Foreclosure: Deeds of Trust

     It all starts with the deed of trust. The deed of trust is the primary method of acquiring a lien against real estate in Virginia. With a deed of trust, the owner of the real estate conveys legal title to a trustee, in trust, to secure the noteholder’s indebtedness. A deed of trust establishes a lien on the subject real estate upon execution by the grantor and recordation in the land records of the Circuit Court for the jurisdiction (County or City) in which the property is located. While recording the deed of trust is not essential to the validity of the deed of trust between the parties, an unrecorded deed of trust does not establish a lien on the subject real estate as to other creditors and purchasers of the grantor. An unrecorded deed of trust will not provide the beneficiary of the deed of trust with a priority position against other creditors with recorded liens, even if they are subsequent in time.

Real Estate: Using Mechanic's Liens to Secure an Interest in Real Estate

     In recent 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 begin a review of the benefits of using mechanic’s liens to aid in the collection of your debt.

     Virginia Code §43-3 et. seq. provides for special procedures for the collection of unpaid bills related to work performed on, or products supplied for, real estate. §43-3 A states:
     “All persons performing labor or furnishing materials of the value of $150 or more … for the construction, removal, repair or improvement of any building or structure permanently annexed to the freehold … shall have a lien, if perfected as hereinafter provided, upon such building or structure, and so much land therewith as shall be necessary for the convenient use and enjoyment thereof … subject to the provisions of § 43-20. But when the claim is for repairs or improvements to existing structures only, no lien shall attach to the property repaired or improved unless such repairs or improvements were ordered or authorized by the owner, or his agent.” Virginia Code §43-3 B provides for special rules regarding condominiums.
     Virginia Code §§43-4, 43-7 and 43-9 provide for the perfection of the lien by general contractors, subcontractors, laborers and suppliers. We will explore this more in future blogs.
     We have experienced attorneys and staff who can examine title, file mechanic’s liens, and litigate to enforce the same.

Bankruptcy: Homestead Exemption - Deed Executed by Counsel

     The case of In re Goodman serves as another good example why you should review all case documents. In Goodman, the United States Bankruptcy Court at Roanoke ruled that a homestead deed executed by the debtor's counsel and recorded pursuant to Virginia Code §34-17 did not perfect the debtor's homestead lien. Accordingly, the debtor's exemption claimed under Virginia Code §34-17 failed, and the property became subject to the bankruptcy estate.

     In Goodman, the debtor did not timely execute a homestead deed, as the debtor could not be located by his counsel. However, the debtor claimed to reaffirm and ratify the act of his attorney, who filed and recorded one on his behalf. The debtor did not subsequently attempt to file any other homestead deed. The debtor argued that the agency relationship between the debtor and the debtor's attorney enabled counsel's execution and recordation of the homestead deed on behalf of the debtor. The debtor also pointed to the fact that he had ratified and affirmed his counsel's act of signing the homestead deed on his behalf and putting the same to record within the time period provided by the Virginia Code for claiming a homestead exemption.
     The Court, however, in looking at the plain language of both the Bankruptcy Code §522 (b), and the Virginia Code §§34-4 and 34-1, decided that it is clear that the "individual debtor" (§522 (b)) or "householder" (§34-4), not attorney, has the privilege of "selecting" the property to be exempted. Under Virginia Code §§ 34-6 and 34-17, the debtor, not attorney, secures the benefit of the homestead by signing and recording a writing claiming the benefit. The bankruptcy trustee timely raised and properly brought into question the validity of the homestead deed which contained only the signature of the debtor's attorney on behalf of the debtor. At trial, the debtor produced no evidence that his counsel had authority to execute the homestead deed and put it to record. The parties stipulated that debtor's counsel signed and filed the homestead deed and put it to record out of a sense of necessity only and not to any specific blanket authority conferred upon the attorney at the time of the agency relationship. The Court ruled that having failed to meet the threshold challenge of the trustee to the debtor's agency authority, the debtor did not prevail on the agency theory. In addition, because there was no adequate proof of authority for the agent to sign the homestead deed on behalf of the debtor, the fact that the debtor subsequently ratified and confirmed the act of his attorney is not relevant. Accordingly, the Court sustained the bankruptcy trustee's objection, and the property set forth in the homestead deed became the property of the bankruptcy estate.

Collections: Timeliness of Mechanic's Liens

     The Prince William Circuit Court reviewed several interesting issues regarding mechanic's liens in the case of American Standard Homes Corp. v. Reinecke, Trustee.

     In American Standard some of the replacement materials for the prefabricated homes were delivered to each of the six projects more than 90 days after the materials and "extras" designated in the respective material order contracts had been delivered, the time limitation for filing memoranda of mechanic's liens, specified in Virginia Code §43-4. The Court ruled that time began to run upon delivery of the material designated in the material order contracts and not from delivery of the replacement materials. The Court, in making its ruling, determined that the materials delivered under the purchase orders were not materials last furnished within the intendment of the perfection statute, thus, the six liens were not timely filed.
     The seller of the prefab homes had argued that the material order contracts were "open-ended devices" and that, because "each contract contemplated both extras and multiple purchase orders," the materials acquired under purchase orders were, for purposes of the filing limitation prescribed by the perfection statute, materials last furnished under those contracts. The Court disagreed though, finding that each material order contract contained blank spaces beneath the word "Extras" in which the buyer listed the materials to be added to those designated in the "dry-in" and "trim" packages. Unlike the "Extras" listed in the material order contracts and included in the invoices issued when the two material packages were delivered, the "Extras" to be shipped C.O.D. under particularized purchase orders were articles which were "replacement materials" for those materials that after delivery, had been lost, damaged or stolen and were reordered. Neither the basic contract nor the material order contract required the buyer to purchase such "extras" from the seller; the buyer was free to contract with other materialmen for materials needed to replace those delivered earlier by the seller. In its purchase orders, the buyer offered to buy replacement parts from the seller. The seller accepted that offer by delivering the materials.
     The Court found that this was a contract, one separate and apart from the material order contract. The latter expressly provided that it was "THE COMPLETE AGREEMENT BETWEEN THE PARTIES." When the seller delivered the materials designated as extras listed in the contract, it delivered all it had contracted to deliver. What it delivered under the contract were the materials last furnished within the intendment of the 90-day statutory limit for filing memorandum of mechanic's lien. The Court found that the record showed with respect to each of the six liens at issue that the limitation period had expired before the seller filed its memoranda. Accordingly, the liens were unenforceable.
     The lesson of American Standard - enforcement of creditor’s rights in construction law matters is a very complex and requires experienced counsel.