Case Study
A recent Thaler Liebeler LLP client entered into a loan with a company engaged in the renovation and resale of homes located in Washington, DC. Our client’s loan was made pursuant to a promissory note, and our client was granted a security interest in the subject renovated home. The note and deed of trust granting our client a security interest in the home was never filed with land records. Low and behold, when payments became due under the note, the borrower failed to pay.
Full Balance of the Loan
Thaler Liebeler LLP demanded immediate payment of the full balance of the loan. We also promptly filed the note and deed of trust in order to ensure perfection of our client’s interest in the home. Thaler Liebeler LLP attorneys then filed suit on our client’s behalf when the borrower failed to make full payment as requested. Because the borrower failed to file any response to our claims in the litigation, the court declared it in default. However, further proceedings were necessary in order to obtain a judgment. At the same time, the borrower had also defaulted on the home’s mortgage (a secured interest in the home with priority over our client’s interest), leading to the scheduled foreclosure sale of the home.Impending Judgment
In apparent attempts to avoid the ramifications of our impending judgment and the home’s sale at foreclosure, the borrower filed for bankruptcy in Maryland. This filing effectively amounted to a freeze of all proceedings necessary to obtain our client’s judgment against the borrower. Not content to wait things out, Thaler Liebeler LLP attorneys advocated our client’s interests in the Maryland bankruptcy proceeding. This proceeding was quickly dismissed by the Bankruptcy Court when it determined that the borrower had improperly filed for bankruptcy, as argued by Thaler Liebeler LLP.With the bankruptcy case dismissed and the stay lifted, Thaler Liebeler LLP obtained judgment against the borrower in the full amount requested, including pre-judgment interest. With the judgment in hand, upon the foreclosure sale of the property, our client was able to collect on the full amount due to him pursuant to the promissory note after the satisfaction of prior lienholders.
Principles
- A secured debt grants the lender a security interest in property, and allows the lender to take the property (or security) to cover the value of unpaid debt.
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Secured lienholders are given priority over other lienholders. Security lienholders must often perfect their lien by recording their interest with the proper officials.
- The first option in debt collection is often to contact the debtor directly and demand immediate payment. This is often the starting point for negotiations to settle the debt, and if successful, allow the parties to avoid full-scale litigation.
- A judgment operates as a lien on defendant’s property (or security interest). A judgment creditor has various tools available to collect on its judgment, including garnishment of wages or bank accounts, levies on personal property, and receivership.