Smith Debnam - Legal Insights

This year the North Carolina General Assembly, as a part of its annual budget bill, created the “North Carolina Home Protection Pilot Program and Loan Fund.” This law is designed to provide relief in certain counties by stopping home mortgage foreclosures for certain qualified residents. Effective January 1, 2005, for a specified period of time, the law prevents a home mortgage lender from enforcing its right of foreclosure. The new program is administered by the North Carolina Housing Finance Agency (“NCHFA”).

In passing this legislation, the General Assembly concluded that the changing economic conditions in certain counties have created an increase in home mortgage foreclosures. The legislation was passed to provide assistance to homeowners who are struggling economically and who meet specific criteria set out in the legislation.

QUALIFICATION FOR ASSISTANCE

The first aspect of the new program’s assistance is to delay foreclosure of a home mortgage until the NCHFA can evaluate the economic circumstances of a homeowner and determine whether assistance to the homeowner is available. To qualify, a homeowner must be unemployed under circumstances that would allow that homeowner to receive unemployment benefits. The homeowner must complete an application, which is evaluated by the NCHFA. Factors considered include: (i) the reason for the loss of employment and the ability of the homeowner to obtain other employment, (ii) the ability of the homeowner to meet his/her monthly mortgage payment, and (iii) the homeowner’s credit history and overall financial condition.

If the homeowner qualifies, then the homeowner will receive either a one time loan, payable directly to the lender, to cure the arrearage on the mortgage loan, or a continuing monthly loan, payable directly to the lender, to make or supplement the homeowner’s regular monthly mortgage payment. The assistance received cannot exceed $20,000.00, or the total of eighteen of the homeowner’s monthly mortgage payments, whichever is less. Any assistance provided by NCHFA will be evidenced by an interest free promissory note for a period of fifteen years and secured by a deed of trust on the homeowner’s residence.

AFFECTED COUNTIES

The new law applies to homeowners living in the following North Carolina counties:

HOW THE PROGRAM WORKS

Once NCHFA receives the homeowner’s application, it is required to mail a Notice of Receipt of Application to the homeowner’s mortgage lender. The notice creates a temporary stay and/or injunction against certain acts by the lender to collect or foreclose under the mortgage loan. The stay or injunction becomes effective on the date the application is received by the NCHFA , which date will be contained in the notice.

The notice imposes a 120-day stay and/or injunction on the following activities:

-commencing a foreclosure action
-continuing a pending foreclosure action
-accelerating the maturity of the obligation secured by the mortgage
-taking any action to acquire possession of any mortgaged property
-requesting or receiving a deed in lieu of foreclosure
-entering a judgment by confession pursuant to any promissory note secured by the mortgage
-enforcing the mortgage obligation under the rules of civil procedure.

Once the lender receives the notice from the NCHFA, the lender is prevented from pursuing any of these actions. The stay or injunction remains in effect for 120 days from the date of the homeowner’s application. During the 120-day period, the NCHFA will evaluate the application and decide whether the homeowner is entitled to assistance. The NCHFA will then send a second notice to both the lender and the Clerk of Superior Court informing each whether the homeowner’s application has been approved or denied. If the second notice is not sent, the stay or injunction will automatically terminate after 120 days. It will also immediately terminate if the homeowner’s application is denied. In either event, the lender is then free to commence or continue its collection efforts.

DUTIES OF THE LENDER

If a lender receives notice of an application with the NCHFA, it must comply with the legislation and cease any further prohibited collection or foreclosure activities for the required 120-day period, or until it has been notified that the homeowner’s application has been denied. The homeowner is allowed to seek an injunction from the Court against the lender if the lender fails to comply. To ensure that the Court is aware of a pending application for assistance, the legislation created a process whereby the NCHFA is required to send all notices to the Clerk of Superior Court. If a foreclosure is pending, the Clerk is required to file the notice in the case file. If no such action is pending, a separate file is established by the Clerk to contain such notices.

As this legislation only became law January 1, 2005 it remains largely untested, and may contain wrinkles to be ironed out. However, attorneys assisting homeowners are slowly becoming aware of the law and the restrictions it places on the foreclosure rights of lenders. Lenders will therefore soon begin receiving these application notices from the NCHFA, and should be aware of the law and its effects.

For additional information on this new law, contact Jeff Rogers at (919) 250-2112, or may e-mail him at jrogers@smithdebnamlaw.com.

