Monday, December 30, 2013

Real Estate: Former Homeowners' Association President's Emails were Defamatory

     In the Fairfax Circuit Court case of Cornwell v. Ruggieri, the trial judge and jury found that the plaintiff homeowner was defamed by four emails written and published by a former association president and awarded $9,000.00 in damages. These emails alleged that the homeowner had stolen association funds five years earlier. The former association president tried to defend the case on the basis that the statements were simply a matter “of opinion”, not a matter of fact (as required under Virginia case law to recover damages), but the trial judge disagreed.
     The trial judge instructed the jury that under Virginia law the defendant, in his role as association president, had a “limited privilege” to make defamatory statements without being liable for damages. However, if it was proved by “clear and convincing evidence” that the defendant had “abused” the privilege, the defamatory statements were not protected. The trial judge instructed the jury that there were six possible ways (outlined below) that the homeowner could prove that the former association president abused the limited privilege.
     The homeowner presented evidence that the defendant made statements (1) with reckless disregard; (2) that were unnecessarily insulting; (3) that the language was stronger than was necessary; (4) were made because of hatred, ill will, or a desire to hurt the homeowner rather than a fair comment on the subject; and (5) were made because of personal spite, or ill will, independent of the occasion on which the communications were made.
     The jury was given a specific interrogatory with regard to each of the four defamatory statements:
1. Did the defendant make the following statements?
2. Were they about the plaintiff?
3. Were they heard by someone other than the plaintiff?
4. Are the statements false?
5. Did the defendant make the statements knowing them to be false, or, believing them to be true, did he lack reasonable grounds for such belief or act negligently in failing to ascertain the facts on which the statements were based?
6. Did the defendant abuse a limited privilege to make the statement?
     For each question as to all four emails, the jury answered “yes”. After a three-day trial, the verdict was rendered in favor of the plaintiff -- $9,000.00 in damages.
     This case gives a good reminder that homeowner association board members must be knowledgeable.

Monday, December 23, 2013

Bankruptcy: Lien Avoidance Case Review: Avoidance of a Judicial Lien as a Preference

     In Babiker v. Citizens Contracting Co. the United States Bankruptcy Court at Alexandria, Virginia, avoided a creditor's judgment lien against two debtors as a preference because the creditor was unable to demonstrate that the debtors were solvent when the judgment lien was entered within ninety days of the filing of the bankruptcy petition. The Court cited Bankruptcy Code §547(b) as authority for finding that the docketing of a judgment lien constituted a transfer to or for the benefit of a creditor. This case serves as an excellent reminder as to why swift action in taking and docketing judgment is important - delay can put you in the ninety days preference window.

Monday, December 16, 2013

Collections: Fraudulent Conversion or Removal of Property Subject to Lien or Title

     If a creditor is a lien holder, that creditor should be aware of a lesser known remedy available if a debtor fraudulently sells, removes, or hides the property subject to the lien. Virginia Code §18.2-115 states that a debtor is guilty of larceny if he/she fraudulently sells, pledges, pawns, removes from the premises agreed upon, removes from Virginia, disposes of, or hides the property subject to a lien without the written consent of the owner or lienor or the person in whom the title is, or, if the writing is a deed of trust, without the written consent of the trustee or beneficiary in such deed of trust. Unlike civil fraud, this statute’s fraud contemplates an act by a debtor intended to deprive a secured creditor of his collateral by appropriating it to the debtor’s own use.
     There must be proof that the debtor’s fraudulent intent was directed against the lienor or person in whom the title is. The statute also states that failure or refusal to disclose the location of the property or surrender the property shall be prima facie evidence of a violation of this statute. In Lewis v. First National Bank, the Fourth Circuit clarified that even the existence of written permission to remove the collateral is immaterial under this section, as the creditor need not show the lack of such permission to make out a prima facie case.
     The final provision of the statute provides that the venue of prosecution against persons fraudulently removing any such property, including motor vehicles, from the Commonwealth shall be the county or city in which such property or motor vehicle was purchased or in which the accused last had a legal residence.
     Debtors may argue that the debtor did not actually receive the demand for return of the collateral; however, in Lewis, failure to leave a functional forwarding address or contact with the creditor constituted a waiver of the debtor’s right to deny that the demand was made.
     Debtors have also argued that criminal charges such as these cause emotional distress or are extreme and outrageous. In Lewis¸ the Fourth Circuit stated that creditors should not be fearful of a debtor’s claim that these charges cause emotional distress. To hold such would render the statute useless, which was not intended by the legislature. The court held that the initiation of criminal proceedings against someone under this section with probable cause is not extreme or outrageous as a matter of law.


Monday, December 9, 2013

Foreclosure: Lost Notes

     Virginia Code §55-59.1(B) addresses the situation where the noteholder has lost the original note. With the frequency of sales of notes on the secondary market, the loss of the original note documents occurs more often than might be expected. The Code provides that if the note or other evidence of indebtedness secured by a deed of trust cannot be produced, and, the beneficiary submits to the trustee an affidavit to that effect, the trustee may proceed to foreclosure. However, the beneficiary must send written notice to the person required to pay the instrument stating that the instrument is unavailable and that a request for sale will be made of the trustee upon the expiration of fourteen days from the date of the mailing of the notice. The notice must be sent by certified mail, return receipt requested, to the last known address of the person required to pay the instrument, as reflected in the records of the beneficiary, and shall include the same and the mailing address of the trustee. The notice must also advise the borrower if the borrower believes that he may be subject to claim by a person other than the beneficiary to enforce the instrument, the debtor may petition the circuit court of the county or city whether the property lies for an order requiring the beneficiary to provide adequate protection against any such claim. Failure to give the notice does not affect the validity of the sale.

Monday, December 2, 2013

Real Estate: Using Real Estate to Secure Your Debt

     Many fail to recognize the benefit of using real estate to improve their position as creditors. Properly securing debts through real estate could make the difference between collecting the funds and incurring a loss.
     Securing debt with real estate can occur in several ways: deeds of trust, judgment liens, homeowner association liens, mechanic’s liens and lis pendens in litigation cases, just to name a few. In the upcoming issues of Creditor News we will explore these, as well as the ways that I can assist you.  Please check out our editions of Creditor News on our website -
     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.

