Indiana Supreme Court Rules On Statute Of Limitations Cases

On February 10th, I posted - Indiana Supreme Court Currently Reviewing Statute Of Limitations Rules Applicable to Promissory Notes.  Well, a week later the Court handed down its two opinions and ruled in favor of the lenders.  You can review the cases by clicking on the links below:

    *Dean Blair and Paula Blair v. EMC Mortgage, LLC

    *Collins Asset Group, LLC v. Alkhemer Alialy

Meanwhile, I intend to write more about these important decisions and post something next week.

Interests Held In A Joint Tenancy With Right Of Survivorship Are Not Exempt From Execution

Lesson.  Unlike spouses jointly holding real estate as a tenancy by the entireties, real estate co-owned under joint tenancy is subject to a lien arising from a judgment against one of the joint tenants. 

Case cite.  Flatrock River Lodge v. Stout, 130 N.E.3d 96 (Ind. Ct. App. 2019)

Legal issue.  Whether an ownership interest in real estate as a joint tenant with right of survivorship is exempt from execution on a judgment lien created during the owner’s lifetime.

Vital facts. In 1985, a couple deeded forty-six acres of real estate in Rush County to their son and their granddaughter as joint tenants with right of survivorship.  In 2016, a creditor obtained a $40,000 judgment against the son, at which time the Rush County Clerk entered the judgment in the record of judgments.  The son died in 2018, and his interest in the real estate became the granddaughter’s.  In other words, the granddaughter became the owner of all forty-six acres.      

Procedural history.  In January 2018, the judgment creditor moved to foreclose its judgment lien on the real estate.  The granddaughter intervened in the action and asserted that the son’s interest was exempt from execution because their interests were held jointly.  While the action was pending, the son passed away.  The trial court ultimately granted the granddaughter’s objection to the creditor’s motion.  The creditor appealed.

Key rules. 

As stated here many times, in Indiana “a money judgment becomes a lien on the defendant’s real property when the judgment is recorded in the judgment docket in the county where the realty held by the debtor is located.”

Ind. Code 34-55-10-2(c)(5) is the statute providing that “’[a]ny interest that the debtor has in real estate held as a tenant by the entireties’ is exempt from execution of a judgment lien.”

The Court in Flatrock identified the three forms of concurrent ownership in Indiana - (1) joint tenancy, (2) tenancy in common, and (3) tenancy by the entireties – and then contrasted joint tenancy with tenancy by the entireties:

A joint tenancy is a single estate in property owned by two or more persons under one instrument or act. Upon the death of any one of the tenants, his share vests in the survivors. When a joint tenancy is created, each tenant acquires an equal right to share in the enjoyment of the land during their lives. “It is well settled that a conveyance of his interest by one joint tenant during his lifetime operates as a severance of the joint tenancy as to the interest so conveyed, and [it] destroys the right of survivorship in the other joint tenants as to the part so conveyed.” Each joint tenant may sell or mortgage his or her interest in the property to a third party.  And the interest of each joint tenant “is subject to execution.” On the other hand, a tenancy by the entireties exists only between spouses and is premised on the legal fiction that husband and wife are a single entity.

* * *

The same difference which existed at common law between joint tenants and tenants by entireties continues to exist under our statute. In both, the title and estate are joint, and each has the quality of survivorship, but the marked difference between the two consists in this: that in a joint tenancy, either tenant may convey his share to a co-tenant, or even to a stranger, who thereby becomes tenant in common with the other co-tenant; while neither tenant by the entirety can convey his or her interest so as to affect their joint use of the property during their joint lives, or to defeat the right of survivorship upon the death of either of the co-tenants; and there may be a partition between joint tenants, while there can be none between tenants by entireties.

(I’ve omitted legal citations in the above quotes.)

Holding.  The Indiana Court of Appeals reversed the trial court and held that the real estate was not immune from execution on the judgment lien.  “We hold that subsection 2(c)(5) does not exempt from execution interests held in a joint tenancy with right of survivorship.”

Policy/rationale.  The granddaughter generally contended that real estate held jointly should be exempt from execution.  Thus, she sought to apply the I.C. 34-55-10-2(c)(5) exemption to a joint tenant with right of survivorship.  The granddaughter improperly equated the two tenancies, however.  The Court was compelled to follow the clear language in the exemptions statute, which applied only to tenancy by the entireties in which one spouse may not unilaterally convey or mortgage his interest to a third party and in which the property “is immune to seizure for the satisfaction of the individual debt of either spouse.”  To the contrary, a joint tenant may sell or mortgage his interest to a third party.  The Court also pointed out that the granddaughter took the son’s interest in the real estate subject to the judgment lien, which was not extinguished upon his death. 

As an aside, the Court stated that, if a third party were to buy the son’s interest at the execution (sheriff’s) sale, the purchaser and the granddaughter would each own an undivided interest as tenants in common.  As a practical matter, the outcome of the Flatrock appeal likely compelled the granddaughter to pay off the lien, assuming she had the means.

Related posts. 

• Language In Deed Overcomes Presumption Of Tenants By The Entireties Ownership, Allowing Judgment Lien To Attach
• Execution Upon Indiana Real Estate Owned As “Tenancy By The Entireties”
• Judgment Lien Principles Courtesy Of The Indiana Supreme Court

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I represent lenders, loan servicers, borrowers, and guarantors in foreclosure and real estate-related 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.

