Real Estate: Perfecting Mechanic's Liens

     In prior blogs we have been discussing the benefits of using real estate to improve creditors’ positions. Last month we began a discussion of the benefits of using mechanic’s liens to aid in the collection of your debt. 

     Virginia Code §§43-4, 43-7 and 43-9 provide for the perfection of the lien by general contractors, subcontractors, and laborers and suppliers. In each section the creditor must file a memorandum of lien at any time after the work is commenced or material furnished, but not later than 90 days from the last day of the month in which he last performs labor or furnishes material, and in no event later than 90 days from the time such building, structure, etc., is completed, or the work thereon otherwise terminated. The memorandum must contain specific information as set forth in the code (and there are forms in the code), and must be filed in the clerk's office in the county or city in which the building, structure etc., or any part thereof is located. The memorandum shall show the names of the owner of the property sought to be charged, and of the claimant of the lien, the amount and consideration of his claim, and the time or times when the same is or will be due and payable, verified by the oath of the claimant, or his agent, including a statement declaring his intention to claim the benefit of the lien, and giving a brief description of the property on which he claims a lien. 

      In a future blog we will explore suits to enforce the lien. 

     We have experienced attorneys and staff who can examine title, file mechanic’s liens, and litigate to enforce the same. 

Bankruptcy: Marital Obligation Discharged in Bankruptcy

     The United States Bankruptcy Court in Richmond, in the case of Nelson v. Nelson, ruled that a wife’s obligation to husband was discharged. The Court found that although a Virginia Circuit Court held that the wife had to pay a husband $5,6535 for a car debt under a “hold harmless” clause in their divorce agreement, the Bankruptcy Court ruled that the State Circuit Court order was void. 

     The parties’ separation agreement, incorporated into their final divorce decree, provided that an auto was the wife’s exclusive property, that she would be responsible for debt, taxes, insurance and licensing fees on the vehicle, and that she would “indemnify and hold the Husband harmless for the same.” The wife, who received a Chapter 7 discharge in bankruptcy, contends the obligation was discharged. The husband brought a show cause proceeding in a Virginia Circuit Court seeking an order that wife remained liable for the debt secured by the auto and that she was in contempt for violating the separation agreement. The State Circuit Court entered an order stating that the wife was liable to the husband for the debt secured by the auto, or $5,635 with interest. Although the State Circuit Court found that the debtor still had an obligation to indemnify the husband, it lacked the jurisdiction to determine whether this debt had been discharged because the Bankruptcy Court has exclusive jurisdiction in discharging a pre-petition debt included in Bankruptcy Code §523 (c). In any event, the Circuit Court order was silent as to its findings on the dischargeability of the debt. The parties therefore could not argue that the Circuit Court order prevented the relitigation of the dischargeability issue based on the principle of collateral estoppel; nor could the parties argue that this matter was barred by res judicata.

     The Bankruptcy Court ruled that the debtor’s obligation to discharge the husband for the indebtedness secured by the auto was discharged by operation of Bankruptcy Code §523 (c)(1). Accordingly, Bankruptcy Code § 524(a)(1) voided the judgment the husband obtained in State Circuit Court and the discharge injunction in Bankruptcy Code §524(a)(2) further enjoined the husband from taking any action to collect this debt as a personal liability of the debtor.

Collections: No Debt Cure from Extra Payments

     In the case of W. Harold Tulley I LLC v. North Richmond Investments Inc., the City of Richmond Circuit Court addressed a case involving an alleged cure of a default by payments made after default. 

     The Court ruled in Tulley that Plaintiff lender is entitled to a deficiency judgment after foreclosure on real estate that secured a commercial loan. The Court rejected Defendant guarantors’ contention that their additional payments after default cured the default, as such was not provided for under the parties’ contract.

    Defendants asserted that the Third-Party Defendant trustees and Plaintiff breached their obligations and duties because they knew or should have known Defendants were not in default. Defendants claimed that the trustees violated their duties under the loan documents, failed to act impartially, failed to acquire the best price upon the sale, sold the property at an inadequate sale price, and as they were never in default, should not have conducted the sale. Defendants contended that the trustees conducted the sale on a sham bid, knowing that Defendants were not in default.

     The Court noted that neither the deed of trust and guaranty agreement nor the applicable statute, Virginia Code Section 55-59, lists any of the duties Defendants would have imposed on the trustees in foreclosure sales.

     The Court found that both the deed of trust and the guaranty agreement describe default as failure to pay the agreed upon amounts at the agreed upon time on a timely basis. The guarantor stated that upon his tender of the two advance interest payments, there was no agreement regarding how the payments were to be applied, and that he understood they were not required under the financing and deed of trust documents. The Court ruled that Defendants were held properly in default, the amounts due accelerated triggering foreclosure.

Collections: Secured Transaction Proceeds

     In the case of Orix Credit Alliance Inc. v. Sovran Bank, N.A., the United States District Court at Baltimore, Maryland, reviewed a case where Sovran Bank, which had provided the debtor with a line of credit and several bank accounts, one of which was a depository "cash collateral" account routinely applied against draws on the line of credit, signed an agreement with Orix, a finance company, to subordinate the bank's security interest in a crane (purchased by the debtor with funds from the finance company) to the finance company's interest in the crane. The Court ruled, however, that the bank was entitled to use the proceeds from the sale of the crane to reduce the debtor's obligation under the line of credit. The Court's decision was based upon a finding that the bank's transfer of the proceeds occurred in the debtor's ordinary course of business under Virginia Code §8.9-306, comment 2(c), which extinguished the finance company's interest in the proceeds from the sale of the crane. 

     This case serves as another example as to why competent legal advice should be sought before relying upon a recorded security interest. 

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 Mechanic's Liens to Secure an Interest in Real Estate

     In prior 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, and laborers and suppliers. We will explore this more in next month’s edition. 

     We have experienced attorneys and staff who can examine title, file mechanic’s liens, and litigate to enforce the same. 

Bankruptcy: Fraudulent Real Estate Conveyances in a Chapter 7 Case

     In the case of Gold v. Laines, the United States Bankruptcy Court in Alexandria ruled that a Chapter 7 Trustee may recover two properties – the debtor’s home and a rental townhouse – as voluntary and fraudulent conveyances under Virginia law and federal bankruptcy law. The Court further denied the debtor a discharge for having fraudulently transferred the property within one year of the filing of his case. 

