Prejudgment Remedies and Real and Personal Property
One of the benefits for attaching personal property is the attorney will have the right to examine solvency. RCW 6.25.170 provides that the “defendant may be required by such court or judge to attend before the court or judge or referee appointed by the court or judge and give information on oath respecting the property.” If the Court granted the motion for attachment, the attorney has the right to entry of an order directing the defendant to appear for an examination as to his or her assets. According to one unpublished decision, unlike a post-judgment writ, a Sheriff is not authorized by statute to break and enter property in execution of a writ of attachment. Platino vs. Towne Bank, Inc. et al., US W. Dist. No. C94-1915WD (1994).
What about entities owned by the debtor/defendant? A writ of attachment will allow the plaintiff to examine any third party (RCW 6.32.030) as to the extent and nature of the debtor’s assets. During such an examination, the attorney can inquire as to the debtor’s right to receive distributions from his ownership in any LLC or corporation. Once the plaintiff has the order of attachment, it is a simple process to obtain a “charging order” and have the Sheriff seize the debtor’s ownership interests in the LLC.
A charging order is an order issued by a court directing an LLC’s manager to pay to the creditor any distributions of income or profits that would otherwise be distributed to the debtor. However, if there are no distributions, the creditor gets nothing. Generally, the charging order grants a creditor limited rights in an LLC member’s interest in his respective entity. J. Gordon Gose, The Charging Order Under the Uniform Partnership Act, 28 WASH. L. REV. & ST. B.J. 1, 5 (1953). RCW 25.15.255 sets forth the charging order remedy, which does not provide for a wholesale deprivation of a debtor’s membership rights—nor does it vest a creditor with membership in the LLC. Instead, it only entitles the creditor to a lien on the member’s (debtor) economic interest until the judgment is satisfied. Under RCW 25.15.255, a trial court may charge the debtor’s limited liability company interest with payment of the amount of the judgment that remains unsatisfied. Unless the limited liability agreement provides otherwise, the assignee (creditor) is entitled to only share in profits and losses, receive distributions, and receive allocations of income, gain, loss, deduction, or credit to which the debtor was entitled and to the extent of the assignment. RCW 25.15.250(2)(a) provides, “An assignment entitles the assignee to share in such profits and losses, to receive such distributions, and to receive such allocation of income, gain, loss, deduction, or credit or similar item to which the assignor was entitled, to the extent assigned.” An assignee of a membership interest cannot participate in the management of the LLC without the consent of the members. RCW 25.15.260.
What about real property? The Homestead Exemption protection of $125,000 applies to all prejudgment writs of attachment. Washington law preserves for homeowners an amount that is “exempt from attachment” and from execution or forced sale for the debts of the owner up to $125,000. RCW 6.13.070; .030. The Attachment statutes also require the plaintiff to provide notice to the debtor of the debtor’s homestead rights. RCW 6.25.070 provides, “if the defendant is an individual, copies of homestead statutes, RCW 6.13.010, 6.13.030, and 6.13.040, if real property is to be attached … must be provided.”
The homestead consists of real (or personal) property that the owner uses as (or in) their principal residence. RCW 6.13.010(1); RCW 6.13.040. A judgment against the owner of a homestead becomes a lien on the value of the homestead property in excess of the homestead exemption from the time the judgment creditor records the judgment with the recording officer of the county where the property is located. RCW 6.13.090. The judgment creditor shall apply for the appointment of a person to appraise the value thereof. RCW 6.13.100. If, from the appraisal report, the value of the homestead, less liens and encumbrances senior to the judgment being executed upon and not including the judgment being executed upon, exceeds the homestead exemption and the property can be divided without material injury and without violation of any governmental restriction, the court may direct the appraiser to set off to the owner so much of the land, including the residence, as will amount in net value to the homestead exemption, and the execution may be enforced against the remainder of the land. RCW 6.13.150. If the appraised value of the homestead property, less liens and encumbrances senior to the judgment being executed upon and not including the judgment being executed upon, exceeds the amount of the homestead exemption and the property is not divided, the court must make an order directing its sale under the execution. The order shall direct no bid may be received unless it exceeds the amount of the homestead exemption. RCW 6.13.160.
One benefit to obtaining a prejudgment writ is to security priority any subsequent creditor whose interests attached post-writ. For example, in Bank of Am., NA v. Owens, 173 Wn.2d 40, 47 (Wash. 2011), a Bank filed an action to collect on a debt. The court entered an order directing issuance of a prejudgment writ of attachment on the debtor’s interest in the homestead property. However, prior to granting the prejudgment writ, the Court created an equitable lien on the same property in favor of another creditor. The reviewing court held that because the equitable lien was entered and recorded prior to the Bank’s prejudgment writ of attachment, the creditor’s lien had priority. Owens, 173 Wn.2d at 50 (2001) citing Hollenbeck v. City of Seattle, 136 Wash. 508, 514 (1925). RCW 6.13.090 (requiring that a judgment be recorded in order to create a lien on the value of a homestead property).
Under RCW 6.25.070(2), if the writ of attachment is to be levied on real property and the court finds probable cause to believe the plaintiff’s affidavit, the court may issue the writ of attachment without prior notice to the debtor. However, it would be unwise to attach real property without notice. In Tri-State Dev. Ltd vs. Johnston, 160 F.3d 528 (9th Cir. 1998), the Court held that RCW 6.25.070(2) was unconstitutional, absent a showing of “exigent circumstances” as described in Fuentes vs. Shevin, 407 U.S. 67 (1972). At least one Washington Court held the creditor’s attorney liable under 42 USC 1983 for obtaining an attachment on real property without notice to the debtor. Van Blaricom v. Kronenberg, 112 Wn. App. 501 (2002). As a matter of practice, the attorney should avoid such seizures.
In sum, there are certain issues that the practitioner should carefully consider before moving forward.