Texas Charging Orders – Collection Devices Available Against Limited Partnerships

Texas Charging orders are an often overlooked collection device. A charging order is a postjudgment collection device, meaning you must have already obtained a judgment in the underlying lawsuit. Charging orders in Texas are discretionary, and the Court does not have to grant one. With a charging order, a creditor can reach a debtor’s interest in a limited partnership. It is basically a lien on the debtor’s partnership interest. Payment to the creditor is ordered out of the debtor’s interest in the partnership. However, the creditor can only receive distributions that the debtor would otherwise receive. For example, if the debtor is a partner in a limited partnership, the creditor can obtain a charging order ordering the partnership to pay any distributions to which the debtor is entitled in the future to the creditor in satisfaction of the Judgment. For judgments obtained prior to September 1, 2007, the Court may, at its discretion, appoint a receiver, foreclose on the interest, and order a sale of the interest. However, due to recent changes in the law, for Judgments obtained after September 1, 2007, the lien against the debtor’s interest is the exclusive remedy. Appointment of a receiver, foreclose on the interest, and ordering the sale of the interest are no longer available.

Note: A charging order in Texas is unavailable against partners of general partnerships but is available against members of limited liability companies.

Filing Time-Barred Lawsuits Violates the Fair Debt Collection Practices Act

Creditors must ensure that they are referring files to their attorneys before the limitations period for filing suit has run. Failure to do so may prevent the attorney from filing suit due to possible liability under the FDCPA. The FDCPA prohibits a debt collector from using any false, deceptive or misleading representation or means in connection with the collection of any debt. The purpose of the Act is to eliminate abusive debt collection practices, and courts view FDCPA claims with an unsophisticated debtor standard. Generally, when a lawsuit is filed beyond the limitations period, it is the Defendant’s burden to raise the affirmative defense that the claim is time-barred, that the Plaintiff waited too long to bring suit. However, in the collections arena, filing a time-barred lawsuit may be construed as a violation of the FDCPA. An Illinois court recently ruled that a debt-collector violates the FDCPA if he files a lawsuit and knew or reasonably should have known that it was time-barred. (Ramirez v. Palisades Collection L.L.C.) If a debt collector does file a time-barred lawsuit, to defend himself against accusation of an FDCPA violation, he must be able to show that it was a bona fide error that occurred even though procedures were in place to avoid such an error.

Lien Rights of Engineers, Architects & Surveyors in Texas

The Texas Constitution provides that “[m]echanics, artisans and material men, of every class, shall have a lien upon the buildings and articles made or repaired by them for the value of their labor done thereon, or material furnished therefor; and the Legislature shall provide by law for the speedy and efficient enforcement of said liens.” Tex. Const., Article 16, Section 37. This is the basis for the so-called Constitutional Lien, and the authorizing Texas Constitutional provision, for the statutory lien as provided for in Chapter 53 of the Texas Property Code.

In 1995, the Texas Legislature added provisions to the Texas Property Code that made it much easier for engineers, architects, and surveyors to secure a lien for their work. The amendments eliminated the difficult and problematic requirement that the design professional’s contract be filed prior to the commencement of work. Now, the design professional only needs to have a written contract and properly record (file) the lien.

Thus, § 53.021 of the Texas Property Code only requires that an architect, engineer or surveyor who: (1) prepares a plan or plat, (2) under or by virtue of a written contract with the Owner or the Owner’s agent, trustee, or receiver, and (3) that the work be done in connection with the actual proposed design, construction, or repair of improvements on real property or the location of the boundaries of real property has a lien on the property. As a result, as long as the engineer, architect or surveyor has a written contract with the owner and has actually prepared the plan or plat, the engineer, architect or surveyor, he or she will have a right to the lien, without regard to whether construction on the property actually occurred. It should be noted that as with all statutory liens under Chapter 53 of the Property Code, scrupulous observance of the deadlines for the sending of notices, and recording (filing) of the lien affidavit, are still required in order to obtain or “perfect” the lien.

Domestication of Foreign Judgments

Clients sometimes come to us with a judgment that was obtained in another state that they would like to enforce in Texas. In order to enforce a judgment obtained in the United States, but outside of Texas, known as a “foreign judgment,” it is necessary to first domesticate the foreign judgment. Under the Uniform Enforcement of Foreign Judgment Act, judgments rendered in sister states, as well as judgments rendered by federal courts, may be domesticated and enforced in Texas. To domesticate a foreign judgment in Texas, a judgment creditor files an authenticated copy of the judgment with the Texas court, along with an affidavit of the creditor’s and the debtor’s last known addresses. Once the judgment has been properly filed with the Texas court, the judgment creditor is free to pursue post-judgment collection activities including abstracting the judgment in the real property records and sending post-judgment written discovery. Thirty days after filing the foreign judgment a writ of execution may be obtained.

