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Tools of the Trade

In some cases, obtaining a judgment against a defaulting debtor is only the starting point of the collection process.  Unfortunately, there are debtors who would rather fight every step of the way rather than pay back the money borrowed or pay for the goods or services received.  To effectively collect the full amount you are owed, you need an experienced and persistent collection attorney who knows what steps to take to put you in a position of priority over other creditors.

 

An important part of the collection process makes it is necessary to get an order for examination of the judgment debtor issued and, but not until there has been covert investigations of assets and bank accounts nationwide of judgment debtor and covert investigations of the place of business, personally served upon the debtor. This step is critical to the collection process.  This simple act creates a secret lien that can enable you, the judgment creditor, to be in a position to collect money that has been transferred by the judgment debtor to a third party even if the third party has no idea about the secret lien.

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A secret lien is a lien that does not appear of record or in any other manner so as to be noticed by purchasers and encumbrancers. It is a lien reserved by the vendor and kept hidden from third parties to secure the payment of goods after delivery. Under CCP Section 708.110, a judgment creditor may serve an order to appear at an examination where the creditor can ask the debtor questions about his/her/its assets. Personal service of the order on the judgment debtor creates this secret lien on all of the debtor's non-exempt personal property for one year from the date of the issuance of the order. The lien attaches to the debtor's personal property whether or not the property is described in the Notice to Appear in sufficient detail to be reasonably identifiable.

 

So how good is this secret lien?  Pretty darn good.  In Credit Suisse First Boston Mortgage Capital v. Danning, Gill, Gould, Diamond & Kolliz (2009) 178 Cal.App.4th 1290, the Court held that the lien created by the service of an Order to Appear at a Judgment Debtor Examination continues as against a subsequent transferee of the money to a third party even though the third party did not know about the lien.

 

In Credit Suisse, the bank obtained a judgment against debtor Anson. Anson transferred money held in a deposit account to the named law firm, after he had been personally served with a notice to appear for judgment debtor examination. Danning, Gill contended that the $200,000.00 it received as a retainer was not subject to the lien created by the statute because under CCP Section 697.740(j) a transfer without notice of a lien takes letters of credit, advices of credit, or money free of the judgment lien. This section provides that liens, including the lien created by serving the Notice to Appear, do not apply to a person who acquires any right or interest in letters of credit, advices of credit or money.

 

The Court however, rejected that argument and instead reasoned that the word "money" in the exception was to be read in conjunction with the terms letters of credit or advices of credit, but did not apply solely to money. Said another way, the Court found that the exemption in subdivision (j) exemption addresses letter of credit transactions, and entitlement to "money" is to be determined in terms of a letter of credit transaction (the money is just one phase of a letter of credit transaction).

 

Of note, the court rejected the argument that the ORAP lien must yield to any person who has a right or interest in money, i.e., that a simple claim of right to money defeats the ORAP lien stating that it would effectively invalidate most if not all ORAP liens as the class of persons who has a right or interest in money is indeed very large. The exception covering, broadly speaking, letter of credit transactions, is to be preferred to one that would effectively abolish ORAP liens in all but a few situations. Id., at 1299-1300. 

 

This case illustrates the importance of noticing a Judgment Debtor Exam and serving it personally upon the debtor. Again, we call this a secret lien because it is not filed with the California Secretary of State nor is it recorded in any county.  Nevertheless, even an innocent party that receives money from a judgment debtor after a notice to appear has been served takes that money subject to the secret lien. This allows the judgment creditor to force the third party (whether they are innocent or complicit) to disgorge money received from the debtor since those sums were subject to the creditor's ORAP lien.  A pretty powerful tool indeed!

 

For more information on how to collect on your debt, contact experienced collections attorney Ronald P. Slates today.

 

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