August 2011 Vol. 4, No. 7



Mechanic's Liens

Robert Neises Const Corp v Grand Innovations, Inc, 938 NE2d 1231 (Ind Ct App, 2010).

Facts: On May 13, 2008, Grand Innovations (GI) executed and delivered a promissory note to Kentland for $193,000. To secure payment, GI executed and delivered to Kentland a mortgage against real estate in Hobart (the real estate). The mortgage was recorded on July 7, 2008. GI had another mortgage on the real estate with Centier Bank that was recorded in May 2007. In April 2008, GI hired Neises to construct a house on the property, and Neises began work. On July 14, 2008, Neises filed a mechanic's lien against the real estate for $22,369.

On October 21, 2008, Neises filed a complaint to foreclose on its mechanic lien. Kentland filed a counter-claim, cross-claim, and third-party claim to foreclose on its mortgage. Kentland also filed an emergency motion to preserve and protect collateral because the unfinished house was not protected from the elements. There was no ruling or objection ever filed on the motion. Kentland paid $20,188.91 to install a roof and weatherproof the home. On October 8, 2009, Kentland filed a motion for summary judgment to foreclose its mortgage lien.

The trial court granted the motion and ordered the proceeds from the sheriff's sale be distributed first to pay property taxes, second to pay Centier Bank, third to pay Kentland Bank for the preservation costs, and fourth the pay Kentland Bank, and then the sums owed to Neises and others. Neises appealed.

Holding: Affirmed. The two issues addressed on appeal were the priority of the preservation expenses and the pro-rata distribution. Regarding the priority of preservation expenses, the court found that the trial court correctly exercised its equitable powers to give Kentland priority because the action benefited all the lien holders. Further, Neises never objected to the emergency motion and could not do so on appeal.

Regarding thepro ratadistribution, Neises contended that his July 14, 2008 recording related back to when he began work in April and was thus prior to the mortgages. However, the court found that the language of Indiana Code Section 32-28-3-5 provides that a lien is created when the statement and notice of intention are recorded, which in this case was July 14, 2008. The "relation back" provision does not give relation back for lien priority. Relation back in the statute entitles lien claimant to make a claim to be compensated for work back to the date work began. Thus the court held that Neises' mechanic's lien did not have priority over the mortgage, but did properly claim payment for work back to date in April when he began work.

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