Monday, July 26, 2021

Substitute Trustees

    Question:  What happens if the trustee under your deed of trust is either unavailable, or, is no longer the person you desire to serve as trustee?  
    Answer:  You can appoint a substitute trustee.  Under Virginia Code Section 55-59(9), the noteholder, or, the holders of greater than fifty percent of the monetary obligation secured by the deed of trust, have the right and the power to appoint a substitute trustee or trustees for any reason, regardless of whether such right is expressly granted in the deed of trust.  The timing of your action is important.  The trustee must be empowered before taking action – this occurs when the instrument of appointment has been executed.  You do not have to wait for recording.  However, as Virginia Code Section 55-59(9) states that the appointment of a substitute trustee shall be recorded before, or at the time of, the recording of the deed conveying the property (such as after a foreclosure).
    Question:  Can a lender appoint their counsel as trustee? 
    Answer:  Yes.  Virginia Code Section 26-58 holds that a trustee is not disqualified merely because he is a stockholder, member, employee, officer or director or counsel to the lender.

Monday, July 19, 2021

Former Homeowners’ Association President’s Emails were Defamatory

    In the Fairfax Circuit Court case of Cornwell v. Ruggieri, the trial judge and jury found that the plaintiff homeowner was defamed by four emails written and published by a former association president and awarded $9,000.00 in damages.  These emails alleged that the homeowner had stolen association funds five years earlier.  The former association president tried to defend the case on the basis that the statements were simply a matter “of opinion”, not a matter of fact (as required under Virginia case law to recover damages), but the trial judge disagreed.
The trial judge instructed the jury that under Virginia law the defendant, in his role as association president, had a “limited privilege” to make defamatory statements without being liable for damages.  However, if it was proved by “clear and convincing evidence” that the defendant had “abused” the privilege, the defamatory statements were not protected.  The trial judge instructed the jury that there were six possible ways (outlined below) that the homeowner could prove that the former association president abused the limited privilege.
The homeowner presented evidence that the defendant made statements (1) with reckless disregard; (2) that were unnecessarily insulting; (3) that the language was stronger than was necessary; (4) were made because of hatred, ill will, or a desire to hurt the homeowner rather than a fair comment on the subject; and (5) were made because of personal spite, or ill will, independent of the occasion on which the communications were made.

  • The jury was given a specific interrogatory with regard to each of the four defamatory statements:
    • Did the defendant make the following statements?
    • Were they about the plaintiff?
    • Were they heard by someone other than the plaintiff?
    • Are the statements false?
  • Did the defendant make the statements knowing them to be false, or, believing them to be true, did he lack reasonable grounds for such belief or act negligently in failing to ascertain the facts on which the statements were based?
  • Did the defendant abuse a limited privilege to make the statement?

For each question as to all four emails, the jury answered “yes”.  After a three-day trial, the verdict was rendered in favor of the plaintiff -- $9,000.00 in damages.
This case gives a good reminder that homeowner association board members must be knowledgeable, professional and well-advised when serving their communities.

Monday, July 12, 2021

Accidental Release Forfeits Security

Being careful when filing releases is even more evident in light of the decision rendered by the 4th U. S. Circuit Court of Appeals in In Re Kitchen Equipment Company of Virginia, Inc. In Kitchen the secured creditor, a bank, accidentally checked the "termination" box instead of the "partial release" box on a multipurpose security form. The creditor had intended to release only two items of the debtor's collateral. The two items were specified in the description block. The Court ruled, however, that by filing the release checked "termination," the creditor lost its entire security interest when the debtor filed for bankruptcy protection under Chapter 11. The bank argued that the interest should be honored under equitable principles and under the Virginia form of the Uniform Commercial Code. Nevertheless, the Court refused to allow the bank's financing statement to prevail over the bankruptcy trustee's statutory lien.

Monday, July 5, 2021

Bad Check Collection and the Fair Debt Practices Collection Act

    Those who actively engage in the collection of debts as a third party are cognizant of the fact that the Fair Debt Collection Practices Act (FDCPA) applies to their collection activities. However, does the FDCPA apply to notices given as a prerequisite to criminal prosecution for passing bad checks? The United States District Court at Charlottesville, Virginia, in the case of Shifflett v. Accelerated Recovery, examined the issue but did not give a definitive answer.
Virginia Code §18.2-183 states that letters are required to be mailed to debtors to establish a prima facie case of fraud or knowledge of insufficient funds in order to pursue criminal prosecution. The creditor/defendant in Shifflett argued that it had never sought recovery through the civil process, it had always pursued a criminal warrant in cases where it was unable to collect an unpaid check.
The debtors/plaintiffs, on the other hand, argued that the creditor was required to give notices pursuant to the FDCPA. The essence of the debtors' argument was that the notices sent by the creditor, regardless of the creditor's practice or intent, constituted a "communication" pursuant to the language of FDCPA §1692(a) and therefore trigger the notice requirements of FDCPA §1692(a).
    The Court did not rule as to whether the FDCPA applies to notices pursuant to Virginia Code §18.2-183. Instead, the Court focused on distinctions between the creditor's letters in Shifflett and that which is required by Virginia Code §18.2-183 for criminal prosecution. The Court found that the creditor's letters did not evidence the creditor's intent to pursue criminal remedies as opposed to civil remedies. The creditor claimed that the language of its letters referring to "the legal process" indicated its intent to use the criminal legal processing not the civil legal process. The Court, however, stated that it was unable to discern precisely in what manner the phrase "legal process" objectively discriminates between the criminal legal process and the civil legal process.
    The Court also noted that the creditor's letters also advised the debtors that payment must be made within ten days from the date of the letter. Virginia Code §18.2-183 provides that notice mailed by certified mail or registered mail with evidence of returned receipt shall be deemed sufficient and equivalent to notice having been received by the maker or drawer. The creditor did not present evidence that it sent the letters by either certified or registered mail with the request of a returned receipt.
    The Court also noted that the creditor's letters stated explicitly that it is "attempting to collect a debt..." By contrast, the Court stated that it could not locate any language within the letters by which even vaguely suggest that the creditor had sent the notices in furtherance of pursuing a criminal proceeding.
    Accordingly, the Court found that the creditor failed to demonstrate that the letters were sent to the debtors pursuant to the requirements of Virginia Code §18.2-183, and therefore, found the creditor liable for its failure to comply with the notice requirements of §1692(a) of the FDCPA.
    The lesson from Shifflett - when contemplating pursuing legal measures for “bad checks” it is important to use counsel with experience in both criminal and civil law.