Appeal from the Lake Superior Court. The Honorable John R. Pera, Judge. Cause No. 45D10-1302-PL-7 Consolidated with 45D04-1302-PL-27.
ATTORNEYS FOR APPELLANT: Carl A. Greci, D. Lucetta Pope, Ryan G. Milligan, Faegre Baker Daniels LLP, South Bend, Indiana.
ATTORNEY FOR APPELLEE: Patrick A. Mysliwy, Maish & Mysliwy, Attorneys at Law, Hammond, Indiana.
Baker, Judge. Najam, J., and Friedlander, J., concur.
[¶1] This case requires us to determine the remedy available to a mechanic's lienholder when the property on which the lien is held is subject to a mortgage foreclosure action. Wells Fargo Bank, N.A. (Wells Fargo), sought to foreclose a mortgage lien that it holds over certain real property. Rieth-Riley Construction Company, Inc. (Rieth-Riley), holds a mechanic's lien over the same property. The trial court entered judgment in favor of Wells Fargo, ordering its mortgage lien foreclosed and the property sold. The trial court further held that Wells Fargo could use its judgment to bid for the property at sheriff's sale, but only after depositing a certain amount of its bid in cash. This would ensure that there was cash to distribute if the trial court later found that Rieth-Riley was entitled to some recovery by virtue of its mechanic's lien. Finding that the trial court erred on this point, we reverse.
[¶2] Woodmar Hammond LLC (Woodmar) is the fee simple titleholder of Lot 1 of the Woodmar Shopping Center in Hammond. In August 2007, Wells Fargo loaned Woodmar $6,200,000 to refinance its purchase of Lot 1. Woodmar executed and delivered to Wells Fargo a promissory note with a maturity date of April 30, 2011, promising to repay the principal plus interest. To secure the debt, Woodmar also executed and delivered to Wells Fargo a first mortgage lien on all of its rights to Lot 1. Wells Fargo recorded this mortgage in the Office of the Lake County Recorder in January 2008. On April 30, 2011, Woodmar defaulted by failing to pay the principal balance on the matured loan.
[¶3] In November 2011, Woodmar hired Rieth-Riley to provide paving services for parking lot improvements on Lot 1. In November and December 2011, Rieth-Riley performed the work as agreed but never received payment from Woodmar. In February 2012, Rieth-Riley executed and recorded a mechanic's lien against Lot 1 for the principal amount of $251,800 plus interest and attorney fees. On February 4, 2013, still having not received payment, Rieth-Riley filed a complaint in the trial court claiming breach of contract against Woodmar and seeking to foreclose its mechanic's lien against Lot 1. Rieth-Riley named Wells Fargo as a defendant due to its interest in Lot 1, but claimed that its mechanic's lien had priority over Wells Fargo's mortgage lien.
[¶4] Wells Fargo filed a cross-claim, counterclaims, and a third-party complaint on April 17, 2013. Wells Fargo asserted that its mortgage lien had priority over Rieth-Riley's mechanic's lien, as well as any other lien, because of its earlier recording date. On June 21, 2013, Wells Fargo moved for summary judgment, asking
the trial court to enter judgment against Woodmar for $5,229,052 plus interest and attorney fees and order foreclosure of its mortgage lien. Rieth-Riley filed a cross-motion for summary judgment asking the trial court to enter judgment against Woodmar for $345,299.60 plus interest and attorney fees and order foreclosure of its mechanic's lien, which it again argued had priority.
[¶5] On May 8, 2014, the trial court granted Wells Fargo's motion for summary judgment and denied Rieth-Riley's cross-motion for summary judgment. As to the priority of the liens, the trial court found:
Here, the law provides that Rieth-Riley . . . shall have priority as to the actual improvements that [it has] made to Lot 1. Further, under Ind. Code § 32-28-3-2, this Court notes that the Mechanic's Lien holders could have sold and removed their improvements. However, that is not to say that the mechanic's liens have priority over Wells Fargo's mortgage lien. Rather, the law on this point is clear. Rieth-Riley . . . shall be entitled to commence foreclosure proceedings and recover the value of [its lien] and the attorney fees provided for in our mechanic's lien statute only after the Wells Fargo mortgage is satisfied. Furthermore, Rieth-Riley . . . [is] entitled to priority as to any proceeds from the sale of the improvements that [it] made. It follows that, upon making a showing of having a valid mechanic's lien for improvements made to Lot 1, any recovery from the Wells Fargo foreclosure proceedings shall be reduced by the proceeds from the sale of the improvements and set aside for the mechanics liens holders. Such matter shall be resolved by further order of this Court.
Appellant's App. p. 52-53 (citations omitted). The trial court then ordered Lot 1 sold to satisfy Wells Fargo's judgment. It noted that:
The proceeds of the sale of the Property shall be applied in the following order: (i) first, to the payment of costs of the Sheriff's Sale; (ii) second, to the payment of all real estate taxes then owing to the Treasurer of Lake County, Indiana, for the Property, (iii) third, all remaining proceeds shall be deposited with the Lake County Superior Court and (iv) all deposited proceeds will then be distributed to Wells Fargo and the junior lienholders in a manner that will be determined by a further order of this Court.
Id. at 54. Finally, the trial court noted that " Wells Fargo is hereby empowered to bid for the Property with the Judgment amount to be credited with the amount bid by Wells Fargo." Id.
[¶6] On June 6, 2014, Rieth-Riley filed a motion to clarify and/or correct error. In its motion, Rieth-Riley argued that by allowing Wells Fargo to " credit bid" for Lot 1 at the sheriff's sale, the trial court's order would deprive Rieth-Riley of any recovery because there would likely be no cash in the pot to distribute following the sale. Wells Fargo filed a motion in opposition.
[¶7] On October 3, 2014, the trial court amended its previous order and granted summary judgment in favor of Rieth-Riley on its breach of contract claim against Woodmar, awarding it $337,370 plus interest. The trial court reaffirmed that Wells Fargo's mortgage lien was " superior to all interests asserted against such property by any other party excepting only: . . . the interests of Rieth-Riley as a mechanic lien holder in the improvements that it may subsequently be determined by this Court in these proceedings to have constructed on Woodmar Center Lot 1." Id. at 83. The trial court then ordered Wells Fargo
to deposit with the trial court the first $337,000 of any bid it may make to purchase Lot 1 in cash. This would assure Rieth-Riley a recovery were the trial court to later determine that it is entitled to proceeds from the sale relating to any improvements it made on the property. The trial court determined that there was no just reason for delay and directed the entry of a ...