Monday, July 25, 2022

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.

Monday, July 18, 2022

Foreclosing on Homeowner Association Liens to Secure an Interest in Real Estate

In recent editions of Creditor News we have been discussing 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 using homeowner association liens to aid in the collection of your debt.  Last month we reviewed the special procedures for the collection of homeowners association dues under Virginia Code §55-516.  We will now review the procedures for suits to foreclose on the lien.

Suits must be brought within thirty six months of filing, but after the perfection of the lien.  The Homeowner’s Association may sell the lot at a public sale, subject to prior liens.  There are detailed requirements in the code, a brief summary of which include the following:

1.  The association shall give notice to the lot owner prior to advertisement as required in the code.

2.  After expiration of the 60-day notice period, the association may appoint a trustee to conduct the sale.

3.  If the lot owner meets the conditions specified in this subdivision prior to the date of the foreclosure sale, the lot owner shall have the right to have enforcement of the perfected lien discontinued prior to the sale of the lot. Those conditions are that the lot owner: (i) satisfy the debt secured by lien that is the subject of the nonjudicial foreclosure sale and (ii) pays all expenses and costs incurred in perfecting and enforcing the lien, including but not limited to advertising costs and reasonable attorneys' fees.

4.  In addition to the advertisement requirements, the association shall give written notice of the time, date and place of any proposed sale in execution of the lien, and include certain information required in the code.

5.  The advertisement of sale by the association shall be in a newspaper having a general circulation in the city or county wherein the property to be sold, with certain information requirements as set forth in the code.

6.  Failure to comply with the requirements for advertisement contained in this section shall, upon petition, render a sale of the property voidable by the court.

7.  In the event of a sale, the code sets forth bidding and proceeds application procedures.

8.  After sale, the trustee shall deliver to the purchaser a trustee's deed conveying the lot with special warranty of title.

9.  After completion, the trustee shall file an accounting of the sale with the commissioner of accounts.

We have experienced attorneys and staff who can examine title, file homeowner association liens, and litigate to enforce the same.

Monday, July 11, 2022

Bankruptcy Filings: Chapter 7 and 13

Although there are other Chapters under which debtors may seek relief, Chapters 7 and 13 are the most frequently encountered.

Chapter 7

Chapter 7 involves a discharge of debt by court order.  While secured debts may be routinely "reaffirmed", unsecured debts normally are not.  Traditionally, debts have been reaffirmed through a Reaffirmation Agreement.  The Courts of the Eastern District of Virginia have held, however, that creditors cannot force debtors to execute reaffirmation agreements if they were not in default at the time of the bankruptcy filing.

Why would a debtor want to pay a debt when he has filed for Chapter 7 relief?  The answer is future credit.  The possibility of future credit can be sufficient incentive to encourage voluntary repayment for at least two (2) reasons:

             1.         Debtors want and need future credit after bankruptcy discharge, and

            2.         Reasonable credit after bankruptcy is very difficult to obtain as bankruptcy carries a stigma.  Absent special circumstances, the only credit card a debtor may obtain after bankruptcy is a "secured" credit card.  These cards are tantamount to a line of credit drawn upon account deposits pledged as security.  There are also user fees and high interest rates.

How do you encourage debtors to voluntarily pay their pre-bankruptcy petition debts?  Consider adopting the following written policies:

             1.         Post-bankruptcy credit may be extended to debtors who voluntarily pay their dischargeable debts ("the carrot").

            2.         No future credit or services, other than those required by law, will be extended to debtors who have caused you a loss by bankruptcy or otherwise, unless the debt is voluntarily repaid (“the stick").

How do creditors inform their debtors of this policy once a petition of bankruptcy is filed?  Consider sending a letter directly to the debtors’ counsel asking that counsel advise their client of the policy.

 Chapter 13

Chapter 13 involves a "reorganization" of the debtor's finances.  The debtor is required to devise a plan for repayment: 100% for secured debts and a court-approved percentage for unsecured debts.  Creditors are paid in the order of priority - preferred (taxes), secured, and finally, unsecured.  Creditors are required to file proofs of claim with the Bankruptcy Court to protect their place in the plan.  Plans can take up to five (5) years to complete.


When can you proceed against co-makers?  In Chapter 7 you can proceed immediately.  In Chapter 13, you have to either wait until the plan pays out, or petition the Bankruptcy Court to lift the automatic stay against the co-maker.  Once this is granted you can proceed against the co-maker for the percentage not paid by the plan.  Although you are required to file the motion to lift the stay, the court is required to grant your relief.

Planning Summary

Regardless of the Chapter, the best way to minimize your bankruptcy loss is to be secured.  In Chapter 13 cases, security can mean the difference between payment at 100% rather than at a nominal percentage.  In Chapter 7 cases, security can mean the difference between reaffirmation or no payment at all.  In either Chapter, collateral is the key.

The second best protection from bankruptcy loss is having a solvent co-signer.  The old saying "two heads are better than one" can mean much in bankruptcy, especially when your co-signer is not a spouse.  Generally, spouses do not make good co-signers because they can file a joint petition for bankruptcy and, in fact, often do because family finances are inter-related.  It should be noted, however, that in a case of jointly owned real estate, a spouse's signature is necessary in order to perfect a lien against any real property.

Monday, July 4, 2022

Foreclosure Basics

Foreclosure law is a creature of state statute.  Accordingly, each state’s laws are different.  Because the statute controls, courts will enforce strict adherence to the exact words and requirements.  Failing to fully comply with statutory mandates will likely result in defective foreclosures and costly work.