Month: February 2019

Property Owners Can Bond Over Mechanic’s Liens under Tennessee Law

A mechanic’s / materialman’s lien on real property in Tennessee is a very powerful tool. When a contractor asserts a lien, that lien, effectively, ties up the property until the contractor’s claims are resolved.

It’s a huge bargaining chip: The property owner can’t sell, transfer, pledge, or, generally, do anything with the property until the contractor’s lien is released.

That’s likely why the Tennessee Legislature passed
Tenn. Code Ann. § 66-21-108,  which imposes harsh penalties on people who file invalid liens on real property.

So, if you’re a property owner who wants to fight a mechanic’s lien, is there anything you can do to get it removed, in lieu of payment or litigation?

Yes, you can record a bond to indemnify against the lien and get it discharged. That bond process is described at Tenn. Code Ann. § 66-11-142. In essence, the bond replaces the lien and ensures payment to the contractor, in the event the lien is deemed valid.

With a bond in place, the property can be transferred, and the lien claimant proceeds against the bond for cash, which is all they wanted in the first place.

Creditor Advice in a Booming Economy: Set Your Traps and Wait for the Call

Sometimes, my judgment creditor clients get antsy. This generally starts a few months after we’ve been awarded a monetary judgment. After we’ve recorded it as a lien. After we’ve looked for cash/bank accounts/assets. After we’ve come up short on our initial garnishment efforts.

And, after all doing all that, sometimes, my best advice is to give it some time. As you’ll recall, unless we’re dealing with a judgment debtor who is depleting or hiding assets, my advice in judgment collections is often to be patient.

Judgments are good for ten years in Tennessee, and, if I’ve done my job as a creditors rights attorney, I’ve laid all the necessary traps, tricks, and liens to capture assets in the future.

But, having said all that, it drives some clients crazy to be patient.

Today, after about 40 phone calls over the past 4 years saying all of this to a big judgment creditor client, I got to tell him “See, I told you so.”

With property values skyrocketing, our judgment debtor finally (and inevitably, I’d add) has decided to sell real property, and a closing company called for a full payoff.

Does Tenn. Code Ann. § 35-5-118(d) Support a Two Year Statute Limitation on Any Creditors with a Lien? It Could Depend on Your Judge.

I received an interesting question/comment on this 2013 post, (in)artfully titled “Don’t forget that Tenn. Code Ann. § 35-5-118(d) also has a two year statute of limitations on collection of foreclosure deficiency.” The question is this:

If first and second mortgage on property and first mortgage holder forecloses and not enough from sale to pay anything on second mortgage, is amount owed to second mortgage holder considered a deficiency balance so that second mortgage holder must bring action within 2 years under TCA 35-5-118(d)?

The statutory text doesn’t expressly address this issue. In fact, subpart (a) only references the generic term “creditor” (which could apply to any and all lien creditors). Then, when referencing a foreclosure sale, it doesn’t reference a specific creditor’s sale, but, instead, says “after a trustee’s or foreclosure sale of real property secured by a deed of trust or mortgage…” (which, again, could describe a sale by any and all lien creditors).

When I look at that text, I see so many places where a specific, limiting reference to that specific creditor could have been made, but no such limitation is included in the text. I might have said: After that creditor’s foreclosure sale of real property secured by that creditor’s deed of trust…

Now, if you take the entire statute as a whole, there’s a reasonable inference that the two year limitation of actions only applies to the “creditor” who actually engages in the foreclosure process. Subpart (b) references aspects of the sale process that “the creditor” will be impacted by (suggesting that the statute applies to one creditor, i.e. the creditor who foreclosed, and not all creditors).

Having dealt a lot recently with new statutes or with amended statutes with hastily amended text, I’ve seen how the Legislature can sometimes introduce a fix to correct one problem and, inadvertently, cause 3 new ones.

This seems to be that. Here, the original legislative intent appears to be to require that foreclosing creditor to take quick action, not impose a statute of limitations on creditors who had no active role in the foreclosure.

But, some judges take a liberal, progressive stance on legislative interpretation. Depending on what county you find your client in, this very well be an argument to make. If you’re in front of a debtor-friendly judge who views a judge’s role to be one that works backwards from the judge’s preferred outcome…well, this statute could support that judge’s inclination.

New Tort Opinion Discusses Obscure Issues of Law, Reminds Contract Attorneys to Never Take Elements for Granted

Yesterday, the Tennessee Court of Appeals issued an opinion that read more like a first year Torts law school exam question than an actual case.

The case, Belinda Puller v. Judith Roney (No. M2018-01234-COA-R3-CV, Tenn. Ct. App. Feb. 13, 2019), dealt with issues of res ipsa loquitur and homeowner premises liability.

