Real Estate: Using Homeowner Association 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 edition, we will review the benefits of using homeowner association liens to aid in the collection of your debt. 

     Virginia Code §55-516 provides for special procedures for the collection of homeowners association dues. This code section allows associations to place a lien on the land for unpaid assessments, as well as give associations a priority over certain other debts. To perfect the lien, however, it must be filed before the expiration of twelve months from the time the first such assessment became due and payable. This filing must be by a memorandum filed in the circuit court of the county or city where the development is located. The memorandum must contain the information specified in the statute. Before filing the lien, written notice must be sent to the property owner by certified mail giving at least ten days prior notice that a lien will be filed. Suit to foreclose on the lien must be brought within thirty six months of filing. We will review foreclosure suit procedures in the next issue.

     We have experienced attorneys and staff who can examine title, file homeowner association liens, and litigate to enforce the same.

Bankruptcy: Exemption: Worker's Compensation Award

     In the case of In Re Nelson, the United States Bankruptcy Court at Big Stone Gap, Virginia, ruled that where a debtor used his worker's compensation award, which is exempt from the bankruptcy estate under Virginia Code §65.2-531, to purchase a mobile home and lot, the mobile home and lot are also exempt from the Court's consideration in determining whether the debtor's proposed plan is feasible under Bankruptcy Code §1322(a)(4).

     It was the trustee's position in Nelson that since the workers' compensation benefits had been invested in the mobile home and lot that the funds were no longer exempt under Virginia Code §65.2-531. The Court in Nelson stated that Virginia Code §65.2-531 is explicit and unambiguous. The statute simply states that all compensation and claims shall be exempt from all claims of creditors. It does not say that once the funds are invested in other properties they become nonexempt. The Court stated that such a construction cannot be read into the statute, which could be in violation of the authorities. The Court also concluded that if the Virginia legislature had intended to make the funds nonexempt upon investment, then it would have so provided.

     The Court, in deciding Nelson, stated that it found only one case bearing on this subject matter, which was a New Hampshire case, In Re: Williams; the Court found no prior reported Virginia cases. In the New Hampshire case a debtor was allowed to keep a corvette purchased with a worker's compensation award. The Court in Nelson stated that it would be useless to exempt workers' compensation benefits received by an employee who was injured, and yet that employee could not invest those funds in other properties without losing his exemption status. It is clear that the Virginia legislature in passing Virginia Code §65.2-531 and providing for exemptions therein fully intended that the proceeds from these funds, and the purchase of property from the said funds, would be exempt.

     Therefore, the Court in Nelson held that the mobile home and lot purchased from the proceeds of workers' compensation benefits, pursuant to Virginia Code §65.2-531, were exempt properties and were not to be considered in determining whether the plan of the debtor conforms to Bankruptcy Code §1325(a)(4).

Collections: Attorney's Fees on Collection Accounts

     Creditors rightfully expect their debtors to pay the attorney's fees that result from collection procedures. Courts, however, normally refuse an award of attorney's fees unless the debtor has executed a document awarding such costs in the event the account is turned over to an attorney for collection. Many creditors utilize a standard form contract, or note, which has such a provision. Because many forms are multi-state, and because states' laws vary, most standard forms provide for "reasonable attorney's fees." Traditionally, most courts in Central Virginia have interpreted "reasonable" to be the equivalent of 25% of the principal amount of the judgment, regardless of the actual legal fees charged, whether hourly or contingency. However, these days may be coming to an end due to court rulings! 

     The Virginia Supreme Court, in the case of Coady v. Strategic Resources, Inc., ruled that an award of attorney’s fees rests within the sound discretion of the trial court. In the case of J. R. Mullins, et al. v. Richlands National Bank, the Virginia Supreme Court ruled that the trial court must determine the reasonableness of attorney's fees when disputed. In the case of Chawla v. BurgerBusters, Inc., the Virginia Supreme Court ruled that a party requesting an award of attorney’s fees must establish a prima facie case that the fees requested are reasonable. In the case Schlegel v. Bank of America, N.A., et al., the Court denied the request for attorney’s fees, citing the “test” to be used. It is as follows: In determining whether a party has shown the reasonableness of the fees, the fact finder may consider the time and effort expended by the attorney, the nature of the services rendered, the complexity of the services, the value of the services to the client, the results obtained, whether the fees incurred were consistent with those generally charged for similar services, and whether the services were necessary and appropriate. 

     With all of this said, you could win a contested trial on the merits, but be forced to present an “expert witness” (i.e., another attorney) to testify to the reasonableness of your attorney’s fees! To avoid this problem, and, to insure at least a fighting chance of obtaining at least the 25%, or even 33 1/3rd % (which most attorneys charge in percentage collection cases), creditors should make certain that their forms specify "____% attorney's fees", or amend the standard form to "____%" and have the debtor initial adjacent to the change. 

     It is important to note that the judicial award of attorney's fees is made upon the entry of judgment. If creditors take their own judgment, no attorney's fees will be awarded, even though the judgment may eventually be turned over to an attorney for collection. In this case creditors, not the debtor, will bear the full cost of collection. Accordingly, I recommend that creditors timely turn over all accounts to their attorney for prompt action. 

Collections: Releasing Debts

     Virginia Code §8.01-454 provides that judgments, once satisfied, must be released by the creditor within thirty (30) days from when the satisfaction was made. However, if satisfaction is not made within ninety (90) days, or within ten (10) days’ notice to do so by the judgment debtor or his agent or attorney, the judgment creditor shall be liable to a fine of $100 and shall pay the filing cost of the release. 

Foreclosure: Obtaining Possession after Foreclosure

     Upon purchasing property at a foreclosure sale, it is not uncommon to have a “holdover tenant”. If this occurs, you can obtain possession of the property by filing a Summons for Unlawful Detainer in the appropriate General District Court. The applicable statute requires that the plaintiff prove “a right to the possession of the premises at the time of the commencement of the suit.” The only evidence that is usually required is (a) a copy of the recorded trustee’s deed, since the facts recited therein are prima facie evidence of their truth, and (b) a copy of the notice to vacate sent to the occupant(s).

     On the date of the initial return, if the defendant fails to appear, possession will be granted. If the matter is contested, most courts set a new date for trial. In contested cases, issues are usually related to notice and service, so the trustee should be prepared to present evidence that the foreclosure sale was properly advertised, noticed and conducted.

     The judgment for possession is not final until 10 days after it is entered, and most courts will not issue a writ of possession during that 10-day pendency. If an appeal is noted within the 10-day period, the defendant must perfect the appeal by posting an appeal bond and paying within 30 days of the date of the judgment the applicable writ and service fees for the circuit court. Most judges are sympathetic to require significant appeal bonds equating with the former mortgage payments. 

     Eviction is accomplished using a “Request for Writ of Possession.” A writ of possession may be issued on an unlawful detainer for up to one year from the date of judgment. When requesting the writ of possession, provide contact information for both the Sheriff and the person who will supervise the eviction of the new owner; the Sheriff will coordinate a date and time to serve the writ of possession and maintain the peace while the owner physically evicts the personal property of the occupant(s) and secures the property.