BlogNews and practical information from our attorneys.
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Indiana Judgment Liens against Real Estate
In Indiana, when a judgment for monetary damages is entered in favor of a plaintiff, that judgment automatically becomes a lien for the judgment amount upon any and all real estate owned by the judgment defendant in the county where the judgment was entered. See, Ind. Code § 34-55-9-2. If the plaintiff knows or has reason to suspect that the judgment defendant owns real estate in any other Indiana county, the plaintiff can have the judgment indexed in such other county by delivering or mailing a certified copy of the judgment to the clerk of such county. See, Ind. Code § 33-32-3-2(d). Indexing the judgment in another Indiana county only costs $3 per county. To obtain a judgment lien against non-Indiana real estate, the plaintiff will need to consult the laws of the applicable State because each State has its own procedure for domesticating foreign judgments.
The judgment lien against real estate becomes effective automatically upon indexing of the judgment and remains effective for 10 years. See, Ind. Code § 34-55-9-2. A judgment lien takes priority as of the time of its indexing in the same manner that any other lien takes priority. Therefore, liens already existing when the judgment is indexed will have priority over the judgment lien, while the judgment lien will have priority over any subsequently recorded liens against the property, including any subsequently recorded mortgage liens.
Even if the plaintiff takes no action to enforce the judgment lien during the 10 years that it is effective, the lien can still benefit the plaintiff. If the judgment defendant attempts to sell the property while the lien is in place, the judgment defendant will need a release of the judgment lien in order to pass clean title to the buyer. This is true even if there is no equity in the property for the judgment lien (i.e. the amount of senior liens exceed the value of the property). If the plaintiff agrees to release the judgment lien to facilitate a sale (presumably after receiving payment from the judgment defendant to do so), the plaintiff should record a partial release of the judgment lien that only releases the judgment lien as to the property sold so that the plaintiff’s judgment lien remains effective as against any other real estate owned by the debtor in that county.
While the foregoing scenario can lead to the plaintiff recovering at least a portion of the judgment amount, it is more likely that a judgment creditor will recover on a judgment lien by having real estate subject to the judgment lien sold. Indiana Trial Rule 69 provides two different procedures for having property subject to a judgment lien sold.
Under Indiana Trial Rule 69(A), the court that entered the judgment can enter a writ of execution to have the property sold. The writ of execution is an order that directs the sheriff to sell the real estate. The real estate would be sold through an execution sale subject to any other senior liens against the property (i.e. if there is a mortgage against the property when the judgment lien attached to the real estate, the buyer will take the property subject to the mortgage). An execution sale against real estate may not be held sooner than 6 months after the date that the judgment became a lien against the property.
Alternatively, Indiana Trial Rule 69(C) provides that a plaintiff can foreclose a judgment lien pursuant to the procedure created by Indiana law for foreclosing a mortgage. This requires the plaintiff to file a separate foreclosure action that names the judgment defendant and any lien holders as parties to the action. The plaintiff will not need to prove for a second time that the judgment defendant is indebted to the plaintiff. Instead, the foreclosure action is only seeking an in rem judgment against the real estate owned by the judgment defendant and a determination of the relative priority of the liens against the real estate.
Whether it is best to proceed under Rule 69(A) or Rule 69(C) will depend on the amount of the plaintiff’s judgment, the value of the property, and the relative lien position of the judgment lien vis a vis any mortgage holders and/or other lien holders. One important distinction between Rule 69(A) and Rule 69(C) is that the property must be appraised and sold for at least 2/3rd of the appraised value in a Rule 69(A) execution sale, while Rule 69(C) specifically provides that the sale of property in a judgment lien foreclosure action can be “without valuation or appraisement” even though Ind. Code § 34-55-4-1 requires valuation and appraisement in mortgage foreclosure actions.
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Ten Years to Fight Over a Contract?!
We are constantly emphasizing to our clients the importance of reading and understanding all of their contracts before signing them. We also continually counsel our clients about the incredibly slow pace of litigation and how resolving business disputes through the courts can take many years. A recent decision by the 7th Circuit Court of Appeals (which would hear federal cases under Indiana law) serves as a good illustration of these points:
In that, the 7th Circuit reversed a jury’s award of $1,500,000.00 in favor of a sales representative, and found that the plain language of that representative’s contract showed that he was only entitled to $54,000.00 in commissions. The reason for the reversal was that his contract very clearly stated that in order for the sales person to receive commission credit under the employer’s previous compensation plan, any sale must close on or before December 25, 2005. The sale at issue did not close until March, 2006. During the original trial, the trial court allowed evidence to be introduced concerning what was intended by the parties, as opposed to simply enforcing the plain terms of the contract. With the introduction of that extra evidence, the jury awarded $1,500,000.00. The Court of Appeals reversed that ruling and directed that the employee was only entitled to $54,000.00.