     The Court found as facts in Laines that the debtor bought his home and took title solely in his name. Fifteen weeks later, he married his wife, and three days later, he transferred his home to his wife and himself as tenants by the entirety with the common law right of survivorship by “Deed of Gift”. Two years later the debtor and his wife conveyed the home to the wife and a third party by deed of gift. As a result of this, husband and wife owned the home as joint tenants with the common law right of survivorship. 

     The townhouse was also solely owned by the debtor prior to his marriage. Soon after marriage he conveyed it to himself and his wife as tenants by the entirety. A little over a year later the debtor and his wife conveyed the townhouse to themselves and a different third party as tenants in common. This deed also was captioned “Deed of Gift.” The debtor filed for bankruptcy two years later. 

     The Court noted that by law the Bankruptcy Trustee could avoid the last transfer of the house and the last transfer of the townhouse if he proved his case that the transfers were fraudulent conveyances under the Virginia fraudulent conveyance statute, Va. Code Section 55-80. The Bankruptcy Trustee pointed to multiple badges of fraud. He argued that the transfers were to the debtor’s wife and himself as tenants by the entirety. The Debtor retained an interest in the transferred properties and possession of them. There was no consideration. They were made when his start-up venture, a telecommunications company, was heavily in debt, on a debt he had guaranteed. 

     The Court stated that the burden shifted to the wife to come forward and show that the transactions were bona fides and not merely contrivances to place the debtor’s property beyond the reach of creditors. She did not testify. The Court held that the debtor’s actions, in absence of satisfactory evidence of the bona fide nature of the transactions, reflected that the transactions were not undertaken for stated reasons, but were undertaken with the intent to hinder, delay or defraud his creditors. The Court found that neither of the third parties took the property in good faith. They had sufficient knowledge of the debtor’s circumstances and the unusual nature of the transactions to put a reasonable person on notice and cause them to inquire further. The Court held that the Bankruptcy Trustee could recover the house and the townhouse from the two third parties under Virginia Code Section 550 (a).

     The Court also found that the debtor’s intent to hinder, delay or defraud his creditors by the last conveyance of the home was clear. That intent was sufficient even though the transfer itself was not necessary to protect the asset from his creditors.

     The tenants by the entireties transfers of the house and the townhouse were avoided under Virginia Code Section 55-80, as implemented by Bankruptcy Code Section 544(b), and both properties were recoverable by the Bankruptcy Trustee. The debtor was also denied a discharge under Bankruptcy Code Section 727(a)(2) as a result of his last fraudulent transfer of the home.

Collections: Promissory Note - Acceleration of Balance

     The case of Atlas Rooter Co. v Atlas Enterprise, Inc., decided by the City of Richmond Circuit Court, serves as an excellent review of creditor's acceleration rights upon late payment on a promissory note. 

     In Atlas the undisputed facts were that the debtors mailed their loan payment within the ten-day grace period provided for in the promissory note (as they routinely did), but the payment was received after the ten-day grace period. The creditor moved to accelerate the balance due on the note. The debtors argued that the usual course of dealing between the parties authorized the use of the mails for payment. The debtors claimed that because payment by mail was permitted in the past, payment was made when the letter containing the payment was deposited in the mail, and that the risk of late payment was assumed by the note holders. The note, however, did not specify this. 

     The Court ruled that under Virginia law, payment of a debt is made upon receipt by the creditor, rather than by mailing by the debtor. The Court further reasoned that Virginia Code §8.3A - 602 provides that tender of payment of a negotiable instrument must be made "to a person" entitled to enforce the instrument. Payment or satisfaction discharges the liability of a party only if made to the holder of the instrument. The Court stated that to allow the mailing of an installment as timely payment would act to qualify the U.S. Postal Service as an agent of the note holder. 

     There is a lesson for creditors in Atlas even though the creditor prevailed. Keep detailed records of payments, do not waive payment due dates, and create a "paper trail" regarding late payment reminders. Creditors prevail best when they do not have to pay the cost for enforcing their rights. 

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. 

Real Estate: Using Lis Pendens to Secure an Interest in Real Estate

     In prior 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 review the benefits of using lis pendens in litigation cases to aid in the collection of your debt. 

     A lis pendens is a legal memorandum which places parties on notice that litigation is pending which affects the title or ownership of real estate. The lis pendens is filed in the circuit court of the county or city in which real estate lies. 

     Virginia Code §8.01-268 B states that “No memorandum of lis pendens shall be filed unless the action on which the lis pendens is based seeks to establish an interest by the filing party in the real property described in the memorandum…”. 

     Virginia Code § 8.01-268 A provides that a lis pendens does not affect a subsequent bona fide purchaser of real estate for valuable consideration until actual notice of such lis pendens is properly filed with the required information. Requirements include: the title of the cause, the general object thereof, the court wherein it is pending, the amount of the claim asserted, a description of the property, the name of the person whose estate is intended to be affected thereby.

     We have experienced attorneys and staff who can examine title, file lis pendens, and litigate to enforce the same.

Bankruptcy: Punitive Damages - Failure to Return Vehicle

     Judge Tice of the United States Bankruptcy Court, in Richmond, in the case of Brown v. Town & Country Sales and Service, Inc., ruled that a creditor that repeatedly refused to give the debtors’ pickup truck back to the debtors, despite the debtors’ entitlement to the truck after they filed for bankruptcy, violated the automatic stay in bankruptcy and must pay debtors’ attorney’s fees and punitive damages. 

     The creditor’s registered agent testified at trial that, despite the fact that they had always returned repossessed property post-petition in the past, the creditor elected not to return debtors’ vehicle. Instead, she testified that this time the creditor decided it would not return debtors’ vehicle upon demand because the creditor was unhappy that a large number of its customers had declared bankruptcy in the past year. 

     The debtors provided the lender with proof of adequate insurance. The debtors were currently awaiting confirmation of their modified Chapter 13 plan in which the debtors proposed to pay the lender in full. The debtors owed the lender $1,689.02 for the initial truck loan, as well as $1,764.95 for the replacement motor, for a total of $3,453.97.

