Borrower Defaults – How to Build a Winning Litigation Strategy in 2023

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Lenders should always be prepared to manage loans that don’t pan out the way they are supposed to, and lenders must be tactical when understanding what to do when a borrower defaults. Geraci’s team of experts is always available to provide guidance and strategy on how to manage loan defaults with discipline and proactivity. Our attorneys are expert strategists in loss mitigation and default management and will provide attendees with the best methods to navigate non-performing loans.

You will learn:

  1. What are the available pre-foreclosure and pre-litigation options for lenders when a borrower defaults?
  2. What foreclosure restrictions or hurdles are currently in place in California, and how do these affect foreclosure timelines and strategy?
  3. Extraordinary Relief Options, including judicial foreclosure, receivership, unlawful detainer, breach of guaranty suits, and collection remedies.

Steven E. Ernest:

We're gonna go ahead and start. Um, I have shared my screen and so hopefully all of you can see it. Um, that's the title screen and that's the little bouncy ball thing I was talking about before. It looks like one of 'em is about to hit me in the head. Um, my name is Steve Ernest. I'm the head of litigation here at the Geraci Law Firm, and that's my contact information. I've been at this lawyer thing for a little more than a quarter century. Um, most of that time has been spent representing creditors. Um, I've had cases from small claims and little uds to giant ones that went up to the California Supreme Court. Um, $5 million, this and that to really little things. So no case is too small and no case is too big. Um, I think I have a breadth of knowledge and we're about to find out over the next hour if I know what I'm talking about. So here we go. Slide number two.

These are the things we're going to do today. Um, there are pre-foreclosure and pre-litigation options that are available to you, uh, upon the default of your customers. Uh, we're gonna talk about what foreclosure restrictions are currently in place in California and how they'll affect your timelines and your strategy. Uh, we'll talk about some extraordinary relief options for you. Um, you know, because they're called extraordinary, they're somewhat rare, uh, but they're available to you and we'll tell you a little bit about what they are and how you can get to them. And then those q and as that we were talking about, and remember, super important, you're gonna put your questions and answers in the q and a box, and you're not ever under any circumstances going to put them in the chat box. Um, but if you can interrupt me and speak them, then do it. Rock on, uh, your pre-litigation option.

So Forbearance -  your guy's not paying you, and you can just say, well, okay, you're not paying me. I'm just gonna have you not pay me for a little while. Um, sometimes there are good reasons to do that. Um, I don't think a lot of times that there are, but sometimes, you know, you just wanna wait. You wanna give the guy a break, you don't wanna spend a bunch of money, good money chasing bad money. You wanna see if maybe it turns around. Um, I'm sure your customers, uh, use you as a bartender and call and tell you what their problems are and why they can't pay you. And, you know, they probably don't do that until probably about month three. Uh, and they want a break until month seven, you know, whatever their excuses are. But those are cards that you hold. Um, you can play them or not. Uh, you can waive your rights, you can waive their payments. You can formally put those payments at the end. Um, you can just keep 'em and say, look, you gotta be caught up by Christmas. You can do sort of whatever you want. Um, you can, even when there is a lapse in the maturity, you can waive that and you can wait a little while. Um, the statute of limitations in California for an Oral Contract that is one that's spoken, Um, is two years. So you don't wanna waive your rights for an oral agreement for more than two years with, uh, the statute of Limitations for a written contract, which is probably what most of you have in these circumstances. Four years. So you don't wanna waive your rights for more than four years. Um, are oral contracts enforceable?

Can you sue on them?

Absolutely, yes you can. Uh, oral contracts

Equally enforceable as written contracts. There's just one less piece of evidence, right? That's the contract that everybody signed. Little bit easier to prove the written ones because the oral ones, the folks are never going to remember the same way you did. Um, but we can win with them. Uh, if that's all you got, uh, there's certainly a path toward victory with those. Um, so that's forbearance. That's just, we'll wait and you'll pay us when you're ready.

Modification, uh, those are the change. That's the change of the loan terms. That's when you formally say, Hey, you've missed four payments. We're gonna add them to the end. We're going to change the payments that are due. We're gonna increase the interest rate. You're gonna gimme a deposit and we're gonna tear up the whole contract and make a new one. Um, whatever you're gonna do, um, however you want to work it out with your guy, you can certainly work it out with your guy.

Deed in Lieu’ - that's for those of you with real estate security, which is probably most of you. Um, your borrower calls and he tells you he is got a raft of excuses why he can't pay. And you say, well, those are great excuses, dude, but I've been at this for a while and I don't necessarily believe you or, I've seen this movie before and I know that it just leads to foreclosure. Why don't we just get a little bit real and you can give me a deed to the, to the property a quitclaim deeded or something like that. So they give you that deeded and it's in lieu of foreclosure. They don't get a foreclosure on their record. Maybe you get, you give them a little bit of time in the property or you let them collect the rent for a little while. Um, there's, you know, let's make a deal time. There's always a deal to be made. Um, but at the end of that story, if they are residents in the property, that is, is not a rental for them. Um, you definitely want to get your keys because you don't want to get a deed in lieu, which gives you title to the property and then three months later have to evict them. Um, what a pain in the neck that would be and what a ripoff for you. Um, so make sure you're getting your keys at the end of this. And it seems sort of counterintuitive that a customer who owes you money and isn't paying the money he owes to you would be someone that you have to take your money out of your pocket and give to them. But that's what the cash for keys is. That's a hey pal you're aware of what a pain in my neck you could be and how long you could drag this process out and how expensive all and time consuming all of that is for me. So what I'm gonna do is I'm gonna give you a little bit of money. You're gonna use some of it to put some gas in your car, and you're going to get right outta my house and go be someone else's problem. Um, that's what a cash for keys is. Um, that's a remedy that's available to you. Sometimes not particularly palatable because you know, like I mentioned, you're giving your good money to someone who is supposed to be giving their money to you and isn't, uh, it's a little bit counterintuitive, but, uh, at times the option that you're presented with is, do you want to give your money to your lawyers to conduct foreclosures and evictions, or do you want to give a lot less money to your customers, um, the borrowers and get them out of there, which is a little bit more definite a remedy.

