Indiana Delinquent Sewer Fee Liens

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.   

IBJ: No Word On Payton Wells Buyer

The Indianapolis Business Journal continues to keep tabs on the status of the Payton Wells foreclosure case:  No word yet on buyer for Payton Wells property. 

I posted about this matter on January 28, 2007, Payton Wells Auto Dealerships Are The Subject Of A Commercial Foreclosure Action, and again on February 27, 2007, Payton Wells Update:  Status Quo. 

One thing secured lenders can learn from this case is how long the commercial foreclosure and liquidation process can take in Indiana.  Soon, it will be two years in the Wells matter.  

 

IBJ Article On Charter Homes-Related Mortgage Scheme

Cory Schouten's 10-18-08 in-depth account of foreclosures upon twenty Charter Homes properties is worth the read, especially if you're interested in residential mortgage-related fraud.  Here is a link to the IBJ report:  Mortgage Scheme Unravels.  A client of ours, an electrical contractor, is one of many firms that have been harmed by this case. 

Marion County (Indianapolis), Indiana Tax Sales

Today's Indianapolis Star has an interesting article about Marion County's annual tax sale, which was held yesterday:  It's A Land Rush -- In Indianapolis.  FYI - tax sales are held once a year by the County Treasurer; foreclosure sales are held once a month by the County Sheriff.  If you would like to learn more about Indiana sheriff's sales, including those in Marion County, please click on my 4-14-08 post, Indiana Sheriff's Sales - Local Rules, Customs and Practices Control.     

Guarantor Contribution Claims And The Meaning Of “Joint And Several Liability”

If by chance you want to learn about contribution claims between guarantors, I recommend reading the September 29, 2008 opinion in Balvich v. Spicer, 2008 Ind. App. LEXIS 2117 (Ind. Ct. App. 2008) (Balvich.pdf).  The Court details Indiana’s laws of contribution, including the applicable statute of limitations.  Although contribution does not directly concern secured lenders, the related concept of joint and several liability does. 

Contribution, generally.  A suit for contribution involves the partial reimbursement of one who has discharged a common liability.  “The doctrine of contribution rests on the principle that where parties stand in equal right, equality of burden becomes equity.”  The right of contribution “operates to make sure those who assume a common burden carry it in equal portions.”  As a basic example, if one of three guarantors paid a lender $100,000 to satisfy a deficiency judgment, then that guarantor could sue the other two guarantors to recover their pro rata portion of the $100,000.

Joint and several liability, defined.  As I read through the Balvich case, it occurred to me that it might be useful to explain what “joint and several” liability means.  If you deal with commercial foreclosures, you may be familiar the “joint and several” terminology in the context of a judgment against multiple guarantors.  When a court enters a money judgment against more than one guarantor, one will see language like:

Lender hereby is granted judgment in its favor and against the defendants, Guarantor I, Guarantor II, and Guarantor III, jointly and severally, with regard to the Guaranties, in the amount of . . ..

There were multiple guarantors in Balvich.  The Court of Appeals, relying upon Indiana Trial Rule 54(E), noted generally that a judgment against two or more persons, jointly and severally, permits “enforcement proceedings jointly or separately against different parties or jointly or separately against their property.”  The all-important Black’s Law Dictionary defines “joint and several liability” as:

A liability is said to be joint and several when the creditor may sue one or more of the parties to such liability separately, or all of them together at his option.  A joint and several . . . [promissory] note is one in which the obligors or makers bind themselves both jointly and individually to the obligee or payee, so that all may be sued together for its enforcement, or the creditor may select one or more as the object of his suit . . ..

Significance of joint and several liability to secured lenders.  In a case of joint and several liability among multiple guarantors, lenders can pick and choose which guarantors to go after for the entire amount owed.  For example, if there are three guarantors, but investigation discloses that two of them are judgment proof, one can opt to chase only the solvent guarantor for all of the unpaid debt.  Plaintiff lenders in Indiana would not be required to sue all three, and lenders would not be limited to a recovery of a specific co-guarantor’s pro rata portion. 

Indiana's Democratic Gubernatorial Candidate Long Thompson Proposes Questionable Foreclosure Plan

This is not a political blog, and I generally do not write about residential or consumer issues.  From time to time, however, there is political news targeted mainly to the consumer that I feel may be of interest to secured lenders who deal with business debts.  Today's Indianapolis Star article "Long Thompson Offers Plan To Reduce Foreclosures" is one of those news stories.

Ms. Long Thompson's proposal includes items that could adversely affect a business lender's efforts to foreclose on commercial properties in a timely and cost-effective manner.  It first bears mentioning that, as noted in last week's post, Indiana is a judicial foreclosure state.  Relatively speaking, Indiana foreclosures already involve court-based delays and litigation-related costs that cut against lenders and in favor of borrowers. 

Nevertheless, Ms. Long Thompson wants to require borrowers and lenders to mediate before the Court can enter a judgment and order a sheriff's sale.  In Indiana, mediation is a non-binding settlement conference that brings the parties and lawyers face-to-face and involves an independent intermediary.  Mediators (and Courts) can't force parties to settle, however.  Moreover, in my experience, filing a suit to foreclose usually is the lender's last resort.  Contrary to popular opinion, in the vast majority of cases, lenders don't want to foreclose.  They prefer to work something out (settle).  My point is that efforts will have been made to settle the case before the foreclosure proceedings have even begun, and indeed such efforts can continue after suit is filed.  To mandate that lenders, against their will, incur additional delays and expense to formally mediate would, in all due respect to Ms. Long Thompson, seemingly be a waste of time and money.          

The proposal also seeks to extend the grace period, from three months to four months, between when a plaintiff/lender/mortgagee files the lawsuit and when the plaintiff can request a sheriff's sale (post-judgment).  This isn't a big deal, especially in commercial cases where it's often difficult to get a judgment within that time frame anyway.  Having said that, there's plenty of time to resolve the problem, if it can be, before a borrower loses the property.  See my prior post on Basic Foreclosure Process/Timing In Indiana.  For a multitude of other reasons I won't detail here, it's highly unlikely that the additional thirty days sought by the gubernatorial candidate would bring about any reduction in home foreclosures.

Much, much more could be written about these issues, but these are my two cents for now.  I understand that home foreclosures are a problem in Indiana, and I respect the fact that Ms. Long Thompson is thinking about the issue.  At the end of the day, however, these Democratic plans simply create costs for lenders that exceed the corresponding benefits, if any, to borrowers.