Real Estate: Using Mechanic’s 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 begin a review of the benefits of using mechanic’s liens to aid in the collection of your debt.

Virginia Code §43-3 et. seq. provides for special procedures for the collection of unpaid bills related to work performed on, or products supplied for, real estate. §43-3 A states:

“All persons performing labor or furnishing materials of the value of $150 or more … for the construction, removal, repair or improvement of any building or structure permanently annexed to the freehold … shall have a lien, if perfected as hereinafter provided, upon such building or structure, and so much land therewith as shall be necessary for the convenient use and enjoyment thereof … subject to the provisions of § 43-20. But when the claim is for repairs or improvements to existing structures only, no lien shall attach to the property repaired or improved unless such repairs or improvements were ordered or authorized by the owner, or his agent.”

Virginia Code §43-3 B provides for special rules regarding condominiums.

Virginia Code §§43-4, 43-7 and 43-9 provide for the perfection of the lien by general contractors, subcontractors, and laborers and suppliers. We will explore this more in next month’s edition.

We have experienced attorneys and staff who can examine title, file mechanic’s liens, and litigate to enforce the same.

Bankruptcy: Discharged Debt Collection - Violation of Bankruptcy Injunction

The United States Bankruptcy Court at Alexandria, in the case of In Re Billy Ray Evans, ruled that a bank and its attorney violated 11 U.S.C. §524 by attempting to collect a discharged debt. As a result of this the Court ordered both the bank and the attorney to pay to the debtor damages in the amount of $1,000.00, as well as attorney’s fees in the amount of $24,954.00, costs in the amount of $1,159.00 and punitive damages in the amount of $2,500.00.

In Evans the Court found that the bank had filed a lawsuit in state court seeking to recover possession of the vehicle leased to debtor, or, in the alternative, to recover the value of the vehicle. The Court, however, found that the lawsuit was a mere subterfuge for the bank’s actual intention to enforce a pre-petition debt in violation of the bankruptcy discharge injunction. Cited by the Court in making this finding was the Court’s feeling that the bank made only minimal effort to determine whether the debtor actually had possession of the vehicle prior to filing its lawsuit. It twice referred the matter to repossession services after the bankruptcy case was closed, but the vehicle could not be located. The Court stated that the referrals, rather than confirming that the debtor had possession of the vehicle, raised questions about the bank’s motives. The Court found that the bank used minimal effort, simply to give the appearance that it was interested in recovering the vehicle. The Court stated that if the bank was truly interested in recovering the vehicle (rather than the debt) that there were many things that it could have done that it did not do. The bank made no effort to confirm that it had an immediate right of possession to the vehicle and that it was a proper party to bring the lawsuit.

Without all of the facts of a particular case I am always reluctant to criticize a court’s decision. However, this decision seems very harsh to me. The lesson for Evans, though, is that creditors must be more aggressive while the debtor is still in bankruptcy court. Creditors must seek non dischargeability motions based upon conversion of property, damage of property, and the like. Also, if post bankruptcy lawsuits for recovery of property become necessary, and, undoubtedly they will, creditors must be certain to use best efforts to reclaim the property, but if unsuccessful in doing so, then to accurately value the property - not simply value the property at the balance due on the debt. 

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.