New York Confession Of Judgment From Cognovit Note Enforceable In Indiana

Lesson. Although Indiana does not permit cognovit notes (confessions of judgment), our state will enforce properly-entered foreign judgments based upon the otherwise prohibited language. The key is to determine whether cognovit notes are legal in the state that entered underlying the judgment.

Case cite. EBF v. Novebella, 96 N.E.3d 87 (Ind. Ct. App. 2018)

Legal issue. Whether Indiana courts must give “full faith and credit” to a “confessed judgment” entered in New York pursuant to a cognovit note.

Vital facts. Plaintiff obtained a judgment in a New York state court based upon the Defendant’s alleged breach of a contract. The contract, a purchase agreement, contained a clause with the following language: upon a default “… [Defendant] hereby authorizes [Plaintiff] to execute in the name of the [Defendant] a Confession of Judgment in favor of [Plaintiff] in the full uncollected Purchase Amount and enter that Confession of Judgment with the Clerk of any Court and execute thereon.” (This type of clause transforms the agreement into something called a “cognovit note.”) The contract in EBF expressed that it was to be governed by and construed under New York law.

Procedural history. The New York court entered a judgment pursuant to the confession of judgment clause. Because Defendant was an Indiana company, Plaintiff came to Indiana and filed a Petition to Domesticate Foreign Judgment that asked the Indiana trial court to recognize and enforce the New York judgment. (Plaintiff did not proceed under the statutory method to enforce the foreign judgment.) Defendant contested the Indiana action on the basis that the judgment was void under Indiana law. The trial court granted Defendant’s motion to dismiss, and the Plaintiff appealed.

Key rules. Generally, a cognovit note is a legal device whereby the debtor consents in advance to the creditor’s judgment without notice or hearing. Evidently, such confessions of judgment are allowed in the State of New York.

Indiana Code 34-54-3-1 essentially is Indiana’s definition of a cognovit note.

Importantly, cognovit notes are prohibited in Indiana. See, I.C. 34-54-3-2. In fact, Indiana makes it a crime to procure such a note or enforce it. I.C. 34-54-4-1. A key concept here is that the promise to pay cannot be entered into before a cause of action on the underlying agreement has accrued. I.C. 34-54-3-3.

Nevertheless, the Court in EBF noted that, under Indiana common law, “a valid foreign judgment based on a cognovit note will be given full faith and credit in Indiana … based upon the Federal Constitution’s ‘full faith and credit’ clause.” Article IV, Section 1. Indiana cases articulate “full faith and credit” as meaning: “the judgment of a state court should have the same credit, validity, and effect, in every other court of the United States, which it had in the state where it was pronounced.” The Indiana Code adopts full faith and credit at I.C. 34-39-4-3.

The full faith and credit rule has two exceptions/limitations: if, in the foreign court, there was an absence of (1) subject matter jurisdiction and/or (2) personal jurisdiction. The debtor/defendant has the burden of proof on these jurisdictional matters, meaning that it must rebut the presumption of the judgment’s validity.

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

Policy/rationale. The Court concluded that constitutional federal full faith and credit rules and policies trumped Indiana’s statutory prohibition on cognovit notes/confessions of judgment. The underlying judgment appeared “on its face to be rendered by a court of competent jurisdiction and [Defendant] did not challenge the jurisdiction of the New York court to enter the judgment.” For more on the policies behind full faith and credit, read the EBF opinion, which impressively lays out all the applicable and competing ideas.

Related posts.

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My practice includes representing parties to judgment enforcement actions. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.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.


When Can Post-Judgment Collection Efforts Begin In Indiana?

How long must the holder of an Indiana judgment wait before executing on the judgment?  The answer depends on whether the case is in state or federal court.  Two opinions by Magistrate Judge Cherry address that issue and other proceedings supplemental basics Artmann v. Center Garage, 2012 U.S. Dist. LEXIS 153966 (N.D. Ind. 2012) (“Artmann I” - .pdf) and 2012 U.S. Dist. LEXIS 160908 (N.D. Ind. 2012) (“Artmann II” - .pdf). 

Procedural posture.  In Artmann I, the U. S. District Court for the Northern District of Indiana entered judgment in plaintiff’s favor, and one day later plaintiff filed its motion seeking to freeze, and collect upon, defendant’s bank accounts pursuant to Ind. Code §§ 28-9-3-4 and 28-9-4-2.  The opinion dealt with plaintiff’s motion and defendant’s corresponding motion to quash plaintiff’s motion. 

14 days.  The defendant contended that plaintiff’s efforts were premature.  Specifically, Federal Rule 62(a) provides for a 14-day stay of execution on a judgment.  The purpose of the rule is to “afford litigants an ample period of time to consider whether to appeal, to file a motion for new trial and/or to seek a stay of execution of judgment.”  Plaintiff argued that the rule did not bar its request for interrogatories and a hold because plaintiff sought only to “preserve” defendant’s property for eventual satisfaction.  Plaintiff stipulated that it would not actually collect any money until after the 14-day stay had expired. 

Yes and no.  The Court concluded that it could not permit garnishment proceedings before the expiration of the 14-day stay.  As such, plaintiff filed its motion too early.  Clearly the Court could not issue any order granting the motion until the stay ended.  Having said that, the ultimate result in Artmann I was a practical one in that the Court allowed plaintiff’s motion to remain pending until the expiration of the stay period.  (I learned that the Court granted plaintiff’s motion on day 15.) 

State law.  Indiana state court Rule 62(A) does not articulate a 14-day automatic stay of execution, or any stay whatsoever.  Historically, the Indiana state rule provided for a 60-day automatic stay, which later evolved into a 30-day stay and ultimately to no stay at all.  As such, the Artmann I holding only applies in federal court proceedings.  Plaintiffs in Indiana state courts may undertake post-judgment collection efforts immediately.  (Note:  In instances of enforcing a foreign judgment in Indiana, the domestication process cannot commence until 21 days after the entry of the judgment in the original [non-Indiana] court.)      

Pro supp basics.  Artmann II dealt with defendant’s contention that plaintiff’s Artmann I motions did not follow certain technical requirements for proceedings supplemental.  The Artmann II opinion provides a nice summary for judgment creditors and their counsel struggling with the nuts and bolts of proceedings supplemental in federal court.  Specifically, judgment creditors need to remain mindful that, under Indiana law, before courts can entertain a garnishment motion under I.C. §§ 28-9-3-4 and 28-9-4-2, creditors must first (or simultaneously) file a separate motion for proceedings supplemental.

Pro supp relief.  Finally, for those wondering what “proceedings supplemental” can accomplish, the Artmann II opinion noted the three fundamental types of relief available:  (1) requiring a judgment debtor (a defendant) to appear in court for an examination as to available property, (2) requiring a judgment debtor to apply particular property to satisfy the judgment and (3) joining a third-party (a garnishee) to the action and requiring that party to answer as to property held by that party for the judgment debtor.   For more posts on garnishment and proceedings supplemental, including freezing bank accounts, please click on the those Categories to your right.


Mortgage Lien Second In Line, Because Small Claims Court Judgment Never Fully Satisfied

Lesson. Look for a filed satisfaction of judgment to conclusively determine whether a judgment lien has been extinguished. A small claims court judgment, properly indexed and unreleased, will have senior priority over a subsequently-recorded mortgage.

Case cite. Herron v. First Financial Bank, 91 N.E.3d 994 (Ind. Ct. App. 2017)

Legal issue. The issue in Herron was whether a judgment lien was effective as of May 14, 2013, when a small claims court entered its judgment, or as of November 17, 2015, following an appeal of the small claims court’s ruling during proceedings supplemental. If the judgment lien was effective as of the earlier date, then it would have senior priority over the competing mortgage lien. If the judgment lien was not effective until the later date, then the mortgage lien would have first priority.

Vital facts. Herron, a contractor, repaired a church’s roof in March 2011. In 2013, the Lawrence Township small claims court (Marion County) entered judgment for Herron against the church. The Township recorded the judgment in its Judgment Book on May 14, 2013. There was no appeal. Proceedings supplemental ensued and resulted in payments that satisfied the principal amount of the judgment and filing fees. However, on November 14, 2014, the court awarded additional damages to Herron for attorney’s fees and collection costs. Several months later, the small claims court, apparently sua sponte (on its own), rescinded the November 2014 order. Herron appealed that ruling to the Marion Superior Court, and on November 17, 2015, the superior court (a) reversed the small claims court’s rescission of its 2014 damages ruling and (b) entered a $10,000 award for Herron. Meanwhile, in November 2014, First Financial Bank (FFB) entered into a mortgage loan with the church and recorded its mortgage on February 23, 2015 – after the May 2013 Herron small claims judgment but before the November 2015 superior court judgment.

Procedural history. Herron filed an action to foreclose his judgment lien and named FFB as a defendant. FFB contended that its mortgage was senior to Herron’s lien. Both FFB and Herron filed summary judgment motions claiming that their respective liens had senior priority. The trial court determined that FFB’s mortgage had priority and granted FFB’s motion for summary judgment. Herron appealed.

Key rules. Indiana Code 34-55-9-2 provides that a money judgment becomes a lien on the defendant’s real property when the judgment is entered and indexed in the judgment docket in the county where the property is located. Indiana Code 32-21-4-1 states that a mortgage takes priority according to the time that it was filed in the recorder’s office of the county where the property is located. Generally, in Indiana, “priority in time gives a lien priority in right.” 

Holding. The Indiana Court of Appeals reversed the trial court and held that Herron’s judgment lien was first in time and thus senior to FFB’s mortgage.

Policy/rationale. FFB based its argument on the fact that the file of the small claims court contained a November 7, 2014 receipt that showed the 2013 judgment balance to be zero, which suggested that there was no judgment lien as of that date. FFB further asserted that the November 14, 2014 award for fees during proceedings supplemental constituted a new judgment that was later rescinded. According to FFB, therefore, on November 17, 2015, when the superior court overturned the rescission and awarded damages, a second judgment lien was created, nine months after FFB perfected its mortgage lien.

The Indiana Court Appeals rejected each of FFB’s points. Although the record from the small claims court proceedings was not crystal clear, there was nothing “determinative” showing that the original judgment for Herron had been paid in full or was otherwise satisfied or released. Also, through proceedings supplemental, Herron had an ongoing claim for attorney fees and interest that related back to the original judgment. The Court also found that the small claims court’s rescission of its prior fee award did not go into effect because the superior court ultimately overturned the rescission on appeal. In the end, the Court concluded that Herron had a single judgment lien, created May 14, 2013, which had not been satisfied. As such, Herron’s judgment lien preceded FFB’s February 23, 2015 mortgage lien and had first priority.

Related posts.

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I 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@woodenlawyers.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.


Indiana Court of Appeals Vacates Trial Court Order Domesticating Illinois Judgment

Lesson. Perhaps the only basis upon which a judgment debtor (defendant) can prevent the domestication in Indiana of a foreign judgment (a judgment entered in another state) is to contest the Indiana court’s jurisdiction (power) to enter the judgment in the first place.

Case cite. Sekerez v. Grund & Leavitt, 77 N.E.3d 193 (Ind. Ct. App. 2017).

Legal issue. Whether an Indiana trial court’s order to domesticate a foreign judgment should be set aside because the order was outside of the trial court’s jurisdiction.

Vital facts. Sekerez was a dispute between an Illinois law firm and an Indiana client regarding payment of attorney fees. The law firm filed an action against the client in Illinois that evolved into an arbitration of their claims in Indiana. The arbitrator awarded the law firm about $50,000 in damages, and the law firm returned to the Illinois court to issue a final judgment. The client objected on the grounds of jurisdiction, but the Illinois court entered the judgment for the law firm anyway. The client then filed an action in Lake Circuit Court (Indiana) to set aside the Illinois judgment under the Indiana Uniform Arbitration Act. While the Lake Circuit Court case was pending, the law firm initiated a separate action in Lake Superior Court (Indiana) to domesticate the Illinois judgment. The Lake Superior Court granted the law firm’s motion and entered final judgment in favor of the law firm and against the client.

Procedural history. The client appealed the Lake Superior Court’s judgment. The Indiana Court of Appeals’ opinion is the subject of today’s post.

Key rules. Indiana common law provides that two courts of concurrent jurisdiction cannot deal with the same subject matter at the same time. “Once jurisdiction over the parties and the subject matter has been secured, it is retained to the exclusion of other courts of equal competence until the case is determined.”

Similarly, Indiana Trial Rule 12(B)(8) prohibits one Indiana court from hearing “the same action pending in another state court of this state.”