Monday, November 25, 2013

Bankruptcy: Lien Avoidance Case Review: Avoidance of Exemptions Impaired by a Judicial Lien

     In the case of Massie v. Yambrose the United States District Court at Harrisonburg, Virginia, decided that where a creditor had obtained a judgment lien that was docketed against real property that the debtor owned with her non-debtor spouse as tenants by the entirety, that lien impaired the debtor's exemption and may be avoided. This decision reversed a bankruptcy court decision. In summary, the District Court decided that although the creditor's judgment lien would not have been enforced against the debtor's property unless and until the tenancy by the entirety dissolved, the lien nevertheless impaired the exemption. The focus of the exception granted in Bankruptcy Code §522(b)(2)(B) was the property itself, not the tenancy. If it was not avoided, the lien could be enforced against the property after the tenancy by the entirety dissolved. This would constitute an impairment of the debtor's exemption; therefore, the District Court ruled that the debtor may avoid the lien pursuant to Bankruptcy Code §522(f)(1). The issue before the Court in Massie was whether the creditor's docketed judgment was a "judicial lien" that "impaired" an exemption to which the debtor would be entitled as a tenant by the entirety, even though the lien could not be enforced while the tenancy survived. Although this was a judgment lien pursuant to Virginia law, that did not determine whether it was a judicial lien as defined by the bankruptcy code. The interest held by the creditor was obtained pursuant to Virginia Code §8.01-458, which clearly qualified as being obtained by judgment or other legal process. The core issue, therefore, was whether there truly was "a charge against or interest in" the property held by debtor and her non-debtor spouse given the invalidity of any lien against property held by tenants by the entirety. For all practical purposes, this question was the same as whether the lien impaired the exemption. If the creditor did not have a charge against or interest in the property, then nothing existed that could impair the exemption. Conversely, if the lien (assuming that it was one) did impair the exemption, then it must have been a charge against or an interest in the property. As a result, for the purposes of the issue involved in this case, the Court assumed that the creditor held a judicial lien in order to decide whether such lien impaired the debtor's exemption. The determinative issue was whether a lien "impaired" an exemption pursuant to Bankruptcy Code §522(f) if it was not capable of being enforced until the basis of the exemption itself disappeared. In this case, the creditor's lien was completely ineffective against the property held by the debtor and her non-debtor spouse as tenants by the entirety, unless and until the tenancy itself dissolved and the debtor was left with an interest in the property other than as a tenant by the entirety. The District Court stated that it was guided in its decision by the 4th Circuit Court of Appeals case of In re Opperman. As applied to Massie, Opperman suggested that the proper question was not whether the basis for the exemption was impaired, but whether the property currently subject to the exemption could become impaired by the lien. This implication was buttressed by the language granting the exemption in Bankruptcy Code §522(b). That section allowed the debtor to exempt from property of the estate the property specified in the remainder of the section. Bankruptcy Code §522(b) further states that such exempt property was any interest in property in which the debtor had, immediately before the commencement of the case, as a tenant by the entirety. In Massie the exemption was granted to the property itself, rather than to the tenancy by the entirety, and the relevant date in determining the exemption was the date that the debtor filed the bankruptcy petition. The exemption was granted to the debtor's interest in the property because on the date that debtor filed her bankruptcy petition, the property was owned by tenants by the entirety, and this was not dependent on how it is owned at anytime in the future. As the 4th Circuit implied in Opperman, therefore, the question was whether the creditor's lien could attach to the property, not to the tenancy, thereby impairing the exemption to which the debtor currently is entitled. Absent avoidance of the lien pursuant to Bankruptcy Code §§522(f)(1), the lien could attach to the property if the tenancy by the entirety dissolved. If the unity of husband and wife is broken, the tenancy by the entirety would be lost along with it. The debtor's husband could die, or she could divorce him and retain an individual interest in the property. If either of these events occurred, the creditor then would be able to enforce the lien against the property. Although the tenancy could never be impaired, the exemption surely could be. The Court therefore ruled that the creditor's lien impaired an exemption to which the debtor would be entitled but for the lien. Pursuant to Bankruptcy Code §522(f)(1), the Court held that the debtor may avoid the lien.

Monday, November 18, 2013

Collections: Mechanics Lien voided by Old Work

     Mechanic’s liens are strictly governed by statutory law. This fact is well illustrated in the case of Johnson v. Tadlock. In Johnson the Fairfax County Circuit Court ruled that a mechanic's lien that included work performed before the 150-day statutory window was invalid in its entirety. Under the mechanic's lien statute, a memorandum of lien should not include any sums due for labor and materials furnished more than 150 days prior to the last day of work. However, the Court's decision in Johnson appears to be the first in which a Circuit Court has struck an entire lien based on the inclusion of stale work.
     In Johnson, the Court found as fact that a workman filed a mechanic's lien for $15,500 for various work, including lot clearance, removal of trees and installation of a storm drainage system and caissons. The property owner sought to have the lien released based on its inclusion of stale work. A portion of the lien (amounting to at least $1,500) was for work clearly performed within the 150-day statutory period. The property owner asserted that all or a part of the remainder of the work was performed more than 150 days prior to the workman's last day on the job.
     The Court ruled that the inclusion of a stale claim tainted the entire lien. The Court cited language in the mechanic's lien statute "no memorandum... shall include ....," to support his position. The Court pointed out that mechanic's liens are "creatures of statute" and therefore need to conform strictly to their statutory requirements. Accordingly, the court refused to remove the improper portions of the claim and rule on the proper portion of the claim - it survived or perished in its totality.
     The lesson of Johnson, as the lesson is in so many cases, obtain competent legal advise and representation in pursuing mechanic's lien claims.

Monday, November 11, 2013

Foreclosure: Deposits

     Virginia Code §55-59.4(A)(2) 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.

Monday, November 4, 2013

Real Estate: Homeowners' Association Wins Damages on Owner Violations

     There has been much litigation over HOA violations in the last few years. Circuit Courts have been scrutinizing HOA violation claims very carefully. Enforcement and damages for violations can be won. The December 2011 Loudon County Circuit Court case of Lee’s Crossing Homeowners’ Association v. Zinone is a good example of such enforcement. In Lee’s Crossing, the court found that in building her home, the homeowner committed multiple violations of the plan approved by the Architectural Review Board. Ultimately, the court assessed damages in favor of the homeowners’ association on the basis of “one overriding violation,” the failure to comply with the ARB-approved application.

Monday, October 28, 2013

Bankruptcy: Lien Avoidance Case Review: Judicial Liens that Impair a Homestead Exemption

