What I Don’t Like About the New Post-Judgment Interest Rate Statute in Tennessee (Everything)

I am pretty sure that somewhere in the volumes of Creditors Rights 101, I’ve written about the new statute changing the interest rate to be charged on judgments, which went into effect on July 1, 2012. I can’t find it, so here’s a quick primer.

Once upon a time, interest on judgments was simply 10% (here’s a copy of the old statute). The beauty of the old statute was three-fold. One, it was easy math to compute 10% interest. Two, it was a fixed rate and it never changed, making long-term calculations easier. Three, ten percent is a creditor “friendly” rate, so Defendants were motivated to pay off the Judgment or refinance it.

The new statute is Tenn. Code Ann. § 47-14-121.  This statute not only lowers the post-judgment statutory interest rate, but it throws simplicity out the window.

Here’s the relevant text:

…the interest rate on judgments per annum in all courts, including decrees, shall:

(1) For any judgment entered between July 1 and December 31, be equal to two percent (2%) less than the formula rate per annum published by the commissioner of financial institutions, as required by § 47-14-105, for June of the same year; or
(2) For any judgment entered between January 1 and June 30, be equal to two percent (2%) less than the formula rate per annum published by the commissioner of financial institutions, as required by § 47-14-105, for December of the prior year.
Do you see what I mean about the lack of simplicity?Looking at that, can you tell me what the interest rate is?
The legislature must have known that they were going to completely confuse people, because the statute contains a sub-part at Tenn. Code Ann. § 47-14-121 (b) designed to make the math easier:

(b) To assist parties and the courts in determining and applying the interest rate on judgments set forth in subsection (a) for the six-month period in which a judgment is entered, before or at the beginning of each six-month period the administrative office of the courts:

(1) Shall calculate the interest rate on judgments that shall apply for the new six-month period pursuant to subsection (a);
(2) Shall publish that rate on the administrative office of the courts’ website; and
(3) Shall maintain and publish on that website the judgment interest rates for each prior six-month period going back to the rate in effect for the six-month period beginning July 1, 2012.

 

So, rather than requiring parties to do their own math, the administrative office of the courts will do the math for you and will post the the current (and historical) statutory interest rates to its website. That page of the website can be found here. As of today, the rate is 5.25%.

There’s an “opt-out” in the statute, if the “judgment where a judgment is based on a statute, note, contract, or other writing that fixes a rate of interest within the limits provided in § 47-14-103 for particular categories of creditors, lenders or transactions, the judgment shall bear interest at the rate so fixed.” Tenn. Code Ann. § 47-14-121 (c).
Here are my concerns:
  • The math got a lot more difficult. Instead of the nice, round 10%, we’re now using a variable rate of 5.25% (as of today).
  • There appears to be an obligation to research and modify the rate every six months. Payoffs just got a lot more difficult.
  • By lowering the rate to a very Defendant friendly 5.25%, the legislature removed some incentive to pay off judgments. Frankly, I wonder if you can get a rate better than 5.25% from your bank. I’d rather pay off VISA at 24% than a judgment creditor.
  • Creditors with oppressively high contract rates will now be motivated to stick with those high rates (24%), rather than cut the Defendant a break and let it default to the statutory rate.
My strategy in response will be to always plead my contract rate of interest in my Complaint and ask that the contract (or default) rate be awarded in my Judgment. Invariably, that rate is going to be higher than 5.25%, and that rate will not require modifications every six months.
A final note, keep in mind that the legislature did not modify Tenn. Code Ann. § 47-14-123, which sets the pre-judgment rate of interest at 10%.

Don’t Forget that Tenn. Code Ann. § 35-5-118(d) Also Has a Two Year Statute Limitations on Collection of Foreclosure Deficiency

Earlier in the month, I talked about the new Tennessee Court of Appeals decision on Tenn. Code Ann.  § 35-5-118, which provided some guidelines on analyzing the adequacy of foreclosure bid prices in Tennessee.

In the Court’s deep analysis of the potential defenses to a foreclosure deficiency lawsuit in the statute, don’t forget my advice from an even earlier post about the new two year statute of limitations.

In Tennessee, a creditor can sue for breach of contract (i.e. to recover unpaid debt) for up to 6 years from the date of the default in payment.