Indiana Supreme Court Currently Reviewing Statute Of Limitations Rules Applicable to Promissory Notes

Indiana law is clear that actions to enforce promissory notes have a six-year statute of limitations.  The trickier question surrounds when the clock starts ticking on the six years.  The law frames this issue as:  when does the cause of action accrue. 

Over the last couple years, three cases before the Indiana Court of Appeals have tackled that question in the context of promissory notes with optional acceleration clauses.  I’ve already written two posts about one of those cases, Collins Asset Group v. Alialy: 

• Indiana Court of Appeals Adopts Reasonableness Test For Promissory Note Statute of Limitations; and
• Indiana Has Two Statutes Of Limitations For Promissory Notes.

On 4/5/19, the Court of Appeals issued its opinion in the second case, Stroud v. Stone, 122 N.E.3d 825 (Ind. Ct. App. 2019), which followed Alialy and held that a lender can’t sue over six years after a payment default simply by accelerating the note.  Then, on 6/12/19, in Blair v. EMC Mortgage, 127 N.E.3d 1187 (Ind. Ct. App. 2019), the Court of Appeals followed suit in the third case and concluded that the lender had waited an unreasonable time amount of time to accelerate its note. 

Based upon these three decisions by the Court of Appeals, Indiana law appeared to be settled on the accrual issue.  Specifically, to absolutely safe, in Indiana, a lender’s suit to enforce a promissory note should be filed within six years of the borrower’s last payment.  Or, at a minimum, assuming the note has an optional acceleration clause, the debt should be formally accelerated within six years, and it would be advisable to file suit within a period of time thereafter that is reasonable under the circumstances.

There has been a development, however.  Alialy and Blair are now before the Indiana Supreme Court.  (Stroud is not - officially.)  Under Indiana rules of procedure, the Alialy and Blair opinions have therefore been vacated.  We are left to wait on our Supreme Court’s holding.  I expect an opinion during the first half of 2020, at which point some of the questions raised in my two posts about Alialy should be answered.  Stand by.

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I represent parties in disputes arising out of loans. If you need assistance with a such a 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.

Seller’s Delivery Of Defective Or Non-Conforming Equipment To Buyer/Borrower Did Not Impair Lender’s Rights In the Collateral

Lesson.  A borrower’s complaints about equipment it purchases and pledges as loan collateral do not affect a lender’s rights in the collateral. 

Case cite.  1^st Source v. Minnie Moore Resources, 2019 WL 2161679 (N.D. Ind. 2019) (PDF).

Legal issue.  Whether a creditor (lender) lacked an enforceable security interest in debtor’s equipment because the equipment differed from what the debtor (borrower/owner) thought it was purchasing.

Vital facts.  Lender loaned borrower money to buy three pieces of mining equipment worth about 350k.  The loan was secured by the equipment pursuant to a security agreement and a UCC financing statement.  Borrower defaulted on the loan, and lender sued to foreclose on the equipment.  Borrower contended that the equipment was defective, and varied from what the borrower had ordered from the seller.  The seller was not a party to the lawsuit. 

Procedural history.  Lender filed a motion for summary judgment.  1^st Source is the summary judgment opinion and order entered by the U.S. District Court for the Norther District of Indiana.

Key rules.  1^st Source essentially is about Article 9.1 attachment.

“A security interest will attach and be enforceable when three elements are present: (1) value has been given; (2) the debtor has rights in the collateral; and (3) the debtor has authenticated a security agreement that provides a description of the collateral.”  “Perfecting a security interest is only necessary to make the security interest effective against third parties; a security interest is enforceable “as between the secured party and the debtor” upon meeting the three requirements for attachment.”

The UCC clarifies what is sufficient for a description of the collateral: “a description of personal or real property is sufficient, whether or not it is specific, if it reasonably identifies what is described.”  I.C. § 26-1-9.1-108(a).  The Court noted, “that can be done by providing a ‘specific listing’ or a ‘category,’ or by ‘any other method, if the identity of the collateral is objectively determinable.’ Id. § 26-1-9.1-108(b).

Holding.  The Court granted lender’s motion for summary judgment and held that lender was entitled to take possession of and foreclose on the equipment.

Policy/rationale.  Borrower asserted two contentions in support of its argument that the security agreement was unenforceable:  (1) the security agreement did not identify the model years of the equipment and (2) there were discrepancies in the serial numbers between those on the equipment and those identified in the security agreement.  Basically, borrower asserted that the equipment it purchased was slightly older and less valuable than the equipment it intended to buy.    

On the first contention, the Court concluded that the security agreement reasonably identified the collateral.  Evidently there is no law supporting the proposition that a model year must be included in a security agreement to reasonably identify the collateral. 

On the second contention, the promissory note identified each piece of equipment by its name, serial number, and purchase price, and it directed lender to disburse loan proceeds directly to the seller.  The minor numerical error in a serial number “would not create a genuine question as to what equipment the parties intended to serve as collateral.”        

The Court summed up its finding as follows: 

[borrower’s] complaint that the equipment is defective and nonconforming is a dispute for [it] to take up with Interval Equipment Solutions, which sold the equipment.  It does not affect [lender’s] rights in the collateral, so [lender] is entitled to exercise its rights in that collateral.

Related posts. 

• Hyper Technical Error In Debtor’s Name Dooms Creditor’s UCC Financing Statement/Lien
• UCC Security Interest Lesson: Nemo Dat Quot Non Habet

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My practice includes the representation of parties in disputes arising out of loans. 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.