Lien Litigation – Creditors Rights 101

The race is on: Davidson County Chancery answers a long-standing question regarding judgment liens

We’re one step closer to answering one of Tennessee collection law’s greatest mysteries: Can a judgment creditor record a copy of its judgment as soon as it is signed by the Judge, or must the creditor wait 30 days?

The question arises under Tenn. R. Civ. P. 62.01, which says that “…no execution shall issue upon a judgment, nor shall proceedings be taken for its enforcement until the expiration of 30 days after its entry…”

The exact issue is this: Is recording a certified copy of a judgment an “execution”? I’ve been asked that for years, but never quite knew the answer.

For starters, what’s the statutory authority for recording a judgment lien? I look at Tennessee Rule of Civil Procedure 69, which is titled “Execution on Judgments,” and includes all the different ways you can “execute” on judgments (garnishments, levies, sheriff’s sales, liens). This list includes Tenn. R. Civ. P. 69.07(2), “Execution on Realty,” which provides the exact process to record a judgment lien against the judgment debtor’s realty.

And let’s be honest; why would you record a judgment in the first place? Under Tennessee law, the recording of a judgment with the register’s office creates a lien on real property, meaning that the debtor can’t sell, refinance, or transfer the property without dealing with the judgment. It’s a pretty powerful tool to get paid. That’s why you’d record it, and as fast as possible.

If the point is to get paid–and as soon as possible–that looks a lot like enforcement, right? But is that “execution”? Should we also throw around terms like “collection” or “attachment” too?

It’s been a mess because the statutes and rules all seem to use these different terms interchangeably, except when they aren’t interchangeable.

Faced with this exact issue, the Davidson County Chancery Court had to make sense of these competing terms and concepts. In an Order from February 2, 2024, the Court found the mere act of recording a judgment during the Rule 62.01 stay period “was not premature ….because the filing of judgment lien is not an act of enforcement.”

In doing so, the Court referenced the pleadings filed in the matter, which drew reasoning from Tenn. Code Ann. § 25-5-101(b)(1) and the competing concepts of “final” judgments found in Tenn. R. Civ. P. 54 and 62.01. Further, given the Court’s brief, but specific, factual finding, the Court seems to agree with the opposing brief’s distinction between the acts of recording a lien versus enforcing a lien, arguing that only the latter would violate Rule 62.01. The full Order is attached below.

2024-02-02-order-on-motion-to-void-lien Download

It’s an important issue that has long vexed creditor rights lawyers, debtor’s counsel, and even court clerks. I’ve had court clerks only begrudgingly provide me with a certified copy of a judgment on the day of entry (and reminding me that I “can’t do anything with it for 30 days”).

This Order and the related reasoning may provide a roadmap for future arguments on this issue, which comes up far more frequently than you’d think.

I watched these trial court proceedings pretty closely, and I’m glad to see a creditor-friendly result. The underlying initial pleadings are also attached below.

2024-02-02-original-motion-to-void-lien Download

2024-02-02-response-in-opposition-to-motion-to-void-lien Download

Good lawyering is mostly great paperwork: A reminder to include all the details in your Judgments

It looks very exciting on TV, but success in the legal profession is often a matter of being really good at paperwork.

Proof-reading and getting the details right are essential….

But what makes great lawyers really great is the knowledge and foresight to know which details to include.

On TV, cases tend to end after a passionate closing argument, and the lawyer and client walk out of the courthouse victorious. In reality, most of my cases end with me pouring over the details of a single document–the Order that the Judge will sign–and victoriously e-filing it with the Court Clerk.

When I prepare an order for a Judge’s signature, I try to think through every possible scenario where I’d enforce the terms. When I type the judgment debtor’s name, I make sure I’ve spelled the name the same way it’s spelled on the debtor’s old checks or property deed. If there’s some special request or relief I’ve asked for in my motion, I make sure to recite that in the order and have the order expressly grant it.

A trend I’m noticing lately is that lawyers leave out critical details in their orders, and the omissions hurt their cases.

