Collections: Confessed Judgment, Power of Attorney, and Required Signatures

The Fairfax County Circuit Court, in the case of Cardinal Concrete Co. v. White, ruled that where the debtor signed a power of attorney appointing an agent selected by the creditor to confess judgment on a note in the event of default, and the attorney-in-fact did not sign the instrument, the confession of judgment would not be set aside because the debtor ratified the creditor's selection of the agent, and the attorney-in-fact was not required to sign.

The facts of White were that the debtor executed a promissory note in favor of the creditor. The note contained a power of attorney stating that the creditor appointed an agent to confess judgment on behalf of the debtor. Only the debtor signed the power of attorney. After the entry of a default judgment, the debtor moved to set aside the confessed judgment on the ground that the creditor selected the attorney-in-fact, and that the attorney-in-fact did not sign the power of attorney.

The motion to set aside was denied. The Court ruled that even if the creditor had no authority to designate the attorney-in-fact, the debtor ratified the appointment by executing the power of attorney. Also, the court found that Virginia Code §8.01-435 did not require the attorney-in-fact to execute the instrument.

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. 

Lien Avoidance Case Review: Avoidance of Exemptions Impaired by a Judicial Lien

In the case of Massie v. Yambrose the United States District Court at Harrisonburg, Virginia, decided that where a creditor had obtained a judgment lien that was docketed against real property that the debtor owned with her non-debtor spouse as tenants by the entirety, that lien impaired the debtor's exemption and may be avoided.  This decision reversed a bankruptcy court decision.  In summary, the District Court decided that although the creditor's judgment lien would not have been enforced against the debtor's property unless and until the tenancy by the entirety dissolved, the lien nevertheless impaired the exemption.  The focus of the exception granted in Bankruptcy Code §522(b)(2)(B) was the property itself, not the tenancy.  If it was not avoided, the lien could be enforced against the property after the tenancy by the entirety dissolved.  This would constitute an impairment of the debtor's exemption; therefore, the District Court ruled that the debtor may avoid the lien pursuant to Bankruptcy Code §522(f)(1).  The issue before the Court in Massie was whether the creditor's docketed judgment was a "judicial lien" that "impaired" an exemption to which the debtor would be entitled as a tenant by the entirety, even though the lien could not be enforced while the tenancy survived.  Although this was a judgment lien pursuant to Virginia law, that did not determine whether it was a judicial lien as defined by the bankruptcy code.  The interest held by the creditor was obtained pursuant to Virginia Code §8.01-458, which clearly qualified as being obtained by judgment or other legal process.  The core issue, therefore, was whether there truly was "a charge against or interest in" the property held by debtor and her non-debtor spouse given the invalidity of any lien against property held by tenants by the entirety.  For all practical purposes, this question was the same as whether the lien impaired the exemption.  If the creditor did not have a charge against or interest in the property, then nothing existed that could impair the exemption.  Conversely, if the lien (assuming that it was one) did impair the exemption, then it must have been a charge against or an interest in the property.  As a result, for the purposes of the issue involved in this case, the Court assumed that the creditor held a judicial lien in order to decide whether such lien impaired the debtor's exemption.  The determinative issue was whether a lien "impaired" an exemption pursuant to Bankruptcy Code §522(f) if it was not capable of being enforced until the basis of the exemption itself disappeared.  In this case, the creditor's lien was completely ineffective against the property held by the debtor and her non-debtor spouse as tenants by the entirety, unless and until the tenancy itself dissolved and the debtor was left with an interest in the property other than as a tenant by the entirety.  The District Court stated that it was guided in its decision by the 4th Circuit Court of Appeals case of In re Opperman.  As applied to Massie, Opperman suggested that the proper question was not whether the basis for the exemption was impaired, but whether the property currently subject to the exemption could become impaired by the lien.  This implication was buttressed by the language granting the exemption in Bankruptcy Code §522(b).  That section allowed the debtor to exempt from property of the estate the property specified in the remainder of the section.  Bankruptcy Code §522(b) further states that such exempt property was any interest in property in which the debtor had, immediately before the commencement of the case, as a tenant by the entirety.  In Massie the exemption was granted to the property itself, rather than to the tenancy by the entirety, and the relevant date in determining the exemption was the date that the debtor filed the bankruptcy petition.  The exemption was granted to the debtor's interest in the property because on the date that debtor filed her bankruptcy petition, the property was owned by tenants by the entirety, and this was not dependent on how it is owned at any time in the future.  As the 4th Circuit implied in Opperman, therefore, the question was whether the creditor's lien could attach to the property, not to the tenancy, thereby impairing the exemption to which the debtor currently is entitled.  Absent avoidance of the lien pursuant to Bankruptcy Code §§522(f)(1), the lien could attach to the property if the tenancy by the entirety dissolved.  If the unity of husband and wife is broken, the tenancy by the entirety would be lost along with it.  The debtor's husband could die, or she could divorce him and retain an individual interest in the property.  If either of these events occurred, the creditor then would be able to enforce the lien against the property.  Although the tenancy could never be impaired, the exemption surely could be. The Court therefore ruled that the creditor's lien impaired an exemption to which the debtor would be entitled but for the lien.  Pursuant to Bankruptcy Code §522(f)(1), the Court held that the debtor may avoid the lien.

 

A Salute to our Credit Unions

"People-helping-people".  This is the philosophy of our nation's credit unions.  Our credit unions quickly tell us that they offer a better means of acquiring reasonably priced financial services for everyone.  This philosophy has yielded a great growth in membership. 

Having worked as counsel for numerous credit unions over the years, I can attest to the positive force that credit unions are.  I can also attest to the benefits that credit unions bring their members.  Most credit unions are able to provide a full service of savings, checking, ATM, loans (personal, car, mortgages) and much more.

Many businesses are unaware that although they may be too small to start their own credit union, they are not too small to associate with an existing credit union.  Such an association would provide both the credit union and the business with great benefits.  The credit union will receive new members and business.  The businesses will receive the membership and services of the credit union.  I am pleased to serve as a "facilitator" to such associations.  Those who are interested should call me at 545-6250.  Together we can all benefit from the credit union movement.