Don’t Sue the Messenger: Trustees Aren’t Necessary Parties in Foreclosure Injunction Lawsuits and can be Dismissed under Tenn. Code Ann. § 35-5-116

All my clients hate being sued. You know who else hates to be sued? My law firm.

With the economy going bad, I’ve seen more desperate debtors doing anything they can to fight off foreclosures, evictions, and collections, including filing a lawsuit against the creditor…and the bank’s lawyers.

This is most common in foreclosures, when the debtor tries to stop the foreclosure sale by filing a lawsuit. There are very limited bases by which a foreclosure can be stopped in Tennessee (See Tenn. Code Ann. § 29-23-202 ).

Of course, that doesn’t mean that a borrower won’t  fire off a quick lawsuit, trying to gum up the process by creating a little smoke screen diversion.

But, a borrower or borrower’s lawyer who is trying to enjoin a foreclosure doesn’t need to add the attorneys for the creditor as defendant. Generally, the bank’s lawyers are serving only as “Substitute Trustees” under the Deed of Trust, and the caselaw has consistently held that trustees under a mortgage aren’t necessary parties to such an action.

In response to repeated lawsuits filed by “over-zealous” debtors or “less educated” lawyers, the Tennessee legislature passed Tenn. Code Ann. § 35-5-116 in 2006.

That statute allows a trustee named in a lawsuit to file a verified answer, pleading that the trustee is not a necessary party “stating the basis for the trustee’s reasonable belief that the trustee was named as a party solely in the capacity as a trustee under a deed of trust, contract lien, or security instrument.”

In response, the plaintiff must then filed a “verified response” within 30 days setting forth all factual and legal basis to rebut the trustee’s denial.
The statute also provides a good faith savings clause, under which the trustee “shall not be liable for any good faith error resulting from reliance on any information in law or fact provided by the borrower or secured party or their respective attorney, agent, or representative or other third party.” See Tenn. Code Ann. § 35-5-116 (f).
Of course, this statute will not stop a borrower from suing everybody; most borrowers would sue the mailman  who delivers the foreclosure notice if they thought it would delay the sale. But, the statute provides a relatively efficient way for the trustees to have themselves dismissed from the lawsuit.

New Davidson County Chancery Court Ruling: Certified Copies are Good Enough to Support a Foreign Judgment Domestication

Last October, I talked about how failure to get a properly “authenticated” copy of a judgment would be fatal to a creditor’s action under the Uniform Foreign Judgment Enforcement Act.

So, here I am, in March, and I’m writing about how a Davidson County Chancery Court has now ruled that a simple “certified copy” of the judgment would suffice. Five months is a pretty quick turnaround, even by my standards.

The reasoning of the Chancellor is this:

  • The purpose of the Full Faith and Credit Clause was to make it easy to enroll and domesticate judgments granted in other jurisdictions;
  • As you know, the requirements for filing a foreign judgment in Tennessee are “few and straightforward.” See Boardwalk Regency Corp. v. Patterson, No. M1999-02805-COA-R3-CV, 2001 WL 1613892, at * 4 (Tenn. Ct. App. Dec. 18, 2001).
  • As I’ve written about before, there are essentially three “defenses” to a filing under the Act.  Those are: (1) if the judgment is “void due to a lack of personal or subject matter jurisdiction;” (2) if it was “based upon fraud;” or (3) where its enforcement “would violate public policy of the forum state.”  Guseinov v. Synergy Ventures, Inc., 467 S.W.3d 920, 924 (Tenn. Ct. App. 2014).
  • Per Guseinov, a party seeking to prevent the enrollment of a foreign judgment carries “a stern and heavy burden” in Tennessee.
  • So, if the only defense is that the judgment wasn’t authenticated consistent with the Acts of Congress/triple certification process/exemplified, the creditor hasn’t met a “stern and heavy burden.”
  • If there is no indication or argument that the simple certification on the certified judgment is invalid or not the Clerk’s signature, then a certified copy will suffice.

Today isn’t the day that I argue against the ruling; instead, this is just me, warning you.

But, this hasn’t always been the practice in Tennessee or other jurisdictions interpreting the Foreign Judgment domestication Act, so, if you want to be 100% safe, go with the authenticated copy.

Tune back in 4 months to see if I have reversed course again.

 

Attorney Liens: Because Every Lawyer Should Get Paid

I talk a lot about liens as a good way for a creditor to get paid. In state courts and bankruptcy courts, there often are two lines formed: one for those with liens; and the other for those without liens. And you can guess which one leads to the money.

Under Tennessee statutes, there are liens for all kinds of people: mechanics, artisans; dentists; jewelers; shoe repairers; cotton ginners; lithographers; baggage claim folks…just to name a few.

But let’s talk about attorney liens today.

Under Tenn. Code Ann. § 23-2-102, an attorney who files a lawsuit “shall have a lien upon the plaintiff’s or complainant’s right of action from the date of the filing of the suit.” (Or, per Tenn. Code Ann.  § 23-2-103, the attorney has a lien from the date that the attorney starts work on the case.)

This lien extends to two types of property. The first is a “retaining lien,” which gives the attorney the right to retain a client’s books, papers, or money coming into his possession during the matter until the client pays. The second is a “charging lien,” which is a lien for payment of fees against the judgment or recovery obtained in a case. For a good review of this, see Starks v. Browning, 20 S.W.3d 645, 650 (Tenn. Ct. App. 1999).

