Borrower’s Attack on Foreclosure Process May be Barred by Detainer/Eviction Proceedings

Across the country, lenders are fighting claims from borrowers that the lender’s foreclosure on real property was defective.  In response, courts will sometimes entertain an examination of the specifics of the foreclosure. Regardless of the outcome, the lender is invariably faced with delay in obtaining a deficiency judgment or the costs of litigating these issues.

On January 31, 2011, the Tennessee Court of Appeals issued a decision finding that such claims by a borrower will not be considered, where the lender has filed a post-foreclosure unlawful detainer warrant in General Sessions Court and obtained an eviction judgment. If the homeowner does not raise the defective foreclosure in the General Sessions Court, then the decision is “res judicata” on any subsequent action.

It’s a a quick and cheap way to clear title on property. Also, you serve the detainer warrant by nailing it to the door of the property — no chasing the elusive occupants around the world trying to get service.

Cite:  Robert E. Davis, et. al, v. Crawford L. Williams, et. al, No. E2010-01139-COA-R3-CV (Tenn. Ct. Apps.  Jan. 31, 2011).

Sommet Group LLC Proof of Claim Deadline Set for May 18, 2011

When I write about creditors in bankruptcy, one of the mantras I repeat over and over again is:  don’t forget to file your Proof of Claim.

In many instances, the only way a creditor gets a distribution of money recovered by the Trustee is if the creditor has filed a claim. In fact, as a creditor, you’re hoping that other creditors miss the bar date/deadline for filing claims, because, if they don’t file a claim, they don’t get any money. Which, in turn, means the creditors with filed claims get a tiny bit larger share of the money.

All that having been said, the Chapter 7 Trustee in the Sommet Group LLC Bankruptcy filed a Trustee’s Notice of Assets & Request for Notice to Creditors to File Claims. The deadline to file the Claims has been set for May 18, 2011.

The Trustee is chasing this company hard, but, even so, he’ll probably only collect a fraction of the monies owed to creditors. The only way to guarantee that you don’t receive any money is to forget to file a Claim.

Sabre Defence Industries LLC files Chapter 11 Bankruptcy in Tennessee

You never want to be a creditor of a company that “manufactures high-quality XR15 rifles in the US and Europe.” But, many creditors find themselves in that position, as Sabre Defence Industries LLC has filed for Chapter 11 Bankruptcy in the Middle District of Tennessee.

This filing follows a variety of recent articles about criminal charges against the principals of Sabre Defence.

This case was apparently timed to stay a sale of the Sabre Defence assets by a creditor, Cadence Bank, that had been scheduled for February 14, 2011. So far, however, the bankruptcy contains only a skeletal filing–the company has filed a Petition, but not the required Bankruptcy Schedules and Statements.

Creditors of Sabre Defence need to be on the look-out for the various filings that are sure to follow, as I predict this case will go through a number of twists and turns long before the Meeting of Creditors. I’d bet on a 11 USC 363 Sale of the assets.

I realize that I missed an opportunity to make a joke about the “bullets flying” or a “shoot out.”

Update: Here’s the Nashville Business Journal’s story.

Wall Street Journal Reviews Weapons for Creditors in “The Battle Against Slow Payers”

The Wall Street Journal has an article that is right up my alley, “The Battle Against Slow Payers.”

The article reviews a variety of new online applications and services, such as: automated invoice dunning software; pay-in-advance invoice escrow services; and affordable business information and credit bureau searches.

While I don’t have first-hand experience with any of the vendors mentioned in the article, the collection issues that these services try to prevent are very real, and, even without using these services, small businesses should keep the underlying issues in mind at all times:

Clear, Well-Documented Invoices: Always have invoices that are clear and simple where they need to be (due date, amount owed), but have sufficient detail where necessary (project description, services provided).

Keep Track of Your Unpaid Invoices: Don’t wait until the 90 or 120 day mark to send reminders. By that time, it may be too late: either the customer no longer needs your credit/services, or you’ve fully performed your end of the deal. In collections, the squeaky wheel really does get the grease.

Get Advance Payment Where Possible: If it’s a new relationship, ask for a retainer for all or part of your services. Don’t worry about offending the new business; if it’s a legit company, they’ll understand.

Do Your Homework Before Lending Time or Money: If this economy has taught us anything, it’s that there is no obligation to lend money or sell products to unfamiliar customers. If the customer doesn’t have a track record with you, check out their business history, ask for referrals, or, if no such information exists, sell on a cash basis only. Otherwise, you’re assuming all the risk.

Doing all of the above is time-consuming and sometimes expensive, and, in the end, nothing can guarantee that all your accounts will get paid. But, if a little advance research vets just one or two of the bad apples, then it will all be worth it.

An unpaid invoice plus a collection lawyer costs far more than the services described in the article.