A good example relates to post-judgment sheriff sales. Sheriff’s sales confuse courts, clerks, lawyers, and sheriffs. The law is tricky and draws on 2-3 separate statutory bases (Tenn. R. Civ. P. 69.07 ; Tenn. Code Ann. § 26-5-101, Tenn. Code Ann. § 35-5-101). County sheriffs are good at a lot of things, but they really dislike having to navigate confusing Tennessee statutes on their own.

A good creditor attorney will think through the entire process, starting at the end (i.e. what will the title company need to insure title on this sale), anticipate all the questions, and have the Order address any possible question that could arise.

Who owns the real property? (Look at the Order.)

What are the liens that are impacted by this Sheriff’s Sale? (Look at the Order.)

Who will prepare and publish the Notice of Sheriff’s Sale? (Look at the Order.)

What’s the minimum price pursuant to Tenn. Code Ann. § 26-5-115? (Id.)

Will there be a deposit? What happens after the sale? When does the buyer get a deed? Will there be a sale contract? What happens with the redemption rights? And so on…

I recently saw an Order Authorizing Sheriff’s Sale that said, basically, “the relief granted in the Motion is GRANTED.”

And that was it. The Order had no specific reference to relief described in the Motion and provided no guidance to the sheriff. Instead, to enforce the Order, the lawyer had to also send a copy of the Motion and hope that the sheriff would connect the dots between the two pleadings.

The lawyer’s job is make the process run as smooth as possible, and that includes anticipating issues and preventing them. One strategy to make the process work is to think through all the issues in advance and, before the Judge signs the order, include it all in the document the Judge signs.

Tennessee Supreme Court opinion on UCC-1 filings by “paper terrorists” offers a reminder that current TN law offers no effective civil protections for bogus liens

One of the greatest current failures of Tennessee law is the lack of a penalty for fraudulent lien filings. In December, I wrote: “if somebody records a piece of paper with ‘Notice of Lien’ written somewhere on it (and includes the owner name and property address), they’ve got a totally un-lawful, but also practically-effective, lien.”

Last year, a hand-written, three sentence recorded “lien” brought a pending commercial property sale to a halt. When I politely explained to the lien claimant that there was no basis under Tennessee law to assert lien rights, she said “If that were true, then, why are you even calling me?“

What she was really saying was: Yeah, but what are you going to do about it?

In an opinion issued yesterday, the Tennessee Supreme Court was asked a similar question. In State of Tennessee v. Ronald Loyns, James Michael Usiger, Lee Harold Crowell, Austin Gary Coper, and Christopher Alan Haser, No. M201901946SCR11CD, 2023 WL 3446554 (Tenn. May 15, 2023), the Court was faced with a group who figured out how easy it is to create and record a UCC-1 personal property lien using the Tennessee Secretary of State’s online filing wizard.

So easy, in fact, that the group filed more than a hundred UCC-1s without legal or factual basis against a variety of folks who they had grievances with. The police officer who gave one a speeding ticket. An ex-wife. The local Chancery Court Clerk and Master. In all there were about 30 victims.

After one took his complaints to a lawyer, and was rebuffed, he attended the local meetings of this group, who taught him how to assert liens under the Uniform Commercial Code. By the UCC-1 filers’ logic, those “debtors” had done something that resulted in inconvenience to them and the UCC-1 filing was designed to obtain compensation (ranging, in this case, from 4 and 12 million dollars). The victims testified about the resulting failed home closings, the denied credit applications, and dings on credit reports.

The defendants were ultimately convicted of fraud and forgery, per Tenn. Code Ann. §§ 39-14-105(a)(6), 39-14-114, 39-17-117. This type of scheme is often referred to as “paper terrorism.”

The Supreme Court then analyzed the various actions against the requirements of Tennessee’s criminal statutes, and the Court upheld all criminal convictions.

In a footnote, the Court alluded to civil penalties, including at Tenn. Code Ann. § 47-9-625, and the ways that private citizens can protect themselves against these schemes.

Spoiler-alert: It’s far easier to file these bogus liens than it is to remove them.

Tenn. Code Ann. § 47-9-625 isn’t much help. It requires a party to seek court intervention (i.e. file a lawsuit), but the damages don’t include attorney fees. Per § 47-9-625(b), the party can only recover damages resulting from “the debtor’s inability to obtain, or increased costs of, alternate financing” (all very difficult to prove in court). There’s nothing in the statute setting a minimum penalty or, more importantly, allowing for the recovery of attorney fees.

