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Pre-Judgment Seizure of Property: Attachment Fundamentals

Can lenders seize property of a borrower or a guarantor to ensure its availability to satisfy a subsequent judgment?  Rarely.  I touched on this area of the law back on 3/6/07Woodward v. Algie, 2014 U.S. Dist. LEXIS 52997 (S.D. Ind. 2014) is an excellent opinion detailing the nuts and bolts of the remedy of attachment. 

The dispute.  The heart of the Woodward case was the plaintiff’s breach of contract claim against the defendant.  The contract involved the design and building of airplanes.  The plaintiff funded the project, and the defendant was on the production side.  The plaintiff alleged that the defendant failed to produce any planes, resulting in damages.  Following the filing of the complaint, the plaintiff filed a petition for a pre-judgment writ of attachment under Ind. Code § § 34-25-2-1(b)(4)-(6) seeking the seizure of the defendant’s property connected to the airplane project.

Attachment law, generally.  In Indiana, Trial Rule 64 and I.C. § 34-25-2-1 authorize pre-judgment attachment.  The Woodward opinion dealt only with statutory attachment, however.  Indiana’s statute requires plaintiffs to file an affidavit in support of any petition showing, (1) the nature of the claim, (2) that the claim is just, (3) the amount sought to be recovered and (4) one or more of the grounds for attachment in I.C. § 34-25-2-1(b).  Indiana law also requires plaintiffs to post a bond “with sufficient surety payable to the defendant, that the plaintiff will duly prosecute the attachment proceeding and pay all damages suffered by the defendant if the attachment proceedings are both wrongful and oppressive.”  See, I.C. § 34-25-2-5. 

Grounds - § (b)(4) – asset movement.  This statutory provision mandates that the plaintiff show the defendant was removing, or was about to remove, property outside of Indiana and was not leaving enough in Indiana to satisfy the plaintiff’s claim.  Plaintiff’s supporting affidavit in Woodward did not meet this requirement.  There was no basis for the Court to find that the defendant had or would have insufficient assets to satisfy the judgment sought by the plaintiff. 

Grounds - § (b)(5)-(6) – fraudulent intent.  These rules require the plaintiff to show that the defendant had sold, conveyed or otherwise disposed of, or was about to sell, convey or otherwise dispose of, executable property with the fraudulent intent to cheat, hinder, or delay the plaintiff.  Again, the Court in Woodward concluded that there was insufficient evidence of the alleged fraudulent intent.  “This Court cannot simply assume fraud on the part of the [defendant].”  I discussed establishing fraudulent intent, through Indiana’s “8 badges of fraud,” in my post dated 12/14/06

Property subject to attachment, and why.  The plaintiff in Woodward sought a writ of attachment against essentially all of the defendant’s property.  The Court viewed this as seeking an order for replevin, not attachment.  The attachment remedy "is available in an action for the recovery of money.”  Replevin actions, on the other hand, seek to recover property.  “The plaintiff must aver the amount of damages that he ought to recover, and the sheriff seizes only the amount of property, by value, to satisfy the plaintiff’s averred claim, beginning with personal property.”  One seeking a writ of attachment should not identify specific goods to be seized “because the purpose of attachment is only to ensure that property, any property, will be available to satisfy a money judgment; it is not to preserve the availability of specific items of property for recovery by the plaintiff.”  Because the plaintiff made no claim for replevin, but only money damages, the proposed remedy of seizing specific property of the defendant’s was inappropriate. 

Denied.  The Court denied the petition for prejudgment writ of attachment.  The plaintiff in Woodward failed to prove he was entitled to the relief.  The plaintiff also lost because he proposed an inadequate bond of only $2,500 and submitted no explanation of the calculation, despite seeking a judgment for $475,000.  A pre-judgment writ of attachment is very difficult to obtain in Indiana.  Allegations will not be enough, and concrete proof will be needed.  In my view, an evidentiary hearing, in contested cases, will be required before an Indiana judge will grant this extraordinary relief. 

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My practice includes representing parties, including judgment creditors and lenders, in post-judgment collection proceedings. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.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.