Holy Cow! They Can Take My Land?
(This article is the concluding segment of an article begun in the previous edition of Legal Insights)

Mediation

The parties to all condemnation cases must participate in a mediated settlement conference. The parties may agree upon a mediator to schedule and preside over the settlement conference, or a certified mediator will be appointed by the Senior Resident Superior Court Judge. Mediated settlement conferences are private in nature and usually occur in the offices of one of the attorneys involved in the case. Statements made during mediated settlement conferences are generally inadmissible as evidence in court. Through the mediator, the parties make offers and counteroffers of settlement. The mediator’s sole purpose is to facilitate the exchange of information and settlement offers. Since the mediator is neither an arbitrator nor a judge, the mediator does not decide the case. Statistics show that more than one-half of all civil actions in Superior Court are settled during mediation. If the parties are unable to reach a settlement, the mediator reports the impasse to the court.

Jury Trial

If the condemnation case is not settled, the ultimate decision as to just compensation will be made by a jury. Jury trials involve a panel of twelve residents of the county in which the trial is being conducted. At the beginning of the trial, the landowner and the condemnor are allowed an opportunity to question the potential jurors to determine any bias or prejudice. Every trial has a presiding judge assigned to control and monitor the process. As the presiding officer, the judge makes rulings on matters of law, but is prohibited from expressing opinions as to the credibility of any particular witness or evidence.

Burden of Proof

In condemnation cases, the landowner has the burden of proof even though the landowner is the defendant. Often, the first witness called to testify is the landowner. With the assistance of photographs and maps, the landowner is uniquely qualified to describe his or her property and can personalize the property in the minds of the jurors. In North Carolina, the property owner is generally allowed to state his or her opinion as to the value of the property. State certified real estate appraisers are also generally allowed to testify as expert witnesses for either party. These appraisers are given wide latitude regarding their decisions as to the issues of the highest and best use for the land and of comparable sales. In addition to real estate appraisers, the landowner may present testimony from other experts such as engineers or surveyors. Of course, all witnesses are subject to cross examination by the opposing party. Opinions unsupported by fact are subject to attack and may ultimately be stricken from the record by the presiding judge.

Condemnor’s Evidence

After the landowner’s evidence has been presented, the condemnor may present its evidence of fair market value. During discovery, the landowner should have ascertained both the identity of the condemnor’s expert witnesses and the substance of their testimony. Again, the condemnor’s expert witness will be given wide latitude in selecting a highest and best use for the land and comparable sales. During the pleadings, the condemnor must allege its estimate as to what is just compensation. Ironically, this estimate of just compensation is never revealed to the jury. Thus, a condemnor can allege a high value in the pleadings and present expert witnesses that testify to a much lower value!

The Jury’s Decision

After all of the evidence has been presented and counsel for both the landowner and the condemnor have made their closing arguments, the judge instructs the jury as to the matters to be decided. Typically, these instructions contain definitions of the highest and best use, fair market value, and expert testimony. Only one issue is submitted to the jury: the amount of just compensation (expressed in terms of dollars and cents), if any, to which the landowner is entitled. Inevitably, because the jury consists of twelve strangers with little prior knowledge regarding the issues involved, there will be some disagreement among them. There is no requirement that the jury explain or justify its decision. Consequently, jury verdicts tend to reflect some degree of compromise between the competing opinions of expert witnesses. This ability to compromise is good to keep in mind when choosing jurors.

Conclusion

It can be frightening to learn that the government wants your land, and is going to take it. But, with capable lawyers and strong expert witnesses, you can maximize the dollars you receive as just compensation.

If you have any questions about Eminent Domain, please contact Mr. Thurston Debnam at (919) 250-2104 or by email at tdebnam@smithdebnamlaw.com.

Redemption Funding And The Credit Union*
(This article is the concluding segment of an article begun in the previous edition of Legal Insights)

How to React Correctly to a Motion for Redemption

There it is, lying on your desk. That letter from a familiar law firm which might as well have “Motion for Redemption” stamped on the envelope. But, don’t loathe it the way you did the initial Chapter 7 bankruptcy notice. Don’t stuff the Motion into the debtor’s file and resolve to scorch the originating loan officer. If you effectively work to elevate the redemption amount to where it belongs, view it as an expedient, safe, and efficient alternative to an involuntary repossession and resale.

Forget the fact that it will be the debtor who drives away in the car instead of a new buyer. This is all about the money. Look closely at the amount the debtor proposes to pay to redeem the car. Does it fairly match or exceed what you would probably net after paying the repossession guy and resale lot? If so, then sit back and wait for the check. More likely, it does not. Suspect any figure that the debtor has chosen as too low. Without even considering those sub-woofers or wheel spinners, it’s time to fight for a better figure.

