Collections: Bank Loses Without Aggressive Action

The need for aggressive action was again proven when a bank lost a priority in assets due to the bank's non-action.

In the case of First Union National Bank of Virginia v Craun, a federal court found that the bank obtained a consent judgment from the debtor (a limited partner in a Virginia limited partnership), but took no further action. A year later the limited partnership perfected a security interest in the debtor's partnership interest by filing a financing statement with the state corporation commission. The partnership's security interest was to perfect a loan by the debtor from the partnership.

Eventually a dispute arose on the priority of liens on the proceeds between the bank, based on its judgment, and the partnership, based on its perfected assignment.

The partnership had priority, the court ruled, because the bank had not sought to enforce the judgment or levy on the limited partner before the assignment was perfected. The Court stated:

"… had a writ of execution issued, and had such a writ been delivered into the hands of the marshal, defendant's inchoate intangible rights in distributions from the limited partnerships could have subjected to the lien of the writ....Plaintiff could then argue the writ of execution would have taken priority over a security interest perfected after the writ was issued and placed in the hands of the serving official, assuming the secured lienor was provided notice of the issuance of execution...But, that is not the case here. Plaintiff did not cause a writ of execution to issue. Instead, it merely sought the entry of a charging order armed only with what may be best described as a "naked" final judgment...Therefore, until a charging order entered, the judgment debtor...virtually was free, as against the instant plaintiff, to encumber intangible property, including here interests to discretionary distributions of a limited partnership."

The lesson of Craun is simple - take aggressive action and consult with counsel early in the process.

Foreclosure: Sale Price and Delays in Sale

The trustee is under a duty to “use all reasonable diligence to obtain the best price.” 

If the trustee determines that in order to fulfill his fiduciary duty to realize the highest price for the property, a recess is necessary, he or she should recess the sale. Arguably, the recess is within the scope of the discretion afforded trustees in the conduct of the foreclosure sale. For example, if a bidder who previously advised the trustee of his interest in bidding on the property is delayed, the trustee, in his discretion, may recess the sale to a later hour on the same day to allow the bidder to attend the sale. If the trustee fails to accommodate the bidder and the property is sold for a price less than the bidder was willing to pay, the trustee may have breached his duty to “use all reasonable diligence to obtain the best price.” A decision by the trustee to recess the sale, however, should not impair the sale by making it impossible or impracticable for the bidders to appear and bid at the recessed sale.

The postponement of a foreclosure sale to a different day is not a recess and is governed by statute. Virginia Code §55-59.1(D) provides that the trustee, in his discretion, may postpone the sale to a different day, and no new or additional “notice” must be given. Presumably, the “notice” referred to in this section is notice of the postponement. The trustee needs only to announce at the sale that it has been postponed. §55-59.2(D) provides that if the sale is postponed, the trustee must advertise the “new” sale in the same manner as the original advertisement. Read in conjunction, these sections require the trustee who postpones the foreclosure to re-advertise the sale in the same manner as the original sale was advertised. Although the secured obligation will not need to be accelerated again, all other aspects of the foreclosure must be completed. Effectively, a postponed sale is a new sale in which the trustee must complete all acts that he or she completed in the first sale.

Real Estate: Using Real Estate to Secure Your Debt

Many fail to recognize the benefit of using real estate to improve their position as creditors. Properly securing debts through real estate could make the difference between collecting the funds and incurring a loss.

Securing debt with real estate can occur in several ways: deeds of trust, judgment liens, homeowner association liens, mechanic’s liens and lis pendens in litigation cases, just to name a few. In the upcoming issues of Creditor News we will explore these, as well as the ways that I can assist you.

We have experienced attorneys and staff who can examine title, do real estate closings, seek judgment and docket and enforce the same, and prepare and enforce statutory liens, such as those for litigation, homeowner’s associations and mechanic lien situations.

Bankruptcy: Lien Avoidance Case Review: Avoidance of a Judicial Lien as a Preference

In Babiker v. Citizens Contracting Co. the United States Bankruptcy Court at Alexandria, Virginia, avoided a creditor's judgment lien against two debtors as a preference because the creditor was unable to demonstrate that the debtors were solvent when the judgment lien was entered within ninety days of the filing of the bankruptcy petition. The Court cited Bankruptcy Code §547(b) as authority for finding that the docketing of a judgment lien constituted a transfer to or for the benefit of a creditor. This case serves as an excellent reminder as to why swift action in taking and docketing judgment is important - delay can put you in the ninety days preference window.