Court Opinion

ID: 3170359
Source: CourtListenerOpinion
Date Created: 2016-01-19 16:03:33.336995+00
Date Added: 2024-06-11T12:17:07.639726
License: Public Domain

Jan 19 2016, 9:01 am

ATTORNEYS FOR APPELLANT                                    ATTORNEY FOR APPELLEE
SABINE MATTHIES                                            THE ALAN D. NELSON LIVING
Julie A. Camden                                            TRUST
Corey R. Meridew                                           P. Adam Davis
Daniel M. Spungen                                          Davis & Sarbinoff, LLC
Camden & Meridew, P.C.                                     Indianapolis, Indiana
Fishers, Indiana

                                            IN THE
    COURT OF APPEALS OF INDIANA

Amici Resources, LLC and Solid                             January 19, 2016
Foundation Investment                                      Court of Appeals Case No.
Properties, Inc. Partnership;                              49A02-1506-PL-560
Solid Foundation Investment                                Appeal from the Marion Superior
Properties, Inc.; Gary                                     Court
Hippensteel; and Sabine                                    The Honorable Timothy W.
Matthies,                                                  Oakes, Judge
Appellants/Defendants/Counter-Claim                        The Honorable Therese Hannah,
                                                           Commissioner
Appellees,                                                 Trial Court Cause No.
                                                           49D02-1309-PL-35155
        v.

The Alan D. Nelson Living
Trust and Amici Resources,
LLC,

Court of Appeals of Indiana | Opinion 49A02-1506-PL-560 | January 19, 2016                     Page 1 of 15
      Appellees/Plaintiffs/Counter-Claim

      Appellants.1

      Bradford, Judge.

                                             Case Summary
[1]   Sabine Matthies obtained a judgment against Solid Foundations Investment

      Properties, Inc. (“SFIP”) on December 10, 2012. Gary Hippensteel is the

      director and president of SFIP. SFIP subsequently purchased a property

      located on Central Avenue in Indianapolis (the “Central Avenue property”). In

      order to purchase the property, SFIP borrowed money from the Alan D. Nelson

      Living Trust (the “Nelson Trust”). In exchange for the necessary financing,

      SFIP executed a mortgage granting the Nelson Trust a security interest in the

      Central Avenue property. SFIP also signed a Promissory Note, in which it

      promised to repay the funds borrowed from the Nelson Trust. SFIP also

      1
         Although Amici Resources, LLC and Solid Foundation Investment Properties, Inc. Partnership; Solid
      Foundation Investment Properties, Inc.; and Gary Hippensteel do not participate in the instant appeal, we
      list these entities and individual as parties because a party below is a party on appeal. See Ind. Appellate Rule
      17.

      Court of Appeals of Indiana | Opinion 49A02-1506-PL-560 | January 19, 2016                          Page 2 of 15
      entered into a partnership with and borrowed money from Amici Resources,

      LLC (“Amici”) to cover renovations to the Central Avenue property. SFIP

      executed a secondary mortgage granting Amici a security interest in the Central

      Avenue property.

[2]   Matthies subsequently sought to enforce her judgment lien against SFIP. The

      Nelson Trust argued that it held a purchase-money mortgage, and therefore had

      first priority against the Central Avenue property. The Central Avenue

      property was sold on June 2, 2014. Pursuant to a court order, $40,000 of the

      sale proceeds was held in escrow by the Marion County Clerk’s Office.

[3]   On May 28, 2015, the trial court issued an order in which it determined that the

      Nelson Trust’s lien against the Central Avenue property had first priority and

      that Amici’s lien against the Central Avenue property had second priority. The

      trial court ordered that the $40,000 be paid to the Nelson Trust. The trial court

      also entered a $39,000 judgment against Hippensteel and SFIP, jointly and

      severally, in favor of Amici.