     The Court concluded that the creditor’s demand for full payment, coupled with its inaction and retention of the vehicle, amount to an exercise of control sufficient to find a violation of the automatic stay for failure to turn over the vehicle pursuant to Bankruptcy Code §542(a). The Bankruptcy Court ruled that the debtors were entitled to recover the truck upon filing bankruptcy. Thus, the creditor’s retention of the vehicle post-petition constituted an exercise of control in violation of the automatic stay and Bankruptcy Code §362(h), which permits a court to impose attorney’s fees, costs and punitive damages for a willful violation of the automatic stay. The Court awarded these.

     The Bankruptcy Court further awarded punitive damages against the creditor in the form of cancellation of both of the creditor’s security interests against debtors’ vehicle. Any balance which debtors owed the creditor was treated as an unsecured claim.

    The lesson in Brown - know the rules and always consult experienced counsel. 

Collections: Interest on Accounts

      It seems to happen more and more often. You are able to obtain your judgment against your debtor, but when you go to collect, he has recently transferred his assets. Can you pursue the assets to the transferee? Under the right circumstances, yes. 

     The case of Price v. Hawkins, from the Newport News Circuit Court, appealed to the Virginia Supreme Court, stands for the position that a court may enter personal judgments against a transferee to provide a creditor with a remedy when, due to fraud, there is no other remedy.

     In Price the Court found that the debtor, a father, enlisted the help of his son and his son's girlfriend in the debtor's scheme to defraud his creditors. Specifically, the son and his girlfriend, who were not legitimate creditors of the debtor, assisted the debtor in hiding assets ($14,058.77) that the creditor would have otherwise reached in his judgment collection efforts. The transfers occurred after the judgment order was entered, and $10,000.00 was transferred to the son and the girlfriend three months later while the creditor was attempting to collect on the judgment.

     The Court found that simply declaring the fraudulent transfer "void" pursuant to Virginia Code §55-80 would be meaningless, as the conveyance was of money. In cases involving the fraudulent conveyance of real estate, title to the real estate is restored by a declaration, thus, subjecting the property to a creditor's bill. The Court ruled in Price that unless the money was delivered to the Court for the creditor to attach, then personal judgments were the only remedy.

     Perhaps the lesson of Price is: Ask questions! When your debtor is under oath for interrogatories, ask what assets have been conveyed to whom, when, and for what consideration.

Collections: Arbitration - A Collection Alternative

     Virginia Code §8.01-382 addresses pre-judgment and post-judgment interest, and provides that: 

In any action at law or equity, the verdict of the jury or judgment by the court may provide for interest on the entire principal sum awarded or any part of that sum, and fix the period at which the interest is to commence. 

     The judgment order entered provides for the accrual of interest until the principal sum is paid. This code section further provides that if no interest is provided on a judgment, the statutory rate of interest shall be applied as of the date of entry of such verdict or judgment. The statutory judgment rate of interest is presently set at an annual rate of six percent, unless otherwise provided by a written contract, agreement or note.

Foreclosure: Advertisements of Sale

    The Code of Virginia provides specific guidance as to advertisements for foreclosure sales. The sale must be properly advertised or it will be void upon order of the court. 

     Virginia Code §55-59.2 states that if the deed of trust provides for the number of publications of the advertisements, no other or different advertisement shall be necessary, provided that: if the advertisement is inserted on a weekly basis, it shall be published not less than once a week for two weeks, and, if such advertisement is inserted on a daily basis, it shall be published not less than once a day for three days, which may be consecutive days. If the deed of trust provides for advertising on other than a weekly or daily basis, either of these statutory provisions must be complied with in addition to the provisions of the deed of trust. If the deed of trust does not provide for the number of publications for the advertisement, the trustee shall advertise once a week for four consecutive weeks; however, if the property, or a portion of the property, lies in a city or county immediately contiguous to a city, publication of the advertisement may appear five different days, which may be consecutive. In either case, the sale cannot be held on any day which is earlier than eight days following the first advertisement or more than thirty days following the last advertisement. 

     Advertisements must be placed in the section of the newspaper where legal notices appear, or, where the type of property being sold is generally advertised for sale. The trustee must comply with any additional advertisements required by the deed of trust. 

Real Estate: Foreclosing on 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. In a previous blog we reviewed the special procedures for the collection of homeowners association dues under Virginia Code §55-516. We will now review the procedures for suits to foreclose on the lien.
     Suits must be brought within thirty six months of filing, but after the perfection of the lien. The Homeowner’s Association may sell the lot at a public sale, subject to prior liens. There are detailed requirements in the code, a brief summary of which include the following:
     1. The association shall give notice to the lot owner prior to advertisement as required in the code.
     2. After expiration of the 60-day notice period, the association may appoint a trustee to conduct the sale.
     3. If the lot owner meets the conditions specified in this subdivision prior to the date of the foreclosure sale, the lot owner shall have the right to have enforcement of the perfected lien discontinued prior to the sale of the lot. Those conditions are that the lot owner: (i) satisfy the debt secured by lien that is the subject of the nonjudicial foreclosure sale and (ii) pays all expenses and costs incurred in perfecting and enforcing the lien, including but not limited to advertising costs and reasonable attorneys' fees.
     4. In addition to the advertisement requirements, the association shall give written notice of the time, date and place of any proposed sale in execution of the lien, and include certain information required in the code.
     5. The advertisement of sale by the association shall be in a newspaper having a general circulation in the city or county wherein the property to be sold, with certain information requirements as set forth in the code.
     6. Failure to comply with the requirements for advertisement contained in this section shall, upon petition, render a sale of the property voidable by the court.
     7. In the event of a sale, the code sets forth bidding and proceeds application procedures.
     8. After sale, the trustee shall deliver to the purchaser a trustee's deed conveying the lot with special warranty of title.
     9. After completion, the trustee shall file an accounting of the sale with the commissioner of accounts.
     We have experienced attorneys and staff who can examine title, file homeowner association liens, and litigate to enforce the same.