     In the case of Payne v. Crossroads of Hillsville Assoc., Ltd. the United States Bankruptcy Court at Abington, Virginia, ruled that a judgment creditor's lien was avoided because it impaired a debtor's homestead exemption. In summary, the Court found as fact that although the creditor docketed its judgment lien against the debtor prior to the debtor's filing of a bankruptcy petition and amended bankruptcy schedule that claimed an exemption in "any future equity" in his home, there were several other liens ahead of the judgment lien, and there was no equity left in the property, which had been sold. In particular, the Court found that at the time of filing the petition, local tax appraisals valued the debtor's property at $147,500. The evidence also showed that the creditor's judicial lien was subordinate to numerous prior liens, namely: a first deed of trust to a bank in the amount of $88,362; a second deed of trust to a bank in the amount of $52,000; a judgment lien in favor of another creditor in the amount of $2,513; and a judgment lien in favor of yet another creditor in the amount of $115,473. Also, at the time of filing, this property was subject to past-due taxes in the amount of $4,500. The total amount of liens, including taxes, senior to that of the creditor's was $262,848, thus rendering no equity in the debtor's property to support the plaintiff creditor's lien. The debtor sold this real estate for $185,000. Despite the automatic stay, the creditor's lis pendens caused approximately $10,000 of the proceeds from the sale to be held by the buyer's attorney pending resolution of this matter. The Court further stated that to aid the debtor in his "fresh start," the bankruptcy code provides that a debtor may avoid the fixing of a judicial lien on an interest of the debtor in property to the extent that the lien impairs an exemption to which the debtor would otherwise have been entitled. Thus, a judicial lien must be avoided if it impairs a debtor's exemption. The Court in Payne found that the creditor's judgment lien was not supported by any equity in the debtor's property at the time of the filing of the debtor's petition. To allow such a lien to remain in place would not only impair any exemptions to which the debtor would have been entitled, thus violative of Bankruptcy Code §522(f), but would also undermine the "fresh start" secured to the debtor by the provisions of the bankruptcy code. The Court stated that to the extent the creditor's judicial lien impaired the debtor's exemption, it must be avoided, for, if not, the intended benefit of the homestead exemption itself would be lost. Any remaining portion of the creditor's lien must also be avoided as lacking the supportive equity needed at the time of the filing of the debtor's petition and the debtor's opportunity for a "fresh start" would be frustrated unless he was entitled to avoid the creditor's judicial lien in its entirety. The Court also found it appropriate to note that an alleged lien upon property of a debtor without equity supporting same as of the date the petition is filed was a general unsecured claim discharged by the debtor's discharge order under Bankruptcy Code §727 and enjoined therein from collection. A discharge order provides that any judgment obtained heretofore or hereafter is void as a determination of personal liability of a debtor. A judgment docketed as a lien, not supported by equity, is a judgment only of personal liability, and the dischargeability order specifically enjoins all creditors whose claims are such from seeking collection. The Court also stated the issue of exemptions or exempt property is not the only remedy available to debtors in the area of lien avoidance and nullification. If a judgment or lien on debtors' property has no property or equity support, it is unsecured and discharged by the order of discharge.

Monday, October 21, 2013

Collections: Sanctions on Improper Fair Debt Claim

     In the case of Guidry v. Clare, a United States District Court in Northern Virginia granted an award of $16,000.00 in sanctions against a debtor who was a plaintiff in a Fair Debt Practices Collection Act (FDCPA). The Court held that the debtor’s case, which also included state law claims of intentional infliction of emotional distress, malicious prosecution and false imprisonment, was filed wholly without merit.
     The Court found that the dispute arose when the debtor wrote the plaintiff, a company that provided cheerleading training, a check for $62.50 for the debtor’s daughter’s class. The check was returned for insufficient funds. The company’s office manager (Clare) contacted the debtor to make the check good. The debtor did not respond. Over the next several months the company made several other efforts to collect on the check, including a letter from the company’s attorney and from a collection agency. The company’s office manager also advised the debtor that the company would seek a warrant for the debtor’s arrest if the debt was not paid within seventy two hours. When the debtor did not respond, the company filed a criminal complaint for misdemeanor larceny by check. A few days later, a policeman served the warrant on the debtor at the same time he served a warrant from another creditor for felony larceny by check. The debtor was arrested and released on her own recognizance on both charges. She paid the face amount of the company’s check, plus a $30.00 bank service charge. As a result of this, the prosecutor withdrew the bad check charge.
     A few months later the debtor filed her FDCPA action. After much litigation, the case was dismissed, without prejudice, because the case was not served within 120 days. The complaint was refiled. The company’s attorneys sought dismissal and sanctions for filing a frivolous lawsuit. The Court dismissed the case, scheduled a hearing on sanctions, and ordered the parties to prepare briefs. After reviewing the briefs the Court concluded that the debtor’s case was “meritless, indeed flatly frivolous”. The meritless claims included allegations that the company’s manager had failed to make a meaningful disclosure of her identity and debt collection purpose in her telephone calls to the debtor, that a debt collector was barred from filing a criminal complaint, that the company’s manager had made false representations to authorities in order to disgrace the debtor, and that the collection letters failed to disclose their debt collection purpose. The Court ruled that the letters contained the required disclosures and the purpose of the phone calls were clear. The Court further ruled that the law prohibits only the threat of criminal action if there is no intent to follow through on the threat. In this case the intent to follow through was evident from the fact that a warrant was issued, and there was no evidence that the representations to authorities were false or made with an intent to disgrace the debtor. The Court found that there was also no basis for the state law claims of intentional infliction of emotional distress, malicious prosecution and false imprisonment. The Court wrote that “it cannot be forgotten or overlooked” that the case “was spawned by Guidry’s failure to pay a $62.50 debt, or rather by her attempt to pay it with a bad check”.
     Creditors take heart - there is still some common sense in this world!

Monday, October 14, 2013

Foreclosure: Advertisements of Sale

     The Code of Virginia provides specific guidance as to advertisements for foreclosure sales. The sale must be properly advertised or it will be void upon order of the court.
     Virginia Code §55-59.2 states that if the deed of trust provides for the number of publications of the advertisements, no other or different advertisement shall be necessary, provided that: if the advertisement is inserted on a weekly basis, it shall be published not less than once a week for two weeks, and, if such advertisement is inserted on a daily basis, it shall be published not less than once a day for three days, which may be consecutive days. If the deed of trust provides for advertising on other than a weekly or daily basis, either of these statutory provisions must be complied with in addition to the provisions of the deed of trust. If the deed of trust does not provide for the number of publications for the advertisement, the trustee shall advertise once a week for four consecutive weeks; however, if the property, or a portion of the property, lies in a city or county immediately contiguous to a city, publication of the advertisement may appear five different days, which may be consecutive. In either case, the sale cannot be held on any day which is earlier than eight days following the first advertisement or more than thirty days following the last advertisement.
     Advertisements must be placed in the section of the newspaper where legal notices appear, or, where the type of property being sold is generally advertised for sale. The trustee must comply with any additional advertisements required by the deed of trust.
     Virginia Code §55-59.3 requires advertisements to describe the property to be sold at foreclosure; however, the description does not have to be as extensive as in the deed of trust – substantial compliance is sufficient so long as the rights of the parties are not affected in any material way. The statute does require the property to be described by street address, and, if none, the general location of the property with reference to streets, routes, or known landmarks. A tax map number may be used, but is not required
     Virginia Code §55-59.2 requires the advertisement to state the time, place and terms of the sale. If the deed of trust provides for the sale to be conducted at a specific place, the trustee must comply with this term. If there is no mention in the deed of trust, §55-59(7) provides that the auction may take place at the premises, or, in front of the circuit court building, or, such other place in the city or county in which the property or the greater part of the property lies. In addition, the sale could be held within the city limits of a city surrounded by, or contiguous to, such county. If the land is annexed land, the sale could be held in the county of which the land was formerly a part.
     The statute provides that the advertisement shall give the name or names of the trustee or trustees. In addition to naming the trustee, the advertisement must give the name, address and telephone number of the person who may be contacted with inquiries about the sale. The contact person can be the trustee, the secured party, or his agent or attorney.

