (fees and expenses) must be paid as a cost of the sale from the proceeds before the payment of any other payments.  So, as a practical matter, the auctioneer is paid by the senior lien holder.  This is perhaps the major, if not only, downside to a privately-conducted sale - the fees of the auctioneer.  So, be sure to explore the cost issue before even requesting such relief from the court.  Although civil sheriff's fees may vary from county to county, generally speaking an auction conducted by a sheriff is going to be cheaper than one conducted by a private auctioneer.  Needless to say, a lender's valuation of the collateral will play a significant factor in the decision to pursue the course of action afforded by I.C. 32-30-10-9. 

A potentially good thing.  I.C. 32-30-10-9(b) is a nice option for lenders foreclosing on commercial real estate collateral in Indiana.  Some Indiana counties may not hold regular sheriff's sales, or their civil sheriff's offices may not be well-equipped to, or particularly interested in, conducting sophisticated sales of commercial real estate.  Or, a private firm may be in a better position to market the collateral before the auction.  Indeed there are a multitude of factors that may go into a lender's decision to utilize a private auctioneer versus a civil sheriff.  The option should be analyzed on a case-by-case basis.  As a lender seeking to squeeze as much cash as possible out of an Indiana sheriff's sale of commercial property, you should be mindful of your right to choose a private auctioneer and conduct a cost/benefit analysis accordingly.      


On February 28, 2007, the Indiana Court of Appeals decided a case about the personal liability of guarantors/accommodation parties in Keesling v. T.E.K. Partners, 2007 Ind. App. LEXIS 358.  If you’re a lender that modifies deals, or enforces loans that have been reworked, Keesling is instructive.

Background.  In Keesling, an Indiana commercial foreclosure case, there were multiple parties to an installment note and mortgage related to the development of a residential neighborhood.  Three entities and four individuals in their personal capacities signed the original note of $300,000.  (There were no guaranties.)  When the note came due, there was approximately $50,000 left to be paid.  Some, but not all, of the original parties entered into a second note that took into consideration the balance remaining of the original note and about another $50,000.  The parties to the second note ultimately defaulted, and the plaintiff assignee, who held the note and mortgage, sued everyone, including the original signatories.  The defendants relevant to this article did not know about or consent to the execution of the second note.  They contended that they merely were accommodation parties on the original note and that, because the second note constituted a material alteration of the original obligation, they should be discharged from further personal liability under either note.  The Court agreed.

Guarantor vs. accommodation party.  The Indiana Court of Appeals labeled the individuals who signed the original note in their personal capacity as “accommodation parties” pursuant to the definition in Indiana’s UCC, Article 3.1:  I.C. 26-1-3.1-419.  An accommodation party, according to the Indiana UCC, is someone who signs an instrument for the purpose of incurring liability on the instrument without being a direct beneficiary of the value given for the instrument.  Keesling at 7.  As a practical matter, particularly for purposes of enforcement, an accommodation party essentially is the same as a guarantor, the primary difference being that a guarantor signs a separate instrument – a guaranty.  (Also, accommodation parties, sometimes called co-makers or co-borrowers, may have available to them common law surety defenses - a topic I’ll tackle another day.)  The Court in Keesling concluded that the subject defendants signed the original note but were not direct beneficiaries of the value given for the instrument.  So, the Court deemed them to be accommodation parties, although the opinion also referred to them as guarantors and applied general guaranty law.   

Material alteration.  The Court noted that, generally, a guaranty is a promise to answer for the debt and default of another.  When parties cause a material alteration of an underlying obligation, without the consent of the guarantor, the guarantor is discharged from further liability.  Indiana defines a material alteration as a “change which alters the legal identity of the principal’s contract, substantially increases the risk of loss to the guarantor, or places the guarantor in a different position.”  Keeling at 6-7.

The Keesling illustration.  The plaintiff basically tried to characterize the second note as a refinance of the original note.  Not so fast, said the Court.  The second note purported to add accounts payable of other parties, and it capitalized interest due on the original note.  “In itself, this capitalization of interest was a material alteration.”  Id. at 10-11.  So, the second note not only added new debt but increased the total principle draws beyond the original amount of the note.  Significantly, the alterations occurred without the knowledge or consent of the parties alleged to be personally liable.  The Court held that the alterations were material and that the defendants were “not chargeable with the second note, a new agreement which did not include their signatures.”  Id. at 13.  The Court also discharged the defendants from any liability as to the original note. 

