What Is A “Purchase-Money” Mortgage, And Does It Have Priority Over A Pre-Existing Judgment Against The Mortgagor?
Bankruptcy Proofs Of Claim Following A State Court Judgment: Debt Locked In

Will A Mortgage Granted To Fund Renovation Costs Have Priority Over A Pre-Existing Judgment Against A Mortgagor/Purchaser?

Lesson.  If a mortgage is not granted for purchase money, then the mortgage will not have priority over a pre-existing judgment against the mortgagor/purchaser.  The law favors judgment creditors in this instance. 

Case cite.  Amici Resources v. Nelson, 49 N.E.3d 1046 (Ind. Ct. App. 2016).

Legal issue.  If a mortgage is not a “purchase-money mortgage,” will it nevertheless be senior to a pre-existing judgment against the purchaser/mortgagor upon the closing of a sale/loan?

Vital facts.  For background, please see last week’s post about Amici:  What Is A “Purchase-Money” Mortgage, And Does It Have Priority Over A Pre-Existing Judgment Against The Mortgagor? This post deals with a second lender/mortgagee.  Amici loaned money to SFIP, not to buy the real estate, but to fund renovations to the property.  The closing of the Amici mortgage loan appears to have occurred as part of the closing of SFIP’s purchase of the real estate (discussed last week).  Although the Amici opinion did not label this second loan a “home equity line of credit,” I think the reasoning and holding in this case would apply to lines of credit granted simultaneously upon the purchase of the real estate.   

Procedural history.  At the trial court level, in this quiet title action brought by Matthies, Amici prevailed.  Matthies appealed. 

Key rules.  A judgment lien is a lien on the interest the debtor has in the land.  Ind. Code 34-55-9-2 spells out that money judgments become liens on the debtor’s real property when the judgment is recorded in the judgment docket in the county where the realty held by the debtor is located. 

Generally, “priority in time gives a lien priority in right.”  If the facts show that the judgment lien attached to the real estate before the mortgage lien, then the judgment lien has priority over the subsequent mortgage lien.  As noted in last week’s post, however, “quite a different question would be presented if the mortgage had been a purchase-money mortgage, rather than to pay” for other services or products. 

Holding.  The Court of Appeals reversed the trial court and concluded that Amici’s mortgage lien had second priority to Matthies’s judgment lien. 

Policy/rationale.  In Indiana, judgments rendered against an individual will attach to real estate subsequently purchased by that individual instantly upon the acquisition of ownership to the real estate.  Unless the mortgage arose out of a loan to purchase the real estate, the mortgage will be junior to the judgment.    

Related posts. 

I frequently represent judgment creditors and lenders, as well as their mortgage loan servicers, entangled in lien priority and title claim disputes.  If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenmclaughlin.com.  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.