Collections: Garnishments Out-of-State

While we have had good results in issuing garnishments out of state, especially when the garnishee is a bank that operates nationwide, success is not always guaranteed. Diversity in jurisdiction does create some issues. A good example of this arose in a case in the United States District Court where the Court granted a debtor’s motion to quash a garnishment summons after finding that the debtor’s wages were not located in Virginia. The garnishment summons had been issued by a Virginia creditor that was a Virginia hospital. The debtor was a Pennsylvania resident doctor. The garnishee was an Ohio company. The court ruled that the garnishment summons issued by the court was ineffective to garnish the wages not located in Virginia.

Foreclosure: Lost Notes

Virginia Code §55.1-321 addresses the situation where the noteholder has lost the original note. With the frequency of sales of notes on the secondary market, the loss of the original note documents occurs more often than might be expected. The Code provides that if the note or other evidence of indebtedness secured by a deed of trust cannot be produced, and, the beneficiary submits to the trustee an affidavit to that effect, the trustee may proceed to foreclosure. However, the beneficiary must send written notice to the person required to pay the instrument stating that the instrument is unavailable and that a request for sale will be made of the trustee upon the expiration of fourteen days from the date of the mailing of the notice. The notice must be sent by certified mail, return receipt requested, to the last known address of the person required to pay the instrument, as reflected in the records of the beneficiary, and shall include the same and the mailing address of the trustee. The notice must also advise the borrower if the borrower believes that he may be subject to claim by a person other than the beneficiary to enforce the instrument, the debtor may petition the circuit court of the county or city whether the property lies for an order requiring the beneficiary to provide adequate protection against any such claim. Failure to give the notice does not affect the validity of the sale.

Real Estate: Using Lis Pendens 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 lis pendens in litigation cases to aid in the collection of your debt.

A lis pendens is a legal memorandum which places parties on notice that litigation is pending which affects the title or ownership of real estate. The lis pendens is filed in the circuit court of the county or city in which real estate lies.

Virginia Code §8.01-268 B states that “No memorandum of lis pendens shall be filed unless the action on which the lis pendens is based seeks to establish an interest by the filing party in the real property described in the memorandum…”.

Virginia Code § 8.01-268 A provides that a lis pendens does not affect a subsequent bona fide purchaser of real estate for valuable consideration until actual notice of such lis pendens is properly filed with the required information. Requirements include: the title of the cause, the general object thereof, the court wherein it is pending, the amount of the claim asserted, a description of the property, the name of the person whose estate is intended to be affected thereby.

We have experienced attorneys and staff who can examine title, file lis pendens, and litigate to enforce the same.

Bankruptcy: Recorded Judgment Honored

The Virginia Supreme Court held in Leasing Service Corp. v. Justice that a judgment creditor, who recorded its judgment prior to the debtor filing its bankruptcy petition, would not be prevented from a post-discharge enforcement of its lien upon the debtor's real property interests in jurisdictions that were acquired before the commencement of the bankruptcy proceedings. Specifically, the Court ruled that the lien was not paid off or discharged in the bankruptcy proceedings, and could not be ordered released pursuant to Virginia Code §8.01-455. Therefore, the judgment continued to be a lien on any interest that debtor may have had in land located within that county, despite his bankruptcy discharge from personal liability in the payment of the judgment.

The lesson of Justice is that you should always promptly docket your judgments where you believe that the debtor owns or may own property.

Collections: Uniform Enforcement of Foreign Judgments Act

Virginia and almost all other states have adopted the Uniform Enforcement of Foreign Judgments Act (UEFJA) (Virginia Code §8.01-465.1 et seq.). In so doing, creditors may enforce out-of-state judgments by properly filing the foreign judgment in a Virginia Circuit Court. Virginia Code §8.01-465.2 states:

The Clerk must treat the foreign judgment in the same manner as a judgment of the circuit court of any city or county of this Commonwealth. A judgment so filed has the same effect and is subject to the same procedures, defenses, and proceedings for reopening, vacating or staying as a judgment of a circuit court of any city or county of this Commonwealth and may be enforced or satisfied in like manner.

As creditors it is important to be aware that out-of-state judgments can be enforced in Virginia, and that Virginia judgments can be enforced in foreign states, provided that the state has adopted the UEFJA.

