Borrower Defaults – Building a Winning Litigation Strategy for 2027

Steven E. Ernest:

Good morning or afternoon as the case may be, depending on where you are joining us from. I guess you could be anywhere in the world, frankly. And we are delighted here at the Fortra Law Firm that you have chosen to spend a part of your day with us, learning some things about borrower defaults and how to build a winning litigation strategy in 2027. But I'm hopeful that the things we share with you over the next hour will be useful for you to implement today or tomorrow and anytime in the rest of 2026. , and I am one of the partners and the director of litigation at the Fortra Law Firm. , today we're gonna talk about borrower defaults. There it says it right there in uppercase bold letters. And if you want to find me at some point after this seminar, you can. That's my email address.

I think I was just sharing a screenshot of my Outlook box, so, you'll know what that looks like. And that's where your email will come. If you wanna watch this and other videos like this, you can find them on my YouTube channel, which is right there, Western Lawman. So isn't that fun? Here we go. The agenda. What we do in these is we tell you what we're going to tell you, and then we tell you, and then we tell you what we did tell you. So, what we're going to start with is pre-foreclosure and pre-litigation options for lenders when a borrower defaults. So what do you do, if you don't want to take your collateral back? We'll talk about that. Then we will talk about what foreclosure restrictions and hurdles are currently in place here in California. It's not as easy as just, hanging an NOD and an NOS sometimes.

So we'll talk about that. Extraordinary relief options. Those are kind of your disco strategies. What are we going to do if we want to sort of bring down the hammer of Thor onto our borrower and make them really pay attention to us instead of ignoring us and not paying us? Those will be your extraordinary relief options. They're not going to be things that you're going to utilize in every case, which is why they're called extraordinary, but a lot of times they're extraordinarily good options. And then the Q&A, you can ask me anything you want. So pre-litigation options. So one option is forbearance. What is forbearance? It's, you don't do anything. They're not paying you and you waive your rights and you waive some payments and you might permit a maturity lapse. This is sort of, you're very sympathetic to the plight of your borrower and you believe what they tell you when they say, "I've got some money coming in in six months and I'm going to be able to pay you then," or it's a construction loan and the project got delayed because it was raining outside and it's gonna be finished, so they're gonna have the money after they finish it and open up their Amazon warehouse or whatever they're opening.

So there you go. You can forbear. You can just wait. They're always... This is a favorite of the borrower. If you're going to wait and you're not going to do anything, they like that one an awful lot. A loan modification, this is a little bit more formal than a forbearance. You're going to say, "Well, you're behind and you can't pay me now, but, we will take the defaulted payments and add them to the end of the loan. We'll, change your interest rate. We'll move your maturity day or whatever, whatever way you're going to modify the loan. We want you to make some interest payments, but not principal. A lot of different things you can do there. What I would like to highlight for you in relation to modifications is as follows. Anytime you're modifying your loan, I'm going to say it again because it's really important.

Anytime you're modifying your loan, you must notify your guarantor in writing. Always, always, always do that. If you don't, if you modify your loan and you don't tell your guarantor, it doesn't matter what the point of the modification is, it probably doesn't matter if your guarantor is the only member of the single purpose entity that is your borrower. If you don't notify them, you have probably obviated your guarantee. Obviated is a fancy lawyer word for cancel it. , you can just light it on fire and throw it in your backyard. , always notify your guarantor. You don't have to get your guarantor's agreement. I don't care if they like the terms of the modification. I don't care if they hate them. It makes no difference, but modify them. It's worth the price of licking a stamp and sealing an envelope and sending it out to them.

And do it in writing because if you tell them over the phone in eight months when you're trying to collect from your guarantee, they may well not remember it the same way you do, and you certainly don't want to find yourself in that circumstance. Oh my goodness, a deed in lieu. , these, if you've attended seminars that I've done before, you know the deed in lieu is the thing I hate the most in jurisprudence. , these can, I'll be positive for a moment, solve the problems that you're having with your borrower. , that is your borrower is going to say, "I'm going to save you some money. You don't need to foreclose. I'm going to save you some time. You don't need to wait 120 days. I'll just sign a quick claim deed. You can have the property and you'll agree that you're not going to, collect the deficiency from me." Seems like a pretty streamlined approach.

, it is, it has a lot of latent problems. It solves the problem between you and your borrower. It does not solve the problem between you and anyone else. So, if there are junior creditors, they are probably now senior to your quitclaim. , if there are tax problems, if there are wild deeds, if there are myriad problems can arise that are not solved by the deed in lieu, and what you're probably going to do in the future if you got a deed in lieu and discover those problems, is foreclose anyway. And you'll probably find yourself on the wrong side of a lawsuit, if you do those. But you can, you save a little bit of time, you save a little bit of money. If you're really sure it's gonna work out the easy way, then you, you, like I say, you saved a little bit of time, you saved a little bit of money.

I think these are a terrible idea in every circumstance: . I would always counsel clients, just foreclose anyway. It doesn't take that long, doesn't cost that much. There's some unsolicited advice for you, but if you do take a deed in lieu, once again, we talked about the guarantor, it's a modification of your loan, so make certain you notice, notify the guarantor, and probably wanna get their consent because down the road, if there's deficiency, you're going to want to collect that money from your guarantor and you want them to know what it is you are doing now. Bottom left corner, pre-litigation negotiation, that's either you or I call your borrower and say, "Well, you're in default, we're getting ready to sue you. We're getting ready to, foreclose on this small business that you were thinking you're gonna build a bakery at, and you're not gonna be able to do that if you don't pay me, and if you don't pay me by Friday, I'm going to sue you." And, y - sometimes those things are effective.

