Collections: Electronic Signatures and the Effect on Collections

Electronic signatures on loans and other credit agreements are becoming increasingly the norm for many of our clients. However, like all contracts that are eventually turned over for collection by a third-party, our clients need to consider evidence of where the contract was signed. 

Under the FDCPA, a suit may be filed either: where a defendant lives, OR where the contract was signed. The attorneys at LAW are licensed in Virginia and can only file suits in Virginia. Generally, this is not an issue. For example: if your defendant lived in Virginia, and still lives in Virginia, then this is likely not going to be an issue. However, if your defendant lived in Virginia when the contract was signed but then moved out of state, the suit would need to be filed in the new state unless you can sue where the contract was signed in Virginia. That is where the catch comes in. If your member lives outside of Virginia, but they signed the contract outside of Virginia or you do not know where the contract was signed, LAW will need to refer your case to an attorney who practices in another state.  

Prior to electronic signatures, it was easier for our clients to tell us where a contract was signed. Generally, wherever our client’s office was located, was the venue for a future suit. That has changed for many of our clients with the ability to email contracts for signature. If your member happens to be vacationing in the Outer Banks when they sign for their loan or credit card, you may run into a venue issue down the line. Or, if your member lives outside of Virginia when you turn the account over for collections and you do not know where the contract was signed, we also would not be able to file suit in Virginia. So, what do you do?

The first line of defense is going to add proof of where your contract was signed to every document signed by your members. There are several options for achieving this. First, you can add an affidavit of venue to your contracts. This is a simple signed document stating the date signed, name of your member(s), account/loan number, and a statement that the document was signed in the following county, city, and state. The second option is to work with your electronic document provider to add language at the end of your signed documents with a similar statement for your members to fill in when they sign. 

But, what about IP addresses? Many of our clients have stated that their electronic document provider provides an IP address sheet at the end of the loan. The problem with relying on IP addresses is that they are often not accurate. Internet security is vitally important, and many security systems prevent sharing of actual IP addresses and locations. 

We have helped many clients navigate proof of venue at the time of signing and would be happy to discuss your current processes. Additionally, we review every case to determine venue and can assist clients when issues arise. 

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: Foreclosing on Homeowner Association Liens to Secure an Interest in Real Estate

In recent editions of Creditor News we have been discussing 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 using homeowner association liens to aid in the collection of your debt. Last month we reviewed the special procedures for the collection of homeowners association dues under Virginia Code §55-516. We will now review the procedures for suits to foreclose on the lien.

Suits must be brought within thirty six months of filing, but after the perfection of the lien. The Homeowner’s Association may sell the lot at a public sale, subject to prior liens. There are detailed requirements in the code, a brief summary of which include the following:

1. The association shall give notice to the lot owner prior to advertisement as required in the code.

2. After expiration of the 60-day notice period, the association may appoint a trustee to conduct the sale.

3. If the lot owner meets the conditions specified in this subdivision prior to the date of the foreclosure sale, the lot owner shall have the right to have enforcement of the perfected lien discontinued prior to the sale of the lot. Those conditions are that the lot owner: (i) satisfy 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.

4. In addition to the advertisement requirements, the association shall give written notice of the time, date and place of any proposed sale in execution of the lien, and include certain information required in the code.

5. The advertisement of sale by the association shall be in a newspaper having a general circulation in the city or county wherein the property to be sold, with certain information requirements as set forth in the code.

6. Failure to comply with the requirements for advertisement contained in this section shall, upon petition, render a sale of the property voidable by the court.

7.  In the event of a sale, the code sets forth bidding and proceeds application procedures.

8. After sale, the trustee shall deliver to the purchaser a trustee's deed conveying the lot with special warranty of title.

9. After completion, the trustee shall file an accounting of the sale with the commissioner of accounts.

We have experienced attorneys and staff who can examine title, file homeowner association liens, and litigate to enforce the same.

Bankruptcy: Dischargeability of Debt - False Financial Statement in Chapter 7 Case

Judge Tice, United States Bankruptcy Court at Richmond, denied discharge of a debt in a Chapter 7 case. The case was Global Express Money Orders, Inc. v. Davis. In Davis the debtor previously had a convenience store that sold the creditor’s money orders through the store. The debtor still owed the creditor ($71,168.55) for some of these money orders. At issue was the debtor’s financial statement provided to the creditor at the commencement of the business between them

The Court found that the debtor’s financial statement was materially false. In fact, at trial the debtor did not seriously question the inaccuracy of the statement. Rather, he tried to distance himself from its preparation and delivery to the creditor. In the financial statement the debtor provided false information as to cash in a checking account, the value of his personal residence and a beach condominium, the value of his equity in certain investments, value of mutual funds and an expected federal tax refund.

The Court further found that the creditor required the personal financial statement of debtors as a condition precedent of the business arrangement; that the debtor, with intent to deceive, published the materially false financial statement and caused it to be delivered to the creditor; and that in contracting with the creditor and allowing the entity to incur substantial indebtedness, the creditor reasonably relied upon materially false asset entries in the financial statement, which debt was indemnified by the debtor personally.

The Court rejected the debtor’s argument that the creditor failed to prove that he prepared the financial statement and authorized its delivery, i.e., publication with intent to deceive, to the creditor. The Court determined that the evidence showed that in the debtor’s presence and with his knowledge, the financial statement was delivered to the creditor by an (unknown) employee of the debtor’s business. The Court ruled that this evidence was sufficient to require some better explanation from the debtor than he provided. The Court stated that it did not believe the debtor’s evasive testimony that he was too busy to be bothered, and knew nothing about the contents of the financial statement or the circumstances surrounding its delivery to the creditor. The Court determined that at the very least, the debtor recklessly allowed his financial statement to be used by the creditor for its consideration of the business transaction, and his reckless indifference was sufficient to satisfy the publication with intent to deceive element of Bankruptcy Code §523(a)(2)(B).

As to damages, the debtor argued that the loss of payment of the trust balance due was not damage or loss resulting from his publication of the false financial statement, as required by the statute. Rather, the debtor stated that the loss resulted from the failure of store employees to separate money order sales. Moreover, according to the debtor, his stores were not generating enough revenue to pay the current liabilities, and there was no evidence that he personally took funds or caused the shortage. However, the Court found it ironic that the debtor could argue that it was his employees who failed to comply with the trust agreement requirement for segregating trust fund receipts of the creditor. The debtor agreed to indemnify the creditor for his business’s indebtedness under the trust agreement, and his inability to make good on the indemnity was a direct result of his financial problems and ensuing bankruptcy. Although the Court stated that causation was not a necessary or proper element of the false financial statement issue, the Court simply found that the debtor’s false financial statement was a proximate cause of the loss.