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.