Bankruptcy: Dischargeability of Debts - False Representation

     In Crestar Bank v. Green, Judge Tice, for the United State Bankruptcy Court, Eastern District of Virginia, at Newport News, ruled that a debt to the debtor's cousin and his assignee was non-dischargeable pursuant to Bankruptcy Code §523(a)(6). 

     Originally the Creditor had complained that the debtor had falsely attested to a notary public and to a real estate lawyer that his note secured by the real estate had been paid in full. The Creditor argued that discharge was precluded as a false representation under Bankruptcy Code §523(a)(2)(A). The evidence was that the debtor had conceded that he voluntarily and intentionally signed the certificate releasing the deed of trust. The debtor also admitted that at the time he signed the certificate he knew that the document represented that the note was "paid in full". The debtor also admitted that he knew that he was transferring title of the property to the buyer even though the property was the security for repayment of the note to his cousin.

     The Court, despite the Creditor's argument, held that the false representation was not made to either the note holder or to the successor bank, and neither creditor relied on the false representation. Therefore, Bankruptcy Code §523(a)(2)(A) did not preclude discharge. However, the Court held that the false representation was a willful and malicious injury to another person's property under Bankruptcy Code §523(a)(6). The Court found that the debtor effectively forged his cousin's signature and released the cousin's deed of trust. The debtor's intentional act of forging and recording the certificate of satisfaction constituted willful and malicious injury to the cousin's property rights. Therefore, the bank, as assignee, was entitled to the damages caused by the debtor's wrong. Accordingly, the Bankruptcy Court ruled that the debt to the cousin and his assignee was non-dischargeable pursuant to Bankruptcy Code §523(a)(6).

Collections: Ensure Good Faith in Pleadings

   Virginia Code §8.01-271.1, and its federal equivalent Rule 11, provide for sanctions against litigants and\or attorneys who file frivolous pleadings or motions. Under the Virginia Code and the Federal Rule, a signature attached to a pleading or motion constitutes a certificate that: 

     1. The signatory has reasonably inquired into the facts and that the claim is well founded in fact, and warranted by existing law, or that there is a good faith argument for the extension, modification or reversal of existing law, and 

     2. The pleading or motion is not interposed for an improper purpose (i.e. delay or harassment). 

     Sanctions include the payment of reasonable attorney fees and expenses incurred as a result of the frivolous pleading or motion. 

Foreclosure: Deed in lieu of Foreclosure

     In certain cases it may be more practical for the lender to seek or accept from the borrower a deed in lieu of foreclosure rather than incur the expense of foreclosure – this is at the lender’s discretion. If the lender agrees, in return for voluntarily surrendering the property, the borrower will seek either partial or complete satisfaction of the debt. 

     Considerations. Before accepting the deed in lieu of foreclosure, the lender must consider many matters: 

     1. Value of the property vs. the amount of the debt. 

     2. Other debts on the property. A deed in lieu of foreclosure does not extinguish prior or junior liens or encumbrances. Thus the lender, in accepting the deed, accepts the property with the liens. It is possible for the lender to structure the deed in lieu of foreclosure so that it does not release the deed of trust so as to preserve a future foreclosure to extinguish subordinate liens. 

Real Estate: Common Area Parking Spaces Must be Assigned Equally

   The Court of Appeals of Virginia recently issued an opinion affirming a Circuit Court decision holding that common area parking spaces must be assigned equally. The case involved a suit by a homeowner, Patrick Batt, against Manchester Oaks subdivision in Fairfax County. The subdivision contained 57 townhouses, 30 of which were constructed with a garage and driveway (garaged lots) and 27 of which were constructed with an additional bedroom and bathroom in lieu of a garage (ungaraged lots). The subdivision included a common area with 72 parking spaces. 

     The subdivision was subject to a declaration, administered by the homeowners association that gave the association the right to designate a maximum of two parking spaces for the exclusive use of each lot owner. However, the association was not required to ensure that parking spaces were available to any particular owner or to oversee use of the parking spaces. Batt had purchased a garaged lot in 1990, before the subdivision was complete. At that time, residents parked wherever they chose. In 1993 or 1994, the developer began assigning two parking spaces to each ungaraged lot. The remaining 18 parking spaces were designated as “visitor” parking, available to all lot owners on a first-come, first-served basis. 

     In 2009, the association issued one visitor parking permit to each lot owner and posted a parking policy on its website. Any vehicle not displaying a permit while parked in the visitor parking spaces would be towed. In December 2009, the association amended the declaration to provide that the association had the right to designate two parking spaces exclusively to each of the ungaraged lot owners on a non-uniform and preferential basis. In June 2010, Batt sued the association, claiming that the unequal treatment of owners over parking space assignments violated the declaration. The association argued that Batt’s suit was barred by the December 2009 amendment to the declaration. 

     The circuit court ruled in Batt’s favor, finding that the amendment was invalid for six reasons. The association appealed. The Court of Appeals ruled, in summary, that equality is inherent in the definition of “common area.” A “common area” is defined as, “[a]n area owned and used in common by residents of a condominium, subdivision, or planned-unit development.” Black’s Law Dictionary defines “in common” to mean “[s]hared equally with others, undivided into separately owned parts.” Accordingly, the court held that the association must assign common area parking spaces to all lot owners equally, if at all, unless the declaration expressly provided otherwise. In this case, the court did not find that unequal assignment was authorized. 

     Call Eddie to discuss your Homeowner’s Association questions. (804) 545-6251. 

Bankruptcy: Punitive Damages - Failure to Return Vehicle

     Judge Tice of the United States Bankruptcy Court, in Richmond, in the case of Brown v. Town & Country Sales and Service, Inc., ruled that a creditor that repeatedly refused to give the debtors’ pickup truck back to the debtors, despite the debtors’ entitlement to the truck after they filed for bankruptcy, violated the automatic stay in bankruptcy and must pay debtors’ attorney’s fees and punitive damages. 

     The creditor’s registered agent testified at trial that, despite the fact that they had always returned repossessed property post-petition in the past, the creditor elected not to return debtors’ vehicle. Instead, she testified that this time the creditor decided it would not return debtors’ vehicle upon demand because the creditor was unhappy that a large number of its customers had declared bankruptcy in the past year. 

