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Pawling Public Radio: This Side of the Law:The Simple Truth, Dangers of Guaranteeing a Loan in the State of New York

This Side of the Law:The Simple Truth, Dangers of Guaranteeing a Loan in the State of New York

Pawling Public Radio: This Side of the Law: Berlandi Nussbaum & Reitzas LLP Hudson Valley | New York | Attorneys

By: Joshua T. Reitzas
Partner – Berlandi Nussbaum & Retizas LLP
April 28, 2013
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Thinking about signing a personal guarantee? Perhaps on behalf of a corporation because the company cannot afford to stand on its own without your assistance?  Or on behalf of a family member whose credit is terrible?  Or even a friend? Well, definitely think again.

Last week, I had the unique privilege of actually arguing in Court the exact opposite sides of the same underlying issue: whether a guarantor has the right to assert a defense on a personal guarantee.  Two different clients, argued in two different types of courts (New York’s version of a “Business Court” and its regular Court), two different types of judges (different demeanor), and a couple of days apart.  In the end, there was only one decision rendered.  New York holds a guarantor strictly liable and defenses, almost always, will likely not be entertained.

What people really need to better understand is that signing personal guarantees may affect them both when the loan is considered in default, as well as when things are status quo (i.e. payments are being made timely).  In a default situation, it is more likely than not that a Lender will file suit.  Further, if the Guarantor sets forth a defense (i.e. answers the complaint), a summary judgment motion will presumably then be filed or at least one should be filed in my opinion (assuming the case was properly made out prior to suit).  This basically means that the Lender will ask the Court for a judgment immediately without having the expense of a trial.  All that would be needed is for the Lender to prove its prima facie case evidencing (a) that the loan was made, (b) that the unconditional and irrevocable Guarantee exists, and (c) the Borrower under the loan has defaulted (i.e. nobody paid the bill).

Assuming the Lender makes this showing, the burden would then shift to the party opposing the motion to produce evidentiary proof sufficient to establish the existence of material issues of fact remaining for trial. In sum, all a Lender needs to do is show the Court the underlying note (i.e. the actual loan document), the actual copy of the Guarantee (i.e. the physical document) and proof that the underlying loan was not paid back (i.e. account statements from the Lender’s financial records and supported by a proper affidavit).  This is a very tough obstacle for any Guarantor to overcome.  In fact, New York is so harsh that even if a Guarantor could assert a defense, it may be completely disregarded.

Now, keep in mind that Guarantees will often times include language in the document expressly mandating that Guarantors waive the right to any possible defense(s), offset(s), or counterclaim(s).  As mentioned earlier, even in the absence of specific waiver language, New York has held Guarantors liable.  So if you are thinking about signing that Guarantee, we suggest that you first analyze the gravity of the situation upon signing a Guaranty – do you really know what you are getting in for?

In one of our cases, the Guarantor purchased a $17,000,000 home and placed ownership into a corporate entity and then executed a Guarantee with respect to the mortgage.  We advised the Lender to pursue a money judgment and not to do a residential foreclose (so as to avoid any possible right to a modification of the loan that may exist otherwise). This is absolutely within the right of a Lender to select the type of remedy in New York.

Finally, Guarantors should be somewhat reticent about executing Guarantees, as the underlying obligation must be accounted for on all bank applications and/or personal financial statements.  Recently, we discovered that a client’s business credit line (which the client personally guaranteed) was not included on a recent bank loan application.  Thank goodness we caught it.  If we did not, the bank may have brought some serious allegations against our client for possible misrepresentation on the loan application.

We recommend that if you are thinking about signing a Guarantee, you first consult with an attorney to know exactly what you are getting in for.  And if you elect not to do so, we suggest reading this article again and again to make sure you completely understand what you may be faced with in the future.

Always feel free to call or write if you have any questions.

Berlandi Nussbaum & Retizas LLP

New York | Hudson Valley

Attorneys

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Berlandi Nussbaum & Reitzas LLP

Hudson Valley | New York | Attorneys

Garnish Member’s Salary to Collect Past Due Assessments Without Having to Foreclose

Creditors’ Rights & Commercial Litigation

Garnish Member’s Salary to Collect Past Due Assessments Without Having to Foreclose

INSIDER’S COMPLETE GUIDE TO MANAGING COMMUNITY ASSOCIATIONS

Jay Nussbaum
Berlandi Nussbaum & Reitzas LLP

Legislatures nationwide have been seeking ways to make it harder for community associations to foreclose on members who owe money to the association. Because of a few high-profile cases, the political climate is such that many of these state legislatures may succeed. But your association still needs to collect assessments, fines, and late fees in order to operate. So what can you do to collect without having to resort to the drastic measure of foreclosure? One thing you can do if you’ve already gotten a money judgment in court against the member and you know where the member works- is to garnish the member’s salary. Often called “wage garnishment,” this allows you to collect a certain percentage of the member’s net salary until the judgment is paid off. It’s available to collect past due assessments, fines, and late fees in every state except Texas, North Carolina, South Carolina, and Pennsylvania.  Garnishing wages is the most effective tool associations have to collect money owed to them, according to Paul Williams of ACA International. We’ll give you the basics on wage garnishment and the six steps you must take to garnish a member’s wages.

