Real Estate: The Virginia Property Owners’ Association Act – Foreclosing on Memorandums of Lien

In the previous editions of Creditor News I discussed the provisions related to filing a memorandum of lien under the Virginia Property Owners’ Association Act.

 

The Act provides: “At any time after perfecting the lien pursuant to this section, the property owners' association may sell the lot at public sale, subject to prior liens.” In order to conduct a nonjudicial foreclosure, the association must comply with the statutory requirements.

The association must give notice to the lot owner prior to advertising the sale. The notice must include notice of: “(i) the debt secured by the perfected lien; (ii) the action required to satisfy the debt secured by the perfected lien; (iii) the date, not less than 60 days from the date the notice is given to the lot owner, by which the debt secured by the lien must be satisfied; and (iv) that failure to satisfy the debt secured by the lien on or before the date specified in the notice may result in the sale of the lot.” The notice must also inform the lot owner of the right to bring a court action in the circuit court of the county or city where the lot is located to assert the nonexistence of a debt or any other defense of the lot owner to the sale.

If the lot owner (i) satisfies the debt secured by lien that is the subject of the nonjudicial foreclosure sale and (ii) pays all expenses and costs incurred in perfecting and enforcing the lien, including but not limited to advertising costs and reasonable attorneys' fees, then the sale is discontinued. However, if after 60 days and the lot owner has not made those payments, the association may appoint a trustee for the sale and advertise the sale. In addition to advertising the sale, the association must give written notice of the time, date and place of any proposed sale in execution of the lien, and including the name, address and telephone number of the trustee. That notice must be at least given to the owner, lienholders and their assigns by certified or registered mail 14 days prior to the sale.

The association must advertise the sale in a newspaper in the city or county where the property will be sold. The advertisement must be in a section with legal notices or where the property being sold is generally advertised for sale. The advertisement must describe the property by address and general location and have information for the representative or an attorney who can respond to inquiries about the property with their name, address, and telephone number. The advertisement must be in the newspaper for four successive weeks, but if the lot is located in a city or county immediately contiguous to a city, publication of the advertisement for five different days is sufficient. The sale then must be held on any day after the last advertisement but not earlier than 8 days after the first advertisement and not more than 30 days after the last advertisement.

Failure to comply with these and other requirements in the statute will render the sale of the property voidable by the court. The law firm of Lafayette, Ayers & Whitlock, PLC, represents homeowner’s associations and can handle memorandums of lien and foreclosure procedures.

Bankruptcy: An Examination of the Dischargeability of Debts Regarding Property Damage-Malice

In the last issue of Creditor News I began a multi-issue review of cases that address the dischargeability of debts regarding property damage-malice. The relevant bankruptcy code provision is §523(a)(6). I briefly established the standard used by courts to determine dischargeability of debts involving property damage and discussed how the court applied the standard to two cases involving rented property and withheld payments.

In the case of Ford Motor Credit Co. v. Rose, the United States Bankruptcy Court at Big Stone Gap, Virginia, denied a creditor's motion to declare a debt nondischargeable as a malicious injury based upon withholding payments.

In Rose, a Ford automobile dealership deliberately withheld payments to the creditor, a credit company, in order for the debtor to cover the dealership's operating expenses.

The Court held that the critical determination is whether the debtor's actions satisfy the "maliciousness" requirement of Bankruptcy Code §523(a)(6). The leading case in the 4th Circuit on the maliciousness requirement is Vaughn, in which the Court used an objective test for determining "maliciousness", but did not clearly define the limits of that test.

The Court ruled that both parties acknowledged that the debtor sold twenty-five vehicles, with a value of approximately $240,000, and failed to submit the proceeds to Ford Credit pursuant to the financing agreement. This was deliberate and intentional and so the willfulness requirement of the Bankruptcy Code §523(a)(6) was met. The Court found that the creditor failed to establish that the debtor was malicious, however.

While it was undisputed that the debtor knew that he was breaching the financing agreement, it was not clear that his actions would necessarily be expected to cause harm. The debtor asserted that the dealership had more than enough assets to adequately secure Ford Credit when he used the unremitted funds in violation of the financing agreement. The debtor was only acting to keep the business afloat and applied all of the funds to that purpose, even forsaking any salary for ten months. Further, the debtor appeared to have given total cooperation to the liquidation effort and did not personally benefit from any of the money belonging to Ford Credit. Therefore, the Court denied the creditor's motion based upon its failure to prove maliciousness.