Holding. The Court of Appeals reversed the Lake Superior Court with instructions to vacate its judgment.

Policy/rationale. The arbitration order was the exclusive basis for the Illinois judgment . The Court reasoned that the issue of whether the arbitration order was valid was already before the Lake Circuit Court when the Lake Superior Court domesticated the Illinois judgment. The client was litigating whether the Illinois court lacked jurisdiction to confirm the arbitration award when the law firm filed the Lake Superior Court case. The Court of Appeals concluded that the law firm’s effort to have the Lake Superior Court domesticate the Illinois judgment simply was an attempt to circumvent the Lake Circuit Court proceedings.

As a side note, the law firm did not utilize Indiana Code 34-54-11 “Enforcement of Foreign Judgments” to domesticate its judgment. Please click on the link below to learn more. Even if the law firm in Sekerez had followed the statute, however, the client still should have prevailed based upon the jurisdictional attack.

Related posts.

I frequently represent judgment creditors in contested collection actions. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@woodenlawyers.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.


Indiana Federal Court Finds De Facto Merger Giving Rise To Successor Liability for Contract Obligations

Lesson. Depending upon the facts, a newly-formed company can be liable for a separate, but related, company’s debts under Indiana’s “successor liability” doctrine.

Case cite. Continental Casualty v. Construct Solutions, 2017 U.S. Dist. LEXIS 76396 (S.D. Ind. 2017) (pdf).

Legal issue. Whether Company 2 was a successor company of Company 1 and thus responsible for Plaintiff’s contract damages because Company 2 was either a “de facto merger” or a “mere continuation” of Company 1.

Vital facts. Continental Casualty was a breach of contract action. About a year after Defendant Company 1 signed the contract, the owner incorporated Defendant Company 2. Both companies were commercial roofing operations. Company 1’s people controlled the operations of Company 2. The same individual was the president of, and owned, both companies. Both operated from the same location. Company 2 assumed the trade name of Company 1.

Procedural history. Continental Casualty was Judge Tonya Walton Pratt’s opinion on Plaintiff’s motion for summary judgment. Plaintiff asked for a judgment against Defendant Company 2 as the successor company for Defendant Company 1. In other words, Plaintiff sought to hold Company 2 liable for Plaintiff’s losses under its contract with Company 1.

Key rules.

Generally, in Indiana, a successor company may liable for the obligations of its predecessor if it’s a “de facto consolidation or merger” or where the successor is a “mere continuation of the seller.”

Indiana looks at the following factors to make such a determination:

1. Continuity of ownership,
2. Continuity of management, personnel and physical operation,
3. Cessation of ordinary business and dissolution of the predecessor as soon as practically and legally possible, and
4. Assumption by the successor of the liabilities ordinarily necessary for the uninterrupted continuation of the business of the predecessor.

Holding. The Court granted summary judgment in favor of Plaintiff.

Policy/rationale. The same person owned both companies. The same person was the president of both companies, which were both operated from the same location. Company 1 dissolved in early 2015, before Company 2 was formed. Plus, the companies adopted each other’s trade names and provided the same roofing services. The Court concluded that these uncontested facts were sufficient to establish that Company 2 was a de facto merger with Company 1 and, thus, was “liable as a successor company to amounts owed under the [subject contract].”

Related post. Indiana Collection Theories Of Piercing The Corporate Veil, Alter Ego, Successor Liability And Mere Continuation: Part II


Quickly: Application for Charging Order Granted

Heading out with the family for Spring Break but wanted to offer a quick post about a motion decided last year in our local federal court.  The opinion is very short, and Magistrate Judge Tim Baker's report and recommendation later was adopted by Judge Pratt.  Click here for the ruling. 

The case involved a twist to a charging order on one tenant's in common half-interest in some real estate.  The interest arose out of a purchase agreement.  The Court concluded that the  tenant's "economic interest in the [real estate] should be charged against any unsatisfied part of [judgment creditor's] judgment" against him.  The Court thus granted the judgment creditor a lien against the judgment debtor's interest in the real estate. 

The debtor claimed that he had no interest in the real estate because he did not actually financially contribute to the purchase, but the purchase agreement listed him as a tenant in common.  In arriving at his decision, Magistrate Judge also addressed the law of contribution.       


Language In Deed Overcomes Presumption Of Tenants By The Entireties Ownership, Allowing Judgment Lien To Attach

Lesson. Indiana law presumes that spouses own real estate as “tenants by the entirety.” In limited instances, however, the presumption can be overcome based upon language in the deed reflecting an intention to establish a different form of ownership.

Case cite. Underwood v. Bunger, 70 N.E.3d 338 (Ind. 2017)

Legal issue. Whether the language in the subject deed was sufficiently clear to overcome the presumption of ownership of tenants by the entirety.

Vital facts. In 2002, the owner of the subject real estate conveyed the property to the new owners through a warranty deed that contained this clause: “[Grantor] conveys and warrants to [Underwood], of legal age, and [Kinney] and [Fulford], husband and wife, all as Tenants-in-Common.” In June 2014, a six-figure damages judgment was entered against Underwood and Kinney. In November 2014, Kinney passed away but remained married to Fulford until his death.

Procedural history. In 2015, Underwood filed an action for partition to sell the real estate and distribute the proceeds, presumably to satisfy, at least in part, the judgment. Underwood claimed that she, Kinney and Fulford owned the real estate as three tenants in common. Kinney’s Estate claimed that it did not own the property and that Kinney’s interest had instead passed to Fulford, his spouse, based upon tenants by the entirety ownership. The trial court agreed with the Estate and concluded that the Kinney/Fulford marital unit was a single tenant in common with Underwood. As such, the judgment lien did not attach to Fulford’s one-half interest because the judgment was only against Kinney (and Underwood), not Fulford. Underwood appealed all the way to the Indiana Supreme Court, which issued the opinion that is the subject of today’s post.

Key rules.

The following prior post provides context for today’s submission: Execution Upon Indiana Real Estate Owned As “Tenancy By The Entireties.”

Under Indiana common law, “conveyance of real property to spouses presumptively creates an estate by the entireties.” However, the presumption “can be overcome if the instrument of conveyance reflects an intention to create some other form of concurrent ownership.”

These rules have now been codified. The operative statute is Ind. Code 32-17-3-1. The key language related to rebutting the presumption is in subsection (d)(2):

if it appears from the tenor of a contract described in subsection (a) that the contract was intended to create a tenancy in common; the contract shall be construed to create a tenancy in common.

In interpreting subsection (d)(2), the Supreme Court in Underwood articulated the following test: “in giving a fair reading to the whole instrument, we will find the presumption is rebutted if its terms reasonably reflect the parties’ intention to establish a different form of tenancy.”

Holding. The Supreme Court reversed the trial court and the Indiana Court of Appeals, which had affirmed the trial court. The Court concluded that the language in the deed specifying that the three grantees, two of whom were married, shall take the real estate “all as Tenants-in-Common" rebutted the presumption.  

Policy/rationale.

The Court felt that the phrase in the deed “all as Tenants-in-Common” showed the parties’ intent to create a tenancy in common among all three grantees. Specifically, the word “all” established that the grantor did not view “Husband and Wife” as a single entity.

    Judgment lien. The main reason I’m writing about Underwood is that the case illustrates the impact of a judgment lien in the context of real estate held by tenants by the entireties vs. tenants in common. The Court found that the interest of Kinney, one of the two judgment debtors, passed to his Estate. Thus the Estate’s one-third share of the partition sale proceeds should go to satisfy the judgment because the judgment lien attached to that third. On the other hand, Fulford, the surviving spouse, would not enjoy the tenancy by the entireties spousal exemption for half of the sale proceeds – only a third. Although the Supreme Court did not address the practical impact of the case, I’m guessing that Underwood’s goals included ensuring that two-thirds (instead of one-half) of the sale proceeds were applied to pay down (or off) the judgment and that Kinney, through his Estate, paid his pro rata share of the debt.
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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@WoodenLawyers.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.


Does A Deed-In-Lieu Of Foreclosure Automatically Release A Borrower From Personal Liability?

A deed-in-lieu of foreclosure (DIL) is one of many alternatives to foreclosure.  For background, review my post Deeds In Lieu Of Foreclosure: Who, What, When, Where, Why And How.  Today I discuss the Indiana Court of Appeals’ opinion in GMAC Mortgage v. Dyer, 965 N.E.2d 762 (Ind. Ct. App. 2012), which explored whether a DIL in a residential mortgage foreclosure case released the defendant borrower from personal liability. 

Deficiency.  In GMAC Mortgage, the borrower sought to be released from any deficiency.  The term “deficiency” typically refers to the difference between the fair market value of the mortgaged real estate and the debt, assuming a negative equity situation.  Exposure to personal liability arises out of the potential for a “deficiency judgment,” which refers to the money still owed by the borrower following a sheriff’s sale.  The amount is the result of subtracting the price paid at the sheriff’s sale from the judgment amount.  (For more on this topic, please review my August 1, 2008, June 29, 2009 and March 9, 2012 posts.) 

DIL, explained.  GMAC Mortgage includes really good background information on the nature of a DIL, particularly in the context of residential/consumer mortgages.  According to the U.S. Department of Housing and Urban Development (HUD), a DIL “allows a mortgagor in default, who does not qualify for any other HUD Loss Mitigation option, to sign the house back over to the mortgage company.”  A letter issued by HUD in 2000 further provides:

[d]eed-in-lieu of foreclosure (DIL) is a disposition option in which a borrower voluntarily deeds collateral property to HUD in exchange for a release from all obligations under the mortgage.  Though this option results in the borrower losing the property, it is usually preferable to foreclosure because the borrower mitigates the cost and emotional trauma of foreclosure . . ..  Also, a DIL is generally less damaging than foreclosure to a borrower’s ability to obtain credit in the future.  DIL is preferred by HUD because it avoids the time and expense of a legal foreclosure action, and due to the cooperative nature of the transaction, the property is generally in better physical condition at acquisition.

Release of liability in FHA/HUD residential cases.  The borrower in GMAC Mortgage had defaulted on an FHA-insured loan.  The parties tentatively settled the case and entered into a DIL agreement providing language required by HUD that neither the lender nor HUD would pursue a deficiency judgment.  The borrower wanted a stronger resolution stating that he was released from all personal liability.  The issue in GMAC Mortgage was whether the executed DIL agreement precluded personal liability of the borrower under federal law and HUD regulations.  The Court discussed various federal protections afforded to defaulting borrowers with FHA-insured loans, including DILs.  In the final analysis, the Court held that HUD’s regulations are clear:  “A [DIL] releases the borrower from all obligations under the mortgage, and the [DIL agreement] must contain an acknowledgement that the borrower shall not be pursued for deficiency judgments.”  In short, the Court concluded that a DIL releases a borrower from personal liability as a matter of law. 

Commercial cases.  In commercial mortgage foreclosure cases, however, a lender/mortgagee may preserve the right to pursue a deficiency, because the federal rules and regulations outlined in GMAC Mortgage do not apply to business loans or commercial property.  The parties to the DIL agreement can agree to virtually any terms, including whether, or to what extent, personal liability for any deficiency is being released.  The point is that the issue of a full release (versus the right to pursue a deficiency) should be negotiated in advance and then clearly articulated in any settlement documents.  A release is not automatic. 

GMAC Mortgage is a residential, not a commercial, case.  The opinion does not provide that all DILs release a borrower from personal liability, and the precedent does not directly apply to an Indiana commercial mortgage foreclosure case. 

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I represent parties in loan-related litigation.  If you need assistance with such a 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.


Sampling Of Indiana Deed Law, And Judgment Lien Attachment Issues

Lesson.  A judgment lien on real estate attaches only to the judgment debtor’s ownership interest in the real estate. If the property is owned by tenants in common, and one of the tenants is not a judgment debtor, then the lien will not impact the innocent party’s partial interest.

Case cite.  Underwood v. Bunger, 52 N.E.3d 829 (Ind. Ct. App. 2016).

Legal issue.  Whether and to what extent a judgment creditor had a valid, enforceable lien against a partial interest in real estate.

Vital facts. This case involved the interpretation of a warranty deed granted to three people. Two of the three, Kinney and Fulford, were married. A judgment creditor obtained a money judgment against Kinney and the third grantee under the deed, Underwood, but not Fulford. Later, Kinney died.

Procedural history.  The trial court granted summary judgment in favor of the judgment creditor. The court concluded that Underwood and Kinney each owned fifty percent of the real estate but that that the judgment lien attached only to Underwood’s interest.

Key rules. Indiana has three forms of concurrent ownership of real estate: (1) joint tenancy, (2) tenancy in common and (3) tenancy by the entirety.

