Tag: Debt Collection

New Tennessee Court of Appeals Resolves Ten-Year Old Question about Post-Judgment Interest Rate

For nearly a decade, I’ve been writing about the Tennessee post-judgment interest statute, Tenn. Code Ann. § 47-14-121, which was amended in 2012 to change from the long-standing fixed rate of 10% to a variable rate that changes every 6 months.

I say “writing,” but others may say “complaining.” They’d probably cite this post: What I Don’t Like About the New Post-Judgment Interest Rate Statute In Tennessee (Everything).

My initial concern was one that many Tennessee lawyers shared: Because the interest rate is subject to change every six months, will the applicable rate on an existing judgment also change every six months?

Nobody knew. Not attorneys. Not court clerks. Not even the trial court judges.

In a very helpful comment to this 2020 post about the issue, Tennessee attorney Michelle Reynolds provided the best answer I’d seen (and one that I’ve since argued):

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.”

Of course, that’s not a case or a statute. It’s an “introductory paragraph on the Administrative Office of the Courts website.”

In an opinion issued last night, however, we have our answer!

In the case (Laura Coffey v. David L. Coffey, No. E2021-00433-COA-R3-CV (Tenn. Ct. App. Apr. 11, 2022), the Tennessee Court of Appeals notes this long-standing confusion and then immediately dispels it.

In its analysis, the Court notes that the rate to be applied under Tenn. Code Ann. § 47-14-121(a) is clear and unambiguous (it’s math), and it’s the entirely separate provision at Tenn. Code Ann. § 47-14-121(b) that introduces fluctuations in the general rate. Noting the clarity in (a), the Court finds that (b) does not create ambiguity as to existing judgments.

Under Tenn. Code Ann. § 47-14-121(a), the Court writes, the “applicable post-judgment interest rate does not fluctuate when applied to a particular judgment; instead, it remains the same for the entire period of time following entry of the judgment…until the judgment is paid.”

It’s always a great day when an unresolved issue gets clarity. Sometimes I make a joke that only “law nerds” will appreciate a legal development like this; for this one, though, I think all Tennessee lawyers will benefit from this opinion.

Sure, the Debtor is Foreign, but Is his Bank?

I’ve talked about the process of domestication of judgments, which is basically the process by which you make a judgment from one state enforceable in another state. You see, a judgment awarded in Tennessee can only reach a debtor’s assets located inside the State of Tennessee. So, if you have a judgment against somebody who lives in Texas, you may have to file a second lawsuit in Texas to attach his assets.

But don’t go buy a pair of cowboy boots just yet.

I mean, sure, if he owns land in Texas,  owns a car that’s registered in Texas, or has a million dollars in cash under his Texas bed, then your Tennessee judgment is not going to be effective to execute on those assets. To get those things that are actually in Texas, you need to go through the domestication process, which results in your out of state judgment being recognized by that foreign state as a valid judgment for enforcement in that state.

But, here’s a trick: What if the debtor has all his assets in that foreign state, but he banks at a national bank with offices all over the country? And what if that bank has a branch in Tennessee? The answer is that you can levy on that bank account.

So, debtors with accounts at Wells Fargo Bank, National Association and Bank of America, watch out.

Tennessee Courts will not find a ‘Paid in Full’ Check to be Conclusive Release of Debt

Every once in a while, one of my clients will receive a random check with a note in the Memo line that says “Paid In Full.”

If the creditor accepts that check, the borrower’s argument goes, the creditor also accepts the payment as a settlement…that the account was paid in full. This overlooks (or counts on) the fact that most big creditors process payments by machine or without watching for sneaky notes in the Memo section.

Fortunately, however, the general rule in Tennessee is that a note on a check may be an indication that the account was settled, but it isn’t the only and final proof of settlement.  On this exact issue, the Tennessee Supreme Court has said “Something more is required.” Quality Care Nursing Servs., Inc. v. Coleman, 728 S.W.2d 1, 4 (Tenn. 1987).

Generally, Tennessee courts will look at whether there was any other evidence of a payment dispute and “meeting of the minds” that this payment was tendered as a settlement and a proposal to resolve the disputed account. Was there a cover letter explaining a dispute and that acceptance of the payment was truly a settlement of the debt?

The Supreme Court noted: “It would be unrealistic in the modern business world for a debtor to send an installment payment to a creditor, which may be receiving hundreds or thousands of such checks, and to have the balance of his debt deemed discharged as a matter of law simply because of a legend the debtor placed thereon, absent any other proof of a compromise or settlement.”

