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whole or in part.
2 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
1. Mechanic’s Liens
Mechanic’s liens are fairly simple to understand (and may even be within the experience of some
students).
a. Real Property Secures the Debt
b. Governed by State Law
Generally, a lienholder must file written notice of the lien within 60 to 120 days from the last
CHAPTER 20: CREDITORS’ RIGHTS AND REMEDIES 3
findings are clearly erroneous, this is probably not her best option. Going through the foreclosure process
would end with a payment for the work and costs to BHP, but Jean would be forced to sell her Enfield
property and might not realize what she would consider a good price. A settlement with BHP for the amount of
the judgment would most likely be in the best economic interests of all of the parties because it would be the
least expensive, even if attorneys’ fees and court costs were included in the amount.
ANSWER TO “THE LEGAL ENVIRONMENT DIMENSION”
QUESTION IN CASE 20.1
When no actual contract exists, under what theory may a court step in to prevent a property
owner from being unjustly enriched by the work, labor, or services of a contractor? Quasi contract is a
legal theory under which an obligation is imposed in the absence of an agreement. The legal obligation arises
because the law considers that the party accepting the benefits has made an implied promise to pay for them.
Generally, when one party has conferred a benefit on another party, justice requires that the party receiving
the benefit pay the reasonable value for it. The party conferring the benefit can recover in quantum meruit (“as
much as he or she deserves”). A court can use this theory when no actual contract exists or when the parties
entered into a contract but it is unenforceable for some reason.
provide services on a cash, not a credit, basis.
b. Priority over Other Creditors’ Claims
An artisan’s lien usually takes priority over other creditors’ claims to the same property.
ADDITIONAL BACKGROUND—
Artisan’s Lien
Under an artisan’s lien, a creditor can recover payment from a debtor for labor and materials furnished in
the repair of personal property. The following excerpts from Oregon Revised Statutes (Or. Rev. St. §§87.152,
87.172, 87.182) provide an example of some of the details of a statutory artisan’s lien.
1989 OREGON REVISED STATUTES
TITLE 9. MORTGAGES AND LIENS
CHAPTER 87. STATUTORY LIENS
POSSESSORY CHATTEL LIENS
4 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
whole or in part.
87.152. Possessory lien for labor or material expended on a chattel.
A person who makes, alters, repairs, transports, stores, pastures, cares for, provides services for, supplies
materials for or performs labor on a chattel at the request of the owner or lawful possessor of the chattel has a
lien on that chattel in the possession of the person for the reasonable or agreed charges for labor, materials
or services of the person, and the person may retain possession of the chattel until those charges are paid.
(1975 c.648 § 3)
87.172. Time period before foreclosure allowed.
(1) Except as otherwise provided in this section, a person claiming a lien under ORS 87.152 to 87.162 must
retain the chattel that is subject to the lien for at least 60 days after the lien attaches to the chattel before
foreclosing the lien.
(2) A person claiming a lien under ORS 87.152 for cost of care, materials and services bestowed on an
animal must retain the animal for at least 30 days after the lien attaches to the animal before foreclosing the
lien. If the animal is a dog or cat, the period shall be at least 15 days.
(3) A person claiming a lien under ORS 87.152 for the cost of removing, towing or storage of a vehicle that is
appraised at a value of $750 or less by a person who holds a permit issued under ORS 819.230 must retain
the vehicle at least 30 days after the lien attaches to the vehicle before foreclosing the lien.
(1975 c.648 § 7; 1979 c.401 § 1; 1981 c.861 § 1; 1983 c.338 § 881)
87.182. Effect of prior security interest on method of foreclosure.
(1) When a lien created by ORS 87.162 is subordinate to a prior duly perfected security interest in a chattel as
provided in ORS 87.146, the lien created by ORS 87.162 shall be foreclosed by suit as provided in ORS
chapter 88.
(2) Except as provided in subsection (1) of this section, liens created by ORS 87.152 to 87.162 may be fore-
closed by suit as provided in ORS chapter 88, or by sale of the chattel subject to the lien at public auction to
the highest bidder for cash.
(1975 c.648 § 9)
3. Judicial Liens
These liens help ensure that a judgment is collectible.
a. Writ of Attachment
Prejudgment attachment requires notice to the debtor and a hearing (under the Fourteenth
writ of execution. The sheriff seizes the debtor’s property, which can be sold to satisfy the
CHAPTER 20: CREDITORS’ RIGHTS AND REMEDIES 5
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in
whole or in part.
judgment. Before the property is sold, the debtor can pay the judgment and redeem the
property.
ADDITIONAL BACKGROUND—
Writ of Execution
If a creditor is successful in a suit against a debtor, the court awards the creditor a judgment against the
debtor (usually for the amount of the debt plus interest and costs incurred in obtaining the judgment). If the
debtor does not pay the judgment, the creditor can go back to court and obtain a writ of execution under
which some of the debtor’s property can be seized and sold. The following excerpts from Nevada Revised
Statutes (Nev. Rev. St. §§21.010, 21.020, 21.080, 21.110) provide an example of some of the details of a writ
of execution.
NEVADA REVISED STATUTES
TITLE 2. CIVIL PRACTICE.
CHAPTER 21. ENFORCEMENT OF JUDGMENTS.
