Bankruptcy: Dischargeability of Debts - False Pretenses

      In the case of Slonim v. Marineau, the United States District Court confirmed a Bankruptcy Code ruling that a debt was non-dischargeable pursuant to Bankruptcy Code §523(a)(2)(A), as it was obtained by false pretenses. The Bankruptcy Court had made a factual finding that the debtor's loan agreement with the creditor, who was an individual investor, provided that the $90,000.00 loaned by the creditor would be used to construct pre-sold homes in Albermarle and Greene Counties, but instead the debtor had used the loan to pay personal expenses.
     The debtor had argued that his statements did not "qualify" as misrepresentations under Bankruptcy Code §523(a)(2)(A) because the statements concerned future performance. Most courts, however, have held that when such statements are accompanied by the present intention not to perform as promised. The statement of present intention at issue in this case involved the use to which the debtor would put the money. The Court ruled that where money is entrusted to a debtor for a specific purpose, the debtor impliedly represents that it will be used for that specific purpose constitutes a misrepresentation of the debtor's intention.
     The debtor's own testimony established that he never intended to use the funds for that purpose. He testified at trial that he always intended to use the loan to reimburse himself and his partner for expenses incurred in building the house for the partner. Thus, the debtor's representation that the money would be used for a specific purpose was knowingly false when he made it. Furthermore, his intent to deceive could be inferred from his immediate depletion of the funds and statements aimed at making the investor believe that there was less risk involved than which truly existed. Accordingly, the debt was ruled non-dischargeable pursuant to Bankruptcy Code §523(a)(2)(A).

Collection: Perfection of Vehicle Liens

     In almost all circumstances, courts will recognize a lien as being valid only when it has been "perfected". Perfected means registered with the appropriate governmental agency - DMV, Board of Inland Game and Fisheries, etc.; language on a promissory note that the loan is secured by the vehicle is not enough. Although the result of failed perfection could be harsh (a lost lien), it makes sense; without a registration, no one could ever know who has liens. Understanding this, it is important to have someone in your creditor organization be designated to follow-up on lien perfection to ensure that it is done, to ensure that it is done promptly, and to ensure that it is done right.
     What happens when your debtor moves to another state? As long as the creditor holds the original certificate of title reflecting the lien, the creditor will usually be protected. If the vehicle is taken to another state but is never re-registered or re-titled, the original secured creditor who is listed as lienholder on the original certificate of title maintains its perfection. The original secured creditor also maintains its lien if the debtor moves and obtains a new certificate of title with the creditor's name on it. However, what happens if the debtor moves, obtains a new certificate without the lien recorded? There could be a problem. To avoid the possible problem, follow up on your transient debtors like you do your new liens.

Foreclosure: Foreclosure Sale Deficiency Actions

     Frequently there will be a deficiency balance after the sale is completed and the accounting is done. The account of sale will set forth the distribution of the sale proceeds and also establish any amounts remaining due on the indebtedness following application of the net proceeds from the foreclosure sale. This deficiency amount is usually recovered by a personal judgment against the maker of the promissory note or other obligors on the indebtedness that was secured by the deed of trust. An action to recover the deficiency balance remaining after a foreclosure sale need not be brought on the chancery side of the court, and may properly be brought as an action at law. A plaintiff’s action to recover on an assumed promissory note may be maintained as an action at law even though the plaintiff is not named in the deed of trust.

Real Estate: Criminal Liability for Misuse of Construction Funds

     Virginia Code §43-13 provides that funds paid to a general contractor or subcontractor must be used to pay persons performing labor or furnishing material. Any contractor or subcontractor or any officer, director or employee of such contractor or subcontractor who, with intent to defraud, retain or use the funds, or any part thereof, paid by the owner or his agent, shall be guilty of larceny in appropriating such funds for any other use while any amount for which the contractor or subcontractor may be liable or become liable under his contract for such labor or materials remains unpaid, and may be prosecuted upon complaint of any person or persons who have not been fully paid any amount due them.
     The use by any such contractor or subcontractor or any officer, director or employee of such contractor or subcontractor of any moneys paid under the contract, before paying all amounts due or to become due for labor performed or material furnished for such building or structure, for any other purpose than paying such amounts, shall be prima facie evidence of intent to defraud.