    Tenancy by the entirety exists only between married spouses and creates ownership as a single unit. Upon death of one, the survivor holds the original grant. In other words, the transfer of title automatically occurs between the spouses upon death. Generally, if the contract to purchase the real estate or the deed itself contains no qualifying words, the married grantees hold the estate as tenants by the entirety.

    Tenancy in common is property held by two or more persons by distinct titles. They are united only by their right to possess the property, and their rights and interests are not held jointly. Black’s Law Dictionary advises that, unlike joint tenancy (see below) or tenancy by the entirety, “the interest of a tenant in common does not terminate” upon death.

    Joint tenancy was not discussed in Underwood. Black’s Law Dictionary defines this form of concurrent ownership as follows:

Joint tenants have one and the same interest, accruing by one and the same conveyance, commencing at one and the same time, and held by one and the same undivided possession. The primary incident of joint tenancy is survivorship, by which the entire tenancy on the decease of any joint tenant remains to the survivors, and at length of the last survivor.

    Resolving uncertainties.  When a married couple buys real estate jointly with a third party, the spouses take a one-half interest as tenants by the entireties, and the third party will take an undivided one-half interest as a joint tenant. The exception is if the language in the deed expresses an intent to hold otherwise. Furthermore, in Indiana, if there are words in the deed that qualify or define the estate conveyed “as to make it apparent that the parties intended the grantees to hold as tenants in common, such intention will prevail….” But as to a married couple, “all doubts are resolved in favor of estates by the entireties and against joint estates.”

Holding.  The Indiana Court of Appeals affirmed the trial court. Kinney and Fulford took their interest in the real estate as tenants by the entireties. It followed that Kinney’s interest in the real estate passed directly to Fulford, and not Kinney’s estate, upon Kinney’s death. Ind. Code 32-17-3-1. The ruling implied that Fulford’s interest in the real estate was not subject to the judgment lien.  See, Execution Upon Indiana Real Estate Owned As “Tenancy By The Entireties.”

Policy/rationale.  The Underwood opinion addressed the question of whether Underwood, Kinney and Fulford were three distinct tenants in common even though Kinney and Fulford were married. The Court held that the deed identified the couple’s relationship as spousal, even though the language in the deed also included the phrase “tenants-in-common.” The Court reasoned that the language did not overcome the presumption in favor of tenancies by the entirety because Kinney and Fulford were married and because the deed referred to them as husband and wife. “If the grantor had intended to create a tenancy in common among Underwood, Kinney, and Fulford, then the deed could have omitted the reference to Kinney and Fulford as husband and wife.”

Related posts.

Judgment Lien Principles Courtesy of Indiana Supreme Court

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I sometimes represent judgment creditors involved in lien priority and collection matters.  If you need assistance with a similar issue, 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.


Indiana Judgment Lien (10 Years) and Judgment Enforcement (20 Years) Statutes Of Limitation

Lesson.  Even though a ten-year judgment lien may expire, a judgment creditor still may enforce the judgment itself for at least another ten years.

Case cite.  Webb v. Yeager, 52 N.E.3d 30 (Ind. Ct. App. 2016).

Legal issue.  Whether a judgment creditor’s civil complaint to enforce a criminal restitution judgment was barred by the ten-year statute of limitations. 

Vital facts.  On May 3, 2004, Yeager (judgment creditor) obtained a criminal judgment against Webb (judgment debtor).  The judgment was for restitution, arising out of a theft, for about $21,000.  Later, the criminal system made a mistake, and the record showed that the judgment had been paid.  (The details aren’t pertinent here.)  Ten years and nine days later, on May 12, 2014, the judgment creditor filed an action in civil court to collect the prior judgment, which had not been paid. 

Procedural history.  The trial court granted summary judgment for the judgment creditor, and the judgment debtor appealed. 

Key rules.  Ind. Code 35-50-5-3 governs criminal restitution orders and provides that an order “is a judgment lien….”  Indiana case law holds that a restitution judgment is the practical equivalent of a civil money judgment and can be enforced in the same manner. 

By statute, a judgment lien expires after ten years.  I.C. 34-55-9-2As I wrote here in November of 2008, an underlying judgment and a resulting judgment lien are two different things.  Judgments themselves survive for twenty years.  I.C. 34-11-2-12.  In fact, a judgment never truly expires.  It’s simply presumed to be satisfied after twenty years.  But, that presumption can be rebutted.  

Holding.  The Court of Appeals in Webb concluded that, given the passing of the full ten years, the judgment lien had expired.  Nevertheless, the judgment creditor still could enforce the judgment because the judgment had not expired by the time he filed his complaint. 

Policy/rationale.  I gather that the heart of the Webb dispute surrounded the meaning of the criminal restitution statute.  The language of the statute uses the terminology “judgment lien,” instead of describing the restitution order simply as a “judgment.”  For example, I.C. 35-50-5-3(b) says that the restitution order may be enforced “in the same manner as a judgment lien created in a civil proceeding.”  One interpretation of this could be that the order, and thus the ability to collect, expires after ten years.  Relying on prior Indiana precedent, the Court didn’t see it that way. 

Related posts. 

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I sometimes represent judgment creditors involved in lien priority and collection matters.  If you need assistance with a similar issue, 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.


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. 

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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.


What Is A “Purchase-Money” Mortgage, And Does It Have Priority Over A Pre-Existing Judgment Against The Mortgagor?

Lesson.  If a loan involves a “purchase-money” mortgage, then the mortgage will have priority in title over a pre-existing judgment against the purchaser/mortgagor.  The law favors lenders over judgment creditors in this instance.   

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

Legal issue.  What constitutes a purchase-money mortgage, and will such a mortgage lien be senior to a pre-existing judgment against the purchaser? 

Vital facts.  Matthies obtained a judgment against SFIP in 2012.  In 2013, HSBC agreed to sell its real estate to SFIP, but HSBC required the transaction to be a cash deal.  SFIP needed financing for the purchase, however, and on April 29, 2013 it executed a mortgage in favor of Nelson for the purchase of the real estate.  Payment for the purchase came via wire transfer from Nelson to SFIP at 4:00 p.m. that day.  However, the actual closing was not until the next day, meaning that SFIP signed the promissory note to Nelson and HSBC executed the deed to SFIP on April 30th.  The Matthies judgment against SFIP remained outstanding following the sale.    

Procedural history.  Matthies sought to enforce her judgment lien against SFIP.  The trial court ruled against Matthies, and she appealed.

Key rules.  A purchase-money mortgage is “one which is given as security for a loan, the proceeds of which are used by the mortgagor to acquire legal title to the real estate.”

The test used to determine whether a mortgage is purchase money is (1) “whether the proceeds are applied to the purchase price” and (2) “whether the deed and mortgage are executed as part of the same transaction.”

Generally, the law protects the superior equity of the mortgagee to be paid the purchase money before the property shall be subjected to other claims against the purchaser:

when the deed and mortgage are executed as part of the same transaction the purchaser does not obtain title to the property and then grant the mortgage; rather, he is deemed to take the title already charged with the encumbrance.  Because there is no moment at which the judgment lien can attach to the property before the mortgage of one who advances purchase money, the prior judgment lien is junior to the purchase-money mortgage.

Holding.  The Indiana Court of Appeals in Amici affirmed the trial court’s finding that Nelson’s mortgage was a purchase-money mortgage, which had priority over Matthies’s judgment lien. 

Policy/rationale.  First, the proceeds of Nelson’s loan to SFIP were applied as payment for the purchase of the property.  Second, the parties executed the deed and the mortgage as part of the same transaction.  In short, the Court concluded that SFIP and Nelson intended for the loan to be used to purchase the property.  “The mere fact that some of the financing documents were signed on the day before the closing took place does not, in and of itself, indicate that the execution of the documents was a separate transaction.”  Additionally, public policy favors providing a system under which a purchaser can obtain funding to purchase property. 

Related posts. 

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I frequently represent judgment creditors and lenders, as well as their mortgage loan servicers, that are 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.


An “In Rem” Judgment Limits Collection To The Mortgaged Property

Lesson.  Borrowers are not personally liable for any deficiency resulting from the entry of an in rem judgment. 

Case cite.  Elliott v. Dyck O’Neal, Inc., 46 N.E.3d 448 (Ind. Ct. App. 2015).

Legal issue.  Were defendant borrowers entitled to a refund of monthly garnishment payments they made in connection with proceedings supplemental following an in rem judgment?

Vital facts.  The Elliotts defaulted under their mortgage loan with Fifth Third Bank, which obtained a judgment and decree of foreclosure.  The proposed order Fifth Third Bank tendered to the trial court spelled out an in rem (against the property) judgment, as opposed to an in personam (against the person) judgment.  The trial court signed off on the proposed order.  This meant that the judgment was against the Elliotts’ real estate but not the Elliotts individually.  After the sheriff’s sale, there was a deficiency remaining from the judgment amount.  Fifth Third Bank later assigned its interest in the judgment to O’Neal, which initiated proceedings supplemental against the Elliotts to collect the deficiency.  The Elliotts, who were without counsel initially, agreed to pay $50/month as part of a garnishment order.  Four years later, the Elliotts, with counsel, moved for a refund of the money they paid due to the fact that the judgment was in rem only.  O’Neal responded by claiming that the in rem limitation on the original judgment was a clerical error. 

Procedural history.  The trial court denied the Elliotts’ motion for refund, and the Elliotts appealed.  

Key rules.  Mortgage foreclosure cases are “essentially equitable” actions to enforce a lien against property to satisfy a debt.  Generally, trial courts have discretion to fashion equitable remedies that are “complete and fair to all parties involved.”   

Holding.  The Indiana Court of Appeals reversed the trial court and held that the Elliotts were entitled to the equitable relief of a refund, plus interest, of the payments they made due to the lack of an in personam judgment in the original foreclosure order. 

Policy/rationale.  There was no dispute that the foreclosure order did not entitle O’Neal to collect a personal judgment from the Elliotts.  The Court was not persuaded by O’Neal’s position that the language in the judgment was a mistake.  The Court granted the Elliotts a refund “given the unique and specific facts of this case and because equity so demands.”  The money they paid was pursuant to an improper garnishment order based on an in rem judgment.  The case involved “significant equitable considerations” that included the fact that the Elliotts were unrepresented at the time.  (For more on the Court’s rationale, review the opinion, which also addressed O’Neal’s unsuccessful effort to amend the judgment.) 

Related posts. 

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Part of my practice is to defend lenders and their servicers in contested foreclosures and consumer finance litigation.  If you need assistance with such matters in Indiana, please call me at 317-639-6151 or email me at john.waller@woodenmclaughlin.com.  Also, you can receive my blog posts on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.


In Indiana, An Unrecorded Mortgage Has Priority Over A Subsequent Judgment Lien

Lesson.  While perhaps counterintuitive, in a lien priority dispute between a mortgagee holding an unrecorded prior mortgage and a creditor holding a perfected subsequent judgment lien, the mortgagee will prevail.  

Case cite.  In Re Moss, 2015 Bankr. LEXIS 4413 (N.D. Ind. 2015) (.pdf). 

Legal issue.  Whether an unrecorded mortgage has priority over a subsequent judgment lien.

Vital facts.  The facts were undisputed that the mortgage was not recorded.  There also was no dispute that the judgment lien, which had been created after the execution of the mortgage, was perfected.

Procedural history.  Moss arose out of a Chapter 7 bankruptcy case and specifically an adversary proceeding filed by the Trustee against various creditors.  The opinion dealt with cross-motions for summary judgment filed by the Trustee and a lender/mortgagee.  Without getting too far into the bankruptcy weeds, the opinion in part involved the Trustee’s 11 U.S.C. 544(a)(3) lien avoidance powers, as well as the Trustee’s section 547(b) and 551 powers to avoid preferential transfers. 

Key rules. 

  • Very generally, section 544(a)(3) “empowers a bankruptcy trustee to avoid any transfer of property that is avoidable by a bona find purchaser of real property.”  Indiana real estate law controls who would be a bona fide purchaser and “what constitutes constructive notice sufficient to defeat a bankruptcy trustee’s section 544(a)(3) power.”
  • Mortgages in Indiana take priority according to the time of filing.  Ind. Code 32-21-4-1(b).  This statute’s purpose “is to protect subsequent purchasers, mortgagees, and lessees of real property.” 
  • Indiana judgments constitute a lien upon real estate when the judgment “has been duly entered and indexed in the judgment docket.”  I.C. 34-55-9-2.  However, “a prior equitable interest [in the land] will prevail over a judgment lien.”  In other words, judgment liens are subordinate to prior “legal or equitable liens.” 
  • The Indiana Supreme Court has determined that “the [equitable] lien of an unrecorded mortgage has priority over that of a subsequent judgment.”  As between the parties to a mortgage, the lack of recording does not affect its validity. 