21.010. Writ of execution: Limitations of time.
Except as otherwise provided in NRS 125B.050 for enforcement of a judgment for support of a child, the party
in whose favor judgment is given may, at any time before the judgment expires, obtain the issuance of a writ
of execution for its enforcement as prescribed in this chapter. The writ ceases to be effective when the
judgment expires.
(CPA 1911, § 338; RL 1912, § 5280; CL 1929, § 8836; 1979, p. 1172; 1987, ch. 808, § 32, p. 2249; 1989, ch.
282, § 2, p. 586.)
21.020. Writ of execution: Issuance; contents.
The writ of execution must be issued in the name of the State of Nevada, sealed with the seal of the court,
and subscribed by the clerk, and must be directed to the sheriff; and must intelligibly refer to the judgment,
stating the court, the county where the judgment roll is filed, the names of the parties, the judgment, and if it is
for money, the amount thereof, and the amount actually due thereon; and if made payable in a specified kind
of money or currency, as provided in NRS 17.120, the writ must also state the kind of money or currency in
which the judgment is payable, and must require the sheriff substantially as follows:
1. If it is against the property of the judgment debtor, it must require the sheriff to satisfy the judgment, with
interest, out of the personal property of the debtor, and, if sufficient personal property cannot be found, then
out of his real property; or if the judgment is a lien upon real property, then out of the real property belonging
to him on the day when the abstract or certified copy of the judgment or decree was recorded in the office of
the county recorder of the particular county to whose sheriff the writ was issued, stating the day, or out of the
real property afterward acquired by him before the lien expires.
2. If it is against real or personal property in the hands of the personal representatives, heirs, devisees,
legatees, tenants of real property, or trustees, it must require the sheriff to satisfy the judgment, with interest,
out of the property.
6 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
3. If it is against the person of the judgment debtor, it must require the sheriff to arrest the debtor and commit
him to the jail of the county until he pays the judgment, with interest, or it is discharged according to law.
4. If it is issued on a judgment made payable in a specified kind of money or currency, as provided in NRS
17.120, the writ must also require the sheriff to satisfy it in the kind of money or currency in which the
judgment is made payable, and the sheriff shall refuse payment in any other kind of money or currency; and
in case of levy and sale of the property of the judgment debtor, he shall refuse payment from any purchaser at
the sale in any other kind of money or currency than that specified in the writ; the sheriff collecting money or
currency in the manner required by this chapter shall pay to the person entitled thereto, the same kind of
money or currency received by him, and in case of neglect or refusal so to do, he is liable on his official bond
to the judgment creditor in three times the amount of money so collected.
5. If it is for the delivery of the possession of real or personal property, it must require the sheriff to deliver the
possession of the property, particularly describing it, to the person entitled thereto, and may at the same time
require the sheriff to satisfy any costs, damages, rents or profits, recovered by the same judgment out of the
personal property of the party against whom it was rendered, and the value of the property for which the
judgment was recovered to be specified therein; if a delivery thereof cannot be had, and if sufficient personal
property cannot be found, then out of real property, as provided in subsection 1 of this section.
(CPA 1911, § 339; RL 1912, § 5281; CL 1929, § 8837; 1965, p. 649; 1967, p. 949; 1985, p. 224.)
21.080. Property liable to execution; property not affected by execution until levy; exemption of
spendthrift trusts.
1. All goods, chattels, moneys and other property, real and personal, of the judgment debtor, or any interest
therein of the judgment debtor not exempt by law, and all property and rights of property seized and held
under attachment in the action, shall be liable to execution. Subject to the provisions of chapter 104 of NRS,
shares and interests in any corporation or company, and debts and credits and other property not capable of
manual delivery, may be attached in execution in like manner as upon writs of attachments. Gold dust and
bullion shall be returned by the officer as so much money collected, at its current value, without exposing the
same to sale. Until a levy, property shall not be affected by the execution.
2. This chapter does not authorize the seizure of, or other interference with, any money, thing in action, lands
or other property held in spendthrift trust for a judgment debtor, or held in such trust for any beneficiary,
pursuant to any judgment, order or process of any bankruptcy or other court directed against any such
beneficiary or his trustee, where the trust has been created by, or the fund so held in trust has proceeded
from, any person other than the judgment debtor or beneficiary himself.
(CPA 1911, § 345; 1939, p. 60; CL 1929 (1941 Supp.), § 8843; 1965, p. 913.)
21.110. Execution of writ by sheriff.
The sheriff shall, in the manner provided for writs of attachments in NRS 31.060, execute the writ against the
property of the judgment debtor by levying on a sufficient amount of property, if there is sufficient, collecting or
selling the things in action and selling the other property, and paying to the plaintiff or his attorneys so much
of the proceeds as will satisfy the judgment, or depositing the amount with the clerk of the court. Any excess
in the proceeds over the judgment and the sheriff’s fees must be returned to the judgment debtor. When there
is more property of the judgment debtor than is sufficient to satisfy the judgment and the sheriff’s fees within
the view of the sheriff, he shall levy only on such part of the property as the judgment debtor may indicate;
provided:
CHAPTER 20: CREDITORS’ RIGHTS AND REMEDIES 7
1. That the judgment debtor may indicate at the time of the levy such part.
2. That the property indicated be amply sufficient to satisfy such judgment and fees.
(CPA 1911, § 347; RL 1912, § 5289; CL 1929, § 8845; 1989, ch. 208, § 3, p. 463.)
separate order may be required for, for example, each pay period to garnish wages.
