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: Using Real Estate as a Collection Tool

     Collecting money owed can be a job. Having more tools to do the work is good! Securing your debt with real estate is a great tool. We will continue to explore ways that use this tool in future blogs. Blogs will include such topics as: Deeds of Trust, Foreclosure, Docketing Judgments, Lis Pendens, Recording Mechanic’s Liens, Suits to Enforce Mechanic’s Liens, Foreclosing on Mechanic’s Liens, Recording Homeowners Association Liens, Foreclosing on Homeowners Association Liens and more.

     We have experienced attorneys and staff who can examine title, do real estate closings, seek judgment and docket and enforce the same, and prepare and enforce statutory liens, such as those for litigation, homeowner’s associations and mechanic lien situations. Please call me so that we can discuss how we can help you.

Bankruptcy: Pension Plans

     As a result of numerous cases, as well as modifications of the Virginia Code, Virginia debtors have an increased ability to shield funds in retirement plans from creditors. Based on case law, ERISA qualified pension plans are excluded from property of the bankruptcy estate. Under Bankruptcy Code §541, assets excluded are not reachable by either the bankruptcy trustee or their creditors. Under Virginia Code §34-34, retirement plans that are not excluded from the bankruptcy estate may still be exempt to $17,500 in annual benefit.

     A debtor's interest in an ERISA qualified pension plan is not property of the bankruptcy estate, and, thus, is not subject to be turned over to the trustee in bankruptcy according to the 6th Circuit case of Forbes v. Lucas and the U.S. Supreme Court case Forbes v. Holiday Corporation Savings and Retirement Plan.
     In Patterson v. Patterson the U.S. Supreme Court rejected the trustee's contention that the anti-alienation requirement in the plan did not effectively apply to the debtor who controlled the company and thus controlled the plan. Therefore, the debtor's interest was not property of the bankruptcy estate, and the creditors could not reach the plan.
     In the Eastern District of Virginia case of In Re Wyles, the Chapter 7 trustee objected to the debtor's claim of exemption in ERISA Qualified Pensions Plans. The Court held, however, that the debtor's ERISA qualified pension plans were exempt, even though the debtor was a fifty percent shareholder of the corporation that set up the plans, and, as such, had authority to amend or terminate the plans as he sought fit. The Court ruled that there was no showing that the plans were established or maintained to defraud creditors, and that any premature plan distributions would constitute grounds for reopening the case so that such funds could be made available to creditors of the estate. The Court did enjoin withdraws and modifications without court order until the debtor reached the age fifty-nine and one-half.
     In the Eastern District of Virginia case of In Re Johnson, the Chapter 7 trustee objected to the debtor's claim of exemption for federal Thrift Savings Plan funds. The Court ruled in favor of the Trustee that funds withdrawn from the account prior to the bankruptcy and placed in bank accounts which could be used by the debtors free from retirement plan rules restrictions.
     The 4th Circuit Court case of In Re Moore holds that all ERISA qualified pension plans, which by definition have a non-alienation provision, are not property of the bankruptcy estate, and thus not reachable by creditors.
     Litigation has occurred regarding debtor contributions to ERISA qualified plans in Chapter 13 cases. In the case of In Re: Allen Scott and In Re: Annette Renaye Fountain, both decided by the United State Bankruptcy Court for the Eastern District Virginia at Richmond, debtor's plans were denied confirmation because not all of the debtor's disposable income was applied pursuant to Bankruptcy Code §1325 (b).
     In Scott the debtor had made two loans from his ERISA pension plan, and provided for a repayment of $790.36 per month, while paying the general unsecured creditors only seventeen percent. Since the ERISA plan had no secured interest against the debtor, the proposed Chapter 13 plan was denied confirmation.
     In Fountain the debtor proposed paying her ERISA plan fifty-five percent more that she would pay to unsecured creditors. The end result of her Chapter 13 plan would have been an approximately $16,000.00 exemption and additional equity in her residential real estate. The Bankruptcy Court ruled that since this contribution was not necessary for support, it must be included in the plan; since it has not, the Chapter 13 plan was denied confirmation.

Collections: Foreign Judgment Enforceable in Virginia

     The Richmond U.S. District Court found that the plaintiff, a British developer of computer and video games, may enforce a judgment from a United Kingdom court finding a breach of a settlement agreement by defendant, a Virginia company, that agreed to distribute the British company’s video game and then failed to pay the company.
     Plaintiff, Codemasters Group Holdings Ltd., stated that it issued invoices for the video products it shipped to defendant, SouthPeak Interactive Corp., but SouthPeak failed to pay. The parties subsequently entered into a settlement agreement in which defendant agreed to pay plaintiff $2 million. Plaintiff contended that defendant failed to make all payments and breached the settlement agreement, leaving an outstanding balance of $1,265,000 plus interest and late fees.
     Plaintiff filed suit in the UK and a court there ordered default judgment against defendant. Plaintiff subsequently sued to enforce the UK judgment in Virginia.
     The court noted that Virginia has adopted the Uniform Foreign Money-Judgments Recognition Act, which allows for the enforcement of a foreign country money judgment that is final and conclusive and enforceable where rendered.
     Two issues were raised in the Richmond court: whether the UK court had personal jurisdiction over SouthPeak, and, whether Southpeak had received notice of the UK action in sufficient time to enable it to defend.
     The settlement agreement contained a forum selection clause designating the UK as the forum for resolution of the parties’ dispute. The agreement established the acquiescence of SouthPeak to the jurisdiction of the UK court. Thus, because prior to the commencement of the UK action SouthPeak agreed to submit to the jurisdiction of the UK court, the UK had personal jurisdiction over SouthPeak.

     SouthPeak argued that proper service of process did not occur pursuant to Virginia law, so enforcement of the foreign judgment should not be allowed. The court disagreed. The court determined that a plain reading of the Uniform Foreign Money-Judgments Recognition Act simply requires notice, and, SouthPeak had actual notice of the proceedings in the UK. Accordingly, the foreign judgment could be enforced.

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.