October 24, 2008
Indiana Delinquent Sewer Fee Liens
In the case of Pinnacle Properties v. City of Jeffersonville, 893 N.E.2d 726 (Ind. 2008) (Pinnacle.pdf), the Indiana Supreme Court on September 17, 2008 handed down an informative opinion indirectly applicable to lenders who foreclose upon, and ultimately own, commercial real estate collateral. There are many different liens that can be asserted against real property. Delinquent sewer fees is one of them.
The dispute. The City of Jeffersonville provided sewer service and billed tenants directly for the service. The issue was whether the city could transfer a tenant’s delinquent balance to the landlord’s (property owner’s) account without notice.
The holding. Indiana’s highest court held that the city could do so “because the property owner is ultimately responsible for payment of sewer fees.” Note the following general rule:
Although the statutes do not specifically authorize a municipality to transfer tenants’ delinquent sewer balances to the property owner’s account, the liability is the owner’s. Billing the tenant is a convenience afforded the owner, but the owner is ultimately responsible for the sewer service.
The Court concluded:
In sum, the statutes provide that owners are responsible for fees incurred by renters, and those fees can be collected from the deposit or by a civil action. However, the statutes do not require municipalities to collect delinquent fees from tenants. Ultimately, whoever owns the property at the time fees are incurred remains responsible for the fees, and the municipality can foreclose a lien against the property.
The statute. The statute in question was Ind.Code § 36-9-23 et. seq., which generally authorizes recovery of delinquent fees and penalties through the filing by the municipality of a lien against the property served. The lien “may be foreclosed to satisfy fees, penalties, and reasonable attorney’s fees.” I.C. § 36-9-23-34(a). When notice of a lien is filed with the county recorder, the lien attaches “and becomes enforceable by foreclosure against the property.” I.C. § 36-9-23-32(a).
The priority. I.C. § 36-9-23-32(a) provides that such “lien is superior to all other liens except tax liens.” Thus a municipality’s sewer lien will have priority over a lender’s mortgage lien, regardless of the recording dates. However, a lien is not enforceable against a “subsequent owner of property unless the lien for the fee was recorded with the county recorder before the conveyance to the subsequent owner.” I.C. § 36-9-23-32(b).
The “subsequent owner” and sheriff’s sale. In the commercial mortgage foreclosure context, the “subsequent owner” noted in Section 32(b)’s recording provision usually will be the lender/mortgagee. Although I found no case law to support this proposition, logic dictates that the “conveyance” under that statue would be the sheriff’s sale. It follows that, to be enforceable against a lender, the lien must be recorded before the sheriff’s sale.
Notably, I.C. § 36-9-23-33(i) provides that these liens “shall be collected by the county treasurer in the same way that delinquent property taxes are collected.” At least in Marion County (Indianapolis), therefore, sewer liens, like real estate taxes due and owning, will be paid at the sheriff’s sale. (For more on this payment, please see my January 9, 2007 post: Statutory Disposition Of Foreclosure Sale Proceeds.) Sewer liens are never going to be a big deal in terms of dollars. When I’ve seen these, the lien amount has been limited to the hundreds. Nevertheless, they are a potential cost of doing business in Indiana of which secured lenders should be aware. As a practical matter, unless a third party acquires the property at the sheriff’s sale, lenders will get stuck with these fees.
Posted at 11:08 AM in Other Liens