Lesson. When filing suit to pursue an unperfected or unrecorded lien/interest in real estate, make sure you separately file a lis pendens notice. This should put the world on notice of your claim and properly preserve your priority in title to such claim.
Legal issue. Whether a lis pendens notice filed by the holder of an unperfected money judgment lien was valid.
Vital facts. Mortgagee sought to become involved in an otherwise concluded judgment lien foreclosure action to assert its mortgage lien. A homeowner’s association (HOA) previously got a money judgment against the mortgagor, but the county clerk failed to properly index the judgment and thus perfect the judgment lien. The HOA subsequently filed an action to foreclose its judgment lien, and it simultaneously filed a lis pendens notice. The trial court later granted the HOA a decree of foreclosure. Separately, Mortgagee entered into a mortgage loan with Mortgagors after title work failed to pick up the lis pendens notice, which was filed after the initial title work for the loan but before the mortgage was recorded. Mortgagee had no knowledge of the pending foreclosure action when it made the loan.
Procedural history. Technically, the Claybridge opinion decided whether a mortgagee could intervene in a lien foreclosure action three years after the foreclosure judgment had been entered. The trial court denied the motion as untimely, and our Supreme Court affirmed the denial.
Key rules. The Court’s opinion thoroughly summarized the doctrine of lis pendens and how to comply with Indiana’s lis pendens statute (Ind. Code 32-30-11). Here are some highlights:
- A successor in interest to real estate takes notice of a pending action (through a lis pendens notice) involving title to that property and thus is subject to the case’s outcome. In other words, a valid lis pendens notice gives third parties (the world) constructive notice of a pending lawsuit involving ownership and title to the subject real estate.
- The key purpose of Indiana’s statute is to protect plaintiffs seeking to enforce any unrecorded lien upon, right to, or interest in any real estate. (A mortgage foreclosure case does not need a companion lis pendens notice because the mortgage [almost always] has been recorded.)
- The HOA’s judgment lien, albeit unrecorded, was an in rem interest in real estate and, as such, a legitimate basis upon which to file the lis pendens notice. (As an aside, the Court also comprehensively discussed the enforceability of the HOA’s unrecorded judgment lien, which I will address in a separate blog post.)
Holding. The HOA’s lis pendens notice, filed when the HOA initiated its foreclosure suit, was valid and thus provided constructive notice of such suit. Once the HOA filed the lis pendens notice, the HOA in effect notified Mortgagee of the pending foreclosure suit. As such, Mortgagee’s effort to intervene and undo the HOA’s foreclosure was untimely.
Policy/rationale. The Court found that the lis pendens notice was valid for two key reasons: (1) because the notice arose out of an unrecorded, albeit proper, judgment lien and (2) the purpose of the HOA’s action was to enforce an in rem interest in the real estate. Mortgagee argued that the nature of the HOA’s foreclosure action was to enforce a personal judgment against the Mortgagor, as opposed to a claim for title to the subject real estate. The Court disagreed and reasoned that the HOA’s action was indeed a claim against the real estate itself. As the Court pointed out, “the very defect [an unperfected judgment lien] that [Mortgagee] believes disqualifies the lis pendens filing is the very characteristic that permits it.” The bottom line was that the HOA’s judgment, in the Court’s view, was a lien, right to and/or interest in the real estate.