Despite Judgment Debtor's Failure To Object, IRA Exempted From Garnishment

Lesson.  Indiana law generally protects retirement accounts from post-judgment collection.

Case cite.  Dumka v. Erickson, 70 N.E.3d 828 (Ind. Ct. App. 2017).

Legal issue.  Whether a judgment debtor’s failure to assert a statutory exemption from garnishment necessarily means that the exemption is waived.

Vital facts.  Judgment creditor filed a motion for proceedings supplemental against judgment debtor and named as a garnishee-defendant the institution that held funds in an “inherited traditional individual retirement account” (IRA). The judgment debtor inherited the IRA from her deceased husband. At the hearing on the motion, the debtor appeared pro se (without an attorney) and did not contest the creditor’s efforts to liquidate the IRA.

Procedural history.  Even though the judgment debtor failed to object to the garnishment or to otherwise assert an exemption, the trial court denied the judgment creditor’s motion. The creditor appealed.

Key rules.

Ind. Code 34-55-10-2(c)(6) provides that non-spousal inherited IRAs are not exempt from garnishment but that IRAs inherited by surviving spouses are exempt.

Generally, exemptions must be asserted by the debtor. However, the Indiana Supreme Court has held that, because exemptions “exist to give life to a constitutional right [sheltering certain property and income from attachment],” there should be exceptions to this general rule “consistent with fairness and practical realities.”

Trial courts may take “judicial notice” of statutes at any stage in a proceeding. Ind. Evid. Rule 201(b-d).

Holding.  The Indiana Court of Appeals affirmed the trial court.

Policy/rationale.

A key factor in the Court’s decision was that the judgment debtor was unrepresented by counsel. The undisputed facts established that “the IRA is lawfully exempt from attachment,” and the trial court properly took judicial notice of the exemption. Since the trial court’s order complied with the evidence and the law, the Court of Appeals affirmed the decision.

Related posts.

• Contempt Powers Unavailable To Enforce Payment Of A Civil Judgment In Indiana
• Indiana Supreme Court Rules On Scope Of Trial Court's Authority In Proceedings Supplemental
• Jail Time Is Not An Available Remedy In Collection Actions In Indiana

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I frequently represent creditors and debtors in business-related collection actions. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. 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.

 

Absence Of Legal Description Dooms Mortgage In Lien Priority Dispute

Lesson. First, if you are in the business of drafting and recording mortgages, make sure they contain legal descriptions of the subject real estate.  Common (street) addresses technically are inadequate to provide notice of a lien.

Case cite.  U.S. Bank v. Jewell, 69 N.E.3d 524 (Ind. Ct. App. 2017).

Legal issue.  Whether the omission of a legal description of the real estate rendered the mortgage insufficient to charge a competing mortgagee with notice.

Vital facts.  This case involved a mortgage lien priority dispute and dealt with Indiana’s bona fide purchaser (BFP) doctrine.  Jewell held a mortgage that it recorded but that failed to contain a legal description.  The mortgage only identified the common address a/k/a the street address.  When the owner later sold the real estate, the buyer obtained financing from a lender, which conducted a title search before ultimately making the mortgage loan.  The evidence established that the lender’s title search did not disclose Jewell’s mortgage.

Procedural history. Jewell filed suit to foreclose its mortgage and named the lender.  The lender filed a motion for summary judgment claiming that it was a bona fide purchaser and was entitled to senior lien status.  The trial court denied the motion.  The lender appealed.

Key rules.  The Jewell opinion contains an excellent summary of Indiana’s rules, exceptions and tests related to the bona fide purchaser doctrine.  The opinion also provides a really good analysis of Indiana’s summary judgment standard, and related burdens of proof, as applicable to our BFP laws. Without regurgitating all of the law from the opinion (see other posts noted below), here are some of the key rules in play in Jewell:

1. Prospective purchasers of real estate must search the grantor-grantee and the mortgagor-mortgagee indexes for the period that the mortgagor holds title.

2. On the matter of “constructive” notice, “a mortgage must be recorded [in the chain of title] in the proper county and must contain an accurate legal description of the property.”

