Category: Judgment Collections

The New York Times reports that foreclosures may slow down, as lenders have learned about mistakes in their processing of documents and default documentation.

Needless to say, finding a defect in documents isn’t uncommon (nor fatal), but the results can be catastrophic if the defects are found too late. The worst time to discover defects in your loan documents is after you’ve started the adversarial enforcement process.

At that 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 a creditor declares default, it should take a few minutes to review the signatures and terms of the loan documents and to confirm that your collateral documents are in order and properly recorded.

That way, every subsequent step in the collection action on those documents will be on solid footing.

Yesterday, I attended a TennBarU CLE course, called “Creditors Practice: A View from the Bench.”

Aside from the opportunity to earn brownie points as a smiling audience member to a Judge’s speech, the program gave the opportunity to hear about general sessions (a.k.a. small claims court) practice from the judge’s perspective. These courts often deal with unrepresented parties, and the practices and procedures are often confusing. The fast paced practices of the Shelby County General Sessions Court have been dubbed the “Rocket Docket.”

A common refrain was the difficult task of working with unrepresented people who don’t understand their rights. When asked about the non-lawyers’ ability to defend themselves, one judge noted that most people are “confounded by the whole process” and “surprised that it’s not more like The People’s Court.”

The Judges all try to protect anyone from being taken advantage of, but, at the same time, there are too many cases for the Judges to look after the rights of all who appear before them. From a creditor’s perspective, dealing with a pro se litigant offers those same challenges, and it’s good to hear that our judges recognize and account for those difficulties as well.

The Wall Street Journal has an interesting article today, about the psychological wear of dealing with debt collection efforts. The story talks about the daily calls, 40 to 50 of them, one borrower received.

Obviously, the Fair Debt Collection Practices Act limits the contact that a bill collector can have with a borrower, but, even within the protections of that law, creditors can continue some pretty aggressive collection efforts.

This is where the collections process by an attorney and a collection agency part ways. When an attorney “escalates” collection efforts, the attorney has a number of tools at his or her disposal, such as a lawsuit and, post-judgment, bank levies, wage garnishments, and liens.

A collection agency, however, can only make more phone calls and escalate the frequency and aggression in the contact.

It’s obvious from the article that borrowers are adapting to collection efforts, even inventing mechanisms to avoid creditor phone calls, and learning other ways to beat the system. In this sea of debtors drowning in debt, the traditional collections method of bothering borrowers day and night certainly isn’t doing any good.

A quick post on a topic I get asked about often: Wage Garnishment.

Tennessee judgment creditors can garnish wages or contract sums due to debtors pursuant to Tenn. Code Ann. § 26-2-105, et seq. and § 29-7-101, et seq. Tenn. Code Ann. § 29-2-106 establishes the garnishment formula that calculates the amounts paid to the garnishor and the amounts to be retained by the debtor (typically 25% of the debtor’s wages). Garnishments are effective for six (6) months after issuance,  § 26-2-214(b)(1), and they are are paid in order of priority, so you may be competing with other creditors who go after the income first.

Collecting against a debtor’s wages is an effective way of getting paid, but, for debtors on the brink of bankruptcy, some caution should be exercised to determine if the seizure of potentially scarce income will push the debtor too hard.  If your debtor is already stretched thin, things will only get worse when you take 25% of his or her pay, so this is a weapon that should be used only with discretion.

The Tennessean reported yesterday that Kelley Cannon, convicted earlier this year of murdering her estranged husband, is trying to sell the family’s former $720,000 home to pay her legal expenses.

After the initial surprise, the question remains: Can she do this? According to the property records, she’s the only person who can sell the property. That’s because her husband quitclaimed the property exclusively into her name in 2005. The article says that the 2005 Quitclaim Deed was for “estate planning purposes” and because Jim Cannon had bad credit.

This is a fairly common practice. An individual entering into a high risk business venture or who sees potential collection lawsuits on the horizon may be inclined to transfer property out of their name and into a “safe” person’s name. The goal is to keep the valuable property out of the reach of creditors, and the “safe” person is generally a trusted relative or friend who has no financial issues.

From a creditor’s perspective, these types of transfers may later be avoided as a fraudulent transfer, as long as suit is filed within four years of the transfer.

But, there is also risk to the transferor, because he or she is transferring valuable property to a third party but isn’t retaining any ownership interest. Although the Cannon situation is an extreme example, in any such transfer, there’s always some risk that the “safe” person may not stay safe, whether it be a soured relationship or financial hardship.

Murders may be rare, but divorce or business disputes happen every day.  Think before you quit-claim property.