Bankruptcy: Punitive Damages - Failure to Return Vehicle

     Judge Tice of the United States Bankruptcy Court, in Richmond, in the case of Brown v. Town & Country Sales and Service, Inc., ruled that a creditor that repeatedly refused to give the debtors’ pickup truck back to the debtors, despite the debtors’ entitlement to the truck after they filed for bankruptcy, violated the automatic stay in bankruptcy and must pay debtors’ attorney’s fees and punitive damages. 

     The creditor’s registered agent testified at trial that, despite the fact that they had always returned repossessed property post-petition in the past, the creditor elected not to return debtors’ vehicle. Instead, she testified that this time the creditor decided it would not return debtors’ vehicle upon demand because the creditor was unhappy that a large number of its customers had declared bankruptcy in the past year. 

     The debtors provided the lender with proof of adequate insurance. The debtors were currently awaiting confirmation of their modified Chapter 13 plan in which the debtors proposed to pay the lender in full. The debtors owed the lender $1,689.02 for the initial truck loan, as well as $1,764.95 for the replacement motor, for a total of $3,453.97.

     The Court concluded that the creditor’s demand for full payment, coupled with its inaction and retention of the vehicle, amount to an exercise of control sufficient to find a violation of the automatic stay for failure to turn over the vehicle pursuant to Bankruptcy Code §542(a). The Bankruptcy Court ruled that the debtors were entitled to recover the truck upon filing bankruptcy. Thus, the creditor’s retention of the vehicle post-petition constituted an exercise of control in violation of the automatic stay and Bankruptcy Code §362(h), which permits a court to impose attorney’s fees, costs and punitive damages for a willful violation of the automatic stay. The Court awarded these.

     The Bankruptcy Court further awarded punitive damages against the creditor in the form of cancellation of both of the creditor’s security interests against debtors’ vehicle. Any balance which debtors owed the creditor was treated as an unsecured claim.

    The lesson in Brown - know the rules and always consult experienced counsel. 

Bankruptcy: Dischargeability of Debts - False Representation

     In Crestar Bank v. Green, Judge Tice, for the United State Bankruptcy Court, Eastern District of Virginia, at Newport News, ruled that a debt to the debtor's cousin and his assignee was non-dischargeable pursuant to Bankruptcy Code §523(a)(6). 

     Originally the Creditor had complained that the debtor had falsely attested to a notary public and to a real estate lawyer that his note secured by the real estate had been paid in full. The Creditor argued that discharge was precluded as a false representation under Bankruptcy Code §523(a)(2)(A). The evidence was that the debtor had conceded that he voluntarily and intentionally signed the certificate releasing the deed of trust. The debtor also admitted that at the time he signed the certificate he knew that the document represented that the note was "paid in full". The debtor also admitted that he knew that he was transferring title of the property to the buyer even though the property was the security for repayment of the note to his cousin.

     The Court, despite the Creditor's argument, held that the false representation was not made to either the note holder or to the successor bank, and neither creditor relied on the false representation. Therefore, Bankruptcy Code §523(a)(2)(A) did not preclude discharge. However, the Court held that the false representation was a willful and malicious injury to another person's property under Bankruptcy Code §523(a)(6). The Court found that the debtor effectively forged his cousin's signature and released the cousin's deed of trust. The debtor's intentional act of forging and recording the certificate of satisfaction constituted willful and malicious injury to the cousin's property rights. Therefore, the bank, as assignee, was entitled to the damages caused by the debtor's wrong. Accordingly, the Bankruptcy Court ruled that the debt to the cousin and his assignee was non-dischargeable pursuant to Bankruptcy Code §523(a)(6).

Bankruptcy: Punitive Damages - Failure to Return Vehicle

     Judge Tice of the United States Bankruptcy Court, in Richmond, in the case of Brown v. Town & Country Sales and Service, Inc., ruled that a creditor that repeatedly refused to give the debtors’ pickup truck back to the debtors, despite the debtors’ entitlement to the truck after they filed for bankruptcy, violated the automatic stay in bankruptcy and must pay debtors’ attorney’s fees and punitive damages. 

     The creditor’s registered agent testified at trial that, despite the fact that they had always returned repossessed property post-petition in the past, the creditor elected not to return debtors’ vehicle. Instead, she testified that this time the creditor decided it would not return debtors’ vehicle upon demand because the creditor was unhappy that a large number of its customers had declared bankruptcy in the past year. 

     The debtors provided the lender with proof of adequate insurance. The debtors were currently awaiting confirmation of their modified Chapter 13 plan in which the debtors proposed to pay the lender in full. The debtors owed the lender $1,689.02 for the initial truck loan, as well as $1,764.95 for the replacement motor, for a total of $3,453.97. 

     The Court concluded that the creditor’s demand for full payment, coupled with its inaction and retention of the vehicle, amount to an exercise of control sufficient to find a violation of the automatic stay for failure to turn over the vehicle pursuant to Bankruptcy Code §542(a). The Bankruptcy Court ruled that the debtors were entitled to recover the truck upon filing bankruptcy. Thus, the creditor’s retention of the vehicle post-petition constituted an exercise of control in violation of the automatic stay and Bankruptcy Code §362(h), which permits a court to impose attorney’s fees, costs and punitive damages for a willful violation of the automatic stay. The Court awarded these. 