Holding.  The Court granted summary judgment for the Trustee and held that the judgment lien was subordinate to the unrecorded mortgage because the judgment creditor could not be considered a BFP (bona fide purchaser for value).  Again, the bankruptcy aspect of the opinion was somewhat complicated and beyond the scope of my blog.  But, for the record, the Court concluded that the Trustee, itself a BFP as a matter of bankruptcy law, could “effectively recover [the mortgagee’s] priority status for the benefit of the bankruptcy estate” so as to render the interest of the judgment creditor secondary and subject to the Trustee’s “recovered [senior] interest.”  Then, ironically, the Trustee was able to use that senior status to avoid the mortgage as a preferential transfer – read the opinion for a deeper dive into the BK issues.   

Policy/rationale.  The outcome in Moss turned on the purpose of the recording statute, which “operates to protect only subsequent good faith purchasers, lessees, or mortgagees for valuable consideration.”  The statute could not be used as a sword by the judgment creditor.  A judgment lien is not purchased for consideration, unlike deeds, leases or mortgages that are consensual in nature.  Judicial liens are creatures of statute and are not granted “for value.”  Thus the judgment creditor in Moss was not a BFP and, as such, could not defeat the mortgage.  In the context of the bankruptcy, the Court reasoned that “not upholding the unrecorded mortgage … would work to provide a windfall to some creditors at the expense of others who had no part in the failure to record.” 

Related posts. 

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I frequently represent judgment creditors and lenders, as well as their mortgage loan servicers, that are 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. 


Judgment Lien Principles Courtesy Of The Indiana Supreme Court

This week’s post should be read along with last week’s post:  Indiana Supreme Court Tackles Lis Pendens Law.  The topic of discussion is JPMorgan Chase v. Claybridge, 39 N.E.3d 666 (Ind. 2015).  Today’s question surrounds whether a judgment, which was not properly docketed/indexed, was nonetheless a valid and enforceable lien. 

A key fact in Claybridge was that a homeowner’s association had obtained a personal judgment against a property owner.  However, the county clerk, in an oversight, “mistakenly failed to enter the [judgment] on the Judgment Docket.” 

In addressing Indiana judgment lien law, the Court noted the following:

  • A “lien” is a claim “on another’s property” to secure a debt.  And, an action to enforce a lien is in rem (as to property), not in personam (as to individual). 
  • By statute, a personal judgment does not become a judgment lien on real estate until “the judgment is recorded in the docket in the county where the realty held by the debtor is located.”  Indiana’s judgment lien statute at Ind. Code 34-55-9-2 makes judgments a lien “after the judgment is entered and indexed.” 
  • Despite the judgment lien statute requiring the judgment to be properly indexed, Indiana common law provides that a judgment always constitutes a lien between the parties to the judgment and between the parties who have actual notice of the judgment.  Moreover, a judgment constitutes an in rem real estate interest. 

The Court in Claybridge concluded that, although the HOA’s judgment was unrecorded, the HOA held an enforceable judgment lien as between it and the defendant/owner.  In other words, the failure to index the judgment did not wholly destroy its effect as a lien.  On the other hand, the lien was not enforceable as to third parties unless they had actual notice of the lien. 

Related posts.


Charging Orders: Rights Of A Judgment Creditor Against A Membership Interest Of An Indiana Limited Liability Company

Lesson.  A charging order is the only remedy for a judgment creditor against a judgment debtor's member’s interest in an Indiana limited liability company (LLC), and the remedy is quite limited.

Case cite.  In Re: Boone County Utilities, 2014 Bankr. LEXIS 3943 (S.D. Ind. 2014) (.pdf).

Legal issue.  What are the rights of a judgment creditor against a judgment debtor's membership interest in an Indiana LLC?  More specifically, can a judgment creditor garnish a judgment debtor's interest in an LLC? 

Vital facts.  Judgment creditor (Branham) held a judgment against an LLC (Newland), which was the sole member of BCU, another LLC.  Branham sought to garnish Newland's interest in BCU in order to collect on the judgment.  

Procedural history.  The purpose of the Boone opinion was to rule on a discovery dispute between Branham and BCU, which was named as a garnishee defendant.  The case dealt with whether a deposition of a representative of BCU could occur and, if so, what topics could be covered in the deposition. 

Key rules.  The discovery battle in Boone gave rise to a great discussion by the Court of Indiana LLC law, including judgment enforcement and charging orders.  Here are some of rules:

  • Ind. Code 23-18-6-7 says that a judgment creditor can seek a charging order against an LLC.
  • A charging order grants to the judgment creditor “only the rights of an assignee of the member’s economic interest (the right to payment and distribution) in the LLC.”
  • A charging order does not result in the judgment creditor becoming a member of the LLC.
  • Indiana’s Business Flexibility Act (Ind. Code 23-18), which controls LLCs, provides that, while a membership interest in an LLC is the member’s personal property subject to execution, members have no direct interest in the LLC’s assets.
  • Thus a member’s interest in an LLC is limited by Ind. Code 23-18-1-10 “to the economic rights [to payments/distributions from the LLC] and nothing more.” 

Holding.  The Court concluded that a charging order was the only remedy for Branham against Newland's member interest in BCU - “a very limited and possibly unsatisfactory remedy.”  Branham was not entitled to membership in Newland and was not entitled to participate in corporate actions.  Branham was not permitted to force a monetary distribution or to insist upon inspecting Newland's books and records.  Moreover, the Branham did not acquire rights to the Newland's membership in BCU or to participate in the corporate actions, management, governance or direction of BCU.  At best, Branham could obtain BCU's distributions to Newland, if any.  As to the discovery dispute, the Court generally concluded that Branham could inquire into facts reasonably calculated to lead to admissible evidence about any such distributions, but little else.    

Policy/rationale.  The Court in Boone did not address much policy in its opinion.  I think the point here is that the law generally is set up to shield investors and owners of a corporate entity against personal liability, unless there is proof that the corporate veil should be pierced.  As a practical matter, charging orders against an Indiana LLC generally have little value.  In seemingly rare instances, if an LLC has money, and if it decides to distribute that money to its members, a charging order requires the LLC to redirect such payment from the judgment debtor to the judgment creditor.  When and how this would happen, if ever, could be the subject of its own post.  If you’ve seen or heard of a charging order netting money to a judgment creditor, please share your story in the comment section below.  I’d love to hear about it as I’ve yet to see the tool work myself.     

Related posts.    


6 Steps To Domesticate A Foreign Judgment In Indiana

If you hold a judgment entered in a state other than Indiana, and if you believe the judgment debtor has assets in Indiana that could satisfy the judgment, then keep reading. The hoops through which you must jump to reach those assets are outlined in Indiana Code § 34-54-11 “Enforcement of Foreign Judgments.”

I.C. § 34-54-11. Enacted in 2003, and amended in 2010, this Indiana statute tells you just about everything you need to know. Here are the six major steps:

1. Wait at least twenty-one days after the entry of the judgment in the original (non-Indiana) court.

2. File a copy of the foreign judgment, authenticated in accordance with 28 U.S.C. 1963 or any applicable Indiana statutes, in the clerk’s office of any Indiana county.

3. File an affidavit, signed by the judgment creditor, with the clerk that states: a. the name/address of the judgment debtor; and b. the name/address of the judgment creditor.

4. Send a notice of the filing of the foreign judgment to the judgment debtor. Ensure the clerk also has sent the same notice to the judgment debtor. See, I.C. § 34-54-11-2(b) and (c). The clerk’s notice specifically must contain: a. the name and address of the judgment creditor; and b. the name and address of the judgment creditor’s attorney, if any.

5. File proof of your mailing from #4 with the clerk. (Please note: the lack of mailing by the clerk does not affect the viability of the proceedings so long as the judgment creditor files proof of its mailing to the judgment debtor.)

6. Pay a filing fee, which is $141 currently.

Once the filing and notice requirements have been met, the judgment creditor is free to proceed as if it holds an Indiana judgment. In other words, you may begin to enforce the judgment by execution or other process.

Statutory changes – mailing and timing. The 2010 amendments deleted the requirement for more traditional constitutional service of process (i.e., certified mail or proof of hand delivery). Instead, it would appear that an overnight-type mailing, which establishes delivery to the address, should suffice. Finally, there is no longer a statutory twenty-one day waiting period to begin post-domestication execution proceedings from the date of delivery of the notice.  Execution can commence as soon as steps 1-6 have been met.

Defenses. My understanding always has been that, in cases of domesticating foreign judgments in Indiana, the judgment debtor’s (the defendant’s) only defense relates to jurisdiction. In other words, the judgment debtor only can attack the validity of the judgment (halt enforcement) by establishing that the original court did not have the power to enter the judgment in the first place – an unlikely scenario. Otherwise, the judgment essentially is presumed to be valid, and the underlying case will not be re-litigated in Indiana. The other potential barrier is if the defendant files an appeal in the original case. An appeal generally will stay the enforcement of the foreign judgment in Indiana until the underlying case concludes.

Old school. I.C. § 34-54-11-5 states that the statute “does not impair” the right to bring an action to enforce a foreign judgment by other means. Before the enactment of the statute, it was common to file a complaint to domesticate (certify) the non-Indiana judgment and to follow all the normal rules and procedures applicable to new lawsuits. I no longer see a benefit to this course of action. The new statute now allows the judgment creditor, initially, to bypass the judge because a separate Indiana court order domesticating or certifying the foreign judgment is not required, unless the debtor files a notice under Sections 2 or 4. The statutory formula should result in the enforcement of a foreign judgment more quickly and, therefore, more inexpensively.

If as an out-of-state judgment creditor you need to pursue the assets of a judgment debtor that are located in Indiana, please contact me or another Indiana lawyer to assist with the process. I.C. § 34-54-11, the relatively new “Enforcement of Foreign Judgments” statute, is your ticket to an expeditious and cost-effective enforcement of your lien.


Indiana Deficiency Judgments: Separate Action Not Applicable

 

Last week, an out-of-state lawyer and reader of my blog asked a question I’ve received several times previously – whether Indiana has a separate process for post-sheriff’s sale deficiency suits.  In this instance, he was reading my 4/22/08 post, How Much Should A Lender/Senior Mortgagee Bid At An Indiana Sherriff’s Sale?, and had some follow-up questions. 

My definition.  The terminology “deficiency judgment” refers to the amount of the judgment remaining after deducting the price paid at the sheriff’s sale or, more generally, the difference between the debt amount and the value of the collateral securing the debt.

Indiana’s process.  It’s my understanding that some states require post-sale deficiency actions.  Not in Indiana.  Here, a judgment entered in a mortgage foreclosure action typically is comprised of two elements.  The first is a money judgment on the promissory note and/or guaranty, and the second is a decree of foreclosure based on the mortgage.  The deficiency is a product of the sheriff’s sale.  In Indiana, a deficiency judgment isn’t really a technical or statutory term.  More than anything, the words simply describe the net amount owed by a borrower or guarantor following a sheriff’s sale.

One judgment.  So, as to Indiana, unlike some other states, a personal judgment (against a borrower or a guarantor) for any post-sale deficiency actually occurs before the sheriff’s sale takes place.  There is no second procedural step or subsequent process to establish a deficiency judgment.  In fact, as noted in my 8/1/08 post Full Judgment Bid = Zero Deficiency, ultimately there may be no deficiency (residual money judgment) if the sheriff’s sale price meets or exceeds the amount of the judgment. 


Judgments Cannot Be Collected Directly From Separate, Albeit Related, Corporate Entities

Lenders and other parties often are frustrated trying to collect business debts owed by assetless corporate entities.  This is especially true when it’s known that there are related, healthy entities owned by the same person.  Indiana Regional Council of Carpenters v. First American Steel, 2013 U.S. Dist. Lexis 79562 (N.D. Ind. 2013) (.pdf) helps explain the fundamentals of corporate entity judgment collection and why separate and distinct entities are not liable for the debts of another. 

Pertinent parties.  Plaintiff obtained a judgment against defendants First American Steel, LLC (“Steel LLC”) and its owner Castellanos, who also owned a company named First American Construction, Inc. (“Construction, Inc.”).  Power and Sons Construction, named as a garnishee defendant in Plaintiff’s proceedings supplemental, owed money to Construction, Inc. but not to Steel, LLC or to Castellanos.

