Creditors, Let's Talk about Post Judgment Collections

     Post Judgment Collections. Frequently this is the time that you will collect most of your money. 

     While at Lafayette, Ayers & Whitlock PLC we represent creditors from beginning to end in the collection process, we recognize that some creditors either still file some of their own suits, or, have done so in the past. After taking that judgment, and if collection does not come easy, all too frequently judgments are “put on the shelf” and eventually forgotten. Do not let this happen to you! At Lafayette, Ayers & Whitlock PLC we can help you collect judgments that you have already taken. Your General District Court judgments are good for ten years, but can be docketed in a Circuit Court to extend the life of the judgment to twenty years. These judgments can even be renewed for an additional twenty years. We can work your old judgments. We have the most up-to-date programs, resources and methods. We do all of this on a percentage of collections fee basis – in other words, if we do not collect, you do not pay us a fee. Accordingly, our incentive is to collect! I take pride in the fact that at Lafayette, Ayers & Whitlock PLC our experience, staff, responsiveness and resources have made our post judgment collections superior to other collectors. 

     I invite you to please call me so that we can discuss your questions. 

Eddie

Collections: No Debt Cure from Extra Payments

     In the case of W. Harold Tulley I LLC v. North Richmond Investments Inc., the City of Richmond Circuit Court addressed a case involving an alleged cure of a default by payments made after default. 

     The Court ruled in Tulley that Plaintiff lender is entitled to a deficiency judgment after foreclosure on real estate that secured a commercial loan. The Court rejected Defendant guarantors’ contention that their additional payments after default cured the default, as such was not provided for under the parties’ contract.

    Defendants asserted that the Third-Party Defendant trustees and Plaintiff breached their obligations and duties because they knew or should have known Defendants were not in default. Defendants claimed that the trustees violated their duties under the loan documents, failed to act impartially, failed to acquire the best price upon the sale, sold the property at an inadequate sale price, and as they were never in default, should not have conducted the sale. Defendants contended that the trustees conducted the sale on a sham bid, knowing that Defendants were not in default.

     The Court noted that neither the deed of trust and guaranty agreement nor the applicable statute, Virginia Code Section 55-59, lists any of the duties Defendants would have imposed on the trustees in foreclosure sales.

     The Court found that both the deed of trust and the guaranty agreement describe default as failure to pay the agreed upon amounts at the agreed upon time on a timely basis. The guarantor stated that upon his tender of the two advance interest payments, there was no agreement regarding how the payments were to be applied, and that he understood they were not required under the financing and deed of trust documents. The Court ruled that Defendants were held properly in default, the amounts due accelerated triggering foreclosure.

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. 

Collections: Promissory Note - Acceleration of Balance

     The case of Atlas Rooter Co. v Atlas Enterprise, Inc., decided by the City of Richmond Circuit Court, serves as an excellent review of creditor's acceleration rights upon late payment on a promissory note. 

     In Atlas the undisputed facts were that the debtors mailed their loan payment within the ten-day grace period provided for in the promissory note (as they routinely did), but the payment was received after the ten-day grace period. The creditor moved to accelerate the balance due on the note. The debtors argued that the usual course of dealing between the parties authorized the use of the mails for payment. The debtors claimed that because payment by mail was permitted in the past, payment was made when the letter containing the payment was deposited in the mail, and that the risk of late payment was assumed by the note holders. The note, however, did not specify this. 

     The Court ruled that under Virginia law, payment of a debt is made upon receipt by the creditor, rather than by mailing by the debtor. The Court further reasoned that Virginia Code §8.3A - 602 provides that tender of payment of a negotiable instrument must be made "to a person" entitled to enforce the instrument. Payment or satisfaction discharges the liability of a party only if made to the holder of the instrument. The Court stated that to allow the mailing of an installment as timely payment would act to qualify the U.S. Postal Service as an agent of the note holder. 

     There is a lesson for creditors in Atlas even though the creditor prevailed. Keep detailed records of payments, do not waive payment due dates, and create a "paper trail" regarding late payment reminders. Creditors prevail best when they do not have to pay the cost for enforcing their rights. 

