Collections: Credit Reports

Credit reports provide individuals or institutions that have legitimate "need to know" rights with access to important information. This information includes full name, address, social security number, employer, spouse's name, loans, charge accounts, credit cards, bankruptcies, tax liens, and judgments.

Credit reports are governed by state laws and federal law - the Fair Credit Reporting Act (FCRA). In addition, the Federal Trade Commission regulates the credit reporting industry.

The three largest credit reporting agencies are Equifax, Trans Union, and Experian. There are also several local agencies. 

Information will remain on credit reports for varying lengths of time:

* Chapter 7 Bankruptcies - Ten years from the date of filing, regardless of dismissal or discharge.

* Chapter 13 Bankruptcies - Seven years from plan completion.

* All remaining negative information - Seven years.

* Open accounts in good standing - indefinite.

If an individual disputes information reported to the reporting agency, the individual can send notice of the dispute to the agency. The agency will then contact the information provider to verify the information. If the information cannot be verified, it should be deleted. The Agency will then report its findings to the individual. If the individual still disputes the information, the individual may provide a written statement (up to 100 words) to accompany the report. 

If the verification results in a more favorable report for the individual, he may request that the revised copy be sent to anyone who has requested his report within the last six months for credit purposes, or in the past two years for employment purposes. 

Foreclosure: Be Prepared to Conduct Foreclosures

While foreclosure may not be a topic that debtors (or even creditors) want to discuss, like all other aspects of proper business planning, you should.

With more creditors engaging in loans secured by real estate (which I strongly advocate), be that first deeds of trust, second or subsequent deeds of trust, refinances or credit lines, a certain amount of default is to be expected. Being prepared to react to default is imperative.

We represent creditors - from start to finish. We are a full-service creditor’s rights firm. While many attorneys do “collections”, few attorneys have the trained expertise and staff to represent creditors in all four areas of Creditor’s Rights—Collections, Bankruptcy, Real Estate and Foreclosure. WE DO FORECLOSURES. We will handle foreclosure proceedings from demand to final accounting.

Real Estate: Homeowner Associations – Easements

Cases involving HOA powers are frequently fact specific and governing document specific. Recently, the Frederick County Circuit Court decided a case in which a homeowners association was held in violation of the homeowners association’s restrictive covenants and liable for compensatory damages and attorneys’ fees because it removed a wall on a homeowner’s property. The homeowner spent a considerable amount of time and effort improving a portion of a shared roadway that was on his property. He cleared the land, widened the pathway, and built an eight foot retention wall along the pathway. The HOA notified the homeowner that the wall was encroaching on the right of way and told the homeowner that it must be removed at the homeowner’s expense. There was no board of directors hearing or meeting before the decision was made. Without further notice, the wall was removed but the homeowner refused to pay. In addition to tearing down the wall, the HOA installed drainage culverts in the right of way which resulted in silt flowing into the property’s septic system. The HOA filed suit and obtained a General District Court judgment for the expense of removing the wall. The homeowner then appealed the judgment to the Frederick County Circuit Court and filed a complaint against the HOA. The homeowner claimed that the HOA acted outside its authority under the restrictive covenants, which constituted trespass. The HOA filed a counterclaim, alleging breach of contract and violation of the Property Owners’ Association Act (Va. Code Section 55-508). The court held in favor of the homeowner and found that the HOA exceeded its authority under the restrictive covenants. The HOA did not have authority to remove the wall or to install the drainage culverts. In addition, the HOA did not have the ability to charge the homeowner for either the removal of the wall or the installment of the drainage culverts. The court awarded the homeowner compensatory damages of $28,500 (the value of the wall and cost of returning the property to its prior condition) and attorneys’ fees of $48,844. 

It is important to ensure that HOA covenants provide for the powers necessary to take self-help to effect repairs and remove violations. It is also important for HOAs to work through the proper channels and act within its authority granted by restrictive covenants. Failing to do so can be costly for an HOA. We have experience in drafting, reviewing, and amending HOA documents, as well as, representing HOAs in court. 

