Real Estate: Docketing Judgments to Secure an Interest in Real Estate

     In previous 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 docketing judgments to aid in the collection of your debt.
     Docketed judgments create a lien against the debtor’s real estate in the county or city in which the lien is docketed. Accordingly, make sure that you know where your debtor owns, or may own (e.g., through future purchase or inheritance), real estate. Once recorded, the lien will take priority in line with the date of recording (with some limited exceptions). Depending upon your debtor’s problems, you may have equity to cover your lien. Obviously you will want to “get in line” sooner rather than later to give you the best chance of collection.
     Once a lien is in place, it must be addressed at any sale or refinance of the real estate. The lien must also be addressed in bankruptcy -- if the debtor does not file a motion to strip the lien, the lien will survive a bankruptcy discharge.
     If all other collection measures are unsuccessful, you can consider bringing a creditor’s bill, which is an action to force the sale of real estate to satisfy a judgment under Virginia Code §8.01-462:

                                Jurisdiction to enforce the lien of a judgment

                                shall be in equity.  If it appears to the court that the

                                rents and profits of all real estate subject to the lien

                                will not satisfy the judgment in five years, the court

                                may decree such real estate, any part thereof, to be sold,

                                and the proceeds applied to the discharge of the judgment.
     Although creditor’s bills may be costly, given the right judgment it is an effective collection tool. Determining what judgments are "right" requires experience and good judgment.
     We have experienced attorneys and staff who can seek judgment and then docket and enforce the same.

Foreclosure: Be Prepared to Conduct Foreclosures

     While foreclosure may not be a topic that debtors (or even creditors) want to discuss, like all other aspects of proper business planning, you should.

     With more creditors engaging in loans secured by real estate (which I strongly advocate), through first deeds of trust, second or subsequent deeds of trust, refinances or credit lines, a certain amount of default is to be expected.  Being prepared to react to default is imperative.

     At the law firm of Lafayette, Ayers & Whitlock, PLC, we represent creditors - from start to finish.  We are a full-service creditor’s rights firm.  While many attorneys do “collections”, few attorneys have the trained expertise and staff to represent creditors in all four areas of Creditor’s Rights—Collections, Bankruptcy, Real Estate and Foreclosure.  WE DO FORECLOSURES.  We will handle foreclosure proceedings from demand to final accounting.

Bankruptcy: Denial of Discharge and Sanctions

     A Roanoke District Court affirmed a Bankruptcy Court’s denial of a Chapter 7 discharge and the award of sanctions to the creditor. The case was Brown v. Presidential Financial Corp.
     In Brown the debtor left the state of Georgia knowing that a collection action was pending against him. He sold his Georgia residence and paid creditors with the sales proceeds, excluding the creditor in this case. In Virginia the debtor filed a Chapter 7 bankruptcy petition within eight days. The creditor filed an objection to discharge under Bankruptcy Code §727(a)(2)(A), alleging that the debtor intended to hinder, delay or defraud the creditor.
     The District Court, upon the debtor’s stipulation of the facts, determined that the evidence was sufficient for the Bankruptcy Court to rule in favor of the creditor and deny the discharge.
     The District Court also upheld the Bankruptcy Court’s award of sanctions against the debtor; the Bankruptcy Court awarded the creditor its attorney’s fees and costs. The Bankruptcy Court had found that the debtor repeatedly failed to comply with the creditor’s multiple motions to compel discovery, as well as the Court’s orders to turn over the requested materials.

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.

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.

Collections: Liability for Charges above the Credit Limit - Part II

    Last week we looked at two fact patterns involving situations where a customer makes retail purchases for products in an amount greater than the customer’s established credit limit – specifically, if the customer later fails to pay for the product, can he be successfully sued for payment. In those situations, we found that a court will likely hold a customer liable for charges that exceed the originally agreed upon credit limit. The credit terms require the customer to pay any and all sums that become payable because of the express terms of the contract and the intentions of the contracting parties. The next two fact patterns present new issues.
     Fact Pattern Three: When the retail account was originally opened, the credit limit (stated in a letter to the customer) was set at $4,000. The credit terms in the credit application state the applicant agrees "to pay any and all sums that may become payable under this account". Despite the credit limit, customer sends one of his employees to retailer to make a purchase, with customer knowing what the cost of the purchase will be. Retailer allows the purchase over the $4,000 limit. Later customer fails to make full payment. Retailer sues customer for the amount owed, let us say that it is $6,000. Customer raises the defense that charges above the credit limit should not have been allowed. In what amount should the retailer be able to judgment against the customer?
     In addition to the contract issue discussed in the previous patterns, this fact pattern presents an agency law issue. The Circuit Court of the City of Richmond dealt with a similar issue in Chevy Chase Savings Bank v. Strong. In this case, the bank issued a credit card. A card user then incurred charges on the credit card but the card user was the card owner’s husband. The court held that the wife was liable for the charges because she gave her husband authority to use the card. The husband was an agent, and was therefore only liable if the wife was able to prove that her husband exceeded his authority or that he agreed to become personally liable.
     In this fact pattern, the customer has given his employee authority to act on his behalf so the employee is his agent and the customer is the principal. As principal, the customer is liable for all charges. The credit was given to the customer, so he is liable for the charges, unless he is able to prove that the employee exceeded his authority or agree to become personally liable. In this case, the employee did not act outside of his authority and did not agree to become personally liable, so the customer will be liable for a balance incurred.
     Fact Pattern Four: When the retail account was originally opened, the credit limit (stated in a letter to the customer) was set at $4,000. The credit terms in the credit application state the applicant agrees "to pay any and all sums that may become payable under this account". Despite the credit limit, one of customer’s employees goes to retailer to make a purchase, without customer’s knowing what the cost of the purchase will be. Retailer allows the purchase over the $4,000 limit. Later customer fails to make full payment. Retailer sues customer for the amount owed, let us say that it is $6,000. Customer raises the defense that charges above the credit limit should not have been allowed. In what amount should the retailer be able to judgment against the customer?
     Although there was not express authority to spend a specific amount like the previous situation, the same rule applies. The employee acted as an agent for the customer. The customer is liable for the debt unless the customer is able to prove that the employee acted outside the authority given. However, similar to Chevy Chase Savings Bank v. Strong¸ evidence that the customer did not specify an amount to spend is not likely to be sufficient evidence to prove that the agent acted beyond to scope of authority given.