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 §5.1-320(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 §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 §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: Suit to Enforce Mechanic’s Liens

In recent editions of Creditor News we have been discussing the benefits of using real estate to improve creditors’ positions. This month we will discuss suit to enforce mechanic’s liens.

Virginia Code §43-17 provides that no suit to enforce a mechanic’s lien can be brought:

“…after six months from the time when the memorandum of lien was recorded or after sixty days from the time the building, structure or railroad was completed or the work thereon otherwise terminated, whichever time shall last occur; provided, however, that the filing of a petition to enforce any such lien in any suit wherein such petition may be properly filed shall be regarded as the institution of a suit under this section; and, provided further, that nothing herein shall extend the time within which such lien may be perfected.”

Virginia Code §43-17.1 provides that:

“Any party, having an interest in real property against which a lien has been filed, may, upon a showing of good cause, petition the court of equity having jurisdiction wherein the building, structure, other property, or railroad is located to hold a hearing to determine the validity of any perfected lien on the property. After reasonable notice to the lien claimant and any party to whom the benefit of the lien would inure and who has given notice as provided in § 43-18 of the Code of Virginia, the court shall hold a hearing and determine the validity of the lien. If the court finds that the lien is invalid, it shall forthwith order that the memorandum or notice of lien be released from record.”

Virginia Code §43-18 provides:

“The perfected lien of a general contractor on any building or structure shall inure to the benefit of any subcontractor, and of any person performing labor or furnishing materials to a subcontractor who has not perfected a lien on such building or structure, provided such subcontractor, or person performing labor or furnishing materials shall give written notice of his claim against the general contractor, or subcontractor, as the case may be, to the owner or his agent before the amount of such lien is actually paid off or discharged.”

We have experienced attorneys and staff who can examine title, file mechanic’s liens, and litigate to enforce the same.

Bankruptcy: Vehicle Repossessions/Automatic Stay

The United States District Court of Abingdon, Virginia, in the case of Nationsbank N.A. v. Bush reversed a Bankruptcy Court decision finding that the creditor bank had violated the Bankruptcy Code's automatic stay against actions by creditor's against bankrupt debtors.

The District Court found that in order for the bank to have violated the automatic stay, the bank must have known of the debtor's filing. The District Court found that the notice of filing was mailed to the proper address and was not subsequently returned undelivered may support the conclusion that the bank received notice, it does not support the conclusion that the bank received the notice before the sale date. The issue was not whether the bank ever received notice, but when the bank received the notice. The District Court found that there was no evidence from which the Bankruptcy Court could have found that the bank received the notice before the sale.

Despite the favorable ruling, creditors should be very careful to establish a checking system so that violations will not occur. The penalty for violations range from jail time to fines and attorney's fees.

Collections: Parties Liable for Credit Card Debts

The Richmond Circuit Court, in the case of Chevy Chase Savings Bank v. Strong, ruled that a husband who was only an “authorized user” on a bank credit card issued to his wife was not liable to the bank for a $5,024 cash advance check he wrote on the credit card; only the wife was liable. 

In Virginia Code §11-31, Virginia has codified the rule that use by an authorized agent of a cardholder shall be the equivalent of use by the cardholder. That rule, however, does not address the question of the liability of the agent. The court reasoned that while it does not appear that any Virginia Court has addressed the issue, the language used in the statute and case law from other jurisdictions led the Court to believe that the issue was governed by agency law.

The Court stated that it was well established in Virginia that when an agent contracts for a disclosed principal, credit is extended to the principal, and the benefits of the contract are accepted by the principal, there is no personal liability on the agent. In this case, the bank was well aware that the principal was the wife. It extended credit to her based on her application for a card. They were aware that no contract was ever made with husband individually and, therefore, they knew that he was simply an authorized agent.

The Court found that there was no indication in this case that husband exceeded his authority in executing the check against the account, or that he agreed to be personally liable for any debt incurred on his wife’s account. Accordingly, the court ruled that the liability for the debts belonged only to wife. The court ruled that the husband was not liable for any portion of the outstanding balance, including the amount of the check that he personally wrote.

The lesson from Strong - do not confuse guarantors with authorized users.