Collections: Interest on Accounts

      It seems to happen more and more often. You are able to obtain your judgment against your debtor, but when you go to collect, he has recently transferred his assets. Can you pursue the assets to the transferee? Under the right circumstances, yes. 

     The case of Price v. Hawkins, from the Newport News Circuit Court, appealed to the Virginia Supreme Court, stands for the position that a court may enter personal judgments against a transferee to provide a creditor with a remedy when, due to fraud, there is no other remedy.

     In Price the Court found that the debtor, a father, enlisted the help of his son and his son's girlfriend in the debtor's scheme to defraud his creditors. Specifically, the son and his girlfriend, who were not legitimate creditors of the debtor, assisted the debtor in hiding assets ($14,058.77) that the creditor would have otherwise reached in his judgment collection efforts. The transfers occurred after the judgment order was entered, and $10,000.00 was transferred to the son and the girlfriend three months later while the creditor was attempting to collect on the judgment.

     The Court found that simply declaring the fraudulent transfer "void" pursuant to Virginia Code §55-80 would be meaningless, as the conveyance was of money. In cases involving the fraudulent conveyance of real estate, title to the real estate is restored by a declaration, thus, subjecting the property to a creditor's bill. The Court ruled in Price that unless the money was delivered to the Court for the creditor to attach, then personal judgments were the only remedy.

     Perhaps the lesson of Price is: Ask questions! When your debtor is under oath for interrogatories, ask what assets have been conveyed to whom, when, and for what consideration.

Collections: Arbitration - A Collection Alternative

     Virginia Code §8.01-382 addresses pre-judgment and post-judgment interest, and provides that: 

In any action at law or equity, the verdict of the jury or judgment by the court may provide for interest on the entire principal sum awarded or any part of that sum, and fix the period at which the interest is to commence. 

     The judgment order entered provides for the accrual of interest until the principal sum is paid. This code section further provides that if no interest is provided on a judgment, the statutory rate of interest shall be applied as of the date of entry of such verdict or judgment. The statutory judgment rate of interest is presently set at an annual rate of six percent, unless otherwise provided by a written contract, agreement or note.

Collections: Ensure Good Faith in Pleadings

   Virginia Code §8.01-271.1, and its federal equivalent Rule 11, provide for sanctions against litigants and\or attorneys who file frivolous pleadings or motions. Under the Virginia Code and the Federal Rule, a signature attached to a pleading or motion constitutes a certificate that: 

     1. The signatory has reasonably inquired into the facts and that the claim is well founded in fact, and warranted by existing law, or that there is a good faith argument for the extension, modification or reversal of existing law, and 

     2. The pleading or motion is not interposed for an improper purpose (i.e. delay or harassment). 

     Sanctions include the payment of reasonable attorney fees and expenses incurred as a result of the frivolous pleading or motion. 

Collections: Bank Denied Lawyer Fees Due to Problem in the Guaranty

    In the case of Jefferson National Bank v. Estate of Frogale, a Loudoun County Circuit Court Judge denied the award of attorney's fees to a bank because the guaranty agreement did not have a provision for attorney's fees even though the promissory note clearly provided for 25% attorney's fees. The Loudoun Court found that the guaranty referred only to collection of "charges or costs" upon default. The Court ruled that this language was ambiguous, and as such, construed the ambiguity against the bank because they drafted the documents. 

     In Frogale a corporation defaulted in the payment of a note and the bank sued the note's guarantor. The guarantor filed a motion for summary judgment regarding the question of the guarantor's liability for attorney's fees. The Loudoun Court reviewed the Virginia Supreme Court case of Mahoney v. Nationsbank. In Mahoney the Virginia Supreme Court ruled that a note and guaranty are two separate agreements, but each must be construed in the light of the other. In doing so, the Loudoun Court stated that it was "crucial that the bank chose to distinguish in the Note between 'all other applicable fees, costs and charges' and attorney's fees; and that it chose not to place a specific attorney fee obligation in the guaranty." The Loudoun Court pointed out that the bank could have placed an attorney's fee provision in the guaranty just as it had done in the note. 