This Tenn. Code Ann.  § 35-5-118(d) provides that a post-foreclosure action to obtain a deficiency judgment “shall be brought not later than the earlier of:

(A) Two (2) years after the date of the trustee’s or foreclosure sale, exclusive of any period of time in which a petition for bankruptcy is pending; or
(B) The time for enforcing the indebtedness as provided for under §§ 28-1-102 and 28-2-111.
So, the creditor has to sue on the earlier of two years or within the original 6 year statute of limitations. Two years is generally going to be the earlier of those two.
For many creditors, waiting a few years after a foreclosure is a reasonable move, to see if the debtor’s fortunes turn around. But, under this statute, a creditor can’t wait too long, and no later than 2 years.
Also, a creditor should be especially careful about a forbearance agreement on the deficiency debt.  If those voluntary payments extend more than 2 years, then a debtor could argue that the creditor’s cause of action on the debt expires. Long story short, be sure to document either a tolling of the statute or do any sort of long-term payment arrangement as a new Deficiency Note (which, itself, has a new 6 year statute of limitations from default).

What Does “Materially Less” Mean in Tennessee Foreclosure Sales?

The Nashville Post interviewed me on what constitutes “materially less” in bank foreclosure sales in a December 14 article titled “Appeals court clarifies just what ‘materially less’ means in foreclosure auctions“. This clarification gives banks some guidance in determining what amount must be bid at a creditor’s foreclosure sale in order to preserve their deficiency balance.

Collection Advice for Lawyers: Get Your Bills Out on Time

Here we are, at the end of the year, and I’m worried about getting all my collection work done for my clients…as well as my collection work on my legal invoices. Yep, it’s the year end cash rush. Trees are being shaken. Happy Holiday emails have invoice reminders at the end. And, yes, unbilled time is being discovered and rushed out the door.

I’ve talked about the best practices for legal invoices to get lawyer bills paid.

This morning, I saw a tweet by @rocketmatter titled  Legal Billing Rule # 1: The Longer You Wait The Less You’ll Get Paid. 

This is great advice. The longer you sit on a bill, particularly on a complex matter, the less likely it is that the invoice will be paid in full.

If you don’t invoice time as you go, you run the risk of shocking the client when you send them 2-3 months of billable time. It is not good to shock a client with your bill. Clients are far more likely to pay bills as the case progresses, in manageable amounts.

Plus, if a client is going to object to the cost to litigate a complex matter, wouldn’t you rather they see the bills for work after one month of litigation? Even the most eagerly litigious client gets back to reality in the face of a zealous lawyer’s bill. Give them this information early, rather than after you’re neck-deep in depositions, Motions, and unbilled expenses. Yikes.

Lawyers aren’t cheap, and the practice of law is not the type of work that lawyers are willing to do for free. If you want to get your bills paid on a timely basis, get them to your client on a timely basis. If you sit on the bills for months and put a low priority on the invoices, then your client will put a similarly low priority on paying them.

Is Naming Your Kid “Junior” Going to Cause Them Trouble? Cross-Generational Financial Woes May Result

Big news here at Creditor Rights headquarters: My wife and I are expecting a baby! We don’t know the gender yet, but we’re reading Baby Name Books cover to cover, looking for that perfect mix of tradition, syllables, and what sounds good.

One thing we’re not considering, however, is a Generational Title, i.e. “Junior.” The baby name experts say it’s a mix of good and bad.

From my perspective as a collections lawyer, I think it can be bad, because I’ve seen one generation’s financial and legal troubles wreak havoc on the other generation. This goes in both directions, with sons causing fathers trouble, and vice versa.

Just this past year, I’ve seen liens on a son’s land ostensibly attaching to the father’s land; wage garnishments on the father’s wages based on the son’s unpaid debt. Bankruptcies showing up on the wrong person’s name, etc.

Much of this stems from our online world, which often indexes information about us based on Name and Location (see Facebook). Two people with the same name who live (at some point) at the same address are going to confuse google, banks, property records, and everybody else.

You might not care about confusing your collection creditors (some people relish in this chaos), but, when one generation’s finances go bad, you’ll care about the impact on your ability to get a loan and sell your house, without having to explain the embarrassing details of your dad’s money troubles.

Don’t get me wrong: it’s a great tradition and a wonderful shared bond between generations. But, when one generation has legal or financial troubles, it’s not just a name that is shared–it’s also the dirty laundry of money mistakes.

