Foreclosure: Substitute Trustees

     Question: What happens if the trustee under your deed of trust is either unavailable, or, is no longer the person you desire to serve as trustee? Answer: You can appoint a substitute trustee. Under Virginia Code Section 55-59(9), the noteholder, or, the holders of greater than fifty percent of the monetary obligation secured by the deed of trust, have the right and the power to appoint a substitute trustee or trustees for any reason, regardless of whether such right is expressly granted in the deed of trust. The timing of your action is important. The trustee must be empowered before taking action – this occurs when the instrument of appointment has been executed. You do not have to wait for recording. However, as Virginia Code Section 55-59(9) states that the appointment of a substitute trustee shall be recorded before, or at the time of, the recording of the deed conveying the property (such as after a foreclosure). 

     Question: Can a lender appoint their counsel as trustee? Answer: Yes. Virginia Code Section 26-58 holds that a trustee is not disqualified merely because he is a stockholder, member, employee, officer or director or counsel to the lender. 

Collections: Bank Deposits -- for Deposit Only

     The United States District Court at Alexandria reviewed a liability question regarding a bank's treatment of a check marked "for deposit only". In the case of Qatar v. First Am. Bank of Va., the Court ruled that a depositary bank violated a restrictive endorsement stating "for deposit only" when it deposited a check into an account other than the account belonging to the named payee of the check. In Qatar, a foreign embassy employee defrauded the embassy over a six-year period by various methods, including depositing checks written to other parties into his own personal accounts with defendant banks. After the embassy discovered this fraudulent scheme, it sued the depositary bank for conversion. The bank succeeded on summary judgment in establishing that it was not liable as a matter of law with respect to two categories of checks in dispute, and it prevailed on a factual issue at trial that relieved it from liability for yet another category of checks. 

     Only one category of checks remained in dispute. These checks all bore the forged endorsement of the payee named on the face of the check, followed by a stamped "for deposit only" restriction. At trial, the depositary bank raised no defenses, but instead challenged for the first time the Court's assumption that the phrase "for deposit only," without further specification, directs a depositary bank to deposit the funds only into the account of the named payee. The Court reasoned that the question then presented was whether the bank complied with the restrictive endorsement "for deposit only" when it deposited the check bearing that restriction into any person's account, or whether that restriction requires the bank to deposit the check's proceeds only into the account of the named payee. The Court held that the unqualified language "for deposit only" following an endorsement on the back of a check required the bank to place the check's proceeds into the payee's account, and the bank violated that restrictive endorsement when it credited the check to another account. In this cases, specifically, the bank violated the restrictive endorsement in depositing into the employees account checks made payable to others and restrictively endorsed "for deposit only", and thus was liable to the plaintiff for the money converted.

Foreclosure: Substitute Trustees

     Question: What happens if the trustee under your deed of trust is either unavailable, or, is no longer the person you desire to serve as trustee? Answer: You can appoint a substitute trustee. Under Virginia Code Section 55-59(9), the noteholder, or, the holders of greater than fifty percent of the monetary obligation secured by the deed of trust, have the right and the power to appoint a substitute trustee or trustees for any reason, regardless of whether such right is expressly granted in the deed of trust. The timing of your action is important. The trustee must be empowered before taking action – this occurs when the instrument of appointment has been executed. You do not have to wait for recording, however, as Virginia Code Section 55-59(9) states that the appointment of a substitute trustee shall be recorded before, or at the time of, the recording of the deed conveying the property (such as after a foreclosure).
     Question: Can a lender appoint their counsel as trustee? Answer: Yes. Virginia Code Section 26-58 holds that a trustee is not disqualified merely because he is a stockholder, member, employee, officer or director or counsel to the lender.