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Indiana

Mechanic's Liens

Lincoln Bank v Conwell Construction, 911 NE2d 45 (Ind Ct App 2009).

Facts:Nichols Group sought to develop a plot of land into a residential subdivision. To further this effort they obtained financing from Lincoln Bank (Lincoln) and contracted a general contractor, Conwell Construction (Conwell). The job consisted of substantial infrastructure work to prepare the land for subdivision. To this end Conwell Construction hired four subcontractors. Lincoln recorded its mortgage in 2006, soon after a dispute arose and three of the construction companies filed mechanics' liens.

Conwell and some of the subcontractors sued Nichols Group for non-payment and foreclosure of their mechanics' liens and named Lincoln Bank as a defendant. The trial court entered summary judgment for Lincoln holding that the mechanics' liens were equal in priority to the mortgage and ordering the sheriff to sell the property and pay each plaintiff their pro rata share and have the county clerk hold any remaining sum. Lincoln appealed the judgment asserting they had priority as to the real estate.

Issue:Did the trial court err in applying Indiana Code Section 32-28-3-5(d)?

Holding:Reversed and remanded. The court agreed with the trial court that 5(d) did not apply in this instance and therefore mortgages do not have priority in three instances: (1) construction of homes; (2) construction of improvements auxiliary to homes; and (3) construction on property controlled by a utility. The court first defined construction of homes and property controlled by a utility and determined the work done in this case would not fall into either category. Then the court fleshed out whether the work was auxiliary to homes. The court found that when land is being developed for commercial use, work done prior to constructions of homes cannot be considered auxiliary to homes. The court feared this would lead to much ambiguity and dispute as commercial projects often change their course prior to completion. Thus the trial court erred in finding that the mechanics' liens and mortgage were of equal priority.

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[Last update: 3-24-10]