You cannot fight for a better redemption amount in Bankruptcy Court without a lawyer. Perhaps you might call the debtor’s lawyer to negotiate for a higher price. If your call is not returned, it is time to consult your own lawyer. Keep in mind that your goal should be to get the redemption amount raised. Defeating redemption will likely only result in a well-plundered car dumped in your parking lot - your newest resale headache.

At this stage, your well-invested effort can save you future time and money. Pull together preferred wholesale and retail values from the month of the bankruptcy filing. Get the original dealer invoice with the listed options. A lawyer experienced in the local bankruptcy courts will know which of the national car valuation guides is routinely used by local bankruptcy judges and trustees. If he/she is not, find a new lawyer. In all three districts of North Carolina, bankruptcy judges use the NADA “trade-in” value as the presumptive starting point for valuing vehicles during Chapter 7 redemptions. The resulting figure, adjusted for actual mileage and options, is recognized in North Carolina as the standard value judges routinely approve. Similar methods have been adopted by other bankruptcy judges, but the approach varies by district. Knowing your district’s customary approach in redemption cases is priceless in responding effectively to a motion for redemption.

If your collateral was something special, such as a classic car, a customized van, or a Harley-Davidson of any model, consider seeking a specific appraisal from the original dealer. All such “goodies” added to collateral (under the label of “accessions”) are part of your collateral’s value. If the member’s lawyer refuses to agree to an appraisal or inspection, your lawyer can use that refusal as the basis for an Objection to the Motion for Redemption. The judge may then order an appraisal. Perhaps your file will reveal you repossessed this same car some months before bankruptcy. If so, see if a condition report in the file reveals options, add-ons, mileage, etc. before you gave it back. This information supports an argument that the member has deliberately understated the car’s real value.

Most objections to redemption get resolved through negotiation between lawyers. Typically, after the first several redemptions are litigated before a given bankruptcy judge, the lawyers who practice in that court can predict an outcome, such that settlement becomes expedient.

Reminder, responding to a Motion for Redemption can be effectively handled if you:
         · Pay particular attention to the proposed redemption amount;
         · Compare it with what you think you would net after a repossession and
           resale;
           and
         · Compare that figure with local bankruptcy custom and practice.
Call your lawyer if the difference between your figure and that proposed in the Motion induces heartburn. Either a better deal or a judge’s decision should be in your future.

Benefits to Your Credit Union from Redemptions

If you are satisfied with the final redemption amount, the benefits are obvious. Imagine no repossession or storage expenses; no claims for unreturned personal contents; no Notices of Intent to Re-sell or Analysis of Deficiency; no insurance risks; and no chance your manager will want to buy the repossessed vehicle for his daughter at a sweetheart resale price.

Your lawyer should ensure there is a paragraph in the Order Allowing Redemption that sets forth a 30-day time limit to get the cash to you, followed immediately by an automatic termination of the §362 bankruptcy stay if it does not arrive in time. This will minimize potential future costs by avoiding a $150.00 filing fee and additional legal fees for a Motion for Relief from Stay should the redemption financing collapse.

It is true that you have not extracted a three-debt reaffirmation from a bankrupting member, in exchange for leaving him in his car. Neither have you run the risk of a last-minute rescission, nor a vengeful (and often unprovable) strip-job on your car before the Sheriff seizes it following an expensive replevin action. Instead, you are at the same place you would have been after the time and trouble of a repossession and resale. And chances are, you will have received your money significantly faster!

The Final Chapter to the Redemption (for the Credit Union)

With the redemption payment check, you will also receive an instructional letter from the redemption funder about what to do with your lien (and title, if you hold it). Most redemption funders fail to distinguish between lien assignment and a lien release. Typically, you are instructed to release your credit union lien either by signing some appropriate document, or by releasing the lien on the face of the title. Do just as you are instructed, and do it promptly.

Why the hurry? A redemption funder pointlessly assumes a risk by such instructions. Many times, a redemption funder takes more than 20 days after signing its own installment note to get its new lien filed. In the meantime, a sharp debtor could get his Chapter 7 bankruptcy discharge, and then instantly follow it with a new Chapter 13 petition. This is the dreaded “Chapter 20." If the debtor does this before the redemption funder has perfected its lien, the new lien is defeated leaving the redemption funder with only an unsecured claim in the new bankruptcy. Even if the redemption funder’s new lien is filed before a new Chapter 13 petition, unless the lien filing occurred within 20 days after the date of the new loan, the funder can still lose its security as a “preference” in the later filed Chapter 13.

