New Tennessee Court of Appeals decision provides advice for foreclosures of real property developments

A new opinion from the Tennessee Court of Appeals provides valuable guidance to attorneys foreclosing on commercial properties.

The matter is Tennessee Funding, LLC. v. William Worley (No. M2019-01099- COA-R-CV, Tenn. Ct. App. Nov. 26, 2019), and the issue was whether a foreclosing lender took ownership of the contract rights associated with the real property–specifically, whether the foreclosure sale of the entire residential development transfer ownership of the “developer’s” or “declarant’s” rights of the property.

The actual issue was more nuanced than that and, trust me, I know (I represented the prevailing party in both the trial and appellate courts). The full opinion can be found here.

For purposes of this blog post, I won’t bore you with the deep analysis, but here are the main takeaways from yesterday’s decision:

  • In many development loan/construction loan transactions, the lender will be granted both a lien on the real property and a UCC lien on all the “other stuff” associated with the development project.
  • A real property foreclosure pursuant to the Deed of Trust and Tenn. Code Ann. § 35-5-101, et. seq., transfers to the foreclosure buyer all of the dirt.
  • The real property foreclosure does not transfer ownership of all the “other stuff,” including contract rights associated with the development.
  • These contract rights can include plans, drawings, and, yes, developer’s rights under a Master Deed or Declarations (i.e. the right to manage the development/developed property).
  • The rights are personal property, and those rights must be transferred by a creditor’s UCC Sale under Article 9, including Tenn. Code Ann. § 47-9-610.

Ultimately, that was the critical factor in this case–that the foreclosing lender did a dual sale–a foreclosure under the Deed of Trust to purchase the dirt and a UCC sale under the Security Agreement to purchase the personal property.

Keep this case in mind the next time you represent a creditor contemplating a foreclosure on a property development. You may not be doing your job if you only foreclose on the land.

Medical Debts: The Burden that Keeps on Crushing Debtors

A few months ago, I wrote about a hospital in Memphis that made national news for suing its employees for unpaid medical bills.

At the time, I was critical of the practice, both because it was terrible public relations for the employer and also such a hardship on the employees.

This new decision from the Bankruptcy Court for the Central District of Illinois suggests that this practice may hurt the employees worse than I anticipated.

In that case, the Chapter 7 debtor was faced with $164,053.95 in unsecured debt, of which $82,000 was for medically necessary services. To avoid the “means test” and stay in Chapter 7, she argued that her debts were not “primarily consumer debts” under Section 707(b)(1). The US Trustee objected, arguing for a conversion to Chapter 13.

The debtor had an interesting argument: medical debts are not “consumer debt,” as defined under the Bankruptcy Code, because medical debts are not incurred voluntarily, and “similar to tax debts that have been held by several courts not to be consumer debts.” See In re Westberry, 215 F.3d 589 (6th Cir. 2000).

Ultimately, considering the purpose and nature of medical bills, this Bankruptcy Court found the debts to be consumer debt, subjecting the debtor to the means test and forcing the case into a Chapter 13.

It’s a well reasoned opinion, but it has some pretty harsh applications to debtors in places like Memphis, where medical debts can crush debtors.

Sure, relief under the Bankruptcy Code is still available to this debtor, but, in situations like this, a debtor will have to deal with those debts in a chapter 13 plan, which requires the debtor to make payments over a 3 to 5 year plan. The rate of success in those cases is low, meaning that the case could get dismissed and the debtor isn’t able to get the debts discharged.

341: Nashville lawyers go to US Supreme Court, while Memphis lawyers settle the most talked about Tennessee lawsuit

From the Supreme Court to Nashville... I’m on a plane from Washington, DC, with about 7 Nashville lawyers riding with me, after yesterday’s United States Supreme Court oral arguments that featured Nashville bankruptcy lawyers on both sides.

