Foreclosure: Substitute Trustees

Question: What happens if the trustee under your deed of trust is either unavailable, or, is no longer the person you desire to serve as trustee? 

Answer: You can appoint a substitute trustee. Under Virginia Code Section 55.1-320(9), the noteholder, or, the holders of greater than fifty percent of the monetary obligation secured by the deed of trust, have the right and the power to appoint a substitute trustee or trustees for any reason, regardless of whether such right is expressly granted in the deed of trust. The timing of your action is important. The trustee must be empowered before taking action – this occurs when the instrument of appointment has been executed. You do not have to wait for recording. However, as Virginia Code Section 55.1-320(9) states that the appointment of a substitute trustee shall be recorded before, or at the time of, the recording of the deed conveying the property (such as after a foreclosure).

Question: Can a lender appoint their counsel as trustee? 

Answer: Yes. Virginia Code Section 26-58 holds that a trustee is not disqualified merely because he is a stockholder, member, employee, officer or director or counsel to the lender.

Real Estate: Using Real Estate as a Collection Tool

Collecting money owed can be a job. Having more tools to do the work is good! Securing your debt with real estate is a great tool. Each month in Creditor News we will explore ways that use this tool. Articles will include such topics as: Deeds of Trust, Foreclosure, Docketing Judgments, Lis Pendens, Recording Mechanic’s Liens, Suits to Enforce Mechanic’s Liens, Foreclosing on Mechanic’s Liens, Recording Homeowners Association Liens, Foreclosing on Homeowners Association Liens and more.

We have experienced attorneys and staff who can examine title, do real estate closings, seek judgment and docket and enforce the same, and prepare and enforce statutory liens, such as those for litigation, homeowner’s associations and mechanic lien situations. Please call me so that we can discuss how we can help you.

Bankruptcy: Homestead Exemptions - Household Furnishings

In the case of In Re: John W. Haynes, Jr., the United States Bankruptcy Court at Alexandria, Virginia, ruled that the debtor was entitled to claim as "poor debtor's" exemption from the bankruptcy estate two TV's, a VCR and a stereo as part of his "household furnishings" exempt under Virginia Code §34-26.

In Haynes, the creditor, a bank, argued that the items claimed as exempt by the debtor were not the type of property that was necessary to run a household, unlike beds, dressers, stoves, eating utensils and other items listed in the statute.

The Bankruptcy Court, however, stated that it did not read Virginia Code §34-26 so narrowly. In interpreting the statute, the Bankruptcy Court stated that it looked first to the statute's plain language; the Bankruptcy Court noted that the language of the statute was quite broad. The statute allows debtors to exempt from creditor process "all household furnishings", including the items listed in the statute, so long as their value does not exceed $5,000. The term "furnishings" does not necessarily exclude televisions, stereos and VCR's, and the statute includes "non-furniture" items -- such as eating utensils and plates -- as examples of "household furnishings." The Bankruptcy Court also noted that the statute did not contain the term "necessary," which was once included in an earlier version of the statute. The Bankruptcy Court Stated that it did not view exceptions under the current statute as being limited to items necessary for maintaining a household. In addition, the Bankruptcy Court noted that longstanding Virginia precedent established that exemption statutes are to be construed liberally. Accordingly, the Bankruptcy Court overruled the creditor's objection concerning the electronic equipment.

Collections: Bad Check Collection and the Fair Debt Practices Collection Act

Those who actively engage in the collection of debts as a third party are cognizant of the fact that the Fair Debt Collection Practices Act (FDCPA) applies to their collection activities. However, does the FDCPA apply to notices given as a prerequisite to criminal prosecution for passing bad checks? The United States District Court at Charlottesville, Virginia, in the case of Shifflett v. Accelerated Recovery, examined the issue but did not give a definitive answer.

Virginia Code §18.2-183 states that letters are required to be mailed to debtors to establish a prima facie case of fraud or knowledge of insufficient funds in order to pursue criminal prosecution. The creditor/defendant in Shifflett argued that it had never sought recovery through the civil process, it had always pursued a criminal warrant in cases where it was unable to collect an unpaid check.

The debtors/plaintiffs, on the other hand, argued that the creditor was required to give notices pursuant to the FDCPA. The essence of the debtors' argument was that the notices sent by the creditor, regardless of the creditor's practice or intent, constituted a "communication" pursuant to the language of FDCPA §1692(a) and therefore trigger the notice requirements of FDCPA §1692(a).

The Court did not rule as to whether the FDCPA applies to notices pursuant to Virginia Code §18.2-183. Instead, the Court focused on distinctions between the creditor's letters in Shifflett and that which is required by Virginia Code §18.2-183 for criminal prosecution. The Court found that the creditor's letters did not evidence the creditor's intent to pursue criminal remedies as opposed to civil remedies. The creditor claimed that the language of its letters referring to "the legal process" indicated its intent to use the criminal legal processing not the civil legal process. The Court, however, stated that it was unable to discern precisely in what manner the phrase "legal process" objectively discriminates between the criminal legal process and the civil legal process.

The Court also noted that the creditor's letters also advised the debtors that payment must be made within ten days from the date of the letter. Virginia Code §18.2-183 provides that notice mailed by certified mail or registered mail with evidence of returned receipt shall be deemed sufficient and equivalent to notice having been received by the maker or drawer. The creditor did not present evidence that it sent the letters by either certified or registered mail with the request of a returned receipt.

The Court also noted that the creditor's letters stated explicitly that it is "attempting to collect a debt..." By contrast, the Court stated that it could not locate any language within the letters by which even vaguely suggest that the creditor had sent the notices in furtherance of pursuing a criminal proceeding.

Accordingly, the Court found that the creditor failed to demonstrate that the letters were sent to the debtors pursuant to the requirements of Virginia Code §18.2-183, and therefore, found the creditor liable for its failure to comply with the notice requirements of §1692(a) of the FDCPA.

The lesson from Shifflett - when contemplating pursuing legal measures for “bad checks” it is important to use counsel with experience in both criminal and civil law.