Sometimes sending those demand letters that, people seem to like so much, sometimes they're effective. You're gonna want to know, before you start, does your contract have an attorney's fees provision? That's the most important thing to know before you sue. Probably it does. If you used any docents that were generated by this law firm or our, sort of companion organization, Lightning Docs, they always have an attorney's fees clause. You need one in your promissory note and you need one in your guarantee, and almost always you will have that, but be sure you do because it will change the evaluation that you ought to make before you sue , so there you go. Litigation planning. So the two things that are most important for you ha - for you to have, a signed contract, that's your promissory note or your guarantee, it's your contract with your borrower, and an account history, that is the payments that were made, the amount that you started with, the interest and fees and costs that applied, and then somewhere in the bottom right corner of the bo - of the last page, there's going to be the nber which is your payoff with two black lines under it.

It's really important to run that statement as near to the point that you're going to file your lawsuit as possible. Well, why? Who cares? We can do it later. Probably the computer system that you use is going to accrue interest, every day or every month or something. And so by the time you need that docent, that account history, what you need is going to be at the end of your case. And probably the amount that you sued for many months prior is going to be different than what your computer shows then. And so if you've printed it and sent it to me and I've saved it, we can use that docent. Everything's gonna match up perfectly. , all the answers are going to be really easy to provide to the judge who is going to sign above, his or her name on the judgment, and you're going to win, and it makes it really easy.

If you've sued for $758,000.18 and your software a year later shows a different amount and we have to sort of reverse engineer our way to the amount that we've sued for, it looks a little Mickey Mouse. Sometimes it's hard to explain. I'm not telling you that you're gonna lose, you're probably still gonna win, but you're making it harder on yourself, and it's really a lot easier, to just have that answer before you start. Then I know that I'm suing for the amount that you want me to, collect, and you know that we have the evidence that we need to win your case, but Steve, the contract says I'm gonna collect 18% interest, and so the amount on the day of judgment is going to be a little bit different, and so I can't tell you now. Well, after you file your lawsuit, the statutes of California say you're collecting interest at 10%.

So if your contract says 4%, congratulations, you're getting 10 post-filing. If your contract says 18, you're getting 18 up to the day you filed, 10% thereafter. You're still gonna win. You're gonna get plenty of money, you're gonna be perfectly, wealthy in the future, so don't get too rambunctious about, the change in the interest rate because, well, if you do, you need to contact the governor and your state legislatures. They're the ones who can change it for you. Enough pre-litigation options. Let's get into, oh, more pre-litigation options. Here we go. The procedure for litigation. So readying the docents and making demands. Some of your contracts require that we send a letter of demand. Not very many of them do anymore. Especially in California, there's not really too much you can put in those dunning letters, we call them. Anyway, but if we're required to make a demand, we certainly will, and we'll find that out before.

The filing the litigation. So filing costs, California has 58 different counties. Every one of those counties sets their own fee schedule for filings. Most counties cost about $430 to file a lawsuit just to drop the papers off and have the clerk stamp them and hand them back to you, those are your costs. You're then going to have to hire a processor to go touch your customer, your borrower with papers, so we're gonna have to find them. If that becomes a problem, we'll talk about some exotic ways of service that are a little bit more expensive down the road. But costs for service, you can figure about 150 bucks per defendant, usually what it costs. oh, look at this. I said we were gonna do it later and it's already here. Serving the customers. So cost to chase them around, that's about $150.

If you chase them around for three addresses and you've done skip tracing and you went to their mom's house and you can't find them anyplace, well, the California courts allow you to, after you petition the court, say, "Look, I went to all these addresses. I talked to all of their friends and their mom and I can't find them anywhere, and so I'd like to serve by publication." Some of you, as I do, may once a week or so, get this newspaper thrown onto your driveway that you don't really know who sends it to you and you don't know why you're getting it. You certainly don't pay for it, but if you've ever opened it or not just taken it to the recycle bin at the top of the driveway, which is what I do, but in the last few pages of those throwaway newspapers are legal notices in those publications.

And what those legal notices are, are people like me who are trying to serve people who we can't find. And when you run it, I think you have to run it four times in 30 days, something like that. It's set by the court. , but after 30 days, you run it in the newspaper, the court deems your customer served. So you don't have to actually go out and serve them. They're deemed served because of the publication. The court or the legislature has said, "Well, if you can't find a person, we'll expect that they are reading these last few pages of these throwaway newspapers and, they'll find out about their lawsuit that way." I have served hundreds, if not a thousand people through publication. Only one time in my career has anyone served by publication ever responded to the lawsuit, and I think they were just playing games, waiting for me to spend more money and take more time.

I don't think they actually got notice through publication, but that is a way they can be solved, or served, rather. Default cases, so you serve your borrower, they get what's called a smons along with the complaint. The smons in both English and Spanish describes to them what they have to do and when they have to do it. It's within 30 days. And if they don't do that, we, the plaintiff's attorney representing you can notify the court that the action should proceed by default because the borrower didn't, respond to the case. They haven't shown up in court. And when they do that, as soon as the clerk stamps the default and sends it back to us, we can... Okay, this 585 judgment, everybody knows what that is, right? California Rule of Court 585, allows parties, plaintiffs, to pursue judgment through default. So we submit a declaration and a little bit of information to the court and ask the court to sign the judgment for you, and they almost always do, and you'll win your case, in shorter.

