Wednesday, September 23, 2009

New Indiana Court of Appeals Case - Divorce Judgment Liens and Real Estate

Switching property after a divorce has to take into account any judgment liens from the divorce.  Such is the outcome of Marriage of Lobbs (September 17, 2009).

The Court of Appeals quoted extensively from the trial court's findings:

9. That the final payment of $50,000.00 owed by [Husband] to [Wife] was a judgment lien on the marital Real Estate and its existence was known to Kenneth [and] Elsie when they accepted title to the marital residence from [Husband].
10. That a second judgment lien on the marital residence in the sum of $3,000.00, existed in favor of C. Thomas Billings, Attorney at Law (“Billings”), [Wife‟s] trial attorney[.] (Article II, Section 2.6, page 10).
11. That Kenneth [and] Elsie paid the judgment lien owing to Billings when they received title to the marital residence from [Husband] but failed failed [sic] to pay the judgment lien owing to [Wife] when they received title to the marital residence from Kevin.


1. That from the date of the entry of the Decree of Dissolution of Marriage on July 5, 2005, [sic] until paid, Melissa is the owner of a Judgment Lien against [Husband] in the sum of $50,000.00.
2. That as of July 12, 2008, the balance due to [Wife] on her Judgment Lien will be $61,000.00, $50,000.00 in principal plus $16,000.00 in judgment interest (8% per annum for three years).
3. That [Wife‟s] Judgment Lien was prior in time and therefore prior in right to the title to the Real Estate obtained by Kenneth and Elsie from [Husband] on May 3, 2006.
4. That Kenneth and Elsie had actual knowledge of the existence of [Wife‟s] Judgment Lien and are not bona fide purchasers without notice.


1. That the Real Estate shall be sold by the Sheriff of Hancock County, Indiana at public sale after due notice as required by law to the highest bidder and the proceeds of sale shall be apportioned as follows:
A. To the costs of sale to include advertising thereof;
B. The sum of $61,000.00 to [Wife] in satisfaction of her judgment lien;
C. The sum of $3,000.00 to [Wife] as attorney fees;
D. To the Clerk of this Court for ultimate distribution to any party which establishes a lawful right to said proceeds.

Kenneth and Elsie argued that no lien existed because of no recording with the County Clerk (opinion at 11).
The Court of Appeals dismantled that argument:
A judgment lien is purely statutory. ABN AMRO Mortgage Group, Inc. v. Am. Residential Servs., LLC, 845 N.E.2d 209, 216 (Ind. Ct. App. 2006). Indiana Code Section 34-55-9-2 provides that “[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 had been duly and [sic] entered and indexed . . . .” In Franklin Bank and Trust Co. v. Reed, 508 N.E.2d 1256 (Ind. 1987), reh‟g denied, our Supreme Court determined that where one spouse is ordered to pay the other spouse money in installments, such final judgment automatically creates a judgment lien, “except where the exercise of the court‟s discretion would specifically eliminate it.” Reed, 508 N.E.2d at 1259. Indiana Code Section 31-15-7-8 provides that upon entering an order for disposition of property, the dissolution court “may provide for the security, bond, or other guarantee that is satisfactory to the court to secure the division of property.” The court, however, “may exercise its inherent power and eliminate a judgment lien only by positive action.” Id.

...But “upon a decision of the court, the court shall promptly prepare and sign the judgment, and the clerk shall thereupon enter the judgment in the Record of Judgments and Orders [(“RJO”)]. . . .” Ind. Trial Rule 58(A) (emphasis added). In other words, entry of the Decree in the RJO is a ministerial act to be performed by the Clerk. The RJO, also commonly known as the judgment docket, is controlled by the Clerk, not by the parties. Wife was not required to cause the Decree to be entered in the RJO.

Even more damning was the husband's parent's knowledge of the Decree of Dissolution:
But, here, the controlling and dispositive fact is that the Lobbs had actual notice of Wife‟s judgment lien. Before buying the former marital residence, Kenneth Lobb had a copy of the Decree and knew that the Decree awarded Wife $167,745.50. Kenneth Lobb paid to Wife on behalf of Husband the $50,000 awarded to her under the Decree for her execution of the quitclaim deed. And he was aware that the Decree ordered Husband to pay Wife an additional $50,000 within ninety days of her vacation of the former marital residence. A person with actual notice is bound by the terms of a valid instrument, even when that instrument has not been recorded so as to provide constructive notice. See KeyBank N.A. v. NBD Bank, 699 N.E.2d 322, 327 (Ind. 1998). Because the Lobbs had actual notice of the unpaid order to pay Wife money in the Decree, they are bound by the Decree. See id.

(Opinion at 13).

The Indiana Court of Appeals also reiterated a point I discussed in Indiana Divorce Case Law:  Liens and Property Division and  Indiana Case Law:  Divorce, Property Division and Judgment Liens:
...Again, “where one spouse is ordered to pay the other spouse money in installments, such final judgment automatically creates a judgment lien, „except where the exercise of the court‟s discretion would specifically eliminate it.‟” Reed, 508 N.E.2d at 1259. The dissolution court here took no steps to eliminate the creation of a lien. And the Lobbs had actual notice of the Decree‟s money judgment in favor of Wife and that Husband had not paid all of that judgment. Thus, the unpaid award in the Decree constitutes a judgment lien in favor of Wife enforceable against the Lobbs....

Opinion at 14.

The buyer also raised a bona fide purchaser argument which the Court of Appeals destroyed in a footnote (footnote 11 at page 14):
The Lobbs also contend that they purchased the former marital residence as bona fide purchasers without notice and without any fraudulent intent and, as such, that an execution levy is ineffective as to them due to the lack of a lis pendens notice. But, again, the Lobbs had actual notice that Husband still owed Wife an additional $50,000 under the Decree. Therefore, they are not bona fide purchasers and, thus, they have not shown that they are exempt from execution levy. In sum, this case does not involve a good faith purchaser of the property for value and without notice, and our holding is limited to situations in which the purchaser of the property has actual knowledge of the unsatisfied judgment lien.

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