2. Laws Limiting the Amount of Wages Subject to Garnishment
Federal and state laws limit the amount that can be garnished from wages. State laws often provide
for larger exemptions, and state and federal statutes can be applied together to reduce the amount
An individual who buys real property typically borrows the funds from a financial institution to pay for it. A
mortgage is a written instrument that gives the creditor an interest in, or a line on, the property as security for
the payment.
ANSWER TO CRITICAL THINKING QUESTION IN THE FEATURE—
INSIGHT INTO DIVERSITY
To what extent do lending institutions have a moral duty to extend loans to lower-income
individuals? Given that we live in a diverse society, all residents should be treated equally with respect to
mortgage lending practices. That said, if banks and other lending institutions overplay their hand, they may
harm lower-income individuals by causing them to take on more debt than they can afford.
ADDITIONAL BACKGROUND—
The Sale of Real Estate
Transfers of ownership interests in real property are frequently accomplished by means of a sale. The
sale of real estate is similar to the sale of goods, because it involves a transfer of ownership, often with
8 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
specific warranties. In the sale of real estate, however, certain formalities such as the execution of a deed are
observed that are not required in the sale of goods.
Several steps are involved in any sale of real property. The first step is the formation of the land sales
contract. A title search (to verify that the seller has good title to the property and that no other claims to the
property exist) follows, along with, usually, negotiations to obtain financing for the purchase. The final step is
the closing.
Brokers. Buyers and sellers of real property frequently enlist the services of a real estate agent, or
broker. Real estate agents are information brokers. They provide buyers and sellers of real estate with infor-
mation and specialize in matching the wants of buyers with the property being offered for sale by sellers. The
broker is usually retained by the seller and acts as the seller’s agent in the sale of the property. As compensa-
tion for their services, brokers usually receive a commission (which can vary between 1 to 10 percent of the
purchase price) from the seller when the sale is concluded. A broker can also simultaneously act as an agent
of the buyer, in which case a dual agency exists. Generally, a broker may not act as an agent for more than
one party without the consent of all parties involved. (There exist some buyer-only brokers.) Most states re-
quire real estate brokers to be licensed, and, in some states, brokers may be required to meet continuing-
education or other requirements. A seller engages the services of a broker through a written listing
agreement. In an open listing, the seller contracts for the services of more than one broker, and the first
broker to produce a buyer receives the commission. In an exclusive listing, the seller contracts with just one
broker, who receives the exclusive right to find a buyer and receive the commission from the seller. Under an
exclusive listing agreement, the broker is entitled to a commission even if another broker sells the property.
Sales Contract. Generally, when someone decides to purchase real estate, he or she makes a written
offer to purchase the property and puts up earnest money to show that an earnest, or serious, offer is being
made. (If the offeror decides to withdraw the offer, the earnest money, or deposit binder money, will often be
forfeited to the seller.) The offer states in some detail the exact offering price for the property and lists any
other conditions that may be appropriate. The offer may be conditioned on the offeror’s ability to obtain fi-
nancing, for example. Within a specified time period, the seller of the property either accepts or rejects the of-
fer. If the offer is accepted, then a contract of sale is drawn up. The signing of the sales contract is usually
accompanied by a deposit, which may be 10 percent of the purchase price paid to the seller. The buyer can
then add to the existing earnest money to bring it up to the desired amount.
Deposits toward the purchase price normally are held in a special account, called an escrow account,
until all of the conditions of sale have been met and the closing takes place, at which time the money is trans-
ferred to the seller. The escrow agent, which may be a title company, bank, or special escrow company, acts
as a neutral party in the sales transaction and facilitates the sale by allowing the buyer and seller to close the
transaction without having to exchange documents and funds. An escrow agent is an agent of all of the par-
ties involved in the sales transaction. When a conflict between the parties results in conflicting duties on the
part of the agent, normally the agent will have a court resolve the conflict.
Sometimes, an arrangement is made in which a potential buyer is given the right to purchase property in
the future, within a specified period of time and for a specific price. This is called an option contract. To be
enforceable, the contract must be in writing, and consideration must be given to the seller. Essentially,
payment to the seller compensates the seller for taking the property off the market until the end of the time
specified in the option contract. Potential buyers may also obtain a right of first refusal. Frequently, those who
lease property with the intention of possibly buying it in the future will have such a clause added to the lease
contract. This right means that the lessee, or tenant, has first priority if the seller decides to sell the property.
In other words, if the seller receives an offer from a third party, the seller cannot accept the offer until the
tenant indicates that he or she does not intend to purchase the property.
Title Examination. After the sales contract has been negotiated, the buyer or buyer’s attorney (or the
broker, escrow agent, title insurance company, or lending institution from which the purchase price is being
borrowed) will begin the title examination, which entails examining at the county recording office the history of
all past transfers and sales of the property in question. The title examiner will generally obtain an abstract
from a private abstract company. This document lists all the records relating to a particular parcel of land.
