Court Opinion

ID: 9737098
Source: CourtListenerOpinion
Date Created: 2023-08-26 19:15:50.961119+00
Date Added: 2024-06-11T07:23:56.501727
License: Public Domain

SHARPNACK, Judge,
dissenting.
I respectfully dissent. Tri-County me-chaniec's lien has priority over Provident's previously executed and recorded mortgage to the extent of Tri-County's improvement and to hold otherwise is to not give effect to the legislature's intent.
The parties agree that December 8, 1999, is Provident's priority date, and June 13, 2000, is Tri-County's priority date; however, they disagree with respect to how the dates establish priority in accordance with Ind.Code § 32-28-3-2 (2002). The issue here is less about priority in time than about priority as to the improvement which is the subject of the mechanic's lien.
Ind.Code § 32-28-8-1 (Supp.2008) provides that a contractor or other qualified person may have a lien:
[U]pon the:
(1) house, mill, manufactory, or other building, bridge, reservoir, system of waterworks, or other structure, sidewalk, walk, stile, well, drain, drainage ditch, sewer, cistern, or earth:
(A) that the person erected, altered, repaired, moved, or removed; or
(B) for which the person furnished materials or machinery of any description; and
(2) on the interest of the owner of the lot or parcel of land:
(A) on which the structure or improvement stands; or
(B) with which the structure or improvement is connected,;
to the extent of the values of any labor done on the material furnished, or both, including any use of the leased equipment and tools.
1.C. § 32-28-8-1(b).
Further, Ind.Code § 32-28-3-2 governs the extent of a mechanic's lien:
(a) The entire land upon which the building, erection, or other improvement is situated, including the part of the land *167not occupied by the building, erection, or improvement, is subject to a lien to the extent of the right, title, and interest of the owner for whose immediate use or benefit the labor was done or material furnished. (b) If:
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a. the owner has only a leasehold interest; or
b. the land is encumbered by mortgage;
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the lien, so far as concerns the buildings erected by the lienholder, is not impaired by forfeiture of the lease for rent or foreclosure of mortgage. The buildings may be sold to satisfy the lien and may be removed not later than ninety (90) days after the sale by the purchaser.
Statutory interpretation is a question of law, which is reserved for the court. Cullimore v. St. Anthony Med. Ctr., Inc., 718 N.E.2d 1221, 1225 (Ind.Ct.App.1999). "Our objective when construing the meaning of a statute is to ascertain and give effect to the legislative intent expressed within the statute." Id. Where a statute has yet to be construed, our interpretation is controlled by the express language of the statute and the rules of statutory construction. Id. When a statute is clear and unambiguous on its face, we need not interpret the statute. Id. Rather, we give the statute its plain and clear meaning. Id.
In Ward v. Yarnelle, our supreme court addressed the respective priorities between mortgage liens and mechanic's liens. 173 Ind. 535, 549, 91 N.E. 7, 13 (1910), overruled in part on other grounds by Moore-Mansfield Constr. Co. v. Indianapolis, N.C. & T. Ry. Co., 179 Ind. 356, 391, 101 N.E. 296, 309 (1913). There, our supreme court concluded that the statutory precursors to Ind.Code §§ 82-28-3-2, -5 contemplated different seenarios regarding priority and provided the priority for each such scenario. Specifically, our supreme court stated that:
They may be stated, first, as cases where there is no building on the land when the improvement begins, and the land is unineumbered, and so remains. There the liens attach to both realty and the improvement, without distinction or priority among the materialmen or laborers. Second, cases where there is no building, but there is a leasehold or the land encumbered. There the existing incumbrances take priority on the land, and the materialman and labor claimant equally upon the building or improvement. Third, where some labor is performed, or material is furnished prior to the execution of a mortgage, in which event, upon notice being filed within the statutory period, though after the mortgage is given, the lien reaches back of the mortgage to the time when the work is begun or the material furnished, and gains priority both as to the land and the building. Fourth, where the improvement is made after the mortgage is executed, but under a prior contract for the improvement, but no work is done or material furnished until after the mortgage is executed or where the work is all done, and material furnished under the contract later than the mortgage becoming effective as a lien, in which case priority is given on the building alone.
