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.

Foreclosure: Advertisements of Sale

      The Code of Virginia provides specific guidance as to advertisements for foreclosure sales. The sale must be properly advertised or it will be void upon order of the court.

     Virginia Code §55-59.2 states that if the deed of trust provides for the number of publications of the advertisements, no other or different advertisement shall be necessary, provided that: if the advertisement is inserted on a weekly basis, it shall be published not less than once a week for two weeks, and, if such advertisement is inserted on a daily basis, it shall be published not less than once a day for three days, which may be consecutive days. If the deed of trust provides for advertising on other than a weekly or daily basis, either of these statutory provisions must be complied with in addition to the provisions of the deed of trust. If the deed of trust does not provide for the number of publications for the advertisement, the trustee shall advertise once a week for four consecutive weeks; however, if the property, or a portion of the property, lies in a city or county immediately contiguous to a city, publication of the advertisement may appear five different days, which may be consecutive. In either case, the sale cannot be held on any day which is earlier than eight days following the first advertisement or more than thirty days following the last advertisement.
     Advertisements must be placed in the section of the newspaper where legal notices appear, or, where the type of property being sold is generally advertised for sale. The trustee must comply with any additional advertisements required by the deed of trust.

Real Estate: Using Homeowner Association Liens to Secure an Interest in Real Estate

         In recent 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 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 a future blog.
     We have experienced attorneys and staff who can examine title, file homeowner association liens, and litigate to enforce the same.

Bankruptcy: Homestead Exemptions - Household Furnishings

     In the case of In Re: John W. Haynes, Jr., the United States Bankruptcy Court at Alexandria, Virginia, ruled that the debtor was entitled to claim as "poor debtor's" exemption from the bankruptcy estate two TV's, a VCR and a stereo as part of his "household furnishings" exempt under Virginia Code §34-26.
     In Haynes, the creditor, a bank, argued that the items claimed as exempt by the debtor were not the type of property that was necessary to run a household, unlike beds, dressers, stoves, eating utensils and other items listed in the statute.
     The Bankruptcy Court, however, stated that it did not read Virginia Code §34-26 so narrowly. In interpreting the statute, the Bankruptcy Court stated that it looked first to the statute's plain language; the Bankruptcy Court noted that the language of the statute was quite broad. The statute allows debtors to exempt from creditor process "all household furnishings", including the items listed in the statute, so long as their value does not exceed $5,000. The term "furnishings" does not necessarily exclude televisions, stereos and VCR's, and the statute includes "non-furniture" items -- such as eating utensils and plates -- as examples of "household furnishings." The Bankruptcy Court also noted that the statute did not contain the term "necessary," which was once included in an earlier version of the statute. The Bankruptcy Court stated that it did not view exceptions under the current statute as being limited to items necessary for maintaining a household. In addition, the Bankruptcy Court noted that longstanding Virginia precedent established that exemption statutes are to be construed liberally. Accordingly, the Bankruptcy Court overruled the creditor's objection concerning the electronic equipment.