Collection theory.  The First American Steel opinion dealt with Plaintiff’s efforts to compel Power and Sons to turnover money it owed to Construction, Inc.  In other words, Plaintiff asked the trial court for an order directing Power and Sons to pay to Plaintiff the money Power and Sons owed to Construction, Inc.  Castellanos contested the motion on grounds that Power and Sons could not be ordered to turnover money due to a non-party to the underlying action.

Execution basics.  In Indiana, a judgment-creditor (plaintiff) carries the burden of demonstrating that the judgment-debtor (defendant) has property or income subject to execution (collection).  Rules of property govern whether the judgment-debtor holds an interest in the targeted property.  The core issue in First American Steel was whether the judgment-debtor, Castellanos, held an interest in the debt owed by Power and Sons.  If so, then Plaintiff could step into the shoes of Castellanos and collect the debt.  Thus the question was whether the money owed by Power and Sons to Construction, Inc. was the personal property of Castellanos. 

Separate and distinct.  The Court noted that a corporation is a legal entity created by the state that has its own legal identity.  People who own stock in a corporation do not own the capital of the corporation.  Instead, the capital belongs to the corporation as a legal person.  “Because a corporation is a separate legal entity, although Castellanos owns the corporation in its entirety, his ownership interest is distinct from the corporate assets.”  In other words, Castellanos’ personal property consisted “of his shares of the corporation, not the corporate assets themselves.”  (See also:  Does A Guarantor’s Bankruptcy Stop A Foreclosure Case Against the Borrower?)

Motion denied.  Because the money Plaintiff sought was an asset of Construction, Inc. (a separate and distinct legal entity) and not Castellanos, ordering Construction, Inc. to turn over the funds “essentially would hold it liable for the debts of another.”  No can do.  Plaintiff therefore failed to meet its burden to demonstrate that the property was subject to turnover.

Alternatives.  The Court noted that Plaintiff could have, if supported by the facts, extinguished the fictional separation between Castellanos and Construction, Inc. (his corporation) by piercing the corporate veil or by showing the company was being used as an alter ego.  The Court also stated that, if Construction, Inc. was dissolved or in the process of dissolving, then the assets of the corporation “would become the personal property of the owner (Castellanos), provided there were no creditors of that corporation to absorb the assets.”  Instead of pursuing Construction, Inc. directly, Plaintiff could have explored those theories to effectively terminate the separation between Castellanos, the owner, and his corporation.  The Court in First American Steel said that Plaintiff made no attempts to establish grounds for those remedies.


Execution Upon Indiana Real Estate Owned As “Tenancy By The Entireties”

Is real estate that spouses own jointly subject to execution to satisfy a judgment entered against only one of the spouses?  Not in Indiana.

Definition.  Black’s Law Dictionary’s definition of “tenancy by the entireties” is:

A tenancy which is created between a husband and wife and by which together they hold title to the whole with right of survivorship . . ..  It is essentially a “joint tenancy,” modified by the common-law theory that husband and wife are one person, and survivorship is the predominant and distinguishing feature of each.

Indiana’s rules.  As a matter of law, real estate owned by a husband and wife is held under a form of ownership known as “tenancy by the entireties.”  There are only two requirements for a tenancy by the entireties to exist:  (1) that spouses be legally married at the time of the conveyance; and (2) that the deed include both spouse’s names.  No “magic language” is required on the deed.  If, for example, the deed states that the grantor conveys the real estate “to Eddie Doe and Betty Doe, husband and wife,” then under Indiana law the couple owns the real estate as tenants by the entireties.

Exempt.  In Indiana, a creditor of one spouse cannot execute upon real estate owned as tenants by entireties.  See Ind. Code § 34-55-10-2(C)(5); see also Diss v. Agri Bus. Int’l, 670 N.E.2d 97, 99 (Ind. Ct. App. 1996) (“A tenancy by the entirety is immune from seizure in satisfaction of the individual debts of either of the co-tenant spouses.”).  Thus, any real estate owned jointly as spouses is exempt from collection by any creditor that obtains a judgment against one spouse individually. 

Sale proceeds/rents.  As a general rule, proceeds arising from the sale of entireties property also are exempt from collection by the creditors of one spouse.  Thus, where entireties property is sold, the sale proceeds do not lose their exemption protection so long as no action is taken contrary to treatment as entireties property (i.e., the proceeds are not split, divided or otherwise designated to either spouse’s individual creditors) and/or there is a particular statement by the couple that they intend the proceeds to be, and are, held as entireties property.  Whitlock v. Public Service Company of Indiana, Inc., 159 N.E.2d 280 (Ind. 1959).  On the other hand, rents are not immune. 

Co-borrowers/guarantors.  These laws protect an innocent spouse or, in other words, a spouse that was not a defendant in the lawsuit or a party to the underlying transaction.  The entireties exemption explains why, on the front-end of a deal, a lender might insist upon spouses co-signing a note or require guaranties from both spouses, even though only one of the spouses is in the business.  If both spouses are judgment debtors, co-borrowers or co-guarantors, then their real estate held as tenancy by the entireties is not shielded from post-judgment collection. 

Thanks to my colleague Matt Millis for his input into this post.  He took the lead with the legal research this week and, as always, is an effective post-draft editor for me. 


Indiana No-Nos: Confessions Of Judgment And Cognovit Notes

An out-of-state client recently asked whether Indiana allows “confessions of judgment.”  Some states permit these, but Indiana is not one of them.

Definition.  Black’s Law Dictionary defines a “confession of judgment,” in part, as:

The act of a debtor [borrower] in permitting judgment to be entered against him by his creditor [lender], for a stipulated sum, by a written statement to that effect . . . without the institution of legal proceedings of any kind . . ..

These essentially allow a judgment to be entered without a lawsuit. 

Cognovit note.  A confession of judgment goes hand in hand with a “cognovit note”.  The Indiana Court of Appeals has cited to the following common law definition of such a note:

[a] legal device by which a debtor [borrower] gives advance consent to a holder’s [lender’s] obtaining a judgment against him or her, without notice or hearing.  A cognovit clause is essentially a confession of judgment included in a note whereby the debtor agrees that, upon default, the holder of the note may obtain judgment without notice or a hearing. . .  The purpose of a cognovit note is to permit the noteholder to obtain judgment without the necessity of disproving defenses which the maker of the note might assert . . .  A party executing a cognovit clause contractually waives the right to notice and hearing. . . .

Jaehnen v. Booker, 800 N.E.2d 31 (Ind. Ct. App. 2004).  Indiana has codified the definition of a cognovit note at Ind. Code § 34-6-2-22.  As you can imagine, cognovit notes and confessions of judgment can be powerful loan enforcement tools for lenders. 

Prohibited.  Cognovit notes and confessions of judgment are prohibited in Indiana.  In fact, a person who knowingly procures one commits a Class B misdemeanor pursuant to I.C. § 34-54-4-1.  The Jaehnen Court suggested there is an “evil” associated with of obtaining judgment against a borrower without service of process or the opportunity to be heard. 

An aside.  The Jaehnen case addressed the issue of whether a party is precluded from enforcing a promissory note merely because it contained a cognovit provision.  The Court noted that the plaintiff did not avail himself of the specific cognovit provision in the note.  He sought payment only after filing a complaint, providing for service of process and allowing the defendant the opportunity to hire an attorney and to be heard.  The Court held that the illegal provision did not destroy the overall negotiability of the note.  In other words, cognovit paragraphs may be deleted by the plaintiff/lender/payee without destroying the right to a judgment on the note in a standard lawsuit. 

Don’t be confused.  Indiana has a statute entitled “Confession of judgment authorized” at I.C. § 34-54-2-1.  However, the authorized confession of judgment is a different animal than what I discuss above.  The statute states:

Any person indebted or against whom a cause of action exists may personally appear in a court of competent jurisdiction, and, with the consent of the creditor or person having the cause of action, confess judgment in the action. 

This confession of judgment is not a unilateral filing by a creditor but rather an event arising within a standard lawsuit following notice and an opportunity to be heard.


Indiana Judgment Liens Are Subordinate To Prior Liens, REVISITED

The Indiana Supreme Court in 2010 reversed the Indiana Court of Appeals’ decision that was the subject of my 2009 post, Indiana Judgment Liens Are Subordinate to Prior LiensSee, Johnson v. Johnson, 920 N.E.2d 253 (Ind. 2010).  For purposes of this blog, the essential points in my January 2009 post remain unchanged.  The Indiana Supreme Court’s take on the situation, however, warrants some comment.

The circumstances.  Johnson arose out of divorce proceedings, specifically a settlement and divorce decree.  The husband agreed that the settlement created a judgment lien (under Ind. Code § 34-55-9-2) in favor of the wife on the husband’s farm.  The wife agreed that a bank’s mortgage on the husband’s farm, which mortgage secured a line of credit to operate the farm, had priority over the wife’s judgment lien.  The disagreement surrounded lines of credit entered after the date of the settlement and resulting judgment lien.  The wife essentially argued that her lien was only subordinate up to the historical amount needed for past farm operations.  The husband claimed that the settlement agreement subordinated the wife’s lien priority without limit. 

General priority rules.  The Indiana Supreme Court thoroughly discussed the nature of the wife’s lien.  Indiana common law states that “priority in time gives a lien priority in right.”  Also, a lien is discharged when the underlying debt is paid.  Further, “when a lien with first priority is discharged, the second lien takes its place in priority, and subsequent liens would be junior to it.”  However, by agreement, typically labeled a “subordination agreement,” an individual may waive a lien’s priority.  As noted in my 2009 post, and as reiterated by the Indiana Supreme Court, “the taking of a new note and mortgage for the same debt upon the same land will not discharge the lien of the first mortgage unless the parties so intended.”  Thus if the farm’s debt merely was being renewed, then the bank’s lien would retain its superiority.  In Johnson, instead of merely renewing the debt, the husband sought to incur new debt to pay the wife for her interest in the farm. 

Subordination.  The specific question before the Court was whether the trial court had the authority to modify the wife’s lien to permit the husband to finance his divorce obligations.  The wife, while agreeing to subordinate her lien to the bank’s in an amount sufficient to continue consistent operation of the farm, did not agree to a finance of the divorce settlement.  The Court stated that any order subordinating the wife’s lien to the bank’s for amounts over and above past operational amounts would result in an impermissible modification of the prior deal:

We have already determined that subordinating [wife’s] lien up to an amount necessary to maintain the farm’s operation is not a modification but an enforcement.  Once having approved the parties’ settlement agreement and incorporated it in the device, a court directive compelling [wife] to do more than that by subordinating her lien to allow [husband] to finance his divorce obligations constituted a modification and was impermissible.

Johnson informs parties to divorce proceedings more than it does parties to loan enforcement/foreclosure proceedings.  Nevertheless, the Indiana Supreme Court’s general statements regarding Indiana lien law are important to bear in mind as transactions are closed, loans are enforced and work-outs are accomplished. 


When Can Post-Judgment Collection Efforts Begin In Indiana?

How long must the holder of an Indiana judgment wait before executing on the judgment?  The answer depends on whether the case is in state or federal court.  Two opinions by Magistrate Judge Cherry address that issue and other proceedings supplemental basics Artmann v. Center Garage, 2012 U.S. Dist. LEXIS 153966 (N.D. Ind. 2012) (“Artmann I” - .pdf) and 2012 U.S. Dist. LEXIS 160908 (N.D. Ind. 2012) (“Artmann II” - .pdf). 

Procedural posture.  In Artmann I, the U. S. District Court for the Northern District of Indiana entered judgment in plaintiff’s favor, and one day later plaintiff filed its motion seeking to freeze, and collect upon, defendant’s bank accounts pursuant to Ind. Code §§ 28-9-3-4 and 28-9-4-2.  The opinion dealt with plaintiff’s motion and defendant’s corresponding motion to quash plaintiff’s motion. 

14 days.  The defendant contended that plaintiff’s efforts were premature.  Specifically, Federal Rule 62(a) provides for a 14-day stay of execution on a judgment.  The purpose of the rule is to “afford litigants an ample period of time to consider whether to appeal, to file a motion for new trial and/or to seek a stay of execution of judgment.”  Plaintiff argued that the rule did not bar its request for interrogatories and a hold because plaintiff sought only to “preserve” defendant’s property for eventual satisfaction.  Plaintiff stipulated that it would not actually collect any money until after the 14-day stay had expired. 

