Molter, J.
EdgeRock Development, LLC transformed five undeveloped lots into the Trails of Westfield—a planned unit development in Westfield, Indiana, comprising retail and residential projects. It still owns two of the lots; it sold two lots to ZPS Westfield, LLC; and it sold one lot to a nonparty. EdgeRock contracted with C.H. Garmong & Son, Inc. and Fox Contractors Corp. to develop all five lots.
When EdgeRock first fell behind in its payments to Garmong, Garmong recorded construction liens that EdgeRock satisfied by obtaining a loan from First Bank Richmond, which the bank secured with a mortgage on EdgeRock’s lots. Then, when EdgeRock fell behind again, Garmong and Fox each recorded construction liens on all five lots in the development. And the liens were redundant: Each lien stated a cumulative debt covering the contractor’s work on all five lots, not just a debt for the work benefiting the owner of the lot to which the lien attached. That meant the contractors were using multiple properties with different owners to secure the same debt.
Recording the liens didn’t prompt payment that time. So the contractors sued EdgeRock for money damages on breach of contract claims and sued the other property owners, including ZPS, to foreclose the construction liens that secured the outstanding debts. Following a bench trial, the trial court awarded the contractors most of the relief they sought. But the Court of Appeals concluded the construction liens were overstated because they were not limited to the debts for the improvements directly benefiting the properties to which the liens attached. And it reversed the portion of the judgment foreclosing the construction liens.
We granted transfer to answer questions of first impression related to: (1) the validity and scope of the contractors’ construction liens, and (2) the priority between the construction liens and First Bank’s mortgage lien on EdgeRock’s property. In short, we conclude that a construction lien secures only the debt for improvements directly benefiting the property to which the lien attaches. So the contractors can foreclose the liens on each property to recover only those amounts, not amounts for work to improve a different owner’s property.
We also conclude that First Bank’s mortgage lien is senior to the construction liens for the amount the bank loaned to satisfy Garmong’s prior construction lien. But the mortgage lien is junior for the remaining amounts, including the amount the bank loaned EdgeRock to pay off a prior mortgage held by the project’s investors.
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The trial court foreclosed Garmong’s and Fox’s construction liens against ZPS’s and EdgeRock’s lots. On appeal, EdgeRock and ZPS pursue a three-prong challenge to those liens. First, EdgeRock and ZPS argue the liens are invalid because the statute did not permit Garmong and Fox to secure their debts in duplicate (sometimes triplicate) by filing redundant liens against multiple properties with different owners, all covering the same labor and materials. Second, EdgeRock and ZPS argue the liens are invalid because they were recorded too late. And third, they assert various challenges to the underlying debts that the liens secure.
While we agree with EdgeRock and ZPS that each lien can secure no more than the debt for the improvements to the property attached to the lien, we otherwise affirm the trial court’s judgment as to the validity of the liens and the debts they secure.
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EdgeRock and ZPS disagree. They contend that when contractors work on properties with different owners, the contractors must allocate the debts between properties, or at least between property owners, even when all the work stems from a single contract. Here, that would mean Garmong’s and Fox’s liens against EdgeRock’s property could cover only improvements to that property, and their liens against ZPS’s property could cover only improvements to that property.
Four reasons lead us to agree with EdgeRock and ZPS that duplicate liens are improper, which we discuss next. After that, we explain, as Garmong and Fox argue, the remedy for the lien overstatement is to reduce the liens, not, as EdgeRock and ZPS argue, to invalidate them in their entirety.
The first reason we agree with EdgeRock and ZPS is that the statutory language ties liens to property ownership, with no mention of contracts….
The case law confirms our interpretation, rejecting Garmong and Fox’s view that a lien’s scope depends on whether all the work stems from a single contract…
So each property owner must pay their own way, but that means paying only for the improvements they effectively consented to and bargained for, which takes us to our final point…
Garmong and Fox’s statutory interpretation would convert property owners to guarantors of other property owners’ debts. But that isn’t the function of a construction lien under Indiana law.
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The trial court did not allocate the lien amounts between EdgeRock’s and ZPS’s properties because the court mistakenly believed each contractor could apply the entire debt to both property owners. EdgeRock and ZPS argue, and the Court of Appeals agreed, that Garmong’s and Fox’s overstatement of their liens renders them void. But no reported case in Indiana has ever held that a lien was void because the vendor overstated the amount owed, and this case should not be the first.
