When Victims Feel They “can’t afford to leave”
Many victims of abuse stay with their abusers because they believe that they “can’t afford to leave.” They may fear the financial strain of moving out as much as they fear the abusers. But the law and various community resources can provide the assistance necessary to meet this challenge.
When the victim’s first priority is to get out of a dangerous situation, she or he may seek temporary housing in a shelter or with friends or relatives. At some point, however, the victim will probably look for a more permanent solution—either renting or buying an apartment or a condo or a house.
The Victim’s Responsibility for Housing Left Behind
Breaking a Lease
If the victim is leasing the home left behind, she or he may still owe some responsibility to the landlord. If the victim has leased a residence along with a partner, and the partner stays there, the landlord will probably rely on the partner to pay the rent. But if the partner fails to pay, the landlord could demand that the victim pay if she or he signed a lease. There is an exception for federally subsidized properties governed under the Violence Against Women Act (“VAWA”).88
When there is a Mortgage
If the victim is buying the home and has a mortgage, she or he will still be liable to pay the debt if she or he signed the promissory note to the lender. If the loan was made only in the partner’s name, the victim may have signed only the “deed of trust,” which means that the victim does not have to repay the loan.
Tips for Renting
The law protecting tenants depends on the county in which the tenants live. A very specific list of rules, called the “Uniform Residential Landlord and Tenant Act” or “URLTA,” applies to certain types of housing located in certain larger counties.89 Currently, it applies to all counties in Tennessee that have a population of more than 75,000.90 These counties in East Tennessee include: Bradley, Blount, Hamilton, Knox, Sevier, Sullivan, and Washington.
For other applicable counties, refer to the 2010 federal census or any other subsequent federal census. Landlords in all other counties should abide by Tennessee common law.
The ULTRA does not apply to all situations. For example, it does not apply to:
- mobile home lots (although it does apply to rental of a mobile home),
- rental of a motel room or boarding house room for less than 30 days, or
- leasing under a contract of sale.
In the other smaller counties, the law is a little different, but a variety of protections still apply.91
Tips for Tenants – before they move in, sign a lease, or pay money
Inspect the property. If repairs need to be made, the tenants should make a written list of what needs to be repaired and have the landlord sign a statement agreeing to (1) exactly what the landlord will do, (2) when it will be finished, and (3) what happens if the repairs are not made on time. If the landlord agrees to give a rent credit if the tenant cleans up or makes repairs, the landlord should sign a statement giving the details of this arrangement.
If possible, the tenants should take pictures of the condition of the property, especially if something was damaged before they moved in.
Investigate Utility Service
The tenants should make sure they can afford any deposits and monthly bills that will be charged for utility services. If the landlord says that utility service will not be in the tenants’ names, it may mean that several homes are connected to one meter. If this is the case, the rent should include utilities rather than letting the landlord divide the bill among several tenants. In addition, if the landlord requires the tenants to have utilities turned on in their names and the tenants fail to do so within three (3) days, the landlord may have utility services terminated if the existing utility service is in the name of the landlord.92
When Tenants Sign or Pay Money
The tenants should be sure to get a copy of everything signed. It is not enough that the tenants signed a document. The landlord must sign too. Every time they pay money for a deposit or rent, the tenants should demand a receipt showing when the payment was made and what it covered. In particular, the tenants should be sure the receipt for a security deposit is labeled “security deposit” and not “cleaning fee,” “last month’s rent,” or some other term that might mean that they do not get it back when the lease is over.
A lease defines the tenants’ contract with the landlord. According to Tennessee Code Annotated § 66-28-104(11) (2014), the lease agreement may be oral. There are some disadvantages to an oral lease. An oral agreement is only good for one month at a time. Therefore, with advance notice, a landlord can either raise the rent or break the lease. Also, it is hard to prove what the agreement was if it is not in writing. Therefore, even though most leases are valid even if they are not in writing, it is always a good idea to put all lease agreements in writing. If the landlord promises to do something and does not want to put the agreement in writing, the tenants should send the landlord a letter setting out the terms of the promise.
Health and Safety
The Tennessee Department of Health created the Rental Premises Unsafe for Habitation regulations in order to help define what an unsafe dwelling is. The list of regulations can be found at Chapter 1200-102, available at http://www.state.tn.us/sos/rules/1200/1200-01/1200-01-02.pdf.