Tennessee Court of Appeals Issues First Opinion Examining Text of Tennessee Deficiency Statute

Remember two years ago, when I wrote about the new Tennessee deficiency judgment statute? That statute, Tenn. Code Ann.  § 35-5-118, was designed to provide a defense to post-foreclosure deficiency lawsuits where the creditor failed to bid the actual “fair market value” of property at foreclosure. At the time, I said:

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 reason I’m quoting myself so much is because the Tennessee Court of Appeals decided last week that my interpretation is correct. I take credit for this opinion, because I argued this case before the Court.

The case is GreenBank v. Sterling Ventures, et. al. , decided on December 7, 2012, (full text here). If you represent banks and creditors, particularly in foreclosures and collections, you must read this case and consider how your clients’ foreclosure bidding strategies compare with the Court’s decision.

This opinion is significant because it’s the first decision critically examining the text of Tenn. Code Ann. §35-5- 118 and deciding what “materially less” means.  While that term sounds official, the phrase “materially less” has never been used in any other Tennessee statute or court opinion. Ever. As a result, a court deciding whether a foreclosure sale price is “materially less” than fair market value is faced with a completely blank slate.

At the trial court level, the Chancery Court had found, at summary judgment and as a matter of law, that a foreclosure sale price ranging between 88% and 91% of the Defendants’ highest alleged value was not “materially less.”  On appeal, the Court agreed, explaining that the legislative history and goals of the new statute clearly indicated that a foreclosure bid price at 89% of the highest property value was not “materially less.”  (The Court actually went a step further, based on a prior decision, and found that 86% would suffice.)

The matter was appropriate for decision at the summary judgment stage, because, even accepting the Defendants’ facts as true, the foreclosure sale price was still 89% of the Defendants’ highest values and, thus, was not “materially less” than fair market value under Tenn. Code Ann. §35-5- 118(c).

Here are my two take-aways from this decision:

  1. A foreclosure bid of 86% is going to withstand this defense, so tell your bank clients to bid at least 86% of the highest alleged value (whether that be your appraisal, the defendant’s appraisal, or the tax card value).
  2. Under the right facts, a creditor can prevail over a §35-5-118(c) defense at the summary judgment stage.  The first time I saw this statute, my greatest concern wasn’t that my client would win or lose on this argument, but, instead, that this statute created a factual issue that would cause delay and require a trial (and, thus, I couldn’t prevail on a motion for summary judgment). This case shows that you can win such a motion.

This opinion is creditor-friendly, but not overly so. Keep in mind, a bank conducting a foreclosure must still bid at least 86% of a property’s highest value. Taking into account costs of the foreclosure, the costs of “owning” property, and other administrative costs associated with foreclosure, I question whether we’ll see a later opinion on different facts that affirms a lower percentage (65%-75%).

Read the Davidson County General Sessions Court Local Rules Before You Go There

Many lawyers (or pro se) litigants are uncomfortable in Davidson County General Sessions Court (where the jurisdiction/amounts at issue are below $25,000, with some exceptions).  Justice moves really fast in small claims court, and that’s the general complaint, that the 50-100 cases on each docket make practice there difficult.

That having been said, before you step into that fast paced world, take a moment to read the Davidson County General Sessions Court Local Rules.

Those Local Rules have answers to the following issues that come up every day:

  1. Do I need a lawyer to represent me in General Sessions?  A person can represent himself, but a non-attorney “will not be permitted to represent anyone other than him or herself in the General Sessions Courts.” See Rule 2.01. This means that a non-lawyer cannot appear and defend a case for a corporation or other business entity.
  2. Can I get a continuance on the first court date setting? Maybe. “In civil actions the Court may liberally grant a continuance on the first setting of a case or on the first setting after an indefinite continuance.” See Rule 5.01.  But, you should always call the other side and tell them you want or plan on asking for a continuance. See my # 4 advice from last year.
  3. Can cases be continued “indefinitely”?  No.  You have one year to resolve the case, and you only get three continuances. Rules 6.01 and 6.02.
  4. If I’m the Plaintiff and I don’t show, what happens to my case?  “When a case is dismissed without a trial for want of prosecution, said dismissal shall be without prejudice to either party’s right to re-file.” Rule 4.01.

