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Chapter 29
Creditors’ Rights and Remedies
INTRODUCTION
Historically, debtors and their families were punished for any inability to pay debts, including involuntary
servitude and imprisonment. Today, of course, the legal system helps and protects debtors and their families. This
CHAPTER OUTLINE
I. Laws Assisting Creditors
A. LIENS
A lien creditor has priority over an unperfected secured party. Mechanic’s and artisan’s liens also have
priority over a perfected secured party unless a statute provides otherwise.
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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
CASE SYNOPSIS—
Case 29.1: Picerne Construction Corp. v. Villas
Picerne Construction Corp. contracted to build an apartment complex for Castellino Villas. During the
project, the city issued certificates of occupancy for different buildings in the complex on various dates, with
the last certificate issued on July 25. After that date, Picerne employees and subcontractors did substantial
work. Castellino did not rent any of the apartments until October. With the contract price unpaid past its date,
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Notes and Questions
Thus, when there is an error in the paperwork filed in the appropriate state office or with the court, if the
erroneous date. Of course, if the misstatement is intentionally false or fraudulent, the lien is void.
Generally, a mechanic’s lien statute is remedial in nature and is liberally construed. What does this
mean? The remedial purpose of a mechanic’s lien law is to furnish security for a contractor’s labor and
2. Artisan’s Liens
An artisan’s lien usually takes priority over other creditors’ claims to the same property.
a. Lienholder Must Retain Possession
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b. Foreclosure on Personal Property Possible
Notice must be given to the owner of the property before a foreclosure and sale.
ADDITIONAL BACKGROUND—
Artisan’s Liens
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
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
(2) A person claiming a lien under ORS 87.152 for cost of care, materials and services bestowed on an
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)
(3) A person claiming a lien under ORS 87.152 for the cost of removing, towing or storage of a vehicle that is
87.182. Effect of prior security interest on method of foreclosure.
chapter 88.
(1) When a lien created by ORS 87.162 is subordinate to a prior duly perfected security interest in a chattel as
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(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
b. Writ of Execution
ADDITIONAL BACKGROUND—
Writs 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.
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21.020. Writ of execution: Issuance; contents.
stating the court, the county where the judgment roll is filed, the names of the parties, the judgment, and if it is
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,
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
2. If it is against real or personal property in the hands of the personal representatives, heirs, devisees,
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
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
personal property of the party against whom it was rendered, and the value of the property for which the
(CPA 1911, § 339; RL 1912, § 5281; CL 1929, § 8837; 1965, p. 649; 1967, p. 949; 1985, p. 224.)
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
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
shares and interests in any corporation or company, and debts and credits and other property not capable of
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(CPA 1911, § 345; 1939, p. 60; CL 1929 (1941 Supp.), § 8843; 1965, p. 913.)
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,
21.110. Execution of writ by sheriff.
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
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
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.)
B. GARNISHMENT
Garnishment is a collection remedy directed at a debtor’s property or rights held by a third person
(typically, an employer or a bank).
1. Procedures
2. Laws Limiting the Amount of Wages Subject to Garnishment
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UNITED STATES CODE ANNOTATED
TITLE 15. COMMERCE AND TRADE
CHAPTER 41—CONSUMER CREDIT PROTECTION
SUBCHAPTER II—RESTRICTIONS ON GARNISHMENT
§ 1673. Restriction on garnishment
(a) Maximum allowable garnishment
Except as provided in subsection (b) of this section and in section 1675 of this title, the maximum part of the
aggregate disposable earnings of an individual for any workweek which is subjected to garnishment may not
exceed
(1) 25 per centum of his disposable earnings for that week, or
(2) the amount by which his disposable earnings for that week exceed thirty times the Federal minimum
(b) Exceptions
(1) The restrictions of subsection (a) of this section do not apply in the case of
which is subject to judicial review.
(B) any order of any court of the United States having jurisdiction over cases under chapter 13 of Title 11.
(C) any debt due for any State or Federal tax.