Bankruptcy: Revocation of Discharge - Fraud - Chapter 7

In the case of Dean v. McDow, the United States District Court at Norfolk, Virginia affirmed a Bankruptcy Court revocation of the debtor’s discharge of indebtedness.

The District Court in Dean stated that the Bankruptcy Court did not err in revoking the debtor’s chapter 7 discharge based on the evidence of fraud in the debtor’s earlier reporting of her pre-bankruptcy transfers of property (antiques, collectibles, furniture and jewelry), and her statements about prior involvement in a business, after her operation of a thrift store called “New to You.”

The District Court found as fact that the debtor received a discharge in her chapter 7 case about two years prior. The Bankruptcy Court later reopened the debtor’s case and revoked her discharge based upon the debtor’s fraud. The debtor raised four grounds on appeal: 1) the complaint to revoke her discharge was not timely filed; 2) the U.S. Trustee did not meet an affirmative duty to investigate the debtor’s bankruptcy and therefore constructively knew of the debtor’s fraud; 3) the debtor did not make false oaths because she lacked fraudulent intent and make her misstatements were de minimums; and 4) the revocation was based upon inadmissible evidence.

The District Court stated that cases dealing with whether the timely filing of a complaint objecting to discharge is jurisdictional are sharply divided. Despite the overall disagreement among the federal courts, the Fourth Circuit has indicated the position it finds more persuasive: the timeliness of a dischargeability complaint is not a jurisdictional prerequisite, but rather presents an affirmative defense similar to the statute of limitations that must be raised in an answer or responsive pleading. The court noted that there was nothing in the debtor’s brief or the 4th Circuit case, Farouki v. Emirates Bank Int’l ltd., to indicate that the dischargeability time limitation of Bankruptcy Rule 4004(a) should be treated differently from Bankruptcy Code Section 727(e)(1). The District Court stated that it was therefore unnecessary to address whether the U.S. Trustee’s complaint was timely filed because the debtor had waived her right to appeal on this point. Failure to raise a non-jurisdictional issue before the Bankruptcy Court will generally be treated by the District Court as a waiver of the right to have the issue heard.

The District Court stated that the debtor argued for the first time on appeal that the errors and omissions of her schedules should have put the U.S. Trustee on notice of possible fraud, triggering an obligation to investigate. Because the U.S. Trustee began investigating possible fraud only after receiving a telephone call concerning the debtor’s bankruptcy about a year after the entry of the discharge order, the debtor argues that the Trustee could not rely upon the “did not know” provision of Bankruptcy Code Section 727(d)(1). The District Court noted again, however, that the debtor did not raise the issue of the trustee’s knowledge in her answer or at trial, and the issue did not fall within the “very limited circumstances” of plain error which would result in a miscarriage of justice. The debtor waived her right to have this issue considered on appeal.

The District Court next noted that the debtor did not dispute that her schedules and Statement of Financial Affairs contained false oaths. Instead, the debtor argued that she lacked the fraudulent intent, and that her omissions were de minimus. The District Court noted that the Bankruptcy Court’s determination of fraud was a factual finding reviewed for clear error. The District Court concluded that the Bankruptcy Court did not commit clear error in determining that the debtor knowingly and fraudulently made false oaths and that the oaths concerned materials facts. Nor could the District Court find error in the Bankruptcy Court’s conclusion that the debtor’s failure to read her bankruptcy papers constituted a reckless indifference to the truth and the functional equivalent of fraud.

Finally, the District Court ruled that the Bankruptcy Court’s admission of certain exhibits relating to the debtor’s fraud, is error at all, did not even approach the standard of error so serious that it went to the integrity of the trial.

Accordingly, the revocation of the debtor’s discharge was upheld.

Collections: Releasing Debts

Virginia Code §8.01-454 provides that judgments, once satisfied, must be released by the creditor within thirty (30) days from when the satisfaction was made. However, if satisfaction is not made within ninety (90) days, or within ten (10) days’ notice to do so by the judgment debtor or his agent or attorney, the judgment creditor shall be liable to a fine of $100 and shall pay the filing cost of the release.

Foreclosure: Foreclosure Basics

Foreclosure law is a creature of state statute. Accordingly, each state’s laws are different. Because the statute controls, courts will enforce strict adherence to the exact words and requirements. Failing to fully comply with statutory mandates will likely result in defective foreclosures and costly work.