Sure, these defendants made the headlines because of the breadth and shamelessness of their scheme, but the opinion and authorities cited in it do nothing to help the individual homeowner, who has a meritless lien recorded against her house and has a closing being held hostage. File a lawsuit and, then, simply recover the increased cost of her more expensive loan?

In short, there are no effective and efficient remedies under Tennessee law for this.

There are no internal fail-safes to protect against the schemes perpetrated by the defendants in this case. The Secretary of State isn’t watching these. Instead, the purported remedies (under Tenn. Code Ann. §§ 47-9-518 and 47-9-625) put the burden on the consumer to discover and challenge invalid liens, but with no effective remedy or deterrent for fraudulent liens.

The facts of this opinion should scare you, but I’d say that that the law in this opinion is the most terrifying aspect.

Tennessee Court of Appeals makes it clear: When a lien is paid, the Lender must pay the release fee (limited exclusions apply)

When a mortgage or judgment gets paid off, the creditor has to release its lien. It’s not only common sense, but it’s a duty imposed by Tennessee statute (see Tenn. Code Ann. § 66-25-101).

It’s an easy process to prepare a Release of Lien and record it with the register of deeds. Also, it’s not particularly expensive. Depending on how many pages the release is, the fee can be as little as $12.00.

Not too onerous for a lender who just got paid in full, right?

Well, not so fast. Ask any of my creditor clients, and they’ll tell you that “paid in full” means “fully paid, including that release fee.” When I get a payoff request on a deed of trust or judgment lien, I generally include a line for the $12.00 release costs.

Not anymore, in light of a December 2022 Tennessee Court of Appeals opinion, Eudaley v. U.S. Bank Nat’l Ass’n, No. M202100344COAR3CV, 2022 WL 17751378 (Tenn. Ct. App. Dec. 19, 2022). In that case, the mortgage lender got paid in full, recorded the release, and sent a bill to the borrower for $12.00. In response, the borrower filed a class action lawsuit in Davidson County Circuit Court, arguing that, per Tenn. Code Ann. § 66-25-106, “[a]ll costs … for registering a formal release[ ] shall be paid by the holder of the debt secured by the … deed of trust.”

Despite the very clear statutory text, the trial court dismissed the case after finding that federal law allows such fees and preempts the state law. The Court of Appeals affirmed, but not before providing some useful guidance to other lienholders (who may not have a federal banking regulation to hide behind).

Specifically, the Court wrote that “§ 66-25-106 prohibits holders of debt from seeking reimbursement of costs associated with recording a release of a deed of trust” because “[t]he debt holder’s obligation to record a release only arises if the debt has been paid in full or satisfied, indicating that nothing further is owed to the debt holder.” In affirming the trial court’s dismissal, the opinion makes clear that the lienholder bears those costs and can’t seek reimbursement, but, nevertheless, “that prohibition is preempted by federal law when the debt holder seeking reimbursement is a national bank.”

So, what if you’re not a national bank? Tenn. Code Ann. § 66-25-106 applies, and the creditor must chalk up $12.00 as the cost of getting paid.

What about other sorts of liens, like judgment liens or mechanic’s liens? § 66-25-106 seems to apply to any lienholder, but the judgment creditor may nevertheless have an argument that the release fees are “costs of collection” or allowed court costs/discretionary costs.

Either way, this December 2022 opinion provides pretty compelling authority to support a lender’s decision to simply record the release and write off the $12.00. In a very creditor-friendly state like Tennessee, Tenn. Code Ann. § 66-25-106 is an outlier, but this case is a very good reminder that it exists.

Don’t Forget This Blog Post (I did): A local court can order an out of county Sheriff to conduct a sheriff’s sale of real property.

I need to pay more attention to this blog. (And not just posting to it.)

A few weeks ago, I had a pretty deep legal discussion with a lawyer for a nearby county on a complex creditor rights question. And, after a few days of comparing research, she sent me a link to my own blog post on the exact same topic.