[4]   On appeal, Matthies contends that the trial court erred in determining that both

      the Nelson Trust and Amici liens had priority over her lien. Concluding that

      the Nelson Trust lien had priority over Matthies’s lien but that Matthies’s lien

      had priority over Amici’s lien, we affirm the judgment of the trial court in part,

      reverse in part, and remand with instructions. We also deny the Nelson Trust’s

      counter-claim request for appellate attorney’s fees.

      Court of Appeals of Indiana | Opinion 49A02-1506-PL-560 | January 19, 2016   Page 3 of 15
                             Facts and Procedural History
[5]   Hippensteel is the director and president of SFIP. Vikki Cortez and Debra

      Argenta are the owners of Amici. Alan Nelson is the trustee of the Nelson

      Trust.

[6]   Matthies obtained a $39,913.13 judgment against SFIP on December 10, 2012.

      On April 11, 2013, HSBC Bank (“HSBC”) agreed to sell the Central Avenue

      property to SFIP. HSBC required that the transaction be a cash deal. In order

      to complete the purchase, SFIP required financing. After one source of

      financing fell through, SFIP, through Amici, approached the Nelson Trust to

      secure the necessary funds. The Nelson Trust agreed to loan SFIP $127,500 for

      the purchase of the Central Avenue property. In exchange for the necessary

      financing, on April 29, 2013, SFIP executed a mortgage granting the Nelson

      Trust a security interest in the Central Avenue property. SFIP also signed a

      Promissory Note on April 30, 2013, in which it promised to repay the funds

      borrowed from the Nelson Trust.

[7]   Also on April 30, 2013, Cortez and Argenta, acting on behalf of Amici, entered

      into a joint venture agreement with Hippensteel for the purpose of purchasing,

      rehabilitating, and selling the Central Avenue Property. Amici also agreed to

      lend SFIP $39,000, secured as a second mortgage, for property rehabilitation

      funds.

[8]   Matthies subsequently sought to enforce her judgment lien against SFIP. The

      Nelson Trust argued that it held a purchase-money mortgage, and therefore had

      Court of Appeals of Indiana | Opinion 49A02-1506-PL-560 | January 19, 2016   Page 4 of 15
       first priority against the Central Avenue property. The Central Avenue

       Property was sold on June 2, 2014. Pursuant to a court order, $40,000 of the

       sale proceeds was held in escrow by the Marion County Clerk’s Office.

[9]    On May 28, 2015, the trial court issued an order in which it determined that the

       Nelson Trust’s lien against the Central Avenue property had first priority and

       that Amici’s lien against the Central Avenue Property had second priority. The

       trial court ordered that the $40,000 be paid to the Nelson Trust. The trial court

       also entered a $39,000 judgment against Gary Hippensteel and SFIP, jointly

       and severally, in favor of Amici. Matthies now appeals.

                                   Discussion and Decision
[10]   Matthies appeals from the trial court’s order regarding the priority of certain

       liens against certain property owned by SFIP, i.e., the Central Avenue property.

       In challenging the trial court’s order, Matthies raises three issues: (1) whether

       the trial court erred in considering parol evidence, (2) whether the trial court

       erred in finding that the mortgage held by the Nelson Trust was a purchase-

       money mortgage, and (3) whether the trial court erred in determining that the

       Nelson Trust and Amici liens had priority over Matthies’s lien.

                           I. Consideration of Parol Evidence
[11]   Again, in April of 2013, SFIP purchased the Central Avenue property from

       HSBC. Although the purchase agreement did not contain any reference to

       financing for the purchase, SFIP obtained a mortgage loan from the Nelson

       Court of Appeals of Indiana | Opinion 49A02-1506-PL-560 | January 19, 2016   Page 5 of 15
       Trust in order to purchase the Central Avenue property. SFIP also obtained

       additional financing from Amici. Matthies subsequently initiated the

       underlying quiet title action. In determining that the Nelson Trust and Amici

       liens had priority over Matthies’s lien, the trial court reviewed the financing

       documents and the joint venture agreement in addition to the purchase

       agreement. Matthies claims it was error for the trial court to do so. We

       disagree.

