David

Speaking Engagement: 5th Annual Law Conference for Tennessee Practitioners

The Tennessee Attorneys Memo is hosting the 5th Annual Law Conference for Tennessee Practitioners in Nashville on November 3 and 4, 2011.

They advertise it as “[f]eaturing an all-star cast of prominent Tennessee judges and attorneys and 15 hours of CLE credit, including 3 hours of DUAL credit.”

They’ve invited me to speak on issues surrounding Tennessee collections and Judgment Enforcement, and I always agree to anything where I can be described as an “all-star.”

I’ve spoken at this conference before, and it’s a good event, with tons of materials and smart presenters. I’m planning on jazzing up this year’s creditors rights presentation with a discussion of social media law and the interplay between social media and the Fair Debt Collections Practices act in collections.

You can sign up for one or both days here. I’ll be speaking on Friday.

Nashville Bankruptcy Court Ruling Finds That Delay in Foreclosure Can Lead to Waiver of Rights

The Tennessean wrote about Nashville Bankruptcy Judge Paine’s recent opinion that subordinated a senior lien-holder’s Deed of Trust where the bank delayed foreclosure on the property. The debtor sued the bank for resolution, because homeowners’ association dues were continuing to accrue in her name and, under the Bankruptcy Code, a debtor can remain liable for post-petition HOA dues on property.

In the case, In re Sheryl Lynn Pigg, U.S. Bankr. Adv. Case No. 10-00642A, BAC Home Loans took possession of and secured a flood damaged vacant home by changing the locks and posting notice of the possession. In her Chapter 7 Bankruptcy, the Debtor surrendered all interest in the property to the Bank. But, despite all that, the Bank never actually foreclosed–the property just sat vacant.

During that time, however, the HOA continued to accrue post-petition unpaid dues, which the Debtor continues to be liable for under 11 U.S.C. § 523(a)(16).

The Debtor filed the Bankruptcy lawsuit in order to cut off her liability for the dues, either by having the Judge rule that BOA is liable by virtue of its possession or by forcing BOA to foreclose.

The Bankruptcy Court ruled that the Bank had taken possession of the property and, as a result, was liable for the accruing HOA dues. But, rather than just using the text of the HOA obligations under the Master Deed (which supported the same result), the Court used its equitable powers under the Bankruptcy Code to order a sale, under Section 363, of the property, with the Bank’s lien claim subordinated to the costs of the Trustee’s sale and to the HOA debts owed (and HOA attorney fees). The Court expressly found that “the Bank and the HOA have consented to the sale by their inaction.”

This is an interesting ruling, because nothing in the Bankruptcy Code allows a Court to subvert the priority of a valid and properly perfected property lien. Here, using only its equitable powers, the Court fashioned a fair outcome, but a clear departure from state law lien priority statutes.

In light of this opinion, lenders may need to be aware of any delays in initiating the foreclosure process. Nothing in state law expressly requires that banks foreclose under any time deadline, but this opinion suggests that lenders open themselves up to attack where they wait. This is dangerous new precedent.

A copy of the full opinion is here: Pigg Opinion Bankruptcy Court

Debt Settlement Advice: Bring Proof that You’re Broke or Don’t Bother Making an Offer

I’m a creditor rights attorney, and, with the economy the way it is, I’m filing collection lawsuits left and right.

In most cases, the borrowers are too broke to hire a lawyer to respond, so they ignore the lawsuit and let a judgment be entered against them. In some cases, however, the borrowers are pro-active and call me to make a settlement proposal.

In the past, when property still had equity and people were just one loan application away from a $40,000 Home Equity Loan, creditors weren’t listening to low-ball offers. Even today, it’s still not true that banks will happily accept 10% of whatever they’re owed.

If you’re going to make a low-ball offer, support it with proof that you’re paying them the last pennies you have. You need to show the creditor:

A recent financial statement;
A list of all assets, such as cars, real property, cash, other bank accounts;
A list of all debts (which shows the creditor who else is chasing you);
Copies of recent bank statements;
Recent pay stubs;
A budget showing your monthly expenses; and
Anything else that proves that you don’t have the money to make a better offer.

