Homebuyer Beware: Some of the property listings on Zillow are Foreclosures and Sheriff’s Sales

Last year, I had a foreclosure scheduled for a Williamson County property in an “in demand” neighborhood and, somehow, Zillow picked up my Foreclosure Sale Notice and listed my sale on the property’s Zillow page. In April, I wrote a post about the 500 phone calls and emails I received from all over the world, asking about the property.

In fact, I got one today from Detroit.

But, a few minutes later, I got a call about another Zillow listing, this time on a Sheriff’s Sale I’m conducting in August on 2137 Maricourt Street, Old Hickory, Tennessee 37138.

The full Notice of Sheriff’s Sale of Real Property can be found on The Wilson Post’s Public Announcements page. I have no idea how it ended up on Zillow, but anything that generates more potential bidders is good.

As indicated in the Sheriff’s Sale Notice, the property is scheduled for auction at 11:00AM, on August 3, 2021. The Sale Notice contains the terms of sale, including opening bid and the bidding process.

I post here in order provide a quick link to the Notice of Sale, which I’m planning to forward to potential bidders. This should present a great opportunity to a bidder.

In this strong real estate market, there are limited opportunities to find good deals on Middle Tennessee real property. The investors have long figured out foreclosure sales, then they figured out tax sales, and, now, Sheriff’s Sales are the next frontier. Sheriff’s Sales used to be rare–given that the process is fairly complex and confusing (even to lawyers)–but these are becoming more common, given the rise in property values and the unyielding demand for residential real estate.

As Zillow continues to grow into a trusted resource, though, I worry that a typical homebuyer may be lulled into seeing only the upsides of the potential deals listed on Zillow, without fully exploring the risks that distressed asset sales present.

I’m not suggesting that a buyer shouldn’t consider participating in a sheriff’s sale (seriously, please come on August 3), but I am encouraging every caller to educate themselves on the process and to consult with a real estate lawyer in advance.

Bankers: Tennessee Court of Appeals issues opinion on safe practices on handling bank levies.

A few weeks ago, I went to Chancery Court on a conditional judgment motion and part of my presentation to the Judge was to acknowledge how rare it is to be in court on conditional judgment proceedings.

Under Tennessee law, a creditor can get a “conditional judgment” against a non-debtor garnishee (usually an employer or a bank) when the creditor issues a garnishment and the garnishee fails to respond. This conditional judgment is then made a final judgment if the garnishee never responds.

As you can imagine, asking that a bank or an employer be made 100% liable for a debtor’s judgment (regardless of whether the debtor actually works or banks there) tends to get the garnishee’s attention, thus eliminating the need for a hearing. In practice, most banks instantly respond to a conditional judgment.

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A few weeks ago, the Tennessee Court of Appeals issued an opinion detailing a conditional judgment fight between a judgment creditor and a garnishee bank over an allegedly inaccurate response, at Tullahoma Industries, LLC v. Navajo Air, LLC (No. M2019-02036-COA-R3-CV)(Tenn. Crt. Apps., June 29, 2021).

In that case, US Bank was served with a garnishment and immediately froze all accounts that might be relevant, including accounts in the name of a non-debtor entity, but that was clearly related (same principals, same address) to the debtor and with a very similar name. While the accounts were frozen, the third party’s lawyer sent a demand that the funds be released, pointing out the different entities’ names and different EINs.

After verifying that the debtor and the account holder entity had different tax identification numbers, US Bank released the funds back into the account and answered “no accounts.” In response, the judgment creditor challenged US Bank’s response by filing a Motion to Show Cause (i.e. asking for a conditional judgment for failure to provide an accurate/correct response). The trial court agreed with US Bank, and the Court of Appeals upheld the ruling.

A recap of the analysis:

  • A judgment creditor’s remedy in response to an inaccurate garnishment response will be to examine the garnishee under Tenn. Code Ann. § 26-2-204.
  • There is some suggestion that moving directly into a “Show Cause” / conditional judgment proceeding is procedurally improper.
  • Instead, the creditor starts with an examination (i.e. discovery) to vet the garnishee’s answer, with the purpose to determine whether the garnishee actually holds (or held) money or property of the judgment debtor.
  • The judgment creditor has the burden of proof that the garnishee holds the debtor’s property.
  • As to bank accounts, a court will not go beyond an analysis of account ownership (i.e. the account name, the tax identification number of the owner). The Bank does not need to inquire into the source of the funds or equitable ownership claims.
  • Even though the Court questioned the procedural path, it appears that the conditional judgment process is appropriate, but only after the examination takes place.