CollectionLinks.com

Here's a pretty decent searchable database of collection links at CollectionLinks.com, particularly Texas Debt Collection Sites. There are a lot more to be added, and the site currently lacks design, but it is a decent place to start.

Fair Debt and Texas Foreclosure

This opinion is from a long time ago, but I continue to get questions related to non-judicial foreclosures in Texas and the "30 day" language found in the Fair Debt Collection Practices Act and how it affects the "20 day" residential requirement under the Texas Property Code Sec. 51.002. This question was presented to the FTC, in fact, many years ago. The response, shown here, relates that the notices required by statute are notices required by law and therefore are not covered by the Fair Debt Collection Practices Act unless it is in connection with a demand for payment that is "not required by law". Essentially, if one is merely making the offer to cure known, as required by state law, it is not covered by the Act. It seems like splitting hairs, but essentially the Act is involved if it is anything more than what is specifically required by the Act. If you do a demand for payment, couch it in terms of the statutory "opportunity to cure" in your forms for foreclosure and it is less likely to kick in the 30 day validation notice requirement for consumer collections.

Collection outside the state of Texas

I'm often asked about collections out of state. A great place to locate lawyers with a familiarity with creditors' rights in another state is through the Commercial Law League of America. Members of the organization, often collection lawyers and agencies, can be searched by geographic location.

Texas Mechanic’s & Materialman’s Liens: Deadlines for Filing Affidavit of Lien

The rules regarding Texas mechanic’s and materialman’s liens can be very confusing and time consuming to understand. However, it is important to have a good working knowledge of the rules pertaining to deadlines; if deadlines are missed a Texas lien will be invalid. Following is a discussion of the computation of deadlines for filing of an affidavit of lien.

The deadline for filing an affidavit of lien with the Texas county clerk initially depends on two factors: (1) whether the construction project is residential or commercial and (2) when the “indebtedness accrued.”

If the construction project in Texas is commercial, the affidavit must be filed not later than the 15th day of the fourth calendar month after the day on which the indebtedness accrues. (Tex. Prop. Code 53.052(a)) For example, if the “indebtedness accrued” in January, the affidavit of lien would be filed by May 15th.

If the construction project in Texas is residential, the affidavit must be filed not later than the 15th day of the third calendar month after the day on which the indebtedness accrues.
(Tex. Prop. Code 53.052(b)) For example, if the “indebtedness accrued” in January, the affidavit of lien would be filed by April 15th.

When does the indebtedness accrue? This depends on whether or not the person filing the affidavit of lien is a general contractor or sub-contractor.

For a general contractor in Texas, the indebtedness accrues: (1) on the last day of the month in which a written declaration by the original contractor or the owner is received by the other party to the original contract stating that the original contract has been terminated, OR (2) on the last day of the month in which the original contract has been completed, finally settled, or abandoned. (Tex. Prop. Code 53.053(b))
To sum this up, the indebtedness accrues when the contract is terminated or the construction under the contract is finished or abandoned.

For a sub-contractor, the indebtedness accrues on the last day of the month in which the labor was performed or the material was furnished. (Tex. Prop. Code 53.053(c))

Here’s an example of the rules applied. You are a subcontractor in Austin providing labor for a residential construction project in Austin, Texas. Labor was last provided in January. Therefore, your lien would need to be filed by April 15th.

Cancellation of Debt: Tax Consequences

We're getting into tax season, and it should be remembered that, in addition to the 1099's that are issued for persons paid money, certain creditors have an affirmative duty to issue a 1099-C for compromised indebtedness. This applies to any cancelled debt over $600. Multiple cancellations of a debt are not to be aggregated for purposes of determining whether the $600 is met, unless, of course, the reason that each debt is less than $600 is to avoid triggering the 1099-C filing requirement (you didn't think the IRS would let you get away with this glaring loop hole, did you?).

As a result, any financial institution or other organization "whose significant trade or business is the lending of money," such as a finance company, credit card company, and the like (whether or not affiliated with a financial institution) must file a 1099-C for cancelled debt. The degree of business necessary so as to be considered "significant" has been defined as when money is lent on a "regular and continuing basis."

Thus, for example, if you are in the finance business and a debt is negotiated from an original balance of $10,000 down to $4,000, then the creditor must issue a 1099-C for the portion that has been written down -- $6,000.

There are different rules for secured property (i.e. collateralized personal property or mortgaged real property) that is abandoned by the debtor in exchange for the cancellation (such as a "deed in lieu of foreclosure"). This filing requirement appears to be for everyone, not just financial institutions and those who are in the business of lending money. Thus, if you "acquire an interest in property that is security for the debt," (or if you merely have reason to know that the property has been abandoned) in full or partial satisfaction of such debt, then you need to file a 1099-A or merely fill out boxes 5 & 7 of the 1099-C. According to the IRS, the proper filing of the 1099-C will meet this requirement. This can be a nasty surprise for the debtor who gets one of these, but the rules are the rules!