Um, I wouldn't suggest negotiating all of that on your own. And I definitely wouldn't suggest writing the agreement on the back of a napkin, uh, or the oral agreement that we talked about before. Probably you want to get my office involved to document those sorts of things and make sure, um, the bad guys aren't getting the money until they, uh, move out. Um, but you can do that however you want. Alright? Um, if you have guarantors and you're doing any of these modification or forbearance or deed in liu or any of those things, it's really, really, really important to give written notice to your guarantor. Um, one of the best ways for a guarantor to get off the hook on his written guarantee is to not be notified of modifications to the contract. Uh, there're not a lot of defenses to guarantees, but that's one of them.

And a lot of lenders forget to do that because, you know, the guarantor is one of the principles of the LLC borrower, something like that. And they figure, well, he already knows. Um, I assure you when you go to sue on your deficiency, guarantor isn't gonna admit that he knew anything or that he had noticed anything. Um, so you want to give the actual formal notice of any of those modifications, deed in lius, the forbearances, those things, uh, to your guarantor. Could save you $2 million. Just the price of a postage stamp sort of a silly thing, but it has happened. See what we've got next, more pre-litigation options.

Option number four, pre-litigation negotiation. Does your contract have a fees clause? If you use Lightning Docs, if most any lawyer who's any good at all wrote your contract, uh, it does an attorney's fees provision, but you're going to want to make sure that's true.

If it is, um, you go all the way through whatever strategies you're going to employ and you know you're going to have to pay your attorneys a little bit along the way, but ultimately you're gonna get your money back as long as you've made a good loan and your collateral is worthwhile or your guarantor is solvent. Um, all that money's gonna come back to you. Um, so you don't really have to pay your lawyers, your borrower really has to pay your lawyers. Um, but you wanna make sure that clause is in your contract before you start, because might be some unwelcome news if you get to the end of it and realize you didn't have it. Um, and also if you get to the end of it and realize you didn't have it, or really if you realize that at any point, um, you should probably start using Lightning Docs or get better counsel to write your documents.

You know, don't buy your loan documents at Hallmark or download them off some free site on the internet. 'cause you're saving 50 bucks on the front end and it could cost you 200,000 on the end. Um, you don't wanna do that. Litigation planning ensure you have the necessary evidence, you know, in a breach of contract case, which is what most of these are going to be, your two principle pieces of evidence are your contract with the signatures. It's best if we have the original, if you're not in a practice of keeping originals and, uh, you scan them and you've got them electronically just as good. Make sure you've got a good copy and a legible copy that the judge 'cause judges ordinarily are 87 plus years old and they have really thick glasses, and if they have any excuse to pretend that they can't read something, they will use that excuse and pretend they can't read it.

Um, but that's the principle piece of evidence. The second one is just your account history. You know, he is supposed to make every payment starting in January and he made three of 'em and then he never made another one. Um, if you have those two things, you're gonna win in the high nineties percent of all of your cases. Uh, you know, sometimes there's a little bit more to talk about. But, uh, those are the principle things. Make sure you have those. Um, the procedure for litigation here, we've got some yellow boxes. We're gonna get our documents ready. Those are the two that I just talked about. There might be a little bit more, but those are the two big ones. Um, and we're probably going to send a demand to your customer. Um, I started practicing in the mid nineties and people would tell me that during the eighties you would send demand letters and people would do what it said on the letter because scary lawyer letter in the mail and that, I don't think that has really ever happened in my career.

Um, sometimes. So why do you do it, Steve? What's the point of that? Well, I think it's worth the price of a letter. Um, some of your contracts also have a pre-litigation demand requirement. Uh, so it's useful to do that because you don't want to get to the end of your case and have who says, well, let me see a copy of the pre-litigation demand that you sent. And we say, well, we didn't do that. And he says, well start over, or even worse says, get outta my courtroom. Make a demand and refile your case. And good luck if the statute of limitations has expired. All of those things are bad news. So, you know, whatever it costs to send a letter, and I think it's 57 cents, maybe, probably worth it to do it. So we do that, um, filing the case. So we prepare a complaint and a summons and some other things that the court requires us to send along to them.

Um, but the courts don't work for free. They're not entirely funded by our tax dollars here in California, so we have to pay a filing fee. Most jurisdictions, there are 58 counties in the great state of California, and each of them sets their own filing fee requirements. Most of them you can expect to be in the neighborhood of $450, uh, per case. You've gotta go out and serve your customers. That is, you have to actually go touch your people with your, um, paperwork. So we have an attorney service that does that. Um, you know, if they're particularly hard to serve, there's some other things to talk about. Um, but most cases you can count on that costing $120 per defendant to serve those guys. Um, generally the way it goes. But Steve, what if my customer doesn't live in California? Doesn't matter. Um, we have some other ways that we can serve them that are actually cheaper and more, uh, effective and expedient.