Monday, October 7, 2013

Real Estate: Making Owners and General Contractors Personally Liable to Subcontractor, Laborer or Materialman

     Virginia Code §43-11 provides a way for owners or general contractors to be made personally liable to subcontractor, laborer or materialman if notice is appropriately given, and if the payer makes payment to the owing party without paying the notifying creditor. Specifically, §43-11 (2) states that:
           “…if such subcontractor, or person furnishing labor or material shall
             at any time after the work is done or material furnished by him and
             before the expiration of thirty days from the time such building or
             structure is completed or the work thereon otherwise terminated
             furnish the owner thereof or his agent and also the general 
             contractor, or the general contractor alone in case he is the only one
             notified, with a second notice stating a correct account, verified by
             affidavit, of his actual claim against the general contractor or
             subcontractor, for work done or materials furnished and of the
             amount due, then the owner, or the general contractor, if he alone
             was notified, shall be personally liable to the claimant for the actual
             amount due to the subcontractor or persons furnishing labor or
             material by the general contractor or subcontractor, provided the
             same does not exceed the sum in which the owner is indebted to
             the general contractor at the time the second notice is given 
             or may thereafter become indebted by virtue of his contract with the
             general contractor, or in case the general contractor alone is
             notified the sum in which he is indebted to the subcontractor at
             the time the second notice is given or may thereafter become 
             indebted by virtue of his contract with the general contractor. But the
             amount which a person supplying labor or material to a
             subcontractor can claim shall not exceed the amount for which
             such subcontractor could file his claim.”
     The notices referred to in this code section are commonly referred to in the industry as “42-11 letters”. We have experienced attorneys and staff who can examine title, file mechanic’s liens, and litigate to enforce the same. If you have a need, please call us.


Monday, September 30, 2013

Bankruptcy: Lien Avoidance Case Review: Judicial Liens Larger than Available Exemptions

     In the case of Andrews Distributing Co. v. Stanley the United States District Court at Big Stone Gap, Virginia, held that a creditor's lien must be avoided in the amount of the debtors' homestead exemption, but the amount not avoided would remain a lien against the debtors' real property. The District Court's decision overruled a bankruptcy court's decision avoiding the entire lien. The Bankruptcy Court had concluded that the debtors' homestead exemption was impaired by the presence of the creditor's lien, and thus avoided the lien in full. The creditor, on appeal to the District Court, contended that the Bankruptcy Court erred, in that the clear language of Bankruptcy Code §522(f) mandated that the lien be avoided only to "the extent that" it impaired the exemption. The District Court agreed with the creditor and ruled that under the plain meaning of Bankruptcy Code §522(f), only the amount of the judicial lien which impaired the exemption should be avoided. The District Court stated that the Court of Appeals for the 4th Circuit, in strongly worded dicta, had addressed this issue in the case of In re Opperman. The Court of Appeals in Opperman concluded that a lien larger in amount than the exemption available to the debtor did not impair that exemption. Thus, in Andrews the District Court found for the creditor and decided that only that part of a lien which actually interfered with the debtor's homestead exemption may be avoided.

Monday, September 23, 2013

Collections: Perfection of Vehicle Liens

     In almost all circumstances, courts will recognize a lien as being valid only when it has been "perfected". Perfected means registered with the appropriate governmental agency - DMV, Board of Inland Game and Fisheries, etc.; language on a promissory note that the loan is secured by the vehicle is not enough. Although the result of failed perfection could be harsh (a lost lien), it makes sense; without a registration, no one could ever know who has liens. Understanding this, it is important to have someone in your creditor organization be designated to follow-up on lien perfection to ensure that it is done, to ensure that it is done promptly, and to ensure that it is done right.
     What happens when your debtor moves to another state? As long as the creditor holds the original certificate of title reflecting the lien, the creditor will usually be protected. If the vehicle is taken to another state but is never re-registered or re-titled, the original secured creditor who is listed as lienholder on the original certificate of title maintains its perfection. The original secured creditor also maintains its lien if the debtor moves and obtains a new certificate of title with the creditor's name on it. However, what happens if the debtor moves, obtains a new certificate without the lien recorded? There could be a problem. To avoid the possible problem, follow up on your transient debtors like you do your new liens.

Monday, September 16, 2013

Foreclosure: Notice of Sale

     The Code of Virginia provides specific guidance as to giving notice of a foreclosure sale.
     §55-59.1 requires 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 pursuant to §55-59-59 (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.
     §55-59.1 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.
     §55-59 provides that the notice can be sent by either the trustee or the lender.

Monday, September 9, 2013

Real Estate: Suit to Enforce Mechanic's Liens

     In recent editions of Creditor News (which can be viewed at we have been discussing the benefits of using real estate to improve creditors’ positions. Last month we discussed perfection of liens. 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.

Monday, September 2, 2013

Bankruptcy: Lien Avoidance Case Review: Judicial Liens

     Bankruptcy Code §522(f) provides that debtors may avoid judgment liens if the liens impair an exemption to which the debtor would be entitled under Bankruptcy Code §522(b). Bankruptcy Code §522(b) allows debtors to exempt property pursuant to state homestead provisions.
     Although opinions vary in different jurisdictions, in the Fourth Circuit, Eastern District of Virginia, to avoid judgment liens, debtors must claim the subject property as an exemption on Schedule B-4 of their bankruptcy petition, and then must also file their homestead exemption in a timely manner. The case of In Re Wall, decided by the United States Bankruptcy Court, Eastern District of Virginia, demonstrates that debtors can lose their rights by failing to properly claim the avoidance.
     In upcoming bankruptcy blogs, we will review cases where judicial lien avoidance is examined.

Monday, August 26, 2013

Collections: Uniform Enforcement of Foreign Judgment Act

     Virginia and almost all other states have adopted the Uniform Enforcement of Foreign Judgments Act (UEFJA) (Virginia Code §8.01-465.1 et seq.). In so doing, creditors may enforce out-of-state judgments by properly filing the foreign judgment in a Virginia Circuit Court. Virginia Code §8.01-465.2 states:
                     The Clerk must treat the foreign judgment in the same manner
                     as a judgment of the circuit court of any city or county
                     of this Commonwealth. A judgment so filed has the same
                     effect and is subject to the same procedures, defenses, and
                     proceedings for reopening, vacating or staying as a judgment
                     of a circuit court of any city or county of this Commonwealth
                     and may be enforced or satisfied in like manner.
     As creditors it is important to be aware that out-of-state judgments can be enforced in Virginia, and that Virginia judgments can be enforced in foreign states, provided that the state has adopted the UEFJA.
     In Virginia, Code §8.01-465.5 allows bringing an action to enforce an out-of-state judgment in lieu of proceeding under the Uniform Act, if you so desire. Virginia Code §8.01-389(B) states:
     Every court of this Commonwealth shall give such records of courts not of this Commonwealth the full faith and credit given to them in the courts of the jurisdiction from whence they come.
     Virginia Code §8.01-252 states that an action brought in Virginia to enforce a judgment rendered in another state shall not be barred by the laws of the other state. The Code bars action upon a judgment rendered more than ten years before the commencement of the suit.
     In the case of Atlantic Funding Corp. v. Peterson, the Fairfax County Circuit Court granted a debtor's motion to quash debtor interrogatories because the creditor had failed to file the federal judgment pursuant to the UEFJA, and thus, the Clerk of the Circuit Court could not treat the federal judgment as a judgment of the Virginia state court.
     Virginia Code §8.01-447 governs the docketing of judgments and decrees of federal district courts in Virginia state courts. That provision clearly requires the Clerk of the Circuit Court to treat it in the same manner all judgments rendered within the Commonwealth when docketing judgments. The statute speaks only to the process of docketing judgments, however. It does not necessarily provide a method of enforcing docketed judgments, and it does not authorize the clerk to treat docketed judgments from local federal courts as docketed judgments of this circuit court.
     In Peterson the Fairfax Circuit Court ruled that unlike Virginia Code §8.01-447, the UEFJA clearly requires identical treatment and enforcement of properly filed federal and state court judgments. Had the judgment creditor properly filed the judgment of the District Court, the Clerk of the Circuit Court would have been compelled to enforce that judgment as a judgment of the Circuit Court. The Fairfax Circuit Court ruled that the record in Peterson, however, revealed that the creditor failed to authenticate the District Court judgment, or to pay the fee prescribed in Virginia Code §14.1-112(22). The Court ruled that since the creditor did not properly file the District Court judgment in Peterson it was not entitled to the benefits of the UEFJA.

