One of the greatest current failures of Tennessee law is the lack of a penalty for fraudulent lien filings. In December, I wrote: “if somebody records a piece of paper with ‘Notice of Lien’ written somewhere on it (and includes the owner name and property address), they’ve got a totally un-lawful, but also practically-effective, lien.”
Last year, a hand-written, three sentence recorded “lien” brought a pending commercial property sale to a halt. When I politely explained to the lien claimant that there was no basis under Tennessee law to assert lien rights, she said “If that were true, then, why are you even calling me?“
What she was really saying was: Yeah, but what are you going to do about it?
In an opinion issued yesterday, the Tennessee Supreme Court was asked a similar question. In State of Tennessee v. Ronald Loyns, James Michael Usiger, Lee Harold Crowell, Austin Gary Coper, and Christopher Alan Haser, No. M201901946SCR11CD, 2023 WL 3446554 (Tenn. May 15, 2023), the Court was faced with a group who figured out how easy it is to create and record a UCC-1 personal property lien using the Tennessee Secretary of State’s online filing wizard.
So easy, in fact, that the group filed more than a hundred UCC-1s without legal or factual basis against a variety of folks who they had grievances with. The police officer who gave one a speeding ticket. An ex-wife. The local Chancery Court Clerk and Master. In all there were about 30 victims.
After one took his complaints to a lawyer, and was rebuffed, he attended the local meetings of this group, who taught him how to assert liens under the Uniform Commercial Code. By the UCC-1 filers’ logic, those “debtors” had done something that resulted in inconvenience to them and the UCC-1 filing was designed to obtain compensation (ranging, in this case, from 4 and 12 million dollars). The victims testified about the resulting failed home closings, the denied credit applications, and dings on credit reports.
The defendants were ultimately convicted of fraud and forgery, per Tenn. Code Ann. §§ 39-14-105(a)(6), 39-14-114, 39-17-117. This type of scheme is often referred to as “paper terrorism.”
The Supreme Court then analyzed the various actions against the requirements of Tennessee’s criminal statutes, and the Court upheld all criminal convictions.
In a footnote, the Court alluded to civil penalties, including at Tenn. Code Ann. § 47-9-625, and the ways that private citizens can protect themselves against these schemes.
Spoiler-alert: It’s far easier to file these bogus liens than it is to remove them.
Tenn. Code Ann. § 47-9-625 isn’t much help. It requires a party to seek court intervention (i.e. file a lawsuit), but the damages don’t include attorney fees. Per § 47-9-625(b), the party can only recover damages resulting from “the debtor’s inability to obtain, or increased costs of, alternate financing” (all very difficult to prove in court). There’s nothing in the statute setting a minimum penalty or, more importantly, allowing for the recovery of attorney fees.
Sure, these defendants made the headlines because of the breadth and shamelessness of their scheme, but the opinion and authorities cited in it do nothing to help the individual homeowner, who has a meritless lien recorded against her house and has a closing being held hostage. File a lawsuit and, then, simply recover the increased cost of her more expensive loan?
In short, there are no effective and efficient remedies under Tennessee law for this.
There are no internal fail-safes to protect against the schemes perpetrated by the defendants in this case. The Secretary of State isn’t watching these. Instead, the purported remedies (under Tenn. Code Ann. §§ 47-9-518 and 47-9-625) put the burden on the consumer to discover and challenge invalid liens, but with no effective remedy or deterrent for fraudulent liens.
The facts of this opinion should scare you, but I’d say that that the law in this opinion is the most terrifying aspect.