It takes from the day you file it to the day you get your judgment, usually about 90, 100 days before you get that back, in a default case, a contested case when your borrower files an answer or files some other sort of, pre-answer motion and they want to fight. They've got something they wanna fight about. If they really wanna burn the forest down, it takes a lot longer. , sometimes they just wanna assert a particular defense. Sometimes they just want to do what it said that they're supposed to do in English and Spanish on the summons, and that's what they show up for. When they do, you're still gonna win, fear not. , we will engage in a little bit of discovery. We'll send them out some written questions and, ask them to answer, "Did you sign the contract? Do you owe me this money?

Is there any payments you made that we haven't applied in the account history that we're gonna attach?" A lot of things like that. , dispositive motion, that's your motion for summary judgment ordinarily. And so we'll take the answers that they gave us and a declaration from you and, tell the court, "Look, it's so obvious we're gonna win. We don't need to have a trial." There's no what we call a triable issue of material fact in this case, and it should be over. We shouldn't have to wait any longer for our judicial remedies, and, we shouldn't have to take up any more of the court's time. And, we have a great deal of success with those, so as long as the contract is signed and we have an account history that, we can rely on, you can generally expect that you're going to win without having to go to trial.

, in the event that you don't, they have a real defense that they're trying to make. , here's an example, just to, belabor this point even more. If you're suing someone for a breach of guarantee, the deficiency between what you recovered at your foreclosure sale and what was owed on the contract, and there was modification made to the contract at some point during the life of the one, change the interest rate, change the maturity date, something like that, and you did not notify the guarantor, here comes the guarantor to court and say, "Look, Judge, the loan was modified. They didn't tell me." And we say, "Well, who cares if the interest rate was changed? They didn't pay that either." And the judge will say, "Well, it doesn't really matter. The modification that you make, you always have to notify the guarantor, and you didn't do it, so you're gonna lose." , if we did notify them, no problem.

We're still gonna win. But pretrial, you're going to file some motions in limine, you're going to get your witnesses in order, you're gonna make sure you have your original docents. We're gonna find out where the courthouse is and what time we're supposed to show up, experts if we need them, but we probably don't. Those are the things that you're going to do during pretrial. And then the trial is, you know, it's my cousin Vinny, you're gonna show up, you're gonna call witnesses, and you're gonna testify, and, it's not nearly as scary and complicated as you think, but it's unusual. Usually, we don't get to trial, but if we do, what you're doing is telling the story. Somebody wanted to borrow a million dollars to, build a house or remodel their, whatever they were gonna do with it. And they were supposed to make installment payments and a balloon, and they didn't do any of those things, Judge.

We got the first payment, we got no payments after that, whatever the story is. And so at the end of it, they owe me $780,000, and this is how I computed it. This is the account history that I've dutifully kept through the life of my loan, and the judge will be nodding his head, or the jury will be nodding their heads, and it'll all go fine, and you'll get a judgment. Yay, you win. So what do you do? , is there a provision in California where you can just take a photocopy of your judgment down to the clerk's office on the first floor and cash it in and just get your money? No, there is not. You're gonna have to collect it on your own. So, naturally, we're gonna talk about eviction and unlawful detainer and not the lead into collection that I was just making.

So, if it's a different kind of a lawsuit, you're not suing your guarantor, you've got holdover tenants, there's a bunch of Carneys living in your, single-family residence. I'm gonna plug the Western Lawman videos. There is a great Western Lawman video about this sub - very subject where, Carneys were living in the Simpsons house, that cartoon that's on Fox. , and if you wanna la - watch that one, you'll learn even more about evictions and holdover tenants. But sometimes you know who's in your house, it's the borrower and his family, sometimes you don't. They were renting it to someone else, and those renters rented to somebody else entirely. They were using it as an Airbnb. Who knows? , you gotta figure out who's in there because you need to know who you're going to sue. You're gonna send some notices, usually a three-day notice to quit, sometimes up to 60 days notice, depending on the county you are in, and depending on the, duration of time that the person was in the house and what their characteristics are.

If they're old, sometimes they get a break. If it's Section eight, they really get a break, things like that. You're gonna send the correct notice and you post that, you actually mail it to their front door and then mail it to them. , when that expires, if they've moved out, great. Go change the lock, get some insurance, do whatever you're gonna do with your REO. If they haven't moved out, you're gonna have to sue them, and that's your unlawful detainer action, which is what lawyers usually call it. Everybody else in the world calls it evictions, and you're going to sue. So in the prior slide, I told you about some discovery and summary judgment motions and pretrial and all that, and it sounds like it takes a really long time. Sometimes it does. , in eviction or unlawful detainer actions, they're called, they're what is called summary proceedings.

So the court sort of summarily adjudicates them. It goes a lot faster. You can generally expect that from the day that you hang your notice to quit until the day that you get a judgment for unlawful detainer, which is the judge saying, "Sheriff, you can go get these people out of the house and deliver the keys and possession of the house to the plaintiff." The time period, that takes usually 90 to 100 days. Some counties take longer. This is not a political show, but the blue counties in California usually take longer than the red counties, and there are reasons for that, so be mindful when you're voting. , the judgment writ lockout part, that's the end. So the judgment is the guy in the black robe signing the piece of paper and giving it back to you. The writ is an order from the court telling someone else to do something.

