Kentucky and Indiana Mechanic's Liens

Article 9 of Uniform Commercial Code

“Tips, Tricks & Traps”
The Legal Collection Process

Witness Preparation

Indiana Collection Law Review

Kentucky Collection Law Review

Commercial Collection Cases: Special Issues and Concerns

Effective Use of the Credit Application

Indiana Collection Law Review

I. Actions

A. County court

Actions may be brought in the county courts of Indiana for claims of $10,000.00 or less. Anticipated court costs for the typical collection case through the post-judgment stage are $150.00.

B. Circuit court

Circuit court has general civil jurisdiction over all cases except where exclusive jurisdiction is conferred upon some other court. Anticipated court costs through the post-judgment stage are $150.00. C. Superior court

Sixty-four counties have been authorized to establish superior courts. Each court is individually created and authorized. For the most part, the superior courts have been given jurisdiction concurrent with the circuit courts. Anticipated court costs through the post-judgment stage are $150.00.

II. ATTACHMENT (PRE-JUDGMENT)
A plaintiff at the time of filing his complaint or at any time thereafter may have an attachment against the property of the defendant when the defendant is a foreign corporation or a non-resident, or being a resident, if he secretes himself so that summons may not be served upon him, or is secretly about to leave the state, or has departed therefrom, or is removing his property therefrom, or has sold or is about to sell or dispose of his property subject to execution with intent to defraud or delay his creditors, or is a person whose residence and whereabouts are unknown and cannot be determined after a reasonable investigation before commencement of the action. Furthermore, attachment may be issued on unmatured claims (where the cause of action is not yet due) if the defendant is removing or has removed his person, has sold or is about to sell or convey his property with intent to defraud, or is removing or about to remove property subject to execution leaving an insufficient amount to satisfy the plaintiff's claim.

To obtain an attachment, plaintiff must file an affidavit showing the nature and amount of his claim as well as the existence of one or more of the statutory grounds for attachments. Plaintiff must also file a written undertaking with security subject to the approval of the county clerk, to the effect that plaintiff will duly prosecute his attachment and will pay the defendant all damages which defendant may sustain if the plaintiff's proceedings are wrongful and oppressive.

III. ATTORNEY'S FEES
A court may award attorney's fees as part of the cost to the prevailing party if the action or defense was brought on a claim or defense that is frivolous, unreasonable or groundless, or the losing party continued to litigate the action or defense after their claim or defense clearly became frivolous, unreasonable or groundless, or the action was litigated in bad faith. Otherwise, absent an agreement providing for recovery of attorney's fees, they will not be awarded to the prevailing party.

IV. EXECUTION
Execution from the court of record may issue at any time within ten years after rendition of judgment. Thereafter, execution may be issued only upon leave of court obtained on notice and motion. I.C. 34-1-34-1 et seq. An execution upon judgment for recovery of money or sale of property may be stayed. However, the judgment holder has the right to protection of a surety bond or security if the execution is stayed.

Before property may be sold, it must be appraised by two disinterested householders, one selected by the plaintiff and the other by the defendant. A sale cannot be effected for less than two-thirds of the appraised value unless the judgment orders that it is to be executed without relief from appraisement laws. Except for requirements of appraisal and that the property must sell for two-thirds of its appraised value, the sale of real estate must be conducted pursuant to the same procedures applicable to foreclosures of mortgages. Real estate cannot be sold until six months from the time judgment or execution thereon becomes a lien on the property.

V. EXEMPTIONS
Indiana has not adopted the bankruptcy exemptions provided by § 522(b) of the Bankruptcy Code. The exemptions provided by Indiana law are as follows:

A. Homestead Exemption - Real estate or personal property constituting the personal or family residence of the judgment debtor or a dependent of the judgment debtor or interests or rights in that real estate or personal property of not more than $7,500.00.

B. Other real estate or tangible personal property of $4,000.00.

C. Intangible personal property including choses in action of $100.00.

[The total value of the property exempted under A-C may not exceed $10,000.00.]

D. Professionally prescribed health aids for judgment debtor or dependent of judgment debtor.

E. Any interest the judgment debtor has in real estate held by tenancy by the entireties on the day of filing of the petition for relief under the Bankruptcy Code, unless a joint petition for relief is filed by the judgment debtor and spouse, or individual petitions of the debtor and spouse are subsequently consolidated.

F. Vested or non-vested interest in a retirement plan to the extent of contributions by or on behalf of the debtor which were not subject to federal income taxation to the debtor at the time of the contribution, plus earnings on contributions made which are not subject to federal income taxation at the time of judgment, plus rollovers of contributions made that are not subject to federal income taxation at the time of judgment. Retirement plans include stock, bonuses, pensions, profit sharing, annuities, government or church retirement plans, and IRAs.