     The lesson of Frogale is that you should be careful that when you have guaranties you ensure that the language in the guaranty "mirrors" the language in the promissory note - without mirror language, there can be a problem, with mirror language, ambiguity should not be an issue.

Collections: The IRS Can Be Helpful in Commercial Collections

     Can you imagine using the IRS to help in collections? I can! I have an interesting technique that I have recommended for years – I first ran an article on this in the May, 1992 (the 4th Edition) of my newsletter Creditor’s News! Since recently others have also begun recommending this technique I thought that I would review it again. 

    After a sufficient amount of time has passed to consider a commercial credit account "uncollectible," the creditor should consider writing off the debt as a potentially tax-deductible bad debt. The creditor's loss may then become the debtor's gain and, as such, may be reported to the IRS on Form 1099 as income to that debtor. 

     Before actually writing off the debt, attempts should be made to contact the debtor and advise him of the intended action. If you do not have the debtor's social security number, try including a W-9 form with your letter. This could evoke some favorable response. 

     I have a form letter that I recently revised to accomplish all of this. The letter (written from the perspective of the creditor itself) advises the debtor that his account is seriously past due despite repeated attempts to make arrangements for payment. The debtor is further advised that unless the debt is paid in full within fifteen (15) days from the date of the letter, the creditor will, at its option, report the loss to the IRS on their form 1099c. This reporting will result in taxable income to the debtor (reference IRS Regulation S1.61-12). This reporting will result in an IRS audit risk to the debtor, as the IRS routinely runs computer matches of the 1099’s filed against tax returns actually filed to insure that all income is reported; there are severe penalties if not. The letter further states that the creditor is demanding the debtor’s tax identification information; the debtor is asked to do so within fifteen (15) days. The debtor must provide this information to the creditor under penalty of federal law. I recommend that you send with the letter a copy of the IRS form W-9 evidencing the unpaid debt, and advise the debtor that if you do not receive the W-9, the creditor will, at its option, file an IRS form 1099c incomplete. This will further increase the debtor’s chances of an audit. 

     Many debtors will wish to resolve the debt as a result of these actions. After all, who wants the IRS checking them out? 

     If you have any questions of wish to discuss this, please call me at 545-6250. Eddie.

Collections: Notice of Sale of Security Interest

     The case of The State Bank of the Alleghenies v. Hundall, decided by the United States District Court at Roanoke, Virginia, serves as a good example of what happens where a creditor sells items pledged as security for a loan without making proper notice to all parties. 

     In Hundall, the defendant guaranteed the bank's loan to his brother for a dry-cleaning business, but the defendant guarantor never received notice of how, when and by what manner of sale the bank intended to sell motor vehicles belonging to the brother's business. The evidence taken clearly proved that the bank failed to send notice of the sale of the motor vehicles, which had a fair wholesale value of approximately $8,500.00 in the aggregate. The District Court ruled that this violated the provisions of Virginia Code §8.9-504(3); however, the Code does not provide a remedy for the failure to comply with the statutory provisions for resale, and the appropriate remedy had not been ruled upon by the Virginia Supreme Court. The District Court, in its ruling, cited that courts which have addressed this appropriate remedy for failure to provide notice have adopted one (1) of the following three (3) rules: 

       1. The debtor must prove that he has suffered an injury in order to obtain any recovery against the secured party; 

   2. The secured party is absolutely barred from recovering a deficiency, even if the debtor suffered no injury; and 

     3. A rebuttable presumption is that the collateral was worth the amount of the debt which requires the secured party to prove that the debtor suffered no injury. 

     Virginia Code §8.9-507(1) entitles the debtor, or any person entitled to notification, "to recover from the secured party any loss caused by the failure to comply with the provision of this part". 

     The Court elected the third of the three remedies listed above, and forced the creditor to prove the fair value of the collateral. 