After reading the abstract, the examiner will give an opinion as to the validity of the title. Title examinations
are not foolproof, and buyers of real property generally purchase title insurance to protect their interests in the
event that some defect in the title was not discovered during the examination. A title insurance policy insures
against loss resulting from any defects in the title and guarantees that, if any defects do arise, the title
company issuing the policy will defend the owner’s interests and pay all legal expenses involved.
Financing. Unless a buyer pays cash for the property, the buyer must obtain financing for the purchase
with a mortgage loan. A mortgage loan is a loan made by a banking institution or trust company for which the
property is given as security. In some states, the mortgagor (the borrower) holds title to the property; in
others, the mortgagee (the lender) holds title until the loan is completely repaid. In several states, a trustee—a
third party—holds title on behalf of the lender. The trustee then deeds the property back to the borrower when
the loan is repaid. If the payments are not made, the trustee can deed the property to the lender or dispose of
it by auction, depending on state law.
There are numerous ways of financing the purchase of real property, some of which are quite creative.
Frequently, financing is obtained through a conventional long-term mortgage loan in which the payment
schedule extends over a period of twenty-five to thirty years. Traditionally, the interest rate for long-term loans
was fixed—that is, the interest rate did not change over the period of the loan. Today, long-term loans often
have variable rates of interest. In a variable-rate loan, the interest rate is pegged to a specified standard, such
as the prime rate—the rate of interest offered by lending institutions to their most creditworthy customers—
and adjusted at specified intervals, such as six months or a year. In some situations, the seller may be willing
to finance the purchase for a buyer. That is, the buyer will pay, say, 10 percent of the price as a down
payment and make periodic (usually monthly) payments to the seller until the balance of the purchase price is
paid. In other situations, a wraparound mortgage may be used.
Several terms used in mortgage transactions merit special mention and clarification. Obtaining a
mortgage normally involves paying a fee to the lender in the form of points. A point is a charge of 1 percent on
the amount of a loan. Therefore, if the lender’s fee is two points and the amount of the loan is $80,000, the
fee amounts to $1,600. This charge may be assessed against the buyer, the seller, or both.
If the mortgage terms allow for prepayment privileges, then the borrower can prepay the mortgage before
the maturity date without penalty. Prepayment privileges may be especially important if market interest rates
fall below the interest rate of the mortgage loan—in which case the loan could be refinanced to the advantage
of the borrower.
An amortization schedule shows what portions of each monthly payment on a loan-term loan, such as a
mortgage loan, go to the interest and to the principal on the loan, respectively. In the first several years of the
loan, the borrower pays primarily interest on the mortgage, so the amount owing on the principal of the loan
declines very slowly. By the end of the payment schedule, however, the payments are mostly on the principal.
An amortization schedule is usually given to the borrower by the lending institution; if not, the borrower can
request one.
Closing. The final step in the sale of real estate is the closing—also called settlement or closing escrow.
The escrow agent coordinates the closing with the recording of deeds, the obtaining of title insurance, and
other concurrent closing activities. Several costs must be paid, in cash, at the time of closing. These costs
comprise fees for services, including those performed by the lender, escrow agent, and title company, and
they can range from several hundred to several thousand dollars, depending on the amount of the mortgage
loan and other conditions of sale. Lending institutions are required by law to notify—within a specified time pe-
riod—each applicant for a mortgage loan of the specific costs that must be paid at the closing.
Warranty of Habitability. The common law rule of caveat emptor (“let the buyer beware”) held that the
seller of a home made no warranties with respect to its soundness or fitness unless such a warranty was
specifically included in the deed or contract of sale. Although caveat emptor is still the rule of law in a minority
of states, there is currently a strong trend against it and in favor of an implied warranty of habitability. Under
this new approach, the courts hold that the seller of a new house warrants that it will be fit for human
habitation regardless of whether any such warranty is included in the deed or contract of sale. This warranty
is similar to the UCC’s implied warranty of merchantability for sales of personal property. In recent years,
some states, such as Virginia, have passed legislation creating such warranties for newly constructed resi-
dences. Under an implied warranty of habitability, the seller warrants that the house is in reasonable working
order and is of reasonably sound construction. To recover damages for breach of the implied warranty of
habitability, the purchaser is only required to prove that the home he or she purchased was somehow defec-
tive and to prove the damages caused by the defect. Under the warranty of habitability theory, the seller of a
new home may be in effect a guarantor of the home’s fitness.
Seller’s Duty to Disclose. Traditionally, under the rule of caveat emptor, a seller had no duty to disclose
to the buyer defects in the property, even if the seller knew about the defects and the buyer had no rea-
sonable way to discover them. Currently, in many jurisdictions, courts have placed on sellers a duty to dis-
close any known defect such as a rotted roof that materially affects the value of the property and that the
buyer could not reasonably discover. Under these circumstances, nondisclosure is similar to representing that
the defect does not exist, and the buyer may have grounds for a successful lawsuit based on fraud or
misrepresentation.
A. FIXED-RATE MORTGAGES
and fixed. After a certain time, and at certain intervals, the rate adjusts. The adjustment consists of a
specified number of points added to an index rate. Most ARMs limit the amount that the rate can
increase over the duration of the loan.
C. CREDITOR PROTECTION
Creditors can protect their interests through—
• Mortgage insurance—if the debtor defaults, the insurer reimburses the creditor for a portion of the
loan.
