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.

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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