   The Bankruptcy Court further awarded punitive damages against the creditor in the form of cancellation of both of the creditor’s security interests against debtors’ vehicle. Any balance which debtors owed the creditor was treated as an unsecured claim. 

   The lesson in Brown - know the rules and always consult experienced counsel.

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.

Real Estate: Homeowner Associations - Damages Caused by Common Area Tree

     Townes at Grand Oaks Townhouse Association, Inc. v. Baxter is a case from Richmond Circuit Court that illustrates the importance of carefully drafted HOA agreements. The HOA sought to recover expenses for removing a tree that fell from common area onto a homeowner’s condo. The Richmond Circuit Court held that the HOA agreement did not exempt the HOA from paying removal costs because a portion of the tree remained on the common area. The court noted that there was no Virginia authority for these facts, but stated that the Supreme Court of Virginia ruled that in cases of fallen trees between adjoining properties in the absence of negligence, there is no liability for property damages on the landowner from where the tree fell. However, the HOA agreement is a contract that created the obligation for the HOA. The agreement had a provision requiring the HOA to maintain and replace trees, and another provision exempting the HOA from liability to an owner for repairing or replacing any portion of the lot or the improvements provided the homeowner has insurance as required by the agreement. The HOA relied on the first provision, but the court determined that that reliance was misplaced as it did not cover this situation. The HOA relied on the second provision because the homeowner did not have the required insurance for “the structure of each lot”, but only insurance for the inside of the home. However, the court heard evidence from the homeowner that he understood the language to only require internal insurance. The court noted three primary reasons for holding for the homeowner: 

     (1) “Removal of the tree from the lot is not a repair or replacement, but merely something necessary before the physical work of restoration of the damaged structure can begin.” 

     (2) “The exemption from liability applies when the homeowner has "fire and extended coverage insurance" with applicable coverage. Considering the varying types of insurance that the market may provide, there is no evidence that the insurance required under the contract terminology must cover trees removal. Whether such a policy would is left to speculation.” 

    (3) “The tree removal would necessarily involve removal of a portion of the tree from the common area as well as from Defendant's lot and home. I question whether, in any event, the total removal cost should be assigned to the defendant rather than some prorated amount.” 

     It is important to ensure that HOA agreements include provisions that would govern a broad spectrum of potential issues and disputes. The law firm of Lafayette, Ayers & Whitlock, PLC has experience in drafting, reviewing, and amending HOA documents, as well as, representing HOAs in court. 

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. 

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

     2. Did the defendant make the following statements? 

     3. Were they about the plaintiff? 

     4. Were they heard by someone other than the plaintiff? 

     5. Are the statements false? 

     6. 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? 

    7. 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.

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.

Bankruptcy: Post-Discharge Injunction - New Note with Credit Union

     The United States Bankruptcy Court, Western District of Virginia, Harrisonburg, ruled in the case of Mickens v. Waynesboro Dupont Employees Credit Union, Inc. that a credit union that facilitated a discharged debtor’s cosigning of a new promissory note that covered the credit union debt that previously was discharged was liable for a violation of the bankruptcy law’s post-discharge injunction statute, and the debtor had no liability for the note and was entitled to damages and attorney’s fees.

     The Court decided that the issue was whether the fact that the credit union obtained a new note signed by the debtor for his discharged obligation constituted an “act to collect, recover or offset” the discharged debt in violation of the post-discharge injunction under Bankruptcy Code §524 (a)(2).
     The Court in Mickens decided that the credit union’s act, permitting the debtor to cosign the new note, expressly placed the debtor in the same state of personal liability for the exact debt which was discharged. The notice to the cosigner stated this fact. Bankruptcy Code § 524 (c) lays out detailed requirements which must be met for a debtor to reaffirm a pre-petition debt and thereby remain obligated to pay such a debt in spite of the discharge injunction. The Court ruled that the credit union’s actions would be subject to Bankruptcy Code §524 (c). Therefore, they must fall within the definition of “an act” for the purposes of the discharge injunction, however narrowly that phrase may be defined.
     The Court ruled that while no cases with identical facts were readily apparent at the time it ruled, it concluded that the cases which most closely resembled the fact pattern for this case were those which involved “ clumsy attempts to avoid the injunction.” In these cases the creditors’ attempt to circumvent the requirements in the Bankruptcy Code §524 (c) and (d) through a reliance on the voluntary repayment provision in Bankruptcy Code §524 (f).
     The Court in Mickens ruled that the credit union could not make any serious argument that its actions or new note even attempted to comply with the requirements of Bankruptcy Code §524 (c) and (d). There could be no doubt the credit union was aware of the injunction and intentionally permitted and facilitated the debtor’s signing a new note which returned him to his pre-petition position of personal liability for the pre-petition debt. Such action constituted a willful violation of the post-discharge injunction of Bankruptcy Code §524 (a)(2).
     The Court ruled that the credit union was in violation of Bankruptcy Code §524 (a)(2) and the liability of debtor on the note he cosigned with a friend was void ab initio. The credit union also was liable for damages and attorney’s fees.