The bad news is that I spent many hours re-researching the issue. The good news is that I came to the same conclusion.

The issue was whether a Chancery Court in County A can issue an order and a levy to the Sheriff in County B to sell real property located in County B. And this wasn’t just a theoretical discussion–this was my own levy seeking to collect on a judgment.

The issue doesn’t come up much, and my concern was a lingering recollection that, in fact, some actions related to real property *are* limited to the county where the real property is located. That’s the “local action rule,” which requires those actions with a direct and undeniable connection to the land to be brought in that county (examples: title dispute / quiet title actions; detainer actions affecting possession of land; actions seeking money damages for trespass or injury to land). The way that Tennessee cases apply it, however, the local action rule speaks more to a “cause of action” that relates to the specific land at issue, not a general execution against the land.

In the end, here’s why Sheriff B can do it:

(1) Execution Sales of Realty are governed by Rule 69.07 and Tenn. Code Ann. § 26-5-101, and neither contains any county limitations. My review of Tenn. Code Ann. § 26-1-101 (and all around those statutes) did not reveal any limitation of the Sheriff’s ability to sell real property. We know that a local sheriff can enforce an out-of-county judgment on all other assets (wages/personal property like cars/bank accounts)—if there were a distinction as to real property, wouldn’t it be in those same statutes?

In fact, not only does Rule 69 not contain any exclusions, but it lumps real property in there with the other categories. For instance, in setting what can be levied against, Rule 69.05(1) says that “Property includes a judgment debtor’s realty, personalty, money, wages, corporate stock, choses in action (whether due or not), and court judgments.” (Note that there’s no distinction between the different types of assets.)

For personal property (which we know an out of county Sheriff can do), Rule 69.06 makes no distinction or exception as to the sheriff’s powers (or identification of which county’s sheriff can act).

For real property, Rule 69.07 (the separate rule for “Execution on Realty”) makes no distinction or exception related to which sheriff can take action. Instead, that Rule creates a system by which the creditor “may move” for an order of sale and then, “the sheriff” conducts the sale.

(2) The Jones v. Helms I wrote about last year remains valid.

In Jones, the creditor held a judgment from Gibson County and filed a Rule 69.07 motion in Gibson County for a sale order, and the Gibson County Court granted the request and ordered the Weakley County Sheriff to sell the land to pay the Sessions judgment. Rather than recite all the opinion, I’ll just direct you to last year’s post. (And, also, check out: Jones v. Helms, 2020 Tenn. App. LEXIS 517, *8-12, 2020 WL 6806372.)

One of the reasons that I maintain this blog to curate a list of useful opinions for my own practice. Next time, I’ll be sure to check in here first.

Tennessee is set to increase homestead exemption in 2021

The Tennessee Legislature is, again, considering debtor-friendly changes to the homestead exemption statute.

The one most likely to pass is House Bill 1185, which seeks to increase Tennessee’s homestead exemption from the existing $5,000 to $35,000 for single homeowners and from $7,500 to $52,500 for jointly owned property.

Before you complain too much about that proposal, consider Senate Bill 566, which provides an unlimited exemption for a judgment debtor’s residential real property (and, after the debtor’s death, it passes to the heirs).

Similar proposals were made in 2019, in 2020, and also in 2012 (and a number of times in between). So far, all such efforts have failed, but I believe this is the year that the Tennessee homestead exemption is increased.

Back in 2019, I talked about the importance of exemptions for debtors, since exemptions can preserve and protect a basic necessity level of assets for debtors (picture the clothes on their back, a few thousand dollars in the bank, a car, tools).

As I wrote in 2019, though, “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.” I then said:

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.

I feel the same way about these new proposals. If we’re talking about protecting the working poor and preserving the necessities of life from garnishment, let’s start somewhere other than $750k of equity in a mansion. Let’s talk about debt relief measures, eviction support, access to justice, etc.

But, these new laws aren’t about basic necessities of life for poor people. Most poor people don’t live in lien-free mansions. Instead, these new measures are being lobbied for by the construction industry.

These are bad proposals. Unless you’re a debtors with big, lien-free McMansion. Then, sure, it’s a great new law.

