Monday, April 27, 2015

Collection: Interest on Accounts

     Virginia Code §8.01-382 addresses pre-judgment and post-judgment interest, and provides that:
                  In any action at law or equity, the verdict of the jury
                  or judgment by the court may provide for interest on
                  the entire principal sum awarded or any part of that sum,
                  and fix the period at which the interest is to commence.
     The judgment order entered provides for the accrual of interest until the principal sum is paid. This code section further provides that if no interest is provided on a judgment, the statutory rate of interest shall be applied as of the date of entry of such verdict or judgment. The statutory judgment rate of interest is presently set at an annual rate of six percent, unless otherwise provided by a written contract, agreement or note.

Monday, April 20, 2015

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, April 13, 2015

Real Estate: Using Lis Pendens to Secure an Interest in Real Estate

     In prior editions of Creditor News (you can find these by visiting 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 blog, 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, April 6, 2015

Bankruptcy: Dischargeability of Debt - False Financial Statement

     In the case of I. H. Mississippi Valley Credit Union v. O'Connor the United States Bankruptcy Court in Richmond, Virginia, reviewed the creditor's complaint objecting to dischargeability pursuant to two sections of Bankruptcy Code §523.
     In O'Connor the debtor was involved in a scheme with a car dealer to buy and sell "grey market" Mercedes Benz in Germany and then bring them to the United States to be refitted for sale at a profit, after which the dealer would pay off the credit union loan and split the profits with the debtor. During the conduct of this business, the debtor provided to the credit union an inaccurate vehicle identification number (VIN) on a loan application and also failed to list a loan from another credit union on an application.
     The Court found as fact that the debtor made misrepresentations as to the vehicle identification number and the existence of the Mercedes, and that the credit union relied on the existence of such an automobile in making the loan to the debtor. However, the Court found that the credit union did not meet its burden to show that the debtor knew that the representations were false when made. The debtor gave the loan officer the VIN appearing on the bill of sale from the car dealer, and although the insurance company requested from the debtor a corrected VIN for insurance purposes, the credit union presented no other relevant evidence that would show that the debtor knew that the VIN was false at the time he applied for the loan.
     The credit union argued that the debtor showed reckless disregard for the truth in not checking to verify that the VIN provided by the car dealer was accurate or that there existed a Mercedes Benz automobile. The Court, however, was not inclined to find reckless disregard for the truth. In regard to the VIN, the Court noted that in a majority of automobile purchases the buyer does not compare the VIN written on the bill of sale against the VIN on the automobile itself, nor does the buyer call the VIN in to the manufacturer's corporate headquarters for verification. In regard to the Mercedes, the Court found that there was no reason for the debtor to have doubted the existence of the vehicle. The debtor's only interest in the vehicle was that it could be refitted by the car dealer and then resold at a profit. Further, the debtor had already successfully conducted two such transactions with the credit union without seeing either of the cars involved in these transactions.
     The Court ruled that the debtor's representations regarding the VIN and the existence of the Mercedes Benz automobile were not made in reckless disregard to the truth. Further, the Court ruled that the credit union had failed to show any intent to deceive on the part of the debtor in making such representations. Accordingly, the Court ruled that Bankruptcy Code §523 (a)(2)(A) did not render the debt nondischargeable.
     The Credit Union also raised the issue on nondischargeability based upon material false financial statements pursuant to Bankruptcy Code §523 (a)(2)(B). The Court took evidence from the credit union regarding information written by a loan officer on the loan request form as well as the written deposition of that officer. The Court found as fact that a loan to another credit union was not included on the loan request forms to the plaintiff credit union. The Court noted that in deciding the issue of materiality the Court must determine whether the credit union would have made the loan knowing of the outstanding obligation to another credit union, considering what weight the plaintiff credit union gives to its debt-to-income ratio limit. The Court noted that the evidence by the credit union was not clear as to what debt-to-income ratio would have disqualified the debtor. The Court observed that a limit of 35 percent appeared on the form, but the debtor was approved with a debt-to-income ratio higher than 35 percent. The Court decided that it was more probable than not that under the totality of circumstances of this particular fact situation that the credit union relied not on the debt-to-income ratio, but instead on the debtor's high professional salary, low living expenses, and an established relationship in which during the past ten months two $20,000 "grey market" loans were paid off about the time of the due date of the first monthly installment. The Court concluded that the credit union's reliance on the debtor's false financial statement was not reasonable. Accordingly, the Court ruled that Bankruptcy Code §523 (a)(2)(B) did not render the debt nondischargeable.