Real Estate: Foreclosing on Homeowner Association Liens to Secure an Interest in Real Estate

In recent editions of Creditor News we have been discussing the benefits of using real estate to improve creditors’ positions.  As I have emphasized, properly securing debts through real estate could make the difference between collecting the funds and incurring a loss.  In this edition, we will review the benefits of using homeowner association liens to aid in the collection of your debt.  Last month we reviewed the special procedures for the collection of homeowners association dues under Virginia Code §55-516.  We will now review the procedures for suits to foreclose on the lien.

Suits must be brought within thirty six months of filing, but after the perfection of the lien.  The Homeowner’s Association may sell the lot at a public sale, subject to prior liens.  There are detailed requirements in the code, a brief summary of which include the following:

1.  The association shall give notice to the lot owner prior to advertisement as required in the code.

2.  After expiration of the 60-day notice period, the association may appoint a trustee to conduct the sale.

3.  If the lot owner meets the conditions specified in this subdivision prior to the date of the foreclosure sale, the lot owner shall have the right to have enforcement of the perfected lien discontinued prior to the sale of the lot. Those conditions are that the lot owner: (i) satisfy the debt secured by lien that is the subject of the nonjudicial foreclosure sale and (ii) pays all expenses and costs incurred in perfecting and enforcing the lien, including but not limited to advertising costs and reasonable attorneys' fees.

4.  In addition to the advertisement requirements, the association shall give written notice of the time, date and place of any proposed sale in execution of the lien, and include certain information required in the code.

5.  The advertisement of sale by the association shall be in a newspaper having a general circulation in the city or county wherein the property to be sold, with certain information requirements as set forth in the code.

6.  Failure to comply with the requirements for advertisement contained in this section shall, upon petition, render a sale of the property voidable by the court.

7.  In the event of a sale, the code sets forth bidding and proceeds application procedures.

8.  After sale, the trustee shall deliver to the purchaser a trustee's deed conveying the lot with special warranty of title.

9.  After completion, the trustee shall file an accounting of the sale with the commissioner of accounts.

We have experienced attorneys and staff who can examine title, file homeowner association liens, and litigate to enforce the same.

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.