Tag: Foreclosure Collections

My Thoughts on “What To Do When a Creditor Knocks” from the Wall Street Journal

This weekend’s Wall Street Journal ran a article on how to respond to bill collection efforts, called “When Bill Collectors Knock.”  The article mixes good advice with a little bad advice. Here’s my bounce.

Good advice:

Take the call. It is virtually impossible to resolve a problem without addressing it head on. The best way for borrowers to handle a debt they can’t pay is to talk with the lender as soon as possible. Then they should work out a plan to keep the debt current with a smaller payment or to seek a temporary delay until they can pay something.

This is good advice. I talked about the importance of communicating with creditors in an earlier post. The worst thing a debtor can do is be silent, as that invites collection.

Unrealistic advice:

Keep detailed records. Staying on top of debt can be tough. But keeping records and careful notes can pay benefits if borrowers are sued.

I agree that it helps to keep payment records and copies of old invoices, but how realistic is that, particularly with debts that are years old?

But this is better:

Know the rules. Every state puts a limit on how long a creditor is able to pursue borrowers in court.

Your best focus, however, could be records showing your past payment. In Tennessee, the statute of limitations on debt collections is six years from the date of default. If you can provide that it’s been more than 6 years since your default, you may be able to obtain a dismissal of any action.

Bad advice:

Negotiate. Because debt is bought at a discount, collectors should be willing to bargain, perhaps accepting just a fraction of what is owed. If borrowers can come up with the money, they should be able to negotiate a settlement of 50 cents to 65 cents for each dollar owed…

Earlier, the article suggests that most unpaid debt collectors are collecting debts that they paid a mere four cents on the dollar for. So, the article suggests, you should haggle for payments in the range of 50 cents on the dollar.

While this may be true for some debts, in my experience, it’s not as common as the anecdotal stories suggest. The creditors I represent don’t buy debt and so any talk of ten cents on the dollar is a waste of time. Plus, even if a creditor has paid a small amount for a debt, that doesn’t mean that they will accept a small amount to settle, especially if the creditor perceives the debt can be collected in full.

Don’t get me wrong. I always say “Money Talks,” but if you’re making a low ball offer, you have to back it up with proof that your offer is the best you can do, and that requires proof of a debtor’s finances, other debts, etc.

My take-away this this: Over-communicate; Confirm that the debt isn’t over 6 years old (in Tennessee); and Money Talks (or, at least, proof of that the money you’re offering is the most the creditor will otherwise get).

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).

Your Next Landlord Could be A Hedgefund: Are Rental Properties Making a Comeback as a Good Investment?

I’ve said for years that the contractors and investors who got burned by the economic downturn will eventually hit rock bottom, dust themselves off, and end up making as much money on the backside of the recession as they lost on the front end. This is because the same market inefficiencies that were exploited in the past are being replaced by equally exploitable new ones.

The builders who once built speculative homes on inflated market appraisals are going to be the contractors who do the work for the investors who buy the properties from the banks at 40 cents on the dollar.

The Las Vegas Sun did a story last week on how hedge funds are buying Las Vegas real properties at bargain rates, making minimal investments/improvements, and renting the properties for an 8% to 12% annual return.  Then, once the economy rebounds, the investors could expect appreciation to add more value to the investment.

As far as investments go, being a landlord is fairly labor-intensive. And, if the past 4 years has shown us anything, it’s hardly a fool-proof move.

Potential landlords would be smart to read this excellent article in the Wall Street Journal, Do You Really Want to be Landlord? The article has both horror stories and advice, as well as a forecast that rents are likely to increase over the next few years.

I got out of the landlord business two years ago, when my tenant couldn’t unclog her drains and called me every other day.  The 30 minute drive, coupled with time spent waiting on plumbers, gave me all the time to reconsider the pros and cons.

 

New CLE Speaking Engagement: The Essentials of Foreclosure Defense, September 22, 2011

My law partner, Tucker Herndon, and I have been invited by LawReviewCLE to speak at their upcoming seminar The Essentials of Foreclosure Defense. This seminar will be on September 22, 2011, in Nashville at the DoubleTree Hilton.

While we generally represent foreclosing creditors in the foreclosure process, the seminar organizers recognized that “bank lawyers” are probably some of the most knowledgeable about avenues to attack, stop, or stay a foreclosure. They’re right: after probably 500 foreclosures over the past 4 years, we’ve seen it all.

As a result, we’ll be speaking about trends in foreclosure litigation, including lawsuits to stay or enjoin foreclosures, as well as well consensual agreements to avoid foreclosures, like loan modifications, short sales, and deeds in lieu of foreclosure.

Finally, we’ll review the powers of Bankruptcy Courts to stop a foreclosure and, in some cases, attack a creditor’s lien rights.

This should be a lively seminar on an obviously topical area of law. We hope you’ll consider signing up. There will be a Q & A session at the end, and, if you ever wanted to ask a bank lawyer about foreclosures, this is your chance.

New Tennessee Foreclosure Deficiency Judgment Statute Becomes Effective Soon

In addition to imposing new notice requirements on foreclosing creditors, the 2010 Tennessee Legislature has also passed House Bill 3057, which provides post-foreclosure protections to debtors regarding deficiency balances. This new law becomes effective September 1, 2010.

A “deficiency balance” is the amount of debt remaining after the foreclosure sale proceeds are applied to the creditor’s debt. Because most foreclosures don’t net sufficient proceeds to fully pay the debt, lenders often sue their borrowers to recover this difference.

This new statute allows a debtor to question whether the foreclosure sale price was truly representative of the “fair market value” of the property. Under this law, the debtor can attempt to prove “by a preponderance of the evidence that the property sold for an amount materially less than the fair market value…” If successful, the debtor may be able to increase the amount of credit he or she is entitled to.

Additionally, the statute potentially shortens the time to file a lawsuit to recover a deficiency balance, requiring that such actions be brought by the earlier of: two years after the foreclosure; or within the original statute of limitations for suit on the debt.

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 key to avoiding issues under this law is to have some reasonable basis for determining “fair market value” when preparing foreclosure bids, whether it’s the tax records, recent sales, or new appraisals.