Category: Judgment Collections

New Tennessee Foreclosure Deficiency Judgment Statute Becomes Effective Soon

In addition to imposing new notice requirements on foreclosing creditors, the 2010 Tennessee Legislature has also passed House Bill 3057, which provides post-foreclosure protections to debtors regarding deficiency balances. This new law becomes effective September 1, 2010.

A “deficiency balance” is the amount of debt remaining after the foreclosure sale proceeds are applied to the creditor’s debt. Because most foreclosures don’t net sufficient proceeds to fully pay the debt, lenders often sue their borrowers to recover this difference.

This new statute allows a debtor to question whether the foreclosure sale price was truly representative of the “fair market value” of the property. Under this law, the debtor can attempt to prove “by a preponderance of the evidence that the property sold for an amount materially less than the fair market value…” If successful, the debtor may be able to increase the amount of credit he or she is entitled to.

Additionally, the statute potentially shortens the time to file a lawsuit to recover a deficiency balance, requiring that such actions be brought by the earlier of: two years after the foreclosure; or within the original statute of limitations for suit on the debt.

For most lenders, this new law should not have any practical impact. While you might imagine there would be various horror stories of lenders bidding $10,000 to buy a half-million property, in reality, most lenders were already calculating their foreclosure bids by starting at what the fair market value of the property is, and then subtracting sale expenses and carrying costs. The most prudent lenders have a standard procedure in place for all foreclosures, and many go the expense to order pre-foreclosure appraisals.

The key to avoiding issues under this law is to have some reasonable basis for determining “fair market value” when preparing foreclosure bids, whether it’s the tax records, recent sales, or new appraisals.

Best of Twitter: Creditor’s Rights News Recap

Here are a handful of links I’ve posted to my twitter feed, @creditorlaw:

After a heated 11 USC 363 sale bidding war involving a Mark Cuban led group, Nolan Ryan’s group ultimately won the Bankruptcy auction with a bid of more than $608 million.

Will an employer hold a bankruptcy filing against an applicant in a hiring decision? This MSNBC report suggests they might.

The Wall Street Journal reports that personal bankruptcy filings are down overall in the South, including Tennessee, but Tennessee’s Shelby County (Memphis) still has one of highest filing rates.

Finally, in the age of social media, it’s a smart creditor’s rights attorney who uses Facebook, Myspace, and LinkedIn to search for debtors and information about them. But, is “friending” your debtor impermissible contact under the Fair Debt Collections Act? This NPR report says that such contact is a “gray area.”

Creditor Lawyers Beware: House Passes “Protecting Gunowners in Bankruptcy” Bill

As a creditor’s lawyer, I’m not sure I like the recent passage of H.R. 5827, which allows a bankrupt debtor to exempt up to $3,000 in value of his “rifle, shotgun, or pistol” collection. The Bankruptcy Law Network explains the possible reasoning behind the law:

“Americans should retain the right to defend themselves with firearms even though they face financial difficulties.”

And, yes, collection attorneys are the intended target of this law. (Pun intended…it’s Friday, people, and I’m blogging about exemptions.)

All kidding aside, bankruptcy and state law “exemptions” are actually the best defense against judgment collections. These laws allow a judgment debtor to protect a limited amount of assets from garnishment or levy by creditors. Assuming he properly claims this exemption (and most state court debtors never do), a debtor can fully protect his $3,000 rifle collection from a Chapter 7 Trustee or a creditor.

Think Before You Sue: When the Titans sue Lane Kiffin, Only the Lawyers are Guaranteed a Win

The big legal news in Nashville this morning is that the Tennessee Titans have filed a lawsuit against USC’s Lane Kiffin for poaching the Titans’ running backs coach, Kennedy Pola.

While it’s going to be a fun soap opera to watch, from a legal standpoint, I wonder if anyone talked to the Titans about divorcing their emotions from their legal rights.

This comes up all the time in collections matters, where the creditor client is emotionally charged up about a monetary loss and may want to file a lawsuit against a broke borrower as a matter of principle, but without regard to the likelihood of an efficient, successful outcome. Before any lawsuit is filed, the lawyer and client should have a frank discussion about the costs of getting to a judgment and, after that, the potential for successful recovery.

This isn’t to say that the Titans will not win in this lawsuit, but I predict that it’s going to be costly and time consuming to deal with. This is generally where I remind the collections client of the saying “Don’t throw good money after bad.” There’s no need to get into a fight if the fight itself isn’t worth the reward at the end.

Of course, I’m rooting for the Titans on this one.

Be Careful When Accepting Voluntary Payments from a Discharged Debtor

The Bankruptcy Law Network Blog answers an interesting question: despite receiving a bankruptcy discharge, can a borrower then voluntarily repay discharged debt? The answer is “Yes”, but the better question may be “Why?”

The post notes that a borrower may have personal reasons for repaying some discharged debts. Examples include a debt owed to a family member or to a creditor who is crucial for future services (i.e. maintaining a business trade credit relationship).

The post, however, doesn’t consider the creditor’s perspective in this invariably risky situation.  If you are prohibited by the discharge injunction from affirmatively collecting the debt, how do you accept payments without crossing the “no collections” line?

There’s no easy answer to that question. A prudent creditor must be very careful in all discussion and documentation of the discharged debt, and it should keep such debts separate from all post-bankruptcy, non-discharged debt.

Frankly, the creditor should treat such payments just like a “gift”–there’s no obligation for the payment, and you can’t force or request that the payment be made.

Patience can be Rewarded: Tennessee Judgments are Good for Ten Years

A few years ago, when borrowers still had cash or available credit, collections was an easier process–sometimes involving only a strongly worded letter or the filing of a lawsuit. Even post-judgment, collections could just be a matter of finding the bank account with all the cash or placing a lien on the rapidly appreciating real property.

In this recession, creditors need to realize that judgment collections is a process, and no longer an event.

Fortunately, Tennessee creditor lawyers have the benefit of Tenn. Code Ann. § 28-3-110, which provides that a judgment is valid for ten years and, even then, can be renewed for another ten years.

So, while you may be dealing with a debtor without any money now, keep in mind that this economy can shift for the good, as quick as it went bad. In collections, patience can lead to money.

Unpaid Invoices: To Collect or Not?

In this economy, everyone is looking to find new revenue, and this invariably leads them to that stack of old invoices and accounts receivable they never touched when they were so busy dealing with good, paying customers.

Collections attorneys are seeing more “first time” collections clients and, with those clients, are seeing the same two issues.

First, a creditor who has never sued over unpaid invoices has also probably never had its invoices scrutinized in Court. There, every aspect of the unpaid bill, down to the date, the address, and the amount owed, is nit-picked and magnified. Are your invoices and credit applications “collections ready”?

Second, customers don’t like being collected against, and successful collections can be as much “public relations” as it is legal strategy. Is the collections approach you take appropriate and representative of the way you treat customers, good or non-paying?

These are simply issues to consider and, with the right planning, you may be able to avoid expense and hassle in the process. Plus, maybe, you can turn that stack of invoices into money.