I note that this opinion was authored by Judge Neal McBrayer, a former debtor/creditor lawyer, who does a great job on commercial and real property cases.

This case provides important guidance to all parties. To creditors, it shows the value in naming the correct party-defendant, as well as any related entities, in your original proceeding.

To banks, it provides a great outline in how to process bank levies, including what to do when it’s not entirely clear that the judgment debtor is your account customer. That’s why I get all those calls asking for social security or tax id numbers, dates of birth, and other information like that. Smart banks avoid conditional judgments.

Welcome to Nashville: Property Developers, Bachelorettes, and National Law Firms

The Nashville Post ran a story on Tuesday about the “shifts in the local legal market” and all these national law firms moving to town and scooping up lawyers to create local offices.

It’s a topic that local lawyers have been talking about for a few years, generally in the form of complaints about the out-of-towners coming in, planting a flag (albeit a very fancy flag), and changing the local market in ways that don’t necessarily change it for the better.

And, yes, I fully acknowledge that this is, basically, the “lawyer” equivalent of when long-timer Nashvillians complain about the people from California moving to their neighborhood and running up the home prices.

Last fall, I had a commercial real estate matter with one of these new law firms. The lawyer I dealt with was based out of Phoenix (but, weirdly, always called me from a Miami area code). It was a small deal, but also the most difficult project I worked on last year. Literally, every thing that could be argued about was argued about. To this day, if you are calling from the 305, you are getting my voice-mail (sorry, J-Lo).

For good or bad, it was definitely a different experience, and I worry whether this is what the next 10 years looks like.

I know I sound like those traditionalist lawyers who refuse to acknowledge change and who, last year, probably refused to do Zoom hearings or, years ago, refused to use e-mails.

But, it is going to change the local legal profession.

Lawyers at mega-firms have to bill more to pay for those mega-offices (both in Nashville, but also in NYC, LA, and all of those other “national” cities) and the mega-salaries being offered. More issues get nit-picked, more calls get scheduled, and, slowly, the way you do a deal in Nashville feels more like how you do it in NYC, Chicago, or whatever other of the 20 cities the lawyer you’re dealing with is based out of.

In the end, you have to wonder whether this results in more costs to the client and, if it does, is it worth it? (And, disclaimer, if a huge law firm wants to buy my firm, I will instantly delete this post.)

I had drinks with a couple of local lawyers from other firms a few weeks ago. We talked about office space (still expensive!), some local gossip, and these issues. (Recap: Many of our well-respected-lawyer-friends work at these firms; they are awesome and do good work; we’re just jealous; who is next, etc.)

In the end, one of the other lawyers wrapped it all up with a sly grin: Sure, it’s going to change the Nashville legal market, but there’s a silver-lining. Over the next 3-5 years, it’s going to artificially raise the standard hourly rate for legal work by 33%to 50% for all of us. (And, sure, this was said as a joke, but also as a statement of fact. This is a very good prediction.)

If you’ve lived in Nashville more than 5 years, you’ve heard complaints just like what I’ve said in this post. You’ve also heard the typical response, which points out that the complaining neighbor’s own property value has sky-rocketed due to the hot market. Same goes for lawyers.

We live in interesting times in Nashville.

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.

11 U.S.C. § 363 may solve my Zillow foreclosure nightmare

Last month, I talked about how my phone has been ringing off the hook about a Williamson County foreclosure I had scheduled in late-2020, at 2113 N Berrys Chapel Road, Franklin, Tennessee 37069.

The sale was cancelled when the corporate owner filed a California Chapter 11 bankruptcy, but Zillow nevertheless has me listed as the sales agent and, ever since, I get at least one phone call a day asking about the property.

After getting three calls about it yesterday, I looked up the status of the Bankruptcy Case, and I see that the bankruptcy trustee has a sale contract on the property!

Per the Motion for Approval of Sale of Real Property [Docket 217], the bankruptcy trustee is proposing a sale of the property for $600,000 (more than $175,000 below the Zillow value). A copy of the full Motion can be viewed below.

Under 11 U.S.C. Sec. 363, a bankruptcy trustee can sell non-exempt property of the bankruptcy estate. Here, after payment of all the liens associated with this property, the trustee has determined that this sale will generate proceeds for the benefit of creditors.

If you are reading this and you are one of the hundreds of people who have called me over the past 6 months, don’t despair. Pursuant to Paragraphs 9, 12(g), 14, and 15-17 of the Motion, the trustee will continue to entertain higher offers.

But, please note, any such offers must be presented to the Trustee before the hearing on this Motion on June 14.

A successful sale will fully pay my lender client, but I’m also hopeful that a sale will cause Zillow to remove this property as an active listing and that I’ll stop getting so many phone calls.