Some credit unions have shown an interest in doing redemption funding, so understanding the risks is important. A good way to minimize such risks is for the redemption funder to request the creditor to assign its original lien, not to release it. There is no lapse of lien. The funder “inherits” the original lien. There is also no risk of non-perfection or preference in the face of a later filed Chapter 13. Forms exist in many DMV offices to accomplish lien transfers or assignments, but you may choose to leave that for the redemption funder to learn on their own.

Conclusion

You can avoid being skinned in the redemption game. A competent bankruptcy lawyer can effectively negotiate or fight for a better price, as well as for automatic stay-relief in the absence of payment. And perhaps consolation can be found in the fact that your ex-member has traded participation in a full-service credit union for a new 23% APR from a one-trick lender.

If you have any questions about this article, please contact Frank Drake at (919) 250-2109 or by email at fdrake@smithdebnamlaw.com.
______________________________
*Smith Debnam is proud to represent several credit unions. Although this article specifically addresses them, we hope you find it interesting and useful.

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As the holiday season approaches, many of us will be attending parties hosted by family, friends and employers. If you are an employer hosting a party and will be serving alcohol, you will do well to consider the concept of social host liability.

A social host can be liable for serving alcohol to a guest who then drives on a public highway and injures a third party. A “social host” can be an individual, a business entity, an organization or an employer. To prevail under a social host liability theory, three elements must be proved: (1) the social host served alcohol to a person; (2) when the social host knew or should have known the person was intoxicated; and (3) when the social host knew the person would be driving shortly after consuming the alcohol.

Of course, the most effective way to avoid social host liability altogether is simply not to serve alcohol in any shape, form or fashion at your holiday party. Some may think that a policy of alcohol abstinence is not very realistic or very desirable and, therefore, such a policy may not be widely embraced; that being said, however, non-alcoholic punch is a sure way to avoid social host liability. Other suggestions that may reduce your liability if you serve alcohol at your party include the following:

          (1)    Before the party, provide incentives for your guests to car pool and appoint a designated driver who remains sober.

          (2)    Hire someone to serve the drinks or have a person you trust act as barkeep to keep an eye on your guests and let you know if someone is intoxicated.

          (3)    Resist any impulse to go around filling the glasses of your guest, choosing rather to let them request a refill.

          (4)    Offer a variety of non-alcoholic beverages as an alternative to alcohol, and add high protein foods to your menu because those foods absorb alcohol faster.

          (5)     Incorporate mental and physical agility games into your holiday festivities, such as Jenga, which provide incentives for guests to stay sober. Games will also steer guest traffic away from the bar.

          (6)     Stop serving alcohol at least one hour before the party is scheduled to end and never under any circumstances offer a guest “one for the road.”

          (7)     Do not let an intoxicated guest drive. Offer to call the person a cab, to drive the person home (assuming you are sober), or to spend the night, but do not take no for an answer. As a last resort, take your guest’s keys.

Under the doctrine of respondeat superior, the employer will be vicariously liable for the negligent acts of the employee if those negligent acts were committed within the course and scope of the employment relationship, even if the employer exercised ordinary care in the supervision of the employee, and regardless of whether the employer knew or had reason to know that an employee was intoxicated or impaired.

Employers planning holiday parties where alcohol will be served should be aware that the North Carolina Supreme Court has held that an employer was not liable under the doctrine of respondeat superior doctrine where the event was an “employment related function” and not an “employer sponsored function.” Camalier v. Jeffries, 340 N.C. 699, 460 S.E.2d 133 (1995). If you are an employer planning to host a party this holiday season where alcohol will be served, take steps to reduce your potential liability by incorporating the following factors into party planning: (1) do not hold the party on company premises; (2) do not hold the party during normal business hours; (3) do not require employees to attend the party; (4) do not require employees to work if they choose not to attend; (5) do not compensate employees for the time they spend at the party; (6) do not make a record of employee attendance; and (7) do not allow any employees to engage in any work related activities during the party.

This is the time of year for giving thanks and for celebrating our many blessings. If you are planning to host a holiday party, choose to celebrate responsibly by following the precautions suggested above and have yourself a merry Christmas, a happy Hanukkah and a joyous Kwanza.

This is a reprint and update of an article written by former Smith Debnam attorney, Bit Pressley, which appeared in the December 2002 issue of Legal Insights. Thanks to Cynthia McAlister for researching and updating the content.

If you have additional questions about Social Host Liability, please contact Cynthia McAlister at (919) 250-2168 or by email at cmcalister@smithdebnamlaw.com.