Real Estate: Using Lis Pendens to Secure an Interest in Real Estate

     In prior 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 blog, 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.

Real Estate: Using Deeds of Trust to Secure Your First, Second, Equity Line or Refinance Home Loans

     In a previous blog we began a discussion of 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 blog, we will review the benefits of securing your first, second, equity line or refinance home loans with a deed of trust. 

     Real estate liens provide important security for your debt. Since real estate is the largest investment and asset for most individuals, they will usually make every effort to pay debts secured by their real estate first. However, you need to know the chain of title in order to make an informed decision about your loan. Specifically, in what position will your lien be? Are there any “clouds” on the title? You will not know the answer to these questions without a proper title search and review. 

     Once you know your position you will need to examine the available equity to cover your loan. What is the value? What are the balances due on the liens ahead of your anticipated position? Beyond the business decision of determining when the equity is sufficient for your risk tolerance, in order to take advantage of the “$1.00 rule” in the bankruptcy code for chapter 13 cases (should your debtor decide to later file bankruptcy), you need to ensure that there is at least $1.00 in equity to cover the loan. You should take into consideration that property values may go down (e.g., 2008 to present). 

     If the deal is made and the real estate closing occurs, immediate and proper recording of your deed of trust is essential to preserve your position. If the debtor defaults, foreclosure on the property can occur. If the debtor seeks reorganization of his debt in Chapter 13, you can seek full payment of the debt. 

     We have experienced attorneys and staff who can examine title and properly represent your interests in real estate closings. 

Collections: Fraudulent Conversion or Removal of Property Subject to Lien or Title

     If a creditor is a lien holder, that creditor should be aware of a lesser known remedy available if a debtor fraudulently sells, removes, or hides the property subject to the lien. Virginia Code §18.2-115 states that a debtor is guilty of larceny if he/she fraudulently sells, pledges, pawns, removes from the premises agreed upon, removes from Virginia, disposes of, or hides the property subject to a lien without the written consent of the owner or lienor or the person in whom the title is, or, if the writing is a deed of trust, without the written consent of the trustee or beneficiary in such deed of trust. Unlike civil fraud, this statute’s fraud contemplates an act by a debtor intended to deprive a secured creditor of his collateral by appropriating it to the debtor’s own use. 

     There must be proof that the debtor’s fraudulent intent was directed against the lienor or person in whom the title is. The statute also states that failure or refusal to disclose the location of the property or surrender the property shall be prima facie evidence of a violation of this statute. In Lewis v. First National Bank, the Fourth Circuit clarified that even the existence of written permission to remove the collateral is immaterial under this section, as the creditor need not show the lack of such permission to make out a prima facie case. 

     The final provision of the statute provides that the venue of prosecution against persons fraudulently removing any such property, including motor vehicles, from the Commonwealth shall be the county or city in which such property or motor vehicle was purchased or in which the accused last had a legal residence.

     Debtors may argue that the debtor did not actually receive the demand for return of the collateral; however, in Lewis, failure to leave a functional forwarding address or contact with the creditor constituted a waiver of the debtor’s right to deny that the demand was made. 

     Debtors have also argued that criminal charges such as these cause emotional distress or are extreme and outrageous. In Lewis¸ the Fourth Circuit stated that creditors should not be fearful of a debtor’s claim that these charges cause emotional distress. To hold such would render the statute useless, which was not intended by the legislature. The court held that the initiation of criminal proceedings against someone under this section with probably cause is not extreme or outrageous as a matter of law. 

Foreclosure: Trustees in Foreclosure

     Trustee under a deed of trust are agents for both the lender and the borrowers. Accordingly, a trustee must act fairly and impartially. The lender must not let either the lender or the borrower influence the manner in which a trustee carries out the terms of the deed of trust, especially if this would be detrimental to either party. If any question arises as to the existence of the default or the amount in default, a trustee should seek the aid and direction of the court. The powers and duties of a trustee are governed by the deed of trust and Virginia Code Section 55-59.1 et seq. The code provides when the deed of trust does not. A trustee has no right to exercise the power of sale or to obtain possession until such time as the borrower defaults under the note or deed of trust, and, then, only for the purpose of selling the property at foreclosure or preserving the property until sale. When a default occurs, there is no change in title – the property merely becomes eligible to be sold under the powers originally conferred to the trustee by the owner. Thus, the noteholder has the right to have the property sold and the proceeds of the sale applied to the debt.

Real Estate: Using Lis Pendens to Secure an Interest in Real Estate

     In prior editions of Creditor News (you can find these by visiting www.lawplc.com) 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 blog, 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.

Collection: Fraudulent Conversion or Removal of Property Subject to Lien or Title

     The Richmond Circuit Court case of Va. Builder's Supply, Inc. v. Brooks & Co. Gen Contractors Inc. serves as a good example of judicial recognition of the rights of judgment creditors in arbitration proceedings.
     In Va. Builders, the creditor, a building supply company, issued a garnishment summons upon a general contractor for sums due from the general contractor to the judgment debtor, a subcontractor. The contracts between the contractor and the subcontractor, under which the judgment creditor sought to garnish the sums due the subcontractor, included clauses for mandatory arbitration. The garnishee sought arbitration after being served with the garnishment. The garnishee refused to allow the judgment creditor to participate. The garnishee received a garnishment award indicating that it owed the subcontractor no sums. The garnishee answered the garnishment that no sums were due. The Richmond General District Court agreed. The Richmond Circuit Court disagreed, and sent the case back for further review. The Richmond Circuit Court reasoned that the garnishee should not be able to affect the potential funds due the judgment creditor while prohibiting the judgment creditor from participating in the proceedings.