Id. at 549-550, 91 N.E. at 13-14 (emphasis added). Our supreme court added that "[Itlhe history of the legislation on this subject in this state and elsewhere evidences a due regard for prior rights, as conferred by the registration laws, and the object of the legislation was to intervene in *168favor of the mechanic or laborer, and secure to him a return for what he has done in enhancement of the value of the land, and still not injure prior lienholders." Id. at 551, 91 N.E. at 14. Ultimately, in Ward, our supreme court held that a real estate mortgage executed while a building was in the process of construction for the purpose of providing funds to complete the project was entitled to equal priority with the claims of laborers and materialmen who, without prior obligation, furnished labor and materials after execution of the mortgage and with full knowledge of its purpose and effect. Id. at 552-554, 91 N.E. at 15; see also Brenneman Mech. & Elec., Inc. v. First Nat. Bank of Logansport, 495 N.E.2d 233, 242 (Ind.Ct.App.1986) (noting that "where mechanies' lien claimants have notice of a mortgage wherein the money derived from the loan is used in the construction of the improvements the mortgage lien and mechanies' liens have equal priority"), reh'g denied, trans. denied. Because there is no designated evidence indicting that Provident's mortgage was used for the construction or improvement of the Property and that TriCounty was aware of such use, our supreme court's ultimate holding in Ward is not applicable to the facts of this matter.
The United States Bankruptey Court for the Northern District of Indiana also addressed a similar issue in Venture Props., Inc. v. Altite Roofing, Inc., 139 B.R. 890, 895 (Bankr.N.D.Ind.1990). There, the bankruptcy court applied Indiana law to determine whether a properly executed and recorded mortgage had priority over a subsequent mechanic's lien for the same property. Id. at 895. The bankruptcy court likened the matter to Ward and held that the mortgage lien and the mechanic's lien shared equal priority where the purpose of the mortgage loan was to finance the construction. Id. at 897. However, before reaching this conclusion, the bank-ruptey court discussed our supreme court's holding in Ward wherein our supreme court outlined the four seenarios contemplated by the statutory precursors to Ind. Code §§ 32-28-3-2, -5. In discussing the fourth such seenario, the bankruptey court noted that:
[A] mechanic's lien is inferior to a mortgage lien on land (even when the contract for labor or services is executed prior to execution of the mortgage) if the mechanic, laborer, and/or supplier does not perform labor or furnish materials prior to the execution of the mortgage. In such case the mechanic's lien has priority only as to the improvement itself.
Id. at 895 (internal citations omitted); see also Carriger v. Mackey, 15 Ind.App. 392, 394-395, 44 N.E. 266, 267 (1896) (holding that the senior mortgages only had priority as to the real estate as it was at time of the execution of the mortgage); Ind.Code § 32-28-3-2(b). The bankruptcy court also noted that the "Indiana Supreme Court in Ward found that Indiana Code Chapter 32-8-3 failed to address the lien priority between a mortgage executed to raise funds for construction of improvements on property and the mechanic's liens of those who provided the labor and supplies necessary to complete the construction." Venture, 139 B.R. at 895.
In 1999, our legislature amended Ind. Code § 32-28-3-5 and specifically addressed the situation before our supreme court in Ward and again discussed by the bankruptcy court in Venture Ind.Code § 32-28-8-5 provides that:
The mortgage of a lender has priority over all liens created under this chapter that are recorded after the date the mortgage was recorded, to the extent of the funds actually owed to the lender for the specific project to which the lien rights relate. This subsection does not *169apply to a lien that relates to a construction contract for the development, construction, alteration, or repair of the following:
(1) A Class 2 structure (as defined in IC 22-12-1-5). .
(2) An improvement on the same real estate auxiliary to a Class 2 structure (as defined in IC 22-12-1-5).
Ind.Code § 32-28-3-5(d) does not apply to this case because that provision applies only where funds from the loan secured by the mortgage are for the project which gave rise to the mechanic's lien.3 In such an instance, the mortgage lien has priority over the mechanic's liens recorded after the mortgage. An exception is made where the project is for a Class 2 structure, in which instance the mortgage would not be superior to the after recorded mechanic's liens. Here, however, there is nothing to indicate that funds from the mortgages were intended for use in constructing the driveway.