Here’s how SCOTUS Blog framed the issue: whether a bankruptcy court’s denial of a creditor’s motion seeking relief from the automatic stay is a “final” order that is immediately appealable.

This was a pretty obscure procedural issue, and I pity those poor student groups who sat through the animated back-and-forth about what a “proceeding” is in Bankruptcy Court.

It was a great day for the Nashville bankruptcy bar, and the lawyers on both sides really shined. It was also my first trip to the Big Courthouse, and I’m planning a longer post about the experience for early next week.

Save Bluff City Law! I was forwarded the attached e-mail petition, created by a Memphis lawyer, trying to rally support for NBC’s legal drama Bluff City Law.

I’m impressed by the grass-roots activism from the Memphis bar, and I have to admit, the show makes the practice of law in Memphis look very exciting and scenic. I’m signing the petition.

Bluff City Law, Indeed. Talking about national attention focused on the Memphis bar, it looks like there’s a potential resolution in the James Wiseman v. NCAA and the University of Memphis lawsuit filed in Shelby County Chancery Court.

Here’s my blog post about it from the weekend.

The Daily Memphian interviewed me for their story, What comes next in James Wiseman’s eligibility saga?, about the various legal issues and strategies presented (which, I’ve been told, ESPN’s Jay Bilas quoted in an on air interview!)

No deed goes unpunished, and this involved me diving deep into federal court jurisdictional issues, whether a “nominal defendant” destroys complete diversity, and looking up the exact nuances of Injunctive relief procedure.

Trust me, this was the first time this 26 year old reporter ever cited Wright on Federal Procedure.

Regardless, I love the Daily Memphian, and it got me this close to appearing on the Geoff Calkins radio show as a legal expert. I was scheduled to appear on Monday, but a producer bumped my appearance.

It was with great shame that I notified my Memphis friends and family that I was bumped to make room for listener call-ins.

Speaking of great shame… I was alerted that the following blurb and text auto-posted over the weekend. To be clear, the words below this blurb are a quote from the advice column, not how I feel (at least not all the time).

The opening line? “I’m a litigation attorney and am absolutely miserable.”

The James Wiseman saga mixes my two favorite things: Memphis basketball and Chancery Court procedure

The James Wiseman news ruined my Friday evening. It doesn’t get more ominous than this:

First, I’m a Memphis fan. This includes the University of Memphis, the basketball team, the football team, the people of Memphis, and the city itself.

(Side Note: As a Memphian For Life, how awesome was it to see my Memphis people representing on twitter last night? Don’t mess with Memphis.)

Second, I’m a commercial litigator, and, here I was, thinking through issues of complex legal procedure, exactly 45 minutes before I was planning to watch James Wiseman play basketball.

But, then, some exciting news:

So, the Shelby County Chancery Court granted a Verified Complaint filed by James Wiseman, represented by Lesline Ballin, that requested a Temporary Restraining Order.

Story over, right? Not at all.

Legal analysis to follow:

Tennessee Rule of Civil Procedure 65 controls here. Tennessee Rule of Civil Procedure 65.03 provides, in part, that a court “may issue a temporary restraining order without written or oral notice to the adverse party or its attorney” when “an affidavit or verified complaint clearly show that immediate and irreparable injury, loss, or damage will result to the applicant before the adverse party can be heard in opposition [.]”

Here, this TRO was entered without notice to the NCAA. The NCAA didn’t have an opportunity to respond with factual or legal analysis…or even a one page “We Object!” filing.

The Shelby County Chancery Court simply reviewed the filed pleadings to make sure that the Verified Complaint, if assumed to be true, connected all the dots to satisfy the elements for getting a TRO issued. In a way, it’s just a matter of being good at paperwork at this stage.

And it helps if you probably have the Judge’s cell phone number.

Don’t get me wrong; it’s still savvy lawyering. Courts refer to any relief under Rule 65 as “extraordinary relief.” It’s a big deal, and a strong move by Memphis and Ballin.

