In both good economic times and bad, financial institutions are forced to deal with customers who borrow money and fail to pay it back.

Though a common problem, it is surprising how few lenders will utilize the powerful legal tool at their disposal which can bring a speedy resolution: a writ of attachment.

Attachment is a statutory remedy, found at California Code of Civil Procedure 483.010, which enables commercial lenders to create a judicial lien on a debtor’s attachable assets located in California at the outset of litigation, preserving the attached assets to collect against once the litigation is concluded in the lender’s favor.

Although the attachment procedure adds more cost at the outset of litigation, it is an effective and drastic remedy which can lead to dramatic results. Indeed, attachment often encourages quicker settlement such as work out arrangements and/or consent judgments which far outweigh the increased cost.

The first step in the attachment process is to determine whether the lender’s claim is eligible for attachment. The claim must meet four requirements.

Four Requirements to Establish Claim

First, the claim must be one for money and be based upon any type of express or implied contract. Second, the claim must be for a “fixed or readily ascertainable amount not less than $500” exclusive of costs, interest, and attorneys’ fees. Third, the claim must be unsecured or a claim secured only by personal property including fixtures.

Finally, the claim must be commercial in nature, and if the claim is against a natural person, the claim must arise out of that person’s conduct of a trade, business or profession, for example, personal guaranty of business debt.

The second step in the attachment process is to determine whether the debtor has any property that can be attached. Only property of the debtor located in California is subject to attachment. Moreover, the attachment procedure differs depending upon whether the debtor is a business entity or an individual.

For a business debtor, the attachment application need not specifically identify every piece of property the lender intends to attach. Indeed, virtually all property within California held by a corporation, partnership, or unincorporated association is subject to attachment – with some limitation.

However, once the court orders attachment, the lender must identify for the Marshal or Sheriff the specific property to attach. Assuming the lender has received thorough and updated financial information from the debtor, this requirement is easily met.

If, however, the financial information is scarce or outdated, the lender can still discover the identity, location, and value of attachable property under the general discovery statutes.

This “pre-judgment” judgment debtor’s examination is an often overlooked but very effective tool in not only ascertaining specific property to attach but in determining the financial viability of the debtor at the outset of litigation.

Individual’s Property Is Specifically Identified

For an individual debtor, the attachment procedure is somewhat more complicated. Because the individual debtor is entitled to claim certain property as exempt, the lender must precisely identify the specific non-exempt property to be attached at the time of the application.

The value of obtaining and updating a detailed personal financial statement from an individual debtor before entering into any significant commercial transactions cannot be overstated.

The third step in the attachment process is to prepare the paperwork and develop the strategy for the attachment hearing.

Such paperwork typically includes a verified complaint, an application for a right to attach order with supporting declarations, the right to attach order, signed by the judge, the writ of attachment, issued by the clerk of the court, notices of attachment, an appropriate undertaking bond to bond against wrongful attachment, and levy instructions.

After the complaint is filed, the lender must determine whether to simply set a hearing on the application for writ of attachment or to seek prehearing (ex parte) relief.

Such pre-hearing relief consists of the issuance of the writ of attachment on an emergency basis or a temporary protective order to maintain the status quo until the attachment hearing can be held.

Lender Shows ‘Harm’ To Qualify For Relief

To qualify for any pre-hearing relief, however, the lender must be able to show it will suffer “great or irreparable harm” if attachment, or alternatively, a temporary protective order is not issued prior to the hearing.

Unless such harm is virtually undisputed, for example, the only attachable asset is on a plane to be shipped out of California, the court will rarely allow an attachment to issue prior to a regularly noticed hearing, especially if the lender has not given notice of its pre-hearing request to the debtor.

As a result, it is advisable to request, and the courts are much more inclined to issue, a temporary protective order to prevent the debtor from transferring, encumbering, or dissipating its attachable assets prior to the hearing on the attachment application which cannot take place unless the debtor has received a specified number of days notice of hearing.

At the attachment hearing, the lender will have the burden of establishing four requirements: a) the claim is one on which an attachment may issue; b) the probable validity of such claim –that is, that the lender is “more likely than not” to obtain a judgment on the claim, which is a decision within the discretion of the trial court; c) the attachment is not sought for any purpose other than to secure recovery on the claim; and d) the amount to be secured by attachment is greater than zero.

If the court finds that attachment is proper, it will issue a right to attach order. Lender’s counsel can usually walk the right to attach order down to the clerk’s office and have the writ of attachment issued right on the spot. With levy instructions also in hand, the levy of the writ of attachment can also be completed the same day as the issuance of the right to attach order, often within hours.

Action Taken If Court Orders Violated

Once the attachment papers are personally served on the debtor, any action in violation of the court’s order can result in a contempt citation, a fine, and/or imprisonment.

Moreover, a recording of the writ of attachment puts third parties on notice of the attachment lien to prevent any transfer or encumbrance of the attached assets.

Attachment is indeed a forceful remedy which lenders should utilize more often in the collection of unsecured obligations.

Competent lender’s counsel can ensure the proper timing and the strict adherence to the many statutory requirements which are critical to the successful procurement of a writ of attachment.

When used correctly, attachment can bring even the most recalcitrant debtor back to the bargaining table.