G. Money in a medical care savings account established under I.C. 6-8-11.

A right to exempt property may be claimed by the spouse of an execution defendant if the latter is absent. Furthermore, a creditor of one spouse may not seize, sell or attach entireties property.

The debtor must file with the officer a schedule of all his property and claimed property which the debtor desires to exempt. Provisions are made for the sale of property claimed under exemption law whose value exceeds the exemption.

On judgments obtained after June 30, 1989, real estate or personal property upon which the debtor has voluntarily granted a lien is not, to the extent of the balance due on the debt, subject to the foregoing exemptions or exempt from levy or sale in execution or any other final process from the court.

VI. FOREIGN JUDGMENTS
Indiana has not adopted the Uniform Enforcement of Foreign Judgments Act. Where it appears that a court of general jurisdiction of a sister state has entered judgment, a rebuttable presumption exists that the judgment is valid. When pleading a judgment or decision of domestic or foreign court, it is sufficient to aver the judgment or decision without setting forth the matter showing jurisdiction to render it.

VII. GARNISHMENT
Wage garnishment is recognized in Indiana as provided for in I.C. 24-4.5-5-105. All other assets of a debtor in the possession of third persons may be reached by garnishment or by proceedings supplementary to execution.
Wage garnishments shall not exceed 25% of disposable earnings or the amount by which disposable earnings exceed thirty times the federal minimum wage, whichever is less. Special rules are also provided for garnishments for support orders in I.C. 24-4.5-5-105.

VIII. BANK GARNISHMENT
Bank garnishment is relatively simple in Indiana with the only requirement being the issuance of interrogatories to banks for which there is a non-taxable, non-refundable charge of $5.00 per institution. If the interrogatories result in funds being frozen, the freeze continues for 90 days subject to the entry of a final order of garnishment by the court.

IX. HUSBAND'S LIABILITY
In Indiana, husbands are not liable for contracts or torts of their wives. I.C. 31-7-10-4.

X. INTEREST
Interest on judgments runs at the contract rate up to 8% or if there was no agreement at 8%. Pre-judgment interest is discretionary with the court and may be allowed at a rate of 8% per annum from the date an itemized bill shall have been rendered and payment demanded on an account stated, account closed or for money had and received for the use of another and retained without his consent.
Most business loans are not subject to a usury limitation. Consumer loans and credit sales are regulated by the Uniform Consumer Credit Code as adopted by Indiana. I.C. 24-4.5-1-101 to I.C. 24-4.5-6-203.

XI. JUDGMENTS
The judgment of the court of record is a lien on all of defendant's real estate within the county where the judgment was rendered and the judgment becomes a lien on real estate in any other county upon the filing of the transcript in such county. Judgment liens are valid until ten years from the date of rendition of judgment.
An action may be had on a judgment after ten years but before twenty years have expired. The judgment obtained in said action creates a new lien valid for ten years from the date of its rendition.

XII. MECHANIC'S LIENS
A. Owner occupied residential/new residential.

When an owner occupied dwelling is involved, if work is done or delivery made to someone other than the owner or his representative, then written notice of work or delivery and existence of lien rights must be given to the owner within thirty days from the date of first work or delivery. When original construction is done for intended occupancy of owner upon whose land construction is performed, then as to all work and materials furnished to someone other than the owner or his representatives, written notice of such work and material and existence of lien rights must be given to the owner within sixty days from the date of first work or delivery. In all cases involving original construction, a mechanic's lien is not valid against an innocent purchaser for value without notice unless notice of intent to hold lien is properly recorded prior to the recording of a deed by which the purchaser takes title.

B. Private property (non-residential in nature).

All persons performing labor or furnishing material or machinery for erecting, repairing or removing any structure may obtain a lien on the structure and the real estate upon which it is situated by filing in the recorder's office of the county in which the property is located, within sixty days after the time labor was last performed or material last furnished, a sworn statement in duplicate of their intention to hold a lien upon such property, specifically setting forth the amount claimed and giving substantial description of the lot or land upon which the structure stands.

Mechanic's liens may be enforced by suit in circuit or superior courts and if no action is brought within one year to enforce the mechanic's lien, the lien becomes null and void. Mechanic's liens may be released by the recorder after thirteen months from filing upon application by the owner supported by an affidavit alleging no suit is pending to enforce the lien.
C. Public use property.

Contractors on public works must execute good and sufficient bond in an amount equal to the contract price. Materialmen and laborers may claim against funds due the contractor from the public agency. A claim is made by filing duplicate verified statements with the public agency within sixty days of last services or last materials furnished.

XIII. LIMITATION OF ACTIONS
A. Open account.

The statute of limitations on accounts and contracts not in writing is six years. I.C. 34-1-2-1.