But there is a long road ahead, with the first test coming up soon.

TROs only last 15 days. Under Rule 65.03(3), TROs have a limited life; they only last 15 days, unless they are extended by the Court. That’s the reason for the low proof threshold; TROs are designed to be temporary remedies.

The real fight will be over the Temporary Injunction. Under Rule 65.04, the court will replace the TRO with a Temporary Injunction, which is designed to provide longer injunctive relief to the plaintiff while the litigation proceeds.

Under Rule 65.04, a “temporary injunction may be granted during the pendency of an action if it is clearly shown by verified complaint, affidavit or other evidence that the movant’s rights are being or will be violated by an adverse party and the movant will suffer immediate and irreparable injury, loss or damage pending a final judgment in the action, or that the acts or omissions of the adverse party will tend to render such final judgment ineffectual. “

In deciding whether to grant the temporary injunction, the court will apply a “four-factor test: (1) the threat of irreparable harm to plaintiff if the injunction is not granted; (2) the balance between this harm and the injury that granting the injunction would inflict on the defendant; (3) the probability that plaintiff will succeed on the merits; and (4) the public interest.”

Here, James Wiseman’s case will rise and fall on item # 3, and the NCAA will want a mini-trial on the violation. Wiseman should have a fairly good argument on items 1 and 2, since he’ll lose valuable chunks of his college career if he has to sit out.

If I had to bet, I’d think a judge would let him play, while the matter is being litigated.

But, what Court will decide? There’s no way this matter stays in Shelby County Chancery Court.

Despite what Bluff City Law says (i.e. where every case they handle is in the Shelby County Courthouse), this case will be removed to federal court.

Pursuant to 28 U.S.C. § 1441, a case “may be removed by the defendant or the defendants, to the district court of the United States for the district and division embracing the place where such action is pending.” Here, the District Court for the Western District Courts of Tennessee will likely get this case, unless the NCAA both removes the matter to district court and then asks for a change of venue (to a different district court in the US) at the same time.

Given the time challenges here, I’d bet the matter would stay in Memphis’ district courts.

There are a number of reasons a defendant would remove this. For one, a state court judge is popularly elected, and, while judges are generally not biased, an elected judge would face great public pressure from a rabid fan base. District Court judges are lifetime appointees by the President, and they are perceived to be free from bias.

How to Get Rich in Distressed Assets in Nashville? (You probably won’t like my answer)

In a strong economy like Nashville-2019, I get lots of calls from people looking for “good deals” on real estate.

First, I tell them to buy a time machine that will take them back to 2010.

Then, I commiserate with them about all the awesome deals that I watched other people pounce on over the last 7 years (with, of course, a quick reminder about all the awful deals that brought people to financial ruin in the 7 years before that).

After all that, I get serious and talk to them about buying distressed real estate, and all the forms and forums where that can happen. Bankruptcy Sales. Foreclosures. Sheriff’s Sales. Tax Sales.

It’s, literally, a path full of misery and heartbreak, but it’s probably the only realm in present-day Nashville where you can truly get a good deal.

And part of the reason that there’s so much upside is that there’s so much risk in these types of sales. There’s no way to avoid that risk, and, at best, your goal is to simply mitigate that risk.

TL;DR: You have to know what you’re doing. Otherwise, you’re buying your dream house for pennies on the dollar, only to learn that you’re not getting what you thought you were.

I recently taught a CLE for OutkickCLE on distressed buying, and I’ll post that video link here when it goes live. In the meantime, I’ll be posting snippets from my CLE materials here. Stay tuned.

You’ll be hearing a lot about “predatory installment loans” in 2020

There’s a new lending device that’s gaining popularity across the country, and it’s coming to Tennessee soon.

As in, “to be considered by the 2020 Tennessee Legislature” soon.

It’s called an “online installment loan,” and it’s a new form of pay-day lending, but with a few extra bells and whistles that make it look more like a regular bank loan.