While it’s been fun to talk to callers from all over the country about this house and the hot Nashville real estate market, it’s also been a huge waste of my time.

Of course, like any good marketer, I’m making lemons into lemonade…I’m telling all the callers about my upcoming and planned Nashville and Brentwood foreclosures for 2021.

We’ll see if Zillow notices those.

Does Post-Judgment Interest change every six months? (Probably not)

I had an “in-person” court appearance yesterday morning, renewing and extending a judgment from 2011. As a creditor, old judgments can be a gold-mine, as home values have soared in Middle Tennessee, and a well placed judgment lien might have some equity.

Plus, it’s sort of nice to take a trip down memory lane, back to when creditors automatically got 10% interest on their judgments.

As long time readers know, in 2013, they revised the post-judgment interest rate statute, Tenn. Code Ann. § 47-14-121, and switched to a variable (and lower) rate, subject to change every six months.

Yesterday, in my proposed Order Renewing Judgment that I handed up to the Judge, I included language that the renewed judgment would accrue interest “as provided in the original judgment, at the then applicable rate of interest under state law.”

The Judge asked me if that meant that interest was 10% over all of this time (and into the future) or, instead, was it a variable rate, changing each time the rate changes.

Well, Judge, that’s a legal question that drives hundreds of visitors to my creditor rights law blog every year.

The Judge asked me if I had a case or other authority to show whether or not the rate fluctuates. I hadn’t researched it (because it wasn’t really an issue on this unopposed Motion), so the Judge simply crossed out “then existing rate” and wrote in “applicable rate,” which punted the issue down the road.

But, we sort of have an answer, thanks to a local lawyer’s comment on this blog post from early last year:

From the TNCourts.gov website: “Beginning July 1, 2012, any judgment entered will have the interest set at two percent below the formula rate published by the Tennessee Department of Financial Institutions as set in Public Chapter 1043. The rate does not fluctuate and remains in effect when judgment is entered.”

And, no, that’s not a case or a statutory cite. It’s just an introductory paragraph on the Administrative Office of the Courts website. But, it’s something. And, it’s as good as we’ve got for right now. “The rate does not fluctuate and remains in effect when judgment is entered.”

As a practical matter, the best practice would be to always use a specific interest rate in any judgments. Instead of saying post-judgment interest “as provided under Tennessee law” or at the “applicable post-judgment interest rate,” always just say the a specific rate, whether it’s 5.25% or 7.45%. This text would create a presumption of a specific, certain rate of interest going forward.

As more of these Great Recession era judgments come up for renewal and lenders are dusting off these pre-2013 judgments for execution against houses and defendants with drastically changed circumstances, I’m betting that, very soon, this is going to be an issue that a creditor is going to need briefed.

My name got listed as sales agent on Zillow and my phone hasn’t stopped ringing

Last November, I started a bank foreclosure sale on a piece of property in Williamson County, at 2113 N Berrys Chapel Road, Franklin, Tennessee 37069. The foreclosure never happened, because the borrower filed a Chapter 11 Bankruptcy in the Eastern District of California.

When I received the Notice of Bankruptcy Filing, I printed a copy for my file, confirmed on PACER that the Notice was legit, and closed my file. This foreclosure sale is canceled.

In the 3 weeks that the foreclosure was pending, I’d received one or two calls about it.

But, somehow, the property website Zillow picked up my Foreclosure Sale Notice and, not only that, but Zillow has me listed as the sales agent on the property’s Zillow page. My name, address, and phone number (the ONE time I used my cell phone number), all right there online.

Since December, I’ve received probably 4-5 phone calls a week, every week, asking about this property. I’ve received calls from families, from real estate agents, and from property investors. The calls are from local numbers, as well as from far away places as Mississippi, California, Minnesota, and London. They call in the mornings, at night, and on the weekends.

I got a call last night at 8pm. I got one today at 2pm.

At this point, if I get a call from a number that I don’t recognize, I assume it’s somebody calling about “that house in Franklin that you’ve got listed for sale.”

It’s either a testament to the reach of Zillow, or the continued atomic-hot Nashville real estate market.

The people are always really nice. They also have a lot of questions about bankruptcy, when I’ll be foreclosing on this house again, and whether I have other houses I can sell to them.

Sometimes they’ll complain to me about the real estate market, about how expensive everything is and how hard it is to find a deal. Occasionally, they ask about bankruptcy and foreclosures, and, honestly, it’s easier to explain what the automatic stay is and how Chapter 11 works than to try to cut the calls short.