In the upcoming issues of Creditor News we will explore foreclosures from beginning to end. From the preparation of the deed of trust, to final accounting after sale.

Real Estate: Former Homeowners’ Association President’s Emails were Defamatory

In the Fairfax Circuit Court case of Cornwell v. Ruggieri, the trial judge and jury found that the plaintiff homeowner was defamed by four emails written and published by a former association president and awarded $9,000.00 in damages. These emails alleged that the homeowner had stolen association funds five years earlier. The former association president tried to defend the case on the basis that the statements were simply a matter “of opinion”, not a matter of fact (as required under Virginia case law to recover damages), but the trial judge disagreed.

The trial judge instructed the jury that under Virginia law the defendant, in his role as association president, had a “limited privilege” to make defamatory statements without being liable for damages. However, if it was proved by “clear and convincing evidence” that the defendant had “abused” the privilege, the defamatory statements were not protected. The trial judge instructed the jury that there were six possible ways (outlined below) that the homeowner could prove that the former association president abused the limited privilege.

The homeowner presented evidence that the defendant made statements (1) with reckless disregard; (2) that were unnecessarily insulting; (3) that the language was stronger than was necessary; (4) were made because of hatred, ill will, or a desire to hurt the homeowner rather than a fair comment on the subject; and (5) were made because of personal spite, or ill will, independent of the occasion on which the communications were made.

The jury was given a specific interrogatory with regard to each of the four defamatory statements:

(1) Did the defendant make the following statements?

(2) Were they about the plaintiff?

(3) Were they heard by someone other than the plaintiff?

(4) Are the statements false?

(5) Did the defendant make the statements knowing them to be false, or, believing them to be true, did he lack reasonable grounds for such belief or act negligently in failing to ascertain the facts on which the statements were based?

(6) Did the defendant abuse a limited privilege to make the statement?

For each question as to all four emails, the jury answered “yes”. After a three-day trial, the verdict was rendered in favor of the plaintiff -- $9,000.00 in damages.

This case gives a good reminder that homeowner association board members must be knowledgeable, professional and well-advised when serving their communities.

Bankruptcy: Objection to Discharge - Willful and Malicious Injury by Depriving Access to Secured Collateral

A few years ago I tried a case in the United States Bankruptcy Court, Eastern District of Virginia, Richmond Division, Judge Huennekins, that will be of interest to many lenders who hold a security for their loan. My client was Dominion Credit Union. At the request of the debtor, and, as part of a settlement where the debtor agreed to pay on the judgment rendered, I agreed not to state the debtor’s name.

The factual scenario is as follows: the Credit Union had made a $30,000.00 loan to the debtor in March, 2006 to purchase a pickup truck from Chambers Auto. The loan was secured by this pickup truck. There was no co-signer for the loan, nor was the debtor married. The debtor’s loan application made no reference for the purpose for which the loan was sought. The debtor listed no other owner or user. Within two months the debtor became delinquent. The Credit Union ordered repossession of the truck. The repossession company could not find the truck, and the debtor offered minimal cooperation, claiming only that another person had the vehicle and took it out of state. The debtor referenced the name of the person, Michael Chambers (this name became important years later, but note that the name of the company from which she purchased the vehicle was Chambers Auto). The debtor did provide a telephone number for Michael Chambers. The repossession company made several attempts to repossess the truck, checking at the debtor’s residence on various days and at various times, but to no avail. Calls were also made to Michael Chambers. On one occasion Mr. Chambers said that he was out of state, and, that he was also in the repossession business. With no luck at repossession, the Credit Union retained me to obtain judgment against the debtor and try collection. While judgment was obtained for over $29,000.00 plus costs, interest and attorney’s fees, collection was difficult, as the debtor was constantly in school and working only part-time. Finally in early 2010 I found the debtor working a sufficient number of hours to garnish, and issued the garnishment. As a result of the garnishment, the debtor filed a Chapter 7 bankruptcy case in March, 2010, seeking discharge of all of her financial obligations – at this point in her life the debtor had accumulated some other debt as well, and was finally about to complete her schooling and become a full time nurse. I advised the debtor’s attorney that I would be objecting to the discharge of this debt based upon the fact that we had been unable to obtain the truck since May, 2006, and that we had obviously lost money due to the debtor’s willful and malicious injury to the Credit Union by depriving it access to and repossession of the collateral securing its loan pursuant to Bankruptcy Code Section 523(a)(6). The debtor’s attorney responded by stating that the truck would be surrendered. Weeks passed without the debtor surrendering the truck, so I filed an objection to the dischargeability of the debt. Subsequently the truck was returned, but in horrible condition, having limited value, resulting in a substantial loss to the Credit Union.