     The debtors provided the lender with proof of adequate insurance. The debtors were currently awaiting confirmation of their modified Chapter 13 plan in which the debtors proposed to pay the lender in full. The debtors owed the lender $1,689.02 for the initial truck loan, as well as $1,764.95 for the replacement motor, for a total of $3,453.97. 

     The Court concluded that the creditor’s demand for full payment, coupled with its inaction and retention of the vehicle, amount to an exercise of control sufficient to find a violation of the automatic stay for failure to turn over the vehicle pursuant to Bankruptcy Code §542(a). The Bankruptcy Court ruled that the debtors were entitled to recover the truck upon filing bankruptcy. Thus, the creditor’s retention of the vehicle post-petition constituted an exercise of control in violation of the automatic stay and Bankruptcy Code §362(h), which permits a court to impose attorney’s fees, costs and punitive damages for a willful violation of the automatic stay. The Court awarded these. 

   The Bankruptcy Court further awarded punitive damages against the creditor in the form of cancellation of both of the creditor’s security interests against debtors’ vehicle. Any balance which debtors owed the creditor was treated as an unsecured claim. 

   The lesson in Brown - know the rules and always consult experienced counsel.

Collections: Bank Denied Lawyer Fees Due to Problem in the Guaranty

    In the case of Jefferson National Bank v. Estate of Frogale, a Loudoun County Circuit Court Judge denied the award of attorney's fees to a bank because the guaranty agreement did not have a provision for attorney's fees even though the promissory note clearly provided for 25% attorney's fees. The Loudoun Court found that the guaranty referred only to collection of "charges or costs" upon default. The Court ruled that this language was ambiguous, and as such, construed the ambiguity against the bank because they drafted the documents. 

     In Frogale a corporation defaulted in the payment of a note and the bank sued the note's guarantor. The guarantor filed a motion for summary judgment regarding the question of the guarantor's liability for attorney's fees. The Loudoun Court reviewed the Virginia Supreme Court case of Mahoney v. Nationsbank. In Mahoney the Virginia Supreme Court ruled that a note and guaranty are two separate agreements, but each must be construed in the light of the other. In doing so, the Loudoun Court stated that it was "crucial that the bank chose to distinguish in the Note between 'all other applicable fees, costs and charges' and attorney's fees; and that it chose not to place a specific attorney fee obligation in the guaranty." The Loudoun Court pointed out that the bank could have placed an attorney's fee provision in the guaranty just as it had done in the note. 

     The lesson of Frogale is that you should be careful that when you have guaranties you ensure that the language in the guaranty "mirrors" the language in the promissory note - without mirror language, there can be a problem, with mirror language, ambiguity should not be an issue.

Foreclosure: Right to Cure a Default

     Question: Once a borrower is in default, can he “reinstate the loan”, or, “cure the default” and stop the foreclosure sale? Answer: yes. In general, most deeds of trust contain language that allows a borrower the opportunity to reinstate, or cure, the loan after the due date set out in the note. If the deed of trust contains this language, the note cannot be placed into default and accelerated until the cure period has expired. Government loans such as Fannie Mae and Freddie Mac have very specific requirements. In fact, a borrower can always cure a monetary default and stop a foreclosure up to the time of sale by paying in full, in good funds, the deficient amount, including all costs of the sale.

Real Estate: The Virginia Property Owners' Association Act - Memorandums of Lien

      In a previous blog, I began discussing the Virginia Property Owners’ Association Act. 

   The Act specifically provides for remedies outside of the more common remedy of filing suit for the amount owed and receiving a judgment. A memorandum of lien to a holder of a credit line deed of trust under the Act is given in the same fashion as if the association’s lien were a judgment. Under the Act, the association can file for and perfect a lien against the homeowner that is prior to all other subsequent liens and encumbrances except real estate tax liens, liens and encumbrances recorded prior to the recordation of the declaration, and sums unpaid on and owing under any mortgage or deed of trust recorded prior to perfection of this lien. 

     To perfect the memorandum of lien, the association must file with the clerk of the circuit court in the county or city in which the development is situated a memorandum verified by the oath of the principal officer of the association or another officer provided for in the declaration. The memorandum must be filed within 12 months from the first assessment became due and payable. Additionally, prior to filing a memorandum of lien, a written notice must be sent to the property owner by certified mail, at the owner’s last known address, informing the owner that the lien will be filed in the circuit court clerk’s office at least 10 days before the actual filing date of the lien. The memorandum must name the development, describe the lot, name the person(s) constituting the owners of the lot, list the amount of unpaid assessments currently due or past due relative to such lot together with the date when each fell due, list the date of issuance of the memorandum, name the association with a name and address of the contact for the person to contact to arrange for payment or release of the lien, and state that the association is obtaining a lien in accordance with the provisions of the Virginia Property Owners’ Association act as set forth in Chapter 26 (section 55-508 et seq.) of Title 55. 

     The Act provides that a judgment or decree in this action must include, without limitation, reimbursement for costs and reasonable attorney’s fees for the prevailing party. Also, if the association prevails, it may also recover interest at the legal rate for the sums secured by the lien from the time each sum became due and payable. If the owner then satisfies the debt, the lien must be released, and failure to release the lien results in a penalty.

     Once a lien has been perfected, the association must enforce the lien within 36 months from the time when the memorandum of lien was recorded. This time period cannot be extended. 

     In a future blog, I will discuss foreclosure on a lien.

Bankruptcy: Dischargeability of Debts - Reliance on Financial Statement

     In the case of Paterno Imports Ltd. v. McBee, Judge Tice of the United States Bankruptcy Court, Eastern District of Virginia, sitting in Richmond, held that a plaintiff/creditor, a wine import company who had obtained a judgment against the debtor and his business, failed to prove that it required or relied on the alleged material misrepresentations in a financial statement provided to the debtor company. Accordingly, the judgment the import company ultimately obtained against the debtor and his business was not exempt from discharge. 

     The Court ruled that the case hinged upon the events surrounding a meeting between the debtor, the debtor's counsel, the plaintiff and the bank official. Each party presented evidence in diametric opposition to the other party's claims. The oral testimony presented by the parties at trial was, in its most important aspect, conflicting and irreconcilable. 