So, what do you do if you are faced with a “Paid in Full” check? Well, as a initial matter, be careful.

If you receive one and you notice it, you may well be opening yourself up to an “accord and satisfaction” defense under Tennessee law. The best practice would be to refuse any such payment and return it to the borrower, with a demand that the check be replaced.
The risk in accepting the payment is clear. One court has noted ” a creditor’s action of cashing the check speaks louder than its words, have held that by accepting and cashing a check marked ‘paid in full,’ a creditor has agreed to accept the amount of the check as full payment of a disputed amount.” Ideal Stencil Mach. Co. v. Can-Do, Inc., 85-81-II, 1985 WL 4041 (Tenn. Ct. App. Dec. 4, 1985).

 

Employers Who Provide False Garnishment Answers May End Up Owing the Money Themselves

I got a judgment a few months ago, and, having found out where the judgment debtor works, I issued a wage garnishment against the debtor’s wages.

And, oh man, did I ever have that guy. Not only did he work there, but he was listed (and pictured) on their website as an executive. It was only a matter of days until I got my money, right?

Well, not exactly. The employer filed a response that said “Terminated.” That was a surprise. I checked the website. The guy was gone.   Did my garnishment get him fired?  Strange.

So, out of curiosity, I called the employer and got the company directory. The debtor was still listed. So, I waited a few weeks, and they were still listed. I tried the extension and, within seconds, I had the debtor on the phone.

Long story short, I think this employer is lying. What do you do?

Tenn. Code Ann. § 26-2-204 requires garnishment responses to be under oath. The law even anticipates that an employer might lie: “The answer of the garnishee is not conclusive.” Tenn. Code Ann. § 26-2-205. To that end, Tenn. Code Ann. § 26-2-206 allows a creditor to get a judgment against the employer if they actually have assets of the debtor in their possession.

So, in the end, a creditor has rights against a dishonest employer, but there are hoops to jump through. Though the statutes don’t lay this out, the procedure would be to subpoena the payroll records or otherwise get testimony from the employer to establish the veracity of the response. Then, the creditor must take the employer back to Court under § 26-2-206 to get a judgment.

It’s a hassle. But, if you lie, employers, I’m happy to take a judgment against you.

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.

Using Social Media to Collect Debt: If You Can Navigate the Ethical Minefield, It Works 5% of the Time

A new trend in lawyer Continuing Legal Education are seminars advocating use of Social Media to Collect Debts. The seminars either advocate for social media as the tool of the future or caution that it is an ethical trap for debt collectors.

It’s a hot issue in debt collection. NPR did a story on this last year, and the Federal Trade Commission recently conducted a “Debt Collection 2.0” workshop on the issue. Frankly, it’s such a new issue that the Fair Debt Collection Practices Act (FDCPA) doesn’t exactly fit, but it’s close.

It’s definitely a trap for the debt collector, especially given that the FDCPA seems to apply to all communications, regardless of whether it’s a letter, e-mail, or friend request. Does a creditor have to identify themselves as a debt collector under the Act in an initial friend request? Does the friend request (i.e. an “initial communication”) have to be followed by the Act’s required debt validation warning (15 USC 1692g)?

I have no idea. My philosophy is, when in doubt about ethics, choose the safe route. Here, the safe route is avoiding affirmative contact but, if the profile is public, then by all means use whatever you can publicly find.

Just yesterday, I was trying to locate a defendant who had disappeared–all of the searches kept going back to his old house, where the residents swore he no longer lived. But, I found an online profile for him on Map My Walk, a site that allows people to track their running and walking routes. You can guess the rest: everyday, his walks started and ended at the address that I had, providing confirmation of his address (and what time he was home in the afternoon).

At one time, I saw social media as the future of debt collection, especially in the early days of social networking sites (Myspace, Friendster, early Facebook), when people didn’t think twice about privacy settings. Now, people are more savvy about online privacy. (And it’s not necessarily to dodge debt collections–it’s more likely to avoid the boss seeing your party photos.)

Even though people can post pictures of their new car or brag about their promotion at work, most people know better. But, not everybody knows better–and, if they are going to put it online where anybody can see, they can’t complain when a debt collector finds it.

My final take? It’s not the wave of the future in collections. It’s a box to check in the process, but not the solution to finding debtors or their assets.