To prepare for the trial of the case I conducted written discovery and scheduled depositions of the debtor and Michael Chambers. Depositions were scheduled on several dates. On the first date both parties appeared (although almost an hour late), even though I had only subpoenaed the debtor. I excluded Mr. Chambers from the debtor’s deposition – important because Mr. Chambers tried to “control” the proceedings. At the debtor’s deposition she stated, for the first time, that the truck was purchased as a business deal with her brother (although not an actual blood brother, but someone just like a brother, named “John Jones”). She and Mr. Jones had a “falling out” and he left with the truck, never to have contact with him again, and not knowing where either he or the truck was. The debtor denied telling the Credit Union or the repossession company that Michael Chambers had it. The debtor admitted that she and Mr. Chambers were now boyfriend and girlfriend, although she was not sure when this relationship commenced, although probably within six months of the loan. The debtor admitted that Chambers Auto was a family business, but that Michael Chambers’ father ran it. The debtor stated that when it became apparent that she would not be able to get a bankruptcy discharge without surrendering the vehicle to the Credit Union, Mr. Chambers (who had a “questionable” past and had “questionable” connections) “put the word out on the street”, and magically the vehicle was returned to Mr. Chambers. The debtor also stated that they tried their best to put the vehicle back in decent shape, but ran out of time. Following the debtor’s deposition, I tried to immediately take Mr. Chambers’ deposition, but he and the debtor said that they had no time and had a child care problem. A new date was set for Mr. Chambers’ deposition. However, he failed to show on that date. I advised the Court of this lack of cooperation, asked for a continuance to obtain the necessary evidence to prove my case. The Court granted the continuance and set a new trial date. I then set a new deposition date for Mr. Chambers, who, this time did show up, although about an hour late again. Mr. Chambers’ testimony was similar, but somewhat inconsistent with that of the debtor in some key areas.

On the trial date Mr. Chambers’ failed to appear in Court despite subpoena. His deposition was submitted into evidence, and the Court issued a Show Cause summons against him for his non-appearance. After hearing all of the evidence, the Court ruled that the debtor did willfully and maliciously injure the Credit Union by depriving it access to and repossession of the collateral securing its loan pursuant to Bankruptcy Code Section 523(a)(6), and awarded non-dischargeability to the extent of the Credit Union’s reasonable loss based upon the debtor’s conduct.

The lesson of this case: be diligent about repossession efforts, document all events, and if the debtor deprives you of the security and attempts to discharge the debt in a Chapter 7 bankruptcy case, object!

Collections: Attacking Fraudulent Conveyances

It seems to happen more and more often. You are able to obtain your judgment against your debtor, but when you go to collect, he has recently transferred his assets. Can you pursue the assets to the transferee? Under the right circumstances, yes.

The case of Price v. Hawkins, from the Newport News Circuit Court, appealed to the Virginia Supreme Court, stands for the position that a court may enter personal judgments against a transferee to provide a creditor with a remedy when, due to fraud, there is no other remedy.

In Price the Court found that the debtor, a father, enlisted the help of his son and his son's girlfriend in the debtor's scheme to defraud his creditors. Specifically, the son and his girlfriend, who were not legitimate creditors of the debtor, assisted the debtor in hiding assets ($14,058.77) that the creditor would have otherwise reached in his judgment collection efforts. The transfers occurred after the judgment order was entered, and $10,000.00 was transferred to the son and the girlfriend three months later while the creditor was attempting to collect on the judgment.