There’s some old caselaw out there that suggests that the attorney must have the lien noted in the Judgment to be valid. The Starks case above (involving the venerable Nashville lawyer, Bart Durham) says that requirement is not in the statute and is just an odd creation from old caselaw.

 

But, I say that it’s a good practice to note the attorney lien any– and every-where (in judgments, in notices filed with the Court, notices recorded in the Register’s Office), but it’s not legally required.

The statutes above don’t cover all situations where an attorney might have a lien; in fact, other specific statutes, like worker’s compensation matters, may have their own special rules. Additionally, nothing would stop a collection minded lawyer from obtaining a consensual lien as part of his or her client engagement documents, particularly where client resources may eventually be scarce.

 

Long story short, the attorney lien statutes are probably narrower than you thought they were, granting a lien generally only the lawsuit filed by the attorney. Any other, broader liens to secure repayment must be granted or taken under other statutes (judgment liens, consensual liens).

Changes in Credit Reports May Soon Exclude Outstanding Judgments

The Consumer Data Industry Association is reporting that the three major credit reporting bureaus (i.e.  Equifax, Experian, and TransUnion) are updating how they report certain public record data on consumers’ credit reports.

One of these changes will be that the records must contain “a minimum of consumer personal identifying information (PII): (1) Name, (2) address, and (3) SSN and/or date of birth.”

These changes, which will take place on July 1, 2017, will result in most civil judgments no longer being report on credit reports, since court judgments rarely contain full social security numbers and/or dates of birth.

In fact, in most jurisdictions, personally identifying information like this can’t be allowed on judgments; instead, such information must be redacted.

What does this mean for a bank or other lenders? A loan applicant’s credit report will be less likely to contain all relevant information about debts and liabilities. That’s not good news, say banks.

What does this mean for a judgment debt collector? Not much, since a judgment creditor isn’t making a credit decision, and so negative information on a credit report provides less guidance. On the hand, seeing a list of judgments and liens is still useful, in that they provide a shapshot of a judgment debtor’s overall financial state.

 

 

 

Sure, the Debtor is Foreign, but Is his Bank?

I’ve talked about the process of domestication of judgments, which is basically the process by which you make a judgment from one state enforceable in another state. You see, a judgment awarded in Tennessee can only reach a debtor’s assets located inside the State of Tennessee. So, if you have a judgment against somebody who lives in Texas, you may have to file a second lawsuit in Texas to attach his assets.

But don’t go buy a pair of cowboy boots just yet.

I mean, sure, if he owns land in Texas,  owns a car that’s registered in Texas, or has a million dollars in cash under his Texas bed, then your Tennessee judgment is not going to be effective to execute on those assets. To get those things that are actually in Texas, you need to go through the domestication process, which results in your out of state judgment being recognized by that foreign state as a valid judgment for enforcement in that state.

But, here’s a trick: What if the debtor has all his assets in that foreign state, but he banks at a national bank with offices all over the country? And what if that bank has a branch in Tennessee? The answer is that you can levy on that bank account.

So, debtors with accounts at Wells Fargo Bank, National Association and Bank of America, watch out.

How “Foreign” Can a Foreign Judgment be and still be Entitled to Domestication?

In an earlier post, I noted that judgments aren’t enforceable across state lines. To enforce such a judgment, the creditor has to “domesticate” that judgment, which requires that a second action be filed in the new state to recognize the out-of-state judgment. This judgment is often referred to as a “foreign judgment.”

But, what about the really foreign judgments, i.e. the ones from other countries? Can those be enforced in state courts?

The short answer is: “probably.” Pursuant to the Uniform Foreign Money-Judgments Recognition Act, judgments obtained abroad may be enforced in the U.S. See 13 U.L.A. 261.

Under this Act, the process follows the Enforcement of Foreign Judgments Act in many ways. Keep in mind, however, that the Act specifically states that it’s a different process, so read the Act and update your forms accordingly.

Some quick tips are: (1) The party seeking to enforce the judgment has the burden of proof regarding the validity and application of the Act; (2) The party opposing the domestication has the burden of proof of any basis to assert non-recognition; and (3) The statute of limitations applicable to the original judgment applies and, if there is no statute of limitations, then the judgment becomes unenforceable after 15 years from the original effective date.

 

All Those Great Recession Judgments May be Expiring Soon

Depending on who you ask, the “Great Recession” resulting from the subprime mortgage crisis began in December 2007 and lasted about two years. So, about ten years ago, I was spending most of my work days working on loan documents for third, fourth, and sometimes fifth mortgages for a local bank who was really, really late to the mortgage boom.

Of course, the impact of this past recession was felt for years afterwards, meaning my spring 2007 HELOCS didn’t go bad until 2010 or 2012. As a result, just a few years later, I was suing and taking judgments against those same borrowers. From 2008 to 2014, I estimate that I obtained at least 500 judgments, ranging in amounts from $2,500 to $5,000,000.

As I like to say, if you were hearing from me, it was bad news.

So, with a drawer full of judgments, this is what keeps me up at night: Those judgments are only valid for ten years, and, if I haven’t collected on them, they expire.

I’m taking about Tenn. Code Ann. § 28-3-110(a)(2), which provides that actions on judgments are only valid for ten years.

So, a good rule of thumb is that, if you received a judgment against someone you haven’t been able to collect in the last ten years, go back and confirm when you were awarded that judgment. If you’re getting close to the ten year mark, you might be running out of time.

(But, not to be too dramatic, I’m going to talk about how to extend that time period soon.)