Monday, September 27, 2021

Creditor Can Be Sued for Auto Repossessor's `Breach of Peace' Although He was a Contractor

    The Georgia Court of Appeals, in Fulton v. Anchor Savings Bank, ruled that a bank could be sued for an auto repossessor's "breach of peace" even though the repossessor was an independent contractor who worked for a company hired by the bank.  Although there is apparently no Virginia case on point, several state courts have so ruled.

The Georgia Court of Appeals, in the case of General Finance Corp. v. Smith, relied upon a legal principal from the Restatement (Second) of Torts.  §424 of the Restatement holds that a principal cannot delegate to a contractor "the manner of performance of duties imposed by the contract, ordinance or statute".  In Georgia, the state statute prohibited intimidation during a self-help repossession.

The problem with this ruling for creditors is obvious: creditors must be very careful in who they choose to do their work - at least until Virginia adopts a different ruling.


Monday, September 20, 2021

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.”


Monday, September 13, 2021

Using Deeds of Trust to Secure Your First, Second, Equity Line or Refinance Home Loans

    In the previous editions of Creditor News we began a discussion of 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 securing your first, second, equity line or refinance home loans with a deed of trust.

Real estate liens provide important security for your debt.  Since real estate is the largest investment and asset for most individuals, they will usually make every effort to pay debts secured by their real estate first.  However, you need to know the chain of title in order to make an informed decision about your loan.  Specifically, in what position will your lien be?  Are there any “clouds” on the title?  You will not know the answer to these questions without a proper title search and review.

Once you know your position you will need to examine the available equity to cover your loan.  What is the value?  What are the balances due on the liens ahead of your anticipated position?  Beyond the business decision of determining when the equity is sufficient for your risk tolerance, in order to take advantage of the “$1.00 rule” in the bankruptcy code for chapter 13 cases (should your debtor decide to later file bankruptcy), you need to ensure that there is at least $1.00 in equity to cover the loan.  You should take into consideration that property values may go down (e.g., 2008 to present).

    If the deal is made and the real estate closing occurs, immediate and proper recording of your deed of trust is essential to preserve your position.  If the debtor defaults, foreclosure on the property can occur.  If the debtor seeks reorganization of his debt in chapter 13, you can seek full payment of the debt.

 We have experienced attorneys and staff who can examine title and properly represent your interests in real estate closings.


Monday, September 6, 2021

Finance Company Lien - Mobile Home

    In the case of American General Finance Co. v. Hoss, the United States District Court at Abingdon, Virginia, overruled a Bankruptcy Court decision avoiding a creditor’s lien on the debtor’s mobile home.  While all agreed that the creditor’s lien was a nonpossessory, non-purchase money security interest, there was a dispute as to whether Bankruptcy Code §522(f)(1) allowed for the avoidance of the lien.  The Bankruptcy Court concluded that the lien on the mobile home could be avoided as the Bankruptcy Code permits the avoidance of certain liens which would impair an exemption to which a debtor is entitled to pursuant to Bankruptcy Code §522(b).  Virginia Code §34-4 permits a debtor householder to exempt up to $5,000 of property as a homestead exemption.  The $4,000 homestead deed filed by debtor qualified for this exemption in the instant case.  Property claimed as exempt pursuant to Bankruptcy Code Bankruptcy Code §522(b) is not liable for any debt of debtor which arose before the commencement of a bankruptcy case, but an exception under §522 (c)(2)(A)(I) allowed such exempted property to remain liable for the preexisting debts of a debtor if the debt is secured by a lien which could not be avoided under Bankruptcy Code §522(f).

The Bankruptcy Court found that Bankruptcy Code §522(f)(1)(B)(i) provides for avoidance of nonpossessory, non-purchase money security interests on household furnishings or households goods that are held primarily for the personal, family or household use of the debtor or a dependent of the debtor.

Citing its prior decision in the case of  In re Goad  the Bankruptcy Court implicitly found that a mobile home is either a household furnishing or good under Bankruptcy Code §522(f)(1)(B)(i).

The District Court, on appeal, decided that a mobile home was in no manner a household good or furnishing, as required under that subsection.  Neither of those terms is defined by the Bankruptcy Code.  The 4th Circuit Court of Appeals has explained that household goods under this subsection are those items of personal property that are typically found in or around the home and are used by debtor or his dependents to support and facilitate day-to-day living within the house.  The District Court stated that it was clear that a mobile home is virtually incapable of itself being contained within a home.  In addition, a mobile home was not the type of thing used “around the home” which facilitates … living within the home.”

The District Court examined several cases from across the country dealing with this same issue and discovered only one other court which had agreed with the Bankruptcy Court that a mobile home is a household good.  Thus, the District Court concluded that the Bankruptcy Court improperly applied Bankruptcy Code §522(f) and that a proper application of that subsection resulted in the lien in question being unavoidable.  The Goad case was overruled in that district and is no longer good law before that District Court.

In summary, the debtor was not entitled to avoid the lien on her mobile home held by the finance company.