In Virginia, Virginia Code §8.01-465.5 allows bringing an action to enforce an out-of-state judgment in lieu of proceeding under the Uniform Act, if you so desire. Virginia Code §8.01-389(B) states:

Every court of this Commonwealth shall give such records of courts  not of this Commonwealth the full faith and credit given to them in the courts of the jurisdiction from whence they come.

Virginia Code §8.01-252 states that an action brought in Virginia to enforce a judgment rendered in another state shall not be barred by the laws of the other state. The Code bars action upon a judgment rendered more than ten years before the commencement of the suit.

In the case of Atlantic Funding Corp. v. Peterson, the Fairfax County Circuit Court granted a debtor's motion to quash debtor interrogatories because the creditor had failed to file the federal judgment pursuant to the UEFJA, and thus, the Clerk of the Circuit Court could not treat the federal judgment as a judgment of the Virginia state court.

Virginia Code §8.01-447 governs the docketing of judgments and decrees of federal district courts in Virginia state courts. That provision clearly requires the Clerk of the Circuit Court to treat it in the same manner all judgments rendered within the Commonwealth when docketing judgments. The statute speaks only to the process of docketing judgments, however. It does not necessarily provide a method of enforcing docketed judgments, and it does not authorize the clerk to treat docketed judgments from local federal courts as docketed judgments of this circuit court.

In Peterson the Fairfax Circuit Court ruled that unlike Virginia Code §8.01-447, the UEFJA clearly requires identical treatment and enforcement of properly filed federal and state court judgments. Had the judgment creditor properly filed the judgment of the District Court, the Clerk of the Circuit Court would have been compelled to enforce that judgment as a judgment of the Circuit Court. The Fairfax Circuit Court ruled that the record in Peterson, however, revealed that the creditor failed to authenticate the District Court judgment, or to pay the fee prescribed in Virginia Code §14.1-112(22). The Court ruled that since the creditor did not properly file the District Court judgment in Peterson it was not entitled to the benefits of the UEFJA.

Foreclosure: Sale Deficiency Actions

Frequently there will be a deficiency balance after the sale is completed and the accounting is done.  The account of sale will set forth the distribution of the sale proceeds and also establish any amounts remaining due on the indebtedness following application of the net proceeds from the foreclosure sale.  This deficiency amount is usually recovered by a personal judgment against the maker of the promissory note or other obligors on the indebtedness that was secured by the deed of trust.  An action to recover the deficiency balance remaining after a foreclosure sale need not be brought on the chancery side of the court and may properly be brought as an action at law.  A plaintiff’s action to recover on an assumed promissory note may be maintained as an action at law even though the plaintiff is not named in the deed of trust.

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: Homestead Exemption - Deed Executed by Counsel

The case of In re Goodman serves as another good example why you should review all case documents.  In Goodman, the United States Bankruptcy Court at Roanoke ruled that a homestead deed executed by the debtor's counsel and recorded pursuant to Virginia Code §34-17 did not perfect the debtor's homestead lien.  Accordingly, the debtor's claimed exemption under Virginia Code §34-17 failed, and the property became subject to the bankruptcy estate.

In Goodman, the debtor did not timely execute a homestead deed, as the debtor could not be located by his counsel.  However, the debtor claimed to reaffirm and ratify the act of his attorney, who filed and recorded one on his behalf.  The debtor did not subsequently attempt to file any other homestead deed.  The debtor argued that the agency relationship between the debtor and the debtor's attorney enabled counsel's execution and recordation of the homestead deed on behalf of the debtor.  The debtor also pointed to the fact that he had ratified and affirmed his counsel's act of signing the homestead deed on his behalf and putting the same to record within the time period provided by the Virginia Code for claiming a homestead exemption.