2 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
1. Mechanic’s Liens
Mechanic’s liens are fairly simple to understand (and may even be within the experience of some
students).
a. Real Property Secures the Debt
b. Governed by State Law
Generally, a lienholder must file written notice of the lien within 60 to 120 days from the last
CHAPTER 20: CREDITORS’ RIGHTS AND REMEDIES 3
findings are clearly erroneous, this is probably not her best option. Going through the foreclosure process
would end with a payment for the work and costs to BHP, but Jean would be forced to sell her Enfield
property and might not realize what she would consider a good price. A settlement with BHP for the amount of
the judgment would most likely be in the best economic interests of all of the parties because it would be the
least expensive, even if attorneys’ fees and court costs were included in the amount.
ANSWER TO “THE LEGAL ENVIRONMENT DIMENSION”
QUESTION IN CASE 20.1
When no actual contract exists, under what theory may a court step in to prevent a property
owner from being unjustly enriched by the work, labor, or services of a contractor? Quasi contract is a
legal theory under which an obligation is imposed in the absence of an agreement. The legal obligation arises
because the law considers that the party accepting the benefits has made an implied promise to pay for them.
Generally, when one party has conferred a benefit on another party, justice requires that the party receiving
the benefit pay the reasonable value for it. The party conferring the benefit can recover in quantum meruit (“as
much as he or she deserves”). A court can use this theory when no actual contract exists or when the parties
entered into a contract but it is unenforceable for some reason.
provide services on a cash, not a credit, basis.
b. Priority over Other Creditors’ Claims
An artisan’s lien usually takes priority over other creditors’ claims to the same property.
ADDITIONAL BACKGROUND—
Artisan’s Lien
Under an artisan’s lien, a creditor can recover payment from a debtor for labor and materials furnished in
the repair of personal property. The following excerpts from Oregon Revised Statutes (Or. Rev. St. §§87.152,
87.172, 87.182) provide an example of some of the details of a statutory artisan’s lien.
1989 OREGON REVISED STATUTES
TITLE 9. MORTGAGES AND LIENS
CHAPTER 87. STATUTORY LIENS
POSSESSORY CHATTEL LIENS
4 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
whole or in part.
87.152. Possessory lien for labor or material expended on a chattel.
A person who makes, alters, repairs, transports, stores, pastures, cares for, provides services for, supplies
materials for or performs labor on a chattel at the request of the owner or lawful possessor of the chattel has a
lien on that chattel in the possession of the person for the reasonable or agreed charges for labor, materials
or services of the person, and the person may retain possession of the chattel until those charges are paid.
(1975 c.648 § 3)
87.172. Time period before foreclosure allowed.
(1) Except as otherwise provided in this section, a person claiming a lien under ORS 87.152 to 87.162 must
retain the chattel that is subject to the lien for at least 60 days after the lien attaches to the chattel before
foreclosing the lien.
(2) A person claiming a lien under ORS 87.152 for cost of care, materials and services bestowed on an
animal must retain the animal for at least 30 days after the lien attaches to the animal before foreclosing the
lien. If the animal is a dog or cat, the period shall be at least 15 days.
(3) A person claiming a lien under ORS 87.152 for the cost of removing, towing or storage of a vehicle that is
appraised at a value of $750 or less by a person who holds a permit issued under ORS 819.230 must retain
the vehicle at least 30 days after the lien attaches to the vehicle before foreclosing the lien.
(1975 c.648 § 7; 1979 c.401 § 1; 1981 c.861 § 1; 1983 c.338 § 881)
87.182. Effect of prior security interest on method of foreclosure.
(1) When a lien created by ORS 87.162 is subordinate to a prior duly perfected security interest in a chattel as
provided in ORS 87.146, the lien created by ORS 87.162 shall be foreclosed by suit as provided in ORS
chapter 88.
(2) Except as provided in subsection (1) of this section, liens created by ORS 87.152 to 87.162 may be fore-
closed by suit as provided in ORS chapter 88, or by sale of the chattel subject to the lien at public auction to
the highest bidder for cash.
(1975 c.648 § 9)
3. Judicial Liens
These liens help ensure that a judgment is collectible.
a. Writ of Attachment
Prejudgment attachment requires notice to the debtor and a hearing (under the Fourteenth
writ of execution. The sheriff seizes the debtor’s property, which can be sold to satisfy the
CHAPTER 20: CREDITORS’ RIGHTS AND REMEDIES 5
© 2015 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in
whole or in part.
judgment. Before the property is sold, the debtor can pay the judgment and redeem the
property.
ADDITIONAL BACKGROUND—
Writ of Execution
If a creditor is successful in a suit against a debtor, the court awards the creditor a judgment against the
debtor (usually for the amount of the debt plus interest and costs incurred in obtaining the judgment). If the
debtor does not pay the judgment, the creditor can go back to court and obtain a writ of execution under
which some of the debtor’s property can be seized and sold. The following excerpts from Nevada Revised
Statutes (Nev. Rev. St. §§21.010, 21.020, 21.080, 21.110) provide an example of some of the details of a writ
of execution.
NEVADA REVISED STATUTES
TITLE 2. CIVIL PRACTICE.
CHAPTER 21. ENFORCEMENT OF JUDGMENTS.
