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.

Employers, Banks, and Creditors: Here’s What Happens Immediately After Service of a Garnishment (Per Rule 69.05)

When an employer or company receives a garnishment, they are generally confused as to what to do next. Granted, there is very small print on the backside of the form that purports to provide instructions. Good luck reading, much less understanding, that text.

As a legal matter, Tenn. Rule Civ. P. 69.05 is designed to provide the actual, “legal” instructions to the garnishee. Specifically, Rule 69.05(3) imposes the following timeline for compliance:

Step One: Next Business Day After Service: “…ascertain whether the garnishee holds property of the debtor. If so, the garnishee shall mail one copy of the writ of garnishment with the notice to the last known address of the judgment debtor. Where the garnishee is a financial institution, the balance in the judgment debtor’s accounts on the night of the service date is the amount subject to that garnishment writ.”

Step Two: Within Ten Days of Service: “…file a written answer with the court accounting for any property of the judgment debtor held by the garnishee.”

Step Three: Within Thirty Days of Service: “…file with the court any money or wages (minus statutory exemptions) otherwise payable to the judgment debtor. If the garnishee holds property other than money or wages, a judgment may be entered for that property and a writ of execution may issue against the garnishee.”

Rule 69.05(3) has some fairly dense text (i.e. it says a lot of things in a short amount of space). Here’s a few quick take-aways.

  • First, where you’re dealing with a bank, timing is everything. A creditor will want to time their garnishment to maximize the recovery. Knowing that the amount is determined “on the night of the service date” is useful information.
  • Next, if the creditor is seeking “property other than money or wages,” the rule allows for the entry of a judgment for that property, with a writ of execution to issue. This would be where a garnishee is holding personal property, choses in action, or a judgment. This subsection suggests a very efficient “turn-over” procedure for that type of property.

One issue the creditor will have is that there are other statutes, court precedent, and local rules that deal with these same issues. Per the Advisory Commission Comment, the intent here was to “consolidate procedures…into a single orderly rule.”

So, when in doubt, follow Rule 69.05.

Tennessee Post-Judgment Interest Rate at All-Time Modern High

Once upon a time, computing post judgment interest was really, really easy. But, as you’ll recall from my post in February 2013, Tennessee switched from a flat-rate of 10% to a variable rate under the (then) new version of Tenn. Code Ann. § 47-14-121.

Under that statute, the post judgment interest rate is subject to increase every six months. And, lately, it’s been steadily going up, every six months.

On January 1, 2019, it went up again, to 7.45%.

This is the highest that it’s been, since the statute changed.

New Banks Opening in Tennessee is Great News for Creditor Lawyers

Nashville is a hot market right now.  One statistic I’ve seen says that anywhere from 70 to 100 new people move to the Nashville area every day.

And, it’s not just people. It’s also businesses. And banks. Today, the Nashville Business Journal reports that JPMorgan Chase is opening its first standalone branch in Nashville. Earlier this year, PNC Bank announced its own expansion into the Nashville market.

This great news for bank lawyers in Nashville, since more banks means more loans for lawyers to work on (both good and bad loans–we’ll take either).

And, it is particularly good news for Tennessee creditor rights lawyers when a national bank moves into Tennessee. As I mentioned a few years ago, it introduces new assets into Tennessee for garnishments and bank levies.

Like I said in that March 2018 post:

What if the debtor has all his assets in that foreign state, but he banks at a national bank with offices all over the country? And what if that bank has a branch in Tennessee? The answer is that you can levy on that bank account.

So, I say “Welcome” to all these new banks coming to Tennessee.