Indiana Judgment Liens On Real Estate In Revocable Trusts
Lesson. A judgment lien can attach to real estate in a revocable trust if, among other things, the judgment debtor holds an ownership interest in the trust’s assets.
Case cite. Sumrall v. LeSEA Inc. 234 N.E.3d 230, (Ind. Ct. App. 2024)
Legal issue. Whether a judgment creditor may secure a judgment lien on real estate within a revocable trust, even though the judgment was against only one of the co-trustees, co-settlors and co-beneficiaries of the trust.
Vital facts. In March 2016, Lester Sumrall (Lester) recorded something he called a bond debt notice (Notice) against LeSEA’s real estate that asserted $173K was due and owing. Meanwhile, in November 2018, a third party conveyed certain real estate (Property) to Lester. A few weeks later, Lester recorded a quitclaim deed that conveyed title to the Property, for no consideration, to the Sumrall Trust (Trust), in which both he and his wife were co-trustees and co-beneficiaries. The Trust was revocable during the couple’s lifetime, although upon death the Trust became irrevocable, with their children being the residual beneficiaries.
In 2019, LeSEA sued Lester for slander of title to LeSEA’s property by virtue of the recording of the Notice, which LeSEA claimed was invalid. In 2020, LeSEA was awarded a money judgment for $236K arising out of the invalid Notice. A few years later, in the same action following some messy proceedings, the trial court granted LeSEA’s motion to place a judgment lien on the Property.
Procedural history. Lester appealed the trial court order placing a judgment lien on the Property.
Key rules. The Court noted that “the fundamental requirement of due process is the opportunity to be heard at a meaningful time and in a meaningful manner.”
The Court relied in part on Kesling v. Kesling, 967 N.E.2d 66 (Ind. Ct. App. 2012) for the idea that Lester had an interest in the Property placed into the Trust. Please read the opinion for more.
The Court took a deep dive into Indiana trust law, and cited to the Restatement (Third) of Trusts (2007), Ch. 21:
Technically, the trust is still not generally recognized as a legal “entity,” but it is generally for federal tax purposes, and in practice trustees act on behalf of their trusts and are sued as trust representatives. Indeed, in this Chapter and elsewhere in this country, the trust is treated as an entity to such an extent that it is no longer inappropriate to refer to claims against or liabilities of a “trust” (as in the title and content of this Chapter) and to the liability or debt of a beneficiary to a “trust” (as in Chapter 20), or to refer to and treat trusts, in law and in practice, as if they were entities in numerous other contexts.
Holding. The Indiana Court of Appeals affirmed the trial court.
Policy/rationale. Lester argued that the entry of the lien violated due process. The court proceedings were muddled, but basically Lester asserted he didn’t get his day in court. Lester also claimed that the Property was shielded from collection by virtue of it being held in the Trust with his wife. (Lester’s wife was not connected to the Notice, and she was not a party to the slander of title suit.) Candidly, most judgment creditors default view is that a debtor’s assets held in trust are difficult if not impossible to touch. Sumrall opens a window to collection, however, if a trust is revocable and other boxes are checked, meaning the trust document will be important.
Both the trial court and the Court of Appeals found it compelling that the Trust was revocable and “freely allow[ed] the Property to be removed from the Trust at any time,” which is “much different” than placing the Property in an irrevocable trust. Thus, LeSEA could seek to enforce its judgment against Lester via a lien on the Property without violating notions of due process.
Related posts.
- Judgment Lien Principles Courtesy Of The Indiana Supreme Court
- Sampling Of Indiana Deed Law, And Judgment Lien Attachment Issues
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Part of my practice involves representing parties in lien-related disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at john.waller@dinsmore.com. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.