     The lesson of Hundall: creditors should send notice to all parties to the transaction -- the principal debtors, guarantors and the owners of the collateral. 

Collections: Collection Accounts - What We Can Do For You

     In a previous blog, we discussed what we can do for you to handle your collection accounts. 

     If you choose Lafayette, Ayers & Whitlock, PLC, we can handle your accounts from beginning to end. We can accept all cases on a one-third contingency fee of all amounts collected. We will assess the court-allowed fee the moment the account is turned over for collection, and this amount is recoverable from the debtor. We have trained and experienced support staff and an aggressive approach to collections. In reviewing the Course of Action Chart (below) you will see that we will aggressively pursue your recovery. Virginia District Court judgments are good for ten years, twenty in the Circuit Court. If the judgment is docketed (we docket all judgments unless the value is very small or you instruct otherwise), the lien is enforceable for twenty years. We provide detailed monthly accounting. At the beginning of each month you will receive a report outlining significant matters, a computer generated financial accounting, by debtor, dollar for dollar. You will also receive a case status report detailing current status and action.

COURSE OF ACTION CHART

Step 1 --- Account turned over for collection. 

Step 2 --- Demand letter sent to debtor within 24 hours of our receipt of the account. 

Step 3 --- After ten days (a time period that we are required by federal law to give), if there is no plan for payment that you approve, we will file suit. The suit is normally set 30 to 45 days in advance.

Step 4 --- On the date of the suit return we will either obtain default judgment or, if the debt is contested, set the case for trial.

Step 5 --- Once judgment is entered, and after the ten-day appeal period, we will docket the judgment and proceed in post-judgment collections, as set forth below.

Step 6A --- Establish an acceptable post-judgment payment plan; if not,

Step 6B --- Garnishment of wages or accounts; if not,

Step 6C --- Levy on personal property; if not,

Step 6D --- If no apparent remedy, schedule debtor's interrogatories and return to Step 6A.

Step 7 --- If there are no apparent collection measures available, we will review a new credit report every six months and return to Step 6A.

     In bankruptcy matters, we can assist you by handling all of your needs. We can review bankruptcy schedules, review and object to chapter 13 plans, file proofs of claim, attend hearings and more.

     In foreclosure matters, we can assist you by handling all of your foreclosure cases from demand to final accounting in all counties and cities across the Commonwealth.

     In real estate matters, we can assist you by preparing loan documents for first, second, equity line and refinances, as well as conducting closings, recordings and coordinating title examination and title insurance.

     Please call me at 545-6251 for a free consultation.

Collections: Timeliness of Mechanic's Lien

     The Prince William Circuit Court reviewed several interesting issues regarding mechanic's liens in the case of American Standard Homes Corp. v. Reinecke, Trustee. 

     In American Standard some of the replacement materials for the prefabricated homes were delivered to each of the six projects more than 90 days after the materials and "extras" designated in the respective material order contracts had been delivered, the time limitation for filing memoranda of mechanic's liens, specified in Virginia Code §43-4. The Court ruled that time began to run upon delivery of the material designated in the material order contracts and not from delivery of the replacement materials. The Court, in making its ruling, determined that the materials delivered under the purchase orders were not materials last furnished within the intendment of the perfection statute, thus, the six liens were not timely filed. 

     The seller of the prefab homes had argued that the material order contracts were "open-ended devices" and that, because "each contract contemplated both extras and multiple purchase orders," the materials acquired under purchase orders were, for purposes of the filing limitation prescribed by the perfection statute, materials last furnished under those contracts. The Court disagreed though, finding that each material order contract contained blank spaces beneath the word "Extras" in which the buyer listed the materials to be added to those designated in the "dry-in" and "trim" packages. Unlike the "Extras" listed in the material order contracts and included in the invoices issued when the two material packages were delivered, the "Extras" to be shipped C.O.D. under particularized purchase orders were articles which were "replacement materials" for those materials that after delivery, had been lost, damaged or stolen and were reordered. Neither the basic contract nor the material order contract required the buyer to purchase such "extras" from the seller; the buyer was free to contract with other materialmen for materials needed to replace those delivered earlier by the seller. In its purchase orders, the buyer offered to buy replacement parts from the seller. The seller accepted that offer by delivering the materials.

