Bankruptcy: Homestead Exemption - Deed Executed by Counsel

The case of In re Goodman serves as another good example why you should review all case documents.  In Goodman, the United States Bankruptcy Court at Roanoke ruled that a homestead deed executed by the debtor's counsel and recorded pursuant to Virginia Code §34-17 did not perfect the debtor's homestead lien.  Accordingly, the debtor's claimed exemption under Virginia Code §34-17 failed, and the property became subject to the bankruptcy estate.

In Goodman, the debtor did not timely execute a homestead deed, as the debtor could not be located by his counsel.  However, the debtor claimed to reaffirm and ratify the act of his attorney, who filed and recorded one on his behalf.  The debtor did not subsequently attempt to file any other homestead deed.  The debtor argued that the agency relationship between the debtor and the debtor's attorney enabled counsel's execution and recordation of the homestead deed on behalf of the debtor.  The debtor also pointed to the fact that he had ratified and affirmed his counsel's act of signing the homestead deed on his behalf and putting the same to record within the time period provided by the Virginia Code for claiming a homestead exemption.

The Court, however, in looking at the plain language of both the Bankruptcy Code §522 (b), and the Virginia Code §§34-4 and 34-1, decided that it is clear that the "individual debtor" (§522 (b)) or "householder" (§34-4), not attorney, has the privilege of "selecting" the property to be exempted.  Under Virginia Code §§ 34-6 and 34-17, the debtor, not attorney, secures the benefit of the homestead by signing and recording a writing claiming the benefit.  The bankruptcy trustee timely raised and properly brought into question the validity of the homestead deed which contained only the signature of the debtor's attorney on behalf of the debtor.  At trial, the debtor produced no evidence that his counsel had authority to execute the homestead deed and put it to record.  The parties stipulated that debtor's counsel signed and filed the homestead deed and put it to record out of a sense of necessity only and not to any specific blanket authority conferred upon the attorney at the time of the agency relationship.  The Court ruled that having failed to meet the threshold challenge of the trustee to the debtor's agency authority, the debtor did not prevail on the agency theory.  In addition, because there was no adequate proof of authority for the agent to sign the homestead deed on behalf of the debtor, the fact that the debtor subsequently ratified and confirmed the act of his attorney is not relevant.  Accordingly, the Court sustained the bankruptcy trustee's objection, and the property set forth in the homestead deed became the property of the bankruptcy estate.

Collections: Debt Collections: You Need a Plan, From the Beginning

Any business or lending institution that extends credit to its customers or members will inevitably be faced with bad debts.  To insure maximum collection results, creditors should establish credit and collection policies before a problem occurs.

Before you extend credit, there are several things that you can do to reduce your risk. 

1. Obtain full names, addresses, telephone numbers, places of work, social security numbers and dates of birth.
2. Obtain the name of the customer's bank, branch, and account number.
3. Review a credit report.
4. Ensure that all credit terms are clear.
5. Have personal guarantees for small businesses.
6. Perfect security interest in events of large credit.

 When accepting personal checks, take the following precautions:

1. Insist on two pieces of identification, at least one of which has the customer's photo.  A driver's license and a credit card are ideal.
2. Require checks to be made out in your presence.
3. Compare the signature on the check with that on the ID.
4. Limit checks to the exact amount of the sale.
5. Accept only checks drawn on local banks.
6. Verify the customer's address and phone number on the check.  Also note the customer's social security number and/or driver's license number.
7. Be cautious when accepting checks with low numbers (indicating that the account was recently opened).
8. Consider subscribing to a check verifying service.  For a modest fee, such a service allows you to call a toll-free number and learn immediately if you can safely accept the check.  If a check bounces after being verified using this procedure, the service will cover your loss.

When the debt is in default, act promptly!  The longer you wait, the harder collection will probably be.  We usually recommend immediate telephone calls, followed by a series of two or three letters.  In the final letter, give a definite and short deadline with the promise of attorney action.

The decision as to when a creditor should deliver its accounts to counsel for collection is not always an easy one.  Some creditors deliver collections accounts to counsel after the initial demand has failed to produce results.  Some creditors desire to have their credit/collection manager take their judgment and attempt collection by payment plan, garnishment, or even sometimes, sheriff's levy.

