Tag: Judgment Lien

Increase in Tennessee Homestead Exemption Fails. For Now.

Last month, the hot topic in the Tennessee creditor rights lawyer world was the rumored increase in the Tennessee homestead exemption.

Well, “rumor” is an understatement. This proposed change had real momentum and had a very strong chance of happening.

As you’d expect, this proposed change completely freaked out the creditor lawyers. I’m on the Tennessee Bar Association’s Creditor’s Practice Executive Committee, and here’s an excerpt of an email I received about it all:

This bill is bizarre. The exemption would go from the current $5,000.00-$25,000.00 to $150,000.00-$750,000.00 – a 3,000% increase!

This proposal should be officially opposed by the TBA. It would have a huge impact on banks’ and businesses’ ability to be repaid their just debts and judgments. Judgment debtors could hide any monetary assets they have in real estate and avoid having to repay what they promised to pay. This bill would legislatively tell debtors they do not have to repay their debts.

This sounds like something which Elizabeth Warren and Alexandria Ocasio-Cortez might suggest.

This is not a close call. This bill is off the charts bad.

So, yes, the creditor response was pretty clear, and a quick coalition formed involving the Tennessee Banker’s Association, the Tennessee Bar Association, and a handful of other similar groups.

In the end, the House Judiciary Committee deferred the homestead bill until next year. The bill will be moved to the committee’s first calendar of next year. When it comes up then, it will be in the form considered by the Committee in its last consideration, which was in the “flat” amount of $35,000. 

Ultimately, this seems like a fair amendment. Tennessee is pretty squarely in the bottom, with one of the lowest homestead exemptions in the nation.

When it comes up, I hope the sponsors propose an increase that reflects an adjustment for inflation, and not some drastic increase designed to make Tennessee a haven for asset protection. The fatal flaw in this proposed change during this session was that there was no justification or supporting data for an increase to $750,000 or a million dollars, especially when exemptions are designed to provide a “fresh start” to broke judgment debtors. It all seemed arbitrary.

Oh well, stay tuned, and I’ll report back in 2020.

2019 Tennessee Legislature is considering a new homestead that would eliminate a creditor’s ability to collect against residential real property

One of my most common phrases on this site is “Tennessee is a creditor friendly state.” Another is “Always file a Judgment Lien against real property.”

Well, that may change very soon. The Tennessee Legislature is considering a very debtor-friendly increase to the homestead exemption that will make Tennessee, literally, one of the most generous states in the country for debtors.

I’m specifically talking about House Bill 0236 and Senate Bill 0399, which would increase Tennessee’s homestead exemption to as high as $750,000. Except for those states that have an “unlimited” exemption, this would make Tennessee’s homestead the highest in the nation.

The Legislature considered a similar increase in 2012, which I wrote about back then, which didn’t pass.

“Exemptions” allow a debtor to protect certain property from the reach of creditors. Exemptions are designed so that a judgment creditor can’t take everything, so household goods, retirement accounts, and other necessities can be exempted, so that a downfallen debtor can keep the shirt on his back and rebuild his life.

Or, 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.

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.

Creditor Advice in a Booming Economy: Set Your Traps and Wait for the Call

Sometimes, my judgment creditor clients get antsy. This generally starts a few months after we’ve been awarded a monetary judgment. After we’ve recorded it as a lien. After we’ve looked for cash/bank accounts/assets. After we’ve come up short on our initial garnishment efforts.

And, after all doing all that, sometimes, my best advice is to give it some time. As you’ll recall, unless we’re dealing with a judgment debtor who is depleting or hiding assets, my advice in judgment collections is often to be patient.

Judgments are good for ten years in Tennessee, and, if I’ve done my job as a creditors rights attorney, I’ve laid all the necessary traps, tricks, and liens to capture assets in the future.

But, having said all that, it drives some clients crazy to be patient.

Today, after about 40 phone calls over the past 4 years saying all of this to a big judgment creditor client, I got to tell him “See, I told you so.”

With property values skyrocketing, our judgment debtor finally (and inevitably, I’d add) has decided to sell real property, and a closing company called for a full payoff.

2012 Tennessee Legislature is Considering an Absolute Homestead that Would Eliminate a Creditor’s Ability to Collect Against Residential Real Property

Recording a judgment in the county’s Register of Deed’s Office creates a lien on any real property owned in that county by the Debtor pursuant to Tenn. Code Ann. § 25-5-101.

A judgment lien is the single most effective tool in the collection process. Plus, it’s cheap: for less than $20, a creditor can get a lien on any property owned (or owned in the future) by the Debtor, and that property cannot be sold, refinanced, or transferred without dealing with the creditor.

As a creditor rights lawyer, you can guess my concern over two Bills being considered by the Tennessee Legislature in 2012, House Bill 2887 by Glen Casada and HB 2930 by Mike Bell.

These Bills seek increase the “homestead” exemption in Tennessee. “Exemptions” allow a debtor to protect certain property from the reach of creditors. Exemptions are designed so that a judgment creditor can’t take everything, so household goods, retirement accounts, and other necessities can be exempted.

H.B. 2887 proposes an absolute exemption that would exempt a debtor’s residence from any execution or judicial sale. Essentially, no matter how much equity a debtor has in his or her house, that equity would be completely untouchable by creditors.  A debtor could live in a $1,000,000 lien-free house without paying a penny to creditors. This legislation would completely abolish the concept of a judgment lien.

Currently, Tenn. Code Ann. § 26-2-301 allows a single individual to exempt $5,000 of equity, a married couple $7,500, and a married couple with minor children living in the house up to $50,000.

The other proposed legislation, HB 2930 by Mike Bell, seeks to simply increase the homestead exemption amount to $50,000 across the board.

From a creditor’s perspective, the proposed legislation is both too broad and unfair.  I understand the importance of protecting peoples’ homes, but, at the same time, the law should operate fairly as to creditors and debtors.

Frankly, I think it’s unfair that the law would shield $50,000 of equity from the reach of creditors.  Think about it from a creditor’s perspective: if you loaned somebody $200,000 and weren’t getting paid any of it, wouldn’t you be mad to see them keep $50,000 of equity?