Collection: Attacking Fraudulent Conveyances

     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: Fraudulent Conversion or Removal of Property Subject to Lien or Title

     If a creditor is a lien holder, that creditor should be aware of a lesser known remedy available if a debtor fraudulently sells, removes, or hides the property subject to the lien. Virginia Code §18.2-115 states that a debtor is guilty of larceny if he/she fraudulently sells, pledges, pawns, removes from the premises agreed upon, removes from Virginia, disposes of, or hides the property subject to a lien without the written consent of the owner or lienor or the person in whom the title is, or, if the writing is a deed of trust, without the written consent of the trustee or beneficiary in such deed of trust. Unlike civil fraud, this statute’s fraud contemplates an act by a debtor intended to deprive a secured creditor of his collateral by appropriating it to the debtor’s own use.
     There must be proof that the debtor’s fraudulent intent was directed against the lienor or person in whom the title is. The statute also states that failure or refusal to disclose the location of the property or surrender the property shall be prima facie evidence of a violation of this statute. In Lewis v. First National Bank, the Fourth Circuit clarified that even the existence of written permission to remove the collateral is immaterial under this section, as the creditor need not show the lack of such permission to make out a prima facie case.
     The final provision of the statute provides that the venue of prosecution against persons fraudulently removing any such property, including motor vehicles, from the Commonwealth shall be the county or city in which such property or motor vehicle was purchased or in which the accused last had a legal residence.
     Debtors may argue that the debtor did not actually receive the demand for return of the collateral; however, in Lewis, failure to leave a functional forwarding address or contact with the creditor constituted a waiver of the debtor’s right to deny that the demand was made.
     Debtors have also argued that criminal charges such as these cause emotional distress or are extreme and outrageous. In Lewis¸ the Fourth Circuit stated that creditors should not be fearful of a debtor’s claim that these charges cause emotional distress. To hold such would render the statute useless, which was not intended by the legislature. The court held that the initiation of criminal proceedings against someone under this section with probable cause is not extreme or outrageous as a matter of law.

 

Real Estate: Making Owners and General Contractors Personally Liable to Subcontractor, Laborer or Materialman

     Virginia Code §43-11 provides a way for owners or general contractors to be made personally liable to subcontractor, laborer or materialman if notice is appropriately given, and if the payer makes payment to the owing party without paying the notifying creditor. Specifically, §43-11 (2) states that:
           “…if such subcontractor, or person furnishing labor or material shall

             at any time after the work is done or material furnished by him and

             before the expiration of thirty days from the time such building or

             structure is completed or the work thereon otherwise terminated

             furnish the owner thereof or his agent and also the general 

             contractor, or the general contractor alone in case he is the only one

             notified, with a second notice stating a correct account, verified by

             affidavit, of his actual claim against the general contractor or

             subcontractor, for work done or materials furnished and of the

             amount due, then the owner, or the general contractor, if he alone

             was notified, shall be personally liable to the claimant for the actual

             amount due to the subcontractor or persons furnishing labor or

             material by the general contractor or subcontractor, provided the

             same does not exceed the sum in which the owner is indebted to

             the general contractor at the time the second notice is given 

             or may thereafter become indebted by virtue of his contract with the

             general contractor, or in case the general contractor alone is

             notified the sum in which he is indebted to the subcontractor at

             the time the second notice is given or may thereafter become 

             indebted by virtue of his contract with the general contractor. But the

             amount which a person supplying labor or material to a

             subcontractor can claim shall not exceed the amount for which

             such subcontractor could file his claim.”
     The notices referred to in this code section are commonly referred to in the industry as “42-11 letters”. We have experienced attorneys and staff who can examine title, file mechanic’s liens, and litigate to enforce the same. If you have a need, please call us.

 

Real Estate: Perfecting Mechanic's Liens

     In recent editions of Creditor News we have been discussing the benefits of using real estate to improve creditors’ positions. Last month we began a discussion of the benefits of using mechanic’s liens to aid in the collection of your debt.
     Virginia Code §§43-4, 43-7 and 43-9 provide for the perfection of the lien by general contractors, subcontractors, and laborers and suppliers. In each section the creditor must file a memorandum of lien at any time after the work is commenced or material furnished, but not later than 90 days from the last day of the month in which he last performs labor or furnishes material, and in no event later than 90 days from the time such building, structure, etc., is completed, or the work thereon otherwise terminated. The memorandum must contain specific information as set forth in the code (and there are forms in the code), and must be filed in the clerk's office in the county or city in which the building, structure etc., or any part thereof is located. The memorandum shall show the names of the owner of the property sought to be charged, and of the claimant of the lien, the amount and consideration of his claim, and the time or times when the same is or will be due and payable, verified by the oath of the claimant, or his agent, including a statement declaring his intention to claim the benefit of the lien, and giving a brief description of the property on which he claims a lien.
     We have experienced attorneys and staff who can examine title, file mechanic’s liens, and litigate to enforce the same.

 

Real Estate: Using 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.  We will review the benefits of using homeowner association liens to aid in the collection of your debt.
     Virginia Code §55-516 provides for special procedures for the collection of homeowners association dues. This code section allows associations to place a lien on the land for unpaid assessments, as well as give associations a priority over certain other debts. To perfect the lien, however, it must be filed before the expiration of twelve months from the time the first such assessment became due and payable. This filing must be by a memorandum filed in the circuit court of the county or city where the development is located. The memorandum must contain the information specified in the statute. Before filing the lien, written notice must be sent to the property owner by certified mail giving at least ten days prior notice that a lien will be filed. Suit to foreclose on the lien must be brought within thirty-six months of filing. We will review foreclosure suit procedures in the next issue.
     We have experienced attorneys and staff who can examine title, file homeowner association liens, and litigate to enforce the same. 
     Check out issues of Creditor News by visiting http://www.lawplc.com.