(A) any order for the support of any person issued by a court of competent jurisdiction or in accordance with
(2) The maximum part of the aggregate disposable earnings of an individual for any workweek which is
subject to garnishment to enforce any order for the support of any person shall not exceed—
(A) where such individual is supporting his spouse or dependent child (other than a spouse or child with
respect to whose support such order is used), 50 per centum of such individual’s disposable earnings for that
week; and
except that, with respect to the disposable earnings of any individual for any workweek, the 50 per centum
specified in clause (A) shall be deemed to be 55 per centum and the 60 per centum specified in clause (B)
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shall be deemed to be 65 per centum, if and to the extent that such earnings are subject to garnishment to
enforce a support order with respect to a period which is prior to the twelve-week period which ends with the
beginning of such workweek.
(c) Execution or enforcement of garnishment order or process prohibited
(Pub.L. 90-321, Title III, § 303, May 29, 1968, 82 Stat. 163; Pub.L. 95-30, Title V, § 501(e)(1)-(3), May 23,
1977, 91 Stat. 161, 162; Pub.L. 95-598, Title III, § 312(a), Nov. 6, 1978, 92 Stat. 2676.)
HISTORICAL NOTES
HISTORICAL AND STATUTORY NOTES
References in Text. Chapter 13 of Title 11, referred to in subsec. (b)(1)(B), is § 1301 et seq. of Title 11,
Bankruptcy.
1978 Amendment. Subsec. (b)(1)(B). Pub.L. 95–598 substituted “court of the United States having juris-
diction over cases under chapter 13 of Title 11” for “court of bankruptcy under chapter XIII of the Bankruptcy
Act”.
Subsec. (c). Pub.L. 95-30, § 501(e)(3), inserted “, and no State (or officer or agency thereof),” following “or
Effective Date of 1978 Amendment. Amendment by Pub.L. 95-598 effective Oct. 1, 1979, see § 402(a) of
Pub.L. 95-598, set out as an Effective Date note preceding § 101 of Title 11, Bankruptcy.
Effective Date of 1977 Amendment. Section 501(e)(5) of Pub.L. 95-30 provided that: “The amendments
made by this subsection [amending this section and section 1675 of this title] shall take effect on the first day
of the first calendar month which begins after the date of enactment of this Act [May 23, 1977].”
Effective Date. Section effective July 1, 1970, see § 504(c) of Pub.L. 90-321, set out as an Effective Date
note under § 1671 of this title.
C. CREDITORS’ COMPOSITION AGREEMENTS
A composition agreement discharges only those debts of creditors who agree.
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II. Mortgages
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.
ENHANCING YOUR LECTURE—
REVERSE REDLINING IN THE MORTGAGE MARKET
Countrywide Financial, a subsidiary that Bank of America had acquired in 2008 when Countrywide was
In December 2011, Bank of America reached a settlement with the U.S. Department of Justice in which it
FIRST, THERE WAS REDLINING
Nonetheless, in the mid-1990s African American and Hispanic applicants for mortgages were still being
rejected at a rate 1.6 times higher than white applicants with similar credit histories. Under the Clinton
For decades, the mortgage lending industry was accused of redlining—that is, drawing a red line on a
map around poorer neighborhoods and refusing to offer mortgages to borrowers, often members of minority
groups, who wished to purchase homes in those areas. In 1977, Congress passed the Community
Reinvestment Act to require lenders to make mortgages more readily obtainable in redlined areas.
THEN, REVERSE REDLINING BECAME POPULAR
Reverse redlining is the opposite of redlining—instead of denying mortgages to members of minority
groups, lenders targeted them. During the housing boom, lenders aggressively marketed their subprime
mortgages in poorer areas. Wells Fargo, for instance, enlisted pastors in churches in African American
communities to offer wealth-building seminars. The bank would make a donation to the church for every new
mortgage application it received.
Why were lenders suddenly so interested in these borrowers? The answer is that subprime mortgages
CRITICAL THINKING
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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
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
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
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
Deposits toward the purchase price normally are held in a special account, called an escrow account,
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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
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
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
Several terms used in mortgage transactions merit special mention and clarification. Obtaining a
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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.
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
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
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-
A. FIXED-RATE MORTGAGES VERSUS ADJUSTABLE-RATE MORTGAGES