B. Written contracts.

Written contracts are also subject to a six year statute of limitation. I.C. 34-1-2-2.

D. Sale of goods

Pursuant to Indiana's version of the Uniform Commercial Code, actions for breach of any contract for sale of goods is subject to a four year statute of limitations. I.C. 26-1-2-725. C. Personal injury/property damage.

Actions relating to personal injury or personal property damage must be brought within two years. I.C. 34-1-2-2.

XIV. PROCEEDINGS SUPPLEMENTAL EXAMS
Proceedings supplemental to execution may be enforced by verified motion or with affidavits in court where the judgment was rendered. If a court determines that the motion meets the statutory requirements as to supplementary proceedings, it will ex parte and without notice order the judgment debtor and other named party defendants to appear for a hearing thereon or to answer interrogatories attached to motion. Witnesses may be required to appear and testify in supplementary proceedings. The date fixed for appearance and hearing cannot be less than twenty days after the date of service.

XV. REPLEVIN
When any personal goods are wrongfully taken or unlawfully detained from the owner or person claiming right of possession thereof, the owner or claimant may bring an action in replevin. At the time of issuing summons or at any time before final judgment, plaintiff may apply for immediate delivery of the property in question by filing an affidavit describing the property and stating that he is the owner or lawfully entitled to possession of the property and stating the property has been wrongfully taken or detained. The affidavit shall also state the estimated value and the location where the property is believed to be detained. Finally, it should state that the property has not been taken for tax assessment or fine pursuant to statute or seized under execution or attachment against property of the plaintiff. Upon the filing of such an affidavit, the clerk issues an order directing the defendant to appear to contest the affidavit or show cause why pre-judgment order for possession and delivery to plaintiff should not issue. A hearing on replevin must be set for no earlier than five days after service of order on the defendant. The court may order possession given to the plaintiff if he has a reasonable probability of entitlement or the defendant defaults by failure to appear at the preliminary hearing. Order of possession for the plaintiff cannot be issued unless he posts a bond in an amount fixed by the court except for order upon default.

XVI. UCC FILINGS
The proper place to file a financing statement in order to perfect a security interest depends on the type of collateral involved. When the collateral is equipment used in farming, accounts or general intangibles arising from or related to the sale of farm products, or consumer goods, it should be filed in the office of the county recorder in the county of the debtor's residence. If the debtor is not a resident of the state then it should be filed in the office of the county recorder in the county where the goods are kept. If the debtor is a corporation then it should be filed in the office of the county recorder in the county where the corporation has its residence and in the office of the Secretary of State, and where the collateral is crops in the office of the county recorder in the county where the land is located.

When the collateral is timber to be cut or is minerals or where the financing statement is a fixture filing, then filing should be made in the office of the recorder where the mortgage on the real estate would be filed or recorded.

In all other cases, filings should be made with the office of the Secretary of State. A filing which is made in the proper place continues effective even though the debtor's residence or place of business or location of the collateral or its use, whichever controlled the original filing, is thereafter changed.

A filed financing statement is effective for a period of five years from the date of filing. After five years, the filing statement shall lapse unless a continuation statement is filed prior to the lapse. A continuation statement may be filed by the secured party within six months prior to the expiration of the five year period.

* * * * *

Prepared by James M. Lloyd, Lloyd & McDaniel, PLC, Louisville, Kentucky, Board Certified Creditor Rights Specialist, Commercial Law League of America, Academy of Commercial & Bankruptcy Specialist.

*This information is designed to provide general information prepared by professionals in regard to the subject matter covered. Although prepared by professionals, this publication should not be utilized as a substitute for professional service in specific situations. If legal advice or other expert assistance is required, the service of a professional should be sought.

COLLECTION CHRONOLOGY

The following represents the timing of events in the typical collection case where no response or defense to the suit is made.

Event Time Span

Suit filed Within 2 days of receipt of costs

Summons served normally within 14-28 days of filing suit

Filing for default 20 days after service of summons

Entry of default 14-28 days from filing *(unless court requires hearing which could add 30 additional days)

Issuance of execution
bank garn
wage garn
sheriff's levy anytime after entry of judgment

Return on execution:
bank garn
wage garn
sheriff's levy

normally within 20 days from service of garn
normally within 20 days from service of garn
90 days from issue date***

Proceedings supplemental anytime after 10 days of judgment entry; varies by county but generally can be requested every 90-180 days to examine debtor

* SOME COURTS REQUIRE HEARINGS FOR ENTRY OF DEFAULTS.

** SHERIFF'S LEVIES ARE GENERALLY INEFFECTIVE WITHOUT A LIST OF UNENCUMBERED PROPERTY.