Bankruptcy: Homestead & Poor Debtor Exemptions, Rental Property

In the case of In re: Latham the United States Bankruptcy Court at Roanoke, Virginia ruled that Virginia debtors who had a North Carolina beach house could not claim their beach house furniture in North Carolina exempt under the "household furnishings" provision of the Virginia poor debtor's exemption in Virginia Code §34-26.

The Bankruptcy Trustee had filed an objection to the debtor's exemption claim that the furniture had a value of $9,200.00. The Bankruptcy Trustee took the position that the miscellaneous beach furniture was not household furniture because it was not located in the debtors' household and constituted personal property located on a property used by the debtors to generate income.

The Bankruptcy Court in Latham found that the miscellaneous beach furniture did not fall within the statutory phrase "household furnishings" found in Virginia Code §34-26 (4a). The Bankruptcy Court noted that there were no published decisions that defined the term "household furnishings" from Virginia Code §34-26 (4a). The Bankruptcy Court stated that the meaning could be determined by the examination both of the statute itself and the definition of household furnishings in Black's Law Dictionary. In regard to the statute, the Bankruptcy Court noted that the statute gives examples of household furnishings which the legislature intended to set aside for the benefit of the debtors and their families. The examples cited by the legislature in the statute point toward items that debtors can retain and use in order to facilitate their fresh start. The common definitions indicate a necessity that the furnishings be in the household and used by the householder or his family. The Bankruptcy Court noted that the purpose of the pertinent statute is to protect debtors and their families from being destitute by the creditor process. Accordingly, the Bankruptcy Court found that the term "household furniture" in Virginia Code §34-26 (4a) meant "those items of furniture which are typically found in or around the home of debtors and are used by debtors and their dependents to support and facilitate day-to-day living within the home, including maintenance and upkeep of the home itself." With this being the case, the Bankruptcy Court found that the debtors in Latham intended to use their beach house as a place to go on vacation only when it was not rented. In order to finance construction, the debtors built the house with the primary intent to rent it out during peak season. The Bankruptcy Court found that the beach house was not the type of "home of the debtors" contemplated by the definition. Accordingly, the Bankruptcy Court sustained the Bankruptcy Trustee's objection to this claimed exemption.

The Bankruptcy Trustee also objected to the debtor's claim for $3,000.00 in rental income on the property. As to this property, the Bankruptcy Trustee took the position that the debtors were required to file their homestead deed in North Carolina at the situs of the real property in order to perfect their claimed exemption in the rental income. The Bankruptcy Trustee was unable to cite authority in support of his position, however. Accordingly, the Bankruptcy Court ruled that the income was properly claimed and the exemption was properly perfected by the recordation of the homestead deed in Washington County, Virginia, and the Bankruptcy Trustee's objection to the claimed exemption was denied.

Collections: Creditor can be sued for Auto Repossessor's `Breach of Peace' although he was a contractor

The Georgia Court of Appeals, in Fulton v. Anchor Savings Bank, ruled that a bank could be sued for an auto repossessor's "breach of peace" even though the repossessor was an independent contractor who worked for a company hired by the bank. Although there is apparently no Virginia case on point, several state courts have so ruled.

The Georgia Court of Appeals, in the case of General Finance Corp. v. Smith, relied upon a legal principal from the Restatement (Second) of Torts. §424 of the Restatement holds that a principal cannot delegate to a contractor "the manner of performance of duties imposed by the contract, ordinance or statute". In Georgia, the state statute prohibited intimidation during a self-help repossession.

The problem with this ruling for creditors is obvious: creditors must be very careful in who they choose to do their work - at least until Virginia adopts a different ruling.

Foreclosure: Default

Question: When is a loan in default? 

Answer: Under one or more of several circumstances. The most common way that a borrower is in default is monetary – e.g., the borrower fails to make a required payment. 

However, default can be for a non-monetary reason as well, such as:

1. Failure to pay taxes.
2. Failure to pay insurance.
3. Failure to remove or bond over mechanic’s liens.
4. Failure to perform requirements unique to the loan.

If you have questions about default, please call Eddie and Jennifer.

Real Estate: Homeowners’ Association Wins Damages on Owner Violations

There has been much litigation over HOA violations in the last few years. Circuit Courts have been scrutinizing HOA violation claims very carefully. Enforcement and damages for violations can be won. The December 2011 Loudon County Circuit Court case of Lee’s Crossing Homeowners’ Association v. Zinone is a good example of such enforcement. In Lee’s Crossing, the court found that in building her home, the homeowner committed multiple violations of the plan approved by the Architectural Review Board.  Ultimately, the court assessed damages in favor of the homeowners’ association on the basis of “one overriding violation,” the failure to comply with the ARB-approved application.