Other Creditors’ Remedies and Suretyship Chapter 31 Other Creditors’ Remedies and Suretyship Chapter 31: Other Creditors’ Remedies and Suretyship Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

Claim to property (or proceeds of sale of property) Lien (Definition): Claim to property (or proceeds of sale of property) A “lien” is a claim to property (or proceeds from the sale of property.)

Types of Liens Consensual Lien: Secured interest in property created by agreement of parties Statutory Lien: Claim to property created through statute Mechanic’s Lien: Claim on real property Artisan’s Lien: Claim on personal property Types of liens include a “consensual” lien, where a secured interest in property is created through the agreement of the parties; a “statutory” lien, where a claim to property is created through statute; a “mechanic’s lien, or a claim on real property; and an “artisan’s” lien, or a claim on personal property.

Types of Liens (Continued) Judicial Lien: Legal action whereby creditor seize debtor’s property to satisfy debt Attachment: Court-ordered judgment permitting local court officer to seize debtor’s property Writ of Execution: Document authorizing law officer to seize debtor’s non-exempt property Garnishment: Order that satisfies debt by seizing debtor’s property that is being held by third party (such as bank or employer) A “judicial” lien is a legal action whereby a creditor seizes a debtor’s property to satisfy the debt owed. An “attachment” is a court-ordered judgment permitting a local court officer to seize the debtor’s property. A “writ of execution” is a document authorizing a law enforcement officer to seize a debtor’s non-exempt property. “Garnishment” is an order that satisfies the debt owed by seizing the debtor’s property held by a third party (such as the debtor’s bank or employer.)

Exhibit 31-2: Other Types of Liens Attorney’s Lien: Right of attorney to keep client’s money/possessions until client pays debt Broker’s Lien: Claim to property by real estate broker for commission Common Law Lien: Claim to property by implication of law (rather than statute) Consummate Lien: Lien of judgment that arises when motion for new trial denied Equitable Lien: Claim on property either created by sales contract, or imposed by court to ensure fairness Innkeeper’s Lien: Claim on baggage of guests who stay at inn and are unable to pay bill Other types of liens include an “attorney’s” lien, representing the right of an attorney to keep client money or possessions until the client pays the debt; a “broker’s” lien, a claim to property by a real estate broker for earned commission; a “common law” lien, representing a claim to property by implication of law (rather than through statute;) a “consummate” lien, a lien of judgment that arises when a motion for new trial is denied; an “equitable” lien, a claim on property either created by a sales contract, or imposed by a court to ensure fairness; and an “innkeeper’s” lien, a claim on the baggage of guests who stay at an inn and do not pay the bill.

Exhibit 31-2: Other Types of Liens (Continued) Landlord’s Lien: Claim on furniture and property in apartment by landlord Maritime Lien: Claim on vessel for service made to vessel Medicare Lien: Hospital’s claim to medical benefits paid under Medicare Act Possessory Lien: Claim to property representing lienholder’s right to be in possession of property until debt paid Tax Lien: Claim against taxpayer’s property for unpaid taxes Vendor’s Lien: Vendor’s claim to land for unpaid purchase price of land A “landlord’s” lien is a landlord’s claim on furniture and other property in the tenant’s apartment. A “maritime” lien is a claim on a vessel for service made to the vessel. A “Medicare” lien is a hospital’s claim to medical benefits paid under the Medicare Act. A “possessory” lien is a claim to property representing the lienholder’s right to be in possession of the property until the debt is paid. A “tax” lien is a claim against the taxpayer’s property for unpaid taxes. Finally, a “vendor’s” lien represents a vendor’s claim to land for the unpaid purchase price of the land.

Mortgage Foreclosure (Definition): Foreclosure and sale of mortgaged property to pay debt Mortgage foreclosure is the foreclosure and sale of mortgaged property to pay debt.

Assignment for Benefit of Creditors (Definition): Transfer of title of property to trustee, who sells property to pay creditors on pro-rata basis with proceeds of sale An “assignment for the benefit of creditors” represents transfer of title of property to a trustee, who sells the property to pay creditors on a pro-rata basis from proceeds of the sale.

Suretyship and Guaranty Contracts Suretyship: Contract between creditor and third party who agrees to pay another person’s debt, and is primarily liable for debt Guaranty: Third party (usually called “guarantor”) who must pay debt only after debtor has defaulted, and is secondarily liable for debt “Suretyship” is a contract between a creditor and a third party, who agrees to pay another person’s debt. A surety is primarily liable for the debt. In a “guaranty,” a third party (usually called the “guarantor”) must pay debt only after the original debtor has defaulted. A guarantor is secondarily liable for the debt.

Defenses of Surety and Guarantor Statute of Frauds Discharge from debt Bankruptcy Debtor’s fraud Defenses of the surety and guarantor include violation of the statute of frauds writing requirement, discharge from the debt, bankruptcy, and debtor’s fraud.

Rights of Surety and Guarantor Right to Subrogation: Surety/guarantor entitled to all rights creditor had against debtor Right to Reimbursement: Surety/guarantor can recover actual amount of debt paid to creditor, plus legal expenses against debtor Right of Contribution: Other sureties/guarantors must pay their equal shares Rights of the surety and the guarantor include the right to subrogation, the right to reimbursement, and the right of contribution. With the right to subrogation, the surety or guarantor is entitled to all of the rights a creditor had against the debtor. With the right to reimbursement, the surety or guarantor can recover the actual amount of debt paid to the creditor, plus legal expenses, from the debtor. With the right of contribution, other sureties or guarantors must pay their equal shares.