Bulletin: IN000022

Dear Associates:

New Indiana legislation (House Enrolled Act 1136) authorizes commercial real estate brokers to place a lien against commercial real estate that is the subject of a purchase, lease, or other conveyance to a buyer or tenant for the amount of compensation that a property owner has agreed to pay a principal broker for licensed services, including brokerage, consulting and management fees. The commercial broker lien law applies only to broker's commission agreements entered into after June 30, 2006.

Commercial real estate is defined as any real estate other than:

1) 1-4 family residential units
2) Unimproved real estate zone for single family residential use
3) Single family residential units such as condominiums, townhomes or homes in a subdivision when sold or leased on a unit-by unit basis even if units part of a larger building or parcel of real estate containing more than four units.

The new law adopts the definition of Principal Broker and Real Estate set forth in I.C. 25-34.1-1-2.  Principal Broker means a broker who is not a broker-salesperson acting in association with and under the auspices of another broker.

Creation

The lien is created only if all the following requirements are met:

1) The broker's commission agreement must be in writing signed by the owner of the commercial real estate interest or the owner's authorized agent or a prospective buyer or tenant or the authorized agent of buyer or tenant.

2) Only the principal broker is entitled to file a lien. An employee or contractor of the broker is not entitled to file a lien.

3) The fee or commission claimed must be for services requiring a license under I.C. 25-34.1-3-2

4) All conditions of the payment of the commission set forth in the agreement are satisfied and the broker produces a ready, willing, and able purchaser or tenant on the terms set forth in the written agreement

5) Except for commissions payable in installments or commissions for the leasing of premises, a notice of lien is recorded by the broker 1) prior to the recording of the deed of conveyance if the broker is claiming commission or fees from the party conveying the interest in the real estate or 2) no later than ninety (90) days after the recording of the deed to a purchaser or other conveyance if the principal broker claims fees from the party receiving the conveyance of the interest in the real estate.

6) Not more than ten (10) days after recording the notice of lien, the principal broker must personally serve or mail, by registered or certified mail, a copy of the notice of the lien to the owner of record or the agent of the owner of record to the address stated in the written agreement.  If there is no address stated in the agreement, the notice is required to be sent to the address where real estate taxes are sent on the property.

7) If the broker receives notice from the owner in a sales transaction of the date, time and address of closing and name  of closing agent, title company, or title insurance agent involved at least ten (10) days prior to the planned closing, the broker must notify the closing agent, title company or title insurance agent of the amount of fees or commission owed prior to the stated time of closing in order to exercise the broker's right to file a lien.

8) The recorded notice of lien must be signed and verified by the principal broker or the broker's agent and must contain the following information:

a. Name of claimant
b. Name of owner of commercial real estate upon which lien is claimed
c.  Legal description of property upon which lien is claimed
d. Amount claimed
e. Statement that information contained in notice is true and accurate to the knowledge of the signatory

Recording and Foreclosure

Recording of the notice of a lien perfects the lien. Foreclosure of the lien is in the same manner as a mortgage foreclosure. Foreclosure of the lien, including a lien based upon an option or other right to purchase or lease must be filed within one (1) year after the recording of the notice of lien.  A lien for future fees or commissions payable over more than one (1) year from the occurrence of a condition must be filed within one (1) year of the latest date for which future fees or commissions are due. Failure to foreclose within the one (1) year period extinguishes the lien. The prevailing party is entitled to attorneys' fees.

Priority

Prior recorded liens and mortgages that are recorded before the broker's lien have priority including prior recorded liens securing revolving credit and future advances of construction loans.  The priority of the lien does not relate back to the date of the written agreement.  Mechanics liens have priority over broker's liens if priority of the mechanics lien dates back to a date prior to the recording of the broker's lien.  The broker's lien will not attach to the real estate if the document of conveyance, such as a deed or mortgage, is recorded prior to the recording of the notice of broker's lien.

Certification Requirement

If the broker does not attend the closing, the statute requires the owner of commercial real estate to certify in writing, under penalties of perjury, that the owner notified the broker, at least ten (10) days prior to the planned closing date, of the time, date and place of closing and name of closing agent, title company or title insurance agent involved and that the broker received the notice OR that the broker has been paid in full. Any party suffering a pecuniary loss, including a broker, buyer, or buyer's mortgagee may bring a civil action against the owner for damages, costs and attorneys' fees.   If failure to comply is deemed fraudulent, a party who has suffered a loss is entitled to three (3) times actual damages. 

Lien for commission payable in installments

If payment to a broker is due in installments and part of the installment payment is due after the conveyance of the commercial real estate, the broker is authorized to file a notice of lien for future installment payments no later than ninety (90) days after the date payment is due. The lien is against the transferor's interest only to the extent consideration is still owed to the transferor by the transferee. Otherwise, the lien is against the transferee's interest. The broker may also file a lien before the conveyance of commercial real estate for all payments due in installments and the lien shall be enforceable with respect to payments due after the conveyance.  The broker is required to provide partial releases with respect to future installment payments as payments are received which shall reduce the amount due the broker under the lien.

