Fraudulent Conversion or Removal of Property Subject to Lien or Title

If a creditor is a lien holder, that creditor should be aware of a lesser known remedy available if a debtor fraudulently sells, removes, or hides the property subject to the lien. Virginia Code §18.2-115 states that a debtor is guilty of larceny if he/she fraudulently sells, pledges, pawns, removes from the premises agreed upon, removes from Virginia, disposes of, or hides the property subject to a lien without the written consent of the owner or lienor or the person in whom the title is, or, if the writing is a deed of trust, without the written consent of the trustee or beneficiary in such deed of trust. Unlike civil fraud, this statute’s fraud contemplates an act by a debtor intended to deprive a secured creditor of his collateral by appropriating it to the debtor’s own use. 

There must be proof that the debtor’s fraudulent intent was directed against the lienor or person in whom the title is.  The statute also states that failure or refusal to disclose the location of the property or surrender the property shall be prima facie evidence of a violation of this statute.  In Lewis v. First National Bank, the Fourth Circuit clarified that even the existence of written permission to remove the collateral is immaterial under this section, as the creditor need not show the lack of such permission to make out a prima facie case.

The final provision of the statute provides that the venue of prosecution against persons fraudulently removing any such property, including motor vehicles, from the Commonwealth shall be the county or city in which such property or motor vehicle was purchased or in which the accused last had a legal residence.

Debtors may argue that the debtor did not actually receive the demand for return of the collateral; however, in Lewis, failure to leave a functional forwarding address or contact with the creditor constituted a waiver of the debtor’s right to deny that the demand was made.

Debtors have also argued that criminal charges such as these cause emotional distress or are extreme and outrageous.  In Lewis¸ The Fourth Circuit stated that creditors should not be fearful of a debtor’s claim that these charges cause emotional distress.  To hold such would render the statute useless, which was not intended by the legislature.  The court held that the initiation of criminal proceedings against someone under this section with probably cause is not extreme or outrageous as a matter of law. 

The Fair Debt Collection Practices Act

It is time again to review the Fair Debt Collections Practices Act (FDCPA), Title 15 U.S. §1692.  This is a federal law designed to protect consumer debtors from "unscrupulous" collection activities.  It defines the practices, the people who are protected, and the people who are restricted.

The most damaging part of the act is the definition of "collector" (as only collectors are covered), and attorneys are included in the definition.

The FDCPA requires collectors to send a demand letter thirty (30) days prior to commencing suit.  The letters must contain information including:

      1.   The principal amount remaining on the debt;

     2.   The name of the creditor to whom the debt is owed; and

3.      The specific language that follows:

Unless you, within thirty days after you have received this notice, dispute the validity of this debt, or any portion thereof, I will assume the debt to be valid.

If you notify me, in writing, within thirty days after you have received this notice, that the debt or any portion thereof, is disputed, I will obtain verification of the debt and mail you a copy of that verification to you.

Upon your written request within thirty days after you have received this notice, I will provide you with the name and address of the original creditor, if different from the current creditor.

The FDCPA further restricts the jurisdictions in which suit can be brought to the city or county in which the debtor resides.  In certain circumstances, the matter can be sued upon where the debt was incurred.  To eliminate the ambiguity, one idea that I always suggest is that creditors stamp ("this document executed in [name of city or county], Virginia") adjacent to the original signatures of the executed documents, prior to their execution.

The jurisdiction restriction of the FDCPA can be the most costly provision for the creditor, as attorneys, attempting to pass on the economies of consolidating cases, may be unable to do so.  Additional trips to court result in additional costs which will, in one way or another (higher percentage fees), be passed on to the creditor.  Hence, a wise creditor should invest in an appropriately worded stamp for each site executing such documents.

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.” 

Making Owners and General Contractors Personally Liable to Subcontractor, Laborer or Materialman

            Virginia Code §43-11 provides a way for owners or general contractors to be made personally liable to subcontractor, laborer or materialman if notice is appropriately given, and if the payer makes payment to the owing party without paying the notifying creditor.  Specifically, §43-11 (2) states that: 

“…if such subcontractor, or person furnishing labor or material shall at any time after the work is done or material furnished by him and before the expiration of thirty days from the time such building or structure is completed or the work thereon otherwise terminated furnish the owner thereof or his agent and also the general contractor, or the general contractor alone in case he is the only one notified, with a second notice stating a correct account, verified by affidavit, of his actual claim against the general contractor or subcontractor, for work done or materials furnished and of the amount due, then the owner, or the general contractor, if he alone was notified, shall be personally liable to the claimant for the actual amount due to the subcontractor or persons furnishing labor or material by the general contractor or subcontractor, provided the same does not exceed the sum in which the owner is indebted to the general contractor at the time the second notice is given or may thereafter become indebted by virtue of his contract with the general contractor, or in case the general contractor alone is notified the sum in which he is indebted to the subcontractor at the time the second notice is given or may thereafter become indebted by virtue of his contract with the general contractor. But the amount which a person supplying labor or material to a subcontractor can claim shall not exceed the amount for which such subcontractor could file his claim.

The notices referred to in this code section are commonly referred to in the industry as “42-11 letters”.  We have experienced attorneys and staff who can examine title, file mechanic’s liens, and litigate to enforce the same.  If you have a need, please call us.