Tag: Nashville Foreclosure

Are the Nashville Construction Defaults a Leading Indicator that the Nashville Market has finally turned?

I saw something at a Nashville foreclosure yesterday that I hadn’t seen in years.

A luxury, high end house in a great neighborhood was auctioned, and nobody showed up to bid. The Lender bought it back at a credit bid. (In the spirit of disclosure, it was a $2MM+ credit bid. They weren’t quite giving it away, but this is Nashville).

It reminded me of foreclosures in the Great Recession, when you’d stand on the courthouse steps, reading a foreclosure sale notice to nobody and, invariably, your bank would become the new owner of the property.

Back in 2008, lenders were dealing with the after-effects of an easy-money market. Builders with good credit built too many houses, too fast, and the market had a glut of inventory, with no buyers in sight.

The lack of buyer-credit meant that new sales couldn’t keep up with the builder’s debt obligations. It was sort of a ponzi scheme, as sales of today’s houses were necessary to pay for yesterday’s construction costs. When the money level dipped, lots of partially built spec homes got foreclosed, after the builder’s new money ran out and they were defaulted or simply gave up.

I thought about 2008 yesterday.

As much free-flowing money as there’s been in the Nashville retail-buyer and foreclosure market over the last 4-5 years, it was a surprise to see that sale fall flat yesterday. In the last year, I’ve done foreclosures in Nashville with 20-30 bidders present. But, on a sunny Thursday, with a Belmont-Hillsboro Village house on the block, and there are no bidders, buyers, or bankers willing to refinance?

Could this be a leading indicator of a larger problem in Middle Tennessee?

The signs are there. This exuberant builder refurbished a modest 1920s bungalow, to construct a 8,712 square foot, 2 car garage, 5 bedroom, 8 bath outlier, originally offered for $3,675,000 (estimated monthly payment of $20,012). The house isn’t entirely finished–it looks like contractor work on the new backyard pool and outdoor area has stopped.

The builder has more than a dozen projects throughout Nashville, in similar stages of “in progress” construction. The builder also has a number of pending foreclosures and twice as many pending lawsuits. The construction on a number of the sites seems to have simply stopped.

Just a few years ago, just one high-end property selling for top-dollar would have bought an over-extended builder a few months, finished another project, and lead to another sale, but it seems like the buyer market has waned as well. When both buyers and banks get cautious, risky bets come due.

There are a number of peculiarities here that may make a broad-takeaway unreliable. But, with that caveat, I’m seeing lots of the same issues and patterns that we saw in 2008.

Plus, by mid-morning, I’d learned that the developer filed a Bankruptcy. Just like they did in 2008.

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.

motion-for-sale-berrys-chapelDownload

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.

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.

How to Conduct a Sheriff’s Sale of Real Property in Tennessee: It Depends on Who You Ask

Many years ago, the Tennessee Bar Journal ran an article by Knoxville legal luminary Don Paine called “Practical Advice for Collecting a Judgment.”  Clearly, this article got my attention.

In it, Paine outlines how to obtain a judgment lien on real property and how to ultimately sell the property pursuant to that lien. His analysis begins and ends with Tenn. R. Civ. P. 69, which provides that a judgment lien creditor shall file a motion requesting that the court order a sale. In fact, Rule 69.07(4) specifically says “[a]s long as a judgment lien is effective, no levy is necessary”–just file a Motion.

Rule 67.04 provides a specific procedure for a Sheriff’s Sale of real property (i.e. 30 days advance notice; 3 total publications; distribution of proceeds).

But, elsewhere in Tennessee statutes, there’s a different procedure for sheriff’s execution sales of real property. Tenn. Code Ann. § 26-5-101 lays out its own set of rules and requirements, which are differ in minor ways to Rule 69 (i.e. 20 days advance notice).

And, having done my own Sheriff’s Sale earlier this summer, I chuckled when I saw Paine’s article. After I had a Rule 69.07 Motion granted and asked the Clerk to initiate the sale process, the Clerk and Master on my case ignored my Order Granting Motion for Sale, telling me, instead, I need to accomplish the sale by levy and execution.

Side note: One of the things that makes collections interesting is that you’re not just dealing with a Judge anymore, you’re dealing with a Clerk, who may have their own opinions about how things are done.

So, how do you reconcile these differing procedures? And, trust me, these mechanical / procedural issues come up all the time.

Paine’s answer is simple: Under Tenn. Code Ann. § 16-3-406, when a Rule is in conflict with any other law, the Rule prevails.

But, as a practical matter, try telling that to the Clerk, when they say “You need to file a Levy.”

On my sale, here’s what I did: I did both. I had an Order and then issued a Levy on the real property, pursuant to my Order. When the requirements differed, I used the procedure that complied with both.

Sometimes, being right is less important than getting the job done.

Nashville Bankruptcy Court Ruling Finds That Delay in Foreclosure Can Lead to Waiver of Rights

The Tennessean wrote about Nashville Bankruptcy Judge Paine’s recent opinion that subordinated a senior lien-holder’s Deed of Trust where the bank delayed foreclosure on the property. The debtor sued the bank for resolution, because homeowners’ association dues were continuing to accrue in her name and, under the Bankruptcy Code, a debtor can remain liable for post-petition HOA dues on property.

In the case, In re Sheryl Lynn Pigg, U.S. Bankr. Adv. Case No. 10-00642A, BAC Home Loans took possession of and secured a flood damaged vacant home by changing the locks and posting notice of the possession. In her Chapter 7 Bankruptcy, the Debtor surrendered all interest in the property to the Bank. But, despite all that, the Bank never actually foreclosed–the property just sat vacant.

During that time, however, the HOA continued to accrue post-petition unpaid dues, which the Debtor continues to be liable for under 11 U.S.C. § 523(a)(16).

The Debtor filed the Bankruptcy lawsuit in order to cut off her liability for the dues, either by having the Judge rule that BOA is liable by virtue of its possession or by forcing BOA to foreclose.

The Bankruptcy Court ruled that the Bank had taken possession of the property and, as a result, was liable for the accruing HOA dues. But, rather than just using the text of the HOA obligations under the Master Deed (which supported the same result), the Court used its equitable powers under the Bankruptcy Code  to order a sale, under Section 363, of the property, with the Bank’s lien claim subordinated to the costs of the Trustee’s sale and to the HOA debts owed (and HOA attorney fees).  The Court expressly found that “the Bank and the HOA have consented to the sale by their inaction.”

This is an interesting ruling, because nothing in the Bankruptcy Code allows a Court to subvert the priority of a valid and properly perfected property lien. Here, using only its equitable powers, the Court fashioned a fair outcome, but a clear departure from state law lien priority statutes.

In light of this opinion, lenders may need to be aware of any delays in initiating the foreclosure process. Nothing in state law expressly requires that banks foreclose under any time deadline, but this opinion suggests that lenders open themselves up to attack where they wait. This is dangerous new precedent.

A copy of the full opinion is here: Pigg Opinion Bankruptcy Court