Monday, September 30, 2024

Bankruptcy: Homeowners’ Association Assessments and the Chapter 13 Automatic Stay

The United States Bankruptcy Court in Alexandria, Virginia, in the case of Montclair Property Owner’s Association, Inc. v. Reynard, ruled that a homeowner’s association may collect post-petition assessments from a Chapter 13 debtor’s property that is not property of the bankruptcy estate.

In making its decision, the bankruptcy court noted that courts have taken different approaches with respect to the extent of the bankruptcy estate after confirmation of a Chapter 13 plan and, indeed, whether there is an estate after confirmation. The bankruptcy court ruled, however, that Bankruptcy Code §1306(a) includes in the Chapter 13 estate all property acquired by the debtor after confirmation, including future earnings. If the Chapter 13 estate did not have these assets, it could not pay pursuant to the plan.

In this case, no relief from the automatic stay was necessary, as there was no judgment yet obtained to execute upon. However, the court did rule that no relief from the automatic stay is necessary to collect post-petition homeowner’s assessments from property that is not property of the estate. Collection activities may only be directed to property of the debtors, not property of the estate. All post-confirmation earnings are property of the estate.


Monday, September 23, 2024

Collections: Secured Transaction Proceeds

In the case of Orix Credit Alliance Inc. v. Sovran Bank, N.A., the United States District Court at Baltimore, Maryland, reviewed a case where Sovran Bank, which had provided the debtor with a line of credit and several bank accounts, one of which was a depository "cash collateral" account routinely applied against draws on the line of credit, signed an agreement with Orix, a finance company, to subordinate the bank's security interest in a crane (purchased by the debtor with funds from the finance company) to the finance company's interest in the crane. The Court ruled, however, that the bank was entitled to use the proceeds from the sale of the crane to reduce the debtor's obligation under the line of credit. The Court's decision was based upon a finding that the bank's transfer of the proceeds occurred in the debtor's ordinary course of business under Virginia Code §8.9-306, comment 2(c), which extinguished the finance company's interest in the proceeds from the sale of the crane.

This case serves as another example as to why competent legal advice should be sought before relying upon a recorded security interest.

Monday, September 16, 2024

Foreclosure: Advertisements of Sale

The Code of Virginia provides specific guidance as to advertisements for foreclosure sales. The sale must be properly advertised or it will be void upon order of the court.

Virginia Code §55-59.2 states that if the deed of trust provides for the number of publications of the advertisements, no other or different advertisement shall be necessary, provided that: if the advertisement is inserted on a weekly basis, it shall be published not less than once a week for two weeks, and, if such advertisement is inserted on a daily basis, it shall be published not less than once a day for three days, which may be consecutive days. If the deed of trust provides for advertising on other than a weekly or daily basis, either of these statutory provisions must be complied with in addition to the provisions of the deed of trust. If the deed of trust does not provide for the number of publications for the advertisement, the trustee shall advertise once a week for four consecutive weeks; however, if the property, or a portion of the property, lies in a city or county immediately contiguous to a city, publication of the advertisement may appear five different days, which may be consecutive. In either case, the sale cannot be held on any day which is earlier than eight days following the first advertisement or more than thirty days following the last advertisement.

Advertisements must be placed in the section of the newspaper where legal notices appear, or, where the type of property being sold is generally advertised for sale. The trustee must comply with any additional advertisements required by the deed of trust.

Virginia Code §55-59.3 requires advertisements to describe the property to be sold at foreclosure; however, the description does not have to be as extensive as in the deed of trust – substantial compliance is sufficient so long as the rights of the parties are not affected in any material way. The statute does require the property to be described by street address, and, if none, the general location of the property with reference to streets, routes, or known landmarks. A tax map number may be used, but is not required

Virginia Code §55-59.2 requires the advertisement to state the time, place and terms of the sale. If the deed of trust provides for the sale to be conducted at a specific place, the trustee must comply with this term. If there is no mention in the deed of trust, §55-59(7) provides that the auction may take place at the premises, or, in front of the circuit court building, or, such other place in the city or county in which the property or the greater part of the property lies. In addition, the sale could be held within the city limits of a city surrounded by, or contiguous to, such county. If the land is annexed land, the sale could be held in the county of which the land was formerly a part.

The statute provides that the advertisement shall give the name or names of the trustee or trustees. In addition to naming the trustee, the advertisement must give the name, address and telephone number of the person who may be contacted with inquiries about the sale. The contact person can be the trustee, the secured party, or his agent or attorney.

Monday, September 9, 2024

Real Estate: Criminal Liability for Misuse of Construction Funds

Virginia Code §43-13 provides that funds paid to a general contractor or subcontractor must be used to pay persons performing labor or furnishing material. Any contractor or subcontractor or any officer, director or employee of such contractor or subcontractor who, with intent to defraud, retain or use the funds, or any part thereof, paid by the owner or his agent, shall be guilty of larceny in appropriating such funds for any other use while any amount for which the contractor or subcontractor may be liable or become liable under his contract for such labor or materials remains unpaid, and may be prosecuted upon complaint of any person or persons who have not been fully paid any amount due them.

The use by any such contractor or subcontractor or any officer, director or employee of such contractor or subcontractor of any moneys paid under the contract, before paying all amounts due or to become due for labor performed or material furnished for such building or structure, for any other purpose than paying such amounts, shall be prima facie evidence of intent to defraud.