Monday, July 30, 2018

Real Estate: The Virginia Property Owners' Association Act - General Provisions

     In a previous blog I began a review of the Virginia Property Owners’ Act. Under the Act, sellers are required to disclose in their sales contract that the property is located within a development subject to the Act. The Act also requires the seller to retrieve the Disclosure Packet in the Act and provide it to the purchaser. The Disclosure Packet includes the following information: association documents, the name of the association, state of incorporation, register agent’s name and address, any other entity/facility to which the owner may owe fees or charges, budget or summary, income/expenses statement or balance sheet for last fiscal year, statement of balance due of outstanding loans, nature/status of pending lawsuits, unpaid judgments (with material impact on association or members or relating to lot being purchased), insurance coverage provided for lot owners including fidelity bond maintained by association, and much more 
     The purchaser may cancel the contract within three days if delivered by hand or email, or six days if sent by mail, after receiving the Disclosure Packet or being notified that it is “not available” (meaning: a current annual report has not been filed by the Association with either the SCC or the CICB; or the seller has requested in writing that the packet be provided and it is not received within 14 days; or the association has provided written notice that the Disclosure Packet is not available). Additionally, if the Disclosure Packet is not delivered or the association does not indicate that it is not available, the purchaser may cancel the sale any time prior to closing. If the purchaser received the Disclosure Packet, the owner also has the right to request an update. However, the rights to receive and cancel the contract are waived conclusively if not exercised before settlement. 
     Failure to provide a Disclosure Packet after a written request for it has been made results in a waiver of any claim to delinquent assessments or violations of association documents up to that point, and the association will be liable to the seller for actual damages sustained up to $1,000 if the association is managed by a CIC Manager or up to $500 if it is self-managed. 
     In future blogs, I will discuss the provisions of the Virginia Property Owners’ Association Act that provide a memorandum of lien and foreclosure in the event of an owner’s default. 

Monday, July 23, 2018

Bankruptcy: Foreclosure Sale Voided due to Violation of Co-debtor Stay

     In the case of Harris v. Margaretten & Co., Judge Spencer of the United States District Court at Richmond, Virginia reviewed and affirmed a bankruptcy court decision to set aside a foreclosure sale due to a mortgage serving agent's violation of the co-debtor stay provisions of Bankruptcy Code §1301. 
     The District Court found that the debt at issue was a consumer debt upon which the debtor's wife, who had previously received a Chapter 7 discharge, owed an enforceable obligation, notwithstanding her Chapter 7 discharge. The District Court further found that the co-debtor stay was in effect. 
     Judge Spencer ruled that the Bankruptcy Code defines "consumer debt" as "debt incurred by an individual primarily for a personal, family or household purpose." Judge Spencer noted that while courts are split over whether a debt secured by real property qualifies as "consumer debt" under the code, the better reasoned view is that a loan secured by realty may indeed be a "consumer debt." By its plain language, Bankruptcy Code §101(8) requires courts to inquire whether the debt was "incurred...primarily for a personal, family or household purpose." Moreover, Congress elsewhere indicated that such a debt plainly could fall within the statutory definition. Thus, a blanket statement that an obligation secured by realty is never "consumer debt" could not stand. 
     Judge Spencer further stated that the statute requires an inquiry into the purpose of the debt. The Bankruptcy Code afforded this case such scrutiny, finding that the debtors used the loan proceeds to purchase their residence. This finding was indisputably correct, and because such a use constituted a "personal, family or household purpose," the obligation at issue was a consumer debt. 
     The creditor also argued that no co-debtor stay was in effect because the wife's personal obligation on the note had been extinguished by her own Chapter 7 discharge. Again, the District Court stated that the creditor ignored the clear language of the statute, for the stay protects any individual who is liable on such debt with the debtor, or that secured the debt. Personal liability on the debt is not required. Hence, the District Court agreed that a co-debtor stay was in effect at the time of the foreclosure sale, and that the sale was a violation of Bankruptcy Code §1301(a). 
     The creditor argued that even if the Bankruptcy Court had properly found a violation of Bankruptcy Code §1301, it erroneously refused to annul the stay under the facts of this case, and erroneously voided the foreclosure sale. This argument was unpersuasive to Judge Spencer. Even assuming that the Bankruptcy Court was empowered to act sua sponte, the record did not suggest that the Bankruptcy Court erred in refusing to annul the sale and in declaring the foreclosure sale void. Judge Spencer ruled that under the facts of this case, he was unable to find any abuse of discretion. The District Court affirmed that portion of the Bankruptcy Court's ruling that the creditor challenged on appeal.
     The lesson in Harris, as in so many cases, is to ensure competent and experienced legal advice.

Monday, July 16, 2018

Collections: A Salute to our Credit Unions

     "People-helping-people". This is the philosophy of our nation's credit unions. Our credit unions quickly tell us that they offer a better means of acquiring reasonably priced financial services for everyone. This philosophy has yielded a great growth in membership. 
     Having worked as counsel for numerous credit unions over the years, I can attest to the positive force that credit unions are. I can also attest to the benefits that credit unions bring their members. Most credit unions are able to provide a full service of savings, checking, ATM, loans (personal, car, mortgages) and much more. 
     Many businesses are unaware that although they may be too small to start their own credit union, they are not too small to associate with an existing credit union. Such an association would provide both the credit union and the business with great benefits. The credit union will receive new members and business. The businesses will receive the membership and services of the credit union. I am pleased to serve as a "facilitator" to such associations. Those who are interested should call me at 545-6251. Together we can all benefit from the credit union movement.

Monday, July 9, 2018

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.

Monday, July 2, 2018

Real Estate: The Virginia Property Owners' Association Act - An Introduction

     The Virginia Property Owners’ Association Act provides homeowner’s associations with additional protections when homeowners fail to pay their dues; it also defines responsibilities of the association. Accordingly, homeowner’s associations should be knowledgeable of the Act and its provisions. The Act applies to developments subject to a declaration recorded after January 1, 1959, associations incorporated or otherwise organized after such date, and all subdivisions created under the former Subdivided Land Sales Act. In another blog, I will briefly introduce this Act and some of the special duties it imposes on homeowner’s associations. Subsequent blogs will address memorandum of liens and foreclosures.