Metropolitan News-Enterprise


Monday, January 14, 2013


Page 9



Playing Cards — The Final Hands




(The author is the senior attorney for Cook Collection Attorneys PLC and publisher of

Seventh in a Series


The debtor is entitled to declare exempt three classes of property as follows:

1. Certain property is immune from enforcement by its very nature and the Sheriff cannot and will not take possession. This would include personal licenses and rights to do business (but not a liquor license). These assets are inaccessible or immune from any enforcement at all. This would a wide range of assets.

2. Certain property is immune, but the Sheriff might take possession. Upon the filing of a claim of exemption, these assets would be returned. Common in this category are protected funds, such as unemployment, social security, disability checks, etc. These funds are not subject to enforcement, but the Sheriff would take them into possession through a bank garnishment. Upon the filing of an exemption, the property would be returned, if the judgment debtor proves their exempt character. In some cases these funds might lose their immune (or exempt) character if they are co-mingled with other funds or used to purchase property.

3. Certain property is exempt up to a dollar amount, such as tools of the trade, a car, house, heirlooms and works of art, and the grubstake exemption. The judgment creditor can reach these assets, but in the event of a sale, the debtor is entitled to the “first dollars,” from the sale proceeds up to the amount of the exemption.

A judgment debtor must timely file the claim of exemption, support the case, and if need be, actually go to trial on a claim of exemption. The burden of proof is on the judgment debtor to prove up the claim of exemption. This requires the debtor to file the claim with the Sheriff and include all supporting documents.

Can you win this round? Most of your hands are a bust because exemptions keep the debtor from going on the dole. You can snatch everything, no matter how hard you try. Shrinking real property values now put most homes out of reach, and “tools of the trade exemptions” protects the shop. Even OJ Simpson retrieved his footballs from our custody when the court ruled them “artwork and heirlooms.”


 A third party might claim that an asset is subject to their claim of title or a security interest. Upon execution of the property, the third party can file a third party claim and seek the return of the property. In response, the creditor must post a bond or get a restraining order, or the property will be released by the Sheriff. Assuming that the creditor challenges the third party claim, the creditor would set the matter for a summary hearing (a mini-trial) for the Judge to determine ownership of the property. The loser has the right of an appeal.

Third party claim practice slightly favors the third party because the attaching creditors assumes a risk of attorney’s fees and damages under the bond or restraining order, should, for example, the third party claim be lost. Few creditors would risk a five- or six- figure fee of damage claims. Moreover, third party claims are summary in nature, and the parties are not entitled to discovery. This places the creditor at a disadvantage, given the lack of information concerning the third party claim and disability in marshaling evidence to impeach the third party claim itself. The lack of knowledge risk can be ameliorated by extensive post-judgment OEX’s upon the debtor and probable “third parties” to develop sufficient information to defeat the claim.

This round is most unpredictable. You will never know what cards you will be dealt because third party practice does not allow for discovery. Judges parcel out limited trials. Facing a $1.5 million judgment the debtor conveyed two homes to alleged nonprofits proving shelter for children afflicted with terminal cancer. Gloried hospice care, he claimed. The debtor handed over a slew of photographs featuring a dozen children standing in the driveway of one home, nestled in flowing hills of Mendocino County. No luggage or backpacks were in sight, and they all had a full head of hair and no hats or wigs. So much for chemo. Actually this property was a quarter horse ranch. My response: “Sick? Dying? Ter­minal? Emaciated? These kids could double as the line of scrimmage for the Green Bay Packers.” So thought the judge who dumped the claim and ordered the property sold.


With a judgment in hand, the judgment creditor might be able to sell the debtor’s real property. If the property is not the debtor’s residence, the judgment creditor can sell the property at a Sheriff’s Sale and bid in part of the judgment (i.e., no cash sale) and acquire the debtor’s interest in the property itself. This works if the property has equity, or the judgment creditor will acquire the property and make use of it.

Residences are another matter. The simple summary is that the judgment creditor can only sell the property if the property has equity over and above the senior liens, the homestead, and sufficient funds to generate payment to the creditor, that the property must be sold for cash, and finally that the property must be sold for 90% of the court-ordered appraised value. Sheriff’s Sales are for cash, and no financing, and no inspections or “walk through.” This is 2012, and not 2002 when the real estate market was in “overdrive” and properties were sold under these conditions. In 2012, it is rare that a property would be sold through a Sheriff’s Sale. This is not impossible, but rare, given the state-wide decline in real estate values and the fact that the market is glutted with competing investment offers of the REO’s, and “short sale,” opportunities. These issues are business and not legal issues, but these issues are important in guiding the creditor whether to proceed. A Sheriff’s Sale of a residence is expensive and runs about $2,500 to $3,000, given $1,500 (about) as a deposit, $500.00 for the title report, $500.00 for the initial appraisal, and additional costs ($500.00 plus) for process servers fees and charges, overnight mail charges and mileage.