Judgment Creditors can cross county lines in execution sales of real property, says TN Court of Appeals

Yesterday, the Tennessee Court of Appeals answered another longstanding creditor question: Whether a Court can order an execution sale on a debtor’s real property in a different county.

I get asked that all the time, and I’ve generally said you can. Now, I can cite the new opinion from the Court of Appeals in Ronald L. Jones v. Louise Helms, No. W2019-00864-COA-R3-CV, 2020 WL 6806372 (Tenn. Ct. App. Nov. 19, 2020).

The legal issue is whether the first county court has “subject matter jurisdiction” to order the sale of real property in another county. The Court looked first to Tenn. R. Civ. P. 69.07, which gives the judgment creditor a lien (per Rule 69.07(2) and provides that a creditor “may move for an order of sale. (per Rule 69.07(3)).” But, Rule 69.07 doesn’t provide any guidance on the process, procedure, or venue.

So, the question remains: In which county does the creditor make this request?

The Court wrote:

Rule 69.07(3) does not mandate which court or county a judgment creditor must file the motion in for the order of sale. Furthermore, circuit courts are courts of general jurisdiction, meaning that they have broad, rather than limited jurisdiction. Tenn. Code Ann. § 16-10-101 (“The circuit court is a court of general jurisdiction, and the judge of the circuit court shall administer right and justice according to law, in all cases where the jurisdiction is not conferred upon another tribunal.”). Therefore, it would appear that under the terms of the rule and the broad nature of the jurisdiction conferred upon circuit courts, Appellee was entitled to move for the order of sale in the circuit court for Gibson County. Indeed, it appears to be an accepted practice to file Rule 69.07 motions in circuit courts…. Moreover, Tennessee law generally provides that, with regard to sale of land for the payment of debts by decedents, courts of record “may decree a sale of lands lying in any part of the state.” Tenn. Code Ann. § 16-1-107.

The opinion makes fairly short order of this long-standing legal issue, and the certainty and procedure is good for creditors.

In the past, after my review of the chancery court statutes, I’d often wondered whether a court had jurisdiction to order and approve a sale of real property in a different county. I still have some lingering doubts whether a better challenge and legal argument in response could cast some doubt on this issue, particularly under the chancery jurisdiction statutes.

But, until then, save this opinion. It may save you having to file a Petition for Sheriff’s Sale in a different county to enforce your judgment.

Tennessee law doesn’t require judgment creditors to collect in any particular order. Seriously.

Is a judgment creditor required to exhaust its collection efforts against personal property before executing on real property?

If you asked 100 lawyers over the age of 60 this question, 80 of them would get the answer wrong. And every single one of them would be absolutely positive that they were right.

I’d guess that I have a argument with opposing counsel on this legal issue at least once a month, and it usually ends with them being absolutely certain that I am wrong.

What’s crazy is the answer is simple:

Execution against personalty need not precede execution against realty.
Tenn. R. Civ. P. 69.02

So, there you have it.

If you’re wondering, however, whether you should ever start the collection process with efforts to sell real property…well, that’s another blog post entirely.

Time is On Your Side: 4 Tips for Collections in a Sinking Economy

Things are looking bad for the economy, and there doesn’t appear to be any end in sight. As we enter Month Two of the COVID pandemic, banks and others creditors are bracing themselves for a very long winter.

I’m telling my creditor clients to be patient. While this good news doesn’t put money into hands today, here are some things I said the last time around, i.e. in 2010, that any creditor should bear in mind while we wait to see what the economy does.

There’s time to be patient. In Tennessee, the statute of limitations for collection on an unpaid debt is six (6) years, pursuant to Tenn. Code Ann. § 28-3-109. Then, once you sue and obtain a judgment (within six years from the date of the default), your judgment is valid for ten years, pursuant to Tenn. Code Ann. § 28-3-110. Plus, if your judgment remains unpaid at the end of the ten years, Tennessee judgments can be renewed pursuant to § 28-3-110 for another ten year period.

Don’t wait to act. In some instances, it may make sense to take no action on unpaid debt. Maybe the customer is a company that has gone out of business and has no remaining assets, or maybe they’ve filed a liquidation bankruptcy. This is where you make the “don’t throw good money after bad” decision and possibly decide to write this debt off.

