Tennessee Supreme Court provides deep analysis on elements of “novation”

The Tennessee Supreme Court issued a new opinion today, which is notable for a few different reasons.

First, it discusses a legal dispute over The Braxton, which was a luxury high-rise condo building in Ashland City, Tennessee, and which is considered by some to be one of the first big development “fails” of Great Recession Nashville.

Second, the case provides a comprehensive analysis of the law on novation.

The case is TWB Architects, Inc. v.  The Braxton, LLC  No. M2017-00423-SC-R11-CV (Tenn., July 22, 2019).

At its most basic, “novation” is when a party substitutes a new obligation for an existing obligation, such that, after the novation, the second obligation is the only legally binding remaining obligation. Continue reading “Tennessee Supreme Court provides deep analysis on elements of “novation””

Judgment Creditors are Limited to the terms of their Foreign Judgments

Last week, the Tennessee Court of Appeals issued a decision on an action to enforce a default judgment under the Uniform Enforcement of Foreign Judgments Act, found at Tenn. Code Ann. §§ 26-6-101 to -108.

The case has a few interesting twists and turns, and the full text can be found at The Wolf Organization, Inc. v. TNG Contractors, LLC, M201800073COAR3CV, 2019 WL 2883813 (Tenn. App. July 3, 2019).

Today, I’m looking at only one issue: Whether the Judgment Creditor in a Foreign Judgment Enforcement action can get additional attorney’s fees for its efforts to domesticate the judgment.

Continue reading “Judgment Creditors are Limited to the terms of their Foreign Judgments”

Courts will enforce deeds on their express text and will not reform deeds lightly

A funny thing sometimes happens when I’m really close to taking a judgment against somebody.

At some point after the initial demand letter goes out and usually before I take my judgment, they start transferring all their assets out of their name.

We’ve talked about this before. Tennessee has a 4 year statute of limitations for fraudulent conveyances, and so a creditor has the ability to “undo” these “eve of judgment” transactions.

But, nevertheless, when finances get bad and creditors are knocking at the door, debtors still transfer property out of their names.

The Tennessee Court of Appeals recently looked at a matter like this in Scott Trent, et. al. v. Mountain Commerce Bank, et. al., E201801874COAR3CV, 2019 WL 2575010 (Tenn. App. June 24, 2019).

In that case, two individuals owned a piece of real property and, in 2010, one of them quitclaimed all interest over to a third-party limited partnership. In 2012, creditors started taking judgments against the individuals and, in 2013, a judgment lien was recorded.

After another sale to some innocent third party buyers, the issue came to light: When only one of the individuals signed the 2010 quitclaim, was all the ownership interest transferred, i.e. did the 2013 judgment lien attach to that remaining interest?

The non-creditor parties argued that the clear intent of the 2010 quitclaim was to transfer all interests to the new owner. They even recorded a Deed of Correction to fix the omission of the other individual’s signature.

The argument was based on the concept of reformation of deeds.

“Reformation is an equitable doctrine by which courts may correct a
mistake in a writing ‘so that it fully and accurately reflects the agreement of the parties.’” Lane v. Spriggs, 71 S.W.3d 286, 289 (Tenn. Ct. App. 2001).

“A court of chancery in Tennessee has the power to reform and correct errors in deeds produced by fraud or mistake. To be the subject of reformation, a mistake in a deed must have been mutual or there must have been a unilateral mistake coupled with fraud by the other party, such that the deed does not embody the actual intention of the parties.” Wallace v. Chase, No. W1999-01987-COA-R3-CV, 2001 WL 394872, at *3 (Tenn. Ct. App. Apr. 17, 2001) (internal citations omitted).

“Still, we have also held that reformation on the basis of mistake is only appropriate where the intent of both parties is clear and is the same.” Hunt v. Twisdale, No. M2006-01870-COA-R3-CV, 2007 WL 2827051, at *8 (Tenn. Ct. App. Sept. 28, 2007). “And, mistake must be shown by “clear, cogent, convincing evidence.” Lane, 71 S.W.3d 289-90 (quoting Dixon v. Manier, 545 S.W.2d 948, 950 (Tenn. Ct. App. 1976)); see also Sikora v. Vanderploeg, 212 S.W.3d 277, 287 (Tenn. Ct. App. 2006) (“Because the law strongly favors the validity of written instruments, a person seeking to reform a written contract must do more than prove a mistake by a preponderance of the evidence. Instead, the evidence of mistake must be clear and convincing.”). Sipes v. Sipes, No. W2015-01329-COA-R3-CV, 2017 WL 417222, at *3-4 (Tenn. Ct. App. Jan. 31, 2017).

The present opinion turned on the fact that the second owner didn’t sign the 2010 quitclaim. ” Tennessee law allows reformation of a deed when the instrument does not “reflect the true intent of the parties.” Holiday Hosp. Franchising, Inc. v. States Res., Inc., 232 S.W.3d 41, 51 (Tenn. Ct. App. 2006). Because only one owner signed the 2010 quitclaim, the text of the deed was clear, and a party not listed or referenced on the deed can’t assert a mistake or be added.

I’d guess that the parties absolutely intended that 100% ownership was to transfer in that 2010 quitclaim, and it’s not as easy as a decision as the Court makes it seem to be. In the end, the Court may have balanced the equities here.

 

 

 

Increase in Tennessee Homestead Exemption Fails. For Now.

Last month, the hot topic in the Tennessee creditor rights lawyer world was the rumored increase in the Tennessee homestead exemption.