If your customers are non-California residents, strangely then if they are, um, but we know how to do all of that stuff. Or you can read CCP section 1 0 0 5, I think is what it is and figure it out for yourself. But God bless you if you want to pour through the, uh, code of civil procedure, uh, default cases. So you go out and serve your customer. One of the documents they get is called a summons. Do I have one here? Summons that doesn't show up. Anyway, that is a summons. You're gonna have to take my word for it. And it says both in English and in Spanish Espanol, um, everything that the served defendant is supposed to do. And when, um, I am not so sure I have ever read one in my career, but I'm led to believe that all of that information is in there.

Um, principally though, their obligations are, they've got to respond in writing to the court within 30 days. And if they don't do that, you can default them, which is what our default case is there. You ask the clerk to enter a default, and what that means is the defendant isn't to defend himself in the lawsuit. And so we prepare and file some documents and get a judgment for you. Um, that'll include in most cases, your full balance owed interest from the date the case was filed until the date judgment was entered. Oh, and look at that where it says 5 85 judgment. Do you guys see that has two E's in it? That's how they spell it in Britain, not in America. Bad copy editing by me. Um, I digress. So we'll get all of your principal balance, all of your interest, your attorney's fees. We'll be computed by a court schedule.

Sometimes those aren't exactly what you have incurred, but in a lot of cases it's more than what you've incurred. So that'll be included in your judgment as well as all the costs. And that's the filing fee and the process server. And, you know, there's a couple, uh, other costs, 30 ish dollars to file our judgment that we'll get in that as well. Contested cases are when your customer shows up during that 30 day period and he says there's something to fight about. I didn't really sign the contract that notary was a fraud. The property was Superfund site and they should have told me, you know, whatever their defenses are. Um, they'll raise those. Um, and once they raise their defenses, which will be in their initial answer, uh, we do some discovery, which is a sort of a happy word that isn't necessarily appropriately connected to what the discovery process is.

It's we're sending a bunch of questions to them and we request that they admit things and we take their depositions and those kinds of things. That's what happens during discovery. And after we discover what the factual basis is for all their defenses, um, in an ordinary case, we would either settle it if they've got a good defense or we would bring what's called a dispositive motion. Um, ordinarily when you're the plaintiff, that's a motion for summary judgment. We tell the court, look, we've reviewed all of their defenses. We know what the facts which underlie those defenses are. And as a matter of law, there is no material issue of disputed fact and we should have a judgment. Um, we would expect to win those. Uh, lawyers in my group have won two of those already this week. If you're watching live, it is Wednesday at 1120 in the morning and we've already got two of those.

Um, happens a lot. So, um, just because folks want to make a nuisance of themselves and think that they can delay these cases forever and make them more expensive, um, we have a strategy that we think doesn't allow them to do that. And we, we box them in pretty well and, and get your case moving and get it toward a judgment, which is what you really want. So let's see what the next slide says. Eviction. So that's when we talked a little bit about it before. You've got real property as security and you foreclose or you don't, maybe you're just a landlord and your lease is expired. Uh, if there's a foreclosure that, um, voids all of your leases. So anyone in there is what's called a holdover tenant. That's when a lease is expired and the folks don't move out. Um, the people who are in your house after a foreclosure, here's a fun one.

They are called tenants at sufferance. Um, it's an old English word. I kind of enjoy it anyway. Uh, they're all people who are in your house that can't be in there anymore. Um, but you're not allowed to just go and screw your revolver into their nose and tell them to get out. You have to, um, deal with an eviction, which unlawful detainer, same thing. Two ways to say the same thing. Um, so you sue them and you start the notices there. The first notice is they're notice to quit. Um, some of those are three day notices, some of those are 30 day notices, some of those are 60 day notices. Some counties are even requiring 90 day notices for, uh, some circumstances that tends to find themselves in. But you're gonna have to post a notice on the door of their house and you're gonna have to serve them with it.

That's the process server touching with the papers that I talked about before. Um, usually those are alternative notices like to pay or to quit. Those are the alternatives. Um, and it gives 'em a certain period of time to do that. If they avail themselves of one of those choices during that period of time, you don't have to sue 'em because you either got your money or they moved out. They moved out great. You know, you change the locks and recondition the house and you can sell it or move your family in there, live there yourself and do whatever you want with it. It's yours. Um, if they don't do that, uh, you're gonna have to sue them. That's the lawsuit for eviction or your unlawful detainer. Um, Steve lawsuits take forever and they cost a lot. It's gonna take years to evict these people, isn't it?

No, it isn't. Um, lawsuits for eviction or unlawful detainer or called summary procedures and the courts fast track them. So generally speaking, um, when you file an eviction case, you can expect to have a trial on it somewhere between 45 and 90 days after you file it. As long as you do what you're supposed to do, get everybody served on time, get your notices of trial filed on time. Um, even if they answer, even if they send you some discovery, even if they wanna depose everybody, most circumstances, that's about how long it will take. Um, after you get a judgment, there it is. So that judgment doesn't have the extra e So we're writing it the American way as it relates to unlawful detainer. Um, you get a judgment after a trial, uh, same way you would in any case. And you take a copy of that judgment down to the clerk's office and you get what's called a writ, which is a directive from the court to the county sheriff telling the sheriff to evict your tenants.

