Bankruptcy: Liquidating Secured Property

     In the case of Mann v. CCB Financial Planning Ltd., the United States Bankruptcy Court in Alexandria, Virginia, ruled that a creditor could not amend its complaint objecting to dischargeability in a case to defeat a timely filing requirement, and that the improperly filed complaint should be dismissed. 

     In Mann the debtor had filed bankruptcy, both individual and corporate petitions. The creditor filed its complaint in the corporate petition but not in the individual petition. The creditor later filed a motion to amend its complaint alleging an exception to dischargeability against the corporation to alleging an exception to dischargeability against the individual. The motion to amend was filed after a time that a complaint objecting to dischargeability against the individual would be timely filed. The creditors and their counsel conceded that they had notice of both bankruptcy filings, and that they mistakenly filed their complaint in the wrong case. They contended, however, that they were confused by the designations "AKA" and "DBA".

     The Bankruptcy Court reviewed the provisions of Bankruptcy Rule 4007(c) and determined that the Court had no discretion to allow a late-filed motion objecting to dischargeability or to grant a late-filed motion for enlargement of time to file such a complaint, even in cases of excusable neglect. Accordingly, upon reflection of the facts and the rules, the Bankruptcy Court determined that the time limits were not met, that they had no discretion to allow for the amendment, and that the debtor's motion to dismiss should be granted.

     The lesson of Mann, as it is in so many cases, is that creditors should retain the services of counsel who has extensive experience in creditor representation.

Collections: Arbitration - A Collection Alternative

     Arbitration has become an increasingly popular way of resolving disputes. For those readers unfamiliar with the concept, arbitration is a process in which parties agree to submit the issues in controversy for determination by a party that they choose. The purpose behind the decision to arbitrate is usually to reach a resolution to the dispute in a quicker and cheaper manner than court action. Although most parties to the arbitration retain counsel to represent them, costs are normally less than court action because the rules of evidence are more relaxed, and the proceedings are less formal. 

     Virginia law recognizes the arbitration process and provides for the legal enforcement of arbitration awards. 

     The American Arbitration Association has developed standard rules, procedures, and panels of trained professionals to serve as arbitrators - the finders of fact. 

     The structure of the arbitration hearing is similar to a regular court hearing. A party has the right to representation by an attorney. Both parties also have an opportunity to make an opening statement, discuss the remedy they are seeking, introduce and cross-examine witnesses, and make a closing statement. Unlike a regular court proceeding, neither party in arbitration has the burden of proof because each party must persuade the arbitrator that its position is correct. 

     Virginia Code §8.01-577 to §8.01-581.016 establish Virginia's rule for arbitration. First, both parties must agree in a written agreement to submit a case for arbitration. The parties then select an arbitrator from a list of names. The court also may appoint an arbitrator.

     An arbitrator has several duties. The first and foremost is to preside over the arbitration hearing. An arbitrator in Virginia may issue subpoenas for witnesses to appear. Lastly, the arbitrator issues and signs the award.

     The court then confirms, modifies or vacates the award. The reasons for modification or vacation vary from a mistake in calculation to the arbitrators exceeding their powers (see Virginia Code §8.01-581.010 and §8.01-581.011). The court proceeds to enter a judgment or decree on the award. A party may appeal an award as one would in a civil action.

     The California Court of Appeals has ruled on the enforceability of arbitration clauses. In Bell v. Congress Mortgage Co., Inc., the California Court held that an arbitration clause in a contract must be highlighted in bold type or the consumer needs to initial beside the specific clause. These methods should make the consumer aware of the arbitration clause in the contract, as previously a consumer might waive his right to a jury trial without realizing it because, the California Court stated, an arbitration clause is not within the reasonable expectations of the consumer. There is no such requirement in Virginia law for the arbitration clause to be highlighted, however, but until the issue is litigated in Virginia, initials next to the clause would be a good measure of caution.

     I have litigated several arbitration cases, each to positive results, once to an amount higher than initially requested by the client.

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.

Real Estate: Homeowner Associations - Easements

     Cases involving HOA powers are frequently fact specific and governing document specific. Recently, the Frederick County Circuit Court decided a case in which a homeowners association was held in violation of the homeowners association’s restrictive covenants and liable for compensatory damages and attorneys’ fees because it removed a wall on a homeowner’s property. The homeowner spent a considerable amount of time and effort improving a portion of a shared roadway that was on his property. He cleared the land, widened the pathway, and built an eight foot retention wall along the pathway. The HOA notified the homeowner that the wall was encroaching on the right of way and told the homeowner that it must be removed at the homeowner’s expense. There was no board of directors hearing or meeting before the decision was made. Without further notice, the wall was removed but the homeowner refused to pay. In addition to tearing down the wall, the HOA installed drainage culverts in the right of way which resulted in silt flowing into the property’s septic system. The HOA filed suit and obtained a General District Court judgment for the expense of removing the wall. The homeowner then appealed the judgment to the Frederick County Circuit Court and filed a complaint against the HOA. The homeowner claimed that the HOA acted outside its authority under the restrictive covenants, which constituted trespass. The HOA filed a counterclaim, alleging breach of contract and violation of the Property Owners’ Association Act (Va. Code Section 55-508). The court held in favor of the homeowner and found that the HOA exceeded its authority under the restrictive covenants. The HOA did not have authority to remove the wall or to install the drainage culverts. In addition, the HOA did not have the ability to charge the homeowner for either the removal of the wall or the installment of the drainage culverts. The court awarded the homeowner compensatory damages of $28,500 (the value of the wall and cost of returning the property to its prior condition) and attorneys’ fees of $48,844.

     It is important to ensure that HOA covenants provide for the powers necessary to take self-help to effect repairs and remove violations. It is also important for HOAs to work through the proper channels and act within its authority granted by restrictive covenants. Failing to do so can be costly for an HOA. The law firm of Lafayette, Ayers & Whitlock, PLC has experience in drafting, reviewing, and amending HOA documents, as well as, representing HOAs in court.

Bankruptcy: Bank's Security Interest - Stocks pledged as Security

     In the case of Winters v. George Mason Bank the United States District Court, reviewing a case from the United States Bankruptcy Court at Alexandria, Virginia, affirmed a ruling for the creditor bank which enforced the bank's security interest against stocks held jointly by a mother and daughter and pledged as collateral for the bank's loan (actually a series of loans) to the daughter and her husband (which were in default), even though the daughter and her husband had declared bankruptcy. 

     The District Court found that from over the course of three years the plaintiff signed a total of three commercial pledge agreements pledging as collateral her interest in the stocks. In the second of three years the daughter and her husband filed a bankruptcy petition. The plaintiff argued that because she and her daughter jointly owned the stocks, those stocks were part of the bankruptcy estate. The plaintiff also argued that the second pledge agreement was an act to create or perfect a lien against that property, and thus violated the automatic stay provision of the Bankruptcy Code. The District Court ruled, however, that the automatic stay did not apply to non-bankrupt codebtors, nor did the automatic stay prevent actions against guarantors of loans. The District Court further stated that even if the agreement violated the stay as to the debtors, the agreement did not violate the stay as to the plaintiff. The District Court found that the plaintiff's attempt to use the automatic stay to her own benefit contradicted the purpose behind the stay provision. The plaintiff sought to use the automatic stay to avoid an agreement that was beneficial to the bankruptcy estate, and an agreement that she and the debtors had voluntarily entered into. Accordingly, the District Court upheld the bank's lien.