Again, the rumors of debt settlements for pennies on the dollar are wildly exaggerated. Creditors will accept discounted payments, but they aren’t approaching these proposals blindly. When in doubt, they decline bad proposals.

If you want a steep discount, you have to work for it, and assembling the information listed above is step one in the process.

Creditor Issues in Memphis Bankruptcy of Rusty Hyneman Sound Like Law School Exam

Law school exams are a strange creature. Generally, they present a crazy set of facts with a dozen twists and turns, all of which raise different legal issues. The student’s goal is to spot and discuss those issues.

I thought I was reading a law school exam question when I read this Commercial Appeal article about the Bankruptcy filing by Memphis developer Rusty Hyneman.

Hyneman is real estate developer, who has fallen on hard times, and his creditors are aggressively coming after him. Last week, one bank showed up with the sheriff to seize all personal possessions.

But, Hyneman was ready: he had documents showing that he didn’t own any of the stuff in his 12,000 square foot house free and clear. He had pledged it as security to another creditor…his dad.

Now, the banks are in issue spotting mode. They are alleging that the lien granted to the elder Hyneman is a fraudulent conveyance. They are attacking the priority of the father’s lien. They are attacking Hyneman’s proposed sale of his assets to repay his dad. Finally, they are arguing that the proposed purchaser of the assets is a sham entity.

Man-o-man, that’s four legal issues right there, and you can bet there will be a few more.

The best part about the story? The Judge handling this case is Judge Paulette Delk, my former Article 9 professor in law school. This Hyneman case will be a breeze for her, since she’s dealt with law school exams questions with more issues raised than this.

Enforcement and Domestication of Foreign Judgments in Tennessee: Simple Under The Uniform Enforcement of Foreign Judgments Act

To creditors’ chagrin, judgments aren’t enforceable across state lines. Before a Tennessee judgment can be enforced against the debtor’s assets in Florida, 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.

Fortunately, this process is governed by a commonly adopted act, the Uniform Enforcement of Foreign Judgments Act (Tenn. Code Ann. § 26-6-101, et. seq.), which creates a stream-lined process for creditors to follow.

It’s generally just a two step process. The creditor must (1) file an authenticated copy of the judgment and (2) file a supporting Affidavit. In most cases, the judgment of the sister state will be entitled to “full faith and credit” by the new court.

There are limited grounds for attack on domestication. The defendant doesn’t get to re-litigate the case; instead, he or she can only contest procedural defects, like no service of process or fraud. These issues must be raised in the 30 days after service of the domestication action.

On June 30, 2011, the Tennessee Court of Appeals issued a new opinion, at Cadlerock, LLC v. Sheila R. Weber, which provides a good summary of the issues and law presented on foreign judgment enforcement actions. This Act isn’t often litigated, but this is a good case to have handy, just in case.

Your Legislature Gets One Right: Revised Tenn. Code Ann. § 35-5-101 Allows Postponement of Foreclosure Sales

There are a number of reasons why a lender would postpone a foreclosure sale, but the most common is that the borrower and lender are trying to resolve the default and avoid the sale. This usually involves the payment of enough money to bring it current (or “current enough”). These efforts often fail, because time runs out, and the lender doesn’t want to incur the expense of cancelling and later re-publishing the sale notice.

In the past, Tennessee law has been unclear as to, first, whether a published sale can be postponed, and, second, whether the lender needs to re-run the Sale Notice publication for a postponement.

As to the first question, most lenders look at their mortgage instrument, to see whether there is express language allowing adjournment. Absent that, the lender will not postpone the sale.

As to the second, there has been no real consensus, other than a vague “it depends on how long the postpone is for.”

In this past session, the Tennessee Legislature provided an answer, in changes to Tenn. Code Ann. Sec. 35-5-101, effective July 1, 2011, which allow for postponements for up to one year after the initial sale date and require certain notices to the borrower.