Um, and they will go there generally pretty early in the morning, you arrange to have a locksmith go with them so that the sheriff he'll bust down the door if he needs to. He'll get the people to actually get out of there. Um, and you wanna have your locksmith there because you don't want the, um, tenants to be able to hide in the bushes and wait for the sheriff to leave and then just move right back in. 'cause then, well, they'd be in trouble. But, uh, you don't want that anywhere. You, you have the locks changed and then you have the only keys. Um, Steve, what if they left all of their stuff in there? I had one of these cases that was the place was a hoarder and it was full from floor to ceiling of junk and there were dead birds in there.

I kid you not dead parrots in giant cages. Um, sometimes it can be pretty nasty. There are marshaling and auction and notice requirements that go along with that. So if it is at all possible, um, when your tenants are locked out, a lot of times they're not expecting to be locked out. They think they're gonna be able to live rent free in your house forever. Um, and when they actually do get locked out, if it's a surprise to them and they've left their stuff behind, probably they want your their stuff. So if you can make arrangements with them, you know, hey, go get yourself a U-Haul swing by the Home Depot on the way back to the house and pick up a couple of laborers to help you empty out the place. Um, give 'em a few hours to get their stuff out of your life and get them out of your life.

It is dramatically beneficial to do that. Um, but we can talk you through all of those options, uh, as the, uh, need arises. So there it is, eviction, unlawful detain. Let's see what the next one has for us. Judicial foreclosure. So the non-judicial foreclosure to the trustee sales where you just file the notices and have the auction outside a judicial foreclosure. A little bit different. It's a regular lawsuit. Well, why would we bother going to court, Steve? What's the point of that? We can just have Melissa in the transactional group do a non-judicial foreclosure. It's so much faster and so much cheaper. That's totally true. Um, but the advantage of a judicial foreclosure, you get a deficiency balance as part of the same case. Um, and you get your property sold. So you need to be aware of anti-deficiency rules and how they apply. And if you're not aware of those or how they apply, you can ask us before you make an election, either in non-judicial or a judicial proceeding.

What if Steve, I wanna proceed with both of 'em at the same time. Am I allowed to do that or will I have to go to jail? Nope. You can do both of 'em at the same time if you want. Um, at some point you're gonna have to make an election of your remedy, um, and pick one or the other. Um, but if you wanna double track 'em to get started and to scare your tenant or give yourself some negotiating, um, leverage, you can certainly do it that way. Uh, um, you would also want a judicial foreclosure in cases where there are clouds on title that might affect you. Mechanics, liens, wild deeds that need to be sorted out. Um, things like that. There are problems with title that you're going to have to litigate anyway. Um, probably worth your while to add causes of action for judicial foreclosure.

If nothing else, it'll help negotiate leverage. Um, in a perfect world, you would get a judgment for that. You would win all of your other title claims and you would come out of it with a deficiency judgment as well. Um, item four, you can run at the same time as a trustee sale. I talked about that a few moments ago. Um, and you have the same collection remedies as a breach of guarantee, and we're gonna talk about those in a minute. Um, but in any judicial foreclosure, we're going to sue all of your customers for foreclosure of your note and your deficiency balance. We're also gonna sue all of your guarantors, um, for the deficiency balance as well. So that will be the only time you have to deal with these notes in court. Um, you know, you're not gonna get a judgment on this and then sue your guarantor later.

We're gonna do it all at the same time. All right, that's that one breach for guarantee lawsuit. So this one you would file only against your guarantor if you didn't do a judicial foreclosure. Um, but you know what your deficiency is. You know, you had a $2 million property, you sold it for 1,000,006, you've got $400,000 deficiency. Your guarantor is responsible for that. Um, you in many circumstances can bring these breach of guarantor suits against your guarantor even after a non-judicial foreclosure sale. So if, uh, Melissa and Michael and all of those folks did a trustee sale for you, a non-judicial sale, you can still pursue your guarantor. Um, but you have to do that in court. There's no such thing as a non-judicial breach of guarantee action. Um, not allowed to do that. The mafia used to do that, but lawyers and good folks in the private lending industry aren't allowed to.

Um, so why would I sue my guarantor? We just, uh, foreclosed them out of their house and evicted them. And I saw the stuff that they had and none of it seemed like it was worth anything. It was some old magazines and shoes and a tennis racket and a dead parrot is all they had. Well, we can do asset searches for you. You know, maybe they own a vacation home in Palm Springs that they never told you about. Maybe, you know, heaven knows. Um, but we can do asset searches before we start. Um, and we're pretty good at collecting judgments anyway at the end of 'em. Um, if your customers have just been foreclosed out of the home that they were in for 15 years, I think there's a decent chance that at some point they're going to buy another home. And when you have a judgment against them, we always, 100% of the time record abstracts.