We therefore conclude the trial court did not clearly err by declining to void the liens based on overstatement. But the liens on each property still need to be revised to reflect the materials and services directly improving the property to which each lien attaches. Next, we apply that limitation to the three pairs of liens.
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Because there is no finding that the remaining amount is attributable to improvements directly benefiting EdgeRock’s property—and the evidence is that the work was across all five lots—EdgeRock’s Lots 4 and 5 are not subject to a construction lien for any of the $943,042.64. That said, while EdgeRock’s property is not subject to a construction lien for any of that amount, the property remains subject to a judgment lien for the entire amount based on Garmong’s successful breach of contract claim against EdgeRock. (We recognize that a judgment lien has a lower priority than a construction lien, though.)
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In sum, although Garmong’s construction liens against EdgeRock’s Lots 4 and 5 are invalid, its judgment liens against EdgeRock remain valid. Garmong’s construction liens on ZPS’s Lots 1 and are valid only for the amount of $520,509.70,3 and they may be enforced only if the sale of EdgeRock’s Lots 4 and 5 does not satisfy the debt. [Footnotes omitted.]
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Because Garmong’s and Fox’s lien foreclosures force the sale of EdgeRock’s Lots 4 and 5, we must next determine the order—the priority—that those sale proceeds will be applied to (a) the debts that the construction liens secure, and (b) the $4.9 million debt that First Bank’s mortgage lien secures..
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A. Construction lien priority is determined by the date work begins, not the date the lien is recorded.
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B. First Bank’s mortgage lien is senior for the money it loaned to satisfy Garmong’s prior lien, but not for the remainder of the loan funds.
Even where a construction lien would otherwise be senior to an earlier recorded mortgage lien, there is a statutory exception for a mortgage lien that secures project financing: “The mortgage of a lender has priority over all liens created under this chapter that are recorded after the date the mortgage was recorded, to the extent of the funds actually owed to the lender for the specific project to which the lien rights relate.” I.C. § 32- 28-3-5(d)…
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C. The trial court did not clearly err by declining to apply equitable subrogation.
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Conclusion
For these reasons, we affirm in part, reverse in part, and remand for the trial court to amend the judgment consistent with this opinion. That includes amending the judgment to reflect:
- Garmong’s construction liens against EdgeRock’s Lots 4 and 5 securing the $943,042.64 debt under the EdgeRock-Garmong contract are invalid, but the related judgment liens against EdgeRock remain valid.
- Garmong’s construction liens on ZPS’s Lots 1 and 2 securing the debt under the EdgeRock-Garmong contract are valid only for the amount of $520,509.70, and they may be enforced only if the sale of EdgeRock’s Lots 4 and 5 does not satisfy the debt.
- Fox’s construction liens on EdgeRock’s Lots 4 and 5 securing the $202,623.56 debt under the Fox-Garmong subcontract are valid, but Fox’s liens for that amount on ZPS’s Lots 1 and 2 are not.
- Fox’s construction liens on EdgeRock’s Lots 4 and 5 securing the $1,166,728.33 owed under the EdgeRock-Fox contract are valid, but Fox’s liens on ZPS’s Lots 1 and 2 securing that debt are not.
- Signworks’s judgment lien on EdgeRock’s Lots 4 and 5 is junior to First Bank’s mortgage lien on those lots.
In addition, we summarily affirm the holdings of the Court of Appeals: (1) that the trial court did not err in concluding that factual disputes precluded summary judgment on EdgeRock’s claim that Change Order #3 was invalid because it was not approved in writing; (2) that the trial court did not err in granting Garmong’s summary judgment motion (and denying EdgeRock’s competing summary judgment motion) on EdgeRock’s claim that it was entitled to a credit for amounts owed under the Garmong contract for work related to the 175th Street Project and the drain relocation; (3) reversing the trial court’s award to EdgeRock of the Road Impact Fees and instructing the trial court to distribute the funds consistent with the outcome of related litigation in the Hamilton County Commercial Court; and (4) that First Bank is entitled to recover attorney fees from EdgeRock.
Finally, we affirm the trial court’s judgment in all respects not appealed. Also, like the Court of Appeals, we note that our holdings do not disturb the in personam judgments against EdgeRock on Garmong’s and Fox’s breach-of-contract claims.
Rush, C.J., Massa, Slaughter, and Goff, JJ., concur.