“A week ago, the Indiana Court of Appeals issued a decision in the case styled Hair v. Schellenberger, Case No. 49A02-1107-PL-685 (click here) that will have definitive impacts on the perfection of judgment liens in Indiana and clarifies when a party becomes a bona fide purchaser for value.

In Hair, when the new purchaser purchased a property at a foreclosure sale, the title search did not show a money judgment that Calvin Hair had obtained against former owners. The judgment had never been indexed in the county records, and the new purchaser (Schellenberger) was unaware of it until a year later, when Hair sent him a letter claiming that he had a judgment lien on the property. The new purchaser filed a quiet title action to remove the Hair judgment lien. The trial court granted the new purchaser’s motion for summary judgment determining that the new purchaser was a bona fide purchaser. That decision was appealed to the Indiana Court of Appeals in the above-captioned case.

Bona Fide Purchasers:

To qualify as a BFP, one must purchase in good faith, for valuable consideration, and without notice of the outstanding rights of others. A purchaser of real estate is presumed to have examined the records of such deeds as constitute the chain of title under which they claim and is charged with notice, actual or constructive, of all facts recited therein. A record outside the chain of title does not provide notice to bona fide purchasers for value. In Indiana, IC § 34-55-9-2 states that, “All final judgment for the recovery of money … constitutes a lien upon real estate … in the county where the judgment has been duly entered and indexed in the judgment docket as provided by law … after the time the judgment was entered and indexed.”

In Hair, the judgment creditor obtained a judgment on April 24, 2006, but neither the docket nor the index contained any entry indicating that Hair had obtained a money judgment against the debtors. Thus, in 2007, when Schellenberger purchased the property at a foreclosure sale, there was nothing in the county records that would have placed him on notice of Hair’s interest in the parcel. The judgment lien was not docketed and indexed until 2009.

Since Schellenberger had no actual notice of the judgment lien until after purchasing the property and no constructive notice until the judgment lien was docketed and indexed in 2009, Schellenberger became a BFP and takes title ahead of the interest of Hair. In other words, the Hair lien did not attach to the property.

Judgment Lien Perfection:

The result in Hair is clear. In order for a judgment lien to be perfected under IC § 34-55-9-2, the judgment lien must not only be rendered as a final judgment but also entered AND indexed into the county docket. The act of entering and indexing is accomplished by the county clerk who enters the judgment data into the index. However, this effort is also the responsibility of the judgment creditor to ensure that their judgment lien is docketed and indexed as well as rendered. Failure to ensure that the county clerk has accomplished this task may result in the judgment lien being made inferior over time or lead to the result in Hair.

For title agents, please share a copy of this decision with your title searchers and abstractors and make them aware that judgment liens must be entered and indexed in the county records before they can be considered to be properly perfected as valid liens of record. It appears that the facts of Hair are probably unique to this case (i.e. a clerk’s failure to note a valid judgment in the index), but the larger issue is that perfection of judgment liens in Indiana is not simply the rendering of judgment, but also the separate acts of entering the judgment and indexing it of record.

An appeal to the Indiana Supreme Court is still possible in this case and we will keep you apprised.”