Monday, August 19, 2013

Foreclosure: Deed in lieu of Foreclosure

     In certain cases it may be more practical for the lender to seek or accept from the borrower a deed in lieu of foreclosure rather than incur the expense of foreclosure – this is at the lender’s discretion. If the lender agrees, in return for voluntarily surrendering the property, the borrower will seek either partial or complete satisfaction of the debt.
     Considerations. Before accepting the deed in lieu of foreclosure, the lender must consider many matters:
     1. Value of the property vs. the amount of the debt.
     2. Other debts on the property. A deed in lieu of foreclosure does not extinguish prior or junior liens or encumbrances. Thus the lender, in accepting the deed, accepts the property with the liens. It is possible for the lender to structure the deed in lieu of foreclosure so that it does not release the deed of trust so as to preserve a future foreclosure to extinguish subordinate liens.


Monday, August 12, 2013

Real Estate: Criminal Liability for Misuse of Construction Funds

     Virginia Code §43-13 provides that funds paid to a general contractor or subcontractor must be used to pay persons performing labor or furnishing material. Any contractor or subcontractor (or any officer, director or employee of such contractor or subcontractor) who, with intent to defraud, retains or uses funds, or any part thereof, paid by the owner or his agent, shall be guilty of larceny in appropriating such funds for any other use while any amount for which the contractor or subcontractor may be liable or become liable under his contract for such labor or materials remains unpaid.  Such person or persons may be prosecuted upon complaint of any person or persons who have not been fully paid any amount due them.
     The use by any such contractor or subcontractor (or any officer, director or employee of such contractor or subcontractor) of any funds paid under the contract, before paying all amounts due or to become due for labor performed or material furnished for such building or structure, for any other purpose than paying such amounts, shall be prima facie evidence of intent to defraud.

Monday, August 5, 2013

Bankruptcy: "Tools of the Trade" Exemption

     Virginia Code §34-26, the "Poor Debtor's Exemption" section, allows a debtor to claim tools used in the course of his trade or occupation and keep them from creditors in bankruptcy cases. This exemption also applies to collection cases, as the debtor may use this exemption to prohibit post judgment collection by execution on the asset.
     In the case of Monticello Arcade L. P. v. Lyall, the United States Bankruptcy Court at Newport News reviewed §34-26 in regard to an architect's Acura automobile. The Bankruptcy Court denied the exemption based upon the classification of the car as a "luxury" car. The Appeals Court reversed and remanded the case with instructions that the Bankruptcy Court focus not upon whether the car is a "luxury" car, but upon whether the car is an "absolute requirement for [debtor] to efficiently and competently perform his work as an architect." Upon the Bankruptcy Court’s review, the Court ruled that the architect had demonstrated with his daily calendar and his testimony that the car was used to visit clients, job sites and government offices. The debtor was a self-employed architect in Hampton Roads, had practiced architecture on his own for six years as owner and president of his company. The debtor testified that although he used the vehicle to commute to and from work, the vast majority of the time he used the vehicle for non-commuting business purposes. The debtor also testified that he had to visit job sites in order to interpret plans and in order to understand the scope of the project. The Court noted that there was no evidence that there were alternate means of transportation available for the debtor to accomplish these requirements. Accordingly, the Court, this time around, found that the vehicle was "necessary", and therefor was exempt under Virginia Code §34-26(7).
     In the case of White v. Central Fidelity Bank the United States Bankruptcy Court at Roanoke, Virginia, reviewed the language of Virginia Code §34-26 and held that the plain meaning is that property which is "necessary for use in the course of the householder's occupation or trade" qualifies as a "tool" for purposes of exemption. In White the Court noted that in regard to automobiles, the particular facts surrounding the occupation and the necessity of the automobile must be examined. In White, the debtor had both a day and an evening job as a nursing assistant providing home health care in patients' homes, and whose employment contract required that she have an auto as a condition of her employment. Based upon these facts, proof that the creditor's lien was a nonpossessory, non-purchase money lien, and the fact that the creditor's lien impaired the debtor's exemption, the Court held that the lien was avoidable under Bankruptcy Code §522(f).
     In the civil/collection case of Hunn v. Zettel the Fairfax County Circuit Court had occasion to review a debtor's claim for an exemption for his BMW car as a "tool of the trade". Unlike the evidence obtained in Lyall which demonstrated the "absolute requirement", in Zettel, no such evidence was presented. Accordingly, the Court denied the debtor's exemption claim in Zettel.
     Looking at another case involving tools of the trade, the United States Bankruptcy Court at Newport News, in the case of In re Aldrich, upheld the debtors' motion to exempt various items of property, including an inoperable photo enlarger and two photo processors, as "tools of the trade" under Virginia Code §34-26. The Court concluded that these items were exempt under Virginia Code §34-26 and under Bankruptcy Code §522. The Court in Aldrich stated that it reached its conclusion from the plain meaning of Virginia Code §34-26, and from the obvious intention of the Virginia legislature, which substantially broadened the scope of the relevant definitions when it amended Virginia Code §34-26 in 1990. The Court in Aldrich found from the unrebutted testimony that the photo processing equipment was necessary for use in the debtors' occupation involving the family photo processing lab. There was no doubt that the debtors had been in the photo processing business for some time and, in the case of the husband, almost continuously since his retirement from the Air Force. It was likewise absolutely clear from the evidence that the wife was engaged in the photo processing business of a third party at the time of the filing of the petition, and that she too awaited the startup of the family business in order to utilize the exempted tools of the trade, which she was currently utilizing on a part-time basis. Therefore the Court found that both debtors were, or intended to be engaged, in an occupation and trade at the time of the filing of the petition. The Court found it to be sufficient that the husband had the intention of returning to his occupation as a photo processor at the time of the bankruptcy filing, even though he had been precluded from doing so by the contractual relationship with the objecting creditor, who bought out the debtor's earlier photo processing business and implemented a non compete agreement.