And I'm, I think there's a collection remedies part in this slideshow that I'll talk about later, but that costs $35. So I don't go to Starbucks, but coffee at Starbucks probably costs 35 to you record the abstract in a county and you pay $35 to the county recorder. And if at any time in the next 10 years this customer buys or sells or refinances real estate, you don't have to know the address of of it. You don't even have to know it exists. County recorder knows, and the county recorder knows about your abstract, and they put those two together 100% of the time. Um, when that happens, your customer has to pay you or they cannot close their real estate transaction. Um, those are pretty nice days. You just get a surprise phone call that someone is going to wire you funds $430,000 something. Um, it's a nice surprise to have.

So here are your collection options. I was just talking about these. Um, so you can record abstracts 35 bucks. How can you make a better deal with a collection than 35 bucks? It's, I think it's impossible. Um, a hundred percent of the time do those bank levies. These are kind of fun. It used to be that you had to know the branch where your customer banked. That is if they had a Bank of America account in Lake Forest and you sent a bank levy to the Bank of America branch in Santa Ana, you wouldn't get any money. Now, centralized banking, if they have an account at any of the major banks in California is pretty easy. Um, so when we do bank levies, you have to get a writ, which I talked about before in the context of eviction. Those are writ of execution. Well, these are the bank levees are writ of execution, which is the court telling the sheriff, directing the sheriff to go and, um, levy a bank account.

So the sheriff actually takes the actual writ to the bank. Um, but banking being centralized, there's a place in Los Angeles for most of the larger banks and they go there and Bank of America, Wells Fargo, chase, Citigroup, there's about five of 'em. If you hit the five major banks in California, I think you've probably touched 80% of the banking customers in the state. And if you do it that way, um, bank levies, they cost in the hundreds, not in the thousands. Those are kind of fun. They only work once because I've never had a customer dumb enough to get their account levied and then not close the account that is put money into it the next month. I've, I don't think I've ever seen that happen. Um, but you know, you hit 'em the day after payday. They've been squirreling a bunch of their money away, whatever.

Once I did one of these, I don't know if I'm supposed to tell stories in this or not, but I'm going to anyway. So once I did one of these and the person had just received their inheritance, one of their parents had died or something and said there was like $140,000 in this account, we got it. And they called and they were of course screaming at me because I'm not allowed to do what I just did through the court system. Um, you get to keep the money, it's your money. Um, it's not their money anymore. Very sorry to hear about your mother passing away. You should have paid your debts as they came. Not our fault. You get to keep it. Um, ordinarily though, you get, you know, how much money do people really keep in their checking accounts? 10, $15,000, something like that. But it's money and you get to have it.

Also, every time you do a bank levy, it counts to levy safe deposit boxes. I don't know that anyone under the age of 75 has a safe deposit box anymore, but if they do, um, you get that. And one of the times I did a bank levy, the Bank of America branch in Laguna Beach called and said, we have a safe deposit box for this guy. And it was sort of fun. I got to bring a locksmith and we got to go into the safe. And it was kind of like a, a bank heist movie because they literally had these drill press machines and they had this, you know, there's two keys that go into a safe deposit box here. I'm telling stories again. Um, they drilled them out and they pulled the safe deposit box out and it was like Al Capone's vault or something.

I was so excited to see what in there, what was in there. It was a bunch of crap. It was nothing that was worth anything. It was papers and it was nonsense. I was hoping for a bunch of stolen jewelry or Rolexes or something, but it was, it was nothing worthwhile. Um, wage garnishments. So those are a lot like bank levies. They don't work well at all. If your customer is self-employed, they work kind of well. If your customer has a good job, um, they don't work well if your customer has a bad job because they're just gonna quit their job, um, rather than have it be, um, levied. But if your customers are, uh, public employees, they work at A DMV, they work at, uh, teacher public schools, something like that. They work at Costco. Jobs that people keep for a long time. Wage garnishments are great because you get 20% of their take home pay forever until your whole lien is paid off.

Um, that makes your customers really mad, but there's nothing they can do about it. Their accounting department takes the money out before it goes to your customer and pays it to you. Um, you'll get the angry phone calls then as well. I've fielded many of those. Um, and the answer generally speaking is either too bad bud, or What would you like to do to pay this off? How are we going to arrange this? Um, but wage garnishments are pretty good in some circumstances, not in all judgment debtor exams. If you have watch, I did a webinar with, um, Melissa and NEMA about five months ago. One of the greatest parts of being a person is to be a lawyer. And one of the greatest parts about being a lawyer is to do judgment. Debtor exams are so angry when they're doing those. The entire purpose of a judgment debtor exam, it's a deposition of your judgment debt or your former customer.

Um, and all you do there is they identify assets that you can use to pay off their judgment. So they've gotta tell you about their brokerage accounts, they've gotta tell you about all your whatever. It's, it happens in court. So if they're being coy or they're lying or refusing to answer questions, the judge is right there. Um, and he's got a man with bracelets and a gray bar holding cell room right behind the courtroom. If the guy won't tell you where his money is, um, if he's got money in his pocket, you know you have to go to the courtroom to have these events. If he is got money in his pocket, you can take it from him. You don't have to leave him enough money to get his car outta the parking lot. You can take it all. Um, if he's got a watch on his wrist, you can take the watch right off of his wrist.

