Trustees in Foreclosure

Trustee under a deed of trust are agents for both the lender and the borrowers.  Accordingly, a trustee must act fairly and impartially.  The lender must not let either the lender or the borrower influence the manner in which a trustee carries out the terms of the deed of trust, especially if this would be detrimental to either party.  If any question arises as to the existence of the default or the amount in default, a trustee should seek the aid and direction of the court.  The powers and duties of a trustee are governed by the deed of trust and Virginia Code Section 55-59.1 et seq.  The code provides when the deed of trust does not.  A trustee has no right to exercise the power of sale or to obtain possession until such time as the borrower defaults under the note or deed of trust, and, then, only for the purpose of selling the property at foreclosure or preserving the property until sale.  When a default occurs, there is no change in title – the property merely becomes eligible to be sold under the powers originally conferred to the trustee by the owner.  Thus, the noteholder has the right to have the property sold and the proceeds of the sale applied to the debt.

Statute of Limitations Enforced on Challenge to Bylaws Amendment

The Virginia Condominium Act, specifically Virginia Code Section 55-79.71(C), provides for a statute of limitations in regard to challenging amendments to governing documents.  The section provides, in part:

    “An action to challenge the validity of an amendment adopted by the unit owners’ association pursuant to this section may not be brought more than one year after the amendment is recorded.”

In the case of Godwin v. Bay Point Association Board of Directors, a Norfolk Circuit Court was faced with a homeowner challenge to bylaw amendments.  The homeowner, Godwin, had sued the association alleging that it breached its governing documents by taking actions four years earlier and three years earlier that increased her assessment for insurance premiums.  The association filed a motion to dismiss Godwin’s complaint on the ground that it was time-barred pursuant to Virginia Code Section 55-79.71(C).

    Four years earlier the association’s board of directors signed a resolution regarding physical damage and flood insurance.  Three years earlier it drafted and signed a bylaw amendment relating to insurance premiums.  The association argued that challenging either of these actions was time-barred under the statute of limitations.

    The court ruled that the resolution was not an amendment to the condominium governing documents within the meaning of the act. The court found that, at most, the resolution represented a statement of the board’s opinion that the bylaws should be amended to revise the way insurance premiums were assessed against the unit owners.  In the resolution, the board acknowledged the need to amend the bylaws and stated that the amendment process was lengthy and inconsistent with the budget preparation schedule for the upcoming fiscal year.  Because the resolution was not an amendment adopted by the unit owners pursuant to the act, the court found that the act’s statute of limitations did not apply.  However, the court ruled that the bylaws amendment was an amendment to the governing documents within the definition contemplated by the act.  Accordingly, the one-year statute of limitations applied.

    Godwin argued that because the association violated mandatory procedures for amending the bylaws, the amendment was null and void, and thus, the statute of limitations did not apply.  The court, however, in examining the statute, noted that nothing in the statute suggested that only valid bylaw amendments are subject to the one-year statute of limitations.  The court noted that any amendment, not just valid ones, may be challenged within one year.  Accordingly, Godwin’s claim was barred by the statute of limitations.

    Godwin then tried to argue that there was a breach of fiduciary duty (the legal duty of the board to act in the best interests of the residents).  Godwin and the association agreed that an action for such breach must be filed within two years from the date of breach.  Godwin argued that, although the association initially breached its fiduciary duty four and three years earlier “when in bad faith it knowingly and willfully” adopted the resolution and the bylaws amendment, there were renewed breaches when the annual budgets were adopted in the last two years, which reflected the change made to assessments for insurance premiums.  The court disagreed, finding that any breach of fiduciary duty relating to the change in the insurance premium assessment took place when the association acted four and three years ago to adopt the resolution and bylaw amendment.  The latest of these actions occurred over two years prior to Godwin’s filing suit.  Therefore, the claim was time-barred.

Homestead Exemptions

   Virginia Code §34-26 and §34-4 provide for commonly used exemptions in bankruptcy.

    Virginia Code §34-26 is the "poor debtor's" exemption. This law was updated in 1992. Instead of listing exempt items such as horses, oxen, cattle, bushels of wheat, corn, etc. (as it was pre-1992), the statute now sets out categories with dollar limitations: tools of trade up to $10,000.00; household furnishings up to $5,000.00; family heirlooms up to $5,000.00; motor vehicles up to $2,000.00; and wearing apparel up to $1,000.00.

    In July of 2020, the legislature expanded Virginia Code §34-4. It was expanded both in the amount of the exemption and simplifying the procedure for claiming the exemption. The Homestead Exemption now provides for an exemption for real and personal property up to $5,000 in value (or $10,000 in value if the householder is 65 years of age or older), plus an additional exemption of $500.00 for each dependent (a dependent is an individual who derives support from the householder and does not have assets sufficient to support himself).  An individual may also exempt from creditor process “real and personal property used as the principal residence of the householder or the householder’s dependents in an amount not exceeding $25,000.00 in value.”

    The 2020 changes removed the provision that stated that the Homestead Exemption was exhausted after it was claimed during a lifetime. Now the exemption shall be counted against the maximum individual exemption limit only for a period of eight years from the date of such claim of exemption. To the extent used or exhausted, after the passage of eight years from the date of the claim of an exemption, the householder is able to use any portion of that claimed Homestead Exemption again. This change is consistent with the Bankruptcy Code’s time limits on an individual’s ability to obtain a discharge after receiving a discharge in a prior case.

    The 1992 statutory charges resulted in an increase in the debtor's effective exemptions of personal property, as well as a severe decrease in effectiveness of the previous frequently used "Sheriff's levy" on personal property. The 2020 statutory changes resulted in major changes in the amount of the exemption over a lifetime and the procedure for claiming.

Fifth Amendment Claim Denied in Civil Action

The Hanover County Circuit Court, in the case of EVB v. Strum, denied a defendant’s motion to quash a summons for debtor’s interrogatories and subpoena duces tecum, in which the debtor asserted his Fifth Amendment right against self-incrimination.
    The court ruled that there is no blanket Fifth Amendment right to refuse to answer questions in noncriminal proceedings.  The privilege must be specifically claimed on a particular question in the debtor’s interrogatories, and the matter submitted to the court for its determination of the validity of the claim.  Further, a defendant must assert his Fifth Amendment right in regard to each specific document in regard to a subpoena duces tecum, and the court must assess the claim as to each individual document.