Monday, March 28, 2016

Collection: Creditor Contractor can be sued for Auto Repossessor's 'Breach of Peace'

     The Georgia Court of Appeals, in Fulton v. Anchor Savings Bank, ruled that a bank could be sued for an auto repossessor's "breach of peace" even though the repossessor was an independent contractor who worked for a company hired by the bank. Although there is apparently no Virginia case on point, several state courts have so ruled.
     The Georgia Court of Appeals, in the case of General Finance Corp. v. Smith, relied upon a legal principal from the Restatement (Second) of Torts. §424 of the Restatement holds that a principal cannot delegate to a contractor "the manner of performance of duties imposed by the contract, ordinance or statute". In Georgia, the state statute prohibited intimidation during a self-help repossession.
     The problem with this ruling for creditors is obvious: creditors must be very careful in who they choose to do their work - at least until Virginia adopts a different ruling.

Monday, March 21, 2016

Foreclosure: Deed in Lieu of Foreclosure

     In certain cases it may be more practical for the lender to seek or accept from the borrower a deed in lieu of foreclosure rather than incur the expense of foreclosure – this is at the lender’s discretion. If the lender agrees, in return for voluntarily surrendering the property, the borrower will seek either partial or complete satisfaction of the debt.
     Considerations. Before accepting the deed in lieu of foreclosure, the lender must consider many matters:
     A. Value of the property vs. the amount of the debt.
     B. Other debts on the property. A deed in lieu of foreclosure does not extinguish prior or junior liens or encumbrances. Thus the lender, in accepting the deed, accepts the property with the liens. It is possible for the lender to structure the deed in lieu of foreclosure so that it does not release the deed of trust so as to preserve a future foreclosure to extinguish subordinate liens.

Monday, March 14, 2016

Real Estate: Docketing Judgments to Secure an Interest in Real Estate

     In previous blogs 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 docketing judgments to aid in the collection of your debt.
     Docketed judgments create a lien against the debtor’s real estate in the county or city in which the lien is docketed. Accordingly, make sure that you know where your debtor owns, or may own (e.g., through future purchase or inheritance), real estate. Once recorded, the lien will take priority in line with the date of recording (with some limited exceptions). Depending upon your debtor’s problems, you may have equity to cover your lien. Obviously you will want to “get in line” sooner rather than later to give you the best chance of collection.
     Once a lien is in place, it must be addressed at any sale or refinance of the real estate. The lien must also be addressed in bankruptcy -- if the debtor does not file a motion to strip the lien, the lien will survive a bankruptcy discharge.
     If all other collection measures are unsuccessful, you can consider bringing a creditor’s bill, which is an action to force the sale of real estate to satisfy a judgment under Virginia Code §8.01-462:
     Jurisdiction to enforce the lien of a judgment shall be in equity. If it appears to the court that the rents and profits of all real estate subject to the lien will not satisfy the judgment in five years, the court may decree such real estate, any part thereof, to be sold, and the proceeds applied to the discharge of the judgment.
     Although creditor’s bills may be costly, given the right judgment it is an effective collection tool. Determining what judgments are "right" requires experience and good judgment.
     We have experienced attorneys and staff who can seek judgment and then docket and enforce the same.

Monday, March 7, 2016

Bankruptcy: Preferential Payments - Ordinary Course of Business

       In the case of Huffman v. New Jersey Steel Corp. the United States Bankruptcy Court at Roanoke, Virginia, reviewed payments made by a debtor, a steel fabricator, for steel reinforcing rods, in regard to a complaint of preferential transfer.
     The Court found as fact that the debtor fabricated "rebar" or steel reinforcing rods, for use in construction projects. The debtor obtained "rebar" from the creditor; this was the subject of this avoidance complaint. A large portion of the debt incurred by the debtor to the creditor during the preference period arose after a mistake made by the two companies, when the debtor ordered "six loads" of rebar, which the creditor interpreted as "six train-car loads", not "six truck loads". What began as a mistake was later ratified by the creditor when it continued to deal with the debtor, filled the debtor's orders and did not immediately request additional security.
     The trustee and the creditor agreed that the transfers at issue were preferential as defined in the Bankruptcy Code. The trustee, however, disagreed with the creditor that the transfers were made in the ordinary course of business, and thus an exception pursuant to Bankruptcy Code §547 (b).
     The trustee argued that the mistaken order was not in ordinary course because it was much larger than previous orders and resulted in the debtor's exceeding the credit limit that the creditor had established.
     The creditor argued that it accepted the increase in credit and continued to ship. It further argued that it was lenient with credit terms, and presented evidence consistent with the same. The creditor also argued that it was not unusual in the industry for substantial purchases to be made at one time given the nature of the fabricating business.
     The Court found that the parties entered into a transaction through a mutual mistake of fact, but that rather than rescind, the parties elected to carry out the terms of the agreement. The Court noted that such conduct was consistent with the understanding of the parties to treat the transaction as ordinary. Also, the agreement to continue was at arms length between two independent commercial entities in the marketplace. The Court found no evidence that ratification after discovery of the mistake was used to give the creditor an advantage over other creditors. The Court stated that although ratification of an agreement borne of mutual mistake of fact may not be common, but in the context of this case it was ordinary.
     The Court next looked at the payments made and determined that there had been a long-standing relationship between the parties, and that payments occurred ordinarily, by check, within 54 to 67 days of invoice. Those payments made in that manner were made an exception as ordinary, the four payments made within a different time frame or by wire transfer were not.