Ind.Code § 82-28-3-5(d) does have some relevance however, as it is consistent with the concept that mechanic's liens would be superior to mortgage liens as to the improvements that are the basis for the mechanics liens. Were that not the case, 1.C. § 82-28-3-5 would be unnecessary to make the prior mortgage superior to the subsequent recorded mechanics liens. |
Here, Tri-County perfected its mechanic's lien on June 13, 2000, approximately seven months after Provident had recorded its mortgage. Tri-County argues that this case is like the fourth scenario in Ward. However, there was no agreement to pave the driveway in place prior to the recording of the mortgage. Rather, their case is most like the second Ward seenar-i0, where the mortgage is in place prior to work on improvements. - Specifically, Ward's second scenario identified situations where "there [was] no building, but there [was] a leasehold or the land enceum-bered. There the existing incumbrances take priority on the land, and the material-man and labor claimant equally upon the building or improvement." Unlike the see-ond scenario, here the mortgage was in place on the land and existing improvements before the driveway was contracted for or constructed. The land with existing improvements here is effectively the same as the vacant land in the Ward second scenario. Accordingly, Tri-County's me-chanie's lien has priority only as to the improvement, ie., the driveway.
The majority opinion relies upon Zehner v. Johnston, 22 Ind.App. 452, 53 N.E. 1080 (1899) for the proposition that a subsequently perfected mechanic's lien is junior to a previously recorded mortgage. While I do agree with the majority that based upon Zehner, Tri-County's mechanic's lien has priority only as to the improvement, ie., the driveway, I do disagree with the majority's application of Zehner when read in conjunction with applicable sections of the Indiana Code. Specifically, Ind.Code § 32-21-4-1(b) must be read and interpreted together with Ind.Code § 82-28-3-2. Although, 1.C. § 32-21-4-1(b) provides that a mortgage takes priority "according to the time of its filing," I.C. § 32-28-8-2 provides that when land is encumbered by a mechanic's lien "the entire land upon *170which the building, erection, or other improvement is situated, ... is subject to a lien." However, when the land that is subject to a mechanic's lien is also encumbered by a prior mortgage, the mechanic's lien "is not impaired by ... foreclosure of mortgage," and in order to satisfy the lien, the mechanic's lien holder may remove the improvement. However, as Tri-County suggests, removal of the driveway is impractical and not economically feasible. The majority holds that although the "removal of the driveway poses 'practical ramifications' ... such is the result envisioned by both Indiana Codes sections 32-21-4-1(b) and 32-28-8-2(b)." I respectfully disagree.
Tri-County's priority can be recognized and enforced by giving priority in foreclosure up to the amount of the lien. Public policy favors this result because this conclusion is consistent with the plain reading of Ind.Code § 32-28-3-1 and Ind.Code § 32-28-8-2. I1.C. § 82-28-3-1 provides that the mechanic's lien is "upon" the improvement and the interest of the owner of the subject land. I.C. § 82-28-3-2(a) provides that the "entire land upon which the building, erection, or other improvement is situated, including the part of the land not cecupied by the building, erection, or improvement" is subject to the mechanic's lien. However, where, as here, the land is also encumbered by a mortgage, IC. § 32-28-3-2(b)(2) provides that "the lien so far as concerns the building erected by the lienholder, is not impaired by forfeiture of the lease for rent or foreclosure of the mortgage." The fact that it is impractical and harmful to remove the improvement does not require that the mechanic lien holder forfeit its priority as to the improvement created by its efforts. Such priority is the economic equivalent of allowing removal and sale of the improvement. This is the effect of the trial court's summary judgment.
Based upon my review of the relevant case law and statutory authority, I conclude that pursuant to the plain reading of Ind.Code § 32-28-38-2(b), - Tri-County's mechanic's lien has priority only as to the improvement, le., the driveway, and Provident has priority with respect to all other interest in the Property. Thus, I would hold that Tri-County may foreclose upon the Property subject to Provident's superi- or mortgage in order to enforce its me-chanie's lien on the driveway and it has priority to the proceeds of the foreclosure sale up to the amount of its interest with respect to the driveway.

. Tri-County also argues that it has priority over Provident's mortgage pursuant to Ind. Code § 32-28-3-5. Specifically, Tri-County argues that because I.C. § 32-28-3-5 does not apply to a single family dwelling, a mechanic's lien on a is senior to a previously recorded mortgage. However, LC. § 32-28-3-5 does not apply to this case because it applies only where funds from the lien secured by the mortgage are for the project which gave rise to the mechanic lien.