Well, “rumor” is an understatement. This proposed change had real momentum and had a very strong chance of happening.

As you’d expect, this proposed change completely freaked out the creditor lawyers. I’m on the Tennessee Bar Association’s Creditor’s Practice Executive Committee, and here’s an excerpt of an email I received about it all:

This bill is bizarre. The exemption would go from the current $5,000.00-$25,000.00 to $150,000.00-$750,000.00 – a 3,000% increase!

This proposal should be officially opposed by the TBA. It would have a huge impact on banks’ and businesses’ ability to be repaid their just debts and judgments. Judgment debtors could hide any monetary assets they have in real estate and avoid having to repay what they promised to pay. This bill would legislatively tell debtors they do not have to repay their debts.

This sounds like something which Elizabeth Warren and Alexandria Ocasio-Cortez might suggest.

This is not a close call. This bill is off the charts bad.

So, yes, the creditor response was pretty clear, and a quick coalition formed involving the Tennessee Banker’s Association, the Tennessee Bar Association, and a handful of other similar groups.

In the end, the House Judiciary Committee deferred the homestead bill until next year. The bill will be moved to the committee’s first calendar of next year. When it comes up then, it will be in the form considered by the Committee in its last consideration, which was in the “flat” amount of $35,000. 

Ultimately, this seems like a fair amendment. Tennessee is pretty squarely in the bottom, with one of the lowest homestead exemptions in the nation.

When it comes up, I hope the sponsors propose an increase that reflects an adjustment for inflation, and not some drastic increase designed to make Tennessee a haven for asset protection. The fatal flaw in this proposed change during this session was that there was no justification or supporting data for an increase to $750,000 or a million dollars, especially when exemptions are designed to provide a “fresh start” to broke judgment debtors. It all seemed arbitrary.

Oh well, stay tuned, and I’ll report back in 2020.

2019 Tennessee Legislature is considering a new homestead that would eliminate a creditor’s ability to collect against residential real property

One of my most common phrases on this site is “Tennessee is a creditor friendly state.” Another is “Always file a Judgment Lien against real property.”

Well, that may change very soon. The Tennessee Legislature is considering a very debtor-friendly increase to the homestead exemption that will make Tennessee, literally, one of the most generous states in the country for debtors.

I’m specifically talking about House Bill 0236 and Senate Bill 0399, which would increase Tennessee’s homestead exemption to as high as $750,000. Except for those states that have an “unlimited” exemption, this would make Tennessee’s homestead the highest in the nation.

The Legislature considered a similar increase in 2012, which I wrote about back then, which didn’t pass.

“Exemptions” allow a debtor to protect certain property from the reach of creditors. Exemptions are designed so that a judgment creditor can’t take everything, so household goods, retirement accounts, and other necessities can be exempted, so that a downfallen debtor can keep the shirt on his back and rebuild his life.

Or, if this new law passes, the downfallen debtor can keep 100% of the equity in his $750,000 house entirely out of the reach of creditors.

Wait a second. Is this law designed to protect downtrodden debtors seeking a fresh start in life (who very probably do not have high value real property at all) or, maybe, is it designed to protect high income individuals whose businesses fail?

Because that’s all this proposed law does. It grants fairly absolute protection to the high value real property owned by judgment debtors in Tennessee, and all the garnishments, levies, liens, and bankruptcies will never touch a penny of that equity.

Double Check Your Served Summonses: Tennessee Legislature To Amend Service of Process Statute…Effective January 2020

A very terrifying issue has been circulating in Tennessee courts (well, terrifying to the Tennessee creditor’s rights bar) over the past year regarding service of process in Tennessee.

It all relates to 13 very plain, unambiguous words: “The process server must be identified by name and address on the return.”

That text is from Tenn. Code Ann. § 16-15-901(b), and, over the past ten months, courts throughout the State have been, rightfully so, throwing out lawsuits and setting aside default judgments where a served warrant lacks the process server’s name and address.

Note: When a statute uses the phrase “must be,” you’d better do what it says.

Here’s why: Where the warrant lacks this required information, it doesn’t comply with Tennessee law for valid service of process. Where there’s no valid service of process, there’s no jurisdiction over the defendant. Where there’s no jurisdiction, the Court can’t grant valid relief in a judgment in the proceeding.

This seems like a very low requirement to satisfy (name and address?), but it’s a big deal because, if you’ve ever dealt with process servers and/or you’ve seen a served Summons/Civil Warrant, you have to be diligent and watch for this defect.

Here’s the good news: Yesterday, the Tennessee Legislature took a big step toward amending this statute to give plaintiffs some relief. The Senate Judiciary Committee passed the proposed amendment (the House Bill is at 0393 (and the Senate Bill is at 0456). The proposed law would take effect on January 1, 2020.

Disclaimer: I’m the lead counsel–for the judgment debtor–on one of the two primary cases that brought this issue to a head in 2018.

Second Disclaimer: I’m one of the legislative liaisons with the Tennessee Bar Association who worked on this text and met with the Tennessee Legislators/sponsors a few weeks ago to change this statute.

Third Disclaimer: I’m arguing my case on the old law tomorrow in front of the Tennessee Court of Appeals.

All this reminds me of the old lawyer joke, the one where a lawyer sees a car crash, runs up, and says “I saw everything that happened, and I’ll take either side!”

It’s a funny joke, but, please know, for the next eight months…check your Summonses and Civil Warrants to make sure they comply with the existing law. If you don’t, that sound you’ll hear will probably sound like a car crash.

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.