The Court found that simply declaring the fraudulent transfer "void" pursuant to Virginia Code §55-80 would be meaningless, as the conveyance was of money. In cases involving the fraudulent conveyance of real estate, title to the real estate is restored by a declaration, thus, subjecting the property to a creditor's bill. The Court ruled in Price that unless the money was delivered to the Court for the creditor to attach, then personal judgments were the only remedy.

Perhaps the lesson of Price is: Ask questions! When your debtor is under oath for interrogatories, ask what assets have been conveyed to whom, when, and for what consideration.

Foreclosure: Obtaining Possession after Foreclosure

Upon purchasing property at a foreclosure sale, it is not uncommon to have a “holdover tenant”. If this occurs, you can obtain possession of the property by filing a Summons for Unlawful Detainer in the appropriate General District Court. The applicable statute requires that the plaintiff prove “a right to the possession of the premises at the time of the commencement of the suit.” The only evidence that is usually required is (a) a copy of the recorded trustee’s deed, since the facts recited therein are prima facie evidence of their truth, and (b) a copy of the notice to vacate sent to the occupant(s).

On the date of the initial return, if the defendant fails to appear, possession will be granted. If the matter is contested, most courts set a new date for trial. In contested cases, issues are usually related to notice and service, so the trustee should be prepared to present evidence that the foreclosure sale was properly advertised, noticed and conducted.

The judgment for possession is not final until 10 days after it is entered, and most courts will not issue a writ of possession during that 10-day pendency. If an appeal is noted within the 10-day period, the defendant must perfect the appeal by posting an appeal bond and paying within 30 days of the date of the judgment the applicable writ and service fees for the circuit court. Most judges are sympathetic to require significant appeal bonds equating with the former mortgage payments. 

Eviction is accomplished using a “Request for Writ of Possession.” A writ of possession may be issued on an unlawful detainer for up to one year from the date of judgment. When requesting the writ of possession, provide contact information for both the Sheriff and the person who will supervise the eviction of the new owner; the Sheriff will coordinate a date and time to serve the writ of possession and maintain the peace while the owner physically evicts the personal property of the occupant(s) and secures the property.

Real Estate: Statute of Limitations Enforced on Challenge to Bylaws Amendment

The Virginia Condominium Act, specifically Virginia Code Section 55-79.71(C), provides for a statute of limitations in regard to challenging amendments to governing documents. The section provides, in part:

“An action to challenge the validity of an amendment adopted by the unit owners’ association pursuant to this section may not be brought more than one year after the amendment is recorded.”

In the case of Godwin v. Bay Point Association Board of Directors, a Norfolk Circuit Court was faced with a homeowner challenge to bylaw amendments. The homeowner, Godwin, had sued the association alleging that it breached its governing documents by taking actions four years earlier and three years earlier that increased her assessment for insurance premiums. The association filed a motion to dismiss Godwin’s complaint on the ground that it was time-barred pursuant to Virginia Code Section 55-79.71(C).

Four years earlier the association’s board of directors signed a resolution regarding physical damage and flood insurance. Three years earlier it drafted and signed a bylaw amendment relating to insurance premiums. The association argued that challenging either of these actions was time-barred under the statute of limitations. 

The court ruled that the resolution was not an amendment to the condominium governing documents within the meaning of the act. The court found that, at most, the resolution represented a statement of the board’s opinion that the bylaws should be amended to revise the way insurance premiums were assessed against the unit owners. In the resolution, the board acknowledged the need to amend the bylaws and stated that the amendment process was lengthy and inconsistent with the budget preparation schedule for the upcoming fiscal year. Because the resolution was not an amendment adopted by the unit owners pursuant to the act, the court found that the act’s statute of limitations did not apply. However, the court ruled that the bylaws amendment was an amendment to the governing documents within the definition contemplated by the act. Accordingly, the one-year statute of limitations applied.

Godwin argued that because the association violated mandatory procedures for amending the bylaws, the amendment was null and void, and thus, the statute of limitations did not apply. The court, however, in examining the statute, noted that nothing in the statute suggested that only valid bylaw amendments are subject to the one-year statute of limitations. The court noted that any amendment, not just valid ones, may be challenged within one year. Accordingly, Godwin’s claim was barred by the statute of limitations.