21.010. Writ of execution: Limitations of time.
Except as otherwise provided in NRS 125B.050 for enforcement of a judgment for support of a child, the party
in whose favor judgment is given may, at any time before the judgment expires, obtain the issuance of a writ
of execution for its enforcement as prescribed in this chapter. The writ ceases to be effective when the
judgment expires.
(CPA 1911, § 338; RL 1912, § 5280; CL 1929, § 8836; 1979, p. 1172; 1987, ch. 808, § 32, p. 2249; 1989, ch.
282, § 2, p. 586.)
21.020. Writ of execution: Issuance; contents.
The writ of execution must be issued in the name of the State of Nevada, sealed with the seal of the court,
and subscribed by the clerk, and must be directed to the sheriff; and must intelligibly refer to the judgment,
stating the court, the county where the judgment roll is filed, the names of the parties, the judgment, and if it is
for money, the amount thereof, and the amount actually due thereon; and if made payable in a specified kind
of money or currency, as provided in NRS 17.120, the writ must also state the kind of money or currency in
which the judgment is payable, and must require the sheriff substantially as follows:
1. If it is against the property of the judgment debtor, it must require the sheriff to satisfy the judgment, with
interest, out of the personal property of the debtor, and, if sufficient personal property cannot be found, then
out of his real property; or if the judgment is a lien upon real property, then out of the real property belonging
to him on the day when the abstract or certified copy of the judgment or decree was recorded in the office of
the county recorder of the particular county to whose sheriff the writ was issued, stating the day, or out of the
real property afterward acquired by him before the lien expires.
2. If it is against real or personal property in the hands of the personal representatives, heirs, devisees,
legatees, tenants of real property, or trustees, it must require the sheriff to satisfy the judgment, with interest,
out of the property.
6 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
3. If it is against the person of the judgment debtor, it must require the sheriff to arrest the debtor and commit
him to the jail of the county until he pays the judgment, with interest, or it is discharged according to law.
4. If it is issued on a judgment made payable in a specified kind of money or currency, as provided in NRS
17.120, the writ must also require the sheriff to satisfy it in the kind of money or currency in which the
judgment is made payable, and the sheriff shall refuse payment in any other kind of money or currency; and
in case of levy and sale of the property of the judgment debtor, he shall refuse payment from any purchaser at
the sale in any other kind of money or currency than that specified in the writ; the sheriff collecting money or
currency in the manner required by this chapter shall pay to the person entitled thereto, the same kind of
money or currency received by him, and in case of neglect or refusal so to do, he is liable on his official bond
to the judgment creditor in three times the amount of money so collected.
5. If it is for the delivery of the possession of real or personal property, it must require the sheriff to deliver the
possession of the property, particularly describing it, to the person entitled thereto, and may at the same time
require the sheriff to satisfy any costs, damages, rents or profits, recovered by the same judgment out of the
personal property of the party against whom it was rendered, and the value of the property for which the
judgment was recovered to be specified therein; if a delivery thereof cannot be had, and if sufficient personal
property cannot be found, then out of real property, as provided in subsection 1 of this section.
(CPA 1911, § 339; RL 1912, § 5281; CL 1929, § 8837; 1965, p. 649; 1967, p. 949; 1985, p. 224.)
21.080. Property liable to execution; property not affected by execution until levy; exemption of
spendthrift trusts.
1. All goods, chattels, moneys and other property, real and personal, of the judgment debtor, or any interest
therein of the judgment debtor not exempt by law, and all property and rights of property seized and held
under attachment in the action, shall be liable to execution. Subject to the provisions of chapter 104 of NRS,
shares and interests in any corporation or company, and debts and credits and other property not capable of
manual delivery, may be attached in execution in like manner as upon writs of attachments. Gold dust and
bullion shall be returned by the officer as so much money collected, at its current value, without exposing the
same to sale. Until a levy, property shall not be affected by the execution.
2. This chapter does not authorize the seizure of, or other interference with, any money, thing in action, lands
or other property held in spendthrift trust for a judgment debtor, or held in such trust for any beneficiary,
pursuant to any judgment, order or process of any bankruptcy or other court directed against any such
beneficiary or his trustee, where the trust has been created by, or the fund so held in trust has proceeded
from, any person other than the judgment debtor or beneficiary himself.
(CPA 1911, § 345; 1939, p. 60; CL 1929 (1941 Supp.), § 8843; 1965, p. 913.)
21.110. Execution of writ by sheriff.
The sheriff shall, in the manner provided for writs of attachments in NRS 31.060, execute the writ against the
property of the judgment debtor by levying on a sufficient amount of property, if there is sufficient, collecting or
selling the things in action and selling the other property, and paying to the plaintiff or his attorneys so much
of the proceeds as will satisfy the judgment, or depositing the amount with the clerk of the court. Any excess
in the proceeds over the judgment and the sheriff’s fees must be returned to the judgment debtor. When there
is more property of the judgment debtor than is sufficient to satisfy the judgment and the sheriff’s fees within
the view of the sheriff, he shall levy only on such part of the property as the judgment debtor may indicate;
provided:
CHAPTER 20: CREDITORS’ RIGHTS AND REMEDIES 7
1. That the judgment debtor may indicate at the time of the levy such part.
2. That the property indicated be amply sufficient to satisfy such judgment and fees.
(CPA 1911, § 347; RL 1912, § 5289; CL 1929, § 8845; 1989, ch. 208, § 3, p. 463.)
separate order may be required for, for example, each pay period to garnish wages.
