David

Five Mistakes Judgment Debtors Make in Response to a Collections Lawsuit

I had a court docket today in Davidson County (Nashville) General Sessions Court. In “small claims court,” collections are generally limited to $25,000.00 (with some exceptions). Many defendants don’t have a lawyer, and many make the same mistakes. Here are ones I see the most:

Mistake # 5: Not showing up. Dealing with legal issues is stressful, but, if you don’t show up, you allow the other side resolve it for you–and that’s not going to be in your favor. Come to court to meet and work something out. Or call…

Mistake # 4: But don’t wait until too late to call. Don’t wait until the night before or the morning of the court appearance to call, because, by that time, it’s harder to work things out. Call and be prepared to discuss specifics; know how much you can pay per month, know what kind of agreement you’d like to make to get it resolved.

Mistake # 3: Not hiring an attorney (where you have good defenses), or, conversely, hiring the wrong attorney (where you’re spending good money for no results).

Mistake # 2: Agreeing to a resolution you can’t afford. Don’t get me wrong, as a creditor’s rights attorney, I want as much of your money as you’ll agree to pay. But, at the same time, I want you to actually pay the money. Don’t agree to $500 a month if you can’t pay it.

Mistake # 1: Silence is the worst mode of communication. Something will go wrong–it always does. Illness, job loss, something. If I’m expecting a payment from you and you can’t make it, call me. If a payment deadline comes and passes without a call, I assume you’re paying somebody else, and it’s time for me to start judgment enforcement.

It stinks to be sued, and, from my clients’ perspective, it stinks to not be paid. The process can be easier, though, and the above are easy ways to reach a resolution.

No Surprise: Newspaper Opposes Proposed Tennessee Legislation to Reduce Newspaper Publication of Foreclosure Sale Notices

Today, Memphis’ Commercial Appeal–my favorite paper in the state–published an editorial titled “Nice Break for Banks” about proposed Tennessee legislation to reduce the number of newspaper notices that banks must publish prior to conducting foreclosure sales.

Instead of the current 3 consecutive publications required by Tennessee Code Annotated Section 35-5-101, Tennessee House Bill 1920 and Senate Bill 1299 would require only one notice and would cut out some of the legalese from the property description.

Opponents, including the editorial, complain that these proposals drastically expedite an already short and unsupervised process. The proposed changes “relieve lenders of practically all sense of responsibility in the foreclosure process adds insult to injury on Tennesseans,” the Commercial Appeal says.

From the bank’s perspective, running three publication notices in a newspaper drastically increases the cost of a foreclosure, and there’s good reason to believe that newspaper publication notices do not provide any greater assurance of actual notice to the defaulted borrowers.

Frankly, who reads those gigantic supplemental sections of the paper that are entirely devoted to pages and pages of small-print foreclosure notices? (And, frankly, who reads the newspaper anymore?)

It comes as no surprise that the newspaper industry thinks the current publication system should stay the same. I’ve seen numerous publication bills that exceed my legal fees for conducting the foreclosure. (And, yes, I’m looking right at you, Commercial Appeal.)

It’s disingenuous to suggest that borrowers will be victims of stealth foreclosures in Tennessee if publications are reduced, and the editorial entirely leaves out a discussion of Tenn. Code Ann. Sec. 35-5-117, which requires a Notice of Right to Foreclose be sent to defaulted borrowers at least 60 days in advance of foreclosure sale publication.

If you want to argue that Tennessee’s non-judicial foreclosure system favors lenders, that’s a different argument (but, let’s be sure to discuss the problems with the judicial-only process in Florida as part of that debate).

But, if your argument is that more newspaper notices are the last line of defense for the “devastation–financial and otherwise–that financially strapped families” face, well…I’d save that newspaper space for advertisements.

When Enforcing Judgments, Look Back Four Years for Potential Fraudulent Transfers in Tennessee

From time to time, the judgment enforcement process hits a brick wall because your debtor is “judgment proof,” which means that they don’t own anything: no car, no property, and no cash.

This can be a disconnect from reality, especially where the debtor lives in a big house with a fancy car parked in the driveway. How can this guy be broke?

That’s when I investigate fraudulent transfers, which are transfers out of the debtor’s name to a third party—a wife, parent, or child—to keep the assets out of the creditor’s reach. This is more common than you’d think.

Tennessee has adopted the Uniform Fraudulent Transfer Act, at Tenn. Code Ann. § 66-3-301 et seq. That Act provides for a number of “badges of fraud,” such as transfers to an “insider”, transfers that render the person insolvent, transfers where equal value is not given for an asset, or transfers with “actual intent” to hinder or defraud creditors.