The Court, however, in looking at the plain language of both the Bankruptcy Code §522 (b), and the Virginia Code §§34-4 and 34-1, decided that it is clear that the "individual debtor" (§522 (b)) or "householder" (§34-4), not attorney, has the privilege of "selecting" the property to be exempted.  Under Virginia Code §§ 34-6 and 34-17, the debtor, not attorney, secures the benefit of the homestead by signing and recording a writing claiming the benefit.  The bankruptcy trustee timely raised and properly brought into question the validity of the homestead deed which contained only the signature of the debtor's attorney on behalf of the debtor.  At trial, the debtor produced no evidence that his counsel had authority to execute the homestead deed and put it to record.  The parties stipulated that debtor's counsel signed and filed the homestead deed and put it to record out of a sense of necessity only and not to any specific blanket authority conferred upon the attorney at the time of the agency relationship.  The Court ruled that having failed to meet the threshold challenge of the trustee to the debtor's agency authority, the debtor did not prevail on the agency theory.  In addition, because there was no adequate proof of authority for the agent to sign the homestead deed on behalf of the debtor, the fact that the debtor subsequently ratified and confirmed the act of his attorney is not relevant.  Accordingly, the Court sustained the bankruptcy trustee's objection, and the property set forth in the homestead deed became the property of the bankruptcy estate.

Collections: Debt Collections: You Need a Plan, From the Beginning

Any business or lending institution that extends credit to its customers or members will inevitably be faced with bad debts.  To insure maximum collection results, creditors should establish credit and collection policies before a problem occurs.

Before you extend credit, there are several things that you can do to reduce your risk. 

1. Obtain full names, addresses, telephone numbers, places of work, social security numbers and dates of birth.
2. Obtain the name of the customer's bank, branch, and account number.
3. Review a credit report.
4. Ensure that all credit terms are clear.
5. Have personal guarantees for small businesses.
6. Perfect security interest in events of large credit.

 When accepting personal checks, take the following precautions:

1. Insist on two pieces of identification, at least one of which has the customer's photo.  A driver's license and a credit card are ideal.
2. Require checks to be made out in your presence.
3. Compare the signature on the check with that on the ID.
4. Limit checks to the exact amount of the sale.
5. Accept only checks drawn on local banks.
6. Verify the customer's address and phone number on the check.  Also note the customer's social security number and/or driver's license number.
7. Be cautious when accepting checks with low numbers (indicating that the account was recently opened).
8. Consider subscribing to a check verifying service.  For a modest fee, such a service allows you to call a toll-free number and learn immediately if you can safely accept the check.  If a check bounces after being verified using this procedure, the service will cover your loss.

When the debt is in default, act promptly!  The longer you wait, the harder collection will probably be.  We usually recommend immediate telephone calls, followed by a series of two or three letters.  In the final letter, give a definite and short deadline with the promise of attorney action.

The decision as to when a creditor should deliver its accounts to counsel for collection is not always an easy one.  Some creditors deliver collections accounts to counsel after the initial demand has failed to produce results.  Some creditors desire to have their credit/collection manager take their judgment and attempt collection by payment plan, garnishment, or even sometimes, sheriff's levy.

The problem frequently encountered by creditors who pursue their own judgments, however, is that in most cases the ability to collect without the assistance of counsel ends prior to the receipt of payment in full.  When this occurs, counsel must normally assume collection activities after the trail is cold.  Further, since the creditor was not represented by counsel at the time of judgment, the judgment order does not include attorney's fees; nevertheless, attorney fees will now be charged to the creditor.  In addition, if the creditor's credit/collection manager failed to properly docket the judgment, collection could be forever impaired.

The firm recommends that creditors immediately deliver accounts to counsel upon the failure of the demand for payment.  Creditors should ensure that provisions for attorney fees and interest are included in all loan, contract and/or account documents so that counsel can assess these costs upon delivery.  The firm further recommends that all accounts be delivered while the "trail" is still warm--no more then sixty days from default.

The firm has aggressive collection counsel and staff who represent numerous Credit Unions, Homeowner Associations, property management companies, loan companies, businesses, doctor's offices, and private citizens.  The firm is willing to pursue accounts from start to finish, or even finish accounts already in progress.

Foreclosure: Deposits

Virginia Code §55.1-324 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: Common Area Parking Spaces Must be Assigned Equally

The Court of Appeals of Virginia recently issued an opinion affirming a Circuit Court decision holding that common area parking spaces must be assigned equally. The case involved a suit by a homeowner, Patrick Batt, against Manchester Oaks subdivision in Fairfax County. The subdivision contained 57 townhouses, 30 of which were constructed with a garage and driveway (garaged lots) and 27 of which were constructed with an additional bedroom and bathroom in lieu of a garage (ungaraged lots). The subdivision included a common area with 72 parking spaces.