A few interesting points that came out of this recent decision include the fact that this dispute has been ongoing for ten years. For some perspective, the sale at issue closed about 18 months before the introduction of the iPhone and the decision was entered on July 1, 2015! One can only imagine the amount of resources that have been spent fighting over the interpretation and enforcement of this contract, which on its face seemed to be relatively straight forward.
It also serves as a reminder that there are no guarantees when parties go to court. Clients will often ask what a court is going to do, and anyone who has ever tried a case knows there is no such thing as a sure thing when you go to court.
Again, from the employer’s perspective in this case, it would have seemed clear that the court should not have allowed the outside evidence concerning the interpretation of the contract. However, obviously the trial court allowed that to occur, and although that decision was reversed, it certainly cost substantial amounts of time and money to get to that ultimate result.
Read your contracts and understand the true cost and incredibly slow pace of litigation when deciding what decision needs to be made with respect to a business dispute. We always educate and counsel our clients on these costs and the reality of the differences between the legal system and the business world, and clients are well advised to consider all of this when deciding what positions to take and whether or not a compromise is appropriate under the circumstances.
Oral Contracts are Enforceable in Indiana…
But Not if They Affect Real Estate
We often are asked whether or not contracts that are not in writing are enforceable. As a general rule, those types of contracts are enforceable, but there are certain types of agreements and contracts that are required by law to be in writing. One of those types of contracts is any contract which seeks to convey an interest in land.
This fairly well established principle of law was recently reaffirmed by the Indiana Court of Appeals in a case involving a land contract. Under a typical land contract, the seller retains legal title until the total contract price is paid by the buyer. Legal title does not vest in the buyer until the contract terms are satisfied, but so-called “equitable title” vests in the buyer when the contract is executed. It should be noted that the Indiana Supreme Court has previously determined that a land sales contract is similar to a mortgage, particularly if the buyer has paid more than a minimal amount of the contract price. This affects what the seller must due in order to remove the buyer from the property if the buyer does not fully satisfy the terms and conditions of the land contract.
In this new case, the two parties had entered into a land contract whereby the buyer would be making monthly payments until the end of the contract on November 30, 2010, when the unpaid balance was to be due in full unless renegotiated. As the end of 2010 approached, the two parties entered into an oral agreement to extend the monthly payments and delay the final balloon payment. At the trial, there was a dispute between the parties as to exactly were the terms of the oral agreement.
After entering the oral agreement, the buyer made 34 more monthly payments. In August 2013, the seller’s attorney asked the buyer to make the final balloon payment, but the buyer was unable to do so. The seller then sued to reclaim possession of the property.
At trial, there was conflicting testimony about exactly what the parties had agreed to orally in 2010. The buyer believed that he could continue to make payments until 2019, while the seller testified that the additional payments were a penalty for not having made the principal payment at the time that it was due. This disagreement became important in the court’s ruling.
The trial court awarded judgment in favor of the seller, and the Indiana Court of Appeals affirmed that ruling. Both courts relied upon the Indiana “Statute of Frauds” which requires that any contract which seeks to convey an interest in land is required to be in writing. Specifically,
“An enforceable contract for the sale of land must be evidenced by some writing: (1) which has been signed by the party against whom the contract is to be enforced or his authorized agent; (2) which describes with reasonable certainty each party and the land; and (3) which states with reasonable certainty the terms and conditions of the promises and by whom and to whom the promises were made. Furthermore, where a contract is required by law to be in writing, it can only be modified by a written instrument.”
Therefore, the parties’ oral agreement was not enforceable.
As with many things in the law, there are exceptions to this rule. There is a doctrine called “promissory estoppel,” which is based on the rationale that a person whose conduct has induced another to act in a certain matter should not be permitted to adopt a position inconsistent with that conduct so as to cause harm to the other person. In order for an estoppel to remove a case from the requirements of the Statute of Frauds, the party must show that the other party’s refusal to carry out the terms of that promise resulted not merely in a denial of the rights that the agreement was intended to confer, but the infliction of an unjust and “unconscionable” injury and loss.
As would be expected, the buyer in this case argued that his 34 additional payments of $300.00 in reliance upon the seller’s promise were enough to invoke the doctrine of promissory estoppel. However, as mentioned earlier, there was conflicting testimony on exactly what was agreed to at the time of the so-called “oral modification.” Because the trial court not determine what the actual agreement may have been, there was no “promise” to enforce, and therefore the court relied upon the Statute of Frauds’ requirements.
It is also noteworthy that the Court of Appeals referenced the part of the written contract that provided that no delay on the part of the seller in exercising his rights under the contract (including the right to declare a default if the terms and conditions of the written contract were not met by the buyer) would not act as any waiver or preclude the exercise of that option at any time after that default may have occurred. This is the type of “boilerplate” provision that people often will question the need to be in contracts. Here, the courts looked at that language to rule in favor of the seller.
The obvious lesson here is that if you have any transaction involving the transfer of an interest in real estate, that agreement, whatever it is, must be in writing signed by all of the parties whose interest in the real estate may be affected. Those types of contracts need not always be long or complicated, but they do need to be in writing, and as do any later modifications to those agreements.