Recording a judgment in the county’s Register of Deed’s Office creates a lien on any real property owned in that county by the Debtor pursuant to Tenn. Code Ann. § 25-5-101.
A judgment lien is the single most effective tool in the collection process. Plus, it’s cheap: for less than $20, a creditor can get a lien on any property owned (or owned in the future) by the Debtor, and that property cannot be sold, refinanced, or transferred without dealing with the creditor.
These Bills seek increase the “homestead” exemption in Tennessee. “Exemptions” allow a debtor to protect certain property from the reach of creditors. Exemptions are designed so that a judgment creditor can’t take everything, so household goods, retirement accounts, and other necessities can be exempted.
H.B. 2887 proposes an absolute exemption that would exempt a debtor’s residence from any execution or judicial sale. Essentially, no matter how much equity a debtor has in his or her house, that equity would be completely untouchable by creditors. A debtor could live in a $1,000,000 lien-free house without paying a penny to creditors. This legislation would completely abolish the concept of a judgment lien.
Currently, Tenn. Code Ann. § 26-2-301 allows a single individual to exempt $5,000 of equity, a married couple $7,500, and a married couple with minor children living in the house up to $50,000.
From a creditor’s perspective, the proposed legislation is both too broad and unfair. I understand the importance of protecting peoples’ homes, but, at the same time, the law should operate fairly as to creditors and debtors.
Frankly, I think it’s unfair that the law would shield $50,000 of equity from the reach of creditors. Think about it from a creditor’s perspective: if you loaned somebody $200,000 and weren’t getting paid any of it, wouldn’t you be mad to see them keep $50,000 of equity?