Morals of the story.  If as a lender you intend to refinance or modify the original deal, each and every party you want to answer for the debt should sign off on the new loan documents.  This is particularly true if you materially alter the original obligation.  The lesson is a simple one and, maybe to most of you reading this, an obvious one – get the guarantors to sign another guaranty or get the accommodation parties to sign the second note.  Lenders should view the matter as an entirely new transaction. 

On the flip side, if you’re a lender who acquired, perhaps through an assignment, a loan that has been modified in some fashion, as was the case in Keesling, you should research and identify all individuals that might be deemed accommodation parties or guarantors.  Because your institution may not have originally documented the transaction, obtain all the loan papers and study the deal’s history.  If there was not a material alteration of the original debt, missing signatures or guaranties may not be fatal.  To maximize your financial recovery, you should consider the possibility of pursuing anyone who signed any of the loan documents prepared throughout the life of the deal.


Lock Realty Corp. v. U.S. Health LP, which was the backdrop of my December 14, 2006 post, continues to be a lawyer’s dream in terms of complexity and challenges.  The case also continues to be educational for creditors that need to protect their rights in deals gone bad.  The lawsuit, which is pending in the Northern District of Indiana under case number 3:06-cv-487, involves six different law firms, as well as the U.S. Attorney’s Office, and nine parties.  The February 27, 2007 opinion from Judge Robert L. Miller, Jr. addresses a priority dispute over accounts receivable, specifically Medicare receivables. 

The parties.  In this piece of the case, secured creditors National City Bank (“Nat City”) and Health Care Services (“HCS”) battled judgment creditor Lock Realty.  The secured creditors sought an order directing AdminiStar Federal, the entity responsible for processing the Medicare claims of Americare (a nursing home business), to pay them funds that represent their secured interests in the A/R of Americare.  Lock at 1-2.  HCS provided housekeeping services for Americare nursing homes and, in lieu of immediate payment, took a secured interest in Americare’s A/R.  Nat City took an interest in Americare’s A/R to secure payment under a loan agreement with an affiliate of Americare.  In November of 2005, before Lock Realty became a judgment creditor, Nat City and HCS perfected their security interests through the filing of appropriate financing statements with the Indiana Secretary of State.

Priority.  A prior perfected security interest is superior to a judgment lien.  SeeInd. Code 26-1-9.1-317 and 322 HCS and Nat City filed appropriate financing statements with the Secretary of State.  They perfected their security interests in Americare’s A/R before Lock Realty became a judgment creditor.  As such, HCA and Nat City had superior claims to the funds.  Id. at. 5.

Validity:  the anti-assignment statute.  The more meaty issue related to the validity of the security interests in the first place.  Lock Realty argued that the funds at issue were Medicare payments and that the federal “anti-assignment” statute rendered the interests in the A/R unenforceable.  The opinion gets into an involved and technical discussion of the anti-assignment statute, 42 U.S.C. 1395g(c).  Generally, the statute prohibits Medicare funds from being paid directly to someone other than the provider.  The statute does not, however, prohibit someone other than the provider from receiving the funds if they first flow through the providerId. at 3.  As a fundamental proposition, therefore, lenders can secure loans by Medicare receivables.  Id. at 4.  In Lock, neither secured party had a right to file a claim for direct payment of Medicare funds.  The rights flowed through the medical provider.   “[N]either [HCS nor Nat City] could receive Medicare funds pursuant to their arrangement without subsequent judicial enforcement of the security agreement.”  Id. at 9. 

Lien enforcement.  Whether and how the subject security interests could be enforced was a critical question in Lock.  Judge Miller held that, although federal law preempts non-judicial enforcement of the such security interests under the UCC, HCS and Nat City ultimately could receive direct payment by court order.  The financing arrangements of HCS and Nat City were valid and in accord with the anti-assignment statute.  Judge Miller merely enforced the security agreements.  His court-ordered assignment, which directed payment from AdminiStar to the secured parties, did not violate the anti-assignment statute.  Id. at 9-10.

Cliff notes.  Judge Miller’s February 27 opinion teaches us that (1) a prior security interest is superior to a judgment lien, (2) a lender can take a valid security interest in the Medicare A/R of a medical provider and (3) the enforcement of the security interest – the right to directly receive the money – requires a court order.

If you’re a commercial lending institution with loans secured by governmental Medicare payments, you or your lawyer should study Judge Miller’s opinion further.  Also, stay tuned for additional court commentary that may arise out of this fairly complex lawsuit.  Lenders who deal with nursing home borrowers and related entities will continue to learn from the issues being litigated in Lock.