3. In the absence of contructive notice, there is Indiana law supporting the notion that, in certain circumstances, subsequent purchasers may be charged with “inquiry” notice, sometimes called “implied or inferred” notice:

Notice is actual when notice has been directly and personally given to the person to be notified.  Additionally, actual notice may be implied or inferred from the fact that the person charged had means of obtaining knowledge which he did not use.  Whatever fairly puts a reasonable, prudent person on inquiry is sufficient notice to cause that person to be charged with actual notice, where the means of knowledge are at hand and he omits to make the inquiry from which he would have ascertained the existence of a deed or mortgage.  Thus, the means of knowledge combined with the duty to utilize that means equates with knowledge itself.  Whether knowledge of an adverse interest will be imputed in any given case is a question of fact to be determined objectively from the totality of the circumstances.

Holding. The Indiana Court of Appeals reversed the trial court and granted summary judgment for the lender.

Policy/rationale. Jewell dealt mainly with the inquiry notice matter.  Jewell contended that, had the lender searched the mortgagor-mortgagee index, it would have discovered Jewell’s mortgage.  However, the lender submitted affidavits establishing that it conducted such a search, which did not reveal the Jewell mortgage due to the omission of the legal description.  The problem was that Jewell merely argued that the common address was sufficient to defeat the summary judgment motion.  Jewell’s failure to submit evidence to prove its theory was the deciding factor.

Related posts.

Indiana Court Discusses Whether A Lender Was A “Bona Fide Mortgagee”

BFP Defense Denied, And IRS Lien Prioritized

What Does “Chain Of Title” Mean?
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I frequently represent 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 [email protected] 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.

Hyper Technical Error In Debtor’s Name Dooms Creditor’s UCC Financing Statement/Lien

Lesson.  If the debtor is an individual, use the spelling of the name as listed on his or her Indiana driver’s license when filing the UCC financing statement.    

Case cite.  In re: Nay, 563 B.R. 535 (S.D. Ind. 2017) (pdf).

Legal issue.  Whether a creditor’s inadvertent omission of the letter “t” from the debtor’s middle name invalidated its UCC financing statement.

Vital facts.  In 2014, Plaintiff Mainsource held a blanket security interest in Debtor’s personal property.  In 2015, Leaf loaned money to Debtor to purchase two Dump Wagons (equipment) and filed UCC financing statements with the Indiana Secretary of State to perfect liens on the Wagons.  The UCCs identified the Debtor’s name as “Ronald Mark Nay.”  The Debtor’s name listed on his most recent Indiana driver’s license, however, was “Ronald Markt Nay.”    

Procedural history.   Nay arises out of an adversary proceeding, Mainsource Bank v. Leaf Capital, a lien priority dispute.  The U.S. Bankruptcy Court for the Southern District of Indiana ruled on a motion for judgment on the pleadings filed by Plaintiff Mainsource seeking to invalidate Leaf’s competing security interest.    

Key rules. 

Ind. Code 26-1-9.1-503(a), a lengthy statutory provision, outlines when a financing statement “sufficiently provides the name of the debtor.”

Ind. Code 26-1-9.1-506 deals with the effect of errors or omissions in financing statements.  The key concept is whether the mistake was “seriously misleading.” 

Much of the Nay opinion involved an analysis of Ind. Code 26-1-9.1-506(c), which is a safe harbor provision that allows creditors to overcome “seriously misleading” mistakes if the subject financing statement “was otherwise discoverable by searching under the Debtor’s correct name using the standard search logic promulgated by the Indiana Secretary of State.”      

Holding.  Judge Basil H. Lorch III granted the pending motion and found that Plaintiff Mainsource was entitled to judgment as a matter of law.  Leaf’s security interest was unperfected.  Mainsource held the first priority security interest in the Dump Wagons.

Policy/rationale. 

The difference between “Mark” and “Markt”, especially in a middle name, would not seem to be a “seriously misleading” error.  However, under Section 503(a), if the debtor has a driver’s license, a financing statement must provide “the name of the individual which is indicated on the driver’s license.”  By definition, therefore, Leaf’s misspelling was seriously misleading.

The Court addressed whether the financing statement was nevertheless discoverable using “standard search logic.”  Maybe it was.  But, in the end, and even after noting that the result seemed “harsh,” the Court still felt compelled to strictly adhere to the operative statutory language requiring the name of the Debtor to be the name set out on his Indiana driver’s license.    

Related posts.     

What Is A “Purchase Money Security Interest”?

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I often represent parties in commercial loan enforcement cases and lien priority disputes.  If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. You also can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted to your left.