Indiana Sheriff's Sales: Local Rules, Customs and Practices Control

This replaces my April 14, 2008 post and includes the most current links to various Indiana county sheriff's offices.  In Indiana, mortgage foreclosures must be judicial or, in other words, 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. 

County-specific.  Although the Indiana Code covers the fundamentals of the sheriff's sale process, the specific rules and procedures vary by county.  I once presented at a foreclosure-related seminar, and one of my co-presenters accurately stated, in essence, that there are 92 counties in Indiana and therefore 92 different sets of rules applicable to sheriff's sales.  My advice is to call or visit the local civil sheriff's office to confirm the hoops through which you must jump, and when, to start and finish a successful sheriff's sale.

State link.  Many Indiana counties provide at least some guidance through the internet.  The Indiana Courts home page, for which I have a permanent link on the left side on my blog's home page, has an "information by county" menu on the left that allows you to surf through county websites to determine whether the local sheriff's office has any on-line sale information.

Marion County.  I'm located in Indianapolis, Marion County, Indiana, and our civil sheriff has a helpful site - click here - that I've permanently linked to on my home page. 

Contiguous counties.  Here are links to sheriff's sites in the seven counties contiguous to Marion County:

• Hamilton County
• Hancock County
• Shelby County
• Johnson County
• Morgan County
• Hendricks County
• Boone County

Other counties and third party servicers.  The following are links to sheriff's sites in some of the larger counties in Indiana:

• Allen County (Ft. Wayne)
• Tippecanoe County (Lafayette)
• Vanderburgh County (Evansville)
• Vigo County (Terre Haute)

As you'll see, some of the counties provide more information and forms than others.  In addition, many Indiana counties (about 17, including Boone and Vigo), outsource all or a portion of the sheriff's sale process through SRI, Inc.  Another contractor, Lieberman Technologies, serves six Indiana counties, including Shelby and Vanderburgh.

Despite information that may be available on the internet, I've found it to be invaluable to talk to, and form a working relationship with, the representatives who will be handling your sale.

Indiana Court Touches Upon Factoring Agreements

The U. S. District Court for the Northern District of Indiana recently addressed some procedural issues associated with the enforcement of a factoring and security agreement.  Here is a .pdf of JD Factors v. Freightco, 2009 U.S. Dist. LEXIS 72636 (N.D. Ind. 2009).  There are a handful of things to take away from JD Factors.

1.  The business of factoring is a kind of financing characterized by “the buying of accounts receivable at a discount.”  In JD Factors, JD and Brankle entered into a factoring and security agreement whereby JD agreed to buy Brankle’s accounts receivable under an agreed-upon discount formula.  Under the agreement, JD advanced money to Brankle in exchange for an assignment of all rights, payments and proceeds in Brankle’s accounts.  Account debtors then paid JD directly.  The factoring and security agreement granted JD a first priority security interest in Brankle’s assets, including the accounts receivable.

2.  Generally, factoring agreements can involve a security interest being granted in an account.  As such, Indiana’s version of the UCC can govern the relationship.  Ind. Code § 26-1-9.1-109(a) states that Article 9 will apply to a transaction intended to create a security interest in accounts and to any sale of accounts.

3.  I.C. § 26-1-9.1-607 states:  “If so agreed, and in any event after default, a secured party . . . may enforce the obligations of an account debtor . . . and exercise the rights of the debtor with respect to the obligation of the account debtor . . . . to make payment or otherwise render performance to the debtor . . ..”  Under the UCC, therefore, JD (as a secured party) was entitled to enforce collection of defendant Freightco’s (the account debtor’s) debt.

4.  The Court rejected the proposition that the secured party/factoring relationship was akin to that of principal and agent.  Again, Article 9 of the UCC, not principal/agency law, applied.  “Here, [plaintiff/JD] is not acting as a mere collection agent for Brankle; rather, the two entities are parties to a sophisticated lending relationship.”  Only JD, not Brankle, possessed the authority to seek collection of the receivable.  “[JD] is a secured party possessing a right to be enforced, and Section 607 of the Indiana UCC provides the statutory authority for its enforcement of the [debt/account receivable].” 

The JD Factors opinion arose out of a technical dispute surrounding “diversity of citizenship” and whether the case could be in federal court, as opposed to state court.  For any lawyers reading this post, the Court concluded that “[JD] as a secured party possesses a right subject to enforcement in this action and thus is a ‘real party in interest’.  Consequently, diversity of citizenship exists between plaintiff [JD], a company of California citizenship, and defendant Freightco [account debtor], a company of Indiana citizenship . . ..”  Freightco asserted that the Indiana citizenship of Brankle should destroy diversity so as to force the case to be heard in the Indiana state courts.  The Court denied Freightco’s motion to dismiss. 

