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.

Suit to Enforce Mechanic’s Liens

    In recent posts we have been discussing the benefits of using real estate to improve creditors’ positions.  This month we will discuss suit to enforce mechanic’s liens.

Virginia Code §43-17 provides that no suit to enforce a mechanic’s lien can be brought:

“…after six months from the time when the memorandum of lien was recorded or after sixty days from the time the building, structure or railroad was completed or the work thereon otherwise terminated, whichever time shall last occur; provided, however, that the filing of a petition to enforce any such lien in any suit wherein such petition may be properly filed shall be regarded as the institution of a suit under this section; and, provided further, that nothing herein shall extend the time within which such lien may be perfected.”

Virginia Code §43-17.1 provides that:

“Any party, having an interest in real property against which a lien has been filed, may, upon a showing of good cause, petition the court of equity having jurisdiction wherein the building, structure, other property, or railroad is located to hold a hearing to determine the validity of any perfected lien on the property. After reasonable notice to the lien claimant and any party to whom the benefit of the lien would inure and who has given notice as provided in § 43-18 of the Code of Virginia, the court shall hold a hearing and determine the validity of the lien. If the court finds that the lien is invalid, it shall forthwith order that the memorandum or notice of lien be released from record.”

Virginia Code §43-18 provides:

“The perfected lien of a general contractor on any building or structure shall inure to the benefit of any subcontractor, and of any person performing labor or furnishing materials to a subcontractor who has not perfected a lien on such building or structure, provided such subcontractor, or person performing labor or furnishing materials shall give written notice of his claim against the general contractor, or subcontractor, as the case may be, to the owner or his agent before the amount of such lien is actually paid off or discharged.”

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

Freezing Bankrupt Debtor's Accounts—Part 2

    Last month we examined whether a creditor can freeze the accounts of bankrupt debtors in order to protect the rights of offset  in Chapter 7 Banktuptcy. This month we continue the discussion specifically in reference to Chapter 13 bankruptcy.

    In regard to Chapter 13 cases, the case of Sperberg v. Virginia League Central Union, tried with assistance from the Virginia Credit Union League in the United States District Court for the Western District of Virginia, Lynchburg Division, gave helpful guidance.  In Sperberg  the debtors, at the time of the filing, were obligated on two note loans to the credit union.  The debtors had a share account with the credit union with a balance of $348.60.  Counsel for the credit union sent a letter to the debtor’s counsel asking that the Chapter 13 plan be amended to permit the credit union to offset its indebtedness against the share account outside the Chapter 13 plan.  The credit union’s position was that the small amount to be offset did not justify paying a filing fee and an attorney’s fee for a motion to lift stay.  The credit union’s counsel reported that the debtor’s counsel responded in writing refusing the request to amend the plan, stating in part:

 “Hopefully this will make the credit unions realize that if they wish to pursue this action by freezing my clients accounts, they will incur the necessary attorney’s fees and costs associated with this action. Based on these requirements the credit unions think twice before freezing accounts…”

Accordingly, the credit union then objected to the plan stating that the plan failed to give proper treatment to the credit union’s claims and that the debtor’s attorney’s actions demonstrated bad faith.

The debtors then filed an amended plan which gave the credit union two options:

1. The debtors could agree to surrender the share account funds after the credit union first filed a motion to lift stay and had a hearing thereon; or

2. The share account funds would be classified as secured debt and would be paid under the plan by the Chapter 13 Trustee but only upon the immediate release of these funds to the debtors by the Credit Union.

Following an adverse ruling by the Bankruptcy Court and an appeal by the credit union, the District Court ruled that the plan should not have been confirmed by the Bankruptcy Court.  The District Court held that the Bankruptcy Code §1325 (a)(5)(C), which permits a plan provision to surrender collateral to a secured creditor, does not recognize conditioning the surrender upon the secured parties filing a motion to lift stay.  Likewise the alternative proposal that the credit union release the share account back to the debtor and be paid as a secured creditor by the Chapter 13 Trustee was not found to meet the requirements of Bankruptcy Code §1325 (a)(5)(B), because it did not provide for the credit union to retain its lien.

The District Court also addressed the question as to whether the debtor proposed the plan in bad faith.  The District Court found that the debtor’s amended plan was not proposed in good faith.

It is important to note that there are times when the principal must be argued in order to establish a precedent.  Although the amount in question was not high in Sperberg, the principal was.

Credit Reports

Credit reports provide individuals or institutions that have legitimate "need to know" rights with access to important information. This information includes full name, address, social security number, employer, spouse's name, loans, charge accounts, credit cards, bankruptcies, tax liens, and judgments.
    Credit reports are governed by state laws and federal law - the Fair Credit Reporting Act (FCRA). In addition, the Federal Trade Commission regulates the credit reporting industry.
    The three largest credit reporting agencies are Equifax, Trans Union, and Experian. There are also several local agencies.
    Information will remain on credit reports for varying lengths of time:

• Chapter 7 Bankruptcies - Ten years from the date of filing, regardless of dismissal or discharge.
• Chapter 13 Bankruptcies - Seven years from plan completion.
• All remaining negative information - Seven years.
• Open accounts in good standing - indefinite.

    If an individual disputes information reported to the reporting agency, the individual can send notice of the dispute to the agency. The agency will then contact the information provider to verify the information. If the information cannot be verified, it should be deleted. The Agency will then report its findings to the individual. If the individual still disputes the information, the individual may provide a written statement (up to 100 words) to accompany the report.
    If the verification results in a more favorable report for the individual, he may request that the revised copy be sent to anyone who has requested his report within the last six months for credit purposes, or in the past two years for employment purposes.

Be Prepared to Conduct Foreclosures

While foreclosure may not be a topic that debtors (or even creditors) want to discuss, like all other aspects of proper business planning, you should.
    With more creditors engaging in loans secured by real estate (which I strongly advocate), be they first deeds of trust, second or subsequent deeds of trust, refinances or credit lines, a certain amount of default is to be expected.  Being prepared to react to default is imperative.
    At the law firm of Lafayette, Ayers & Whitlock, PLC, we represent creditors - from start to finish.  We are a full-service creditor’s rights firm.  While many attorneys do “collections”, few attorneys have the trained expertise and staff to represent creditors in all four areas of Creditor’s Rights—Collections, Bankruptcy, Real Estate and Foreclosure.  WE DO FORECLOSURES.  We will handle foreclosure proceedings from demand to final accounting.