The problem frequently encountered by creditors who pursue their own judgments, however, is that in most cases the ability to collect without the assistance of counsel ends prior to the receipt of payment in full.  When this occurs, counsel must normally assume collection activities after the trail is cold.  Further, since the creditor was not represented by counsel at the time of judgment, the judgment order does not include attorney's fees; nevertheless, attorney fees will now be charged to the creditor.  In addition, if the creditor's credit/collection manager failed to properly docket the judgment, collection could be forever impaired.

The firm recommends that creditors immediately deliver accounts to counsel upon the failure of the demand for payment.  Creditors should ensure that provisions for attorney fees and interest are included in all loan, contract and/or account documents so that counsel can assess these costs upon delivery.  The firm further recommends that all accounts be delivered while the "trail" is still warm--no more then sixty days from default.

The firm has aggressive collection counsel and staff who represent numerous Credit Unions, Homeowner Associations, property management companies, loan companies, businesses, doctor's offices, and private citizens.  The firm is willing to pursue accounts from start to finish, or even finish accounts already in progress.

Foreclosure: Deposits

Virginia Code §55.1-324 permits the trustee to require of any bidder at any sale a deposit of as much as ten percent of the sales price, unless the deed of trust specifies a higher or lower amount. However, because the statute is not mandatory, the trustee is given the right to waive the deposit if he deems it appropriate, unless the deed of trust requires a specific deposit. The trustee should also consider using a fixed amount as the deposit rather than a percentage of the sales price. Using a percentage of the sales price as the method of determining the required deposit often results in confusion, and the successful bidder has either too much or too little money to deposit. A fixed deposit avoids the confusion and allows all potential buyers to know exactly how much money to bring to the sale to deposit. The fixed deposit should not be excessive but should be of a sufficient amount to ensure that the successful bidder completes the closing of the sale.

Real Estate: Common Area Parking Spaces Must be Assigned Equally

The Court of Appeals of Virginia recently issued an opinion affirming a Circuit Court decision holding that common area parking spaces must be assigned equally. The case involved a suit by a homeowner, Patrick Batt, against Manchester Oaks subdivision in Fairfax County. The subdivision contained 57 townhouses, 30 of which were constructed with a garage and driveway (garaged lots) and 27 of which were constructed with an additional bedroom and bathroom in lieu of a garage (ungaraged lots). The subdivision included a common area with 72 parking spaces.

The subdivision was subject to a declaration, administered by the homeowners association that gave the association the right to designate a maximum of two parking spaces for the exclusive use of each lot owner. However, the association was not required to ensure that parking spaces were available to any particular owner or to oversee use of the parking spaces. Batt had purchased a garaged lot in 1990, before the subdivision was complete. At that time, residents parked wherever they chose. In 1993 or 1994, the developer began assigning two parking spaces to each ungaraged lot. The remaining 18 parking spaces were designated as “visitor” parking, available to all lot owners on a first-come, first-served basis.

In 2009, the association issued one visitor parking permit to each lot owner and posted a parking policy on its website. Any vehicle not displaying a permit while parked in the visitor parking spaces would be towed. In December 2009, the association amended the declaration to provide that the association had the right to designate two parking spaces exclusively to each of the ungaraged lot owners on a non-uniform and preferential basis. In June 2010, Batt sued the association, claiming that the unequal treatment of owners over parking space assignments violated the declaration. The association argued that Batt’s suit was barred by the December 2009 amendment to the declaration.

The circuit court ruled in Batt’s favor, finding that the amendment was invalid for six reasons. The association appealed. The Court of Appeals ruled, in summary, that equality is inherent in the definition of “common area.” A “common area” is defined as, “[a]n area owned and used in common by residents of a condominium, subdivision, or planned-unit development.” Black’s Law Dictionary defines “in common” to mean “[s]hared equally with others, undivided into separately owned parts.” Accordingly, the court held that the association must assign common area parking spaces to all lot owners equally, if at all, unless the declaration expressly provided otherwise. In this case, the court did not find that unequal assignment was authorized.