Real Estate: Docketing Judgments to Secure an Interest in Real Estate

     In previous blogs 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 docketing judgments to aid in the collection of your debt. 

     Docketed judgments create a lien against the debtor’s real estate in the county or city in which the lien is docketed. Accordingly, make sure that you know where your debtor owns, or may own (e.g., through future purchase or inheritance), real estate. Once recorded, the lien will take priority in line with the date of recording (with some limited exceptions). Depending upon your debtor’s problems, you may have equity to cover your lien. Obviously you will want to “get in line” sooner rather than later to give you the best chance of collection. 

     Once a lien is in place, it must be addressed at any sale or refinance of the real estate. The lien must also be addressed in bankruptcy -- if the debtor does not file a motion to strip the lien, the lien will survive a bankruptcy discharge. 

     If all other collection measures are unsuccessful, you can consider bringing a creditor’s bill, which is an action to force the sale of real estate to satisfy a judgment under 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 creditor’s bills may be costly, given the right judgment it is an effective collection tool. Determining what judgments are "right" requires experience and good judgment. 

     We have experienced attorneys and staff who can seek judgment and then docket and enforce the same.

Bankruptcy: Motion to Annul Automatic Stay upon Debtor's Third Petition

     In the case of Blue Ridge Bank v. Boswell the United States Bankruptcy Court at Roanoke, Virginia, denied the creditor bank's motion to annul the automatic stay. 

     In Boswell the debtor had twice previously, just prior to the bank's scheduled foreclosure sales, filed a bankruptcy petition on the eve of foreclosure. With each of the two bankruptcy filings, the debtor failed to provide schedules, a statement of financial affairs or a plan. When the Bankruptcy Court dismissed the debtor's second petition, the Court ordered the debtor not to file another petition for 180 days from the entry of the original order of dismissal. The debtor complied with this order. 

     The bank scheduled a third foreclosure sale, and at the same time, the debtor presented a letter from her attorney indicating that a third bankruptcy petition had been filed. The bank proceeded with the sale, announcing that the sale would be subject to bankruptcy court confirmation. After the sale, the bank moved to annul the automatic stay, arguing that the Court had discretion to validate actions taken in violation of the stay. 

     The Bankruptcy Court found as fact that the foreclosure trustee was advised by the bank and its counsel to proceed with the foreclosure sale of the debtor's residence, and that each was fully aware of the debtor's Chapter 13 petition. At the same time, the foreclosure trustee chose not to consult with the debtor, who was in attendance at the sale, or the debtor's attorney, whose identity was known to the trustee. In fact, the foreclosure trustee received only the bank's point of view and then obtained indemnification from the bank for any personal liability resulting from the sale. The Bankruptcy Court noted that under Virginia law, a trustee under a deed of trust is a fiduciary for both the debtor and the creditor and must treat them with perfect fairness and impartiality. 

     The Bankruptcy Court ruled that its dismissal of the debtor's second petition prohibited the debtor from filing any petition for a period of 180 days from entry of the original order of dismissal. The debtor filed her Chapter 13 petition nine days after the prohibitory period had expired. The debtor acted in accordance with the Court's directive and with her rights under the Bankruptcy Court. Further, the bankruptcy trustee reported that the debtor was current in her plan payments and that he was prepared to recommend confirmation. The Bankruptcy Court noted that such evidence did not support a finding that the debtor was abusing the bankruptcy process. 

     Accordingly, the Bankruptcy Court declined to annul the automatic stay of Bankruptcy Code §362, and the bank's motion to annul the stay was denied.