In The News

July 2011 Newsletter Features James Mackler, Freedom Run, Las Vegas & Online Reputation Management

Bone McAllester Norton welcomes attorney James E. Mackler to our team!  To read our newsletter, click here

Privacy? Anyone Remember What That Is?

Does privacy really exist any more?  Sure it does, but sometimes it's easy to forget. 

Take the story's in today's Tennessean: "Nashville Residents Take on Google Wi-Spy, Join Privacy Lawsuit."  Google is accused of tapping into wireless networks while it drove by individuals' houses to capture a copy of their homes for placement on Google Earth.  According to the article, the wire tapping had nothing to do with capturing images of the homes; rather, it was done to improve Google's LBS -- location based services.

What's LBS? It's new technology that allows us consumers to get more accurate information at our fingertips when we log into a new app.  For example, when you go to TripAdvisor's App, if you allow it to track your location, it can send you a map showing you restaurants, parks, hotels, and music venues -- all tailored to your location.  When I go on vacation this fall, I can open up my iPad, tap on the app, and it will move with me, knowing I'm in another location, and providing me with the same instant information -- I don't have to key in the location, because the app does it for me. 

Are there privacy concerns in this?  Of course there are.  And that's ignoring Google's alleged wire tapping.  The concerns are that we give up some privacy when our smart phones know our location.  Who else knows our location?  Surely someone's finding a way to sell that information and make money -- this is called "monetization."

As I explained while recently speaking on a panel at Lipscomb University, our free Internet, and our incredibly tech savvy tools, are not truly free, even though they appear to be.  They come at a price and, as a society, we're just beginning to see what that price is: our privacy.

The lawyers at Covington & Burling have compiled a great summary of privacy bills pending before Congress.  As Congress wades through these bills, it is faced with the same tensions we all face: how much privacy are we willing to give up in exchange for the luxuries of information technology?  To protect our privacy, we may decide it's time to pay to protect ourselves, and we may begin to realize that things that seem too good to be true (an Internet without a price tag) really might be.

Privacy? Anyone Remember What That Is?

Does privacy really exist any more?  Sure it does, but sometimes it's easy to forget. 

Take the story's in today's Tennessean: "Nashville Residents Take on Google Wi-Spy, Join Privacy Lawsuit."  Google is accused of tapping into wireless networks while it drove by individuals' houses to capture a copy of their homes for placement on Google Earth.  According to the article, the wire tapping had nothing to do with capturing images of the homes; rather, it was done to improve Google's LBS -- location based services.

What's LBS? It's new technology that allows us consumers to get more accurate information at our fingertips when we log into a new app.  For example, when you go to TripAdvisor's App, if you allow it to track your location, it can send you a map showing you restaurants, parks, hotels, and music venues -- all tailored to your location.  When I go on vacation this fall, I can open up my iPad, tap on the app, and it will move with me, knowing I'm in another location, and providing me with the same instant information -- I don't have to key in the location, because the app does it for me. 

Are there privacy concerns in this?  Of course there are.  And that's ignoring Google's alleged wire tapping.  The concerns are that we give up some privacy when our smart phones know our location.  Who else knows our location?  Surely someone's finding a way to sell that information and make money -- this is called "monetization."

As I explained while recently speaking on a panel at Lipscomb University, our free Internet, and our incredibly tech savvy tools, are not truly free, even though they appear to be.  They come at a price and, as a society, we're just beginning to see what that price is: our privacy.

The lawyers at Covington & Burling have compiled a great summary of privacy bills pending before Congress.  As Congress wades through these bills, it is faced with the same tensions we all face: how much privacy are we willing to give up in exchange for the luxuries of information technology?  To protect our privacy, we may decide it's time to pay to protect ourselves, and we may begin to realize that things that seem too good to be true (an Internet without a price tag) really might be.

July 13, 2011 Newsletter Features Recap of Beer and Liquor Legislation

The Bone McAllester Norton Alcoholic Beverage Group has kindly published a legislative recap to help you stay aware of beer and liquor laws.  To read the rest of our newsletter click here.

Changes to TABC Regulations

The TABC revised regulations governing all liquor licensees.  Our Alcoholic Beverage Group is pleased to highlight the major changes for you.  Grouped by the license held, the summaries should not replace consultation or full review.  Contact Will Cheek or Chris Raybeck with questions.

General Applicability—All Types of Licensees





  • Responsible Vendor Mitigation Program:  The TABC has established an informal program for licensees, similar to that of the responsible vendor for beer retailers.  Licensees following the program may have fines alleviated (by up to half) for any citations.  The program requires a written policy that all employees complete a course in alcohol awareness (including training on applicable laws and regulations) and annual refresher courses.


  • Prior Approval of Advertisements:  In most cases, prior TABC approval of advertising copy is no longer necessary.


Liquor-by-the-Drink (“LBD”) and Catering

  • Advertising.  The ABC eliminated the rules prohibiting advertising happy hour and drink prices.  Licensees may now advertise both, provided the happy hour on liquor ends at 10:00 p.m. and the drink price covers the cost of the ingredients.  Outside signs and billboards may advertise the name of a licensed establishment and the name of a particular brand of alcohol, as long as the LBD licensee pays for the advertising.  Also, availability of alcoholic beverages can be advertised on radio and TV, subject to the same restrictions imposed on other types of licensees.