     The Court pointed out that in a dischargeability case, the burden of proof is on the plaintiff. The Court found that the plaintiff failed in its burden. Despite the fact that the plaintiff's counsel prepared extensive documentation which the debtor was required to sign both personally and for his company, the debtor's guaranty did not mention a financial statement, and no other writing presented at trial suggested that the guaranty was conditioned upon the plaintiff's approval or acceptance of the debtor's financial statement. 

     In summary, the Court found that the plaintiff failed to establish (1) that the plaintiff and the debtor entered into an agreement under which the plaintiff would forbear from pursuing further collection efforts against the debtor's business and give it time to resolve its financial difficulties, in exchange for the debtor's personal guaranty of the company's debt to the plaintiff; (2) that any transaction between the plaintiff and the debtor was conditioned upon the plaintiff's acceptance or approval of the debtor's personal financial statement; or (3) that at the meeting of the parties the debtor produced a personal financial statement or that there was any discussion of such a statement. The Court stated that these findings required the Court to conclude that the plaintiff did not rely upon the debtor's personal financial statement or any other statement. Therefore, the debt was discharged.

Collections: The IRS Can Be Helpful in Commercial Collections

     Can you imagine using the IRS to help in collections? I can! I have an interesting technique that I have recommended for years – I first ran an article on this in the May, 1992 (the 4th Edition) of my newsletter Creditor’s News! Since recently others have also begun recommending this technique I thought that I would review it again. 

    After a sufficient amount of time has passed to consider a commercial credit account "uncollectible," the creditor should consider writing off the debt as a potentially tax-deductible bad debt. The creditor's loss may then become the debtor's gain and, as such, may be reported to the IRS on Form 1099 as income to that debtor. 

     Before actually writing off the debt, attempts should be made to contact the debtor and advise him of the intended action. If you do not have the debtor's social security number, try including a W-9 form with your letter. This could evoke some favorable response. 

     I have a form letter that I recently revised to accomplish all of this. The letter (written from the perspective of the creditor itself) advises the debtor that his account is seriously past due despite repeated attempts to make arrangements for payment. The debtor is further advised that unless the debt is paid in full within fifteen (15) days from the date of the letter, the creditor will, at its option, report the loss to the IRS on their form 1099c. This reporting will result in taxable income to the debtor (reference IRS Regulation S1.61-12). This reporting will result in an IRS audit risk to the debtor, as the IRS routinely runs computer matches of the 1099’s filed against tax returns actually filed to insure that all income is reported; there are severe penalties if not. The letter further states that the creditor is demanding the debtor’s tax identification information; the debtor is asked to do so within fifteen (15) days. The debtor must provide this information to the creditor under penalty of federal law. I recommend that you send with the letter a copy of the IRS form W-9 evidencing the unpaid debt, and advise the debtor that if you do not receive the W-9, the creditor will, at its option, file an IRS form 1099c incomplete. This will further increase the debtor’s chances of an audit. 

     Many debtors will wish to resolve the debt as a result of these actions. After all, who wants the IRS checking them out? 

     If you have any questions of wish to discuss this, please call me at 545-6250. Eddie.

Foreclosure: Default

     Question: When is a loan in default? Answer: Under one or more of several circumstances. The most common way that a borrower is in default is monetary – e.g., the borrower fails to make a required payment. However, default can be for a non-monetary reason as well, such as: 

     1. Failure to pay taxes. 

     2. Failure to pay insurance. 

     3. Failure to remove or bond over mechanic’s liens. 

     4. Failure to perform requirements unique to the loan. 

     If you have questions about default, please call Eddie at 545-6251. 

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

     In a prior 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. 

Bankruptcy: Dischargeability of Debts - Company Funded & Controlled by Wife

     In the case of Old National Bank v. Reedy, Judge Tice of the United States Bankruptcy Court, Eastern District of Virginia, denied a complaint against dischargeability. In Reedy the debtor, a consultant on obtaining government contracts, had financial difficulties in his prior business operations. One year before he filed for bankruptcy, the debtor’s wife agreed to assist him from her own financial resources by capitalizing and operating a company in which she was the sole shareholder and through which husband could perform his consulting work. The creditor bank had argued that the establishment and operation of this business was a transfer with intent to defraud creditors. 

     The Court held that the case was devoid of any direct testimony by the debtor concerning specific intent to delay, hinder or defraud his creditors. Instead, there was credible evidence regarding the legitimate business purpose of setting up and operating the corporation in its present form. 

     In Reedy the debtor's wife completely capitalized the business and maintained the books and records while the debtor performed consulting services. Such control was a condition to the debtor's wife's capital contribution. Moreover, the debtor's wife initiated the incorporation of the business and had been the only stockholder since its inception. No transfer of stock ever occurred. 

     In summary, the Court denied the creditor's request for two reasons. First, there was no transfer of property by the debtor. Although the debtor had earned some consulting commissions, there was no evidence that he had an established business or that he transferred a business to the corporation. He merely went to work for and rendered services to a new employer. There was no basis in the trial record for the Court to ignore the business as a separate and independent entity. The business's receipts of consulting income did not constitute transfers by the debtor. Second, there was no intent by the debtor to hinder or delay his creditors. The formation of the business by the wife almost a full year before the debtor filed bankruptcy served a legitimate business purpose of enabling the debtor's wife to assist him in dealing with his financial problems. The Court found that the new arrangement removed the debtors' ability to make imprudent financial decisions and gave wife the reassurance she needed if she was to assist him from her own independent financial resources.

Collections: Notice of Sale of Security Interest

     The case of The State Bank of the Alleghenies v. Hundall, decided by the United States District Court at Roanoke, Virginia, serves as a good example of what happens where a creditor sells items pledged as security for a loan without making proper notice to all parties. 

     In Hundall, the defendant guaranteed the bank's loan to his brother for a dry-cleaning business, but the defendant guarantor never received notice of how, when and by what manner of sale the bank intended to sell motor vehicles belonging to the brother's business. The evidence taken clearly proved that the bank failed to send notice of the sale of the motor vehicles, which had a fair wholesale value of approximately $8,500.00 in the aggregate. The District Court ruled that this violated the provisions of Virginia Code §8.9-504(3); however, the Code does not provide a remedy for the failure to comply with the statutory provisions for resale, and the appropriate remedy had not been ruled upon by the Virginia Supreme Court. The District Court, in its ruling, cited that courts which have addressed this appropriate remedy for failure to provide notice have adopted one (1) of the following three (3) rules: 

       1. The debtor must prove that he has suffered an injury in order to obtain any recovery against the secured party; 

   2. The secured party is absolutely barred from recovering a deficiency, even if the debtor suffered no injury; and 

     3. A rebuttable presumption is that the collateral was worth the amount of the debt which requires the secured party to prove that the debtor suffered no injury. 

