by Attorney Brendan Edward Delay (0036929)
ATTORNEY & COUNSELOR-AT-LAW
Westlake, OHIO 44145
Telephone (440) 333-3708
Facsimile (440) 333-3779
e-mail brendandelay@ameritech.net
I used to work as a Teamster warehousemen for a year while in college at the University of Rochester. While working in a new warehouse in New York State, I became aware of the liens that rack companies, makers of industrial rollers and conveyers and laser readers can have on the improvements they build into a warehouse. These liens are removed when these improvements are paid off.
Later, when working as an attorney defending foreclosures, I encountered a situation in which my judgment told me contained an occupying claimant’s lien. So I looked up the statutes books to find that Ohio had an occupying claimant’s lien. Later in this article I will repeat its text.
The Occupying Claimants Lien has been part of the common law of Ohio for more than one century and part of the statutes for more than half a century. With the tsunami wave of foreclosures in recent years, this type of lien was thrown up in the surf in my practice. I have been doing some foreclosure defense since 1991 in the commercial real estate collapse that happened when the 1986 Tax Reform Act took away many real estate development tax breaks. This issue was a new one for me. You may benefit from learning about it.
The improvements can even be a building or a paved parking lot. Think of the various ways property can be improved by one who occupies it. Then think of how that property might be taken by another party, such as in a foreclosure. Then contemplate how the law has provided a way of protecting the provider of those improvements so the provider gets paid for the value.
In this article, I will provide a sample affirmative defense and offset, and a pro forma affidavit, to give the practitioner an idea how to bring in the evidence. Lawyers who do not defend many foreclosures may at first regard the foreclosing bank as having some right going back to the time of the Western Reserve, and having priority over all but taxes. That is not true in the case of the occupying claimant’s lien, since it may predate a mortgage and may predate the refinancing of a mortgage debt by another lender.
When the parties sign onto a commercial mortgage, the bank does not always subordinate the Occupying Claimants Lien to that mortgage. Therefore the Occupying Claimant’s Lien will be senior and superior to the mortgage or judgment lien. The practitioner should examine the Mortgage attached to the Complaint as an Exhibit. Look to see if it subordinates any occupying claimant’s lien.
The Occupying Claimants Lien has been part of the common law of Ohio for more than one century and part of the statutes for more than half a century. If this lien exists, it should be set up as not only an affirmative defense, but an offset and perhaps an avoidance under Civil Rule 8, and litigated in the form of a Counterclaim to establish its validity and date. The reason it can be an avoidance is that even if the bank has a right to foreclose, the amount of the lien can be so great that if it has priority, then the bank may get nothing or very little money after the smoke clears at the Sheriff’s Sale.
SUBSTANTIVE LAW
5303.07 Occupying claimant law.
In an action for the recovery of real property the parties may avail themselves of the benefit of sections 5303.08 to 5303.17, inclusive, of the Revised Code.
Effective Date: 10-01-1953
5303.08
TITLE [53] LIII REAL PROPERTY
CHAPTER 5303: ACTIONS RELATING TO REALTY
5303.08 Cases in which occupying claimant is paid for improvements.
A person who, without fraud or collusion on his part, obtained title to and is in the quiet possession of lands or tenements, claiming to own them, shall not be evicted or turned out of possession by any person who sets up and proves an adverse and better title, until the occupying claimant, or his heirs, is paid the value of lasting improvements made by the occupying claimant on the land, or by the person under whom he holds, before the commencement of suit on the adverse claim by which such eviction may be effected, unless the occupying claimant refuses to pay to the party establishing a better title the value of the lands without such improvements, on demand by him or his heirs, when such occupying claimant holds:
(A) Under a plain and connected title, in law or equity, derived from the records of a public office;
(B) By deed, devise, descent, contract, bond, or agreement, from and under a person claiming a plain and connected title, in law or equity, derived from the records of a public office, or by deed authenticated and recorded;
(C) Under sale on execution against a person claiming a plain and connected title, in law or equity, derived from the records of a public office, or by deed authenticated and recorded;
(D) Under a sale for taxes authorized by the laws of this state;
(E) Under a sale and conveyance made by executors, administrators, or guardians, or by any other person, in pursuance of an order or decree of court, where lands are directed to be sold.
Effective Date: 10-01-1953
5303.14 Proceedings if verdict is for occupying claimant.
If, under section 5303.11 of the Revised Code, the jury reports a sum in favor of the occupying claimant, on the assessment and valuation of the valuable and lasting improvements, deducting therefrom the damages, sustained by waste, together with the net annual value of the rents and profits which the defendant received after commencement of the action, the successful claimant, or his heirs, or, if they are minors, their guardians, may demand of the occupying claimant the value of the land without the improvements so assessed and tender a deed of it to him, or pay him the sum so allowed by the jury in his favor, within such reasonable time as the court allows.