Lenders wanting to freeze, before judgment, the assets of a fraudulent borrower, or a borrower trying to avoid collection efforts, will be interested in some of the rules outlined by the Indiana Court of Appeals in Squibb v. State of Indiana, 860 N.E.2d 904 (Ind. Ct. App. 2007), decided January 31, 2007. 

Hide and go seek.  The case arose out of an alleged investment scam in which the Securities Division of the State of Indiana targeted Marietta and Thomas Squibb, husband and wife.  About thirty-five investors had purchased promissory notes from the Squibbs either for the development of KOA camp grounds in Michigan or a condo project in Florida.  The investors were being paid late or not at all.  The matter dealt with alleged unregistered securities in violation of the Indiana Securities Act, so the State got involved.  Some of the facts that warranted prejudgment relief in the State’s favor included evidence that Mr. and Mrs. Squibb (1) had recently sold their home and were in the process of closing various bank accounts, (2) were living in an apartment and (3) had a bank account that had been open for six weeks and then closed.  Generally speaking, “it was becoming difficult for the State to track the Squibbs’ assets.”  Squibb at 15-16. 

Prejudgment attachment.  I discussed this remedy in my December 14, 2006 post Attachment:  The 8 Badges of Fraud.  Squibb is another opinion that comments upon Ind. Code § 34-25-2-1 and reminds us that attachment may be ordered only when the underlying action is for the recovery of money, which invariably will be the case in commercial foreclosure or lien enforcement suits.  In addition, at least one of six other statutory requirements must be met: 

1.  the defendant is a foreign corporation or a non-resident of Indiana;
2.  the defendant is secretly leaving or has left Indiana with the intent to defraud the defendant’s creditors;
3.  the defendant is concealed so that a summons cannot be served upon it;
4.  the defendant is removing or is about to remove the defendant’s property subject to execution, outside Indiana, not leaving enough behind to satisfy the plaintiff’s claim;
5  the defendant has sold, conveyed or otherwise disposed of the defendant’s property subject to execution with the fraudulent intent to cheat, hinder or delay the defendant’s creditors; or
6.  the defendant is about to sell, convey or otherwise dispose of the defendant’s property subject to execution with the fraudulent intent to cheat, hinder or delay the defendant’s creditors. 

(My December 14, 2006 post focused upon number 5.)  Again, only one of these needs to be established in order to obtain relief.  See also, T.R. 64(B).

Witness testimony versus affidavit.  An “affidavit” is a written statement of facts that is confirmed by the oath of the party making it.  It’s written testimony, as opposed to oral testimony in a courtroom or before a court reporter.  Affidavits are appropriate for many kinds of pre-trial proceedings, including motions for prejudgment attachment, even though they generally are inadmissible at trial.  “At this preliminary hearing, which is far from determinative of the eventual outcome of the suit, traditional rules of evidence do not apply, and affidavits, hearsay, and other evidence that may be later deemed inadmissible at trial may be received and considered as evidence.”  Squibb at 15, n. 8.  This rule is significant because a representative of the lender arguing for prejudgment attachment need not appear in court to testify in support of the motion.  Filing affidavits in lieu of live testimony saves time and expense.  (A lender or its lawyer may conclude it’s in the lender’s best interests to produce a live witness, however.)   

Prejudgment garnishment.  I.C. § 34-25-3, cousin to the attachment statute, governs prejudgment garnishment, which generally applies to property (usually money) held by third parties, like a bank.  (Attachment, on the other hand, generally relates to property held by the defendant/debtor.)  The defendants in Squibb correctly noted that the statute limits prejudgment garnishment to “personal actions arising upon contract” and that the underlying action was not such a case.  However, Indiana Trial Rule 64(B)(3), which also applied, authorizes the relief when the plaintiff is “suing upon a claim for money, whether founded on contract, tort, equity or any other theory . . ..”  The Indiana Court of Appeals held that the trial rule, which is broader in scope, carried the day.  (Memo to lawyers:  don’t forget the trial rules when searching for legal remedies.) 

Marital home not exempt.  Here is another tidbit from Squibb.  Mrs. Squibb argued that the marital home, which was held with her husband in tenancy by the entireties, was not subject to execution and therefore could not be attached.  The Indiana Court of Appeals, citing to I.C. § 34-55-10-2(c)(5), rejected the argument and concluded that, because both spouses were involved in the legal wrong, their home was subject to execution.  So when there is evidence that spouses are jointly liable in a case, the marital home is available to satisfy the judgment.  Squibb at 16, n. 9. 

