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. 
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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.

Monday, March 11, 2013

Bankruptcy: Debt Declared Nondischargeable due to Debtors Knowledge of Error

     The U.S. District Court in Alexandria, in the case of Nawroz v. Wells Fargo Advisors LLC, in August, 2012, affirmed a bankruptcy court decision which held that a debtor cannot discharge in bankruptcy her obligation to repay a bank for the $28,029.99 that the bank mistakenly credited her IRA.
     Wells Fargo, after mistakenly transferring the funds into the debtor’s IRA, then transferred the balance of debtor’s account, $56,043, to a checking account at another bank, and then closed the debtor’s account with Wells Fargo.
     At trial, the debtor testified that during that time period, she was severely depressed, her home was in foreclose, she lost her business and she was not attending to her business affairs. She also testified that she did not know the funds not belonging to her had been mistakenly transferred to her new checking account. Shortly after the transfer of funds to the checking account, the debtor wrote a checking for $81,000 to Khalil Wadedi, allegedly to avert a family emergency arising from the kidnapping of a family member in Afghanistan. At the time, the checking account held less than $81,000.
     Wells Fargo won a default judgment against the debtor for $36,962.71, covering the funds mistakenly transferred, attorney’s fees, prejudgment interest and costs.
     During the debtor’s subsequent bankruptcy proceedings the bankruptcy court said the debt to Wells Fargo was nondischargeable pursuant to Bankruptcy Code Section 523 (a)(6). The debtor appealed this decision.
     The District Court noted that the debtor knew that her CD account with Wells Fargo held no more than $28,032 in April 2008, and therefore the amount transferred from Wells Fargo to the different checking account should not have exceeded this amount. The debtor subsequently used $81,000 from the checking account after the transfer of funds from Wells Fargo. But for the mistaken credit by Wells Fargo of $28,029, the checking account would have been no more than $56,000 and therefore debtor’s $81,000 check would not have cleared.
     The debtor admitted that she knew the balance of the CD account; therefore, the court reasoned that the debtor must have known that the amount transferred from Wells Fargo to the checking account should not have exceeded $28,032, regardless of what account held the funds prior to this transfer, and that the debtor was not the true owner of approximately $28,000 of the amount in her checking account in May, 2008.

Monday, March 4, 2013

Foreclosure: Foreclosure Basics

     Foreclosure law is a creature of state statute. Accordingly, each state’s laws are different. Because the statute controls, courts will enforce strict adherence to the exact words and requirements. Failing to fully comply with statutory mandates will likely result in defective foreclosures and costly work.
     In the upcoming issues of Creditor News we will explore foreclosures from beginning to end. From the preparation of the deed of trust, to final accounting after sale.
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