A security deposit may be required to give the landlord a fund from which to repair damages beyond normal wear and tear. If the landlord requires a deposit, the landlord must keep the deposit in a bank account reserved only for security deposits. After the lease ends, the landlord must return all of the security deposit that is not used to pay for damages, unpaid rent, and other amounts due. Before the tenants move out, they should ask the landlord to walk through to check for damage to the property. If the tenants ask for a walk-through, the landlord must give a list of damages to the property for both the tenants and the landlord to sign. If the tenants do not agree with some damages on the list, they must give the landlord a written note explaining why they do not agree with the damages. If the tenants request a walk-through and fail to show, they may lose their right to dispute the damages. If the landlord does not make this list and does not keep the deposit in a special account, the landlord may not keep the deposit. However, the landlord could still sue the tenants for damages. If the landlord does give the
tenants a list of damages, they may dispute it in writing. If the landlord’s description of damages is inaccurate and the tenants give the landlord a written objection to the damages list, they may
sue the landlord to recover the security deposit.93
No matter what the lease states, under Tennessee law there must be a five-day grace period after the day the rent was due before the landlord may charge a late fee. The date the rent was due must be included in the calculation of the five-day grace period. If the last day of the five-day grace period occurs on a Sunday or legal holiday, as defined in Tennessee Code Annotated § 15-1-101 (2011), the landlord shall not impose any charge or fee for the late payment of rent, provided that the rent is paid on the next business day. Any charge or fee, however described, that is charged by the landlord for the late payment of rent shall not exceed ten percent (10%) of the amount of rent past due.94
A landlord is not responsible for tenants’ personal property in the event it is damaged or stolen, and a landlord is not required to provide fire or casualty insurance to cover tenants’ personal property. Tenants should buy insurance to cover their personal property located in the home.
The landlord cannot normally take a “lien” on the tenants’ property, even if the tenants have failed to pay rent. This is true even if the written lease allows the landlord to take such a lien. The one exception to this rule is if the landlord perfected the lien by a Uniform Commercial Code filing with the Secretary of State. All other liens are expressly prohibited.95 If the landlord does obtain a lien, the landlord is responsible for releasing the lien at expiration or termination of the lease.96
“Term” of the Lease
The “term” is the period that the lease lasts, e.g., one year, six months, one month, or one week. If the tenants stay in the property after the lease ends, the landlord may be able to hold them as the tenants responsible for an additional term, lasting as long as the original term.
In general, the landlord must have the tenants’ consent to enter the home. However, as long as the landlord’s request is reasonable, tenants must give the landlord permission to come inside to inspect the property, make repairs, or show the property to future tenants, buyers, or contractors. In addition, the landlord may come inside without the tenants’ consent in case of an emergency, if utilities have been terminated due to no fault of the landlord, if the tenants have abandoned the premises, or if the tenants are deceased, incapacitated, or incarcerated.97 If the landlord abuses this right to enter, tenants may obtain a court order restricting the landlord, or they may be able to cancel the lease.
The landlord may not evict the tenants as long as the lease is in effect unless the tenants have violated the lease. If the landlord tries to evict the tenants and they have not violated the lease, the tenants may obtain a court order prohibiting the eviction. The landlord may not evict someone for complaining about the condition of the property (or reporting the landlord for violating the building code or another law). Even if the tenants have violated the lease, in most cases the landlord must give them written notice before eviction.
Locking out Tenants and Cutting off Utility Service
The landlord may not lock tenants out or cut off their utility services (or other “essential services”) without a court order, even if they have not paid rent.
Three-Day Notice to Leave
The landlord may evict the tenants after only three days’ notice if they commit (or someone else on the property with a tenant’s consent commits) any of the following acts:
- Willful or intentional commission of a violent act;
- Behavior in a manner that constitutes or threatens to be a real and present danger to the health, safety, or welfare of the life or property of other tenants or persons on the premises; or
- Creation of a hazardous and unsanitary condition on the property that affects the health, safety, or welfare or the life or property of other tenants or persons on the premises.
The three-day notice period begins when the tenants get the notice and the notice must specifically detail the violation that has been committed. They may then immediately ask a judge to halt the eviction if the landlord has falsely accused them of threatening violence.98
Defenses to Eviction
Even if the tenants have not paid the rent, they may have a defense to an eviction action.