The Court was faced with claims by a handyman who showed up to perform a variety of tasks at a house (including removal of debris from the roof) and, by the end of the day, was found on the ground. The handyman’s estate sued, alleging that his fall was the result of the homeowner’s defective ladder. Because no one saw what happened, the plaintiff alleged that the fall must have been caused by the defective ladder.

The Court considered the doctrine of res ipsa loquitur, which allows a trier of fact to consider “circumstantial evidence of negligence when direct evidence is lacking” and “infer negligence from the circumstances.” But, there must be a “rational basis” for finding that the injury was “probably the result” of negligence and that the defendant’s negligence was “more probable than any other cause.”

The Court then outlined the elements of a premises liability claim based on negligence. Ultimately, the Court denied liability, based on the fact that there were no witnesses and that so many other factors could have caused the injury. The Court upheld the lower court’s grant of summary judgment.

This type of tort case goes beyond what I generally discuss here, but I think this case is valuable because it reminds you to: (a) always focus on the elements of your legal cause of action; and (b) always consider what proof is necessary to establish those elements. When you don’t (or can’t) clearly plead those facts, you risk an adverse summary judgment ruling.

Construction Lawyers Rejoice! Tennessee Legislature Proposes Amendment to Fix the “Invalid” Lien Law

A few weeks ago, I wrote about Tenn. Code Ann. § 66-21-108, a fairly new statute that I called the scariest statute I’ve seen in long time.

This statute imposes strict liability and double / triple / quadruple penalties upon lien claimants who lose a lien challenge. As enacted, the statute didn’t draw any distinctions between good faith lien claims and fraudulent claims.

In short, if you lose any lien challenge, you lose big.

My concern was that this would have a chilling effect on Tennessee lien claims. Honestly, I was going to be nervous every time I filed a future mechanic’s lien, no matter how good my factual and legal basis was. You just never know what can happen in Court.

So, it was no surprise when I saw that House Judiciary Committee Chair Rep. Michael Curcio, R-Dickson, and Sen. Todd Gardenhire, R-Chattanooga, introduced a bill this week that was drafted by the Tennessee Bar Association’s Construction Law Section to fix this.

This proposed legislation HB875/SB682 adds a “malice” requirement when imposing penalties. Specifically, the big change comes in subpart (a), which provides:

“…a real property owner who prevails in an action challenging the validity of a lien, and establishes, by clear and convincing evidence, that the person claiming the lien has acted with malice, including in a libel of title proceeding, may recover: …”

I’m disappointed that I wasn’t able to use this statute on somebody, but it’s a small price to pay in order to avoid somebody using it on me.

Employers, Banks, and Creditors: Here’s What Happens Immediately After Service of a Garnishment (Per Rule 69.05)

When an employer or company receives a garnishment, they are generally confused as to what to do next. Granted, there is very small print on the backside of the form that purports to provide instructions. Good luck reading, much less understanding, that text.

As a legal matter, Tenn. Rule Civ. P. 69.05 is designed to provide the actual, “legal” instructions to the garnishee. Specifically, Rule 69.05(3) imposes the following timeline for compliance:

Step One: Next Business Day After Service: “…ascertain whether the garnishee holds property of the debtor. If so, the garnishee shall mail one copy of the writ of garnishment with the notice to the last known address of the judgment debtor. Where the garnishee is a financial institution, the balance in the judgment debtor’s accounts on the night of the service date is the amount subject to that garnishment writ.”

Step Two: Within Ten Days of Service: “…file a written answer with the court accounting for any property of the judgment debtor held by the garnishee.”

Step Three: Within Thirty Days of Service: “…file with the court any money or wages (minus statutory exemptions) otherwise payable to the judgment debtor. If the garnishee holds property other than money or wages, a judgment may be entered for that property and a writ of execution may issue against the garnishee.”

Rule 69.05(3) has some fairly dense text (i.e. it says a lot of things in a short amount of space). Here’s a few quick take-aways.

  • First, where you’re dealing with a bank, timing is everything. A creditor will want to time their garnishment to maximize the recovery. Knowing that the amount is determined “on the night of the service date” is useful information.
  • Next, if the creditor is seeking “property other than money or wages,” the rule allows for the entry of a judgment for that property, with a writ of execution to issue. This would be where a garnishee is holding personal property, choses in action, or a judgment. This subsection suggests a very efficient “turn-over” procedure for that type of property.

One issue the creditor will have is that there are other statutes, court precedent, and local rules that deal with these same issues. Per the Advisory Commission Comment, the intent here was to “consolidate procedures…into a single orderly rule.”

So, when in doubt, follow Rule 69.05.