Commercial lease transactions

In the case of a lease of commercial real estate including a sublease or an assignment of a lease, notice of a lien must be recorded no later than ninety (90) days after the tenant takes possession of the leased premises unless notice of the intended signing of the lease is personally served on a broker at least 10 days before execution.   If the ten (10) day notice is provided, a broker's lien must be recorded prior to the date provided for the execution of the lease.  A broker may record a memorandum of lien any time after execution of a lease or written agreement that contains rights to future fees or commissions no later than ninety (90) days after the occurrence of the condition for which future fees or commissions are claimed. No notice of lien may be recorded against an owner's property if the tenant is the only party liable for future fees or commissions. The latter section does not apply to fees or commissions due to a broker upon execution of a lease or upon an exercise of an option to expand leased premises, an option to renew or extend a lease or an option to purchase.

Title Requirements

Because the new law provides for liens that may be filed prior to or after closing within the gap period between the effective date of the commitment and the recording date of the conveyance documents, agents closing commercial real estate transactions should collect information at closing to prevent the possibility of a lien attaching to the property.   The following requirement should immediately be set forth in all commitments for commercial real estate purchase and lease transactions:

We must be furnished with satisfactory evidence of any written agreement that has been entered into by and between any party and a commercial real estate broker for the purchase, lease or other conveyance of the land described herein and satisfactory evidence of the amount of any commission or fee to be paid to the broker.  If involvement of a broker is disclosed, the full amount of the commission or fee agreed upon must be paid at closing or we must receive a waiver of lien executed by the broker in full satisfaction of payment.  If a broker is not being used, the parties must execute an affidavit stating that no broker is being used for the purchase, lease or other conveyance of the land to be insured.

If the requested evidence is not furnished, the policy will need to contain the following exception:

Any lien or right to lien under I.C. 32-28-12.5 for fees or commissions due a principal broker for licensed services in connection with the purchase, lease or other conveyance of commercial real estate to a buyer or tenant.

A sample Broker's Lien Waiver and Affidavit of No Broker is attached hereto.

As a service to your customers, the following note may be added as an additional requirement:

NOTE: Under I.C. 32-28-12.5, if a principal broker in a commercial sales transaction does not attend the closing, the seller is required to certify in writing, under penalties of perjury, that the seller has notified the broker of the name of the title company involved and the time, date and place of closing no later than ten (10) days prior to the planned closing date or that that the broker has been paid in full.  Failure to comply with the statutory provisions regarding notice and certification may subject the owner to liability for damages under the aforementioned statute.

A copy of the purchase agreement evidencing a broker's involvement and amount of commission or fee payable to a broker or a copy of a written  agreement between a party to the transaction and a commercial broker setting forth the amount of commission or fee payable to the broker will normally be sufficient evidence.  If the purchase agreement or a party discloses a broker's involvement but you are not being provided with supporting documentation, please contact our office for additional requirements.  We may, under certain circumstances, accept an affidavit executed by the party and the broker setting forth the existence of a written agreement and the amount of commission or fee due the broker.

If a lien is, in fact, recorded, a release of the lien for the full amount of any commission or fee owed in recordable form must be provided and recorded to clear the exception for the lien.

Lien Waiver

Under the new statutory law, a broker's waiver of lien is void unless the waiver or release is in consideration of payment of fees or commissions claimed by broker or one of the conditions set forth in the next paragraph is met.

Release

An owner may demand the recording of a written release a lien within ten (10) days of a written demand if a condition occurs that would preclude the principal broker from receiving fees under the terms of the written agreement.  An owner, buyer, or tenant or their respective agents may also serve a written demand upon the broker to foreclose its lien or file an answer in a pending suit and if no suit or answer is filed within thirty (30) days after service of demand, the lien is extinguished. Additionally, if the fees or commissions upon which a lien is based are paid or the broker fails to file foreclosure of its lien within the applicable time, the owner, buyer or tenant may demand a written release no later than five (5) days after receipt of a written demand. To insure over a recorded broker's lien under the above circumstances, please contact our office. At a minimum, copies of the written demand and evidence of receipt of the demand will be required.

Escrow account to insure over recorded lien

The new law provides that a recorded lien may be extinguished against the real estate if the principal broker, the parties allegedly responsible for the fees or commissions upon which the lien is based and a third party escrowee establish an escrow account in which 110% of the amount of lien claimed is held in escrow from the conveyance proceeds or other source of funds.  By statute, the lien is transferred to the funds held in the escrow account.  As a result, a recorded lien may be removed as an exception from Schedule B by the establishment of an escrow account in accordance with the statutory provisions.

If you have any questions, please contact our office.

A copy of HB 1136 is available for review at the following link:

http://www.in.gov/apps/lsa/session/billwatch/billinfo?year=2006&session=1&request=getBill&docno=1136