Um, judgment debtor exams, super, super fun. Um, and that judgment also, as we've written it there, is the American way doesn't have the extra E so that's good. Aren't we all learning extraordinary relief? We talked about these a little bit at the onset. Extraordinary is there for a purpose. They don't happen a lot. Uh, you don't see these remedies a lot, but they're there. Uh, if your folks aren't, um, behaving appropriately, if they're not capable of dealing with their own economic lifestyle, um, receivership is a possibility. I don't want the takeaway from this webinar to be, I'm going to put all of my defaulting customers into receivership. 'cause you're probably not. Um, or it's don't like doing this. It's going to be like the title suggests extraordinary that it happens. Um, it's going to be expensive for you to do it, but if you think it's necessary and appropriate, uh, we're certainly capable of helping you do it.

Um, pre-judgment, attachment of assets. So that's, a lot of these are when you have equipment, finances financed rather. Um, cars, uh, tractors, MRI machines, things that are expensive. Um, your pre-judgment attachment process, those are replevin, which is a fun Latin word that just means kinda gimme my stuff. Now, um, we bring early applications for writ of writ of possession to the court, which essentially say, judge, it's so obvious that we're gonna win our case and we're a secured creditor that you should give us our judicial remedy now. Like, pretend that we've won our case and let us have our car and our semi-truck and our, whatever it is, give it to us now. Um, freeze the bank account so they can't send all of their money to their worthless cousin in Fort Lauderdale and hide it from us. Um, make sure that it stays there.

Things like that. You can do those. Um, neither of those are tremendously expensive remedies. Um, if you're a secured creditor with some sort of rolling stock like cars and things like that, um, I think those make a lot of sense. So key takeaways from today. Uh, it's your money, why wouldn't you get it? You know, we talked at the beginning about sort of waiver of your rights and you can do that, but it's your money. If you wanna waive your right to it, you can. Um, if you don't, we are here to help you, right? You, I, I think that your money is a lot better and more beneficial for you if you have it than if you are a deadbeat non-customer does. Um, so why not go get it. Uh, understand what your options are. Uh, we've rolled through a lot of them and sometimes I talk fast.

Um, but there are a lot of options in there. You can watch this webinar again. You can read the notes yourself. You can just call me this thing right here, you can call me on the phone. I don't know why it's not showing up. There it is phone. Um, you can call me on the phone, you can send me an email and we'll talk through it. Um, all of this stuff that I've talked about today, I actually do know how to do. So I can evaluate what your circumstance is and figure out what the, uh, option is that fits your toward your solution. The best. Um, lenders have options all the time during a default pick the one that makes the most sense to you, depending on your circumstances. Um, there's a lot of things that you can do and that are going to present themselves along the way. Uh, doesn't mean that you necessarily need to make an outline and follow that one every time, although maybe it'll work for you.

That's the first slide. So we're back to the beginning and that's the end. Um, that's the end. So, uh, if you have questions, put them in the q and a box, not in the chat box and in the question and answer box, we have one so far from an anonymous attendee. I'll read the question aloud. I have had abstracts where the recorder's office just ignored or did not check, and I was not able to collect. How can we guarantee to get paid? Well, if the a hundred percent of the abstracts I've ever seen, when they identify the defendant, they identify them by name, by driving license number, and by social security number. And the county recorders, at least the 58 in California, all now have electronic records, which will cross-reference that stuff. And besides that, um, the title company, which is going to help with the transaction, will also find those things a hundred percent of the time.

So, um, the more information you put, and there's only three items of it, name social security number, driving license number, the more of that you have, and the more of that you put in your, on your abstract, which is a one page judicial council form, again, costs $35 to record, uh, the better luck you're going to have in, um, collecting that. So that question went away. I was about to <inaudible>, but it went away. Oh, there, it's okay. Next one from Tom Malini. After a foreclosure and the property revert to the lender, are all leases considered invalid? Even cities like San Francisco and Oakland? So generally speaking, a foreclosure sale is going to avoid all leases. Um, I know that the pandemic has changed some of those sort of in every circumstance answers. Um, and in some of the, I don't wanna be inappropriately political in a webinar, um, but the counties that you might think of as more liberal, Los Angeles, San Francisco, Alameda, where Oakland is, um, sometimes those places make ordinary concessions to tenants as well.

Um, so I can't tell you that all things are going to always follow this general rule, but as a general rule, uh, leases are always voided by a foreclosure sale. Next question. Can you pursue more than one of the collection options for one lawsuit? That is from an an anonymous attendee. The answer an emphatic yes, you can employ all of them in any collection action, and you can employ all of them all at once if you want to. Um, as a general practice, every time I get a judgment, the first thing I do is record abstracts. Uh, just right away it costs $35. Why not? Um, I'll then talk to my clients about the kind of employment that they think their customer has. If, you know, if the guy works at the DMV or he works at the public water district, you know, somewhere that he is not gonna quit, that's a great candidate for a wage garnishment.

Um, we'll talk about bank levies because those again, aren't particularly expensive and you're casting a wide net. Um, with the banking customers, you might come up with quite a bit of money for those. Um, I'm gonna go back to the bank levies for a minute. What if the guarantor is just a signator on his mom's account? And mom is old school, she lived through the depression and she's got $240,000 in cash in her checking account, but she's getting old. And so her son, your guarantor is just a signator on the account. It's not really his money. And you send a bank levy to that bank, how much of that $240,000 do you get? $240,000? You get it all. It doesn't matter that the money was really mom's, doesn't matter that he was only a signator. Um, I can only think of one exception to that circumstance, and that is if mom was using that account only to deposit her social security checks.