Garnishment Basics

Garnishment specifics vary from state to state. But in nearly all states, you must first have a court judgment that orders the member to pay you money. The procedure after you get the judgment will depend on the laws of your state, but it usually involves your filling out court forms and giving them to your county sheriff to deliver to the member’s employer. (In legal terms, this is called “serving” the employer. See the box on p. 27 for tips on how to find the employer). Once the sheriff serves the employer, the employer will take out money from the member’s paycheck and send you a check, either directly or through the sheriff. It’s illegal for the employer to ignore the garnishment forms or to fire the member because of them, says Williams. Federal law limits the amow1t you can garnish. In most cases, you can’t collect more than 25 percent of a person’s net weekly earnings after taxes, Social Security, and other required deductions are taken out. Some state laws also limit how much you can garnish. For example, in New York, you can get only 10 percent, and in Wisconsin, you can get only 20 percent, says Williams.

PRACTICAL POINTER: Consult your attorney if you want to garnish the salary of a federal employee or an active member of the military, Williams warns. Different rules apply that often involve specific and highly complex forms and procedures, and if you fail to follow them precisely, your garnishment request will be denied, he says.

Can You Do It Yourself?

It’s smart to use an attorney or a collection agency when you garnish a member’s wages, says Williams. But some managers handle wage garnishment on their own. Consider these factors in making your decision:

  • Complexity of garnishment procedure in your state. For example, if you must file the forms in court, as some states require, you may need an attorney.
  • Size of your community. If your community is large or you manage many  communities, it’s probably cost effective to use an attorney or a collection agency.
  • Experience with other legal processes. If you’re comfortable filling out legal papers, you might be able to garnish wages on your own.

Is It Worth It?

Before filling out the garnishment forms and paying the court or sheriff’s fee, evaluate whether garnishment is worth your time and money, says Robin Hein, a Georgia attorney. With small judgments, it’s often not worth it, explains John McMillan, a Florida attorney. Figure out how much it will cost to garnish, including your time. If this amount exceeds the judgment, don ‘t garnish, says McMillan.

Here are the factors to consider:

  • Amount of judgment. There’s no cutoff point as to how much a member must owe for you to garnish his wages, says McMillan. But as a general rule, if the judgment is less than a few hundred dollars, it’s probably not worth it, he says. For example, if you have a $300 judgment and garnishment fees cost $1 00, it’s not worth it to garnish. On the other hand, if a member owes you a few thousand dollars, it’s probably worth the work.
  • Fees. Depending on your state, the fees may end up costing more than the judgment. For example, in Florida, you must pay a $100 deposit (refundable only if the sheriff can’t serve the employer) and a sheriff’s fee, says McMillan. But in California, according to Brian Stevens, a California collections expert, you pay only $7 for the garnishment forms and $25 for the sheriff.
  • Type of job. In some situations, you can predict that the member will quit the job once his salary is garnished, says Stevens. For example, a restaurant busboy probably won’t stick arow1d if his wages are garnished, he says. Look at how long the member has been at the job, the job’s skill level, and whether the nature of the job would make it likely that the member would leave it.
  • Member’s salary. Sometimes the employee’s salary is too low and you won’t be able to garnish, says Williams. Federal and state laws prevent you from garnishing the salary of a person whose weekly earnings arc below a certain level. Sometimes you won’t know the member’s salary, says Hein, until after the sheriff serves the forms and the employer calculates how much to withhold.
  • Location of member’s job. If the member’s job is in another state, you’ll have to file more legal forms. You’ll also have to sue the member by filing a judgment in that state’s court.

SIX BASIC GARNISHMENT STEPS

Here are the six basic steps you’ll need to take to garnish a member’s wages:

Step #1: Get Forms for Garnishing Wages

When you get a court judgment, tell the court clerk you want to “execute,” or enforce, the judgment by garnishing the member’s wages. Ask the clerk what forms you need, the fees involved, and what steps to take, says Williams. If your judgment is mailed to you, you’ll have to go to the court to get the forms you need and ask about the fees, he says. The forms you need will vary from state to state. For example, in many states, like Tennessee and California, you’ll need to get what’s known as a “writ of  execution.”  In Arizona, you’ll need a “writ of garnishment.” In some states, like Florida, you’ll need both. In Georgia, you’ll need an “affidavit for continuing garnishment” and a “summons of continuing garnishment.”

