Written by D. Patrick O’Laughlin, Esq.
Our property manager / owner clients have a distinct advantage over other judgment creditors, because they typically know the bank and account number where their former tenant banks. Generally, this information is on the tenant’s application. If, however, the tenant has changed bank accounts, prudent property managers will take copies of rent checks to compare with the application to determine if their tenant has changed accounts. It is not uncommon for someone struggling financially to change bank accounts.
In order to levy a bank account, the judgment creditor must first request a writ of execution from the court. For landlord-tenant cases, this is the court where the eviction took place. Once the writ of execution has been issued by the court, the creditor must utilize the sheriff (or registered process server) to personally serve a copy of the writ and a notice of levy on the bank. In order to be effective, the levy must be served upon the branch where the account is held or at a centralized location within California that has been designated by the financial institution.
At the time of levy, or shortly thereafter, the sheriff must also serve the judgment debtor with a copy of the writ, notice of levy, and list of exemptions that may be available to the judgment debtor in California.
The bank is obligated to honor the levy provided that it can effectively identify the account holder. This seems like a simple notion. However, imagine that the levy was served at a major institution on the account of “John Smith.” The bank could conceivably have reasonable difficulty identifying the proper account to levy and, therefore, the levy would be ineffective. In light of this potential obstacle, a judgment creditor should include personal identification information on the levy instructions so that the bank cannot avoid the levy. Of course, it is appropriate to provide the bank account number on the levy instructions if available to the creditor. Creditors may also include the social security number of the defendant on the levy instructions and request that the bank levy all accounts held in the name of the judgment debtor including but not limited to those identified on the levy instructions. This “broad sweep” maximizes debt collection potential.
Once the levy is served, the bank must seize all monies in the defendant’s bank accounts. The levy reaches all monies in the accounts at the instant of levy. After the levy, the bank may not honor checks or other orders for payment drawn against the defendant’s accounts because, in essence, the accounts are frozen.
In the event that the bank account is held jointly with another party, the sheriff will instruct the bank to hold the levied monies for 15 days to allow the third party to make a claim on the levied funds. If a third party claims an interest in the levied funds, a court hearing will be necessary to determine whether the third party has a superior interest to that of the judgment creditor. In these instances, an “undertaking” may be required. An undertaking can be an expensive proposition for a judgment creditor since the court can require the posting of bond.
After the levy, the judgment debtor may assert that the levied funds are exempt from execution. If this occurs, a court hearing will be set to determine whether or not the levied funds are, in fact, exempt. It is incumbent upon the judgment debtor to trace the levied funds to an exempt source. Common examples of exempt funds are social security benefits, unemployment compensation, and disability payments. If the judge determines that the levied monies are exempt, the court will order the return of the levied monies to the judgment debtor.
California statutes also allow for the levy of safe deposit boxes. After service of the writ of execution by the sheriff, the financial institution may not permit the defendant to remove the contents of the safe deposit box. A bank officer or manager places a “boot” upon the lock so that the defendant cannot gain access.
Typically, additional fees must be submitted by the judgment creditor to drill the box and the judgment creditor must retain the services of a locksmith. The bank manager, sheriff, locksmith, and the creditor then meet at the bank at an agreed upon time and the locksmith will open the box. The defendant is entitled to be present at the time of drilling. After drilling, the box is presented to the judgment creditor for inspection. Typically, the bank manager will arrange for the availability of an office in which the creditor can carefully inspect the contents of the safe deposit box. If the creditor wishes, the contents may be delivered to the sheriff for sale. The proceeds of the sale are applied to the judgment. In order to sell the contents, the judgment creditor must obtain a “turnover order” from the court prior to drilling.
Over the years, our firm has discovered some very interesting items in the safe deposit boxes of defendants. Quite often, documentation is held in the box that can lead to the discovery of other assets. For example, on behalf of our clients, we have discovered deeds, stock certificates, wills, and automobile registrations.
Recently, our firm was retained to collect a relatively large judgment following a commercial eviction. For nearly a year, the defendant remained uncooperative and evasive. The defendant had taken great pains to hide assets. When we located and seized a safe deposit box, the defendant surprisingly (and quickly) came to the bargaining table. Prior to the scheduled drilling, the defendant offered to settle the case for $75,000. Our client accepted. While there was no longer a need to pursue the drilling, our client remained somewhat curious as to the contents of the box but was delighted with the outcome of the case.
Property managers have an inside track on other creditors since, by the nature of the landlord-tenant relationship, they often know where their former tenants banks, allowing for a successful collection process. Does your collection partner conduct bank levies? If not, they are leaving money on the table.