In this case, the court is telling the sheriff that it's okay to deliver possession of the house to you. , and then the lockout, we employ the sheriff to what's called execute the writ. And so you and a locksmith and the sheriff will all show up to the front door of this house at 7:00 in the morning one day, and they'll knock on the door. And if people come out, he's gonna give them five minutes to grab whatever they can grab and get out of there. And the locksmith that you have with you at your expense that you've arranged, is going to change the locks on the door. The sheriff's going to both explain to the people that he just kicked out of there and hang a notice on the door telling them they can't come back, because if they do, it's criminal trespass and they're not going to be living in the house, they're going to be living in jail and nobody wants that.

Most people don't want that anyway. So that's how an unlawful detainer works. Let's see what we got in the next slide. Judicial foreclosure. So these work in similar ways to a trustee's sale, except that instead of the guy in the hoodie sweatshirt with the clipboard and shorts standing in front of the courthouse crying the sale, that's a non-judicial foreclosure, the trustee sale, the judicial foreclosure, it's the judge in the black robe who's conducting the auction. , if your seat, why would you go through all that trouble? Who wants to go to the courthouse? It's easier to stay outside with the guy in the flip-flops than it is to go inside with the person in the black robe. There are reasons that you do it. So one of the reasons is if you're seeking a deficiency against the borrower, you think that the collateral you've got is worth a million dollars and the loan that you have is defaulted to the amount of $7 million.

If you do a trustee sale, you're walking away from that $6 million deficiency. You do a deficient, or you do a judicial foreclosure, you get a judgment for sale of the house and this, the house will be auctioned, and you get a judgment for a deficiency against your borrower, and you get a judgment for a deficiency against your guarantor all in the same lawsuit. So if you're thinking you're gonna sue your guarantor for, breach of the guarantee after you foreclose, sometimes you're gonna spend the time and you're gonna go to the court anyway, you might as well do a judicial foreclosure. You can. , there's no reason preventing you from doing that. , another reason, if you're combining it with some other action, you've got a wild deed, you've got some titling problems, there are some recordation problems in the chain of title sometime in the past, you can clean those up with your judicial foreclosure, the trustee sale, probably you cannot.

So you would, file a cause of action for quiet title along with your breach of contract, along with your breach of guarantee, and along with your judicial foreclosure causes of action, and it's all included in the same lawsuit. , if you think what you're going to do is appoint a receiver, the collateral is an apartment building or a hotel or a car dealership or something like that where there's money being exchanged somewhat regularly and you want a receiver to receive that money from the customers and give it to you instead of giving it to the borrower. , judicial foreclosure is a pretty good vehicle to accomplish something like that. , item four, it can run at the same time as a trustee sale. So this is a fun one. There is no reason in the world that you can't run a non-judicial foreclosure, your trustee sale.

At the same time, you are filing a case inside the courthouse for judicial foreclosure. You can definitely do those at the same time. At some point, you're going to have to what's called elect your re- remedy, and that's the day before the sale. So if you... There are good reasons to track them both, and if the day before the trustee sale, you decide you wanna proceed with the trustee sale, you can dismiss only the cause of action for judicial foreclosure, and you can proceed with all of the other, cause of action there in your lawsuit that's inside the courthouse. So you can double track those if you want. , item five, they're the same collection remedies as a breach of guarantee below. I don't see anything below, but I guess when I wrote this outline, I meant the next slide. So let's see what the next slide's got in store for us.

A breach of guarantee lawsuit, these are great ones. We file a lot of these, have a great deal of success with them. You out there in the listening audience, if we have done one for you, I hope it turned out satisfactorily. , but what you do is there's a deficiency and it's established at the time of sale. So you did a non-judicial foreclosure, you sold your collateral, which then became your REO. I'll, for ease of accounting right now, I'll say you've got a $10 million payoff obligation and, the property sold at the trustee sale, the winning bid was $1 million. So you have a deficiency of $9 million, right? Well, after the REO became yours, there's a trillionaire in the world as of a few months ago. Let's say that Elon Musk sent you an email or he pulled up in his Tesla and he said, "Well, I'd like to buy this property that just became yours, and I want to give you $1 trillion for it.

And I happen to have $1 trillion and I'll wire it to you tomorrow. Will you sell me this house?" Of course, you would do it. You would become the world's second trillionaire, and you would transfer the property to Elon Musk. What does that do to your $9 million deficiency? You just made $1 trillion, right? It doesn't do anything to your deficiency. So your borrower and your, not your borrower, because you did a trustee sale, your guarantor still owes you the $9 million deficiency. It doesn't matter what you sell your REO for. If you sell it for $1, your deficiency doesn't increase. If you sell it for $1 trillion, your deficiency does not decrease. Your deficiency is established at the moment, the sale is consummated and it never changes. All right, so you're going to sue your guarantor for a breach of guarantee, and you're gonna do that after the trustee sale.

You can do it the day after the trustee sale. You can do it anytime if it's a written guarantee, which it should be, within four years of the default. So you got four years to accomplish that, to file it. You don't have to bring it to judgment in four years, you just have to file it with the court within four years. That's what's called the statute of limitations. , so during that four years, what do you do? , if you wanna wait, you can search for some assets, see if there's going to be any collectability against your guarantor. It's kind of a nice idea we can help you with. , you can secure new collateral. So, those are what we referred to earlier as the extraordinary remedies, but your interest is going to c- continue to acculate at your contract rate until you file the lawsuit.