Step #2: Fill Out Forms

Fill out the forms required in your state. The forms authorize the employer to withhold money from the member’s paycheck for you. You may need the following information to fill out the forms: the name and current address of the member (if he’s no longer living in the community), the member’s Social Security number, the member’s employer, the amount of the judgment, the fees, and so on. You can get most of the information from your court judgment. When filling out the forms, make sure you get the name of the member’s employer right. Don’t use a shorthand version, says Hein. If the employer isn’t accurately named in the forms, it may be legally able to refuse to garnish the member’s wages.

Step #3: File Forms with Court, if Required

Depending on what state and county you’re in, you might have to file the forms with the court. For example, in Georgia and California, you must do this. But in New York, you can just fill out the forms and give them to the sheriff-no court fi ling is required. If you must file the forms, you ‘ll need to pay a court fee. In some states, you must first try to collect on the judgment on your own and/or wait until the member has a chance to appeal tJ1e judgment before you can file garnishment forms, Williams notes. For example, in West Virginia, you must wait 20 days after getting a judgment before fi ling the forms. In California, you must wait 30 days for a small clain1s filing, says Stevens.

Step #4: Give Forms to Sheriff to Serve Employer

Once you file the forms in court (if required), give the completed copy of the forms to your county sheriff. Your sheriff or  Marshall will then serve the garnishment forms on the employer. Depending on how busy the sheriff is, it may take a week or so before he serves the forms, says Stevens. Once the sheriff serves the employer, says Stevens, the employer must comply with the garnishment order.

In most states, the clerk of the court will then notify the member of the proposed garnishment. In some states, like Florida, you don ‘t  have to notify the member, says McMillan. In other states, like Colorado, you must serve the forms on the employer and the member yourself. If your state requires you to serve the forms yourself, ask your attorney for help or ask the clerk of the court how to serve the forms. Depending on your state, the employer will either pay you directly or send payment to the court, which will then send you a check. Or the employer will send the check to the sheriff, who will then send the check to you. You’ll get a check either every month or every other month.

In some states, like Colorado, you can garnish for only a certain time period. Then you must re-file new garnishment forms. In many states, though, you need only one set of garnishment forms, and you may continue to garnish an individual’s salary until the judgment is paid off.

Step #5: Pay Fee to Sheriff

You must pay a sheriff If’s fee to cover costs. For example in New York, the sheriff ‘s fee is approximately $60. Once the forms are served, don’t r—- ————————, expect a refund, even if the member offers to settle and you never actually garnish wages. After all, the sheriff’s job is to serve the forms, not to ensure collection of the money.

Step #6: Collect Money Each Month

Once the sheriff serves the employer, the employer may have to wait a certain number of days, depending on your state’s Jaw, before taking the money out of the member’s wages. For example, in California, an employer must wait I 0 days after getting the garnishment forn1s, says Stevens. In other states, an employer must wait 30 days, says Williams. This gives the member a chance to challenge the garnishment. For example, he may claim that the garnislm1ent imposes an undue hardship on him because he can’t support his family. After the waiting period is over, the employer should begin taking money from the member’s paycheck (assuming that the member doesn’t challenge the garnishment). But if the member has other judgments against him that are already being garnished, they will take priority.

How to Track Down Where Member Works

To garnish a member’s wages. you must find out where the member works. Here are a few ways of doing this.

Prejudgment discovery. Because you’ll first have to get a judgment against the member before you can garnish his wages. you’ll have an opportunity during the lawsuit’s discovery process to find out where he works. says Georgia attorney Robin Hein. Whether in a  deposition (where your attorney gets to ask the member questions face to face). or interrogatories (written questions that the member answers and sends back to your attorney in writing). ask the member if he has a job and. if so. where he works. These questions are usually permissible at this stage of a lawsuit. says Hein.

Employer and phone number. If you call the employer the member told you about during the lawsuit and he no longer works there. ask if the employer’s human resources department has a forwarding phone number for the member’s current employer. Be sure to get the full  company name so that you have the correct formal name to put on the garnishment forms.

Employment supervisor. If the employer’s human resources department doesn’t have forwarding information for the member. his former supervisor may have the information. says Brian Stevens, a California collections expert.

Social Security number. If you know the member’s Social Security number you may be able to pull his credit report. Sometimes the person’s present employment is listed on the report, says Stevens. But Stevens warns that credit reporting bureaus have specific rules about the reasons for which they’ll allow you to see credit reports, so you’ll have to check with the bureau, your collection agency, or your attorney.

Emergency contacts. If you have emergency contacts for the member. You can call them and ask in a polite tone where you can reach the member. Says Stevens. “Sometimes this works:· he says, “and the person will tell where you can find the member:· If the person asks who you are, you can identify yourself. says Stevens. Be careful what you say about the member when you call the employer or other contacts. Be professional and don’t mention that you’re collecting money the member owes the association, says Hein. The member could sue you for slander or defamation-that is, saying untrue things that damage his reputation.