     The Court found that this was a contract, one separate and apart from the material order contract. The latter expressly provided that it was "THE COMPLETE AGREEMENT BETWEEN THE PARTIES." When the seller delivered the materials designated as extras listed in the contract, it delivered all it had contracted to deliver. What it delivered under the contract were the materials last furnished within the intendment of the 90-day statutory limit for filing memorandum of mechanic's lien. The Court found that the record showed with respect to each of the six liens at issue that the limitation period had expired before the seller filed its memoranda. Accordingly, the liens were unenforceable.

     The lesson of American Standard - enforcement of creditor’s rights in construction law matters is a very complex and requires experienced counsel.

Creditors, Let's Talk about Post Judgment Collections

     Post Judgment Collections. Frequently this is the time that you will collect most of your money.

     While at Lafayette, Ayers & Whitlock PLC we represent creditors from beginning to end in the collection process, we recognize that some creditors either still file some of their own suits, or, have done so in the past. After taking that judgment, and if collection does not come easy, all too frequently judgments are “put on the shelf” and eventually forgotten. Do not let this happen to you! At Lafayette, Ayers & Whitlock PLC we can help you collect judgments that you have already taken. Your General District Court judgments are good for ten years, but can be docketed in a Circuit Court to extend the life of the judgment to twenty years. These judgments can even be renewed for an additional twenty years. We can work your old judgments. We have the most up-to-date programs, resources and methods. We do all of this on a percentage of collections fee basis – in other words, if we do not collect, you do not pay us a fee. Accordingly, our incentive is to collect! I take pride in the fact that at Lafayette, Ayers & Whitlock PLC our experience, staff, responsiveness and resources have made our post judgment collections superior to other collectors. 

     I invite you to please call me so that we can discuss your questions. 

Eddie

Collections: Creditor's Bill

     The action to force the sale of real estate to satisfy a judgment is called a "Creditor's Bill." This action is governed by Virginia Code §8.01-462: 

     Jurisdiction to enforce the lien of a judgment shall be in equity. If it appears to the court that the rents and profits of all real estate subject to the lien will not satisfy the judgment in five years, the court may decree such real estate, any part thereof, to be sold, and the proceeds applied to the discharge of the judgment. 

     Although the action may be costly, given the right judgment it is an effective collection tool. Determining what judgments are "right" requires experience and good judgment. 

Collections: Note Guarantee Upheld

     In the case of NationsBank v. Mahoney, the Fairfax County Circuit Court upheld a note and guarantee agreement, as well as the sale of collateral pursuant to the terms of these documents. 

     The guarantor in Mahoney argued that the creditor acted in bad faith. The guarantor asked the Court to imply in the note and guarantee agreement additional terms from the commercial good faith provision of Virginia Code §8.1-203. The Court, however, found that the note and guarantee agreement's provisions were "within the preview of the Uniform Commercial Code as adopted in Virginia", and that each alleged act of bad faith was expressly authorized in the terms of the note and guarantee agreement. The Court ruled that it could not imply the terms requested because the result would be to negate or materially alter the explicit terms freely agreed upon by the parties. 

     The lesson from Mahoney is that properly prepared notes are the key to collection should the loan become sour. Legal review of loan documents prior to execution can be more cost effective than legal representation after default.

Collections: Credit Reports

     Credit reports provide individuals or institutions that have legitimate "need to know" rights with access to important information. This information includes full name, address, social security number, employer, spouse's name, loans, charge accounts, credit cards, bankruptcies, tax liens, and judgments. 

     Credit reports are governed by state laws and federal law - the Fair Credit Reporting Act (FCRA). In addition, the Federal Trade Commission regulates the credit reporting industry. 

     The three largest credit reporting agencies are Equifax, Trans Union, and Experian. There are also several local agencies. 