So security often, uh, exempt from collection through bank levy. Um, but if you have one account and you're putting rent checks and social security checks and pension funds and all kinds of other money into the same account, then you get to keep all of it. If it's an account exclusively for social security, probably not going to, um, what percentage of our cases are outside California? So from Lawrence Newman, we have lawyers who are licensed to practice in jurisdictions other than California, but our practice is focused here. So Pacific Ocean, Mexican border, Oregon border, Nevada, and Arizona border. We're we're, um, defined by the state, uh, 58 counties here. I would say 99.5% of our cases are within those 58 counties. Um, that's where we practice. What are the rules about default rate? Um, so there was that rou decision last year. I think that's what this anonymous attendee is asking about.

Um, that's sort of a whole different Oprah, that question. Um, we did a webinar about that during December, I think, and there's some information out there, but that answer is complicated and lengthy. So I'm as, I'm gonna apologize to anonymous attendee who answered who asked that one. Um, there are a lot of rules about default rate, um, and I'm happy to talk to you about them if you get in touch with me, but I don't think that one's gonna work well for us today. What states do I work in from another anonymous attendee? So I'm only licensed to practice in California. Um, but I have, I'm not gonna tell this story, but I'm gonna allude to it. Um, if you've seen that movie, my cousin Vinny, at the beginning of it, when he goes into the judge's chambers and the judge hands in the book and asks him about his experience and he tells that story about the guy in New York, Samuel Callow I think was his name.

That actually happens. Um, so if you want to go work in another state as a lawyer, you have to be admitted what's called pro hack Viche, which is in another fun Latin word like replevin. And you can do that. And I did that once in Las Vegas. And that is a fun story. If you find me at one of our, um, innovator Captivator, one of our, um, conferences, that's a pretty good story, um, that we can tell. Um, that was a good time, the time I went to criminal court in Las Vegas. I've done that in Nevada a few times, Arizona, a few times, Oregon, a few times once in Texas, I think once in Michigan. But, uh, those are outliers. So generally speaking, I'm a California guy, um, Jim Paulina, my borrower has not paid me in three years, but there is lots of equity.

I don't want to kill my 12% investment. Am I risking my principle or uncollected interest? Um, well, interest is still accruing if there's been a default or time is passing three years. So we talked about the statute of limitations for a written contract. If this is an oral contract, you've got a two year statute and you might well be beyond it, but there are a lot of ways to dance your way back into, uh, compliance with the statute of limitations. Even if it's oral, if it's a written contract, you've still got time. Um, I don't know that it's probably beneficial to you to wait until a day before four years elapses. I, you know, I I wouldn't get too cute with that. Um, I understand that 12% on your interest rate is pretty good right now, but I'll also tell you that in the state of California, the statutory interest rate is 10%. So after you file your case, you're gonna get 10%, which is sort of close to 12%. Um, but you're going to submit your remedies and you're gonna have lots of ways you can collect it. Remember the bank levies and the replevin and the foreclosure and the wage garnishments and all of those things. Um, so yeah, you're giving away 2% of your interest rate, but you're getting your, um, remedy cemented, cemented in. So that's probably worthwhile for you to do.

Rajon, sorry, that moved while I was trying to read it. Do you provide collection services in California for filed abstracts of judgments and you wrote judgments in the British fashion? That's excellent. And the answer is yes, we do. Um, so if you have abstracts and you want to consider collection remedies either through the abstract or otherwise, we're happy to help you with those. Why do a judicial foreclosure again, can you please elaborate? So if there are title problems, um, that are incumbent on the property that you're gonna have to sort out with the courts anyway, um, it's probably relevant to add causes of action for judicial foreclosure. Um, judicial foreclosure also gives you both the sale of the property, the collateral and a deficiency judgment at the same time. Get one judgment that does both of those things and you get judgments against your guarantors at the same time. So, um, if otherwise, what you would consider is a non-judicial foreclosure and accomplish that, and then later sue your guarantors for the deficiency judgment. Well, you're gonna be involved with the courts in a lawsuit anyway. This one will accomplish both of 'em at the same time. Um, so there you go.

What is going on with default interest rates in California from Ron Hamilton? Um, so that's kind of the same hon case that I declined to answer a little 10 minutes ago. Um, there is a case that came from the second district Court of appeal, which is near San Francisco, and it forbade, um, a lot of, uh, interest accrual provisions, which lenders in the state of California had been using since the early seventies. Um, is that effective for every loan? No, I don't think it is. Um, but there's an argument to be made. Well, the servicers that we use aren't collecting that sort of interest anymore. Well, you know, I I think that there's a cautious approach that they're adopting and I understand why Is it effective everywhere? Is it necessarily what everybody is limited to? No, I don't think it is. Um, but you know, your question Ron Hamilton, what's going on with default interest in California? Um, it's becoming a bit of a morass. Um, there isn't a short answer to that question. Um, it's just becoming complicated, I guess is the answer. And if you have specific problems related to interest or you have a specific scenario that you wanna talk about, please reach out to us. We're happy to discuss it with you. Anonymous attendee, any updates on the best way to be able to collect prematurity default interest?

