Tax Sale Buyers Beware: Your property could be Redeemed

Sure, one of the best deals in distressed real estate is to buy property at a county tax sale, where you can purchase a property–basically–at an opening bid that is generally the past due taxes.

But, that strategy has a number of down-sides. The biggest is the taxpayer / property owner’s ability to “redeem” the real property by coming back and paying the debt.

This redemption period is defined at Tenn. Code Ann. § 67-5-2701 and, generally, lasts a year.  And, trust me, if you’ve paid money for a distressed property that’s gone to a tax sale, you probably don’t want to wait an entire year to do anything with the property, especially where the property is abandoned or in disrepair.

Well, the Tennessee Legislature has some good news for you. In legislation sponsored by John Stevens in 2019, there are some changes to the redemption law that allows a shorter redemption period based on the number of years a property has been delinquent.

This is quickly summarized as follows: Continue reading “Tax Sale Buyers Beware: Your property could be Redeemed”

A “conscience shocking, inadequate price” will not void an otherwise valid tennessee foreclosure

As long time readers know, Tennessee has a nearly ten year old foreclosure deficiency statute that closely scrutinizes real property foreclosure sale prices. The law is found at Tenn. Code Ann. §  35-5-118, and I argued the first opinion discussing the statute.

Long story short, a foreclosing creditor may be prohibited from pursuing its deficiency balance where the foreclosed property sells “for an amount materially less than the fair market value of property at the time of the foreclosure sale.”

Well, what about situations where there’s no deficiency balance owed? Does the foreclosure sale price have any impact on the validity of the sale?

The quick answer is “no,” says the Tennessee Court of Appeals in McKenzie v. Brandywine Homeowners’ Association (W2018-01859-COA-R3-CV, Tenn. Ct. Apps., June 12, 2019).

In that case, the HOA foreclosed on an otherwise lien-free piece of real property pursuant to its $4,445.90 HOA lien. Presumably, with no other liens and no other bidders, the HOA had no reason to outbid itself, and the HOA purchased the property for $4,445.90. After the owner challenged the validity of the sale (due to the low price), the trial court wrote:

The foreclosure sale price shocks the Court’s conscience; however, pursuant to Brooks v. Rivertown on the Island Homeowner Association, Inc., No. W2011-00326-COA-R3- CV, 2011 WL 6034781 (Tenn. Ct. App. Dec. 6, 2011), applying Holt v. Citizens Central Bank, 688 S.W.2d 414 (Tenn. 1984), a conscience-shocking foreclosure sale price standing alone, absent some irregularity in the foreclosure sale, is not sufficient grounds for setting aside a lawful foreclosure sale.

In the end, the Court of Appeals followed this reasoning from Holt: “If a foreclosure sale is legally held, conducted and consummated, there must be some evidence of irregularity, misconduct, fraud, or unfairness on the part of the trustee or the mortgagee that caused or contributed to an inadequate price, for a court of equity to set aside the sale. ”

The take-away is this: The “materially less than fair market” analysis under Tenn. Code Ann. §  35-5-118 only applies to attacks on deficiency judgments, not the validity of underlying sales. If the sale is valid in every other way (notice, timing, the publication, etc.), there is no express or implied requirement under the law that the foreclosure sale generate any minimum price.

This makes sense. If the HOA were required to artificially bid up the property (when no other party, including the owner, appeared), then the HOA would be simply paying that equity over to the owner. If the foreclosure is otherwise effective, the Tennessee statutes places the burden of protecting that equity on the property owner. There are a number of places under the Tennessee statutory schemes where actual protections like this are imposed, such as sheriff’s sales (which must generate 50% of fair market value). There are no such protections in the foreclosure statutes.

As this opinion acknowledges this: “If the rule is to be altered, it must be done by the High Court, not this Court.”

Tennessee’s Non-Judicial Foreclosure Process Can be Intimidating

Tennessee is a non-judicial foreclosure state.

What that means is that, when conducting a foreclosure, there is no need to file a lawsuit or get a court involved. Instead, the foreclosure attorney can do it all via a variety of paperwork, without any court involvement.

As a lender or foreclosing creditor, that’s pretty awesome, since you may be able to avoid legal expense and, in some cases, third party scrutinty. (Well, I mean, I only enforce liens that are 100% valid, so I have no issues with this, but some might.)

As a foreclosure attorney, however, a non-judicial process can be a little scary, since the success of the process rises or falls based entirely on your compliance with the statutes, relevant provisions of the deed of trust, and your own paperwork.

In fact, on the first foreclosure I ever handled all on my own, I was terrified by the process. I was so uncertain about the process that I actually talked the client into the benefits of conducting a judicial foreclosure (both because the facts were a little weird, and also because it sure felt reassuring to have a Judge “bless” my process via a court order).

Since then, I’ve done hundreds more foreclosures, but I still remember that initial uncertainty about doing such a significant legal process, all without any court or third party involvement.

The point of today’s post is to: (1) remind you that Tennessee is a non-judicial foreclosure state; and (2) note that, despite that, a creditor always has the ability to file a Complaint for Judicial Foreclosure where the law or facts present a weird issue.

