Don’t Sue the Messenger: Trustees Aren’t Necessary Parties in Foreclosure Injunction Lawsuits and can be Dismissed under Tenn. Code Ann. § 35-5-116

All my clients hate being sued. You know who else hates to be sued? My law firm.

With the economy going bad, I’ve seen more desperate debtors doing anything they can to fight off foreclosures, evictions, and collections, including filing a lawsuit against the creditor…and the bank’s lawyers.

This is most common in foreclosures, when the debtor tries to stop the foreclosure sale by filing a lawsuit. There are very limited bases by which a foreclosure can be stopped in Tennessee (See Tenn. Code Ann. § 29-23-202 ).

Of course, that doesn’t mean that a borrower won’t  fire off a quick lawsuit, trying to gum up the process by creating a little smoke screen diversion.

But, a borrower or borrower’s lawyer who is trying to enjoin a foreclosure doesn’t need to add the attorneys for the creditor as defendant. Generally, the bank’s lawyers are serving only as “Substitute Trustees” under the Deed of Trust, and the caselaw has consistently held that trustees under a mortgage aren’t necessary parties to such an action.

In response to repeated lawsuits filed by “over-zealous” debtors or “less educated” lawyers, the Tennessee legislature passed Tenn. Code Ann. § 35-5-116 in 2006.

That statute allows a trustee named in a lawsuit to file a verified answer, pleading that the trustee is not a necessary party “stating the basis for the trustee’s reasonable belief that the trustee was named as a party solely in the capacity as a trustee under a deed of trust, contract lien, or security instrument.”

In response, the plaintiff must then filed a “verified response” within 30 days setting forth all factual and legal basis to rebut the trustee’s denial.
The statute also provides a good faith savings clause, under which the trustee “shall not be liable for any good faith error resulting from reliance on any information in law or fact provided by the borrower or secured party or their respective attorney, agent, or representative or other third party.” See Tenn. Code Ann. § 35-5-116 (f).
Of course, this statute will not stop a borrower from suing everybody; most borrowers would sue the mailman  who delivers the foreclosure notice if they thought it would delay the sale. But, the statute provides a relatively efficient way for the trustees to have themselves dismissed from the lawsuit.

Attorney Liens: Because Every Lawyer Should Get Paid

I talk a lot about liens as a good way for a creditor to get paid. In state courts and bankruptcy courts, there often are two lines formed: one for those with liens; and the other for those without liens. And you can guess which one leads to the money.

Under Tennessee statutes, there are liens for all kinds of people: mechanics, artisans; dentists; jewelers; shoe repairers; cotton ginners; lithographers; baggage claim folks…just to name a few.

But let’s talk about attorney liens today.

Under Tenn. Code Ann. § 23-2-102, an attorney who files a lawsuit “shall have a lien upon the plaintiff’s or complainant’s right of action from the date of the filing of the suit.” (Or, per Tenn. Code Ann.  § 23-2-103, the attorney has a lien from the date that the attorney starts work on the case.)

This lien extends to two types of property. The first is a “retaining lien,” which gives the attorney the right to retain a client’s books, papers, or money coming into his possession during the matter until the client pays. The second is a “charging lien,” which is a lien for payment of fees against the judgment or recovery obtained in a case. For a good review of this, see Starks v. Browning, 20 S.W.3d 645, 650 (Tenn. Ct. App. 1999).

There’s some old caselaw out there that suggests that the attorney must have the lien noted in the Judgment to be valid. The Starks case above (involving the venerable Nashville lawyer, Bart Durham) says that requirement is not in the statute and is just an odd creation from old caselaw.

 

But, I say that it’s a good practice to note the attorney lien any– and every-where (in judgments, in notices filed with the Court, notices recorded in the Register’s Office), but it’s not legally required.

The statutes above don’t cover all situations where an attorney might have a lien; in fact, other specific statutes, like worker’s compensation matters, may have their own special rules. Additionally, nothing would stop a collection minded lawyer from obtaining a consensual lien as part of his or her client engagement documents, particularly where client resources may eventually be scarce.