This time the judge dealt us a judgment against a VFW lodge. We proceeded to levy on the property and per California law landed in court to get an order for sale. We showed up and right in front of the courtroom, I spotted two very elderly individuals, one of them with a cane. I knew exactly who they were. They were the lodge representatives. I introduced myself, shook hands and told them that they ought to care of this and “how about 90 days to raise the money.” Their response was great and they would work on it. After we concluded that, I turned to the slight older gentlemen and asked “Where did you serve and what service were you in?” Answer: “Marines. Okinawa.” I asked the other gentlemen the same question. The answer: “Marines. Chosen Reservoir.” What a round. Had we not settled, I had visions of ousting Private Ryan from his easy chair.


The judgment creditor might be able to report the debtor to a credit reporting agency, assuming a pre-existing contract with the agency. Even without a contract, the credit reporting agency would pick up the judgment and maybe the lawsuit itself.

The fact of a judgment might be a default under the terms of a large dollar loan agreement and entitle the lender to foreclose. While the risk of foreclosure is not in the judgment creditor’s inventory of remedies, the fact of a foreclosure for the breach of a noneconomic covenant is a compelling reason why a judgment debtor might settle.

During this process, the judgment debtor (a corporation or LLC) might threaten the filing of a nonasset bankruptcy. This is common and nearly expected. In most cases, this entity has borrowed money from a financial institution who has obtained a personal guaranty from the principal. Therefore, should the corporation file bankruptcy, the bank, or other creditors would file the large dollar lawsuit against the insider for the debt based on the guaranty. This risk does not provide for payment due the judgment creditor. This might mean that the losses sustained by the insiders, who are the persons threatening bankruptcy on behalf of the corporate debtor, have more to lose than the judgment creditor seeking payment of the single judgment.

This round usually is a loser. Don’t do anything that you cannot control. Making public the debt might spin out of control.


The judgment debtor is not a criminal or even a bad person. Communicating with the judgment debtor should be done in a flat, even voice and without sarcasm, anger or ill will. Be firm, but polite. Don’t get mad, don’t get even, don’t get vengeful, and just get paid through the law. The person who speaks to you might be the person who pays out voluntarily, and making an enemy out of this person will only harden his or her resolve never to pay. Moreover, over-reaching might embarrass the client who might be an institution and concerned about its public appearance. This is important as the client does not to read your emails or letters or confronts bad press that something was said in their name that is morally reprehensible, or disrespectful. Given the combative nature of debt collection, it is easy to view everyone as the “enemy,” as opposed to viewing the other side as an adversary. While these words appear to be the same, their tonal context is different. The creditors have an array of rights, and the debtor has an array of defenses, including claims of exemption.

Avoid personal attacks, hostile and insulting comments, or anything that cannot be published in a family-friendly newspaper. First, these comments will not expedite collection of the judgment. Next, they harden the resolve of the debtor to escape enforcement at all costs. Finally, some individuals do not respond well to hyper-aggressive activities and might become vengeful. Complaining to the client, Judge, State Bar, and other clients, is not uncommon, much less, in the digital age, circulating the comments through social media. Don’t let the case become a pair of aces and eights last played by Wild Bill Hickok.

Avoid using Facebook and other forms of social media to mine information, “flame” the debtor, or for matter, anything else that might “come back to haunt you.” Nothing stops the judgment creditor from reviewing information that is available “online,” but risk accrues when working through Facebook or other protected sites, which are “password protected,” and attempts to contact the judgment debtor through the ruse of a “friends.”

This is a bad hand. You can be dealt a very bad round. Some debtors are very bad sports. One day some nut case is going to come unglued. There is no winning hand here. Be careful in opening that door. Get yourself a television monitor.


The fact that the judgment creditor has to enforce a judgment means that the judgment debtor declined or was unable to settle, pay, or resolve the case. The fact of the judgment means that the parties have entered into a new relationship in which the judgment creditor has the right to separate the judgment debtor from his or her property as allowed by law. In nearly all cases, the debtor is financially distressed and might be contemplating bankruptcy which is a Constitutional right. In other case, the debtor is a person engaging in dishonest or criminal activities, and the judgment is evidence of wrongful doings. Whether the reason, or motive, the task befalling the judgment creditor is to identify the assets and lawfully execute on them.

Enjoy this game of cards. That’s right. This is a game of chance, and just slightly better than a round of cards. Can you win at this game? For sure, the judge keeps playing and never walks from the table.


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