Reminder: As A Defendant Lien Holder, Answer The Complaint To Protect Your Interests

My June 18, 2008 post No Answer To Complaint = No Lien On Property remains true over 15 years later.

Irmscher Suppliers v. Capital Crossing, 887 N.E.2d 97 (Ind. Ct. App. 2008) illustrates how a defendant lien holder’s failure to answer another lien holder’s complaint can result in the termination of the defendant’s lien.

Complaint. Irmscher, a contractor, recorded a mechanic’s lien on the subject property. Capital Crossing, a mortgage lender, recorded a mortgage lien on the subject property a few months earlier. Capital Crossing named Irmscher as a defendant in its foreclosure action to answer as to its interest in the real estate.

Response, or lack thereof. Counsel for Irmscher appeared in Capital Crossing’s foreclosure case, but Irmscher never filed an answer to the complaint. Capital Crossing filed a motion for summary judgment seeking, among other things, a determination that its mortgage lien was a first lien on the subject real estate. Although Irmscher filed a brief in opposition to the motion and a designation of evidence, the Court’s opinion did not mention any evidence tendered by Irmscher. Irmscher’s position was that the case should be decided in a separate foreclosure action filed by Irmscher. Counsel for Irmscher did not appear at the hearing on Capital Crossing’s summary judgment motion. The trial court entered a judgment of foreclosure and decree of sale, finding that Irmscher had no interest in the subject property. Irmscher appealed.

Silence equals admission. On appeal, Irmscher contended that the trial court erred when it found Irmscher had no interest in the real estate. The Court of Appeals disagreed: “Irmscher did not file an answer to Capital Crossing’s amended complaint and therefore admitted, at the very least, to the superiority of Capital Crossing’s mortgage.” The Court cited an Indiana Supreme Court decision from 1886:

As applicable however, to a suit to foreclose a mortgage, and other kindred suits in the nature of a proceeding in rem, where a party is made a defendant to answer as to his supposed or possible, but unknown or undefined, interest in the property, we think that, as against him, a default ought to be construed as an admission that, at the time he failed to appear as required, he had no interest in the property in question, and hence as conclusive of any prior claim of interest or title adverse to the plaintiff.

Lesson. When a plaintiff lien holder files an action and asserts facts placing the validity, priority or amount of a lien in issue, a named defendant must file an answer to assert whatever interest it has in the property. If it fails to do so, the lien of the defendant will be extinguished as a matter of law. In Irmscher, the Court of Appeals held “in this case, although Irmscher’s counsel entered an appearance, Irmscher failed to file an answer asserting whatever interest it had in the property. As such, we conclude that the trial court did not err in finding that Irmscher had no interest in the property.”  Irmscher is still good law in Indiana. Thus, if you have a lien and are named as a defendant in a foreclosure lawsuit, you need to appear in the action if you wish to preserve your interest in the subject real estate. If you ignore the suit, the court can extinguish your lien through a default or summary judgment.

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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.