Yes and no.  The Court concluded that it could not permit garnishment proceedings before the expiration of the 14-day stay.  As such, plaintiff filed its motion too early.  Clearly the Court could not issue any order granting the motion until the stay ended.  Having said that, the ultimate result in Artmann I was a practical one in that the Court allowed plaintiff’s motion to remain pending until the expiration of the stay period.  (I learned that the Court granted plaintiff’s motion on day 15.) 

State law.  Indiana state court Rule 62(A) does not articulate a 14-day automatic stay of execution, or any stay whatsoever.  Historically, the Indiana state rule provided for a 60-day automatic stay, which later evolved into a 30-day stay and ultimately to no stay at all.  As such, the Artmann I holding only applies in federal court proceedings.  Plaintiffs in Indiana state courts may undertake post-judgment collection efforts immediately.  (Note:  In instances of enforcing a foreign judgment in Indiana, the domestication process cannot commence until 21 days after the entry of the judgment in the original [non-Indiana] court.)      

Pro supp basics.  Artmann II dealt with defendant’s contention that plaintiff’s Artmann I motions did not follow certain technical requirements for proceedings supplemental.  The Artmann II opinion provides a nice summary for judgment creditors and their counsel struggling with the nuts and bolts of proceedings supplemental in federal court.  Specifically, judgment creditors need to remain mindful that, under Indiana law, before courts can entertain a garnishment motion under I.C. §§ 28-9-3-4 and 28-9-4-2, creditors must first (or simultaneously) file a separate motion for proceedings supplemental.

Pro supp relief.  Finally, for those wondering what “proceedings supplemental” can accomplish, the Artmann II opinion noted the three fundamental types of relief available:  (1) requiring a judgment debtor (a defendant) to appear in court for an examination as to available property, (2) requiring a judgment debtor to apply particular property to satisfy the judgment and (3) joining a third-party (a garnishee) to the action and requiring that party to answer as to property held by that party for the judgment debtor.   For more posts on garnishment and proceedings supplemental, including freezing bank accounts, please click on the those Categories to your right.


6 Steps To Domesticate A Foreign Judgment In Indiana

If you hold a judgment entered in a state other than Indiana, and if you believe the judgment debtor has assets in Indiana that could satisfy the judgment, then keep reading. The hoops through which you must jump to reach those assets are outlined in Indiana Code § 34-54-11 “Enforcement of Foreign Judgments.”

I.C. § 34-54-11. Enacted in 2003, and amended in 2010, this Indiana statute tells you just about everything you need to know. Here are the six major steps:

1. Wait at least twenty-one days after the entry of the judgment in the original (non-Indiana) court.

2. File a copy of the foreign judgment, authenticated in accordance with 28 U.S.C. 1963 or any applicable Indiana statutes, in the clerk’s office of any Indiana county.

3. File an affidavit, signed by the judgment creditor, with the clerk that states: a. the name/address of the judgment debtor; and b. the name/address of the judgment creditor.

4. Send a notice of the filing of the foreign judgment to the judgment debtor. Ensure the clerk also has sent the same notice to the judgment debtor. See, I.C. § 34-54-11-2(b) and (c). The clerk’s notice specifically must contain: a. the name and address of the judgment creditor; and b. the name and address of the judgment creditor’s attorney, if any.

5. File proof of your mailing from #4 with the clerk. (Please note: the lack of mailing by the clerk does not affect the viability of the proceedings so long as the judgment creditor files proof of its mailing to the judgment debtor.)

6. Pay a filing fee, which is $133.00 currently.

Once the filing and notice requirements have been met, the judgment creditor is free to proceed as if it holds an Indiana judgment. In other words, you may begin to enforce the judgment by execution or other process.

Statutory changes – mailing and timing. The 2010 amendments deleted the requirement for more traditional constitutional service of process (i.e., certified mail or proof of hand delivery). Instead, it would appear that an overnight-type mailing, which establishes delivery to the address, should suffice. Finally, there is no longer a statutory twenty-one day waiting period to begin post-domestication execution proceedings from the date of delivery of the notice.  Execution can commence as soon as steps 1-6 have been met.

Defenses. My understanding always has been that, in cases of domesticating foreign judgments in Indiana, the judgment debtor’s (the defendant’s) only defense relates to jurisdiction. In other words, the judgment debtor only can attack the validity of the judgment (halt enforcement) by establishing that the original court did not have the power to enter the judgment in the first place – an unlikely scenario. Otherwise, the judgment essentially is presumed to be valid, and the underlying case will not be re-litigated in Indiana. The other potential barrier is if the defendant files an appeal in the original case. An appeal generally will stay the enforcement of the foreign judgment in Indiana until the underlying case concludes.

Old school. I.C. § 34-54-11-5 states that the statute “does not impair” the right to bring an action to enforce a foreign judgment by other means. Before the enactment of the statute, it was common to file a complaint to domesticate (certify) the non-Indiana judgment and to follow all the normal rules and procedures applicable to new lawsuits. I no longer see a benefit to this course of action. The new statute now allows the judgment creditor, initially, to bypass the judge because a separate Indiana court order domesticating or certifying the foreign judgment is not required, unless the debtor files a notice under Sections 2 or 4. The statutory formula should result in the enforcement of a foreign judgment more quickly and, therefore, more inexpensively.

If as an out-of-state judgment creditor you need to pursue the assets of a judgment debtor that are located in Indiana, please contact me or another Indiana lawyer to assist with the process. I.C. § 34-54-11, the relatively new “Enforcement of Foreign Judgments” statute, is your ticket to an expeditious and cost-effective enforcement of your lien.


Full Credit (Judgment) Bid in Michigan Extinguishes Debt and Mortgage in Indiana

Sometimes multiple mortgages on multiple properties secure a single promissory note.  Lenders/mortgagees may pursue separate foreclosure actions against separate properties, but there cannot be a double recovery.  Neu v. Gibson, 968 N.E.2d 262 (Ind. Ct. App. 2012) illustrates this and applies the so-called “full credit bid rule” that was the subject of my post Full Judgment Bid = Zero Deficiency

The transaction.  In exchange for the sale of stock, Nowak gave Gibson a promissory note and granted Gibson a mortgage against real estate in both Indiana and Michigan.  Nowak sold the Indiana real estate to Neu but did not inform Gibson of the sale.  Nowak ultimately defaulted on the promissory note to Gibson. 

Suits.  Legal proceedings ensued in Indiana between Gibson and Neu that led to an Indiana Supreme Court decision concerning the doctrine of equitable subrogation, which was the subject of my March 1, 2011 post.  Unbeknownst to Neu, Gibson also pursued a legal proceeding in Michigan with respect to the Michigan real estate.  Gibson obtained a foreclosure judgment in Michigan and made a credit bid at the sale for the full amount of the judgment.  Gibson ultimately acquired title to the Michigan real estate.  The collection proceedings then turned back to Indiana where the issue was whether the Indiana judgment had been satisfied by virtue of the Michigan sale. 

Full credit bid rule.  Neu’s primary argument in the Indiana case focused on Gibson’s entry of a full credit bid in the foreclosure sale of the Michigan real estate.  The question was whether Gibson’s claim against the Indiana real estate, which claim rested on the same debt secured by the Michigan real estate, was barred by the “full credit bid rule.”  (Michigan also recognizes and applies this rule.)  Essentially, the rule provides that the payment of a bid at a sheriff’s sale sufficient to satisfy the judgment extinguishes that judgment.  It follows that, where a judgment creditor has been paid the full amount of the judgment, there is a complete satisfaction of that judgment. 

Rule applied.  In Neu, Gibson obtained a foreclosure judgment on Nowak’s promissory note with regard to the Michigan real estate in the amount of $305,722.48.  A few months later, the Michigan real estate was the subject of a foreclosure sale where Gibson submitted the highest bid of $305,722.48.  The Court said:  “as Gibson purchased the Michigan Real Estate for a price equal to the amount of the foreclosure judgment, the debt became satisfied and the underlying promissory note was extinguished.”  Consequently, the mortgage on the Indiana real estate was terminated. 

Fair market value immaterial.  In an effort to avoid the consequences of the Michigan proceedings, Gibson contended that the Court should use the fair market value of the Michigan real estate – not the full credit bid – in determining the amount still owed in the Indiana action.  Gibson submitted an appraisal of the Michigan real estate stating the property was only worth $72,000.  As discussed in the Titan opinion and my 8/1/08 post, however, the full credit bid rule “precludes a lender for purposes of collecting its debt from making a full credit bid and subsequently claiming that the property was actually worth less than the bid.”  The Court summed up its opinion as follows:

As Gibson purchased the Michigan real estate for a price equal to the amount of the foreclosure judgment, the debt became satisfied and the underlying promissory note was extinguished. . . . With the satisfaction of the underlying promissory note, there is no longer any debt to support the foreclosure on the Indiana real estate.  If, in fact, we were to allow Gibson to foreclose on the Indiana real estate after foreclosing on the Michigan real estate, we would grant him a windfall, which we are not prepared to do.

Takeaway.  One of the lessons of Neu is that judgment creditors probably should not make full judgment (credit) bids at foreclosure sales unless the real estate is worth the amount of the judgment.  On the other hand, if judgment creditors absolutely want the property, and if there are no other assets to pursue, then a full credit bid at a sheriff’s sale makes sense.  But do so knowing that there is no residual debt to collect.  A full credit (judgment) bid resolves the debt and extinguishes any other liens securing such debt.


Does A Deed-In-Lieu Of Foreclosure Automatically Release A Borrower From Personal Liability?

A deed-in-lieu of foreclosure (DIL) is one of many alternatives to foreclosure.  For background, review my post Deeds In Lieu Of Foreclosure: Who, What, When, Where, Why And How.  Today I discuss the Indiana Court of Appeals’ opinion in GMAC Mortgage v. Dyer, 965 N.E.2d 762 (Ind. Ct. App. 2012), which explored whether a DIL in a residential mortgage foreclosure case released the defendant borrower from personal liability. 

Deficiency.  In GMAC Mortgage, the borrower sought to be released from any deficiency.  The term “deficiency” typically refers to the difference between the fair market value of the mortgaged real estate and the debt, assuming a negative equity situation.  Exposure to personal liability arises out of the potential for a “deficiency judgment,” which refers to the money still owed by the borrower following a sheriff’s sale.  The amount is the result of subtracting the price paid at the sheriff’s sale from the judgment amount.  (For more on this topic, please review my August 1, 2008, June 29, 2009 and March 9, 2012 posts.) 

DIL, explained.  GMAC Mortgage includes really good background information on the nature of a DIL, particularly in the context of residential/consumer mortgages.  According to the U.S. Department of Housing and Urban Development (HUD), a DIL “allows a mortgagor in default, who does not qualify for any other HUD Loss Mitigation option, to sign the house back over to the mortgage company.”  A letter issued by HUD in 2000 further provides:

[d]eed-in-lieu of foreclosure (DIL) is a disposition option in which a borrower voluntarily deeds collateral property to HUD in exchange for a release from all obligations under the mortgage.  Though this option results in the borrower losing the property, it is usually preferable to foreclosure because the borrower mitigates the cost and emotional trauma of foreclosure . . ..  Also, a DIL is generally less damaging than foreclosure to a borrower’s ability to obtain credit in the future.  DIL is preferred by HUD because it avoids the time and expense of a legal foreclosure action, and due to the cooperative nature of the transaction, the property is generally in better physical condition at acquisition.

Release of liability in FHA/HUD residential cases.  The borrower in GMAC Mortgage had defaulted on an FHA-insured loan.  The parties tentatively settled the case and entered into a DIL agreement providing language required by HUD that neither the lender nor HUD would pursue a deficiency judgment.  The borrower wanted a stronger resolution stating that he was released from all personal liability.  The issue in GMAC Mortgage was whether the executed DIL agreement precluded personal liability of the borrower under federal law and HUD regulations.  The Court discussed various federal protections afforded to defaulting borrowers with FHA-insured loans, including DILs.  In the final analysis, the Court held that HUD’s regulations are clear:  “A [DIL] releases the borrower from all obligations under the mortgage, and the [DIL agreement] must contain an acknowledgement that the borrower shall not be pursued for deficiency judgments.”  In short, the Court concluded that a DIL releases a borrower from personal liability as a matter of law. 

Commercial cases.  In commercial mortgage foreclosure cases, however, a lender/mortgagee may preserve the right to pursue a deficiency, because the federal rules and regulations outlined in GMAC Mortgage do not apply to business loans or commercial property.  The parties to the DIL agreement can agree to virtually any terms, including whether, or to what extent, personal liability for any deficiency is being released.  The point is that the issue of a full release (versus the right to pursue a deficiency) should be negotiated in advance and then clearly articulated in any settlement documents.  A release is not automatic. 