Failure to Pay Rent
The most common reason that a landlord tries to evict tenants is because the tenants fail to pay rent. However, the landlord may not actually have the right to evict tenants for nonpayment of rent. If the lease does not say that the landlord must ask for the rent every time it is due or set out other rules regarding payment of rent, the landlord must actually demand the rent.
This demand should be made at the front door of the leased property, on the date the rent is due, at a convenient time before sunset. However, most written leases free the landlord of this duty.
Failure to Pay Rent on Time
If the tenants paid the rent but were late, the landlord may try to cancel the lease. However, if the landlord has accepted late rent payments for several months and then suddenly refuses to accept a late payment, the landlord is said to have “waived” the right to demand payment on time for that month. To evict for late payments, the landlord would have to accept the late payment for the current month and tell the tenants that they will be evicted if future payments are late.
Other Landlord Waivers
If the eviction is based on something other than failing to pay rent, the landlord might also have “waived” the right to complain. If the landlord knows that the tenants violated the lease, but the landlord still accepts rent, the landlord cannot later complain about the violation, at least until after the landlord notifies the tenants that future violations will not be tolerated. In addition, if the landlord has ignored the violation for a long time, the tenants may be able to argue that the landlord agreed that the problem does not actually violate the lease.
Who has the right to file suit for the landlord?
The landlord, not a “rental agent,” must bring the lawsuit. If the property is owned by a corporation, the corporation must have a licensed lawyer bring the suit. The non-lawyer “manager” or individual who runs the corporation may not represent the landlord corporation in court.
The landlord must give tenants fourteen days to correct a problem, remediable by payment of money, before eviction is permitted.99
Is the violation “serious”?
Sometimes the landlord will try to evict tenants because of a minor violation. Generally, the landlord is really trying to get rid of the tenants for another reason and is using a minor violation as an excuse. In some cases, a court will not let the landlord evict the tenants in such a case, especially if the “violation” can be easily corrected.
Canceling the Lease
Many leases have a “term” of one year or longer. The tenants normally must pay rent until the end of the term. If the tenants want to cancel the lease early, the lease might give them that right in certain circumstances (such as a job transfer). Typically, though, unless the lease gives them the right to cancel early, the tenants remain obligated to pay rent for the entire lease term. The landlord does have a duty to try to find a new tenant for the property. If the landlord does find a new tenant, the old tenants are no longer obligated to pay rent. If tenants are locked into a lease they want to cancel, they should consider these possible solutions:
- Negotiate: Perhaps the landlord will agree to cancel the lease if the tenants (for example) give up the security deposit or pay one additional month’s rent. If the landlord does agree to cancel the lease, the tenants should be certain to get this agreement in writing.
- Investigate whether the landlord has violated the lease: If so, the tenants may have the right to cancel the lease. If the landlord violates the lease, inform the landlord in writing. In URLTA counties, the landlord has fourteen days to correct the problem after notice is given.
- Misrepresentation: Did the landlord make a false claim about the condition of the property? If so, the tenants may be able to cancel the lease and recover some or all of the rent previously paid.
- Failure to make repairs: If the property was in a very bad state of disrepair, the lease may be an illegal and therefore unenforceable contract. Tenants may owe the “reasonable” rental value of the property, which may be less than the rent being charged. They may also be able to make the landlord refund some or all of what they previously “overpaid” for rent.
- Sublease: A lease may prohibit the tenants from letting someone else take over the lease. If the lease does not contain this rule, the tenants may find a substitute tenant. However, the original tenants are still liable if the new tenant does not pay the rent. The tenants should try to get the landlord to cancel the original lease and enter a new lease with the new tenant. If the original lease prohibits letting someone else take over the lease, the landlord still has a duty to try to find a new tenant. The landlord would not have to accept a substitute tenant who did not meet the landlord’s usual standards (such as having acceptable credit if the landlord routinely checks tenants’ credit), but the landlord must accept a suitable substitute tenant.