Bankruptcy: Discharged Debt Collection - Violation of Bankruptcy Injunction

     The United States Bankruptcy Court at Alexandria, in the case of In Re Billy Ray Evans, ruled that a bank and its attorney violated 11 U.S.C. §524 by attempting to collect a discharged debt. As a result of this the Court ordered both the bank and the attorney to pay to the debtor damages in the amount of $1,000.00, as well as attorney’s fees in the amount of $24,954.00, costs in the amount of $1,159.00 and punitive damages in the amount of $2,500.00.
     In Evans the Court found that the bank had filed a lawsuit in state court seeking to recover possession of the vehicle leased to debtor, or, in the alternative, to recover the value of the vehicle. The Court, however, found that the lawsuit was a mere subterfuge for the bank’s actual intention to enforce a pre-petition debt in violation of the bankruptcy discharge injunction. Cited by the Court in making this finding was the Court’s feeling that the bank made only minimal effort to determine whether the debtor actually had possession of the vehicle prior to filing its lawsuit. It twice referred the matter to repossession services after the bankruptcy case was closed, but the vehicle could not be located. The Court stated that the referrals, rather than confirming that the debtor had possession of the vehicle, raised questions about the bank’s motives. The Court found that the bank used minimal effort, simply to give the appearance that it was interested in recovering the vehicle. The Court stated that if the bank was truly interested in recovering the vehicle (rather than the debt) that there were many things that it could have done that it did not do. The bank made no effort to confirm that it had an immediate right of possession to the vehicle and that it was a proper party to bring the lawsuit.
     Without all of the facts of a particular case I am always reluctant to criticize a court’s decision. However, this decision seems very harsh to me. The lesson for Evans, though, is that creditors must be more aggressive while the debtor is still in bankruptcy court. Creditors must seek non dischargeability motions based upon conversion of property, damage of property, and the like. Also, if post bankruptcy lawsuits for recovery of property become necessary, and, undoubtedly they will, creditors must be certain to use best efforts to reclaim the property, but if unsuccessful in doing so, then to accurately value the property - not simply value the property at the balance due on the debt.

Real Estate: The Virginia Property Owners' Association Act - General Provisions

     In a previous blog I began a review of the Virginia Property Owners’ Act. Under the Act, sellers are required to disclose in their sales contract that the property is located within a development subject to the Act. The Act also requires the seller to retrieve the Disclosure Packet in the Act and provide it to the purchaser. The Disclosure Packet includes the following information: association documents, the name of the association, state of incorporation, register agent’s name and address, any other entity/facility to which the owner may owe fees or charges, budget or summary, income/expenses statement or balance sheet for last fiscal year, statement of balance due of outstanding loans, nature/status of pending lawsuits, unpaid judgments (with material impact on association or members or relating to lot being purchased), insurance coverage provided for lot owners including fidelity bond maintained by association, and much more.

     The purchaser may cancel the contract within three days if delivered by hand or email, or six days if sent by mail, after receiving the Disclosure Packet or being notified that it is “not available” (meaning: a current annual report has not been filed by the Association with either the SCC or the CICB; or the seller has requested in writing that the packet be provided and it is not received within 14 days; or the association has provided written notice that the Disclosure Packet is not available). Additionally, if the Disclosure Packet is not delivered or the association does not indicate that it is not available, the purchaser may cancel the sale any time prior to closing. If the purchaser received the Disclosure Packet, the owner also has the right to request an update. However, the rights to receive and cancel the contract are waived conclusively if not exercised before settlement.
     Failure to provide a Disclosure Packet after a written request for it has been made results in a waiver of any claim to delinquent assessments or violations of association documents up to that point, and the association will be liable to the seller for actual damages sustained up to $1,000 if the association is managed by a CIC Manager or up to $500 if it is self-managed.
     In upcoming blogs, I will discuss the provisions of the Virginia Property Owners’ Association Act that provide a memorandum of lien and foreclosure in the event of an owner’s default.

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.

Bankruptcy: Dischargeability - Money Judgment

     In the case of In Re: James H. Harris the United States Bankruptcy Court for the Eastern District of Virginia showed a willingness to assist creditors in clear abuse cases. In Harris Judge Tice determined that a debt which resulted from the debtor's conversion of a stolen Mack Truck was exempt from discharge pursuant to the Bankruptcy Code, and determined that the amount of damages excepted from discharge was $11,620.47. The Bankruptcy Court also entered a money judgment for the creditor in that excepted amount, even though at least one Federal District Court has held that a Bankruptcy Court does not have jurisdiction to enter a money judgment in a Bankruptcy Code §523 proceeding.
     Judge Tice stated that every determination by a Bankruptcy Court of the validity of a claim is a determination of whether a creditor is entitled to monetary damages from the debtor. The issues raised regarding the validity or existence or amount of a debt are inextricably interwoven with the determination of dischargeability, and are therefore within the equitable jurisdiction of the Bankruptcy Court.

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.

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.

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.