Although the Squibb opinion dealt with securities violations, the remedies and procedures apply with equal vigor to commercial lenders who suspect a non-paying borrower is in the process of liquidating or hiding assets.  A motion for prejudgment attachment, for prejudgment garnishment, or both, may facilitate or increase a lender’s monetary recovery.


A recent federal court case addressed an Indiana writ of assistance, an infrequently-used yet useful tool for commercial lenders and judgment creditors who have acquired title to real estate at a sheriff’s sale but are having trouble getting possession.  The opinion, dated February 16, 2007, is from Judge Tinder of the Southern District of Indiana.  Here's a .pdf: DempseyOpinion.pdf.  The legal “drama” involved mortgagee Chase and mortgagor Dempsey.

Writ of assistance.  “Writ” is a fancy word for a court order “requiring the performance of a specified act, or giving authority to have it done.”  Black’s Law Dictionary.  A “writ of assistance” is a particular kind of court order “to transfer real property, the title of which has been previously adjudicated, as a means of enforcing the court’s own decree.”  Dempsey at 15.  In other words, the writ compels compliance with a prior order that directed action, such as the transfer of possession of real property. 

Indiana Trial Rule 70(A).  Writs of assistance are governed by T. R. 70(A), which states in part:  “When any order or judgment is for the delivery of possession, the party in whose favor it is entered is entitled to a writ of . . . assistance . . . directing the sheriff or other enforcement officer to deliver possession upon application to the clerk.”  Writs of assistance avoid the unnecessary expense and delay of the filing of a new lawsuit because the relief simply is triggered by an “application” (a motion) filed in the original action.  The application is a supplemental proceeding to enforce a prior court order.  The writ is enforced, in most cases, by the sheriff.  Harvey, Indiana Practice Series, Volume 4(A), Section 70.3.

The Dempsey circumstances.  The litigation concerned a property used by Dempsey and his professional service corporation as an office, which contained two additional rental units.  Chase held a mortgage on the property, but the underlying state court case was not a mortgage foreclosure action.  Chase became involved when a judgment creditor compelled a judicial sale of Dempsey’s building.  Chase ultimately purchased the property by bidding its indebtedness at the sheriff’s sale.  The problem was that Dempsey would not vacate the premises.  So, Chase petitioned the state court for a writ of assistance to take possession of the property.  Chase got the writ, and a Marion County Sheriff kicked Dempsey and his two tenants out.  In the subsequent federal court action, Dempsey contended that he should be awarded the property back, or at least compensated for the loss, due to the allegedly improper execution of the writ. 

Commercially unreasonable?  A few days before the July 19, 1995 eviction date, Dempsey left a phone message with Chase explaining that the visitation for his deceased cousin was July 19 and that the funeral was the next day.  Dempsey wanted more time.  His sympathy pleas were ignored, however.  In the federal court case, Dempsey argued it was “commercially unreasonable” for Chase not to wait a couple days before taking possession of the property.  Dempsey based his position on a standards found in Indiana’s Uniform Commercial Code.  For instance, one section in the Code requires the disposition of collateral after default to be done in a “commercially reasonable” manner.  I.C. 26-1-9.1-610.  The execution of a writ of assistance and the disposition of collateral are two different things, however.  Here, the sheriff already had disposed of the collateral via a sheriff’s sale.  Besides, Article 9.1 of the UCC “does not apply to writs of assistance anyway.”  Dempsey at 15, n.8.

Game over.  Judge Tinder held that there is no requirement to execute a writ of assistance in a commercially reasonable manner.  The sheriff has the “right and duty” to execute the writ immediately upon receiving it.”  Dempsey at 15.  Thus there was no obligation under Indiana law for Chase to wait a few extra days due to a death in Dempsey’s family.  “Chase’s right to the property had already been adjudicated.  Dempsey could have avoided his trouble by moving out voluntarily and promptly when Chase obtained title to the property as opposed to forcing Chase to utilize the Sheriff’s Department to enforce the court’s decision.”  Id.  The Dempsey decision is important because it rejects a reasonableness standard, or any standard for that matter, for the execution of writs of assistance.  Once the writ is issued, the party’s over.  The writ should be executed immediately.  In practice, execution will depend upon the availability of the civil sheriff, but execution will not depend upon the sob stories of the judgment debtor. 

Go get a writ.  If you’re a foreclosing commercial lender or judgment creditor, if you have a foreclosure decree, if you acquired the subject property at a sheriff’s sale and if the borrower/judgment debtor will not vacate the premises, your remedy in Indiana is a writ of assistance under T. R. 70(A).  The county sheriff has a duty to execute the writ immediately and without regard to commercially reasonable standards.