The subdivision was subject to a declaration, administered by the homeowners association that gave the association the right to designate a maximum of two parking spaces for the exclusive use of each lot owner. However, the association was not required to ensure that parking spaces were available to any particular owner or to oversee use of the parking spaces. Batt had purchased a garaged lot in 1990, before the subdivision was complete. At that time, residents parked wherever they chose. In 1993 or 1994, the developer began assigning two parking spaces to each ungaraged lot. The remaining 18 parking spaces were designated as “visitor” parking, available to all lot owners on a first-come, first-served basis.

In 2009, the association issued one visitor parking permit to each lot owner and posted a parking policy on its website. Any vehicle not displaying a permit while parked in the visitor parking spaces would be towed. In December 2009, the association amended the declaration to provide that the association had the right to designate two parking spaces exclusively to each of the ungaraged lot owners on a non-uniform and preferential basis. In June 2010, Batt sued the association, claiming that the unequal treatment of owners over parking space assignments violated the declaration. The association argued that Batt’s suit was barred by the December 2009 amendment to the declaration.

The circuit court ruled in Batt’s favor, finding that the amendment was invalid for six reasons. The association appealed. The Court of Appeals ruled, in summary, that equality is inherent in the definition of “common area.” A “common area” is defined as, “[a]n area owned and used in common by residents of a condominium, subdivision, or planned-unit development.” Black’s Law Dictionary defines “in common” to mean “[s]hared equally with others, undivided into separately owned parts.” Accordingly, the court held that the association must assign common area parking spaces to all lot owners equally, if at all, unless the declaration expressly provided otherwise. In this case, the court did not find that unequal assignment was authorized.

Bankruptcy: Retirement Plan Exemptions - IRA - SEP- Pension Plan in Chapter 7

The United States Bankruptcy Court, in Alexandria, in the case of In re: Bissell, ruled that where a debtor has an IRA, an SEP and an ERISA-qualified pension plan, his exemption under Virginia Code §34-34 is computed without regard to the pension plans. The Bankruptcy Court rejected the creditor’s attempt to apply the value of the ERISA-qualified plan to the amount exempt under Virginia law, so as to wipe out the exemption for the IRA or the SEP and obtain an additional $71,538 for the bankruptcy estate.

The debtor asserted that the maximum exemption allowable under Virginia Code §34-34 for his individual retirement account and his simplified employer plan was computed without regard to his ERISA-qualified pension plan. He aggregated the value of the IRA and the SEP and applied the maximum allowable under exemption, $52,955, against this amount. He acknowledged that since the IRA and SEP have a total value of $71,538.52, the excess over the maximum allowable exemption of the IRA and SEP, $18,583.52, was not exempt under Virginia Code §34-34. The ERISA-qualified pension plan does not form a part of the computation because it, unlike the IRA and SEP, is not property of the estate.

The creditor asserted that the value of the ERISA-qualified pension plan must first be applied to the $52,955 amount exempt under Virginia Code §34-34. Since the pension plan had a value of $363,915.13, this method of computing the allowable exemption would exhaust the $52,955 exemption allowed under §34-34. There would be no exemption remaining available for the IRA or the SEP and the full value of the two accounts, $71,538.52, would be turned over to the trustee.

The Bankruptcy Court found that the creditor’s interpretation of §34-34 was contrary to the commonly accepted practice. The Bankruptcy Court ruled that the definition of “retirement plan” in Virginia Code §34-34 must be read narrowly to exclude ERISA-qualified pension plans. To hold otherwise would invoke federal preemption which would exclude ERISA-qualified pension plans in any event and possibly preempt the entire statute. It would frustrate the General Assembly’s intent to protect retirement plans.