In the end, the real test of your compliance with all the requirements of the Deed of Trust and Tennessee statutes will the title company in the sale transaction when you go to sell the property to a later buyer. If you don’t get the process right, you’ll end up with a defective title and an unmarketable mess.

Good luck, new foreclosure attorneys.

May the Lawsuit Filed Against You be an Interpleader Complaint

Today’s post is just a quick follow-up to one from a few years ago.

That post, titled Interpleaders: The Only Time People Like to Hear from Me, discussed what an interpleader action is, why a bank/creditor would file an interpleader, and, most importantly, why it’s good news to receive one.

With it being the start of the year, a lot of banks and law firms are dealing with escrow and trust account balances, and trying to resolve those balances (i.e. pay the funds out). If those funds relate to a foreclosure and the foreclosing bank or trustee isn’t sure who is the proper party to send them to, they’ll probably file a Complaint in Interpleader.

So, to those of you who have had property foreclosed on in 2018 and now the bank has filed a lawsuit, there’s a chance that the lawsuit is good news.

A small chance, but there’s always hope.

Tennesee Legislature Expands Hours for Foreclosures

It’s always a surprise when I take a quick glance at a statute and discover a discrete, subtle change.

For instance, today, I was scheduling a foreclosure sale.

For years, the statute on “when” you could conduct the sale (Tenn. Code Ann.  § 35-5-109) has said that a sale can be made on “any day Monday through Saturday” and “between the hours of ten o’clock a.m. (10:00 a.m.) and four o’clock p.m. (4:00 p.m.)” (excluding state or federal legal holidays).

Apparently, in 2017, the legislature changed Tenn. Code Ann. § 35-5-109 to expand the time of day you can do a sale. Now, you can conduct sales “between the hours of nine o’clock a.m. (9:00 a.m.) and seven o’clock p.m. (7:00 p.m.).”

Sometimes, the legislature works in mysterious ways. I have no idea why this was law was changed.

I understand the utility of allowing sales earlier in the day, but why allow them to be as late as 7pm at night? Who demanded this?

Oh well. I guess the good news is that I can coordinate my future foreclosures in Shelby County with the tip off for a Memphis Grizzlies game.

Small Interpleader Actions are Allowed in General Sessions Court

A few years ago, I said that Interpleader lawsuits are the only times people like to hear from me. My lawyer marketing materials, literally, say “It’s bad news if you’re hearing from David Anthony.”

In that blog post, I talked about why interpleader lawsuits are good news. Well, sort of good news. I mean, it’s still a lawsuit and still a hassle to deal with.

Here’s a little bit better news. There’s a statute that allows a party to file an interpleader lawsuit in General Sessions Court, which means that the parties will: (a) get the money quicker; and (b) with less legal fees.

The statute, Tenn. Code Ann. § 16-15-731(a), provides in part that:

Notwithstanding any rule of court or any law to the contrary, actions in the nature of interpleader, in which the value of the money that is the subject of the action does not exceed the jurisdictional limit of the general sessions court, may be filed in general sessions court under this part. …

So, if the amount is less than $25,000, and the matter is filed in General Sessions Court, you should be really happy to hear from me.

5 Ways to Minimize Losses When Borrowers Default

Borrowers of all types are still facing the harsh reality of being overextended in a tight economy. And unfortunately, credit professionals are still playing a central role in that reality. Losses from default and bad debt are inevitable, but there are ways to minimize the impact on your bottom line. Follow these five tips to help soften the blow.

1. Review your documents: The worst time to discover defects in your loan documents is after you’ve started the adversarial enforcement process. At this point, it may be too late to have the customer agreeably sign any corrective documents. Even more dangerous is the Bankruptcy Trustee, who can exploit certain defects in security documents and take collateral from both the customer and you. Before you declare default, take a few minutes to review the signatures and terms of your loan documents and to confirm that your collateral documents are in order and properly recorded.

2. Strengthen your position: If there are no defects and your customer needs more time or more money, use this as an opportunity to negotiate for additional collateral or other security for your credit advances, such as an additional guarantor. The customer will appreciate your assistance, and you’ll improve your chances for repayment.


4. Know your customer:
Collecting on unpaid bills doesn’t start when you send your attorney an unpaid account; it starts when your new customer fills out its Credit Application. In your Credit Application, be sure to have your customers provide banking references, all corporate information, and personal guarantees of the company’s principals. When your customers pay by check, keep copies of the checks. When your lawyer obtains a judgment, those banking references and old checks will be the first place you’ll start your collection efforts. When you suspect that the customer’s business is suffering, take an hour and visit your commercial customers at their business or job site; if done right, it builds a good relationship, as well as provides you an opportunity to confirm that business operations are running smoothly.

5. Bend, but Don’t Break: The days of easy credit are long gone, and so should be the days of threatening to shut down businesses unless payment in full is received in 48 hours. Granted, there is still a time and place for such hard bargaining, but savvy lenders know that a little bit of time and well-placed cooperation can make the difference between a bankruptcy filing and a customer being able to ride out a rough patch.