Lesson. Assuming a default, a defendant lender need not file a claim to enforce its loan against a borrower to recover attorneys’ fees incurred for litigation impacting its mortgage lien.
Case cite. Edgerock Dev. LLC v. C.H. Garmong & Son Inc., 227 N.E.3d 907 (Ind. Ct. App. 2024)
Legal issue. Whether a judicial determination of a default is necessary to trigger a lender’s right to recover attorneys’ fees under the loan documents.
Vital facts. In Edgerock, a mortgage lender for the developer of a commercial project was caught up in a construction dispute, which forced the lender to engage in mechanic’s lien litigation and incur attorneys’ fees to protect its lien priority. The lender did not itself appear to file a claim to enforce its rights against the developer/borrower under the subject loan, however, despite the fact that the loan was in default. The Court’s opinion sets out the controlling attorney fee provisions in the loan documents.
Procedural history. Among other things, on cross-motions for summary judgment, the trial court ruled that certain mechanic’s liens had priority over the mortgage. The trial court also denied the lender’s request for attorney’s fees. Certain parties, including the lender, appealed.
Key rules.
In Indiana, the so-called American rule applies to claims for attorneys’ fees, meaning that “in general, a party must pay his own attorneys’ fees absent an agreement between the parties, a statute, or other rule to the contrary.”
But, a “contract allowing for recovery of attorneys’ fees is enforceable, if the contract is not contrary to law or public policy.” (By the way, a mortgage is a contract.)
The amount of fees, if any, awarded “is left to the sound discretion of the trial court,” but must be supported by the evidence.
Holding. The Indiana Court of Appeals held that the mechanic’s liens were invalid, which rendered the lien priority dispute moot. Further, the Court reversed the trial court’s denial of the lender’s claim for fees.
Note: The case has been appealed to the Indiana Supreme Court, which accepted transfer on 5/23/24, Case No. 24S-PL-184, meaning that for now the opinion has been vacated. In the event the Supreme Court disturbs to Court of Appeals’ ruling on attorneys’ fees, I will follow-up.
Policy/rationale. The Edgerock opinion explained that the premise of the challenge to the recovery of fees was that the lender did not seek a judicial finding that the borrower had defaulted under the loan. However, the operative language in the relevant loan documents did not require such a judicial determination. Instead, the wording simply indicated that fees were “due and payable immediately following a default.” Since the two loan defaults, one of which was a maturity default, were uncontested, the Court concluded: “pursuant to the terms of the [mortgage], [the lender] adequately demonstrated that [borrower] had defaulted on the parties’ agreement, and, as a result, is entitled to attorney’s fees pursuant to the express terms of the mortgage agreement.”
Related posts.
- Commercial Construction Mortgages Stand Tall Over Later-Recorded Mechanic’s Liens In Indiana
- Attorney Fee Awards in Indiana
- Another Indiana Decision Concerning Attorney’s Fees In A Foreclosure Action
- Lender’s Recovery Of Attorney’s Fees Related To Collateral Actions Denied
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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.