There we go. Collection options. So you get your judgment finally. , what are you, like I said, you cannot take it downstairs to the cashier and just get your $9 million deficiency. You're gonna have to go out and collect it yourself. And you're much like, you're positioned much like Visa or MasterCard at that point. You're an unsecured creditor because you've sold their collateral already, right? So you record some abstracts that is really inexpensive and really fast and generally pretty effective. So I think I mentioned before, there's 58 different counties in California. , you need to record an abstract in any county where you think your guarantor, now judgment debtor, owns property now, real estate, or will own real estate in the future. So you, there's nothing to stop you from recording them in every one of the 58 counties if you want to. , but if you think you wanna target the big ones and do Los Angeles and what, you know, whatever else, wherever you think you're gonna find them at some point in the next 10 years, it's useful record abstracts there.

Well, he said they were cheap. How much do they cost? , the county recorder changes their fee schedule at their leisure, usually costs about 50 bucks to record an abstract. Not tremendously expensive to record, not tremendously expensive to generate. Somewhere in the neighborhood of under $200, you can get an abstract recorded. What that does, you record it once, you don't have to know the APN or the, the common address of any property that they own, you just record it to the county and the county recorder takes care of figuring out if they own anything in that county. And if they do, it automatically attaches to that property. , if seven years after you get this judgment and record this abstract, they buy property in that county, it will automatically attach to that property that they've bought. So it's, your judgment is good for a period of 10 years, then can be renewed for a period of five years.

Pretty long runway, with an inexpensive remedy. , they have to pay you anytime they are selling real estate in that county to which the abstract, has it fixed or refinancing. They're also going to have to pay you. So you'll get a phone call from escrow, which is a fun one to receive, and decide how much your payoff is at that point. So you've been accruing interest at 10% since the entry of, or since the filing of the case. And whatever your payoff is, that escrow wires some money to you and your borrower guarantor is furious and they probably call me and call me all sorts of names and those are fun days. I enjoy those. , bank levies. If you know where your customer banks, it's a great remedy, not particularly expensive, somewhere between three and $500. You get a writ from the court post-judgment and send it to the sheriff and the sheriff goes out and serves the writ to the bank.

In the old days, you had to know what actual branch of whatever bank your customer had accounts at. So if you sent the writ to the Bank of America branch on Tustin Avenue and the borrower judgment debtor had accounts in the Bank of America in Newport Beach, you wouldn't get any money because you had to take it to the actual branch. Well, centralized banking and the technology age, you don't have to do that anymore. If you send the writ to Chase Bank, it's going to hit every account in California that the judgment debtor has a signing authority on, whether they're the owner of the counter or not. If they're the trustee for somebody else, it's still going to attach to that account. And it's not that hard to hide your, or it's not that easy to hide money anymore. People used to be a little bit more crafty about it.

Now, what we usually do, is a little work product for you. Our strategy, we send these writs to the five largest banks in California. And I think you hit somewhere between 80 and 90% of banking customers in the state by doing that. So it's possible you're not gonna find one, but there's not an awful lot of people who hide all of their money in cash in their shoes anymore because it's inconvenient to do that. It's hard to buy things with cash. A lot of places you go, they don't even take cash. It's hard to make credit card payments with cash. So, most people have to bank. And when they do that, they're subject to your bank levies. And those are fun days also because the sheriff's just gonna freeze their account. They're not gonna be able to make their rent. They're not gonna be able to, whatever they're trying to do, get home from Kansas City.

And that's not your problem, it's their problem. And you get their money out of their account. So those are good ones. Wage garnishments, if you know where they work and they've got a stable job, these are good ones. Similarly, it's a writ that's issued by the court sent to the sheriff. And instead of the sheriff going to the bank and levying an account, the sheriff goes to HR accounting at the place where the person works. And instead of the person getting 100% of their paycheck, they get 80% of their paycheck and the other 20% goes to you every pay period until your judgment is paid off. So those are good ones if they've got a job that they're not gonna quit. , government workers, great one for that. If they're a teacher or they work at DMV, those are jobs that people don't walk away from just because they're losing 20% of their income.

And probably they're going to give you a call and make a deal for how they're gonna pay you off entirely. So those are a good idea too. Judgment debtor exams are probably my favorite thing in... I love being a lawyer. Some of you who've met me. , I hope I've conveyed how much I enjoy the practice of law. The tip of the spear for me in practicing law is probably judgment debtor exams. I absolutely love these. What are they? They're a deposition that happens at the courthouse after a judgment is entered where I show up with a court reporter and your judgment debtor shows up and they, the only purpose of those is they identify assets to, satisfy your judgment. So where do you bank? Where is your brokerage account? What real estate do you own? , does Uncle Fred have you in his will?

Is you think you'd run out of questions after five minutes if you really love doing these things as much as I do? , you can do them for three hours. , you can be, you can really investigate the lies that your customer's been telling you for an awful long time, and find out where everything is. So what kind of car did you drive here in? , where did you park it? , how is it that you're gonna get it out of the parking garage? Oh, you've got money in your pocket. How much do you have in your pocket? And they pull it out. You can take the money that's in their pocket and they don't get to keep any of it, so they don't get to pay the parking attendant and get their car out of the parking lot. And that may be a problem, but it's not your problem.