Nukote International Bankruptcy Case in Middle District of Tennessee Starts the Preference Recovery Process

Yesterday in the Middle District of Tennessee Bankruptcy Court, the Trust created in the Nukote International, Inc. bankruptcy began the process of filing adversary proceedings to recover preferences. So far, about 40 cases have been filed.

This is a process that generally happens after a Chapter 11 Plan is confirmed, in which the post-confirmation entity takes action on the various lawsuits it held as of the bankruptcy filing.

Here, the lawsuits make claims under 11 U.S.C. 547, which is a provision of the Bankruptcy Code that, under certain circumstances, allows a trustee to recover payments made to creditors within 90 days of the bankruptcy filing.

The basic theory is that, the debtor is presumed to be insolvent during those 90 days, and any payments made during that period were selective disbursements (a.k.a. preferential payments) to certain preferred creditors. By these actions, the trustee recovers these preference payments, puts the money into a big pot, and then distributes it evenly to all creditors.

Sounds pretty fair in theory, right? Well, in practice, these actions drive creditors crazy. “Not only did this company bankrupt on the debt, now, two years later, they’re suing me to take back some of the last money they paid me?” My response? “Yes.”

There are a number of defenses to these actions (see 11 USC 547(c)), and I’ll touch on those in a later post. Right now, I’m going to go look at the dockets to see who all is getting sued.

New Teaching Engagement: Liens and Security Interests in Tennessee

On Thursday, February 24, 2011, I’m teaching a webinar for the Tennessee Attorneys Memo called Liens and Security Interests in Tennessee: Brush Up on the Basics.

The webinar will provide an overview of liens against real property, and it’s designed to cover the basics but also emphasize the legal issues that you really need to know.

And by “really need to know,” I’m talking about the types of liens that will get your debts paid–judgment liens, mechanic’s liens, security interests–and I’ll also cover a variety of bankruptcy issues that you can try to avoid.

TAM does a great job with these, and I encourage you to tune in and check it out.  Plus, they offer a money-back guarantee.  (How much pressure is that on me?)

More Than Just Legal Expense: The Unexpected Hassles of Pursuing Collection of Unpaid Debt

A few months ago, I mentioned how I warn all first-time collections clients about the unexpected hassle of suing on their invoices. In addition to the legal expense, I’m referring to the hostile responses, the denials, and the potential court scrutiny of their services and billing practices.

For an example close to home, there’s a reason why lawyers wait a year to sue clients on unpaid invoices. (Hint: the statute of limitations for malpractice claims is one year long.) You see, in response to lawsuits for unpaid legal invoices, it’s common for the former client to allege malpractice and attack the quality of work.

I was reminded of this when I read this Tennessean article about lawsuits filed by Nashville private schools to collect on unpaid tuition. I was doubly reminded about the “hassle” part when I scanned the comments, with the schools’ dirty laundry getting aired for the world to see.

The school is perfectly within its rights to seek payment of past due amounts, but collections can bring out the worst in people, especially in this economy. Other than allowing no unpaid debt, there’s no avoiding these issues, so be sure to consider these issues when starting the collection process.

It isn’t always just writing letters and cashing checks.

Are Bankruptcy Courts Creating a Co-Debtor Stay in Chapter 11 Reorganization Cases?

When collecting against an entity that files a Chapter 11 bankruptcy, I usually file an immediate suit against any guarantors of the debt. In Chapter 11, there is no statutory “co-debtor” stay, so there’s nothing stopping me from applying pressure to the other liable parties, who are usually the principals/owners of the company. The goal is not only to collect the debt from those parties, but also pressure the bankrupt entity to improve my client’s payment position.

Steve Jakubowski of the Bankruptcy Litigation Blog tweeted a recent decision that may scale back a creditor’s use of this tactic.

In the opinion, the debtors filed an adversary proceeding seeking an injunction of a collection action against guarantors, arguing that the collection action would adversely impact the ability of the debtor to reorganize.

The Bankruptcy Court agreed, finding that it had jurisdiction over the matter involving non-debtor entities under 11 U.S.C. 1334(b), since the action was “related to” to the underlying Bankruptcy. The Court found that the guarantors were “vital to the success of the reorganization process and that that the [collection action] would place a significant burden on Guarantors to the extent that [they] would not be able to adequately assist in the reorganization process.” Ultimately, the Court found that the guarantors were so critical to the reorganization process that the collection action against them would significantly impair the bankruptcy process and, thus, using 11 U.S.C. 105(a), the Court was willing to issue the injunction.

The Bankruptcy Court made clear that special factual circumstances existed, such as the guarantors’ past involvement and commitment to remain involved. Further, the Court noted that the guaranty liability isn’t extinguished and is, instead, only stayed during the pendency of the bankruptcy.

But, even with those safe-guards, it’s easy to imagine that this decision–if adopted by other courts–could create a common law co-debtor stay in Chapter 11s. Here’s a link to the full opinion:

Harris N.A. v. Gander Partners, LLC, No. 10-C-5495, 2011 WL 249484 (N.D. Ill. Jan. 26, 2011)