Debt Declared Nondischargeable due to Debtors Knowledge of Error

The U.S. District Court in Alexandria, in the case of Nawroz v. Wells Fargo Advisors LLC, in August, 2012, affirmed a bankruptcy court decision which held that a debtor cannot discharge in bankruptcy her obligation to repay a bank for the $28,029.99 that the bank mistakenly credited her IRA.

Wells Fargo, after mistakenly transferring the funds into the debtor’s IRA, then transferred the balance of debtor’s account, $56,043, to a checking account at another bank, and then closed the debtor’s account with Wells Fargo.

At trial, the debtor testified that during that time period, she was severely depressed, her home was in foreclose, she lost her business and she was not attending to her business affairs.  She also testified that she did not know the funds not belonging to her had been mistakenly transferred to her new checking account.  Shortly after the transfer of funds to the checking account, the debtor wrote a checking for $81,000 to Khalil Wadedi, allegedly to avert a family emergency arising from the kidnapping of a family member in Afghanistan.  At the time, the checking account held less than $84,000.

Wells Fargo won a default judgment against the debtor for $36,962.71, covering the funds mistakenly transferred, attorney’s fees, prejudgment interest and costs.

During the debtor’s subsequent bankruptcy proceedings the bankruptcy court said the debt to Wells Fargo was nondischargeable pursuant to Bankruptcy Code Section 523 (a)(6).  The debtor appealed this decision.

The District Court noted that the debtor knew that her CD account with Wells Fargo held no more than $28,032 in April 2008, and therefore the amount transferred from Wells Fargo to the different checking account should not have exceeded this amount.  The debtor subsequently used $81,000 from the checking account after the transfer of funds from Wells Fargo.  But for the mistaken credit by Wells Fargo of $28,029, the checking account would have been no more than $56,000 and therefore debtor’s $81,000 check would not have cleared.

The debtor admitted that she knew the balance of the CD account; therefore, the court reasoned that the debtor must have known that the amount transferred from Wells Fargo to the checking account should not have exceeded $28,032, regardless of what account held the funds prior to this transfer, and that the debtor was not the true owner of approximately $28,000 of the amount in her checking account in May, 2008. 

Uniform Enforcement of Foreign Judgments Act

Virginia and almost all other states have adopted the Uniform Enforcement of Foreign Judgments Act (UEFJA) (Virginia Code §8.01-465.1 et seq.). In so doing, creditors may enforce out-of-state judgments by properly filing the foreign judgment in a Virginia Circuit Court. Virginia Code §8.01-465.2 states:

The Clerk must treat the foreign judgment in the same manner as a judgment of the circuit court of            any city or county of this Commonwealth. A judgment so filed has the same effect and is subject to the same procedures, defenses, and proceedings for reopening, vacating or staying as a judgment of a circuit court of any city or county of this Commonwealth and may be enforced or satisfied in like manner.

As creditors it is important to be aware that out-of-state judgments can be enforced in Virginia, and that Virginia judgments can be enforced in foreign states, provided that the state has adopted the UEFJA.

In Virginia, Code §8.01-465.5 allows bringing an action to enforce an out-of-state judgment in lieu of proceeding under the Uniform Act, if you so desire. Virginia Code §8.01-389(B) states:

Every court of this Commonwealth shall give such records of courts  not of this Commonwealth the full faith and credit given to them in the courts of the jurisdiction from whence they come.

Virginia Code §8.01-252 states that an action brought in Virginia to enforce a judgment rendered in another state shall not be barred by the laws of the other state. The Code bars action upon a judgment rendered more than ten years before the commencement of the suit.

In the case of Atlantic Funding Corp. v. Peterson, the Fairfax County Circuit Court granted a debtor's motion to quash debtor interrogatories because the creditor had failed to file the federal judgment pursuant to the UEFJA, and thus, the Clerk of the Circuit Court could not treat the federal judgment as a judgment of the Virginia state court.

Virginia Code §8.01-447 governs the docketing of judgments and decrees of federal district courts in Virginia state courts. That provision clearly requires the Clerk of the Circuit Court to treat it in the same manner all judgments rendered within the Commonwealth when docketing judgments. The statute speaks only to the process of docketing judgments, however. It does not necessarily provide a method of enforcing docketed judgments, and it does not authorize the clerk to treat docketed judgments from local federal courts as docketed judgments of this circuit court.

In Peterson the Fairfax Circuit Court ruled that unlike Virginia Code §8.01-447, the UEFJA clearly requires identical treatment and enforcement of properly filed federal and state court judgments. Had the judgment creditor properly filed the judgment of the District Court, the Clerk of the Circuit Court would have been compelled to enforce that judgment as a judgment of the Circuit Court. The Fairfax Circuit Court ruled that the record in Peterson, however, revealed that the creditor failed to authenticate the District Court judgment, or to pay the fee prescribed in Virginia Code §14.1-112(22). The Court ruled that since the creditor did not properly file the District Court judgment in Peterson it was not entitled to the benefits of the UEFJA.

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. 

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.