And you get to keep their money. You can take their watch, you can take their wedding ring. I usually, because I'm a nice person, let women keep their wedding rings and I take them from the guys. , any other jewelry they're wearing, you can take it and you auction it off. It, they're... If you wanna have fun for a day and you're not working and you wanna come with me for a judgment debtor exam, you promise you won't laugh and you promise you'll keep quiet. I'll let you sit next to me. They really are magical. I absolutely love judgment debtor exams. , they're more expensive. Options one, two, and three, under $500. Judgment debtor exam, you gotta pay the court reporter. You gotta pay me. , but you can go. It's quite a lot of entertainment. So there you go. Judgment debtor exams. , don't do deed and lose.

Do do judgment debtor exams. That's what I want you to take away from today. Extraordinary relief. , like I mentioned, it's extraordinary. You're not gonna wanna do these in every case, but sometimes they fit. So receivership is during the pendency of the lawsuit. So while the lawsuit is going, you essentially convince the judge, "Your Honor, it's so obvious that we're going to win. We ought to be able to have part of our judgment remedies now. You shouldn't make us wait because if you make us wait, this borrower is going to get rid of all their assets and by the time I get my judgment, there's not gonna be anything left for me to recover." That's sort of the, story that you have to tell during the pendency of the case. And, if it works, which in some circumstance it will, the court will appoint a receiver.

Sometimes we used to call him a keeper, but that's the person who is going to get in between your borrower and their sources of revenue. , it's a really powerful remedy if it works because instead of all of this rent or whatever money was coming to your borrower and they were wasting or not paying you with, it's coming from the people who owe money to your borrower to you instead directly. And you use that to pay for your lawsuit and pay the receiver and reduce the obligation that is owed to you. , it really makes your borrower mad. They're probably going to find a way to play let's make a deal with you because they're not making a cent anymore. , and so you'll, you'll have their full and complete detention. Pre-judgment attachment of assets. So again, this is during the pendency of the lawsuit, before you get a judgment.

And most of what this is are those post-judgment remedies that I was talking about, but you get them before your judgment is entered. So during the pendency of your lawsuit. Sometimes lawsuits take a long time. And so you tell the judge, "Look, we don't wanna wait this long because the automobile that's going to satisfy our judgment or the bank accounts or the real estate is all gonna go away." I had this happen last month. So I had a borrower who we were going to attach his real estate and he very cleverly, how did he think of this, transfers it all to his wife's trust while this, motion to attach was pending. It didn't work. What that's called is a fraudulent transfer. And it made everything so much worse for him, and I thought his attorney was either going to die of sadness or withdraw from the case because he was really trapped at that point.

, judges don't like people making bad acts just to thwart the authority of the court, and that's what this guy was doing. So when you're attaching real estate, they've got another development or they've got something else that wasn't your collateral and you say, "Judge, it's really obvious I'm gonna win and whatever collateral I have in this lawsuit isn't going to be enough to satisfy my judgment. So I want you to put a lien on all this other real estate." And if you get that one, again, it, it attaches your lien to all of this, these other assets that aren't necessarily, well, weren't at all a part of your collateral when you made the deal. So, those are good ones. And you can freeze bank accounts and, do some things like that too. Doesn't happen a lot. The attachment does happen a lot. Replevin happens really a lot.

That's when the sheriff goes out and pulls the tractors out of the barn or the Porsches out of the warehouse or does those sort of things, and then you can auction them off. , you don't have to wait till the end of the lawsuit, you just have to be pretty sure you're gonna win. Those are good ones. Key takeaways. How on earth are we finished already? Well, I guess it's after 12 o'clock and that's how. Aren't we having fun? Key takeaways. It is your money. , why don't you go out and get it? You know, sometimes people say, "Well, I don't know if they have any money," or, "Well, I got the collateral back. I've got this REO." , sort of that's enough. It's totally a business decision for you to make. If that's what you wanna decide, it's your money. , but if you want to get your money, the ways that we talked about, the procedures that we talked about and the methods of collection are the ways that you would do it.

, so evaluate whether it's right for you or not. , understand your options. I certainly hope that we helped you to understand some of those options today with some of the things we talked about. , not, there's not really a blueprint that you file. It's not a one-size-fits-all solution. Sometimes you want a receiver. Sometimes you're gonna proceed by default. Sometimes you just wanna wait because they've got a bitching job at DMV and you wanna garnish their wages at the end. , we'll talk about all... We'll, we can talk about before your case starts where we think it's going to lead. , but lenders have options at all times during a default. Pick the one that makes the most sense to you, depending on your circumstance. And, if you wanna get in touch with me at any time and talk about what those circumstances are and where they might lead, I'm happy to give you a little bit of free advice on how I think it would work out.

Look, there's me again. Upcoming media events and webinars here at the Fortra Law Firm. There's a Reg D one that Jennifer Young, who is our partner as well, going to do on November 19th. This is a full holiday schedule of webinar. , Q&A. Let's see if we have any questions. It looks like we may have this. Is the 10% interest for post-filing California only or is it nationwide? So every state... Thank you for your question, Lorena. , every state is gonna make their own rules about interest. California's rule is that it's 10%. , I can't profess to know what it is in each of the other 49 states. I'll tell you that it's probably similar. There's probably states that let you accrue interest at their 10% or at your contract rate, and there's probably states that limit, interest to a lower rate. , I, I can't tell you what all of that is, but all right, there's your clarification.

Who is the guarantor in this case? The lender? , well, anonymous attendee asks, "Who is the guarantor in this case?" I don't know which case you're talking about. , but the lender is the person who's giving the money to someone. The borrower is the person who is taking the money from the lender. And the guarantor is usually a third party saying, "If the borrower doesn't pay you, lender, I, guarantor, will pay you." So that's who the lender or who the guarantor is. , we get a lot of them in here. 10% fi - , interest. We've talked about that one. Eric Martin, "Ballpark guess. What percentage of litigation filings result in default cases versus contested?" That is a really good question. , I'm gonna say that during my 30 years of practice, I have filed somewhere between 10 and 15,000 cases, and I will estimate that 85% of them have gone by default.

