Monday, April 24, 2023

Collections: Garnishment/Arbitration

The Richmond Circuit Court case of Va. Builder's Supply, Inc. v. Brooks & Co. Gen Contractors Inc. serves as a good example of judicial recognition of the rights of judgment creditors in arbitration proceedings.

In Va. Builders, the creditor, a building supply company, issued a garnishment summons upon a general contractor for sums due from the general contractor to the judgment debtor, a subcontractor. The contracts between the contractor and the subcontractor, under which the judgment creditor sought to garnish the sums due the subcontractor, included clauses for mandatory arbitration. The garnishee sought arbitration after being served with the garnishment. The garnishee refused to allow the judgment creditor to participate. The garnishee received a garnishment award indicating that it owed the subcontractor no sums. The garnishee answered the garnishment that no sums were due. The Richmond General District Court agreed. The Richmond Circuit Court disagreed and sent the case back for further review. The Richmond Circuit Court reasoned that the garnishee should not be able to affect the potential funds due the judgment creditor while prohibiting the judgment creditor from participating in the proceedings.

Monday, April 17, 2023

Foreclosure: Right to Cure a Default

Question:  Once a borrower is in default, can he “reinstate the loan”, or, “cure the default” and stop the foreclosure sale? Answer:  yes. In general, most deeds of trust contain language that allows a borrower the opportunity to reinstate, or cure, the loan after the due date set out in the note. If the deed of trust contains this language, the note cannot be placed into default and accelerated until the cure period has expired. Government loans such as Fannie Mae and Freddie Mac have very specific requirements. In fact, a borrower can always cure a monetary default and stop a foreclosure up to the time of sale by paying in full, in good funds, the deficient amount, including all costs of the sale.

Monday, April 10, 2023

Real Estate: Statute of Limitations Enforced on Challenge to Bylaws Amendment

The Virginia Condominium Act, specifically Virginia Code Section 55-79.71(C), provides for a statute of limitations in regard to challenging amendments to governing documents. The section provides, in part:

“An action to challenge the validity of an amendment adopted by the unit owners’ association pursuant to this section may not be brought more than one year after the amendment is recorded.”

In the case of Godwin v. Bay Point Association Board of Directors, a Norfolk Circuit Court was faced with a homeowner challenge to bylaw amendments. The homeowner, Godwin, had sued the association alleging that it breached its governing documents by taking actions four years earlier and three years earlier that increased her assessment for insurance premiums. The association filed a motion to dismiss Godwin’s complaint on the ground that it was time-barred pursuant to Virginia Code Section 55-79.71(C).

Four years earlier the association’s board of directors signed a resolution regarding physical damage and flood insurance. Three years earlier it drafted and signed a bylaw amendment relating to insurance premiums. The association argued that challenging either of these actions was time-barred under the statute of limitations.

The court ruled that the resolution was not an amendment to the condominium governing documents within the meaning of the act. The court found that, at most, the resolution represented a statement of the board’s opinion that the bylaws should be amended to revise the way insurance premiums were assessed against the unit owners. In the resolution, the board acknowledged the need to amend the bylaws and stated that the amendment process was lengthy and inconsistent with the budget preparation schedule for the upcoming fiscal year. Because the resolution was not an amendment adopted by the unit owners pursuant to the act, the court found that the act’s statute of limitations did not apply. However, the court ruled that the bylaws amendment was an amendment to the governing documents within the definition contemplated by the act. Accordingly, the one-year statute of limitations applied.

Godwin argued that because the association violated mandatory procedures for amending the bylaws, the amendment was null and void, and thus, the statute of limitations did not apply. The court, however, in examining the statute, noted that nothing in the statute suggested that only valid bylaw amendments are subject to the one-year statute of limitations. The court noted that any amendment, not just valid ones, may be challenged within one year. Accordingly, Godwin’s claim was barred by the statute of limitations.

Godwin then tried to argue that there was a breach of fiduciary duty (the legal duty of the board to act in the best interests of the residents). Godwin and the association agreed that an action for such breach must be filed within two years from the date of breach. Godwin argued that, although the association initially breached its fiduciary duty four and three years earlier “when in bad faith it knowingly and willfully” adopted the resolution and the bylaws amendment, there were renewed breaches when the annual budgets were adopted in the last two years, which reflected the change made to assessments for insurance premiums. The court disagreed, finding that any breach of fiduciary duty relating to the change in the insurance premium assessment took place when the association acted four and three years ago to adopt the resolution and bylaw amendment. The latest of these actions occurred over two years prior to Godwin’s filing suit. Therefore, the claim was time-barred.

Monday, April 3, 2023

Bankruptcy: Dischargeability of Debts Regarding Property Damage-Malice

Several cases illustrate well the dischargeability of debts involving property damage. In all cases, the trial and appellate courts are required to adhere to Bankruptcy Code §523(a)(6) which states that a debt causing willful and malicious injury to another entity is not exempt from discharge.

If you have cases involving property damage that may fall within this code section, please let me know.