Collections: Bank Deposits - for Deposit Only

 The United States District Court at Alexandria reviewed a liability question regarding a bank's treatment of a check marked "for deposit only". In the case of Qatar v. First Am. Bank of Va., the Court ruled that a depositary bank violated a restrictive endorsement stating "for deposit only" when it deposited a check into an account other than the account belonging to the named payee of the check. In Qatar, a foreign embassy employee defrauded the embassy over a six-year period by various methods, including depositing checks written to other parties into his own personal accounts with defendant banks. After the embassy discovered this fraudulent scheme, it sued the depositary bank for conversion. The bank succeeded on summary judgment in establishing that it was not liable as a matter of law with respect to two categories of checks in dispute, and it prevailed on a factual issue at trial that relieved it from liability for yet another category of checks.

Only one category of checks remained in dispute. These checks all bore the forged endorsement of the payee named on the face of the check, followed by a stamped "for deposit only" restriction. At trial, the depositary bank raised no defenses, but instead challenged for the first time the Court's assumption that the phrase "for deposit only," without further specification, directs a depositary bank to deposit the funds only into the account of the named payee. The Court reasoned that the question then presented was whether the bank complied with the restrictive endorsement "for deposit only" when it deposited the check bearing that restriction into any person's account, or whether that restriction requires the bank to deposit the check's proceeds only into the account of the named payee. The Court held that the unqualified language "for deposit only" following an endorsement on the back of a check required the bank to place the check's proceeds into the payee's account, and the bank violated that restrictive endorsement when it credited the check to another account. In this cases, specifically, the bank violated the restrictive endorsement in depositing into the employees account checks made payable to others and restrictively endorsed "for deposit only", and thus was liable to the plaintiff for the money converted.

Foreclosure: Default

Question:  When is a loan in default?  Answer:  Under one or more of several circumstances.  The most common way that a borrower is in default is monetary – e.g., the borrower fails to make a required payment.  However, default can be for a non-monetary reason as well, such as:

1. Failure to pay taxes.
2. Failure to pay insurance.
3. Failure to remove or bond over mechanic’s liens.
4. Failure to perform requirements unique to the loan.

Real Estate: Suit to Enforce Mechanic’s Liens

Virginia Code §43-17 provides that no suit to enforce a mechanic’s lien can be brought:

“…after six months from the time when the memorandum of lien was recorded or after sixty days from the time the building, structure or railroad was completed or the work thereon otherwise terminated, whichever time shall last occur; provided, however, that the filing of a petition to enforce any such lien in any suit wherein such petition may be properly filed shall be regarded as the institution of a suit under this section; and, provided further, that nothing herein shall extend the time within which such lien may be perfected.”

Virginia Code §43-17.1 provides that: 

“Any party, having an interest in real property against which a lien has been filed, may, upon a showing of good cause, petition the court of equity having jurisdiction wherein the building, structure, other property, or railroad is located to hold a hearing to determine the validity of any perfected lien on the property. After reasonable notice to the lien claimant and any party to whom the benefit of the lien would inure and who has given notice as provided in §43-18 of the Code of Virginia, the court shall hold a hearing and determine the validity of the lien. If the court finds that the lien is invalid, it shall forthwith order that the memorandum or notice of lien be released from record.”

Virginia Code §43-18 provides: 

“The perfected lien of a general contractor on any building or structure shall inure to the benefit of any subcontractor, and of any person performing labor or furnishing materials to a subcontractor who has not perfected a lien on such building or structure, provided such subcontractor, or person performing labor or furnishing materials shall give written notice of his claim against the general contractor, or subcontractor, as the case may be, to the owner or his agent before the amount of such lien is actually paid off or discharged.”

We have experienced attorneys and staff who can examine title, file mechanic’s liens, and litigate to enforce the same.

Bankruptcy: Lien Avoidance Case Review: After-Acquired Property

In the case of Butler v. Southern O Corp the United States Bankruptcy Court at Roanoke, Virginia ruled that a debtor who received a Chapter 7 discharge could avoid a judicial lien filed in the previous year against the debtor's real estate in which he had no equity because of outstanding deeds of trust and for which he had filed a homestead exemption. In Butler the Court found as fact that the amount of the judicial lien (at least $115,000), plus the amount of other liens ($76,934), plus any exemption to which debtor might be entitled, exceeded the value of the property of $72,000.00.  The Court held that the lien was entirely avoidable pursuant to Bankruptcy Code §522 (f). The Bankruptcy Court ruled that it was Congress's intention to protect any further equity the debtor may accumulate, by the reduction of the principal amount of the mortgage, from payments hereafter made by the debtors. Accordingly, the Bankruptcy Court ruled that any future increase in value accrued to the benefit of the debtor as after-acquired property was likewise exempt.