Godwin then tried to argue that there was a breach of fiduciary duty (the legal duty of the board to act in the best interests of the residents). Godwin and the association agreed that an action for such breach must be filed within two years from the date of breach. Godwin argued that, although the association initially breached its fiduciary duty four and three years earlier “when in bad faith it knowingly and willfully” adopted the resolution and the bylaws amendment, there were renewed breaches when the annual budgets were adopted in the last two years, which reflected the change made to assessments for insurance premiums. The court disagreed, finding that any breach of fiduciary duty relating to the change in the insurance premium assessment took place when the association acted four and three years ago to adopt the resolution and bylaw amendment. The latest of these actions occurred over two years prior to Godwin’s filing suit. Therefore, the claim was time-barred.

Bankruptcy: Notice of Final Cure Payment in Chapter 13 Cases – New Rule Effective December 1, 2024

Effective December 1, 2024, there is a new rule in Chapter 13 cases involving a secured interest in the debtor’s primary residence. If the plan provides for installment payments and the payments are completed during the Chapter 13 case, the debtor must file a certification that they have completed their payments. Failure to do so, or failure to make all payments, will result in a motion to dismiss without a discharge filed by the trustee, or a Notice of Final Cure Payment. 

RULE 3002.1-1 CLAIMS IN CHAPTER 13 CASES SECURED BY THE SECURITY INTEREST IN A DEBTOR’S PRINCIPAL RESIDENCE (NEW) 

(A) Debtor’s Certification: In any chapter 13 case (1) that involves any claim that is secured by a security interest in the debtor’s principal residence for which the plan provides that either the trustee or debtor will make contractual installment payments and (2) where there is no order terminating or annulling the automatic stay related to such claim, the debtor(s) shall file, within 30 days of completion of the plan payments due under the terms of any confirmed plan, a certification (in addition to the certification required under LBR 4008-2(A)) as to whether all contractual installment payments due during the life of the case have been made. If the debtor fails to timely file a certification, or if the debtor’s certification states that not all contractual installment payments were made during the Chapter 13 case, the standing trustee shall file a motion to dismiss without a discharge.  

(B) Hearing on Response to Notice of Final Cure Payment: The standing trustee shall file, pursuant to FRBP 3002.1(f), a Notice of Final Cure Payment, a sample of which is an exhibit to these Local Rules, as Exhibit 17. If, within 21 days of the service of the Notice of Final Cure Payment, the creditor files and serves a statement pursuant to FRBP 3002.1(g) indicating either (1) the debtor has not paid in full the amount required to cure the default on the claim or (2) the debtor is not otherwise current on all payments consistent with 11 U.S.C. § 1322(b)(5), then the debtor, if represented by counsel, shall set the matter for hearing in the ordinary course. If the debtor is not represented by counsel, the standing trustee shall set the matter for hearing in the ordinary course. 

(1) If a debtor, who is represented by counsel, fails to file a notice of hearing as contemplated by this Local Rule within 30 days after a creditor’s response is filed, the Court may consider whether a reduction of the approved amount of attorney’s fee is appropriate upon motion by the standing trustee.

If you have questions, please contact Eddie or Jennifer.

Collections: Sale of Collateral after Repossession - Updates to the Virginia Code and Forms

Effective July 1, 2025, there will be minor changes to the forms in Virginia Code Sections 8.9A-614 and 8.9A-616. These are important changes to prepare for before July 1, 2025 as they change your Notice of Disposition of Collateral and Notice of Calculation of Surplus or Deficiency. 

The changes are primarily to update and modernize language regarding communication. While the changes are likely not substantive enough to invalidate your current forms, it provides an excellent opportunity to review your current forms and procedures. 

The form and instructions in Virginia Code Sections 8.9A-614 and 8.9A-616 are a “safe harbor” for creditors. If you follow the statutory language, your letters will be deemed in compliance with the Code Sections. If you have questions about the language in the Code Sections or would like for us to review your forms, please contact Eddie or Jennifer.