, it's not science. That's based on something that I was thinking about while I finished reading the question, but that's a really good question. It's insightful. Thank you for that, Eric. Amin Chaudhry, does Fortra help lenders file a foreclosure action? I'm so glad, Amin, that you asked that. Yes, we do. , we at Fortra do judicial foreclosures that I talked about a little bit in this webinar. And we also have what's called an in-house trustee, our banking and finance group does, non-judicial foreclosure. So that's the notice of default, the notice of sale, the guy in the sweatshirt and the short standing in front of the courthouse with a clipboard. But yes, we do all of those things. Anonymous attendee. Can I use your services for a loan for property in Iowa and another in Texas? , I'm assuming you mean my legal services and not that you want me to make a loan for that property, but yes, our transactional department writes, loan docents that are, compliant with all 50 states, and we can certainly help you with that.

Yes, is the answer.

There are a lot of questions. I'm really glad I didn't miss these. , anonymous attendee again, do you know the statute of limitations in other states such as Washington, Georgia, Texas, Colorado, if we complete a DIL, I'm guessing that's a deed in lieu, or a short sale, and later decide to pursue a deficiency claim? , I don't know them offhand for all of those, but they're not tremendously difficult to determine. , usually you're going to be in the two to four-year range for a written contract, but, as the state becomes apparent to you, you definitely want to find out how long the statute of limitations is, and there's usually not a real good reason to wait very long. There may be some negotiation that you wanna do with your guarantor, spend a month, 60 days doing that. If they're not paying you, they're not doing something that you find satisfactory related to your loan, then probably you want to just sue rather than waiting a couple years.

The second part of this question, two-parter from anonymous attendee. Is it the same as the statute of limitations for pursuing a deficiency after foreclosure? , the same as what? All right, so the first part was, what's the statute of limitations if you complete a deed in lieu or a short sale, and is it the same as the statute of limitations for a deficiency? Well, it would be the same because you're talking about the same thing. , if you did a deed in lieu or a short sale, you probably waived your rights against your borrower. That's why they gave you the deed in lieu. , that was probably what it was in lieu of, or a short sale. , if you retain some rights against your borrower and you want to sue them, I would be really surprised if the statute of limitations for suing your borrower were different than for pursuing your guarantor because it's the same written...

Well, it's not the same written contract, but they're both written contracts and the statute of limitations is the same. So, bank on it being the same, but check. Celeste, another question. What if the debtor is via an LLC? All right, so you got a single purpose entity probably as your borrower. We are not the first position, all right? So you got subordinate lien, hopefully second. Does any of this work? Yes. So if you're the second or 258th positioned lien creditor in priority, you can still foreclose. You can still sue for judicial foreclosure, you can still do a trustee sale. Yes. Does any of this work? Yes, it does. We've modified the note. We've notified them. Then, I'm assuming, to be the guarantor, so good. They signed it. They didn't have to. You just have to give them notice, but it's better evidence that you notified them if they have signed the notice.

It is the only option to move to pre-litigation negotiation. No. You could jump right to a lawsuit. , if you've got a loan that's in default and you want your borrower or your guarantor to pay you, the remedies against your borrower are foreclosure, collecting your collateral, or, collecting the balance owed on your note. Those are the two things you can do, and you can do those judicially or you can do them non-judicially. , your remedies against your guarantor, and there's no reason that you have to wait until after you foreclose to see your guarantor. You can do it first if you want to. , your remedies against your guarantor are negotiation, calling them and saying, "Hey, I want $700,000 or I'm gonna foreclose." Maybe you'll get it, maybe you won't. If you do, great. If you don't, then your remedies are judicial.

You do need to sue them. That's the only way you're gonna get your money.

Washington, Georgia, Texas, Colorado, I'm certain all have their own statutes of limitation. I don't know what they are. Siva says thank you to me. You're welcome, Siva. It's good to hear from you. Alexander McDougal asks, "When do you choose non-judicial versus judicial?" So, you can choose before you do either one of them. Post-default, you're gonna decide whether you want to do a trustee sale, whether you wanna do a lawsuit, or you can pursue both of them at the same time. And the time that you must, the last opportunity you have to elect your remedy is the day before the sale, whether it's the judicial sale or whether it's the trustee sale. Before you sell the property, you need to abandon the other remedy. You can't proceed with both through sale. Do I go after the deficiency after I sell the REO? So yes, there is no defi - or no.

So the answer is no. I'm sorry, I read that one too quickly. Do I go after the deficiency after you sell the REO? You don't have to. You don't have to sell the REO. You can keep it and let your kids move in and raise your grandchildren, and it doesn't matter. You can do whatever you want with the REO. Remember the thing about Elon Musk and the trillion dollars? The sale of the REO, the proceeds of the sale have nothing whatever to do with your deficiency. Your deficiency is established at the moment of your sale, and so you can pursue your deficiency anytime after the foreclosure sale. Don't worry about selling the REO. It doesn't matter.