This is a law that should be good for both borrowers and lenders. It provides lenders with some assurance that they can slow the process down and negotiate with their borrowers, but without the risk of introducing a defect into their sale process. For borrowers facing potential foreclosure, it provides more time to get the issues resolved.

A rare case where everybody wins.

Using Social Media to Collect Debt: If You Can Navigate the Ethical Minefield, It Works 5% of the Time

A new trend in lawyer Continuing Legal Education are seminars advocating use of Social Media to Collect Debts. The seminars either advocate for social media as the tool of the future or caution that it is an ethical trap for debt collectors.

It’s a hot issue in debt collection. NPR did a story on this last year, and the Federal Trade Commission recently conducted a “Debt Collection 2.0” workshop on the issue. Frankly, it’s such a new issue that the Fair Debt Collection Practices Act (FDCPA) doesn’t exactly fit, but it’s close.

It’s definitely a trap for the debt collector, especially given that the FDCPA seems to apply to all communications, regardless of whether it’s a letter, e-mail, or friend request. Does a creditor have to identify themselves as a debt collector under the Act in an initial friend request? Does the friend request (i.e. an “initial communication”) have to be followed by the Act’s required debt validation warning (15 USC 1692g)?

I have no idea. My philosophy is, when in doubt about ethics, choose the safe route. Here, the safe route is avoiding affirmative contact but, if the profile is public, then by all means use whatever you can publicly find.

Just yesterday, I was trying to locate a defendant who had disappeared–all of the searches kept going back to his old house, where the residents swore he no longer lived. But, I found an online profile for him on Map My Walk, a site that allows people to track their running and walking routes. You can guess the rest: everyday, his walks started and ended at the address that I had, providing confirmation of his address (and what time he was home in the afternoon).

At one time, I saw social media as the future of debt collection, especially in the early days of social networking sites (Myspace, Friendster, early Facebook), when people didn’t think twice about privacy settings. Now, people are more savvy about online privacy. (And it’s not necessarily to dodge debt collections–it’s more likely to avoid the boss seeing your party photos.)

Even though people can post pictures of their new car or brag about their promotion at work, most people know better. But, not everybody knows better–and, if they are going to put it online where anybody can see, they can’t complain when a debt collector finds it.

My final take? It’s not the wave of the future in collections. It’s a box to check in the process, but not the solution to finding debtors or their assets.

Slow Pay Motions in Tennessee: They’re Not That Bad

Some creditor clients believe that, once they get a judgment, it’s then just a matter of counting the money. Well, not my clients, because I constantly warn them all that a judgment is just a part of the collection process. Collections takes time, I tell them, and the judgment debtor may want (or need) to stretch the repayment out.

And, whether a creditor likes it or not, a debtor can force a creditor to accept payments over time.

It’s called a “Motion to Pay Judgment by Installments,” and it’s provided for under Tenn. Code Ann. § 26-2-216. That statute allows a debtor to ask that any wage garnishment or bank levy be stayed so that the debtor can make court ordered installment payments. The motions must be supported by an affidavit showing the debtor’s inability to pay the debt with funds other than wages, and this is usually supported by a budget showing income and expenses.

In this economy, you’re going to see these. Here are some hints:

The debtor may make only one of these motions. See § 26-2-216(a)(3).
Once the debtor defaults with any obligation under the payment proposal, all bets are off and you can collect.
Because it requires an affidavit and supporting documents, it’s a good source for finding your debtor’s financial information (hint: look for Motions your debtor has filed in other cases).
These can be set for “review” hearings, so, if a debtor is proposing something that doesn’t work long-term, ask the Court to set a review hearing in 6 months.

Here’s why I like Slow Pay Motions: They indicate a debtor trying to get a handle on their finances–they are making a proposal to pay you back and are trying to do something they can realistically afford.

Plus, within the spectrum of forcing you to accept payments, these Motions are better than the alternative (i.e. a Bankruptcy filing).