Mortgage Lender Error

Commercial Real Estate, Mortgage Financing, Law

Jay Nussbaum

Berlandi Nussbaum & Reitzas LLP

Mortgage Lender Error

When boxing promoter Don King used to crow, “Only in America,” it was a hopeful, if self-serving, proclamation that anything is possible in America for those dedicated to improving their stations in life. Unfortunately, in today’s America, in the wake of the historic mortgage industry implosion of 2008 that served to tear the mask off the banking industry only to reveal a well-capitalized Barney Fife running things, that same statement serves as a grim warning that can, and probably someday will, bumble its way into your financial world too.

Case in point: Our firm recently handled a foreclosure defense that was entirely bank-driven. The ludicrous story began when our client’s lender initiated a letter to our client stating that the client ‘might be eligible for a mortgage modification’ on his condominium apartment in Manhattan. Our had no need for a mortgage modification, but as any logical businessman would do under the circumstances, he figured there was nothing to lose by taking the bank up on its offer and submitting an application. Remember those words: “nothing to lose”.

Immediately after his application was submitted, he was told by the bank that, because he now had a modification application pending, the bank would no longer accept loan payments on his mortgage. For our client, this didn’t require any action of any kind, because when he first closed on his loan he set up an automatic payment whereby he authorized the bank to simply withdraw funds from his account every month. So the client took no action at all, but the bank—which still had the authority to withdraw monthly payments from the account—elected not to. This would have been fine, if not for the fact that the bank then foreclosed on our client based on those very same “missed” payments. And here’s where it gets really weird.

Two days after the bank foreclosed on our client, it sent him a letter denying his mortgage modification application, and then, a little less than a month later, sent him another letter saying that the bank had not yet made a decision on his mortgage modification application. Only in post-2008 America.

At this point, because of all the conflicting information, the poor man had no idea what was going on or what to do. Was he being foreclosed on by his bank? Was he still being considered for a mortgage modification?

Naturally, he tried calling the bank to find out what was going on. He tried the foreclosure department; he tried the legal department; he tried the mortgage modification department; he even tried the misnomer of all misnomers, the customer service department. No one knew what was going on. No one knew what the department down the hall from them was up to. No one had the authority to make a decision or even to get a decision-maker for him to talk to.

Meanwhile, letters kept coming. Another letter arrived denying his mortgage modification application (again)…followed by FIVE letters, each saying that the application remained under review…followed by two more letters saying the application had been denied…followed by another EIGHT letters saying that it remained under review. (Incidentally, not a single letter was signed by any individual, whom we would’ve been able to call to discuss the matter, nor, we were told, was anyone at the bank able to receive incoming emails. In short, it was not only a tragically dysfunctional system, it seems intentionally designed to be that way.)

My firm fought the foreclosure for nearly two years. For nearly two years, the case crawled phlegmatically through an overburdened court system. My client spent money; the bank spent money. Still, no one ever stepped forward from the bank with any knowledge, authority or interest in discussing the case, explaining what had happened or how to fix things. (Because throughout the case, our client remained financially capable of fixing whatever was wrong, if only someone at the bank would tell us what had caused all of this.)

Finally, we reached the point where a hearing was scheduled to determine whether the bank had even served my client the right way to begin the lawsuit. As a courtesy, we asked the bank’s attorneys to meet with us to talk about the case, and fortunately, by that time, they had hired a law firm that was willing to communicate, unlike the foreclosure mill that had been handling the case up to that point.

We met with them, and demonstrated, point by point, how irresponsibly their client had behaved for the past two years. At the end of the meeting, we offered to let them save face by dropping the case before walking into the hearing on jurisdiction, where they would surely lose.

They accepted our offer, and dropped the case.

So let’s look at the scorecard. The bank sued for foreclosure in October, 2010, for reasons that we have still never learned. Two years have passed. Both sides have paid lawyers. The bank has alienated an affluent, excellent borrower and client. And that bank is, today, in exactly the same place, legally, as they had been in two years earlier, except that they have not received loan payments for almost two years. Today, as I write this, the bank has still refused to engage in any type of substantive conversation with us.

Why? Because the bank is too big, automated and disorganized to make a phone call. Only in America.

Similar stories:

http://abcnews.go.com/WN/robo-signers-blamed-foreclosure-mistakes/story?id=11798650

http://www.huffingtonpost.com/2012/01/27/foreclosure-crisis-twisted-world-mortgage-lender-error_n_1236634.html

http://www.usatoday.com/money/economy/housing/2010-10-05-foreclosure-errors_N.htm

Litigation