Public Assistance Housing
“Subsidized” housing is available to some extent in all counties in Tennessee.100 In general, there are two types of subsidized housing: public housing and Section 8 housing. Both programs use federal funds to help low income persons pay rent and utilities. Persons who qualify for subsidized housing pay 30% of their household income in rent. In Section 8 housing, persons with very low income may pay no rent; in public housing, the minimum rent is $25 per month. In both programs, very low income households may qualify for assistance to pay for utilities.101
Public housing is operated by a local housing authority, which is responsible for taking applications and determining whether a person is eligible. Public housing is usually limited to large apartment complexes, although some housing authorities also have individual houses scattered throughout residential neighborhoods. Section 8 housing is privately owned and operated. Each Section 8 landlord is responsible for his or her own application process. In urban areas where there are many Section 8 landlords, the prospective tenant may have to make many separate applications.
Most public housing authorities and Section 8 landlords have waiting lists for available apartments or houses. The length of the wait required to obtain housing may vary from a few days to months or even years. Some programs have rules that will put persons in “special circumstances” at the top of the waiting list. These rules vary from program to program. “Special circumstances” may include having been evicted from existing housing, homelessness, disability, or being forced to flee a home because of domestic violence. Some programs operate separate apartment complexes that are available only to disabled persons. Virtually all programs will provide housing for all applicants with children before making apartments available to persons without children. Because of this, it is often difficult for persons who are not disabled and who have no children to qualify to receive subsidized housing.
All public housing and Section 8 housing programs are limited to persons who meet income eligibility standards set by the U.S. Department of Housing and Urban Development. To apply for public housing, the prospective tenant should contact the local housing authority in his or her county. To apply for Section 8 housing, the prospective tenant should obtain a list of Section 8 landlords from the housing authority and apply with each individual landlord.
The law is changing rapidly regarding how people may obtain assistance with rent, and even more changes are being proposed. To seek assistance in Knoxville or Knox County, contact:
For housing inside the City of Knoxville:
Knoxville’s Community Development Corporation
901 Broadway, Knoxville, TN 37917
(865) 403-1100 TDD 1-800-403-1117
For housing in Knox County:
Knox County Housing Authority
6333 Pleasant Ridge Road, Knoxville, Tennessee 37921
(865) 637-7942 TDD (865) 521-9430
Tips for Buying a Home
Many people incorrectly assume that they cannot afford to buy a home and are surprised to find a variety of programs that will enable them to purchase rather than rent. Likewise, many people assume that buying is always better than renting, which is not necessarily true. Potential home buyers should investigate which option is best for their situation, considering the monthly rent or mortgage payment, taxes and insurance, and maintenance expenses. Most of us have to borrow money to buy a home. The most common way to finance is through a bank or mortgage company, but that is not the only option.
The buyers should talk to a bank or mortgage company to see if they qualify for a loan. The lender can help the buyers figure out how a mortgage would affect their budget. The lender will give an estimate of the loan fees and other closing costs. Typically, closing costs will be higher for a new loan than for one of the alternatives described below.
Assuming a Loan
The seller may let the buyer “assume” the seller’s mortgage in order to save costs that would be charged on a new loan. However, the seller’s lender may be able to prohibit assumption, so the buyer should check with the lender to make sure the loan is assumable.
Sometimes the seller will finance the purchase.
Using a Real Estate Agent
A licensed real estate agent can provide valuable assistance in finding a home, obtaining a mortgage, and making the closing go smoothly. If the agent is a member of the “Multiple Listing Service,” the agent will be able to tell potential buyers about any house that is listed for sale through other real estate companies that also belong to the Multiple Listing Service. Most agents receive a commission paid by the seller, but a buyer should discuss with the agent how the agent will be paid.
A real estate contract is not enforceable unless it is in writing. Generally, the buyer makes a written “offer” to the seller. It becomes a “contract” if the seller accepts the offer. If the seller changes a part of the offer (such as increasing the price offered), the seller has canceled the buyer’s offer and made a “counter-offer,” which the buyer is free to accept or reject (by walking away or by making a new offer).
This is a deposit given to the seller (or the seller’s real estate agent) to show the buyer’s “good faith” intent to buy the property. The deposit is applied toward the purchase price at closing. There is no law requiring any particular “minimum” deposit–or any deposit at all.
A married person may buy property without the other spouse’s knowledge or consent. However, the other spouse will acquire a “homestead” right to the couple’s “principal residence.” Because of this rule, a creditor (such as the mortgage company that loans the buyer money to purchase the house) cannot foreclose against the property unless the other spouse agrees. It is impossible to tell whether a particular property is “homestead” property just by looking at the deed, so a lender will almost always demand that the buyer’s spouse sign the mortgage before the buyer can obtain a loan, even if the buyer is buying the property solely in his or her own name.