 

Long story short, the attorney lien statutes are probably narrower than you thought they were, granting a lien generally only the lawsuit filed by the attorney. Any other, broader liens to secure repayment must be granted or taken under other statutes (judgment liens, consensual liens).

Tennessee Courts will give Pro Se Litigants “Some Leeway,” But Not Much

Some of the hardest trials to handle aren’t when there’s a good attorney on the other side. Instead, the toughest cases can be when there’s a non-attorney on the other side, meaning the other party is representing himself.  In the legal world, this is called “pro se” representation.

With a lawyer on the other side, there’s an expectation that they know the rules of civil procedure, the local rules, and the relevant law. As a result, you can expect that you will be able to cut to the chase and narrow the issues.

With a pro se litigant, everything could be at issue and, worse, a pro se party probably doesn’t know the rules of the court, meaning objection deadlines will be missed and all other types of procedural missteps can occur. This places the lawyer and the Judge in a strange situation–do you hold the pro se litigant to same standards as a party who goes to the trouble of hiring a lawyer? Shouldn’t they  be held to that standard?

A fairly recent Tennessee Court of Appeals case (click here to review) considered that issue in a dispute where a property owner was fighting a foreclosing creditor. The Court noted that “there are a multitude of problems with Defendant’s brief,” including a complete failure to comply with the Tennessee Rules of Appellate Procedure.  The Court called the pro se filing “a rambling and, at times, incoherent brief.”

The Court went on to say it “must not excuse pro se litigants from complying with the same substantive and procedural rules that represented parties are expected to observe.” Young v. Barrow, 130 S.W.3d 59, 63 (Tenn. Ct. App. 2003). “It is well-settled that, ‘[w]hile a party who chooses to represent himself or herself is entitled to the fair and equal treatment of the courts, [p]ro se litigants are not . . . entitled to shift the burden of litigating their case[s] to the courts.’” Chiozza v. Chiozza, 315 S.W.3d 482, 487 (Tenn. Ct. App. 2009). However, “[t]he courts give pro se litigants who are untrained in the law a certain amount of leeway in drafting their pleadings and briefs.” Young, 130 S.W.3d at 63.

This is good text to remember the next time a person appears on their own behalf in a matter. This frequently happens in debt collection cases for the obvious reason: if a person can’t pay their bills, then how can they afford to hire a lawyer.

Sometimes, I use Google for Legal Research

I received an e-mail from a potential client this week that sort of confused me. Frankly, I didn’t know the answer.

The dispute related to a term I hadn’t seen before. The issue involved a check that his bank had returned, unpaid, to the other bank as “Return to Maker.” When I saw that, I went around the other bank lawyers. That’s my real “first step in researching weird legal issues”–asking the older bank lawyers if they’ve ever seen this.

When they either hadn’t (or weren’t at their desks), well, I consulted Google.

And, sure, you’re probably thinking that a lawyer shouldn’t admit to googling legal questions, but you’re wrong. Google is great to get general answers or concepts, before digging down on Westlaw.

In fact, I suspect Google is how the readers of this blog got here. But, Google can’t be entirely trusted, and you have to consider the legitimacy and trust-worthiness of the source when you click on the results.

So, yes, I found out that “return to maker” means, generally, that the payor bank has reason to deny the check due to a suspicion that the negotiable instrument has been forged, modified, or is generally unsure of the legitimacy. That note instructs the drawee bank to revisit the issue with their customer.

With that information (and before I gave out any legal advice), I did that deep dive on Westlaw  to confirm my analysis under Tennessee’s UCC adoption of Article 3.

So, there you have it. If a lawyer denies using Google, don’t believe them.

 

Presenting at 2017 Family Law Forum: The Life Cycle of a Divorce

As you all know, I regularly speak at Continuing Legal Education seminars for lawyers on topics related to foreclosure, bankruptcy, and other creditor rights issues in the law.

Well, to my surprise, the Tennessee Bar Association has asked me to talk about family law, at its annual Family Law Forum: The Life Cycle of a Divorce, on May 24, 2017.

Now, before you prepare your expert-level questions about parenting plans and in futuro alimony, please know that I’m speaking on Social Media legal issues in family law matters, including things that lawyers must warn their clients against.