Jim Paulina, when can you extend the judgment 10 years instead of five? , my understanding in California is upon the expiration of 10 years following your judgment, you can renew it for a period of five. , other states may vary. There may be, ability to ex - to extend it 10 years someplace else, but I'm primarily a practitioner here, and that's the rule here. But, you might think, "Well, 10 years is not nearly long enough. Neither is 15, I need 20." A lot changes in 15 or 20 years, so it's a longer period than you probably think. And here's a fun fact about these things. If you get a judgment and you record an abstract, to my mind, the abstract's gonna sit there forever. , if it's been 15 years, it's, it's been 75 years. I think your abstract is still going to be of record.

I don't know whether the title companies are going to be smart enough to paper over that because it's expired or whether they're gonna tell somebody they need to pay it, but probably you're gonna get a phone call even if your, recorded interest is for an expired judgment. That's just what I think. I'm not... I've never tested it out, but that's what I think. All right. Steve... Wow, that's a last name. I need glasses for this one. Excuse me for just a moment. Steve Hiltabiddle, that is a great name. All the best guys, as you know, are named Steve. I asse your guidance in this webinar was just California, and as such, I should find an attorney in the state the loan was made. Well, kind of. , a lot of the understanding I have and experience I have in real estate lending, exceeds the jurisdictional boundaries of California.

And the second part of the qualification of my answer will be in the state where the loan was made. So there are four places that you can file your lawsuit. That is the place where your borrower was when the contract was made, the place where the contract says the action is going to, be adjudicated. If there's a venue and form selection clause in your contract that says any dispute has to be litigated in Kansas, you're filing in Kansas. But if your borrower is in California, you can still sue them there and they may try to remove it. It could work though. , the third option, the place where your collateral is. So the house is in Texas, you can sue in Texas. Doesn't mean you have to, but you can. , and the fourth, the place of, the place the contract was made. So if everybody got together in Honolulu one afternoon, signed the contract, it was made in Hawaii, you can sue in Hawaii in that circumstance: .

Anonymous attendee, either there's a bunch of them or the anonymous attendee is back. When enforcing a guarantee separate from the borrower, post-foreclosure, Lightning Docs seem to give the guarantor the right to avoid litigation and force arbitration. Why does Lightning Docs do that? So I'm not a spokesperson for Lightning Docs, but it's... I know a bit about it because their offices are right here in my office. , arbitration is one of those clicky boxes that you can either elect or not. , historically, the advantages to arbitration were they were faster and cheaper. That's why arbitration was built and used for a long time. I don't think either of those things is true anymore. , when you go to court, I told you about it's $435 to file your lawsuit, that's to pay the judge and the rent on the buildings and all that that you get to use for your trial and all through your case.

, when you file an arbitration, you have to pay the arbitrator. The arbitrator is usually a retired judge or a very experienced practitioner, and they have an extraordinarily high view of what their hourly value is. And so if you think your lawyers are expensive, wait until you get a bill from an arbitrator and you have to pay them in advance. So usually, if you're filing an arbitration in sort of an easy onesy-twosy case, the arbitrator's gonna ask you for a $30,000 deposit just to think about your case. So I don't think it's cheaper anymore, certainly, and I don't necessarily think it's faster. I think it tracks about the same pace as lawsuits. So why use it? I don't know. I always recommend against arbitration for my clients. I think arbitration is terrible for a variety of reasons that I've not just described. There are other good ones, but that's what I think, and that's only half of your question.

I would prefer to sue them all the way through to judgment. Can you talk about this fact? , talk about the fact that you want to sue them. It's better you talk about that, but I would rather sue them than bring an arbitration too, and I think there's good reasons for that, but that's subject for a different webinar. The how's and why. So again, Lightning Docs is not gonna make you do anything. , if you want an arbitration clause, you can include an arbitration clause and Lightning Docs will provide that for you. If you don't want one, I'm gonna be really surprised if Lightning Docs doesn't have facility to remove it. , if it doesn't work for you in Lightning Docs, we have a department right here in this law firm which has capable lawyers, and they will, create 50 state compliant loan docents for you that do or do not include arbitration clauses at, your discretion.

So you can do that any way you want. Anonymous attendee, again, I already did a deed in lieu on a property in Oklahoma last week. Can I do anything else with your help to tighten up the process of taking back the property? So deed in lieu gives you title to the property, vis-a-vis your borrower. Taking back the property is sort of your eviction, how you get possession of it, and that's a different deal. Once you did a deed in lieu, you can definitely still conduct a non-judicial foreclosure, and you can definitely still conduct a judicial foreclosure. Take stock in whether you need to, whether you're having this sort of list of horribles that I was talking about. Yes, the short answer is yes, you still have all of your remedies. All right. Anonymous attendee again is email sent by lender and responded affirmatively by borrower sufficient for modification.

Probably that manifests the ascent, not the best way, but you would really like a docent that was signed by both parties. Hard for your borrower, I think, to say, "I didn't ever see that, or I didn't agree to that," when you have the email that you're talking about. So I, you know, if we had a loan modification and we had a lawsuit that we're suing about, it's not perfect evidence, but I think it's pretty good.

Jim Paulina, when can you extend the recorded judgment 10 years instead of five years? We already talked about that one. This one was in here twice, so, I think that is the last question. I don't see any more. So I thank you all for your attendance. I thank you all for your interest. We thank you for your patronage to this law firm and attending our conferences and calling us with your questions and all of those things. So I appreciate very much you sharing the last 65 minutes of your day with me. And, anything else you want, my contact information is there. Hope you enjoyed the webinar. I hope you enjoy the content that's on the Western Law Man YouTube page, and, God bless, have a great day. Thank you all so much.