[12]   Generally, “[t]he parol evidence rule provides that extrinsic evidence is

       inadmissible to add to, vary, or explain the terms of a written instrument if the

       terms of the instrument are clear and unambiguous.” Cooper v. Cooper, 730

       N.E.2d 212, 215 (Ind. Ct. App. 2000) (citing Hauck v. Second Nat’l Bank of

       Richmond, 153 Ind. App. 245, 260, 286 N.E.2d 852, 861 (1972)).

               However, under the stranger to the contract rule, “the
               inadmissibility of parol evidence to vary the terms of a written
               instrument does not apply to a controversy between a third party
               and one of the parties to the instrument.” [Cooper, 730 N.E.2d] at
               216 (relying on White v. Woods, 183 Ind. 500, 109 N.E. 761, 763
               (1915)). See also State Highway Comm’n v. Wilhite, 218 Ind. 177,
               180-181, 31 N.E.2d 281, 282 (1941) (holding that “the general
               rule that resort may not be had to parol evidence to vary or
               contradict a written contract complete on its face does not apply
               to others than the parties to the instrument”); … Burns v.
               Thompson, 91 Ind. 146, 150 (1883) (“[A]side from the question of
               fraud, while a dispositive instrument can not be varied by parol,
               so far as the parties to it are concerned, yet, in respect to
               strangers, written instruments, usually have no binding force, and
               the familiar rule against the variation of such instruments by
               parol evidence applies only to parties and privies, and does not

       Court of Appeals of Indiana | Opinion 49A02-1506-PL-560 | January 19, 2016   Page 6 of 15
               forbid their being attacked and contradicted by parol by strangers
               to them.”).

       Evan v. Poe & Associates, Inc., 873 N.E.2d 92, 101-02 (Ind. Ct. App. 2007)

       (ellipsis added).

[13]   It is undisputed that the instant matter is not an action between the parties to

       the purchase agreement, i.e., SFIP and HSBC. Instead, the instant matter

       involves a question relating to the priority of liens of third parties against SFIP’s

       property. Therefore, a plain reading of the stranger to the contract rule

       indicates that the parol evidence rule does not apply to the instant matter.

       Further, as the parol evidence rule does not apply to the instant matter, we

       cannot say that the trial court erred by considering the financing documents and

       the partnership agreement in addition to the purchase agreement.

                                II. Purchase-Money Mortgage
[14]   Matthies also contends that the trial court erred in determining that the loan

       given from Nelson Trust to SFIP qualified as a purchase-money mortgage. “A

       purchase[-]money mortgage is one which is given as security for a loan, the

       proceeds of which are used by the mortgagor to acquire legal title to the real

       estate.” Liberty Parts Warehouse, Inc. v. Marshall Cnty. Bank & Trust, 459 N.E.2d

       738, 739 (Ind. Ct. App. 1984).

               When the deed and mortgage are executed as part of the same
               transaction the purchaser does not obtain title to the property and
               then grant the mortgage; rather, he is deemed to take the title
               already charged with the encumbrance. Because there is no

       Court of Appeals of Indiana | Opinion 49A02-1506-PL-560 | January 19, 2016   Page 7 of 15
               moment at which the judgment lien can attach to the property
               before the mortgage of one who advances purchase money, the
               prior judgment lien is junior to the purchase[-]money mortgage.
               Thus, the tests employed in determining whether a mortgage is a
               purchase[-]money mortgage are whether the proceeds are applied
               to the purchase price, and whether the deed and mortgage are
               executed as part of the same transaction.

       Id. In the instant matter, the record clearly indicates that the proceeds of the

       loan from the Nelson Trust to SFIP were applied as payment for the purchase

       price of the Central Avenue property. Thus, the only question that remains is

       whether the purchase agreement and the mortgage agreement were executed as

       part of the same transaction.

