Monday, July 21, 2025

Collections: Confessed Judgment Set Aside

The United States District Court at Alexandria, Virginia, set aside a confessed judgment in the case of Benton Land Fund, L.P. v. NvMercure Ltd Partnership because the entry of the judgment was by a party not specifically authorized to confess judgment. The Court found that the provisions in the note at issue stated that judgment may be confessed by "any attorney admitted to practice in any jurisdiction or any vice president or senior vice president of the bank". The Court found that this language was not sufficiently specific to allow the plaintiff limited partnership to confess judgment because of certain ambiguities among the documents in identifying the "Bank" referred to in the note. Further, the language in the note did not entitle the person who actually confessed judgment to act as the attorney-in-fact for that purpose.

This case serves as another reminder as to why competent legal advice should be sought, and why loan documents and contracts should be carefully read and strictly followed.

Monday, July 14, 2025

Foreclosure: Notice of Sale

The Code of Virginia provides specific guidance as to giving notice of a foreclosure sale.

§55.1-321 and 322 require that the written notice of sale contain the time, date and place of the proposed sale, as well as either (i) the instrument number, or, deed book and page number, of the instrument of appointment filed (appointment of substitute trustee), or, (ii) a copy of the executed and notarized appointment of substitute trustee. Personal delivery or mailing a copy of the advertisement by certified or registered mail is sufficient.

Virginia Code requires the trustee to send written notice of the time, date and place of the sale to (i) the present owner of the property … (ii) any subordinate lienholder … (iii) any assignee of such note … (iv) any condominium unit owner’s association that has filed a lien … (v) any property owner’s association that has filed a lien … (vi) any proprietary lessees’ association that has filed a lien.

It is important to know that in addition to the notice required by statute, the note or the deed of trust may contain additional notice requirements. Accordingly, the trustee should examine both of these documents.

Monday, July 7, 2025

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

Townes at Grand Oaks Townhouse Association, Inc. v. Baxter is 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. We have experience in drafting, reviewing, and amending HOA documents, as well as, representing HOAs in court. 

Monday, June 30, 2025

Bankruptcy: Contract Default, Interest Rates and Attorney’s Fees

The United States District Court at Abingdon, in the case of Florida Asset Financing Corp. v. Dixon, ruled that a contractual default interest rate of 36 percent was available to an oversecured creditor as part of its claim against a debtor. The Bankruptcy Court decision denying such interest was reversed. 

The District Court ruled that the Bankruptcy Code provides that, in general, a claim must be oversecured in order to recover postpetition interest in addition to reasonable fees, costs and charges as part of its secured claim. As to the appropriate rate of interest applicable to an oversecured creditor’s principal claim, however, Bankruptcy Code §506 and the accompanying legislative history are silent. The District Court reported that a great majority of courts to have considered the issue of postpetition interest have concluded that the contract rate of interest applies. Default rates of interest generally do not enjoy, however, the same straight-forward treatment that postpetition interest claims for basic interest do. The Supreme Court noted in the case of Rake v. Wade that postpetition interest may be claimed up to the extent of the value of the collateral.

The District Court ruled that entitlement to default interest is generally determined by a reliance on equitable principles or the cure rationale evoked by the 9th Circuit Court of Appeals in the case of In re Entz-White Lumber & Supply, Inc. The District Court, unlike the Bankruptcy Court, found that the Debtor in this case had not “essentially…cured” his default. The District Court noted that the majority of jurisdictions allow, or at least give “a presumption to the allowability of default rates of interest, provided that the rate is not unenforceable under applicable nonbankruptcy law”. The facts and equities specific to each case prove determinative in the analysis of default rates. Within this analysis, the contract default rate is neither irrelevant nor predictive.

The District Court decided that the question presented by this case was just how far the Bankruptcy Court’s equitable powers extended under a modern reading of Bankruptcy Code §506(b). The rule governing the District Court’s consideration of this case was as follows: where the circumstances necessitating an equitable deviation are plainly absent and the contract interest rate does not violate state usury laws, function as a penalty or exceed the value of the collateral, the presumption in favor of the contract rate has not been rebutted. The District Court noted that to do otherwise is to impinge on a creditor’s statutory rights under Bankruptcy Code §506b). The District Court decided that in Dixon the presumption was in favor of the contract default rate. In order to discover what equitable considerations may support the Bankruptcy Court’s decision to deviate from this contract rate, the District Court turned to an analysis of the case law. The District Court found that those cases presenting equitable circumstances necessitating a deviation from the contract default rate were distinguishable on their facts. In this case, the contract default rate of interest in question violated neither state nor federal law, and there was a notable lack of circumstances which would encourage an equitable deviation from the stated contractual default rate.

The District Court stated that it seemed clear as well that the Bankruptcy Court erred when it deemed the default rate to be a penalty.  No evidence existed on the record to support the Bankruptcy Court’s characterization. The default rate was within the bounds of state usury law, and merely calling the rate exorbitant, or noting its large departure from the non-default rate, did not suffice to render it unconscionable.

In summary, the District Court ruled that the contractual default interest rate in Dixon had not been rebutted by equitable considerations. The District Court ruled that the Bankruptcy Court’s decision to reject the default interest rate and apply the nondefault interest rate was therefore erroneous. The Bankruptcy Code and applicable case law, facts of the case and equitable principles of distribution compelled that the debtor should have been held to the contract default rate of interest provided in the note. The District Court stated that to find otherwise would render a windfall to the debtor. While a 36-percent interest rate is high, the courts do not have plenary power to alter commercial contracts or to substitute their judgment for that of the parties. The District Court found it necessary to remand the attorney’s fees portion of the case to the Bankruptcy Court for reconsideration, as the increased recovery available to the creditor altered the context for analyzing the reasonableness of the fee request.