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.