When the buyers sign the contract, they are obligated to buy the house. The buyers should insist that the contract include a paragraph saying that if something should happen that would prevent them from buying the house, they can cancel the sales contract and get their earnest money back.
If the buyers want a “home inspector” or engineer to examine the property before they buy it, the contract should include a requirement that if the buyers are not satisfied with the inspector’s report, the buyers may cancel the contract and get their earnest money back.
Unless the buyers are paying cash for the property, the contract should include a paragraph that lets the buyers out of the deal if they cannot get a loan. The buyers should be sure to specify the terms of the loan they need (minimum amount, length, maximum interest rate, and maximum points the buyers will pay).
Sale of Existing Residence
If the buyers need to sell their existing house before they will have the money to buy the new house, the buyers should ensure that the contract lets them do this.
Fair Housing Rules
Who is Regulated?
The law prohibits the following people from certain types of discriminatory behavior in connection with providing housing:
- Sellers of homes
- Real estate agents
- Banks and mortgage companies
- Newspapers and other advertisers
Who Is Protected?
People are protected against discrimination in housing if the basis for the discrimination is any of the following reasons:102
- National Origin
- “Family Status” (such as the fact that there are children in a family)
Exceptions to the Laws
The protections provided by the Fair Housing laws do not apply in all situations. Here
are some exceptions:103
- The owner of one single-family house may discriminate for any reason other than the race of a buyer or renter. However, even if an individual is exempt under the law (for example, the home owner who refuses to sell to Methodists), this does not make anyone else involved in the transaction exempt. The advertising cannot make discriminatory references, and real estate agents may not cooperate with the discrimination.
- In apartment buildings or duplexes containing fewer than five units, discrimination is permitted for any reason other than race and ONLY if the owner of the building lives in the building.
- In some cases, church groups may show a preference to tenants of the same religion unless membership in the church is restricted by race, color, or national origin.
- Clubs that are not open to the general public may limit use of their private rooms to
- members unless the rooms are rented for profit-making purposes.
- Even though discrimination based on “family status” is ordinarily prohibited, the law does permit housing designed for the elderly, as long as at least 80% of the units are occupied by at least one person over age 54 and the property is intended for use primarily by elderly persons.
NOTE: Racial discrimination is never permitted under the law.
Examples of Violations
Here are some common examples of violations of the Fair Housing laws:
- Refusing to sell or rent a home to someone because of her race or because she has children.
- Claiming that no apartments are available to someone of a particular nationality, even though units really are available.
- Requiring different payments from certain people, e.g., demanding a larger deposit from women than from men.
- Threatening people to keep them out of the neighborhood because of their color.
- Evicting someone because he had friends of a different race visiting.
- Making sexual comments, gestures, or contact to create an offensive environment.
- Refusing to permit a tenant in a wheelchair to make modifications to an apartment in order to make it more accessible. (However, the landlord is permitted to require the tenant to pay for the changes and return the property to its original condition after the lease expires.)
- Using deception, such as saying a price is firm when it is really negotiable, to discourage a pregnant woman from moving in.
- Vandalism of a house because one of the occupants is mentally handicapped.
To obtain information if you believe the Fair Housing laws have been violated, consult a lawyer
or contact any of these offices:
U.S. Department of Housing and Urban Development
(865) 545-4379 (Knoxville Office)
Tennessee Human Rights Commission
Knoxville Department of Community Development Fair Housing Assistance Program
Dealing with Creditors
People with a lot of debt may feel that the hardest part about dealing with creditors is just figuring out what their debts are. The debtor may have to dig up some old paperwork and make a few phone calls, but when the debtor has this information, the debtor will be able to move forward to protect his or her credit and reduce the debt.
STEP ONE: Make a list. The debtor should make a list of all the debts he or she has and determine whether those debts are “secured” or “unsecured.”
Secured debts give the creditor the right to take certain property if the debt is not paid. For example, your house payment is probably secured by the house, and your car payment is probably secured by the car. Sometimes people get a “second mortgage” on their home to pay off credit card debts or other bills. Even though the money was not used to buy the house, the house is still “collateral” for the debt. This makes it a “secured” loan.