GMAC Mortgage is a residential, not a commercial, case.  The opinion does not provide that all DILs release a borrower from personal liability, and the precedent does not directly apply to an Indiana commercial mortgage foreclosure case. 


Fraudulent Transfer Claims Within Post-Judgment Collection Proceedings

Lender (judgment-creditor) obtained a $1+MM judgment against guarantor (judgment-debtor).  Guarantor allegedly transferred millions of dollars to guarantor’s spouse.  Lender, in proceedings supplemental, filed a motion seeking to avoid the transfer and targeted the spouse (garnishee-defendant).  Was a separate cause of action (lawsuit) required?  Did the spouse have a right to a jury trial?  Did the spouse have to file a response to the lender’s motion?  In PNC Bank, 2011 U.S. Dist. LEXIS 99917 (S.D. Ind. 2011) (rt click/save target as for pdf), Magistrate Judge Baker addressed those questions in his report and recommendations, which District Court Judge Pratt subsequently adopted.

General parameters.  In response to the lender’s motion to set aside the alleged fraudulent transfers, the guarantor objected on three grounds.  PNC relied on the Indiana Supreme Court’s decision in Rose v. Mercantile National Bank, about which I wrote on June 29, 2007.  The PNC case noted several basic rules that applied:

 1. A motion to avoid a fraudulent conveyance can be invoked in proceedings supplemental because the claim’s “sole purpose [is] the removal of obstacles which prevent enforcement of a judgment.” 

 2. A garnishee-defendant (third party) can be named for the first time during proceedings supplemental. 

 3. To proceed, the garnishee-defendant must have “property of the judgment-debtor, regardless of whether the judgment-debtor himself could have pursued the garnishee-defendant or whether the garnishee-defendant was a party to the underlying lawsuit.” 

 4. A court need not make a preliminary determination that a garnishee-defendant violated the Fraudulent Transfer Act before requiring the garnishee-defendant to appear.

Objection 1 – new claim?  The first issue in PNC was whether the lender’s fraudulent transfer theory was a “new claim” that warranted the filing of a separate lawsuit. 

 1. Generally, when a judgment-creditor proceeds against a garnishee-defendant, the proceedings merely are a “continuation of the original cause of action, not a new and independent civil action.” 

 2. On the other hand, if a judgment-creditor introduces new claims “unrelated to the enforcement of a judgment,” or if the judgment-creditor “seeks damages greater than the original judgment,” then the judgment-creditor has moved the case outside of proceedings supplemental, and a new cause of action is required. 

3. Although proceedings supplemental can include a fraudulent conveyance claim, the recovery is not for the alleged wrong or for damages.  Rather, “proceedings supplemental seek to continue the original cause of action by enforcing a previously granted judgment.”  If the judgment-creditor is successful, the conveyance remains valid, and the only effect of the judgment is to subject the property to execution “as though it were still in the name of the grantor [judgment-debtor].”  I interpret this to mean that the result is an order subjecting the transferred funds to further judgment execution proceedings (collection).

In PNC, unlike Rose, the lender’s original judgment amount and the amount targeted in its motion were precisely the same.  Accordingly, Indiana law did not require a new cause of action (separate lawsuit). 

Objection 2 – jury trial?  The guarantor also asserted that the law required a new cause of action because the spouse had a right to a jury trial.  Since proceedings supplement derive from equity, they usually should be conducted by the judge.  Nevertheless, jury trials are not completely precluded.  If questions of fact arise as to the claim involving the garnishee-defendant, then the parties may demand a jury trial.  The Court in PNC recognized and preserved the spouse’s right to a jury trial.

Objection 3 – garnishee response required?  In PNC, the lender wanted the Court to compel the spouse to file a written response (an answer) to the lender’s motion.  Once a verified motion triggers proceedings supplemental, pursuant to Trial Rule 69(E) courts shall order garnishees to appear for a hearing or to answer interrogatories, but “no further pleadings shall be required.”  Responsive pleadings are not required unless a new claim arises.  Since there were no new issues of liability as to the spouse in PNC (see Objection 1), the Court did not require the spouse to file a response.   

The upshot of the ruling in PNC was that the Court temporarily denied the lender’s motion pending discovery into whether a factual basis existed for setting aside the disputed transfers.  The proceedings supplemental therefore continued, albeit without a new action against the spouse and without the spouse needing to respond to the motion.  The Court contemplated that the lender would file a renewed motion following limited discovery.  (The case has since been settled.)  


Judgment Deemed Satisfied After Defendant Guarantor Utilizes Strawman To Purchase It

In commercial foreclosure actions, creative parties and counsel often reach unique settlements that satisfy the needs of both the lender and the borrower or guarantor(s). The case of TacCo v. Atlantic Limited Partnership, 937 N.E.2d 1212 (Ind. Ct. App. 2010) shows such creativity in action. TacCo is a lesson in satisfaction of judgments and the strawman defense, but the more interesting facet of the case is the maneuvering between co-guarantors over their shared exposure to a $3.2MM judgment.

Players. I’ll label the key players in TacCo as follows: Lender, Borrower, Strong Guarantor, Strawman and Weak Guarantor. “Strong” and “weak” signify that one of the co-guarantors seemingly had the financial capacity or willingness to pay the debt, while the other did not. Lender initiated a commercial mortgage foreclosure action against Borrower, Strong Guarantor and Weak Guarantor. The suit resulted in a judgment for $3.2MM.

Post-judgment settlement. Before the sheriff’s sale, Lender and Strong Guarantor entered into a settlement agreement that centered on Lender’s sale of the judgment for $1.5MM in cash, a $1.5MM promissory note and a $250,000 letter of credit. On paper, the settlement was conditioned upon Strong Guarantor’s ability to locate a purchaser of the judgment, which purchaser ended up being Strawman. Lender obtained the cash and promissory note, and Strawman obtained an assignment of the judgment. Strawman then submitted a credit bid at the sheriff’s sale for $1.5MM and acquired the subject property.

Purpose. Lender got paid off, but Weak Guarantor was not a part of the deal. Although Weak Guarantor and Strawman submitted conflicting evidence and theories, it appears that the settlement was structured to deliver Strong Guarantor the real estate and to expose Weak Guarantor to judgment enforcement (collection) efforts by Strawman.

Post-settlement motion. After the settlement occurred, Weak Guarantor filed a motion for entry of satisfaction of judgment. See, Ind. Trial Rule 67(B) . Weak Guarantor asserted that the judgment had been paid in full. Strawman contended that the judgment still existed and that, as the assignee of the judgment, it could collect the entire $1.7MM+ deficiency from Weak Guarantor.

Judgment satisfaction rules. The legal issue was whether the intent of the post-judgment settlement transaction was to extinguish the judgment against Strong Guarantor. The Court in TacCo outlined the applicable Indiana legal principles:

1. Payment of a judgment by one of the judgment debtors (defendants) is a satisfaction of the judgment, notwithstanding the fact that an assignment of the judgment is made to such debtor or to someone else.
2. Where a strawman is used by a co-debtor to purchase an assignment of a judgment, the judgment is deemed to have been purchased by one of the joint judgment debtors.
3. The controlling fact in such a case is the payment by one legally bound to pay, and the fact that an assignment is made to him or to someone else is not of controlling importance.
4. If one whose duty is to pay the debt makes the payment, then an assignment will not keep the debt alive.

Judgment satisfied. Without regurgitating all of the detail here, the Court in TacCo followed the money, evaluated the actors’ involvement and concluded that Strawman and Strong Guarantor essentially were the same entity. Here is how the Court of Appeals in TacCo applied the rules to reach its conclusion:

We conclude that the evidence presented to the trial court showed that [Strong Guarantor] made payment to [Lender] to purchase the Consent Judgment and assigned the judgment to [Strawman]. . . . Here, [Strong Guarantor] was a party legally bound to pay the judgment, and the evidence showed that it was the party who made payment to [Lender] for purchase of the judgment. The fact that an assignment of the judgment was made to [Strawman] does not change the fact that such payment resulted in a satisfaction of the judgment. The trial court did not abuse its discretion when it found that [Strong Guarantor] used [Strawman] as its strawman to purchase the Consent Judgment and deemed that the judgment had been satisfied.

Result. The upshot was that the judgment no longer existed, and Weak Guarantor’s exposure to the full $1.7MM+ deficiency disappeared. Strawman thus could not enforce the judgment against Weak Guarantor.

Arguably, Strong Guarantor still might have a contribution claim against Weak Guarantor for a pro rata portion of the deficiency ($850,000+), but the Court did not address that issue. In the end, the settlement structure in TacCo was a creative design for Strong Guarantor that didn’t quite work.


How Long Is Too Long To Wait Before Enforcing A Money Judgment In Indiana?

The question posed in the title of this post is exactly the question stated by the Indiana Court of Appeals in Wilson v. Steward, 937 N.E.2d 826 (Ind. Ct. App. 2010).

Oldie, but a goodie. On July 25, 1989, the Henry Circuit Court held that Father was in contempt for non-payment of child support and ordered that Father pay a lump sum for the arrearage, plus Mother’s attorney fees. Father died in 2009, and an estate was opened in Rush Superior Court. On September 10, 2009, Mother filed a claim against the estate based on the unpaid order from 1989. The estate filed a motion to dismiss and asserted that the claim was barred by statutes of limitations. The trial court denied the motion and awarded Mother the money to which she was entitled over twenty years earlier.

Not child support. The Court of Appeals rejected the idea that the 1989 order was an enforcement of child support obligations, which triggers its own statute of limitations (Ind. Code § 34-11-2-10). If you are a domestic relations lawyer who has stumbled on to my blog, please read the opinion for more on that subject.

Money judgment. The Court held that the Indiana code sections dealing with the enforcement of money judgments applied. “Mother’s claim against the estate is an attempt to enforce the 1989 judgment . . ..” The issue was whether I.C. § 34-11-2-12 barred Mother’s claim. I touched upon this matter in my 2008 post “Time Limitations Upon The Enforcement Of Non-Indiana Judgments In Indiana.” The statute reads: “Every judgment and decree of any court of record of the United States, of Indiana, or of any other state shall be considered satisfied after the expiration of twenty (20) years.”

Unique statute. The Wilson opinion noted that I.C. § 34-11-2-12 contains “unique phraseology” that “sets it apart from all other statutes of limitation listed in Indiana Code Chapter 34-11-2.” In reality, the twenty-year statute is not a statute of limitations but “a rule of evidence that creates a rebuttable presumption.” This means:

A judgment that is less than twenty years old constitutes prima facie proof of a valid and subsisting claim, whereas a judgment that is over twenty years old stands discredited, with the lapse of time constituting prima facie proof of payment. Thus, the party seeking to avail itself of the presumption of satisfaction of a judgment after twenty years have passed must plead payment.

(Prima facie is defined as “a fact presumed to be true unless disproved by some evidence to the contrary.”)

Applying the statute. In Wilson, Mother filed her claim to enforce the 1989 money judgment six weeks after the twenty-year period expired. At the trial court’s hearing in 2010, Mother provided testimony that the 1989 judgment had not been paid. Moreover, the record was devoid of any evidence from the estate asserting payment. The Court of Appeals concluded that “the evidence was sufficient to overcome the presumption of satisfaction of the judgment.” Accordingly, I.C. § 34-11-2-12 did not bar Mother’s claim against the estate.

No absolute bar. Wilson illustrates that Section 12 does not set an outer limit of twenty years on the validity and enforceability of a money judgment. In other words, Section 12 does not constitute an absolute bar to recovery. Rather, it is a rule of evidence creating a rebuttable presumption of satisfaction (payment) by the lapse of time (twenty years). If there is proof of non-payment, particularly in the absence of any proof of payment, then judgments can be enforced outside of the twenty-year period. How long is too long to wait before enforcing a money judgment in Indiana? According to Wilson, it may never be too late, even if the judgment debtor is dead!


Contempt Powers Unavailable To Enforce Payment Of A Civil Judgment In Indiana

In 2007, I wrote that “Jail Time Is Not An Available Remedy In Collection Actions In Indiana.” That principle is alive and well in Indiana as explained by the Indiana Court of Appeals in Carter v. Grace Whitney Properties, 2010 Ind. App. LEXIS 2172. Perhaps to the chagrin of lenders who want paid, when it comes to judgment enforcement, Indiana places certain limits on how far courts can go.