     Virginia Code §8.9-507(1) entitles the debtor, or any person entitled to notification, "to recover from the secured party any loss caused by the failure to comply with the provision of this part". 

     The Court elected the third of the three remedies listed above, and forced the creditor to prove the fair value of the collateral. 

     The lesson of Hundall: creditors should send notice to all parties to the transaction -- the principal debtors, guarantors and the owners of the collateral. 

Foreclosure: Sale Price and Delays in Sale

     The trustee is under a duty to “use all reasonable diligence to obtain the best price.” 

     If the trustee determines that in order to fulfill his fiduciary duty to realize the highest price for the property, a recess is necessary, he or she should recess the sale. Arguably, the recess is within the scope of the discretion afforded trustees in the conduct of the foreclosure sale. For example, if a bidder who previously advised the trustee of his interest in bidding on the property is delayed, the trustee, in his discretion, may recess the sale to a later hour on the same day to allow the bidder to attend the sale. If the trustee fails to accommodate the bidder and the property is sold for a price less than the bidder was willing to pay, the trustee may have breached his duty to “use all reasonable diligence to obtain the best price.” A decision by the trustee to recess the sale, however, should not impair the sale by making it impossible or impracticable for the bidders to appear and bid at the recessed sale.

     The postponement of a foreclosure sale to a different day is not a recess and is governed by statute. Virginia Code §55-59.1(D) provides that the trustee, in his discretion, may postpone the sale to a different day, and no new or additional “notice” must be given. Presumably, the “notice” referred to in this section is notice of the postponement. The trustee needs only to announce at the sale that it has been postponed. §55-59.2(D) provides that if the sale is postponed, the trustee must advertise the “new” sale in the same manner as the original advertisement. Read in conjunction, these sections require the trustee who postpones the foreclosure to re-advertise the sale in the same manner as the original sale was advertised. Although the secured obligation will not need to be accelerated again, all other aspects of the foreclosure must be completed. Effectively, a postponed sale is a new sale in which the trustee must complete all acts that he or she completed in the first sale.

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 issues will address memorandum of liens and foreclosures. 

Bankruptcy: Dischargeability of Debts - Piercing the Corporate Veil

     In the case of Hodnett v. Loevner, Judge Tice of the United States Bankruptcy Court, Eastern District of Virginia held that a bankruptcy debtor is not insulated from the dischargeability issues raised under Bankruptcy Code §523 (a)(4) by virtue of the fact that the transactions were done in the name of a corporation. 

     The debtor had transferred the plaintiff/creditor's trust funds to a limited partnership of which the investment company, the debtor's alter ego, was a general partner, without any notice to the plaintiff. Further, the debtor failed to properly account for the location of the funds. The debtor was also an officer, director and 50 percent shareholder in the corporation, and most importantly, was the person who made the investment decisions concerning client funds. The debtor was the alter ego of the investment company, and the Court found that the company was used in conjunction with the limited partnership to obscure fraudulent conduct with respect to the plaintiff. Therefore, the Court invoked the doctrine of piercing the corporate veil to hold the debtor personally liable for acts of the corporation.

     The Court held that the judgment was also exempt from discharge under Bankruptcy Code §523(a)(2)(A) because of the debtor's actual fraud. The debtor's statements, reports and correspondence concerning the existence of certificates of deposits were misrepresentations of material facts which were made by the debtor in an effort to deceive the plaintiff, and upon which the plaintiff relied, permitting the debtor and the investment company to use the trust funds in violation of an express trust. As a result of those misrepresentations, the debtor lost $107,000 of the plaintiff's trust funds. The Court found that this conduct on the part of the debtor constituted fraud.

     The Court further found that even if it could be argued that the debtor intended to repay the funds, his lending the plaintiff's funds on an unsecured basis while lying to the plaintiff about the nature of the investment constituted reckless conduct tantamount to fraud.

Collections: Collection Accounts - What We Can Do For You

     In a previous blog, we discussed what we can do for you to handle your collection accounts. 

     If you choose Lafayette, Ayers & Whitlock, PLC, we can handle your accounts from beginning to end. We can accept all cases on a one-third contingency fee of all amounts collected. We will assess the court-allowed fee the moment the account is turned over for collection, and this amount is recoverable from the debtor. We have trained and experienced support staff and an aggressive approach to collections. In reviewing the Course of Action Chart (below) you will see that we will aggressively pursue your recovery. Virginia District Court judgments are good for ten years, twenty in the Circuit Court. If the judgment is docketed (we docket all judgments unless the value is very small or you instruct otherwise), the lien is enforceable for twenty years. We provide detailed monthly accounting. At the beginning of each month you will receive a report outlining significant matters, a computer generated financial accounting, by debtor, dollar for dollar. You will also receive a case status report detailing current status and action.

COURSE OF ACTION CHART

Step 1 --- Account turned over for collection. 

Step 2 --- Demand letter sent to debtor within 24 hours of our receipt of the account. 

Step 3 --- After ten days (a time period that we are required by federal law to give), if there is no plan for payment that you approve, we will file suit. The suit is normally set 30 to 45 days in advance.

Step 4 --- On the date of the suit return we will either obtain default judgment or, if the debt is contested, set the case for trial.

Step 5 --- Once judgment is entered, and after the ten-day appeal period, we will docket the judgment and proceed in post-judgment collections, as set forth below.

Step 6A --- Establish an acceptable post-judgment payment plan; if not,

Step 6B --- Garnishment of wages or accounts; if not,

Step 6C --- Levy on personal property; if not,

Step 6D --- If no apparent remedy, schedule debtor's interrogatories and return to Step 6A.

Step 7 --- If there are no apparent collection measures available, we will review a new credit report every six months and return to Step 6A.

