Article Library
Blog Home All Blogs
Search all posts for:   

 

View all (548) posts »
 

POST-FORECLOSURE EVICTIONS: Tennessee

Posted By USFN, Wednesday, April 30, 2014
Updated: Monday, October 12, 2015

April 30, 2014

 

by J. Skipper Ray
Wilson & Associates, PLLC
USFN Member (Arkansas, Tennessee)

In December of last year, the Tennessee Supreme Court issued its ruling in Johnson v. Hopkins, 2013 Tenn. LEXIS 1010, a decision that continues a trend of hammering away at creditors’ ability to evict via a “summary” process after a foreclosure in Tennessee. Based on the ruling, creditors will no longer be able to have borrower/defendants’ purported appeals from General Sessions Court to Circuit Court summarily dismissed based on the defendant’s failure to post the appeal bond called for in the eviction statute.

The vast majority of post-foreclosure eviction cases are initially filed in Tennessee’s Courts of General Sessions. General Sessions is a court that is akin to district courts in some states. It is a more informal court that is a level below circuit court (also known in some states as superior court). Tennessee law provides for an automatic right to appeal a decision made in sessions court, to circuit court, with said appeal being de novo. De novo means that the case is heard over again, as if for the first time, with no deference given to the decision rendered below (in sessions court).

This ability to appeal applies to all types of cases, not just evictions. The appealing party need only post a bond that promises to pay the costs of the appeal. An additional barrier has existed, however, for a borrower-occupant appealing an eviction judgment to circuit court. The Tennessee eviction statute calls for, in addition to the standard appeal bond for costs, the posting of a cash bond, equivalent to the amount of one year’s worth of rent, for the property whose possession is at issue. Prior to December 2013, a creditor was usually able to summarily obtain dismissal of an eviction case appealed to circuit court, as most defendants were unable to post a cash bond in the required amount.

Johnson v. Hopkins, however, has changed that. The Tennessee Supreme Court ruled that the additional bond provided for in the eviction statute is not jurisdictional. Accordingly, the failure to post the cash bond for a year’s rent does not prevent the circuit court from obtaining jurisdiction of the appeal. (Current case law in Tennessee holds that the appeal bond for costs is jurisdictional; i.e., if the bond is not timely posted, the circuit court never obtained jurisdiction of the appeal, rendering the sessions court’s judgment final.)

The result of this ruling is that a creditor who has obtained property via foreclosure in Tennessee, when faced with a contested eviction action where the occupant appeals the sessions court ruling from sessions to circuit court, will almost always have to put on the same case twice. This is not to mention, if it’s a contested case, that the creditor’s attorney has already appeared in sessions court at least twice — if not three or four times. Furthermore, in terms of the defendant’s out-of-pocket costs, perfecting the appeal is relatively inexpensive (one can usually be perfected for less than $250). The creditor’s attorney has to start over in circuit court, which is a more formal court, and requires more formal pleadings. If the creditor is looking to avoid a trial, and thus sending a witness, this usually means formal discovery and a summary judgment motion. All of this adds up to lengthy timelines that are often measured in years rather than days.

So, what are some possible answers? One alternative would be filing eviction actions in circuit court initially, rather than in sessions court. It takes longer for a case in circuit court, as compared to sessions, but with the new possibility of a guaranteed inexpensive appeal, it can make more sense to start out where one is likely to end up. Creditors may also want to consider increasing relocation assistance offers or being receptive to entering into month-to-month leases (or other term length) with occupants. It has reached the point where it is easier to evict for a defaulted lease than after a foreclosure, due to the delays of which borrowers are able to avail themselves.

One of the main reasons borrowers are able to delay eviction actions in either court (sessions or circuit) is that pursuant to a Tennessee Court of Appeals opinion issued in early 2007, borrowers are able to raise “wrongful foreclosure” as a defense to an eviction action. This is in spite of the eviction statute, which provides that “the merits of title will not be inquired into.” (Many other eviction statutes in the southeastern states have this exact same language).

Prior to 2007, in order to contest a foreclosure, a borrower would have to file a lien lis pendens and complaint in chancery court, with the borrower carrying the burden of proving that the foreclosure was wrongful. In 2007, borrowers began asserting a “wrongful foreclosure” defense to eviction, which can be burdensome to creditors since it is a defense that arose out of case law. Thus, “wrongful foreclosure” is loosely defined, if at all, and existing definitions come from a handful of cases, which of course are based only on the facts in those cases.

The practical effect of all of this is that the pendulum has swung from the borrower filing a lawsuit and carrying the burden of proving a wrongful foreclosure claim to the creditor having to put on proof establishing the foreclosure’s validity. Doing so can often be a moving target since, in practice, a creditor’s attorney may not know exactly what the borrower is claiming to have been wrongful about the foreclosure. For all intents and purposes, this has resulted in Tennessee becoming a state that requires obtaining judicial confirmation of a nonjudicial foreclosure in the context of borrower-contested evictions.

This trend gives no deference to the fact that a deed is of record, vesting title to the property in the creditor (assuming the creditor was the high bidder at the foreclosure sale). It is almost as if when recording the deed, one should record along with it documentary evidence of all steps required by the deed of trust and applicable law, coupled with a video recording of the foreclosure sale itself. The prudent borrower’s counsel should pay heed to the recorded deed, however, and not simply ignore it.

Some creditors are somewhat ahead of the curve in how they are dealing with the lengthening eviction timeline issue in Tennessee. These creditors are responding by putting these properties into online auctions and selling them to local investors, as there is no temporary restraining order, injunction, or lien lis pendens, etc. in place that would otherwise prevent the sale of the property and/or conveying clear title to the property.

A local (taxpaying and voting) investor is less likely to encounter the eviction delays that are beginning to plague large out-of-state creditors in Tennessee. Of course, the creditors will likely take more of a loss disposing of the property via an online auction than they would have had following the traditional route of obtaining vacancy and marketing the property through a realtor. In the end though, those losses no doubt will be made up the same way as always: down the road in the way of higher origination costs, interest, and fees collected from those who timely pay their bills.

© Copyright 2014 USFN. All rights reserved.
Spring 2014 USFN Report

This post has not been tagged.

Share |
Permalink | Comments (0)
 
Membership Software Powered by YourMembership  ::  Legal