News Reports Regarding Increase In Foreclosure Activity Despite Government Programs

Both of the following news reports stem from the Q1 2021 Foreclosure Market Report by ATTOM Data Solutions:

I was out last week and have been playing catch-up.  I hope to post some new material next week.  

John


Title Work And Foreclosures In Indiana

One of the common themes on this blog has been the importance of obtaining title work in connection with an Indiana commercial mortgage foreclosure case.  If you’re wondering why your foreclosure counsel recommends that you incur the expense of a title commitment and later premiums for a title insurance policy, keep reading.

Procedural context.  Before the filing of the foreclosure complaint, certain steps should be undertaken to analyze the loan collateral, in this case the real estate.  One such step is to determine priority in title.  We strongly recommend that lenders order a foreclosure (title insurance policy) commitment.  (Tip:  If the lender has a prior title insurance policy related to the property, such as a lender’s policy, then you can save some expense simply by placing the order from the same company.  Or, a separate title insurance company may provide a cheaper commitment faster based upon a prior policy.) 

ID parties/priority.  The commitment should be reviewed for purposes of determining all parties with an interest in the real estate and their relative priorities.  I.C. § 32-29-9-1 articulates the necessary parties to be named in the suit.  The provision essentially requires that the plaintiff name such necessary parties to the suit in the same manner in which the person or entity’s lien or claim appears on the public records of the county where the suit is brought.  Service of summons upon such necessary parties is sufficient to make the court’s judgment binding as to those parties.  In order for there to be clear title secured at the sheriff’s sale, all parties with a recorded interest in the real estate need to be named in the lawsuit to answer as to their interests.  (Tip:  Also review the commitment to ensure that the legal description of the collateral in the commitment matches the legal description in the mortgage.)  An early priority determination will guide decisions as to settlement or workout negotiations, or whether to proceed with the foreclosure action in the first place.   

Update title work.  Normally, there will be a time gap between the date of the foreclosure commitment and the date of the filing of the complaint.  Conceivably, interests in the subject real estate could arise in this gap period.  For example, a mechanic’s lien could be filed, or the borrower could obtain a loan secured by a junior mortgage on the property.  It is thus critical to update or “date down” the title insurance policy commitment after the complaint is filed.  For more on this issue, see my December 21, 2006 post and House v. First American Title Company, 858 N.E.2d 640 (Ind. Ct. App. 2006), which held that a foreclosure action’s filing date is the “only relevant date used to determine the proper parties to a mortgage foreclosure.”   

Amend complaint.  Again, clear title cannot be obtained upon a sheriff’s sale unless all lien holders are named as defendants in the suit so that their interests can be foreclosed.  Should the updated title work disclose new lien holders, then such parties need to be added to the case by filing an amended complaint.  If no new interests are uncovered, then lenders can be comfortable proceeding with the original defendants named in the suit. 

No bona fide purchaser.  Third-parties who secure an interest in the mortgaged property after the filing of the foreclosure complaint do not need to be named as defendants in the action.  Lenders need not continuously search title during the course of litigation and worry about adding new parties to their foreclosure complaint.  “The only relevant date” is the foreclosure action’s commencement date – the day the lender filed the complaint.  Here’s what I wrote on December 21, 2006, which is particularly relevant in the wake of my October 4, September 25 and May 28, 2009 posts that touch upon Indiana’s bona fide purchaser doctrine:

Any party obtaining an interest in the property after the filing of the action will not be considered a bona fide purchaser without notice and thus will be bound by the foreclosure as if named as a party defendant to the foreclosure action.  (Such parties, upon learning of the suit, should intervene in the action to assert their rights to the property.)

Finish the job.  Arguably, the secured lender’s ultimate goal in its mortgage foreclosure action is to acquire title to (repossess) the real estate collateral free and clear of all liens.  This is why the commitment is important, as is the date down.  Lenders and their counsel should not forget the final step, however.  Once the lender obtains the sheriff’s deed (title) to the property, lenders are advised to purchase a title insurance (owner’s) policy.  Certainly the premium can be expensive, but in most commercial foreclosure cases the benefits of being insured (as free and clear title holder) far outweigh the costs.  For more insight into the wisdom of ordering an owner’s policy, please see my July 20, 2009 post.