I’m an expert on that, because I’ve been law tweeting actively for eight years at @creditorlaw, and my firm has only asked me to delete two tweets. That’s basically a perfect track record.

And, just in case one of you do that thing where you ask presenters weirdly complicated questions, I’ve enlisted Phil Newman, a great lawyer who I refer all family law matters, to serve as my co-presenter.

I’ll post more details later.

Advice for New Lawyers: Always be Prepared, Even for the Easy Arguments

I’m not going to use this post to complain about millennials. Instead, I’m going to complain a little bit about lawyers who are lazy and don’t think for themselves. But, sometimes, this means younger lawyers who happen to be born in the “millennial footprint” (defined as being born from 1982 to 2004).

In the not so recent past, another lawyer agreed to announce a foreclosure continuance for me. This is one of the easiest tasks a degreed lawyer can handle. In fact, some firms send people in Harley Davidson t-shirts to do this, so it’s not quite rocket science.

So, I told the lawyer that the sale was at the Register of Deeds and started to walk away. Then, he asked, “where is that?” I’ll save you the annoying details, but it involved ten minutes of my time showing him how awesome google is for answering questions.

So, recently, I was headed to General Sessions Court with the intent of asking for a “free” continuance in a matter that was set for the first time. If you read this blog, you know that I got to Sessions Court all the time. And, without a doubt, the Court will grant you a free continuance on the first setting of a matter.

But, instead of just going to court and citing “this is what you Judges always do,” I thought I’d be prepared with, you know, the actual legal authority for this. So, I followed my own advice and looked at the Local Rules for General Sessions Court. And, I made the request with complete confidence that it would be granted.

Of course, when I asked for the continuance, the Judge gave it to me without question, but I was prepared for the worst case scenario.

Ok, this blog post doesn’t have a specific point, other than to note that I–having appeared in Sessions Court at least 500 times–took the time to be prepared with legal authority for a very routine request.

So, maybe that’s the point. Lawyering is hard, and so is being a Judge. Always be prepared for the worst case scenario, and take the time on your own initiative to be prepared.

 

The Law is All Paperwork: An Improperly Authenticated Judgment may Result in Dismissal of Foreign Judgment Action

On my Facebook page, I describe myself as “The Garth Brooks of Paperwork.” Which is a way of poking fun at lots of things about me and my job.

But, law students, please know that success as a lawyer is basically 65% being really good at paperwork.

Thankfully, for the other 35% of us, you can generally amend pleadings to correct mistakes or errors. I’ve recently found a situation where you can’t amend a court filing, such that the entire case might be dismissed.

It’s when there’s an error in your initial filing of a Notice of a Foreign Judgment under the the Uniform Enforcement of Foreign Judgments Act (the “Act”), found in Tennessee at Tenn. Code Ann. § 26-6-101 et.seq.

If a judgment creditor fails to attach a proper exhibit, i.e. a properly authenticated copy of the out-of-state judgment to be enforced, there is a line of cases in Tennessee that say the entire lawsuit is defective because the failure to follow the statutory procedure for authenticating a foreign judgment is fatal as a matter of law.

What’s scary about this line of cases is that there appears to be no ability to file a Motion to Amend Pleadings under Rule 15. Those types of requests are generally granted and would usually allow the plaintiff to correct the error and move on.

Not in proceedings under the Act, Tennessee Courts have said. A recent trial court decision found that a Notice of Filing was not one of the expressly provided list of “pleadings” in Rule 7.01 and, therefore, not subject to amendment under Rule 15.01.

Tenn. R. Civ. P. 15.01 allows parties to amend their pleadings, and leave to amend pleadings is freely granted by the courts when justice demands. Tenn. Rule 7.01 defines “pleading” as a complaint, answer, counter-complaint, answer to a cross-claim, a third-party complaint and third-party answer and states that “no other pleading shall be allowed.’ The Notice of Filing required by Tenn. Code Ann. § 26-6-104 is not one of the pleadings listed in Rule 7.01.

Apparently, then, the judgment creditor’s only recourse when the foreign judgment notice is defective is to dismiss the domestication action, and then re-file a corrected, new proceeding. Yikes.