     Information will remain on credit reports for varying lengths of time: 

  * Chapter 7 Bankruptcies - Ten years from the date of filing, regardless of dismissal or discharge. 

     * Chapter 13 Bankruptcies - Seven years from plan completion. 

     * All remaining negative information - Seven years. 

     * Open accounts in good standing - indefinite. 

     If an individual disputes information reported to the reporting agency, the individual can send notice of the dispute to the agency. The agency will then contact the information provider to verify the information. If the information cannot be verified, it should be deleted. The Agency will then report its findings to the individual. If the individual still disputes the information, the individual may provide a written statement (up to 100 words) to accompany the report.

     If the verification results in a more favorable report for the individual, he may request that the revised copy be sent to anyone who has requested his report within the last six months for credit purposes, or in the past two years for employment purposes. 

Collections: Arbitration - A Collection Alternative

     Arbitration has become an increasingly popular way of resolving disputes. For those readers unfamiliar with the concept, arbitration is a process in which parties agree to submit the issues in controversy for determination by a party that they choose. The purpose behind the decision to arbitrate is usually to reach a resolution to the dispute in a quicker and cheaper manner than court action. Although most parties to the arbitration retain counsel to represent them, costs are normally less than court action because the rules of evidence are more relaxed, and the proceedings are less formal. 

     Virginia law recognizes the arbitration process and provides for the legal enforcement of arbitration awards. 

     The American Arbitration Association has developed standard rules, procedures, and panels of trained professionals to serve as arbitrators - the finders of fact. 

     The structure of the arbitration hearing is similar to a regular court hearing. A party has the right to representation by an attorney. Both parties also have an opportunity to make an opening statement, discuss the remedy they are seeking, introduce and cross-examine witnesses, and make a closing statement. Unlike a regular court proceeding, neither party in arbitration has the burden of proof because each party must persuade the arbitrator that its position is correct. 

     Virginia Code §8.01-577 to §8.01-581.016 establish Virginia's rule for arbitration. First, both parties must agree in a written agreement to submit a case for arbitration. The parties then select an arbitrator from a list of names. The court also may appoint an arbitrator.

     An arbitrator has several duties. The first and foremost is to preside over the arbitration hearing. An arbitrator in Virginia may issue subpoenas for witnesses to appear. Lastly, the arbitrator issues and signs the award.

     The court then confirms, modifies or vacates the award. The reasons for modification or vacation vary from a mistake in calculation to the arbitrators exceeding their powers (see Virginia Code §8.01-581.010 and §8.01-581.011). The court proceeds to enter a judgment or decree on the award. A party may appeal an award as one would in a civil action.

     The California Court of Appeals has ruled on the enforceability of arbitration clauses. In Bell v. Congress Mortgage Co., Inc., the California Court held that an arbitration clause in a contract must be highlighted in bold type or the consumer needs to initial beside the specific clause. These methods should make the consumer aware of the arbitration clause in the contract, as previously a consumer might waive his right to a jury trial without realizing it because, the California Court stated, an arbitration clause is not within the reasonable expectations of the consumer. There is no such requirement in Virginia law for the arbitration clause to be highlighted, however, but until the issue is litigated in Virginia, initials next to the clause would be a good measure of caution.

     I have litigated several arbitration cases, each to positive results, once to an amount higher than initially requested by the client.

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.

Collections: Post Judgment Collection

     Various methods are available to collect judgment debts. Every collector is aware of the option of garnishment of wages and bank accounts. Most collectors are aware of sheriff's levies on personal property. However fewer collectors are aware of perfecting judgment liens against real estate owned by the debtor. 

     When judgment is entered in the General District Court, unless appealed, it becomes final in ten days; Circuit Court judgments become final after thirty days. Once final, judgment creditors can request abstracts of the judgment from that Court (free for some counties and cities, $.50 cents per abstract in others). These abstracts can then be recorded (for $10.00 per abstract) in the Circuit Court in any county or city in which the debtor may own real estate. District Court judgments are good for ten years; Circuit Court judgments are good for twenty years. Each, upon motion to the court, can be renewed for an identical period of time. Since docketed judgment liens are good for twenty years, this docketing can provide a long-term hope for recovery. Once such a lien attaches, creditors may be able to bring suit to enforce the lien, or simply wait until such lien is paid at the sale of the property. 