Washington Post: More Evidence That Commercial Real Estate Headed For Foreclosure Crisis

Today's Washington Post discusses the potential for more commercial foreclosures in 2010:  click here.  Although the article mainly is about D.C., the overall story is a national one:   

Unlike residential mortgages, which often can be paid over 30 years, commercial real estate mortgages typically must be paid off or refinanced within five years. Commercial properties mortgaged in 2005, 2006 and 2007, at the height of the boom, are reaching their maturity date. "Do the math on this," Warren said. "This is a significant problem."

AP/MSNBC: Desolate Malls, Empty Offices May Come Soon

Here is a recent news article regarding defaults on commercial real estate loans and their possible role in a looming economic crisis:  click here for the 2-11-10 story. 

Mortgage Securing Residential Subdivision Development Primes Site Work Mechanic’s Liens

Today’s post follows up my July 3, 2007, July 7, 2007 and September 6, 2008 posts dealing with the priority of commercial construction mortgages over mechanic’s liens.  If you are struggling with lien priority questions related to the development of a residential subdivision, the Indiana Court of Appeals’ decision in Lincoln Bank v. Conwell Construction, 2009 Ind. App. LEXIS 1047 (Ind. Ct. App. 2009) (Lincoln.pdf) provides answers.

The interests.  Nichols Group owned real estate that it intended to develop into a residential subdivision.  Lincoln Bank gave a mortgage loan to Nichols Group to fund the development, and the bank recorded its mortgage in 2006.  General contractor, Conwell Construction, contracted with Nichols Group to develop the site (earth work, sewer, water, curbs and paving).  Conwell Construction, in turn, contracted with subcontractors Hedger (for curbs), Mitchell (for drains) and Grady (for paving).  The contractors only performed site development work.  They did not construct any houses, nor did they improve any specific lots.  Indeed no houses were ever built on the property.  Since the contractors didn’t get paid, they filed mechanic’s liens in 2007. 

The controversy.  The Court addressed the question of whether Lincoln Bank’s mortgage should have priority, as opposed to the bank and the four contractors sharing pro rata in any foreclosure proceeds.

Inventory of statutes.  Lincoln Bank, a thorough and logical opinion, addresses the applicable Indiana statutes:

 a. I.C. § 32-28-3-1 – Contractors may file mechanic’s liens for, among other
  things, the labor and materials at issue.

 b. I.C. § 32-28-3-5(c) – Mechanic’s liens are equal in priority to other
  mechanic’s liens.

 c. I.C. § 32-28-3-5(d) – Priority of construction mortgages (see also July 11, 2007
  and September 6, 2008 posts).

 d. I.C. § 32-28-3-5(d)(1-3) – Exceptions to general rule of construction mortgage
  priority for homes, improvements auxiliary to homes and utilities.

Section 5(d) and its three categories of exceptions.  The Court noted that a recorded mortgage has priority over a subsequently-recorded mechanic’s lien, per I.C. § 32-28-3-5(d), “to the extent of the funds actually owed to the lender for the specific project to which the lien rights relate.”  There was no dispute Lincoln Bank recorded its mortgage before the recordation of the mechanic’s liens, nor was there a dispute that Lincoln Bank’s mortgage “was for the specific project to which the lien rights relate.”  Therefore, if § 5(d) applied, Lincoln Bank’s mortgage would have priority over the mechanic’s liens.  The Lincoln Bank decision focused on the three stated carve outs in § 5(d) for construction (1) of houses, (2) of improvements auxiliary to houses and (3) on property controlled by a utility.  For those categories, Ward v. Yarnelle would control, meaning that there would be parity among the mortgage and the mechanic’s liens.

Exceptions not applicable.  Since the underlying site development work in Lincoln Bank related to the ultimate construction of houses, seemingly the door was open for the Court to apply one or more of the three exceptions to § 5(d)’s priority rule.  Instead, the Court viewed the work for what it was – construction, for a real estate investor, of a commercial project.  The work in question did not directly involve the building of an individual homeowner’s residence.  The closest call for the Court was § 5(d)(2), which governs the development or construction of “an improvement on the same real estate auxiliary to a Class 2 structure [house].”  Despite concluding that the contractors’ earth moving operations and asset installations were indeed “improvements,” the Court relied heavily on the fact that “no home had yet been constructed on the land” in concluding that § 5(d)(2) “does not apply to preparing land for the subsequent construction of houses.” 

Result.  The Court concluded, with regard to the foreclosure proceeds, that “the first priority is to satisfy Lincoln Bank’s mortgage.”  Thereafter, “the four mechanic’s liens are equal in priority.”  Lincoln Bank is particularly relevant today given recent failures of many residential subdivision development projects across Indiana.  These projects have, in certain instances, stalled before any houses were built or any specific lots were improved.  According to Lincoln Bank, where the general contractor or subcontractors have devoted resources only to subdivision site work, lenders holding a timely and perfected construction mortgage will not be forced to share equally with such contractors.