Monday, July 29, 2013

Collections: Confessed Judgment, Power of Attorney, and Required Signatures

     The Fairfax County Circuit Court, in the case of Cardinal Concrete Co. v. White, ruled that where the debtor signed a power of attorney appointing an agent selected by the creditor to confess judgment on a note in the event of default, and the attorney-in-fact did not sign the instrument, the confession of judgment would not be set aside because the debtor ratified the creditor's selection of the agent, and the attorney-in-fact was not required to sign.
     The facts of In Re: White were that the debtor executed a promissory note in favor of the creditor. The note contained a power of attorney stating that the creditor appointed an agent to confess judgment on behalf of the debtor. Only the debtor signed the power of attorney. After the entry of a default judgment, the debtor moved to set aside the confessed judgment on the ground that the creditor selected the attorney-in-fact, and that the attorney-in-fact did not sign the power of attorney.
     The motion to set aside was denied. The Court ruled that even if the creditor had no authority to designate the attorney-in-fact, the debtor ratified the appointment by executing the power of attorney. Also, the court found that Virginia Code §8.01-435 did not require the attorney-in-fact to execute the instrument.

Monday, July 22, 2013

Foreclosure: Right to Cure a Default

     Question: Once a borrower is in default, can he “reinstate the loan”, or, “cure the default” and stop the foreclosure sale? Answer: yes. In general, most deeds of trust contain language that allows a borrower the opportunity to reinstate, or cure, the loan after the due date set out in the note. If the deed of trust contains this language, the note cannot be placed into default and accelerated until the cure period has expired. Government loans such as Fannie Mae and Freddie Mac have very specific requirements. In fact, a borrower can always cure a monetary default and stop a foreclosure up to the time of sale by paying in full, in good funds, the deficient amount, including all costs of the sale.


Monday, July 15, 2013

Real Estate: Perfecting Mechanic's Liens

     In recent editions of Creditor News we have been discussing the benefits of using real estate to improve creditors’ positions. Last month we began a discussion of the benefits of using mechanic’s liens to aid in the collection of your debt.
     Virginia Code §§43-4, 43-7 and 43-9 provide for the perfection of the lien by general contractors, subcontractors, and laborers and suppliers. In each section the creditor must file a memorandum of lien at any time after the work is commenced or material furnished, but not later than 90 days from the last day of the month in which he last performs labor or furnishes material, and in no event later than 90 days from the time such building, structure, etc., is completed, or the work thereon otherwise terminated. The memorandum must contain specific information as set forth in the code (and there are forms in the code), and must be filed in the clerk's office in the county or city in which the building, structure etc., or any part thereof is located. The memorandum shall show the names of the owner of the property sought to be charged, and of the claimant of the lien, the amount and consideration of his claim, and the time or times when the same is or will be due and payable, verified by the oath of the claimant, or his agent, including a statement declaring his intention to claim the benefit of the lien, and giving a brief description of the property on which he claims a lien.
     We have experienced attorneys and staff who can examine title, file mechanic’s liens, and litigate to enforce the same.


Monday, July 8, 2013

Bankruptcy: Bankruptcy Filings: Chapter 7 and 13

     Although there are other Chapters under which debtors may seek relief, Chapters 7 and 13 are the most frequently encountered.
Chapter 7
     Chapter 7 involves a discharge of debt by court order. While secured debts may be routinely "reaffirmed", unsecured debts normally are not. Traditionally, debts have been reaffirmed through a Reaffirmation Agreement. The Courts of the Eastern District of Virginia have held, however, that creditors cannot force debtors to execute reaffirmation agreements if they were not in default at the time of the bankruptcy filing.
     Why would a debtor want to pay a debt when he has filed for Chapter 7 relief? The answer is future credit. The possibility of future credit can be sufficient incentive to encourage voluntary repayment for at least two (2) reasons:
     1. Debtors want and need future credit after bankruptcy discharge, and
     2. Reasonable credit after bankruptcy is very difficult to obtain as bankruptcy carries a stigma. Absent special circumstances, the only credit card a debtor may obtain after bankruptcy is a "secured" credit card. These cards are tantamount to a line of credit drawn upon account deposits pledged as security. There are also user fees and high interest rates.
     How do you encourage debtors to voluntarily pay their pre-bankruptcy petition debts? Consider adopting the following written policies:
     1. Post-bankruptcy credit may be extended to debtors who voluntarily pay their dischargeable debts ("the carrot").
     2. No future credit or services, other than those required by law, will be extended to debtors who have caused you a loss by bankruptcy or otherwise, unless the debt is voluntarily repaid (“the stick").
     How do creditors inform their debtors of this policy once a petition of bankruptcy is filed? Consider sending a letter directly to the debtors’ counsel asking that counsel advise their client of the policy.
Chapter 13
     Chapter 13 involves a "reorganization" of the debtor's finances. The debtor is required to devise a plan for repayment: 100% for secured debts and a court-approved percentage for unsecured debts. Creditors are paid in the order of priority - preferred (taxes), secured, and finally, unsecured. Creditors are required to file proofs of claim with the Bankruptcy Court to protect their place in the plan. Plans can take up to five (5) years to complete.
     When can you proceed against co-makers? In Chapter 7 you can proceed immediately. In Chapter 13, you have to either wait until the plan pays out, or petition the Bankruptcy Court to lift the automatic stay against the co-maker. Once this is granted you can proceed against the co-maker for the percentage not paid by the plan. Although you are required to file the motion to lift the stay, the court is required to grant your relief.
Planning Summary
     Regardless of the Chapter, the best way to minimize your bankruptcy loss is to be secured. In Chapter 13 cases, security can mean the difference between payment at 100% rather than at a nominal percentage. In Chapter 7 cases, security can mean the difference between reaffirmation or no payment at all. In either Chapter, collateral is the key.
     The second best protection from bankruptcy loss is having a solvent co-signer. The old saying "two heads are better than one" can mean much in bankruptcy, especially when your co-signer is not a spouse. Generally, spouses do not make good co-signers because they can file a joint petition for bankruptcy and, in fact, often do because family finances are inter-related. It should be noted, however, that in a case of jointly owned real estate, a spouse's signature is necessary in order to perfect a lien against any real property.


Monday, July 1, 2013

Collections: Garnishing Joint Accounts

     Can a creditor with a judgment against one party to a joint bank account garnish the account? Yes, but the judgment creditor is entitled only to that portion of the account which is attributable to the deposits of the judgment debtor. Virginia Code §6.1-125.3 holds that if the joint account holders are married, then the judgment creditor is entitled to half of the funds in the account, unless one of the married parties proves a different intent by clear and convincing evidence. Upon learning that the bank account is jointly held, the creditor must serve notice to the non-judgment account holder, as well as to the judgment debtor. The Spotsylvania Circuit Court recently ruled, however, that married account holders could attempt to protect bank accounts by asserting that the accounts were exempt from execution if they were held as tenants by the entireties.

Monday, June 24, 2013

Foreclosure: Default

     Question: When is a loan in default? Answer: Under one or more of several circumstances. The most common way that a borrower is in default is monetary – e.g., the borrower fails to make a required payment. However, default can be for a non-monetary reason as well, such as:
     Failure to pay taxes.
     Failure to pay insurance.
     Failure to remove or bond over mechanic’s liens.
     Failure to perform requirements unique to the loan.
     If you have questions about default, please call me.