The Bankruptcy Court ruled that the Virginia General Assembly confronted the inherent problems in using §55-19 and spendthrift trusts to protect retirement plans. It sought for the first time to comprehensively remedy the problems and to provide greater and better protection for retiree’s pension plans, in particular ERISA-qualified pension plans. The General Assembly’s chosen route was the establishment of a uniform exemption for all retirees. The Supreme Court’s subsequent decision in Patterson v. Shumate changed one of the underlying assumptions of the General Assembly by definitively holding that ERISA-qualified pension plans were not property of the bankruptcy estate. Had the General Assembly intended to adhere to the uniform exemption for retirees, it could have easily amended Virginia Code §34-34 to expressly reduce the exemption of non-ERISA-qualified pension plans, such as IRAs and SEPs, that were covered by Virginia Code §34-34 by the amount of any ERISA-qualified pension plan excluded from the bankruptcy estate or exempt from creditors in a state court proceeding. It did not. It accepted that ERISA-qualified pension plans could be reached by neither bankruptcy trustees in bankruptcy nor creditors in state court and it expanded the exemptions available based, in part, on this premise. The 1996 General Assembly protected rollover contributions. In 1999, the General Assembly added Roth IRAs. With some restrictions, the 1999 amendment also placed IRAs, SEPs, and Roth IRAs on the same footing as 401 plans and other ERISA-qualified pension plans. This partially reduced the inequality between those plans, although it did not completely eliminate it. The Bankruptcy Court ruled that the creditor’s position in this case ran counter to the expanding protections provided by the General Assembly over the last decade and the judicial role of liberal construction of exemption statutes. Its implicit construction contracts the exemption and magnifies the very inequality the General Assembly sought to minimize.

The Bankruptcy Court overruled the creditor’s objection to debtor’s claim of exemption. The amount of the exemption of the IRA and the SEP under Virginia Code §34-34 was computed without regard to the ERISA-qualified pension plan. The IRA and SEP were exempt in the aggregated amount of $52,955 plus any additional amount allowable under Virginia Code §34-4.

Collections: Attorney's Fees on Collection Accounts

Creditors rightfully expect their debtors to pay the attorney's fees that result from collection procedures. Courts, however, normally refuse an award of attorney's fees unless the debtor has executed a document awarding such costs in the event the account is turned over to an attorney for collection. Many creditors utilize a standard form contract, or note, which has such a provision. Because many forms are multi-state, and because states' laws vary, most standard forms provide for "reasonable attorney's fees." Traditionally, most courts in Central Virginia have interpreted "reasonable" to be the equivalent of 25% of the principle amount of the judgment, regardless of the actual legal fees charged, whether hourly or contingency. However, these days may be coming to an end due to court rulings!

The Virginia Supreme Court, in the case of Coady v. Strategic Resources, Inc., ruled that an award of attorney’s fees rests within the sound discretion of the trial court. In the case of J. R. Mullins, et al. v. Richlands National Bank, the Virginia Supreme Court ruled that the trial court must determine the reasonableness of attorney's fees when disputed. In the case of Chawla v. BurgerBusters, Inc., the Virginia Supreme Court ruled that a party requesting an award of attorney’s fees must establish a prima facie case that the fees requested are reasonable. In the case Schlegel v. Bank of America, N.A., et al., the Court denied the request for attorney’s fees, citing the “test” to be used. It is as follows: In determining whether a party has shown the reasonableness of the fees, the fact finder may consider the time and effort expended by the attorney, the nature of the services rendered, the complexity of the services, the value of the services to the client, the results obtained, whether the fees incurred were consistent with those generally charged for similar services, and whether the services were necessary and appropriate.

With all of this said, you could win a contested trial on the merits, but be forced to present an “expert witness” (i.e., another attorney) to testify to the reasonableness of your attorney’s fees! To avoid this problem, and, to insure at least a fighting chance of obtaining at least the 25%, or even 33 1/3rd % (which most attorneys charge in percentage collection cases), creditors should make certain that their forms specify "____% attorney's fees", or amend the standard form to "____%" and have the debtor initial adjacent to the change.

It is important to note that the judicial award of attorney's fees is made upon the entry of judgment. If creditors take their own judgment, no attorney's fees will be awarded, even though the judgment may eventually be turned over to an attorney for collection. In this case creditors, not the debtor, will bear the full cost of collection. Accordingly, I recommend that creditors timely turn over all accounts to their attorney for prompt action.

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 §55.1-322 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 §55.1-323 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 §55.1-323 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, §55.1-320(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.

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

In the last issue of Creditor News, I began discussing the Virginia Property Owners’ Association Act.