Unsecured Debts are those that have no collateral. Typically, credit card debts and medical bills are unsecured.
STEP TWO: Identify any co-debtors. Did anyone other than the debtor sign the credit agreement?
If the debtor signed alone, he or she is responsible for repaying the debt individually.
If the debtor signed with another person, such as a spouse, both of the signees are equally obligated to the creditor.
If the debtor had a “co-signer,” such as a parent, the co-signer guaranteed that the debtor would pay. If the debtor does not pay, the creditor may demand payment from the co-signer, but the creditor will probably try to collect the money from the debtor first. If the primary debtor does not pay, however, the creditor may demand that the co-signer pay the debt.
STEP THREE: Divide the debts. Ideally, the debtor’s co-debtors, such as an ex-spouse, will agree to pay some of the bills. However, the debtor must plan for what will happen if a codebtor refuses to pay or initially agrees to pay but then fails to do so.
STEP FOUR: How much can the debtor pay? After the debtor knows what bills have to be paid, he or she can figure out if there is enough money to pay them. Because the debtor is likely to face unexpected expenses, the debtor should not assume that all of his or her income can be devoted to paying bills. One of those “unexpected” expenses may be a debt that the debtor’s codebtor ex-spouse promised to pay. If the debtor signed the credit agreement, he or she is responsible to the creditor. It does not matter to the creditor that the co-debtor agreed to pay the debt. The creditor may still demand payment from the debtor.
NEXT: After finishing Step Four, the debtor may feel like his or her finances seem hopeless, especially if there is not enough money to pay the bills. However, there are actions the debtor can take to solve this problem.
Defining the Problem: The Consequences of Not Paying Bills
First, the good news: There is no such thing as “debtor’s prison” in the United States. Debtors cannot be sent to jail just because they can’t pay all their bills. But there are consequences for failing to pay bills, including receiving nasty letters and phone calls from the creditor, losing property to repossession or foreclosure (if the loan is secured), or being sued. We will discuss each of these consequences later, but for now let’s look at how to avoid them.
Does the debtor want to keep the collateral?
If a debt is secured, the lender may take whatever property is collateral if the debtor does not pay. Sometimes the debtor will want to give up this property and simply let the lender have it. However, giving up the property does not always mean that the debtor will not owe any more money. If the property the debtor is giving up is not worth as much as is owed, the lender may demand additional money. If the lender demands more money and the debtor does not voluntarily pay it, the only way the lender may collect the money is to bring a lawsuit against the debtor.
Negotiation with Creditors
Sometimes a creditor will agree to reduce a debtor’s monthly payment. In most cases, the creditor will insist that the debtor pay part of the payment every month. If the debtor makes such an agreement with a creditor, the debtor should be sure to have the creditor put it in writing.
Letters from Creditors
When a debtor has been late in making payments, most creditors will notify the debtor by mail. At first, the letter may be a gentle reminder to make a payment. Eventually the letters may seem very hostile and threatening. The intent of such letters is to make the debtor afraid of what will happen to them if they do not pay, but the letters themselves cannot hurt the debtors.
If a letter campaign does not make the debtor pay, the creditor often follows up with phone calls that are usually even more unpleasant than the letters. Once again, however, the calls can make the debtor feel bad, but that is the only thing the phone calls can do. Only the next step—a lawsuit—has any real consequences.
Federal and state law protects debtors from creditors who are too aggressive. Debtors can take steps to protect their income and assets from aggressive creditors who:
- threaten violence,
- use obscene language,
- communicate by a postcard,
- call frequently (so often that the only real purpose is to annoy the debtors),
- call the debtors without identifying who is calling,
- pretend to be connected with the government,
- lie to the debtors about the debt or the creditor’s rights,
- lie to someone else to get information about the debtors, or
- threaten to put debtors in jail for not paying their bills.
Some of these rules apply only to collection agencies and not when the original creditor contacts
a debtor directly. Still the debtor may be able to sue for damages if the creditor violates the law.
Foreclosure & Repossession
If the debt is secured, the creditor has the right to take the collateral. When the creditor takes real estate, it is by foreclosure. When the creditor takes other types of property (such as a car or television set), it is by repossession.