I’ve asked Zillow to remove my name and phone number, to no avail.

So, at this point, I propose this: If any of you are real estate agents and need “new customer leads,” please let me know.

And, finally, if you are reading this after googling “2113 N Berrys Chapel Road, Franklin, Tennessee 37069” and you are interested in buying it, here’s what I have to say:

The sale has been cancelled as a result of the borrower filing bankruptcy. A new sale date has not been set and will not be set in the foreseeable future. Yeah, you know those California judges. No, I don’t know if the kitchen appliances in the pictures are still there. No, I don’t have the keys; I just represent the bank foreclosing on the property.

And, yes, I agree. The real estate market in Nashville is insane.

Will Landlords’ Casualty Paragraphs be a hot issue for Second Avenue businesses? (It looks like they already are.)

The real estate market has been so hot in Nashville over the past 6-7 years that, any time an old building in an in-demand area burns down, I’ve wondered if the culprit was a crafty real estate developer looking to build a high-rise condo. (Kidding, of course.)

But, as matter of law, a disaster can provide a landlord a way out of a long-term lease (whether they’re happy to be out or not), where the premises are fully destroyed.

I thought of this today, when reading the Nashville Post article Old Spaghetti Factory loses lease after 40-year run. Per local news, after total destruction of the building on Second Avenue, the landlord “will be terminating the lease agreement, although the restaurant reportedly has 16 years remaining on that lease.” The article notes that the restaurant is offering to spend more than $1 million of its own money to help rehab the space.

Seems unfair, right? It may be, but it’s probably allowed under the Lease.

Most commercial leases have a “Casualty” section, which dictates what happens when rental premises are totally destroyed, whether by fire, earthquake, or some other huge event.

Those provisions generally require the Landlord to restore the premises to substantially the condition that existed prior to the disaster. If the Landlord does that, then the Tenant is most likely stuck in the Lease. (Yes, even if losing the use its rented space during the repair period kills the Tenant’s business.)

Having said that, the provisions also generally give the Landlord an “out,” if the destruction is so total that the premises can’t easily be restored. In making this determination, a number of factors are considered, including if the cost to restore the building exceeds the ultimate value (and/or insurance money), if the Landlord’s lenders scoop up all the insurance money, the lease is near the end of the term, or if would take too long to restore (180 days from the event is a common measure).

In most cases, the landlord is motivated to repair or rebuild quickly, hoping to get the tenant back in the space–and back paying rent–as soon as possible.

There is no indication in the story whether the landlord here is relying on a similar provision or what types of other issues exist.

It may be that the cost to restore this historic building is so high that the landlord can’t (or isn’t financially ready to) quickly go into rebuilding mode. If the lease uses a typical 180 day requirement, the owner may know that there’s no way to do it in that time with all the special challenges presented by this terrorist event and during a global pandemic.

A skeptic would wonder if this owner wants to renovate a building to a newer, better use (like condos, offices, etc.) or may want to get rid of a long term–possibly below market–lease.

Leases are just like any other contracts. The plain text of their terms control. But, casualty provisions are a rarely negotiated point. When I prepare leases for commercial real estate, it’s often a few paragraphs at the end that I review quickly and move on.

But, when they do apply, it’s a big deal. Just like COVID got every Nashville commercial real estate attorney talking about force majeure, maybe this situation will get us negotiating casualty paragraphs.

In the end, though, yes, this is probably allowed under the lease.

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.

Bankers: Are your Judgments expiring?

Tennessee judgments expire after ten years.

All those judgments you took during the Great Recession are coming up for renewal. If you don’t affirmatively ask the court for an extension, they just go away.

And, all those builders, contractors, investors, and so many others who were broke in 2010/2011 but who turned things around when Nashville real estate, business, and construction boomed in 2015 (and beyond)?

They’ve been waiting. Hoping that you’d forget about them. Hoping that you’d do nothing to renew your judgment.

Part of what makes this Creditors Rights blog so popular is that I keep it an objective discussion of the law. You don’t see me use it to solicit business. (Well, overtly.)

But, for today, I’ll say this: If you have a box of judgments that you haven’t touched for years…Call or e-mail me immediately. There may still be time.

I’m seeing it happen every day. Big judgments are expiring, and debtors are ridding themselves of millions dollars’ worth of judgment liens.

Once upon a time, the creditor probably got frustrated by the dead-ends (or maybe the expensive lawyers spinning their wheels while billing by the hour). Those old files got put in a file cabinet. Maybe the banker switched banks. Maybe the bank got sold.

But, if you don’t dust off those old files, you are probably leaving money on the table. If you haven’t looked at those old files lately, it may be too late.