Monday, June 17, 2013

Real Estate: Using Mechanic's 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 begin a review of the benefits of using mechanic’s liens to aid in the collection of your debt.
    Virginia Code §43-3 et. seq. provides for special procedures for the collection of unpaid bills related to work performed on, or products supplied for, real estate. §43-3 A states:
    “All persons performing labor or furnishing materials of the value of $150 or more … for the construction, removal, repair or improvement of any building or structure permanently annexed to the freehold … shall have a lien, if perfected as hereinafter provided, upon such building or structure, and so much land therewith as shall be necessary for the convenient use and enjoyment thereof … subject to the provisions of § 43-20. But when the claim is for repairs or improvements to existing structures only, no lien shall attach to the property repaired or improved unless such repairs or improvements were ordered or authorized by the owner, or his agent.”
     Virginia Code §43-3 B provides for special rules regarding condominiums.
     Virginia Code §§43-4, 43-7 and 43-9 provide for the perfection of the lien by general contractors, subcontractors, and laborers and suppliers. We will explore this more in next month’s edition.
     We have experienced attorneys and staff who can examine title, file mechanic’s liens, and litigate to enforce the same.


Monday, June 10, 2013

Bankruptcy: Homestead Exemptions

     Virginia Code §34-26 and §34-4 provide for commonly used exemptions in bankruptcy.
     Virginia Code §34-26 is the "poor debtor's" exemption. This law was updated in 1992. Instead of listing exempt items such as horses, oxen, cattle, bushels of wheat, corn, etc. (as it was pre-1992), the statute now sets out categories with dollar limitations: tools of trade up to $10,000.00; household furnishings up to $5,000.00; family heirlooms up to $5,000.00; motor vehicles up to $2,000.00; and wearing apparel up to $1,000.00.
     Virginia Code §34-4 provides for a flat $5,000.00 exemption per head of household.
     The 1992 statutory charges resulted in an increase in the debtor's effective exemptions of personal property, as well as severe a decrease in effectiveness of the previous frequently used "Sheriff's levy" on personal property.

Monday, June 3, 2013

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. The firm of Lafayette, Ayers & Whitlock, PLC usually recommends 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.

Monday, May 27, 2013

Real Estate: Using Lis Pendens 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 lis pendens in litigation cases to aid in the collection of your debt.
     A lis pendens is a legal memorandum which places parties on notice that litigation is pending which affects the title or ownership of real estate. The lis pendens is filed in the circuit court of the county or city in which real estate lies.
     Virginia Code §8.01-268 B states that “No memorandum of lis pendens shall be filed unless the action on which the lis pendens is based seeks to establish an interest by the filing party in the real property described in the memorandum…”.
     Virginia Code § 8.01-268 A provides that a lis pendens does not affect a subsequent bona fide purchaser of real estate for valuable consideration until actual notice of such lis pendens is properly filed with the required information. Requirements include: the title of the cause, the general object thereof, the court wherein it is pending, the amount of the claim asserted, a description of the property, the name of the person whose estate is intended to be affected thereby.
     We have experienced attorneys and staff who can examine title, file lis pendens, and litigate to enforce the same.

Monday, May 20, 2013

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 55-59(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 55-59(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.


Monday, May 13, 2013

Bankruptcy: Security Interest Protected in Future Advances

     Virginia Code §8.9A-232 provides that a security agreement may provide for collateral securing future advances. Subsection (a) clarifies the result when the initial advance is paid and a future advance is subsequently made. Specifically, subsection (a) of this section replaced and clarified former §8.9-312(7) discussed in In re Enfolinc, Inc. The former section provided that the priority of a new advance turned on whether it was made “while a security interest is perfected.” The code as it is written today resolved the ambiguity by omitting that requirement.
     In the bankruptcy case In re Enfolinc, Inc., the United State Bankruptcy Court for the Eastern District of Virginia, Alexandria Division, was requested to make a determination of the priority of three competing claims of creditors in a debtor’s bankruptcy case. The debtor filed under Chapter 11, and the court ordered the sale of assets, but the proceeds did not satisfy all of the liens. Three creditors then asserted a senior claim in the proceeds of the sale.
     One of the creditors had a security agreement with the debtor to secure a promissory note. The creditor renewed and refinanced the original loan with some modification in the terms and with additional collateral to secure the increased amount owned several times after the original promissory note was made. The creditor contended that the original security agreement contained a future advance clause that included all debts owed to the creditor under the original security agreement. A future advance clause was codified in Virginia Code §8.9-312(7), and is now codified in Virginia Code §8.9A-323. The former section provided that “if future advances are made by a secured creditor to the debtor while a security interest is perfect, the security interest has the same priority with respect to future advances as it does with respect to the original advance.” The creditor’s original security agreement was found to have had sufficient language to constitute a future advance clause as defined in the case of In re Brice, so the court held that the later renewals and refinancing done by the creditor was not another loan, but an advance of the original transaction. The court granted the creditor a first priority security interest in the remaining funds generated from the sale of the debtor’s assets.

Monday, May 6, 2013

Collections: Attorney's Fees on Collection Accounts

     Creditors rightfully expect their debtors to pay the attorney's fees that result from collection procedures. Courts, however, normally refuse an award of attorney's fees unless the debtor has executed a document awarding such costs in the event the account is turned over to an attorney for collection. Many creditors utilize a standard form contract, or note, which has such a provision. Because many forms are multi-state, and because states' laws vary, most standard forms provide for "reasonable attorney's fees." Traditionally, most courts in Central Virginia have interpreted "reasonable" to be the equivalent of 25% of the principle amount of the judgment, regardless of the actual legal fees charged, whether hourly or contingency. However, these days may be coming to an end due to court rulings!
     The Virginia Supreme Court, in the case of Coady v. Strategic Resources, Inc., ruled that an award of attorney’s fees rests within the sound discretion of the trial court. In the case of J. R. Mullins, et al. v. Richlands National Bank, the Virginia Supreme Court ruled that the trial court must determine the reasonableness of attorney's fees when disputed. In the case of Chawla v. BurgerBusters, Inc., the Virginia Supreme Court ruled that a party requesting an award of attorney’s fees must establish a prima facie case that the fees requested are reasonable. In the case Schlegel v. Bank of America, N.A., et al., the Court denied the request for attorney’s fees, citing the “test” to be used. It is as follows: In determining whether a party has shown the reasonableness of the fees, the fact finder may consider the time and effort expended by the attorney, the nature of the services rendered, the complexity of the services, the value of the services to the client, the results obtained, whether the fees incurred were consistent with those generally charged for similar services, and whether the services were necessary and appropriate.
     With all of this said, you could win a contested trial on the merits, but be forced to present an “expert witness” (i.e., another attorney) to testify to the reasonableness of your attorney’s fees! To avoid this problem, and, to insure at least a fighting chance of obtaining at least the 25%, or even 33 1/3rd % (which most attorneys charge in percentage collection cases), creditors should make certain that their forms specify "____% attorney's fees", or amend the standard form to "____%" and have the debtor initial adjacent to the change.
     It is important to note that the judicial award of attorney's fees is made upon the entry of judgment. If creditors take their own judgment, no attorney's fees will be awarded, even though the judgment may eventually be turned over to an attorney for collection. In this case creditors, not the debtor, will bear the full cost of collection. Accordingly, I recommend that creditors timely turn over all accounts to their attorney for prompt action.