A creditor may ask a court to order a foreclosure, but this is rare. Usually a foreclosure is handled by the following procedure: The creditor sends a letter demanding that the entire debt must be paid in full.104 Depending on the loan agreement, sometimes the creditor will not be required to send the debtor this letter, but most creditors do. Until that letter was sent, the debtor owed only monthly installments. Now the creditor is demanding all of the debt. After that demand is made, the creditor might agree to let the debtor catch up payments, but the creditor does not have to let the debtor catch up—the creditor can insist that the entire debt be paid. If the debtor cannot pay the entire debt, the creditor may begin the foreclosure.
The actual manner in which the foreclosure is conducted is set out in the contract with the creditor, but it usually works like this: The creditor will put an ad in the local newspaper announcing that the property will be sold. (Sometimes the ad is not placed in a widely read paper but is placed in a paper devoted to “legal notices.”) The ad usually appears three times over a three- or four-week period. The ad will explain when the sale will take place (usually at the main entrance to the courthouse in the county where the property is located). At the sale, a “trustee” representing the creditor (usually a lawyer) will read the ad aloud from the paper and then ask if anyone wants to buy the property. Usually the creditor bids the amount of the debt (plus the cost of the ad and the trustee’s fee). If no one else bids, the creditor gets the property.
If someone bids more, that person pays the trustee, who pays the costs of the foreclosure, then pays the creditor holding the first mortgage, and then pays any other creditors who have a mortgage against the property.
If any money is left over, the debtor will receive it. If the debtor is in danger of foreclosure, there are two organizations in Knoxville that may be able to help:
Homesource of East Tennessee
109 Winona Street
Knoxville, Tennessee 37917
Knox Area Urban League
1514 East 5th
Knoxville, Tennessee 37917
Both of these organizations provide foreclosure prevention counseling and may be able to assist the debtor in stopping a foreclosure. The earlier that the debtor contacts these organizations, the more likely it is that the organizations will be able to prevent the foreclosure.
The debtor’s contract with the creditor will say what rights the creditor has. In most cases, the contract will allow the creditor to take the property by whatever non-violent means are available. The creditor is allowed to trespass upon the debtor’s property to retake possession of the property. The creditor is not allowed to break into the debtor’s home, cut padlocks, use the assistance of law enforcement, or make threats. After the creditor takes the property, the creditor is normally obligated to sell it to raise the money to pay the debt.105 However, the creditor could ask the debtor to allow the creditor to keep the property and not sell it. The debtor may object to this plan. If the creditor is selling the property, the sale must be conducted in a “reasonable” manner—that is, the creditor must try to get a good price. In addition, the creditor must send the debtor a written notice telling the debtor the time and place of the sale. The creditor must use the money from the sale first to pay the expenses of the sale, then to pay the first lien against the property, and then to pay any other liens against the property. Again, the debtor is entitled to receive anything left over.
A creditor may sue the debtor in order to collect a debt. If the creditor wins the lawsuit, the creditor receives a “judgment” against the debtor, and if that happens, the creditor can get the court’s help to make the debtor pay the debt. In addition to the debt itself, the judgment could include interest and “court costs.” If the creditor receives a judgment against the debtor, several things could happen:
Garnishment means that the creditor may require someone who owes the debtor money to pay the creditor instead of paying the debtor. The most common form of garnishment is against the debtor’s wages. However, there are limits on the amount of a debtor’s wages that can be garnished. These limits are discussed below in the “Exempt Income” Section.
A judgment may affect the debtor’s credit rating. Several companies keep track of people’s credit so that future creditors may decide who is a good risk for a loan. Usually a judgment will show up on a credit report, which could affect whether the debtor can obtain a loan or credit card in the future.
As discussed above, the creditor can put a lien on all of the debtor’s real estate after judgment. The creditor can enforce this lien by forcing a sale of the real estate. However, in most cases, creditors do not choose to do this. Also, the debtor’s ownership interest in his or her home is partially exempt under Tennessee law. In Tennessee, an individual debtor under 62 can claim up to $5000 of the equity in his or her home as exempt. Co-debtors who own a home together can claim a total of $7500 as exempt. Debtors with minor children in the home can claim a homestead exemption of $25,000, and debtors over age 62 can claim an exemption of $12,500.