Um, the best way to collect it, I suppose, is voluntary and it's really the only way, um, you know, if your customer's willing to pay it, then go ahead and take it. Um, yeah, that's the only way. Um, if it's prematurity default interest. I, I guess that's my answer, um, to have them voluntarily pay it. Um, a lot of these questions, this one too is in regard to that roo decision, and I understand that that's a, a popular and confusing area right now. Um, I think as long as you're not in the second district court of appeals jurisdiction, that you can avail yourself of the <inaudible> seven years of good law that was existing related to default interest. Um, but you're gonna have to sort that out with the court. Um, you're going to have to sue your customer and make your best argument as to why you're entitled to default interest.

That is, you know, this is a scratch and dent loan right now. I can't market it. You know, whatever, you're gonna have to describe why you're entitled to default interest and you're gonna have to convince the court on a case by case basis. Um, that's the way to do it. That's the, that path that I suggest in these loans. And we're going to have to take a lot of those cases until we find the right one to take up and get the Supreme Court in California to give us some clarity because there are, like I say, almost 50 years of authority that says you're entitled to default interest. And then we get one case, hon, true, that says you're not, um, which one are we supposed to follow? The most recent one. The, you know, the hundreds of cases over several decades. Well, you know, that's, those are all arguments to be made and guys in black robes get to make those decisions.

Jim Paulina as a lender with a borrower facing a trustee sale trustee and I want the property. Should I offer a deeded in lieu or regular sales contract? What's the pros and cons of each? Um, I don't think you want a regular sales contract. The DRE form, I would not recommend using those. Um, if you've got a borrower and you've got a sale date set and the borrower wants to get out of it for whatever reason, I think deed and L is a hundred times out of a hundred, um, a better option for you than a sales contract. Sales contract is kind of gonna start a clock ticking. Generally speaking, the buyer has control in those sales contracts. Um, they're verbose and in a casual sense complex, um, a deeded in lieu is really pretty simple. It just says, uh, I'm giving you the property and that's that you don't have any warranties or representations.

They're just surrendering whatever it is that they have. So I would, I would recommend to use that. Maureen Kelly regarding a bank levy. If a creditor is a signer on a company account, is that company account subject to a bank levy? I'm gonna say yes, but that's not an emphatic yes, I'm pretty sure I'm right about that one though. Um, if they're a signer, uh, if they're a signer on an account, a signer, are they a listed account holder? That would be the criteria If they're one of the listed account holders, the answer is yes. If they're just an auth authorized representation representative of the entity. I think the answer's probably no. Um, but I'm not certain about that. I, I'm pretty sure I'm right about that, but I'm not certain anonymous attendee. As a lender, one of my borrowers filed bankruptcy and the court reduced the interest rate collectible to a lower interest rate.

The borrower sold the property and payment principle and interest is coming soon. This loan is being serviced by a broker and the broker gets 1%. Is the broker legally capable of getting this 1%? I realize you need to see the servicing agreement, but curious how to handle the situation. So the contract between you and your borrower was subject to the bankruptcy case. The bankruptcy courts are federal and they have plenary jurisdiction over agreements like this, and they have the ability to change the terms of loans. Um, that's what bankruptcy courts do. If they couldn't do that, there wouldn't be much point in having them. Um, the servicing agreement is between you and your, and none of those parties was subject to the jurisdiction of the bankruptcy court, nor was the contract between the two of you. So I would surmise that the reduced payment from your customer, um, is subject to the 1% that you have to pay your servicer.

Um, the only reason I think it might not be is if the borrower is paying the bankruptcy trustee and the bankruptcy trustee is paying you the lender, uh, and the servicer no longer has a role in that, that part of the transaction. That might be a good argument for you to get out of the 1%. Um, but otherwise I think probably your servicer is gonna be able to soak you for 1% of that loan. Um, if the remainder of the payments on the loan are coming from the bankruptcy court though, or from the bankruptcy court's trustee, what you might think about doing is canceling this, um, loan with your servicer, um, because they're not gonna be able to do anything for you in it anyway. And that might get you out of your 1%, but there might be some, some pitfalls related to that one or related to the individual cancellation.

Um, you're right, I would need to look at your contract, but um, that would be what I would anticipate being the answers. Anonymous attendee you mentioned that foreclosure nullify leases, but what about impact of SNDAs? Um, so that one, like Honchariw is kind of a circumstance, which is its own webinar. Um, you're right, those are dealt with a little bit differently than leases. Um, but suffice to say, for purposes of collection and, um, marshaling your assets after a foreclosure, um, generally speaking, all of your tenants, whether they had a lease or whether they did not have a lease, uh, are going to be subject to your eviction and you're not gonna have to become a landlord and fix heating fixtures and, uh, toilets and things like that, which are a lot of fun parts about being a landlord. Um, that is the last question I see here and it is now 12:03.

I think we started at 11:04. So you got just about an hour of, uh, frivolity entertainment and hopefully a little bit of information. Um, I appreciate very much you all tuning in today. Uh, I hope you enjoyed it. I hope it was informative for you. My contact information is right there in your screen, uh, as though it had come right out of my mouth. That's actually my picture. Um, email me anytime. Um, go to our website. It has the phone number that, uh, sits right here on my desk and If you don't wanna do that, I'll tell you what it is. It's (949) 271-2054. That's an actual phone that sits on my actual desk and I am the sort of lawyer who comes to my office every day. So call me anytime. I'm glad to talk about any of this stuff for you or with you. Um, and I hope you have a great day and I hope the hurricanes win the National Championship in basketball on Monday. Thanks all.

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