“Actual intent” means what someone is “thinking,” which, you can guess, is hard to prove. As a result, the Act provides some common ways to prove intent, at Tenn. Code Ann. § 66-3-305(b). These include:

The debtor retained possession of the asset;
The transfer was kept a secret;
Prior to the transfer, the debtor had been sued or threatened with suit;
The transfer was to an insider;
No equivalent value was provided; and
The transfer was made prior to a substantial debt was incurred.

Under Tennessee law, a creditor can attack fraudulent transfers from up to four (4) years preceding your lawsuit.

Long story short, when enforcing a judgment in Tennessee, don’t just examine what your debtor owns, but look also to what he used to own. Then, look back at least 4 years, because, in Tennessee, fraudulent transfers can be attacked for a long time.

Transfers of the big assets (like real property) are all of public record, so your cause of action can easily be discovered, if you know to look for it.

Ebay For Lawyers and Other Alternative Fee Arrangements

Earlier this week, the Wall Street Journal ran an article about Sphoonkle, a new ebay-like website that lets clients post their legal issues and solicit bids from lawyers to perform those services. The client would, presumably, pick the bidder with relevant experience and, most likely, the lowest bid.

As you can guess, the white-starched legal world is up in arms about the site, saying that blind competitive bidding on legal work degrades the profession.

While I wouldn’t stake the future of my practice on something called “Sphoonkle,” I like the effort to connect clients with lawyers in an innovative way. That’s half the reason I have this blog, to break down some of the traditional barriers between “the Law” and “the Client.”

Alternative fee arrangements are something that any forward-thinking lawyer has to embrace, especially in this economy. Right now, my firm is experimenting with flat rate, contingency, and blended rates when reasonable.

That having been said, I think Sphoonkle and the process behind it is flawed. Competitive bidding creates the presumption that the lowest bid is the best choice, but, with professional services, so much more goes into the work (experience, location, staffing, etc.).

Plus, as with many things, you get what you pay for. Sure, some lawyer who you’ve never met may propose to do your Will for $100, but there’s always risk in going cheap. You don’t want to sacrifice quality for savings, and that’s a fine line to walk when comparing lawyer quotes, whether you’re on ebay or in downtown Nashville.

My advice? Be careful, but always focus on quality first. But, don’t be afraid to ask about cost, and have a frank conversation about estimated costs on the front end.

Speaking at Landlord-Tenant Law Seminar on April 28, 2011

On April 28, 2011, I’ll be speaking at the 8th Annual Landlord-Tenant Law-With a View from the Bench on Litigation Seminar in Nashville, presented by Sterling Education Services.

I’ll be teaching the afternoon session, on topics covering Collections, Enforcement of Judgment, Dealing with Tenant Bankruptcy, and Legal Ethics in Landlord-Tenant law.

Here’s the full agenda. This seminar gets lawyers continuing legal education credits, but it’s also designed for rental agents, landlords, and other non-lawyers who want to learn the legal process.

Lawyers Don’t Get Paid by the Word, but They Sometimes Act Like They Do

This falls more into the category of “effective lawyering” than it does collections, but this article is a good lesson about the importance of reading your court’s rules of procedure and persuasive writing.

In the article, the Seventh Circuit Court of Appeals comes close to dismissing a party’s appeal based only on the blatant non-compliance with the Court’s 14,000 word limit in briefs, but then notes that the appeal has no merit (so side-steps that issue). The brief apparently used 18,000 words in unpersuasively making its point.

But, the decision has a lesson: know your court’s rules of procedure, and follow those rules.

And, aside from that, lawyers need to understand that less is often more. There’s a tendency to cite every case, refute every argument, and rehash every point. In our 30 second soundbite world, that’s not how we–and I include Judges here–process information. We look for summary statements, bullet points, and clear, concise statements.

And don’t get me started on those lawyers who just stand up and start reading from their briefs.

Invoice Hint: Do your Homework Before Extending Credit

As a collections attorney, bad invoices drive me crazy. A collection lawsuit is only as good as the paper it’s enforcing, so when invoices have serious defects, it’s hard to do a good job, because the other side has easy defenses.

A common issue is an invoice (or credit application) that doesn’t get the borrower’s name right. For instance, the document doesn’t clearly identify and completely name the party buying goods. As easy as it sounds, this happens all the time, particularly when dealing with corporate entities.

As an example, let’s say your invoice is simply addressed to “Smith Contractors.” Is that an “Inc.,” a “LLC,” or “John Smith d/b/a Smith Contractors”? This is critical in determining who you sue. Even if the borrower writes down “Smith Contractors, Inc.,” there might not actually be a valid company set up under that name.

Here’s an easy fix: check out your prospective borrower’s corporate status on the Tennessee Secretary of State website, by using the “Business Information Search.” You should be able to locate any valid corporate entity, and, if you can’t find it, then you should ask more questions about the legal status or name of your borrower.

Trust me, it’s better to ask those questions on the front end, before you extend the credit. If you wait to do this after the account is in default, it is probably too late.

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.