The history. The plaintiff obtained a money judgment against the defendant and filed proceedings supplemental. The court ordered the defendant to make periodic payments to satisfy the judgment. Presumably because the defendant failed to make payments, the plaintiff filed, on at least twelve occasions over a five-year period, “informations for contempt” against the defendant. At one point, the plaintiff convinced the court to sentence the defendant to thirty days in jail, although the court later expunged the sentence. After some procedural maneuvering by the parties and the court, the court entered a modified order – coined a “personal order of garnishment” – to compel the defendant to make payments. The defendant appealed that order.

“Personal order of garnishment.” The phrase “personal order of garnishment” is not a term of art in Indiana, but the Court of Appeals concluded that Ind. Code § 34-55-8-7 covers the concept. (Typically, “garnishment” relates to third parties, not the defendant/judgment debtor.) Trial courts may order income, not exempt from execution, to be applied to satisfy a judgment. As such, a “personal order of garnishment” (against a defendant) is an applicable and proper mechanism of collection under the right circumstances. In Carter, the order issued by the trial court was not proper because the defendant had no ability to pay. “The judgment creditor has the burden of showing that the debtor has property or income that is subject to execution.” No such evidence existed in Carter. Translation: courts can’t order defendants to pay money that they don’t have and then punish such defendants for not paying.

No contempt powers. Ind. Trial Rule 69(E) and a handful of statutes, including Ind. Code § 34-55-8, govern Indiana proceedings supplemental. Article 1, Section 22 of the Indiana Constitution provides the foundation upon which all Indiana collection laws are based:

The privilege of the debtor to enjoy the necessary comforts of life, shall be recognized by wholesome laws, exempting a reasonable amount of property from seizure or sale, for the payment of any debt or liability hereafter contracted; and there shall be no imprisonment for debt, except in case of fraud.

One issue in Carter was whether the use of contempt powers to force payment for a debt violates the Indiana Constitution. (Black’s defines “contempt power” as a court’s “inherent power to punish one for contempt of its judgments or decrees . . ..” One such form of punishment is jail time.) Money judgments generally are enforced by execution and various auxiliary remedies. As the Court noted in Carter, however, “contempt of court is not one of these.” The mere threat of imprisonment is improper too. Carter held that, to the extent Vanderburgh County’s local rules provided a basis for contempt proceedings for a defendant’s failure to pay a judgment, such rules are contrary to Indiana law.

Future proceedings? Another question in Carter was whether the trial court should limit future proceedings supplemental in the absence of a good faith belief that the defendant had property or income subject to court process. In Indiana, the general rule is that “a creditor cannot require a debtor to attend ongoing proceedings supplemental hearings and be reexamined continuously as to whether the debtor has acquired any new assets or income.” In other words, “future ‘fishing expeditions’ are improper.” The exception to that rule is if the plaintiff makes a showing that new facts justify a new order for examination. The Court held in Carter that any future proceedings supplemental against the defendant “must be supported by new facts justifying a new order or examination.”

The Carter decision, together with the recent Branham case addressed in my July 14 and September 23, 2011 posts, illustrates some of the boundaries to proceedings supplemental specifically and the collection of debts generally.


Domesticating An Out-Of-State Judgment In Indiana

Recently, the Indiana State Bar Association's listserve for the Bankruptcy and Creditor's Rights section had an inquiry regarding other lawyer's experiences with domesticating foreign judgments under the relatively new statute Ind. Code Section 34-54-11.  I've written about the statute and procedure here, most recently in my post dated 2/4/11 "6 Steps to Enforce a Foreign Judgment in Indiana."

Evidently, the reviews of the statute are mixed, due in large part to clerk's offices and court's staffs either not being familiar with the new statute or not fully understanding its meaning and purpose.  Admittedly, the procedure called for under the statute is quite unique.  I've seen where some lawyers have abandoned the new procedure in favor of the "old school" method of filing a new action (complaint). 

For what it's worth, we've encountered some questions from clerks and courts, but we've been able to work through those questions without too much trouble.  We've found that I.C. 34-54-11 has been an expeditious and cost-effective way to get the job done.  The statute has some quirks and kinks that hopefully will be resolved over time, but overall we recommend that out of state judgment creditors utilize this "new school" mechanism to enforce their judgments.  As always, I welcome emails or comments on the matter. 


Indiana Judgment Liens Are Subordinate to Prior Liens

What is the priority of judgment lien versus other liens on real estate?  The March 4, 2009 opinion by the Indiana Court of Appeals in Johnson v. Johnson, 2009 Ind. App. LEXIS 355 (Johnson.pdf) provides some guidance on the matter.  Johnson dealt with the subordination of a lien arising out of an agreed judgment reached in a divorce case.  Yes, even dissolution of marriage litigation can teach lenders something about Indiana commercial foreclosure law. 

The judgment lien and the loan.  The divorce settlement, in part, involved the ownership and operation of a farming business, which maintained certain financing secured by the business’s assets, including its real estate.  The financing, which entailed a line of credit that came up for renewal annually, had been in place before the divorce.  Post-settlement, the business needed to restructure its debt, in part for the husband to sustain payments to the wife.  The divorce settlement constituted a judgment lien to the extent that the trial court had ordered the husband to pay the wife money in installments. 

The subordination problem.  The husband sought a court order forcing the wife to subordinate her judgment lien.  A representative of the bank testified that the bank would renew the line of credit only if it continued to hold a first priority lien on the business, including presumably a senior mortgage lien on the farm’s real estate.  However, the wife refused to sign a subordination agreement.  The trial court sided with the husband and ordered the wife to complete the necessary paperwork to permit the refinancing.  The wife appealed.

The priority rules.  The Court of Appeals first noted, generally, that judgment liens in Indiana are purely statutory.  Ind. Code § 34-55-9-2 states:

. . . [A]ll final judgments for the recovery of money or costs . . . constitute a lien upon real estate and chattels real liable to execution in the county where the judgment has been duly entered and indexed . . .

The Court held that “as the line of credit existed at the time parties filed the Settlement Agreement, Wife’s judgment lien was subordinate to the Bank’s prior, existing lien.”  This is because, in Indiana, “liens for judgments are subordinate to all prior legal or equitable liens.” 

The loan renewal matter.  The Court went on to articulate the following additional legal principles that guided its decision:

Indiana law on priorities of liens is clear that the taking of a new note and mortgage for the same debt upon the same land will not discharge the lien of the first mortgage unless the parties so intended.  A court considers the circumstances of the transaction and will not permit the release of the old mortgage and the execution and recording of the new mortgage to destroy the lien of the original mortgage when not so intended, or rights of the third parties have not intervened, or positions changed.  Where notes are renewals of prior indebtedness, an intervening lienor will not have a superior lien, and the original lien retains superiority. 

The Borrower defeated the judgment lien holder.  In Johnson, the bank provided testimony that the line of credit came up for renewal every year.  The Court thus concluded that, if the business’s “indebtedness was merely being renewed every April 15, then the Bank’s lien would have retained its superiority over Wife’s judgment lien.”  The Court therefore upheld the trial court’s order that the wife must subordinate her judgment lien in order to enable the husband to renew the business’s line of credit.

Although not 100% clear in the opinion, it appears to me that the Court thought the bank’s lien would have priority regardless of whether the wife signed a subordination agreement.  Yet, the Court took the matter a step further by compelling the wife to sign off, probably to give the bank additional comfort.  The Johnson case reminds us that a prior loan, secured by a mortgage, even if subject to a renewal, should maintain senior status in the event of the entry of a subsequent judgment lien.  But, a signed subordination agreement would leave no doubt, which is what the bank and the husband (the borrower) sought in Johnson.   

NOTE:  The Indiana Supreme Court reversed the Court of Appeals.  See my 1/25/14 post.


Time Limitations Upon The Enforcement Of Non-Indiana Judgments In Indiana

A lawyer from New York recently contacted me after reading my November 20, 2007 post 6 Steps To Enforce A Non-Indiana Judgment In Indiana.  Her client holds a 1994 judgment entered in the State of New York.  She was curious whether her fourteen-year-old New York judgment could still be enforced in Indiana.   

20 years-execution.  Yes, the New York party can domesticate its foreign judgment here in Indiana and proceed with execution, without fear of being time barred.  Ind. Code § 34-11-2-12, entitled “Satisfaction of Judgment or Decree by Expiration of Twenty Years,” states:

Every judgment and decree of any court of record of the United States, of Indiana, or of any other state shall be considered satisfied after the expiration of twenty (20) years. 

This is not a twenty-year statute of limitations but rather a rule of evidence creating a rebuttable presumption of satisfaction (payment) by the lapse of time (twenty years).  Odell v. Green, 121 N.E.2d 304 (Ind. Ct. App. 1918).  In a suit in Indiana on a foreign judgment, instituted after the expiration of twenty years after entry of the judgment, the plaintiff/judgment creditor cannot recover unless it proves the judgment remains unpaid.  Hendricks v. Comstock, 1859 Ind. LEXIS 111 (Ind. 1859).  Since the New York judgment falls within the twenty-year period, the plaintiff/judgment creditor, after domestication of the judgment under I.C. § 34-54-11, can immediately execute. 

10 years-lien.  When New York counsel contacted me, she feared that too much time had passed.  Based upon her quick review of Indiana law, it was her understanding that Indiana may have a statute of limitations of ten years.  I.C. § 34-55-9-2 “Lien Upon Real Estate – Time Limitation” states, in pertinent part:

All final judgments for the recovery of money . . . in Indiana . . . constitute a lien upon real estate . . . in the county where the judgment has been duly entered and indexed in the judgment docket as provided by law:  . . . (2) until the expiration of ten (10) years after the rendition of the judgment . . ..

This ten-year statute of limitations specifically relates to a judgment lien on real estate and not the judgment itself.  In Indiana, a money judgment automatically becomes a lien on real estate owned by the defendant/judgment debtor in the county where the judgment was rendered.  This lien, which can be foreclosed, exists on the real estate for ten years.  Although the lien expires, the judgment itself may be enforced up to twenty years after its entry.  Needham v. Suess, 577 N.E.2d 965 (Ind. Ct. App. 1991). 

Which state’s law applies?  What if New York law held that judgments were presumed paid after ten years?  Would Indiana’s twenty-year statute still apply, or would the Indiana action be subject to New York’s ten-year rule?  In 1859, the Indiana Supreme Court addressed that very issue in Hendricks.  The plaintiff/judgment creditor filed suit in Indiana to collect on a seventeen-year-old Michigan judgment.  Michigan at the time had a statute identical to I.C. § 34-11-2-12 except that the time period was ten years, not twenty.  The defendant/judgment debtor in Hendricks argued that the case should have been dismissed based upon the presumption of payment under the Michigan statute.  The Indiana Supreme Court rejected the argument and held that, because the defense related to the remedy, not the merits, the law of the state where the action was pending (Indiana) applied.  According to Hendricks, the rules of the foreign state do not govern judgment enforcement actions.  Indiana’s do.


Jail Time Is Not An Available Remedy In Collection Actions In Indiana

Do you ever get so frustrated with your attempts to collect a guaranteed commercial debt that you wish you could have your guarantor thrown in jail for a failure to pay?  While I understand the frustration, this drastic remedy typically is not available in Indiana.  The Indiana Court of Appeals’ August 8, 2007 opinion in Mitchell v. Mitchell, 2007 Ind. App. LEXIS 1805 (Mitchell.pdf)  reminds us of the applicable legal principles. 

The Court decided Mitchell in the context of a divorce proceeding, specifically a husband’s failure to comply with a dissolution decree requiring him to pay certain marital debts.  The wife sought to hold the husband in contempt for his failure to do so.  Although the opinion does not specifically apply to commercial lenders, some of the rules outlined by the Court are good to know:

1.  The Indiana Constitution, Article 1, Section 22, forbids imprisonment for debt, so contempt may not be used to enforce an order requiring one party to pay another a fixed sum of money.  Id. at 9.

2.  As to a final money judgment requiring a person to pay a fixed sum of money to another party, Indiana Trial Rule 69 contains the correct remedies for non-compliance with the judgment (selling the judgment creditor’s property, proceedings supplemental/garnishment, etc.).

So, a money judgment, such as a judgment on a guaranty, may only be enforced by execution (not the death kind; the seizing and selling of property kind).  As much as commercial lenders may at times want to have evasive guarantors sent to jail until they deal with their debts, this simply is not an option in Indiana.

As an aside, the situation in Mitchell did not involve a money judgment requiring the husband to pay a fixed sum of money to his wife.  Rather, the court order required him to pay, and hold his wife harmless from the payment of, mortgage and credit card debts.  As such, the trial court was not barred from using its contempt powers to enforce compliance with the order.  Thus there may be rare situations in which a lender can utilize the contempt powers of the court, but those powers are not available when the basic problem is a failure to pay money owed.