Exempt Personal Property
A creditor may not take all of the debtor’s personal property. In most cases, all or most of the debtor’s personal property can be claimed as exempt. If property is exempt, the creditor cannot seize it106 Under Tennessee law, debtors are allowed to keep all of their clothing, portraits, photographs, school books, insurance proceeds, child support, state pensions and most private pensions and retirement accounts. A debtor is also entitled to protect up to $1900 in tools or equipment required for the debtor’s work. In addition to these specific items, the debtor is also entitled to exempt up to $10,000 in personal property. In order to claim this $10,000 exemption, the debtor should complete and file a Notice of Exemption with the court clerk.
In addition, some forms of income are also exempt, including social security and unemployment benefits, child support, many insurance and pension plan payments, and portions of money paid to the debtor under a judgment for personal injury or wrongful death. There are also limits on how much of the debtor’s wages may be taken by garnishment. The creditor may take whichever is the lower of these amounts:
- 25% of the net income or
- An amount calculated as follows:
- Federal minimum wage x 30 = ? (Today this figure is $217.50)
- Subtract that amount from the debtor’s net weekly income.
- The creditor may take what is left over.
The debtor may also add $2.50 to the exempt amount for each dependent child under age sixteen. If the debtor has to pay alimony or child support, some of these exemptions do not apply. Regardless of the exemptions, if the property is collateral for a secured loan, the creditor may take it, but certain rules apply for how and when it may be taken.
The bankruptcy laws are designed to give people a “fresh start” when their debts become too burdensome. There are two types of bankruptcy protection commonly used by individuals:
Chapter 7 Bankruptcy
Chapter 7 bankruptcy pools all of the debtor’s property (other than exempt property) to be sold to raise money for creditors. Secured creditors may take back their collateral, and unsecured creditors are paid from the pool of money collected from the sale of the debtor’s non- exempt property. In many cases, none of the debtor’s unsecured property is actually sold, and it is all treated as “exempt property.” In addition, the debtor may keep the collateral used for secured debts by entering into an agreement with the creditor to continue paying that debt after the bankruptcy case is over. The debts to other creditors, however, are canceled. There are limits on how often an individual may use the “Chapter 7” laws.
Chapter 13 Bankruptcy
Chapter 13 bankruptcy is available to anyone who has a regular income. For secured debts, in most cases the debtor may either keep the collateral and continue paying the debt or return the collateral and cancel the debt. All unsecured debts are then added together, and the court decides how much of the debtor’s income could be used to pay those debts. The debtor then pays that amount to the court, which distributes a portion of it to each creditor. At the end of a certain period of time (usually three years), the case is closed, the debtor stops paying money to the court, and any debt still due to the creditors is canceled.
One of the greatest benefits of the bankruptcy law is the “automatic stay.”107 This is a rule that makes it illegal for a creditor to make any effort to collect a debt from the moment that the debtor files the proper papers with the bankruptcy court. If a foreclosure sale is scheduled, for example, or the debtor is receiving a lot of phone calls from creditors, the automatic stay will stop these actions; and creditors will not be able to do anything with the debtor’s property or contact the debtor about a debt, except through the bankruptcy court, as long as the debtor’s case is active.
88 42 U.S.C. § 13925 et seq.
89 Tenn. Code Ann. § 66-28-102 (2014).
92 Tenn. Code Ann. § 66-28-521 (2014).
93 Tenn. Code Ann § 66-28-301 (2014).
94 Tenn. Code Ann. § 66-28-201(d) (2014).
95 Tenn. Code Ann. § 66-28-509 (2014).
97 Tenn. Code Ann. § 66-28-403 (2014).
98 Tenn. Code Ann. § 66-28-517 (2014).
99Tenn. Code Ann. § 66-28-505 (2014) (Tenant Noncompliance)
100 Tenn. Code Ann. § 13-20-113 (2011).
101 Knoxville’s Community Development Corporation, “Section 8,” available at http://www.kcdc.org/en/Housing-Opportunities/Section8.aspx
102 Tenn. Code Ann. § 4-21-601 (2011).
103 Tenn. Code Ann. § 4-21-602 (2011).
104 Tenn. Code Ann. § 66-3-101 (2014).
105 Tenn. Code Ann. § 66-11-114 (2014).
106Tenn. Code Ann. § 26-2-202 (2000).
107 See 11 U.S.C. § 362(a)(6), (c).