Hamilton Herald Masthead


Front Page - Friday, March 21, 2014

Tennessee post-foreclosure evictions: new case continues trend of longer timelines

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’s 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 basically 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 of last year, 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, in its opinion issued this past December, ruled that the additional bond provided for in the eviction statute is not jurisdictional. (Current case law in Tennessee is 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.) In other words, the failure to post the cash bond for a year’s rent does not prevent the Circuit Court from obtaining jurisdiction of the appeal. Put another way, whereas the prevailing creditor in Sessions Court had previously been able to obtain a summary dismissal of the purported appeal, based on the failure to post the cash bond for one year’s rent, it is now unable to do so.

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 contested, that means 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 thus 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’s the answer? 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 might make more sense to start out where you’re bound to end up anyway. Creditors may also consider larger relocation assistance offers, and/or having a more open mind to entering into a month-to-month lease (or other term length) with the occupant. It has reached the point where it’s easier to evict behind a defaulted lease than a foreclosure, due to the delays that borrowers are able to avail themselves of.

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, in spite of the eviction statute providing that “the merits of title will not be inquired into” (many other southeastern states’ eviction statutes have this exact same language).

Prior to 2007, a borrower, in order to contest a foreclosure, would have to file a lien Lis Pendens and complaint in Chancery Court, wherein the borrower would carry the burden of proving that the foreclosure was wrongful. The trend started in 2007, allowing borrowers to assert a “wrongful foreclosure” defense to eviction, 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 are based only on the handful of cases that have addressed it, and therefore, are obviously based only on the facts present in those cases.

The practical effect of all of this is that the pendulum has swung, from the borrower filing a lawsuit and thus 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. This has all resulted, for all intents and purposes, in Tennessee becoming a state that requires obtaining judicial confirmation of a non-judicial foreclosure, in the context of borrower contested evictions.

This new trend gives no deference to the fact that a deed is of record which vests title to the property in the creditor (assuming the creditor was the high bidder at the foreclosure sale). It’s 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, along with a video recording of the foreclosure sale itself. The prudent debtor’s counsel should pay heed to the recorded deed however.

Some creditors are somewhat ahead of the curve in how they are dealing with the lengthening eviction timeline issue in Tennessee. As mentioned above, prior to 2008, if a borrower and/or their counsel wanted to contest turning over possession of a property and/or set aside a foreclosure, they filed a lien Lis Pendens, along with a Complaint in Chancery Court. This route gives proper credence to the fact that there is a deed of record vesting title to the property in someone else, not the borrower. Now, borrowers and their counsel are in some regards being lazy, and relying on the fact that they can raise “wrongful foreclosure” as a defense to the eviction action. The creditors referred to as being ahead of the curve are responding by putting these properties into online auctions and selling them to local investors, as there is no TRO, 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 going the traditional route of obtaining vacancy and marketing through a realtor (local realtors that handle post-foreclosure properties may end up being the biggest losers in all of this). In the end though, those losses, along with all other losses, will be made up the same way they always have, down the road in the way of higher origination costs, interest, fees, etc. collected from the ever shrinking portion of the public that timely pays its bills.

J. Skipper Ray is a Partner and Supervising Attorney for the Deed-in-Lieu and Eviction Departments at Wilson & Associates, PLLC. He is a native of North Little Rock, Arkansas. Mr. Ray received his education from the University of Central Arkansas (B.B.A., 1997), and the William H. Bowen School of Law (J.D., 2000), and was admitted to the Bar of the State of Arkansas in 2001. He is also licensed to practice law in the State of Tennessee and is a licensed title agent in Arkansas and Tennessee. Mr. Ray is a member of the Arkansas Bar Association, Tennessee Bar Association and the Pulaski County Bar Association. He has served as a USFN Default Servicing Seminar Panelist and has authored articles appearing in the USFN Report and other publications. His area of practice is real estate law.