And while many people know the downsides of going to a title-lending place for a loan, this new device is being marketed to a broader group of American consumers, says Bloomberg News in an article published today, titled “America’s Middle Class is Addicted to a New Kind of Credit.” Per Bloomberg, these are:

…a form of debt with much longer maturities but often the same sort of crippling, triple-digit interest rates. If the payday loan’s target audience is the nation’s poor, then the installment loan is geared to all those working-class Americans who have seen their wages stagnate and unpaid bills pile up in the years since the Great Recession.

In just a span of five years, online installment loans have gone from being a relatively niche offering to a red-hot industry … and have done so without attracting the kind of public and regulatory backlash that hounded the payday loan.

[The] average online subprime installment loan customer has an annual income of about $52,000. About 80% have been to college and 30% own a home…[m]ore than 10% of the company’s core customer base makes over $100,000 a year.

These instruments generally have a longer repayment period, like 90 days to a year, but they have the same insanely high interest rates (ranging from 20% to 35% to, in some cases, 155%) as other title loans.

Not in Tennessee, right?

These lenders are targeting Tenn. Code Ann. § 47-14-104, and, specifically, that statute’s 10% cap on interest rates. The lenders hope to eliminate that cap entirely.

October is Pro Bono Month in Tennessee, and what have you done?

October is Pro Bono Month in Tennessee. The Tennessee Bar Association’s Celebrate Pro Bono Month 2019 page has a list of opportunities to choose from.

It is not difficult. A lot of lawyers never provide pro bono services.

Frequently, they’ll say “I practice in [insert corporate/high end practice area], and there’s nothing I can do to help [them].”

If you really think that, call or e-mail me, and I can help find you an opportunity that will be perfect for you. Two months ago, I got a call from an in-house lawyer at a Fortune 50 company who didn’t know what his legal team could do. Not only did I find them some options to serve, but I volunteered with them. Seriously, call me if you want to volunteer, but don’t know where to start.

The vast majority of matters at walk-in clinics are just common-sense/paperwork based issues. Occasionally, you’ll get some really specific landlord-tenant or divorce question, but there is always someone else at these clinics with that expertise.

If you, commercial real estate attorney, take 15 minutes to help somebody deal with an issue about their neighbor’s barking dog, that frees up 15 minutes of that divorce expert’s time.

In my experience, most people just want somebody to just listen to their legal issues, and give them common sense advice. To be clear, these are all important questions that people have. They’ve taken the time out of their day to drive downtown, so whatever their question is, it’s a big deal to them.

And, sometimes, all it takes is a smart person to talk it through with them and make their life a little easier.

Looking to Help? There are only five days left in October, so, if you haven’t volunteered yet, here are two great last chances:

  • Veterans Project Legal Help Clinic, in downtown/Gulch Nashville, on Wednesday, October 30, 2019, from 11a to 1pm. This clinic is operated by Legal Aid, and it focuses on serving the veteran community. It’s not too busy (i.e. you get about 7 customers over the course of the 2 hours), with generally straight-forward questions.
  • Judge Rachel Bell’s General Sessions Music City Community Court Expungement Clinic, on Saturday, October 26. This is an incredible program that helps people clean up their criminal record, making it easier for them to find jobs. Lawyers generally need to arrive by 9:30 and should expect to stay until around 1pm.

Upcoming Legal Aid Gala. A big fundraiser is scheduled for next Saturday, November 9, 2019, An Evening at the Frist: Celebrating 50 Years of Service. This is going to be a fun night, celebrating the work of Legal Aid.

Here’s where I go a little negative. When it comes to big-law support of Pro Bono initiatives, I’ve got some pretty strong opinions. I will keep the specifics to myself, but you are welcome to ask me at the Legal Aid event.

Warning: You will be a little weirded out at how passionate I feel about the need for lawyers to be doing more, especially in Nashville in 2019.