The Act specifically provides for remedies outside of the more common remedy of filing suit for the amount owed and receiving a judgment. A memorandum of lien to a holder of a credit line deed of trust under the Act is given in the same fashion as if the association’s lien were a judgment. Under the Act, the association can file for and perfect a lien against the homeowner that is prior to all other subsequent liens and encumbrances except real estate tax liens, liens and encumbrances recorded prior to the recordation of the declaration, and sums unpaid on and owing under any mortgage or deed of trust recorded prior to perfection of this lien.

To perfect the memorandum of lien, the association must file with the clerk of the circuit court in the county or city in which the development is situated a memorandum verified by the oath of the principal officer of the association or another officer provided for in the declaration. The memorandum must be filed within 12 months from the first assessment became due and payable. Additionally, prior to filing a memorandum of lien, a written notice must be sent to the property owner by certified mail, at the owner’s last known address, informing the owner that the lien will be filed in the circuit court clerk’s office at least 10 days before the actual filing date of the lien. The memorandum must name the development, describe the lot, name the person(s) constituting the owners of the lot, list the amount of unpaid assessments currently due or past due relative to such lot together with the date when each fell due, list the date of issuance of the memorandum, name the association with a name and address of the contact for the person to contact to arrange for payment or release of the lien, and state that the association is obtaining a lien in accordance with the provisions of the Virginia Property Owners’ Association act as set forth in Chapter 26 (section 55-508 et seq.) of Title 55.

The Act provides that a judgment or decree in this action must include, without limitation, reimbursement for costs and reasonable attorney’s fees for the prevailing party. Also, if the association prevails, it may also recover interest at the legal rate for the sums secured by the lien from the time each sum became due and payable. If the owner then satisfies the debt, the lien must be released, and failure to release the lien results in a penalty.

Once a lien has been perfected, the association must enforce the lien within 36 months from the time when the memorandum of lien was recorded. This time period cannot be extended.

In the next issue of Creditor News, I will discuss foreclosure on a lien.

Bankruptcy: Debtor can contribute for Retirement in Chapter 13 Case

In the case of In re: Ricardo Cantu, Jr., the United State Bankruptcy Court at Alexandria ruled that a debtor in a Chapter 13 case can contribute for retirement under 11 U.S.C. Section 541 (b)(7).

In Cantu the Chapter 13 trustee objected to the debtor making voluntary retirement contributions. The Court, in its review, noted that the issue of voluntary contributions has been the subject of some debate in the case law in recent years. The Court stated that there are essentially three divergent lines of cases. The first line holds that the debtor is not entitled to any deduction for voluntary contributions, whether or not he was making voluntary contributions pre-petition. The second line is that voluntary retirement contributions may be continued as long as they are consistent with the debtor’s pre-petition history of contributions. The third line, which the Court noted was the majority view, concludes that the bankruptcy code allows for the deduction, whether or not the debtor was making voluntary contributions prior to the bankruptcy filing, but subject to a determination of the debtor’s good faith.

The Court noted that the bankruptcy trustee urged the Court to adopt the second line of cases, but the Court adopted the third, deciding that the bankruptcy code does not limit the debtor’s ability to make contributions post-petition, nor is there any distinction between pre-petition contributions and post-petition contributions. The Court held that the use of the term “any amount”, without limitations, followed by the term “contributions”, compelled the conclusion that Congress meant no such distinction.

The Court further decided that there was no evidence that the debtor proceeded in anything other than good faith. Accordingly, the Court overruled the chapter 13 trustee’s objection.

Collections: Acceleration of Demand Notes

The Twentieth Judicial Circuit examined a debtor's assertion that the note's "detailed enumeration of events consisting default was inconsistent with a demand note", and that since the note was not a demand note, the creditor must demonstrate "good faith" in accelerating repayment of the note. The case was NationsBank of Virginia, N.A. v Barnes. The Court examined Virginia Code §8.3A-108(a), which states that a note is payable "on demand" if it says it is payable on demand or states no time for payment. The Court found that the note in this case was a form with a box "on demand" checked, with no time set for repayment, only a provision requiring monthly payments of interest. The Court ruled that the note was unambiguous and clearly a demand note, and that no showing of "good faith" was required before requesting payment on the note.

Despite the favorable result for the creditor, great care should always be taken to clearly identify payment demand terms.