Indiana’s Commercial Property Lien Priorities Re-Affirmed and Clarified

The Indiana Court of Appeals recently re-affirmed that the “first in time” rule determines priority between a mortgage and a mechanic’s lien on the same commercial property. Wells Fargo Bank, N.A. v. Rieth-Riley Construction Co., Inc. However, the mechanic’s lien holder continues to have the right to sell and remove the improvement it constructed. In Wells Fargo, a mortgage recorded in January of 2008 took priority over a mechanic’s lien recorded on the same property in February of 2012. The mechanic’s lien was filed in an attempt to recover payment for the paving of a parking lot for which the work began November 2011. (The date of the lien relates back to the commencement of performance or furnishing of materials with a mechanic’s lien.) The decision further affirmed the remedies available to the later-recorded mechanic’s lienholder. The Court in Wells Fargo re-affirmed that Rieth-Riley’s mechanic’s lien afforded it the right to remove and sell the parking lot—as impractical as that might be. At a foreclosure sale, however, Wells Fargo was entitled to credit bid for the mortgaged property and Rieth-Riley was not entitled to any proceeds of the sale until the obligations secured by Wells Fargo’s mortgage were fully satisfied. While re-affirming the “first in time” rule, the Wells Fargo decision highlights the complexities involved in navigating the rights of mechanic’s lien holders and mortgage holders.