     These liens can sometimes survive bankruptcy as well. If the lien is docketed for at least ninety days prior to a filing for bankruptcy, the lien should survive, and may eventually be paid. Note, however, that the real estate must be owned by the identical parties against whom judgment was taken. Thus, judgment against one of the tenants by the entirety does not entitle the creditor to the benefits described.

     What can be done when there is no information about your debtor from which to devise a post judgment collection plan? Virginia law provides for a good start -- Debtor's Interrogatories. For the price of a summons (usually $41.00) an attorney can Summons the debtor to appear before a Commissioner in Chancery (a lawyer appointed by the court) to answer questions about income, assets and the debtor's general ability to pay. This Summons is enforceable by a Capias (arrest warrant) which is issued through the court. This statute does allow debtors to request that the interrogatories be held at a court most convenient for the debtor. Therefore, if the debtor moves far from the creditor's area, it may not be cost effective to pursue the interrogatories.

     The law firm of Lafayette, Ayers & Whitlock, PLC aggressively pursues all collection cases from initial demand through final payment. We account to our clients with monthly statements and reports, and immediate responses to client questions. We are willing to assist in client collection matters piecemeal as well. If our assistance is needed just to proceed with interrogatories, an hourly fee can be arranged. Please call me at 545-6250 for a free initial consultation.

Collections: Garnishing Joint Accounts

     The Fairfax County Circuit Court ruled in favor of a creditor in a unique garnishment action. The case was Umbro International, Inc. v. 3263851 Canada Inc. and Network Solutions, Inc. The Court in Umbro ruled that Umbro, an international sporting goods company that won a judgment against a “cybersquatter” who had staked a claim to the Internet domain name “umbro.com”, could garnish other domain names owned by the judgment debtor. 

     The issue in this case was whether the domain names registered by the judgment debtor with Network Solutions, Inc. (“NSI”) are the kind of property that is subject to garnishment. The court noted that Virginia Code §8.01-501 clearly states that a writ of fieri facias is a lien on all the intangible property of the judgment debtor. The lien, however, only attaches to the extent that the judgment debtor has a possessory interest in the intangible property subject to the writ. The Court, as a result, noted that it was required to determine if the judgment debtor had a possessory interest in the domain names it registered with NSI. 

     NSI argued that a writ of fieri facias could not extend to domain names because the contract rights set forth in the registration agreement were dependent on unperformed conditions. These conditions included NSI’s rights to indemnification and the registrant’s continuing obligation to maintain an accurate registration record. The Court found that this argument failed on several grounds. First, in the dispute policy NSI undertook to abide by any court order. Such orders have included mandatory injunctions that a registrant takes all actions necessary to transfer a disputed domain name to a third party. Thus in the dispute policy NSI had agreed to subject to other liens that affect the value of the property. There was no unperformed condition under the registration agreement that could prevent a registrant from the full use of the domain name registration.

     NSI also argued that the contract right to the performance of a service was not garnishable because, among other things, it would force NSI to perform services for those with whom it may not desire to do business. The Court found that this assertion was entitled to little weight, as in the short time of its existence, NSI had registered some 3.5 million domain names, and registration applications were made by e-mail without human intervention in 90 percent of registration transactions.

     The Court noted that until Umbro, domain names apparently had not been subjected to garnishment. Nevertheless, the court ruled that there was no reason to conclude that this new form of intellectual property was thus immune. The Court found no reason why a judgment creditor should be precluded from satisfying a valid judgment just because its creditor had a possessory interest in intangible intellectual property resulting from technology of recent vintage.

     The lesson of Umbro - sometimes you have to be inventive and think outside the box in order to collect on judgments.