But, remember, the first creditor to obtain a judgment is the first in line to seize assets. Granted, you could be the first in line and discover there are no assets, but you should nevertheless record your judgment as lien in the real property records. For less than $25 in filing fees, a creditor can record a certified copy of its judgment in any and all Tennessee counties where the debtor owns real property, and that judgment becomes a lien on any real property owned by the debtor.

Even if they don’t have any equity in their property today, the situation could well be different in ten years (judgment liens remain valid as long as the underlying judgment is valid). What’s more, your lien’s reach will capture any real property they obtain during the life of the lien. In the end, sooner or later, your debtor will have to deal with you, whether it be as part of a purchase of new property, a sale, or a refinance.

Bend, don’t break. Sometimes, it’s important to recognize when a debtor truly lacks any assets to pay toward your debt. When this is the case, aggressive collections—whether it be seizing a work truck or all funds out of a bank account—may put that debtor out of business and, possibly, into a bankruptcy filing. A judgment creditor can take depositions and request financials from their debtor, and this information may assist you in determining whether they aren’t paying anybody…or just aren’t paying you.

Bankruptcy doesn’t mean the process is over. If your debtor does file a bankruptcy case, there’s still a chance of monetary recovery. In addition to the benefits to the debtor, the secondary point of the bankruptcy process is to maximize return for creditors prior to granting the debtor a discharge of his or her debts. But, in most instances, a creditor in bankruptcy only receives pennies on the dollar in the process.

Keep in mind, however, the success rate in Chapter 13 bankruptcy cases (where debtors repay a percentage of their debts over 3 to 5 years) can be as low as 20%, meaning that most of those cases end with a dismissal. A dismissal is good for a creditor, because there is no discharge of the debt. Instead, the full amount remains due and owing. Debts are eliminated only when debtors receive a “discharge.” That’s an important distinction to know.

Finally, remember that a bankruptcy discharge only discharges “debts”—not “lien” rights. So, if you’ve already obtained a judgment and recorded it as a lien, then your lien on the debtor’s property survives the bankruptcy discharge. As a result, even though you can’t collect your debt, you can enforce your lien in the event of an attempted sale or refinance.

In the end, collection is a process that rewards the patient, especially in a struggling economy. But, a successful creditor must be prepared, and being prepared means having a valid judgment in place and exhausting all enforcement remedies before giving up. It may be a long road to recovery, but, if a creditor is smart and strategic now, the steps you take today will help make sure you’re paid in the future.

Davidson County Chancery Court has scheduled an actual trial that will be conducted via Zoom.

Mark your calendars: On April 28, 2020, Chancellor Lyle of the Davidson County Chancery Courts has scheduled a trial to be conducted via Zoom! (Full text: Lyle Order re Zoom trial).

For the past 5 weeks, Tennessee courts have been closed for most in-person proceedings, but, during that time, many courts have conducted telephonic or video “non-evidentiary” hearings. This is the first instance that I’m aware of that a civil court is conducting a real bench trial with witnesses and exhibits.

The underlying facts are interesting, from a creditor’s rights perspective.

The lawsuit seeks a declaration of the validity of a mechanic’s lien asserted on a Gulfstream GV (a/k/a a “G5”) private jet, via both a recorded lien in the Davidson County Register of Deeds and with the Federal Aviation Administration Registry. Per the Complaint, the plaintiff bought the jet from an actual Sheikh.

gulfstream g5 (Note for the non-Sheikhs out there: Retail value for new G5s can be between $36MM and $48MM).

The Defendant / lien-claimant is a marketing firm in Kentucky that claimed a mechanic’s lien on the jet for sales marketing services provided to the Sheikh.

(I’ll reserve my thoughts on the validity of a mechanic’s lien when no actual physical improvements are provided, but I will note that, generally, the lien claimant has to show actual improvements to the property. Cases on aircraft liens have held that “gas for refueling” doesn’t even qualify, since gas doesn’t provide an actual improvement to the aircraft.)

This one will be really interesting, both substantively and procedurally.