[15]   In considering whether the execution of purchase and mortgage documents

       were executed as part of the same transaction, we find guidance in the approach

       followed by the Appellate Court of Illinois in Wermes v. McCowan, 286 Ill. App.

       381, 3 N.E.2d 720 (1936). In Wermes, the court stated that “[t]he rule as

       generally stated, is that, to give a purchase-money mortgage a precedence, it

       must have been executed simultaneously, or at the same time, with the deed of

       purchase.” Id. at 386, 3 N.E.2d at 722 (brackets added). “The reason usually

       assigned for this doctrine is the technical one of the mere transitory seisin of the

       mortgagor, rather than the superior equity which the mortgagee has, to be paid

       the purchase money of the land before it shall be subjected to other claims

       against the purchaser.” Id. at 386-87, 3 N.E.2d at 722.

               However, it is evident, both upon principle and authority, that
               what is meant by this statement of the rule is not that the two

       Court of Appeals of Indiana | Opinion 49A02-1506-PL-560 | January 19, 2016   Page 8 of 15
               acts--the execution of deed of purchase and the execution of the
               mortgage--should be literally simultaneous. This would be
               impossible. Some lapse of time must necessarily intervene
               between the two acts. We believe that an examination of the
               cases will show the real test is not whether the deed and
               mortgage were in fact executed at the same instant, but whether
               they were parts of one continuous transaction, and so intended to
               be by the parties, so that the two instruments should be given
               contemporaneous operation in order to promote and carry out
               the intention of the parties.

       Id. at 387, 3 N.E.2d at 722.

[16]   Here, the record demonstrates that on April 29, 2013, SFIP secured a mortgage

       from the Nelson Trust for the purchase of the Central Avenue property.

       Payment for the property came from a wire transfer of the funds from the

       Nelson Trust to SFIP at approximately 4:00 p.m. on April 29, 2013. The next

       day, SFIP signed a promissory note, promising to repay the funds that were

       borrowed from the Nelson Trust for the purchase of the Central Avenue

       property. Also on April 30, 2013, Hippensteel, on behalf of and in his capacity

       as president of SFIP, attended the closing for the purchase of the Central

       Avenue property.

[17]   These facts indicate that although some of the financing documents were signed

       the day before the closing on the sale of the Central Avenue property, the

       documents were signed as part of the same transaction. SFIP and the Nelson

       Trust clearly intended for the loan of funds to be used to purchase the Central

       Avenue property and executed a mortgage indicating as such. SFIP also signed

       Court of Appeals of Indiana | Opinion 49A02-1506-PL-560 | January 19, 2016   Page 9 of 15
       a promissory note which indicated that SFIP promised to repay the borrowed

       funds. The mere fact that some of the financing documents were signed on the

       day before the closing took place does not, in and of itself, indicate that the

       execution of the documents was a separate transaction. As such, we cannot say

       that the trial court erred in determining that the mortgage at issue qualified as a

       purchase-money mortgage.2

                                         III. Priority of Liens
[18]   Matthies last contends that the trial court erred in determining that both the

       Nelson Trust lien and the Amici lien had priority over her lien.

                                          A. Nelson Trust Lien
[19]   Indiana Code section 32-29-1-4 provides that “[a] mortgage granted by a

       purchaser to secure purchase money has priority over a prior judgment against

       the purchaser.” Consistent with Indiana Code section 32-29-1-4, the

       Restatement (Third) of Property provides as follows: “A purchase[-]money

       mortgage, whether or not recorded, has priority over any mortgage, lien, or

       other claim that attaches to the real estate but is created by or arises against the

       2
         Further, to the extent that Matthies claims that finding that the loan from the Nelson Trust to
       SFIP is a purchase-money mortgage is against public policy, we disagree. Contrary to
       Matthies’s claim in this regard, the evidence clearly indicates that the execution of all of the
       documents, both the financing and the purchasing documents were intended to be part of one
       transaction, i.e., the purchase of the Central Avenue property by SFIP. This conclusion seems
       consistent with the public policy interest of providing a system under which a purchaser can
       obtain funding to purchase a piece of property.