As seen in the cases reviewed over the past few issues, property damage cases may appear simple, but they are not. Creditors frequently have the burden of proof, and, elements unproven can lose a case. Experienced counsel is needed.

Collections: Motion to Set aside Judgment - Timely Filing

Timing can be everything. A prime example of this is the case of Trimark Partners v. HST L.L.C. In Trimark the Fairfax Circuit Court ruled that a debtor cannot move to set aside a confessed judgment because he failed to file a motion within twenty one days of learning of the judgment.

In Trimark the Court initially entered a judgment against three defendants based on a confession-of-judgment provision in a note. Two of the defendants had executed the note containing the confession-of-judgment terms. A third defendant later had signed an allonge, or attachment to the note, by which he consented to the note obligations. All three defendants later moved to set aside the judgment.

Under Virginia Code §8.01-433, a defendant must move to set aside a confessed judgment within twenty one days following notice to him that the judgment has been entered. The judgment can be set aside "on any ground which would have been an adequate defense or set off in an action at law...".

The Court found as a matter of fact that on a certain date the debtors were advised by the creditor of the entry of a judgment. A couple weeks later the judgment order was actually served on the debtors. More than twenty one days from the date on which the creditor advised the debtors of the entry of judgment, but not more than twenty one days form the date the judgment order was served on the defendants, the defendants filed a motion to set aside the judgment. The judgment creditor objected to the motion because it was not made within twenty one days of notice.

The Court ruled in favor of the creditor, ruling that notice was proven by the creditor's evidence of notice (advising by letter); the Court found that notice was not proven only by the serving of the judgment on the defendants.

The lesson of Trimark, as is the lesson in so many cases, is to create a paper trail of all transactions, and act promptly. It will usually reap dividends.

Foreclosure: Deposits

Virginia Code §55-59.4(A)(2) permits the trustee to require of any bidder at any sale a deposit of as much as ten percent of the sales price, unless the deed of trust specifies a higher or lower amount. However, because the statute is not mandatory, the trustee is given the right to waive the deposit if he deems it appropriate, unless the deed of trust requires a specific deposit. The trustee should also consider using a fixed amount as the deposit rather than a percentage of the sales price. Using a percentage of the sales price as the method of determining the required deposit often results in confusion, and the successful bidder has either too much or too little money to deposit. A fixed deposit avoids the confusion and allows all potential buyers to know exactly how much money to bring to the sale to deposit. The fixed deposit should not be excessive but should be of a sufficient amount to ensure that the successful bidder completes the closing of the sale.

Real Estate: Using Deeds of Trust to Secure Your First, Second, Equity Line or Refinance Home Loans

In the previous editions of Creditor News we began a discussion of the benefits of using real estate to improve creditors’ positions. As I have emphasized, properly securing debts through real estate could make the difference between collecting the funds and incurring a loss. In this edition, we will review the benefits of securing your first, second, equity line or refinance home loans with a deed of trust.

Real estate liens provide important security for your debt. Since real estate is the largest investment and asset for most individuals, they will usually make every effort to pay debts secured by their real estate first. However, you need to know the chain of title in order to make an informed decision about your loan. Specifically, in what position will your lien be? Are there any “clouds” on the title? You will not know the answer to these questions without a proper title search and review.

Once you know your position you will need to examine the available equity to cover your loan. What is the value? What are the balances due on the liens ahead of your anticipated position? Beyond the business decision of determining when the equity is sufficient for your risk tolerance, in order to take advantage of the “$1.00 rule” in the bankruptcy code for chapter 13 cases (should your debtor decide to later file bankruptcy), you need to ensure that there is at least $1.00 in equity to cover the loan. You should take into consideration that property values may go down (e.g., 2008 to present).

If the deal is made and the real estate closing occurs, immediate and proper recording of your deed of trust is essential to preserve your position. If the debtor defaults, foreclosure on the property can occur. If the debtor seeks reorganization of his debt in chapter 13, you can seek full payment of the debt.

We have experienced attorneys and staff who can examine title and properly represent your interests in real estate closings.