That’s just a sampling of the 4 most common “rules” that everybody cites, but not everybody knows where to find the rules. If you have a sticky issue in small claims court (or if you don’t go there much), be sure to read the Local Rules before you go.

One final piece of advice: There aren’t enough elevators for the crowds that show up for Court. To be sure get into the courtroom on time, get there at least thirty minutes early for your docket.

Borrower Beware: Co-Signed and Guaranteed Loans Can Haunt You for Years

In the spirit of Halloween, the scariest article in this weekend’s Wall Street Journal wasn’t about the story about new ways that haunted houses are terrorizing people.

Nope, the one that gave me nightmares was about the perils of co-signed debt, lurking in the shadows, waiting to attack a parent (or grandparent) for co-signing a student loan.

And this is a monster that can’t be out-run: In addition to being 100% responsible for the debt, the student loan debt could be deemed non-dischargeable in a Bankruptcy by the guarantor.

Long story short, the debt could follow you for years, until it’s paid in full. The Wall Street Journal did a follow-up blog post, providing more advice for those considering co-signing student loan debt.

According to that blog post, “90% of private loans had co-signers last year.” The reason is obvious: if there is any level of risk of non-payment, a lender wants to get more obligors to collect against.

This should be a cause of concern for any person asked to co-sign a loan, whether it be a consumer loan or a commercial loan. Think carefully before signing it. If it goes bad, you could be liable for the entire amount.

Also, read the terms carefully. On many personal guaranty agreements, especially ones involving long term credit advances, the guarantor’s obligation to guarantee advances may out-last their involvement with the business that borrowed the money.

Sometimes, the only way to beat this monster is to never sign up for the fight in the first place.

What Tim McGraw Can Teach You About Injunctions in Tennessee

During the first week of law school, law students learn how to read caselaw.

The way it works is this: Judges decide legal issues by writing legal opinions that summarize existing law and apply the existing law to the facts before them in that case (or by departing from existing law to create new law). Over time, the line of published legal opinions creates “The Law.”

Long story short, a good way to learn the law on a topic is to look for a recent case dealing with the topic.

That’s why I am citing the Curb Records, Inc. v. Samuel T. McGraw case from last week. (That’s “Tim McGraw” a.k.a. Mr. Faith Hill.) I don’t delve into entertainment law very often (although I’ve sued a few country singers in my time for unpaid debts), but this case has a very good review of Tennessee injunctions and the standards to obtain injunctive relief.

This legal opinion discusses the primary law (Tenn. R. Civ. P. 65.04), along with the most recent cases discussing the standards. Plus, because it’s a case from last week, you can cite it with confidence that it remains good law and hasn’t been overruled. It’s worth a read.

Tim McGraw will undoubtedly be flattered to hear that the Tennessee Court of Appeals finds, as a matter of fact, that “McGraw is undisputedly an entertainer offering unique and
extraordinary services.”

Digital Footprints: The Best Credit Applications Include E-Mail Addresses

I’ve got a client who does a great job on their collection referrals. Their referral packet includes the usual: addresses for the borrower; whether the borrower owns the property; employment information; banking information; and copies of the relevant loan documents.

But, tucked away in their Credit Application, there’s an extra line that includes a unique request: provide an e-mail address.

You may wonder how an e-mail address could help in collections. If the borrower isn’t answering your calls and is dodging your process server, you may think, how quickly would they delete an e-mail from you?

The e-mail address isn’t merely a way to make contact with the borrower. Instead, it provides a unique way to identify and locate them online. In collecting on an unpaid debt, I’ve found that an e-mail address is as close as a digital footprint as there is online.

As an illustration, imagine running a Facebook or LinkedIn search for “Mike Jones.”  You’ll get hundreds of false hits, because there are probably a lot of Mike Jones in this world. But, with an e-mail address, you would run a search for “mikejones1974@gmail.com.” There’s only one of that person.

So, that internet search results in finding the person you’re looking for, because Facebook and other social networking services allow you to search both by name or e-mail address. Plus, you’ll potentially find a long list of online activity, whether it be comments on blogs (be careful in the comments section below) or other postings online.

People tend to keep active e-mail addresses, especially ones they’ve used for years. It’s a great resource, and an easy, discrete piece of information to ask for.