       Court of Appeals of Indiana | Opinion 49A02-1506-PL-560 | January 19, 2016           Page 10 of 15
       purchaser-mortgagor prior to the purchaser-mortgagor’s acquisition of title to

       the real estate.” Restatement (Third) of Property (Mortgages) § 7.2 (1997)

       (emphasis added). Comment b to § 7.2 further explains as follows:

               b. Purchase[-]money mortgage priority over other liens or claims
               arising against the purchaser-mortgagor. Under this section the
               vendor’s purchase money mortgage is senior to any previous
               judgment liens that arise against the purchaser-mortgagor. This is
               true even though a judgment attaches as a lien to the judgment
               debtor’s after-acquired real estate and the vendor takes the
               mortgage with actual knowledge of the judgment. See Illustration
               1. This rule applies even if the mortgage is not executed
               simultaneously with the deed to the mortgagor, so long as the
               mortgage and the conveyance of title are intended to be part of
               one transaction. See Illustration 2. Moreover, although the
               purchase[-]money mortgage must be recorded in order to protect
               the mortgagee against subsequent interests that arise through the
               purchaser-mortgagor, such recording is unnecessary to protect
               against claims against mortgagor that antedate the purchase[-
               ]money mortgage.

[20]   Under the clear language of both Indiana Code 32-29-1-4 and section 7.2 of the

       Restatement (Third) of Property (Mortgages), the Nelson Trust’s mortgage lien

       would have priority over Matthies’s lien. Accordingly, we conclude that the

       trial court did not err in finding that the Nelson Trust’s lien had priority over

       Matthies’s lien.

                                                    B. Amici
[21]   In determining that the Amici mortgage had second priority over Matthies’s

       lien, the trial court concluded that “[t]he lien arising from the Judgment is not a

       Court of Appeals of Indiana | Opinion 49A02-1506-PL-560 | January 19, 2016   Page 11 of 15
       valid lien against the Property.” Appellant’s App. p. 16. We disagree. We also

       note that our review of this issue was made more difficult by Amici’s failure to

       file an appellee’s brief.

[22]   “A judgment lien is a lien on the interest the debtor has in the land.” Arend v.

       Etsler, 737 N.E.2d 1173, 1175 (Ind. Ct. App. 2000). Pursuant to Indiana Code

       section 34-55-9-2,

               All final judgments for the recovery of money or costs in the
               circuit court and other courts of record of general original
               jurisdiction in Indiana, whether state or federal, constitute a lien
               upon real estate and chattels real liable to execution in the county
               where the judgment has been duly entered and indexed in the
               judgment docket as provided by law:

               (1) after the time the judgment was entered and indexed; and

               (2) until the expiration of ten (10) years after the rendition of the
               judgment;

               exclusive of any time during which the party was restrained from
               proceeding on the lien by an appeal, an injunction, the death of
               the defendant, or the agreement of the parties entered of record.

       “Thus, a money judgment becomes a lien on the debtor’s real property when

       the judgment is recorded in the judgment docket in the county where the realty

       held by the debtor is located.” Arend, 737 N.E.2d at 1175.

[23]   Consistent with the common law rule that “priority in time gives a lien priority

       in right,” Johnson v. Johnson, 920 N.E.2d 253, 256 (Ind. 2010), a prior equitable

       interest or lien will prevail over a judgment lien while the judgment lien will

       Court of Appeals of Indiana | Opinion 49A02-1506-PL-560 | January 19, 2016   Page 12 of 15
       generally prevail over subsequently-manifesting equitable interests or liens. See

       generally, Arend, 737 N.E.2d at 1174-75 (providing that a prior equitable interest

       in a piece of property will prevail, i.e., have priority over, a judgment lien).

