Indiana courts have issued several opinions in the last year that underscore the risk to a lender who does not make a physical inspection of the property before it loans money against it. In these cases, the court ruled against lenders in various contexts for the reason that an inspection of the property would have revealed that there were parties in possession. This knowledge then gives rise to a duty on the part of the lender to inquire as to what those rights might be. Failing to take this step puts the lender at risk of being subordinate to any interest that the party in possession might have. 
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Posts Tagged ‘real estate’
Should Lenders Inspect Property Before They Lend?
Thursday, January 12th, 2012Court Clarifies Priorities Between Mechanic’s Lienholders and Construction Lenders on Subdivision Improvements
Tuesday, January 3rd, 2012Under our current mechanic’s lien statute, a construction lender who records its mortgage prior to the recording of a mechanic’s lien takes priority over the mechanic’s lien. There are three exceptions to this rule. The first exception is in the case of the construction of houses. The second is in the construction of improvements auxiliary to houses. The third is constructing property which is property controlled by a utility. (more…)
Verbal Mortgage Release Not Enforceable
Thursday, March 10th, 2011An employer loaned his employee money to buy a house. As the employment relationship went on, the employee alleged that the employer agreed to release the mortgage on the house. However, no written document was ever signed releasing the mortgage. (more…)
A Few Years Ago We Thought Receiverships Were Dead
Wednesday, February 16th, 2011Over the past few years, a number of amendments to the Bankruptcy Code have made bankruptcy a less flexible tool for debtors dealing with real estate related debt problems. As a result, state law receiverships are on the rise. Where before we rarely, if ever, saw receivership action initiated by a lender, they are now quite common. (more…)
Should Lenders Inspect Property Before They Lend?
Tuesday, November 16th, 2010Indiana courts have issued several opinions in the last year that underscore the risk to a lender who does not make a physical inspection of the property before it loans money against it. In these cases, the court ruled against lenders in various contexts for the reason that an inspection of the property would have revealed that there were parties in possession. This knowledge then gives rise to a duty on the part of the lender to inquire as to what those rights might be. Failing to take this step puts the lender at risk of being subordinate to any interest that the party in possession might have. (more…)
Court Clarifies Priorities Between Mechanic’s Lienholders and Construction Lenders on Subdivision Improvements
Tuesday, November 9th, 2010Under our current mechanic’s lien statute, a construction lender who records its mortgage prior to the recording of a mechanic’s lien takes priority over the mechanic’s lien. There are three exceptions to this rule. The first exception is in the case of the construction of houses. The second is in the construction of improvements auxiliary to houses. The third is constructing property which is property controlled by a utility.
In a recent case, subdivision improvements were constructed. However, there were two important factors that impacted the analysis. First, no houses whatsoever had been built in the subdivision. Therefore, the court found that the exceptions for houses and improvements auxiliary to houses could not apply. Second, the utilities that had been constructed had not yet been accepted by the relevant public utilities. Since ownership of utilities does not transfer until the time of acceptance, the third exception did not apply.
Thus, in this case, the mechanic’s lienholders were junior to the debt of the construction lender. Given the depressed real estate values, it is doubtful that the mechanic’s lienholders received any payment because of a lack of equity to support their lien position.
Author: Terry G. Farmer (bio)
Phone: 812.452.3543
Email: tfarmer@bamberger.com
What is a Negative Pledge?
Wednesday, February 24th, 2010A negative pledge is really not a pledge at all. A negative pledge is a promise by a borrower to not allow any liens to be placed upon some or all of the borrower’s assets. Negative pledge language is often found in standard bank loan agreements as one of many covenants (promises) made by the borrower. As with other covenants in the loan agreement, violation of a negative pledge is usually an event of default. A negative pledge can also be a stand alone document. Frequently stand alone documents are for negative pledges of real estate assets and are in a form that allows recording in the real estate records of the county in which the subject real estate is located. (more…)