Effective Date: 10-01-1953
Affidavit of Seamus Oldtimer
Seamus Oldtimer is the person who knows best about the Occupying Claimant’s Lien since he knows from his own personal knowledge that the lien was set in place in 1952.
I, Seamus Oldtimer, being first duly sworn, and being competent to testify, do hereby state from personal knowledge that:
1. I am the President and sole shareholder of Defendant/Counterclaimant Old Timer Warehouse & Storage Company incorporated in Ohio on May 19, 1952, Ohio Corporate Charter Number 227879, in this case.
2. Defendant/Counterclaimant Oldtimer Warehouse & Storage Company occupies and has always occupied since 1952 the warehouse section and part of the office located at 26943 Westwood Road, Westlake, Ohio 44145. Defendant/Counterclaimant OldTimer Warehouse & Storage Company paid for the building of the 4,000 square feet of the 14,000 square foot office building located at 26943 Westwood Road, Westlake, Ohio 44145, owned by Defendant Realty Company and paid for the warehouse racks, air conditioning and cooling equipment installed in the 1960’s and thereafter. These improvements and additions have not been paid for by the building and land owner at any time.
3. I know that the value of these improvements and additions is $125,000.
4. Defendant/Counterclaimant OldTimer Warehouse & Storage Company is the occupying claimant to this building.
5. Defendant/Counterclaimant OldTimer Warehouse & Storage Company’s occupying claimant’s lien predates Bank’s mortgage and judgment lien by about 50 years, since it was established as a lien starting in the early 1950’s.
FURTHER AFFIANT SAYETH NAUGHT.
________________________________
Seamus Oldtimer
Affirmative Defenses & Offset
These were set forth in the Answer and are now restated here for convenience. The Affidavit has proven the defenses.
1. Defendant/Counterclaimant OldTimer Warehouse & Storage Company incorporated in Ohio on May 19, 1952, Ohio Corporate Charter Number 22809 is an Occupying Claimant, with an interest first in time and first in right and superior and senior to that of Plaintiff Bank due to the effort and funds placed in constructing the lasting improvements such as walls, roof, doors, interior demising walls, and windows of the building located on Westwood Road in the early 1950s, and its efforts from that era to the early 21st Century in maintaining and altering the building and placing interior shelving in it, which occurred long before this foreclosure action was started. The value of these improvements may exceed $400,000, which value Defendant/Counterclaimant OldTimer Warehouse & Storage Company is entitled to, and from any proceeds of Sheriff’s Sale on sale on execution as a first and senior lien. R. C. 5303.08 (c).
2. Defendant/Counterclaimant OldTimer Warehouse & Storage Company as Occupying Claimant is entitled to an offset from of any Sheriff’s Sales proceeds on sale on execution of the value of the aforesaid lasting improvements and maintenance thereon. R. C. 5303.08 (c).
3. The Mortgage attached to the Amended Complaint as Exhibit “B” is limited to a “MAXIMUM LIEN. The maximum amount of loan indebtedness secured by this Mortgage shall not exceed at any one time $350,000.00.” Thus, Plaintiff Bank may not recover at Sheriff’s Sale more than two thirds of $350,000, that is $233,268, since that is the maximum amount of loan indebtedness secured by this Mortgage, minus the value of the Occupying Claimant improvements.
4. The Mortgage attached to the Amended Complaint as Exhibit “B” recorded on March 31, 2003 is not a valid and subsisting first lien on the Property, but is instead a second or third lien, junior to the Defendant/Counterclaimant OldTimer Warehouse & Storage Company as Occupying Claimant.
5. Defendant Realty Company, incorporated in Ohio on May 19, 1952, Ohio Corporate Charter Number 22809 for its Answer and Defendant OldTimer Warehouse & Storage Company incorporated in Ohio on May 19, 1952, Ohio Corporate Charter Number 22809 are entitled to their equity of redemption.
6. The interest of Defendant/Counterclaimant OldTimer Warehouse & Storage Company since May 19, 1952, Ohio Corporate Charter Number 22809, as Occupying Claimant was not subordinated by the language of the Mortgage to the mortgage interest of Key Bank and is therefore senior in time and first in right to that junior mortgage interest.
7. The occupying claimant’s lien is not an equitable lien subject to a creditor’s bill, but a statutory lien. R.C. 5308.08.
I did have a telecommunications tower case with Judge Kimbler some years ago, but have not had an occupying claimant’s lien case. That topic may come up in your practice, soon or years from now. Put this in your memory bank. Or over a collegial lunch, one of your fellow practitioners may bring up “an interesting problem” he or she may have with improvements to real estate. You will look smart if you have this answer. You would have learned about it due to the innovative way of sharing legal information implemented by Judge Kimbler’s blog. Small county lawyers can be just as smart as big city lawyers: don’t let any big city lawyer tell you different. As for me, I am in the suburbs. Any questions: call me!
Editor's Note: The above article is presented as a public service by Judge James L. Kimbler. Its publication does not indicate how Judge Kimbler would rule on any disputed point of law.
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