       Further, in Michaels v. Boyd, 1 Ind. 259, 260 (1848), the Indiana Supreme Court

       held that a judgment rendered against an individual attaches to property

       subsequently purchased by the individual “co instanti” with the acquisition of

       ownership of the property. Stated differently, the Indiana Supreme Court’s

       opinion in Michaels indicates that a judgment entered against a debtor instantly

       attaches as a lien to land subsequently acquired by the debtor. This approach is

       also consistent with the authority relating to purchase-money mortgages as it

       seems reasonable to infer that if the prior judgment did not attach as a lien upon

       acquisition of the land, it would not be necessary to specifically state that the

       purchase-money mortgage had priority over the prior judgment.

[24]   In Yarlott v. Brown, 86 Ind. App. 479, 149 N.E. 921 (1925), trans. denied, we

       considered whether a judgment lien had priority over a mortgage lien that was

       perfected subsequent to the creation of the judgment lien. Finding that the

       judgment lien attached to the property before the mortgage lien, we concluded

       the judgment lien was the prior lien and therefore had priority over the

       subsequent mortgage lien. Id. at 484, 149 N.E. at 922. In reaching this

       conclusion, we noted that “quite a different question would be presented” if the

       mortgage had been a purchase-money mortgage, rather than to pay for services

       rendered. Id. at 482, 149 N.E. at 922.

       Court of Appeals of Indiana | Opinion 49A02-1506-PL-560 | January 19, 2016   Page 13 of 15
[25]   In light of the above-discussed authority, we conclude that the trial court erred

       in concluding that Amici’s mortgage lien has second priority over Matthies’s

       lien.3 Matthies’s lien, therefore, should be granted second priority behind the

       Nelson Trust’s lien. On remand, we instruct the trial court to amend its order

       to reflect as much.

            IV. The Nelson Trust’s Request for Attorney’s Fees
[26]   We next turn to the Nelson Trust’s counter-claim request for appellate

       attorney’s fees. In pertinent part, Indiana Appellate Rule 66(E) provides that a

       court on review “may assess damages if an appeal ... is frivolous or in bad faith.

       Damages shall be in the Court’s discretion and may include attorney’s fees.” In

       Orr v. Turnco Manufacturing. Co., 512 N.E.2d 151, 152 (Ind. 1987), the Indiana

       Supreme Court noted, that an appellate court “must use extreme restraint” in

       exercising its discretionary power to award damages on appeal. “Hence, the

       discretion to award attorney fees under App. R. 66(C) is limited to instances

       when an appeal is permeated with meritlessness, bad faith, frivolity,

       harassment, vexatiousness, or purpose of delay.” Boczar v. Meridian St. Found.,

       749 N.E.2d 87, 95 (Ind. Ct. App. 2001) (internal quotation omitted). Here,

       3
         We note, however, that this conclusion in no way alters the trial court’s $39,000 judgment
       against SFIP and Hippensteel, jointly and severally, in favor of Amici.

       Court of Appeals of Indiana | Opinion 49A02-1506-PL-560 | January 19, 2016      Page 14 of 15
       while we ultimately rule in its favor, we decline to award appellate attorney’s

       fees as requested by the Nelson Trust.4

[27]   The judgment of the trial court is affirmed in part, reversed in part, and

       remanded to the trial court with instruction.

       Baker, J., and Pyle, J., concur.

       4
          We note that both Matthies and the Nelson Trust requested attorney’s fees at the trial court
       level. The trial court denied both requests. The Nelson Trust does not appear to challenge the
       trial order in this regard, but rather focuses on whether attorney’s fees were appropriate on
       appeal.

       Court of Appeals of Indiana | Opinion 49A02-1506-PL-560 | January 19, 2016         Page 15 of 15