     In bankruptcy matters, we can assist you by handling all of your needs. We can review bankruptcy schedules, review and object to chapter 13 plans, file proofs of claim, attend hearings and more.

     In foreclosure matters, we can assist you by handling all of your foreclosure cases from demand to final accounting in all counties and cities across the Commonwealth.

     In real estate matters, we can assist you by preparing loan documents for first, second, equity line and refinances, as well as conducting closings, recordings and coordinating title examination and title insurance.

     Please call me at 545-6251 for a free consultation.

Foreclosure: Foreclosure Sale Accounting

     The Code of Virginia requires that the trustee’s accounting be filed with the appropriate commissioner of accounts “within six months after the date of a sale.” The Manual for Commissioners of Accounts states that “although the Commissioner does not have specific statutory authority to extend the six month filing date, some courts allow the Commissioner to extend the deadline for good cause shown in advance of the filing date.” 

Real Estate: Homeowners' Association Wins Damages on Owner Violations

     There has been much litigation over HOA violations in the last few years. Circuit Courts have been scrutinizing HOA violation claims very carefully. Enforcement and damages for violations can be won. The December 2011 Loudon County Circuit Court case of Lee’s Crossing Homeowners’ Association v. Zinone is a good example of such enforcement. In Lee’s Crossing, the court found that in building her home, the homeowner committed multiple violations of the plan approved by the Architectural Review Board. Ultimately, the court assessed damages in favor of the homeowners’ association on the basis of “one overriding violation,” the failure to comply with the ARB-approved application.

Bankruptcy: Plan Confirmation - Value of Vehicle

     In the case of In re: Rodnok the United States Bankruptcy Court at Richmond, Virginia, sustained a creditor's objection to the debtors' second modified Chapter 13 plan based upon the valuation of collateral. 

     In Rodnok the creditor, who had a Ford Aerostar van as collateral, filed a proof of claim stating the value as $13,075, which the debtors had not objected to. The debtors argued that the value of the van was already decided in the approved first modified plan to be $9,300, and that a redetermination was barred by the doctrine or res judicata. The creditor argued that the Court was not bound by the value determined in the first modified plan when it was determining approval of the second modified plan. 

     The Court stated that in determining whether a secured creditor should be bound to the value of its collateral as provided for in a confirmed Chapter 13 plan, the Court had to look at Bankruptcy Code §506 (a). This code section states that a claim is a secured claim to the extent of the value of the creditor's collateral and is unsecured as to the extent that the debt owed to the creditor exceeds the value of the collateral. Value of the collateral can be determined in any hearing concerning the disposition or use of the collateral or the confirmation of a plan affecting the secured creditor's interest. Bankruptcy Rule 3012 requires that notice of the hearing be given to the holder of the secured claim before a court may determine the value of that creditor's collateral. 

     In Rodnok the Court determined that the creditor was not provided the appropriate notice that the debtors were going to modify their secured claim, and therefore the creditor cannot be bound by the value assigned in the debtors' first modified plan, which was book value. 

     The Court found that the value of the van was $12,000. The creditor based its determination that the van had a value of $13,075 on the N.A.D.A. As evidenced by the certificate of title, the van came with numerous extras, adding to the overall value of the vehicle. The debtors claimed a deduction for excessive mileage, but the Court noted that at the first meeting of the creditors the debtors stated that the van had only 25,000 miles on it. Overall, the Court found that the value of the van more closely resembled that proposed by the creditor. Accordingly, the Court sustained the creditor's objection to the debtors' second modified plan. 

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

Collections: Collection Accounts - What We Can Do For You

     We can assist you by handling all seriously delinquent accounts from start to finish - no other collection alternative that you have can do this.

     I also want to thank all of you who are clients. You helped make this year our most successful ever. I look forward to an ever better 2020.

     For those of you who are not yet clients, please know that I am always ready and willing to meet with you. At Lafayette, Ayers & Whitlock, PLC, we have a diverse general practice of law. We focus on Creditor’s Rights. We are unique amongst Creditor’s Rights law firms as we represent you in all areas: collections, bankruptcy, foreclosure and real estate.

     In collection matters, we can assist you by handling all seriously delinquent accounts from start to finish - no other collection alternative that you have can do this.

     If you hire an additional staff employee, you are paying salary and benefits for collections. This amount is non-recoverable from your debtors, even though they caused the expenditure. Further, since the employee is not an attorney, they cannot try contested cases, or file Motions for Judgment in Circuit Court, or conduct debtor's interrogatories (without interrogatories many collection cases will sit inactive).

     If you employ a collection agency, you may incur a flat fee cost for accounts. This cost is not recoverable under Virginia law, despite the fact that your loan documents say that the debtor will pay all costs of collection. In addition to these nonrecoverable costs, you will also have percentage costs that you cannot recover. A collection agency is frequently your worst option because they can do less for you than you can do for yourself. In reviewing the Collection Alternatives Comparison Charts, you will see that if a debtor does not respond to the collection agency's letters, the agency is sunk. The agency cannot file any court papers on your behalf, and they cannot perform any judgment executions. In the end, all a collection agency does is provide a threatening third party voice.

COLLECTION ALTERNATIVES COMPARISON CHARTS

Chart One:  Action

ACTION	COLLECTION AGENCY	ADDITIONAL EMPLOYEE	LAW, PLC
Make Demand	Yes	Yes	Yes
Collect Payments	Yes	Yes	Yes
Take Judgment	No	Yes	Yes
Try Contested Cases	No	No	Yes
File Garnishment	No	Yes	Yes
Levy	No	Yes	Yes
Summons to Answer Interrogatories	No	No	Yes

Chart Two:  Costs

ACTION	COLLECTION AGENCY	ADDITIONAL EMPLOYEE	LAFAYETTE, AYERS & WHITLOCK, PLC
Costs	Unrecoverable fee paid to agency, if they collect, and non-assessable to the debtor	All collection costs are out of your pocket and non-assessable to the debtor	1/3rd fee of all amounts collected- 25% recoverable from debtor upon court judgment unless your loan documents say 1/3rd - you only pay fees on what we collect

     In a future blog, we will address how we handle your accounts from beginning to end.