To Pay or Not to Pay: Auto Mechanic’s Liens in Tennessee

As a creditors rights attorney, you can guess that I’m frugal and don’t spend lots of money on new cars. My Acura is over 7 years old, and I’ve been very lucky: no big expenses or repairs. Until today, when I took it in to get a funny noise checked out. I learned that, in car talk, “funny” is synonymous with “expensive.” Yikes.

So, today, I’m talking about auto mechanic’s liens on cars in Tennessee.

Tenn. Code Ann. § 66-19-101 allows a mechanic to assert a lien for repairs performed on”any type of conveyance used in the transportation of persons or merchandise either by land or by water or through the air” that are performed at the request of the owner. Under T.C.A. § 66-19-102, this lien lasts 12 months or until the end of the lawsuit to enforce the lien.

Under the common law, mechanics had to retain possession of the vehicle in order to maintain this lien. Give the car back to the customer, the cases said, and you lose your lien. Ask any mechanic, and they all think they have to retain the car or lose the lien.

That’s incorrect, as under the above statutes, possession is no longer required to preserve the lien, but here’s the catch: in order to preserve the priority of the lien against existing lien-holders, the mechanic has to retain possession of the vehicle and not return it to the owner after the repairs. This part of the law comes from Tennessee’s Article 9, at Tenn. Code Ann. § 47-9-310, which determines priority between competing liens.

Retain the car, and you jump ahead of the title lender; turn it over, and you go to the back of the line.

Two more interesting points. First, even if the owner files Bankruptcy, the repairman can retain possession and not violate the stay, because under 11 U.S.C. 362(b)(3), any action to “maintain or continue” your lien’s perfection is not stayed. See In re Hamby, 360 B.R. 657, 662 (Bkrtcy.E.D.Tenn.,2007).

Second, if the owner comes on to your lot and takes the car back, without your consent, the law does not deem the repairman to have relinquished his rights: “[A] possessory lienholder does not lose his lien where a property is taken from his possession without his consent.” Associates Commercial Corp. v. Francisco, 667 S.W. 2d 481, 482 (Tenn. Ct. App. 1984).

So, auto mechanics do indeed have lien rights on cars they repair, whether or not they maintain possession. Of course, none of this is any help to me, because the very big bill waiting for me later today is still far cheaper than the 2011’s sitting out there on the lot.

Proposed Tennessee Legislation Seeks to Alter Liability for Attorney’s Fees and Expenses in Litigation

An interesting bill, House Bill 1156, Senate Bill 651, is making its way through the Tennessee legislature, which will radically shift the risks of litigation by awarding litigation costs and “reasonable and necessary attorney fees” to the prevailing party, even where no agreement to pay such fees exists between the parties. Today, the legislation passed in the House Judiciary Subcommittee–unanimously.

This would be very different than the current law. As it is now, a party cannot recover attorney fees in Tennessee litigation unless they have a written agreement granting the right to recover those fees or unless they sue under a statute that expressly provides those rights. Absent either of those, a creditor can’t recover attorney fees.

This bill, which would be the new Tenn. Code Ann. 20-12-119, awards “reasonable and necessary attorneys fees” (as well as other litigation expenses) in civil cases to the “prevailing party” (as long as the party did not hire its counsel on a contingency fee basis). The text says that the “judge shall” grant this recovery–it’s not discretionary.

The ability to recover attorneys fees is a big deal in litigation, as the potential of paying for the other side’s lawyers is often a detriment to prolonged fights. On creditor actions, especially smaller claims, creditors often base their decision on whether to sue on whether they can recover their expenses. Without that, the cost of suing on debts and small claims doesn’t make sense.

This proposed legislation is certainly a drastic change to Tennessee practice and, as much as I think it would benefit creditors in general, I question the fairness of the law. Frankly, litigation isn’t always “Right Versus Wrong,” and matters sometimes get tried not because of stubbornness, but because there is no clear answer to an issue. To award fees in such disputes without any such agreement seems unduly punitive.