2. Laws Limiting the Amount of Wages Subject to Garnishment
Federal and state laws limit the amount that can be garnished from wages. State laws often provide
for larger exemptions, and state and federal statutes can be applied together to reduce the amount
An individual who buys real property typically borrows the funds from a financial institution to pay for it. A
mortgage is a written instrument that gives the creditor an interest in, or a line on, the property as security for
the payment.
ANSWER TO CRITICAL THINKING QUESTION IN THE FEATURE—
INSIGHT INTO DIVERSITY
To what extent do lending institutions have a moral duty to extend loans to lower-income
individuals? Given that we live in a diverse society, all residents should be treated equally with respect to
mortgage lending practices. That said, if banks and other lending institutions overplay their hand, they may
harm lower-income individuals by causing them to take on more debt than they can afford.
ADDITIONAL BACKGROUND—
The Sale of Real Estate
Transfers of ownership interests in real property are frequently accomplished by means of a sale. The
sale of real estate is similar to the sale of goods, because it involves a transfer of ownership, often with
8 INSTRUCTOR’S MANUAL FOR BUSINESS LAW: COMMERCIAL LAW FOR ACCOUNTANTS
specific warranties. In the sale of real estate, however, certain formalities such as the execution of a deed are
observed that are not required in the sale of goods.
Several steps are involved in any sale of real property. The first step is the formation of the land sales
contract. A title search (to verify that the seller has good title to the property and that no other claims to the
property exist) follows, along with, usually, negotiations to obtain financing for the purchase. The final step is
the closing.
Brokers. Buyers and sellers of real property frequently enlist the services of a real estate agent, or
broker. Real estate agents are information brokers. They provide buyers and sellers of real estate with infor-
mation and specialize in matching the wants of buyers with the property being offered for sale by sellers. The
broker is usually retained by the seller and acts as the seller’s agent in the sale of the property. As compensa-
tion for their services, brokers usually receive a commission (which can vary between 1 to 10 percent of the
purchase price) from the seller when the sale is concluded. A broker can also simultaneously act as an agent
of the buyer, in which case a dual agency exists. Generally, a broker may not act as an agent for more than
one party without the consent of all parties involved. (There exist some buyer-only brokers.) Most states re-
quire real estate brokers to be licensed, and, in some states, brokers may be required to meet continuing-
education or other requirements. A seller engages the services of a broker through a written listing
agreement. In an open listing, the seller contracts for the services of more than one broker, and the first
broker to produce a buyer receives the commission. In an exclusive listing, the seller contracts with just one
broker, who receives the exclusive right to find a buyer and receive the commission from the seller. Under an
exclusive listing agreement, the broker is entitled to a commission even if another broker sells the property.
Sales Contract. Generally, when someone decides to purchase real estate, he or she makes a written
offer to purchase the property and puts up earnest money to show that an earnest, or serious, offer is being
made. (If the offeror decides to withdraw the offer, the earnest money, or deposit binder money, will often be
forfeited to the seller.) The offer states in some detail the exact offering price for the property and lists any
other conditions that may be appropriate. The offer may be conditioned on the offeror’s ability to obtain fi-
nancing, for example. Within a specified time period, the seller of the property either accepts or rejects the of-
fer. If the offer is accepted, then a contract of sale is drawn up. The signing of the sales contract is usually
accompanied by a deposit, which may be 10 percent of the purchase price paid to the seller. The buyer can
then add to the existing earnest money to bring it up to the desired amount.
Deposits toward the purchase price normally are held in a special account, called an escrow account,
until all of the conditions of sale have been met and the closing takes place, at which time the money is trans-
ferred to the seller. The escrow agent, which may be a title company, bank, or special escrow company, acts
as a neutral party in the sales transaction and facilitates the sale by allowing the buyer and seller to close the
transaction without having to exchange documents and funds. An escrow agent is an agent of all of the par-
ties involved in the sales transaction. When a conflict between the parties results in conflicting duties on the
part of the agent, normally the agent will have a court resolve the conflict.
Sometimes, an arrangement is made in which a potential buyer is given the right to purchase property in
the future, within a specified period of time and for a specific price. This is called an option contract. To be
enforceable, the contract must be in writing, and consideration must be given to the seller. Essentially,
payment to the seller compensates the seller for taking the property off the market until the end of the time
specified in the option contract. Potential buyers may also obtain a right of first refusal. Frequently, those who
lease property with the intention of possibly buying it in the future will have such a clause added to the lease
contract. This right means that the lessee, or tenant, has first priority if the seller decides to sell the property.
In other words, if the seller receives an offer from a third party, the seller cannot accept the offer until the
tenant indicates that he or she does not intend to purchase the property.
Title Examination. After the sales contract has been negotiated, the buyer or buyer’s attorney (or the
broker, escrow agent, title insurance company, or lending institution from which the purchase price is being
borrowed) will begin the title examination, which entails examining at the county recording office the history of
all past transfers and sales of the property in question. The title examiner will generally obtain an abstract
from a private abstract company. This document lists all the records relating to a particular parcel of land.