Monday, April 29, 2013

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.

Monday, April 22, 2013

Foreclosure: Trustees in Foreclosure

     Trustees under a deed of trust are agents for both the lender and the borrowers. Accordingly, a trustee must act fairly and impartially. The lender must not let either the lender or the borrower influence the manner in which a trustee carries out the terms of the deed of trust, especially if this would be detrimental to either party. If any question arises as to the existence of the default or the amount in default, a trustee should seek the aid and direction of the court. The powers and duties of a trustee are governed by the deed of trust and Virginia Code Section 55-59.1 et seq. The code provides when the deed of trust does not. A trustee has no right to exercise the power of sale or to obtain possession until such time as the borrower defaults under the note or deed of trust, and, then, only for the purpose of selling the property at foreclosure or preserving the property until sale. When a default occurs, there is no change in title – the property merely becomes eligible to be sold under the powers originally conferred to the trustee by the owner. Thus, the noteholder has the right to have the property sold and the proceeds of the sale applied to the debt.

Monday, April 15, 2013

Bankruptcy: Debtor's Chapter 13 Plan Cannot Favor Student Loans

     The U.S. District Court in Alexandria, in the case of Gorman v. Birts, while approving the bankruptcy court’s test to consider the debtor’s chapter 13 plan, reversed its decision to confirm the plan because it unfairly discriminated against unsecured creditors by proposing to pay the debtor’s student loans outside of the plan.
     Bankruptcy Code Section 1322(b)(5) permits a plan to provide for the curing of any default within a reasonable time and maintenance of payments while the case is pending on any unsecured claim or secured claim on which the last payment is due after the date on which the final plan is due. In Gorman the debtor’s student loans would qualify as this type of long term debt.
     The parties in Gorman agreed that Bankruptcy Code Section 1322(b)(5) is subject to the unfair discrimination limitation described in subsection (b)(1). By proposing to pay her student loan outside of the plan the debtor in Gorman designated a separate class of unsecured claims. As a result of the proposal, the student loan lender would be paid more than three times as much in dollar amounts as the other unsecured creditors, even though the student loan debt constituted only one-third of the total unsecured debt. Accordingly, the question presented was whether the differential treatment constituted “unfair” discrimination under Bankruptcy Code Section 1322(b)(5).
     As the bankruptcy court in Gorman recognized, courts across the country have not settled on a uniform test to assess whether a classification unfairly discriminates within the meaning of the statute. Courts have developed two primary tests to evaluate what constitutes unfair discrimination, neither of which has been adopted by the 4th Circuit (our local circuit). The 8th Circuit’s test in the case of In re Lester (a 1991 case) has been widely applied. Bankruptcy courts in this District have also applied a slightly different test from the case of In re Linton (from an E.D. of Virginia bankruptcy court in 2011). The bankruptcy court in Gorman applied a hybrid version of the Lester and Linton cases. The Circuit Court in Gorman found that the proposed test of the bankruptcy court included all of the factors relevant to a reasonable determination and was the proper test to apply in this case. However, the Circuit Court found that the decision of the bankruptcy court in Gorman that the plan did not unfairly discriminate against the non-student loan creditors was clearly erroneous.
     Using the non-dischargeable nature of student loans, as cited by the bankruptcy court in Gorman, as a basis for discrimination would eviscerate the detailed priority system of Bankruptcy Code Section 507 and make preferential treatment of student loans the rule rather than the exception. The Circuit Court agreed with the view that there are strong policy considerations underlying the student loan program that would favor preferential treatment of student loan debt; however, that is not the law. By not designating student loans as priority claims under Bankruptcy Code Section 507, Congress chose not to categorically treat them differently. Otherwise, the bankruptcy court in Gorman relied on the debtor’s status as a single mother with three children in concluding that the discrimination was reasonable. The debtor did not point to any case law supporting her view that student loans are properly favored under these circumstances. The Circuit Court found that the bankruptcy court erred in finding a reasonable basis for the discrimination. The court sided with the bankruptcy trustee, who challenged the bankruptcy court’s good faith finding by arguing that the debtor had acted in bad faith by failing to pledge her entire disposable income to the plan, instead proposing to retain the disposable income of half of the amount she dedicated to the plan for these creditors. The Circuit Court in Gorman ruled that the bankruptcy court abused its discretion in failing to consider the effect of the disposable income issue on its finding of good faith.

Monday, April 8, 2013

Collections: Acceleration of Demand Notes

     The Twentieth Judicial Circuit examined a debtor's assertion that the note's "detailed enumeration of events consisting default was inconsistent with a demand note", and that since the note was not a demand note, the creditor must demonstrate "good faith" in accelerating repayment of the note. The case was NationsBank of Virginia, N.A. v Barnes. The Court examined Virginia Code §8.3A - 108(a), which states that a note is payable "on demand" if it says it is payable on demand or states no time for payment. The Court found that the note in this case was a form with a box "on demand" checked, with no time set for repayment, only a provision requiring monthly payments of interest. The Court ruled that the note was unambiguous and clearly a demand note, and that no showing of "good faith" was required before requesting payment on the note.
     Despite the favorable result for the creditor, great care should always be taken to clearly identify payment demand terms.


Monday, April 1, 2013

Deeds of Trust

     It all starts with the deed of trust. The deed of trust is the primary method of acquiring a lien against real estate in Virginia. With a deed of trust, the owner of the real estate conveys legal title to a trustee, in trust, to secure the noteholder’s indebtedness. A deed of trust establishes a lien on the subject real estate upon execution by the grantor and recordation in the land records of the Circuit Court for the jurisdiction (County or City) in which the property is located. While recording the deed of trust is not essential to the validity of the deed of trust between the parties, an unrecorded deed of trust does not establish a lien on the subject real estate as to other creditors and purchasers of the grantor. An unrecorded deed of trust will not provide the beneficiary of the deed of trust with a priority position against other creditors with recorded liens, even if they are subsequent in time.

Monday, March 25, 2013

Real Estate: Using 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.  We will review the benefits of using homeowner association liens to aid in the collection of your debt.
     Virginia Code §55-516 provides for special procedures for the collection of homeowners association dues. This code section allows associations to place a lien on the land for unpaid assessments, as well as give associations a priority over certain other debts. To perfect the lien, however, it must be filed before the expiration of twelve months from the time the first such assessment became due and payable. This filing must be by a memorandum filed in the circuit court of the county or city where the development is located. The memorandum must contain the information specified in the statute. Before filing the lien, written notice must be sent to the property owner by certified mail giving at least ten days prior notice that a lien will be filed. Suit to foreclose on the lien must be brought within thirty-six months of filing. We will review foreclosure suit procedures in the next issue.
     We have experienced attorneys and staff who can examine title, file homeowner association liens, and litigate to enforce the same. 
     Check out issues of Creditor News by visiting

Monday, March 18, 2013

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 process 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.