After reading the abstract, the examiner will give an opinion as to the validity of the title. Title examinations
are not foolproof, and buyers of real property generally purchase title insurance to protect their interests in the
event that some defect in the title was not discovered during the examination. A title insurance policy insures
against loss resulting from any defects in the title and guarantees that, if any defects do arise, the title
company issuing the policy will defend the owner’s interests and pay all legal expenses involved.
Financing. Unless a buyer pays cash for the property, the buyer must obtain financing for the purchase
with a mortgage loan. A mortgage loan is a loan made by a banking institution or trust company for which the
property is given as security. In some states, the mortgagor (the borrower) holds title to the property; in
others, the mortgagee (the lender) holds title until the loan is completely repaid. In several states, a trustee—a
third party—holds title on behalf of the lender. The trustee then deeds the property back to the borrower when
the loan is repaid. If the payments are not made, the trustee can deed the property to the lender or dispose of
it by auction, depending on state law.
There are numerous ways of financing the purchase of real property, some of which are quite creative.
Frequently, financing is obtained through a conventional long-term mortgage loan in which the payment
schedule extends over a period of twenty-five to thirty years. Traditionally, the interest rate for long-term loans
was fixed—that is, the interest rate did not change over the period of the loan. Today, long-term loans often
have variable rates of interest. In a variable-rate loan, the interest rate is pegged to a specified standard, such
as the prime rate—the rate of interest offered by lending institutions to their most creditworthy customers—
and adjusted at specified intervals, such as six months or a year. In some situations, the seller may be willing
to finance the purchase for a buyer. That is, the buyer will pay, say, 10 percent of the price as a down
payment and make periodic (usually monthly) payments to the seller until the balance of the purchase price is
paid. In other situations, a wraparound mortgage may be used.
Several terms used in mortgage transactions merit special mention and clarification. Obtaining a
mortgage normally involves paying a fee to the lender in the form of points. A point is a charge of 1 percent on
the amount of a loan. Therefore, if the lender’s fee is two points and the amount of the loan is $80,000, the
fee amounts to $1,600. This charge may be assessed against the buyer, the seller, or both.
If the mortgage terms allow for prepayment privileges, then the borrower can prepay the mortgage before
the maturity date without penalty. Prepayment privileges may be especially important if market interest rates
fall below the interest rate of the mortgage loan—in which case the loan could be refinanced to the advantage
of the borrower.
An amortization schedule shows what portions of each monthly payment on a loan-term loan, such as a
mortgage loan, go to the interest and to the principal on the loan, respectively. In the first several years of the
loan, the borrower pays primarily interest on the mortgage, so the amount owing on the principal of the loan
declines very slowly. By the end of the payment schedule, however, the payments are mostly on the principal.
An amortization schedule is usually given to the borrower by the lending institution; if not, the borrower can
request one.
Closing. The final step in the sale of real estate is the closing—also called settlement or closing escrow.
The escrow agent coordinates the closing with the recording of deeds, the obtaining of title insurance, and
other concurrent closing activities. Several costs must be paid, in cash, at the time of closing. These costs
comprise fees for services, including those performed by the lender, escrow agent, and title company, and
they can range from several hundred to several thousand dollars, depending on the amount of the mortgage
loan and other conditions of sale. Lending institutions are required by law to notify—within a specified time pe-
riod—each applicant for a mortgage loan of the specific costs that must be paid at the closing.
Warranty of Habitability. The common law rule of caveat emptor (“let the buyer beware”) held that the
seller of a home made no warranties with respect to its soundness or fitness unless such a warranty was
specifically included in the deed or contract of sale. Although caveat emptor is still the rule of law in a minority
of states, there is currently a strong trend against it and in favor of an implied warranty of habitability. Under
this new approach, the courts hold that the seller of a new house warrants that it will be fit for human
habitation regardless of whether any such warranty is included in the deed or contract of sale. This warranty
is similar to the UCC’s implied warranty of merchantability for sales of personal property. In recent years,
some states, such as Virginia, have passed legislation creating such warranties for newly constructed resi-
dences. Under an implied warranty of habitability, the seller warrants that the house is in reasonable working
order and is of reasonably sound construction. To recover damages for breach of the implied warranty of
habitability, the purchaser is only required to prove that the home he or she purchased was somehow defec-
tive and to prove the damages caused by the defect. Under the warranty of habitability theory, the seller of a
new home may be in effect a guarantor of the home’s fitness.
Seller’s Duty to Disclose. Traditionally, under the rule of caveat emptor, a seller had no duty to disclose
to the buyer defects in the property, even if the seller knew about the defects and the buyer had no rea-
sonable way to discover them. Currently, in many jurisdictions, courts have placed on sellers a duty to dis-
close any known defect such as a rotted roof that materially affects the value of the property and that the
buyer could not reasonably discover. Under these circumstances, nondisclosure is similar to representing that
the defect does not exist, and the buyer may have grounds for a successful lawsuit based on fraud or
misrepresentation.
A. FIXED-RATE MORTGAGES
and fixed. After a certain time, and at certain intervals, the rate adjusts. The adjustment consists of a
specified number of points added to an index rate. Most ARMs limit the amount that the rate can
increase over the duration of the loan.
C. CREDITOR PROTECTION
Creditors can protect their interests through—
• Mortgage insurance—if the debtor defaults, the insurer reimburses the creditor for a portion of the
loan.