  • Marketing.  While licensees are still prohibited from giving away alcohol, the term “give” has been refined by replacing the word “drink” with “alcoholic beverage or wine.”  Also, LBD licensees have been removed from the regulation restricting advertising novelties and specialties to consumers, broadening the types of items LBD licensees may give to customers.

  • Managers:  The TABC has specified that new managers and assistant managers have seven days to submit questionnaires to the TABC or face a citation.  Also, all managers and assistant managers should expect to need their own server permits, if they supervise those who serve alcohol.

  • Seating:  The TABC has specified that seats at bars will be counted toward the minimum 75-seat restaurant requirement if the bar is big enough and if meals are regularly served there.  Patio seating that is not heated and cooled year-round will not count toward the minimum seating requirement but will count toward the seat count for license fees.

  • Server Permits:  Temporary server permits will no longer be issued.  Also, LBD licensees must have available for review documentation of the date of hire (dated employment application, dated W-4, etc.) of all servers and managers on premises.  Without it, it will be assumed the employee has been working for more than 61 days.

  • Changing Locations:  For LBD licensees who want to change locations, an abbreviated application process is now available.

  • Catering.  For the first time, there are regulations explicitly governing catering licensees.


Retail Licensees (Off-Premises Consumption)

  • Direct Mail:  Retailers now only need a written request authorizing direct mail, eliminating the requirement of signing the request on–premises.  The rules require removal of recipients within 30 days of the second request to remove.

  • Donations to 501(c)(3) Organizations:  Retailers are authorized to make withdrawals from inventory for donations to non-profits with 501(c)(3) exempt status.

  • Tastings / Consumer Education:  Written notification to the TABC is required for tastings where the retailer hosts, sponsors, or provides an employee to work at the tasting (not just where alcohol is consumed).  The $50 processing fee for notifications has been eliminated.  Also, employee-only tastings may be held on the retailer’s premises in areas not accessible to the public.

  • Marketing:  Retailers may sell gift cards to consumers.


Manufacturers / Importers and Wholesalers

  • Visits to Retailers:  The regulations have been revised to allow manufacturers and importers to visit retailers—on and off-premises consumption—for the purpose of promoting products or attending to displays.

  • Non-Resident Sellers:  For the first time, there are regulations that explicitly govern non-resident importers and application requirements.

  • Wholesaler Deliveries:  Employees of wholesalers may now deliver up to 20 cases of alcohol in vehicles that are not owned or leased by the wholesaler, and the wholesaler name need not be affixed to the vehicle.  But, the employee must possess documentation with the seller and purchaser identity and type and size of delivery.  Also, the regulations have removed the restriction that a wholesaler may deliver to another wholesaler only if in the same county.

  • Retail Orders; Wholesaler Employee Permits:  Wholesalers are expressly prohibited from delivering and invoicing part of an order made by one retailer to another retailer.  Wholesaler employee permits are not explicitly valid for 5 years.

  • Tied-House Provisions:  The regulations prohibiting tied-houses now include references to third-party marketing entities, which are not allowed as intermediaries between industry members (manufacturers, importers, and wholesalers) and retailers.  The regulations now explicitly prohibit arrangements that result in exclusion of brands.  The monetary value of items that may be provided to retailers by industry members is now aligned with TTB amounts.  Industry members may supply outside signs to retailers, and the allowable point-of-sale advertising materials have been updated.  Industry members may provide retailers with routine business entertainment (meals, events, parties), subject to restrictions.

  • Donations:  Industry members are authorized to withdraw from inventory donations to special occasion permittees; manufacturers must do so through wholesalers.


Wineries

  • Record-Keeping:  Records regarding the source of all agricultural products used in wine production must be kept for three years.  All Tennessee-licensed wineries must file, with the TABC, their contracts with Tennessee grape growers regarding their intention to purchase grapes.

  • Sale on Premises:  The 15,000 gallon / 20% rule for annual on-premises sales has been deleted in favor of the amounts allowed by state statute.

  • Samples; Selling Non-Wine Products:  The regulations now provide that wineries may provide samples to winery visitors in certain limited areas of the winery.  Also, wineries may now sell gift-related items with wine themes or related to wine drinking.


Beer Permittees / Responsible Vendor Program

For the first time, there are regulations that explicitly govern off-premises beer permittees that have enrolled in the Responsible Vendor Program.  Many of the regulations simply articulate the TABC’s past practices.

Non-Profits (Special Events)

Regulations have been made explicitly governing special occasion permits, one-day permits allowing alcohol service in a specifically designated area by “qualified entities” (non-profits).  A formal application process is set forth, and proceeds from the special event must be deposited with the special occasion

Direct Shipment of Wine Takes Off

Shipment of wine into Tennessee was illegal until the 2009 legislature authorized a new direct shipment license.   Many industry observers thought that the direct shipment was a token to placate oenophiles, but result in few sales.  Surprisingly, nearly 400 out of state wineries have paid the $300 application fee and $150 yearly license fee, plus registering to pay Tennessee taxes.

This year, the legislature legalized direct shipment to the entire state, including dry areas where wine cannot be purchased at package stores.  Wineries no longer have to worry about determining which areas of Tennessee are approved for direct-to-consumer shipping.

Direct shipment was opposed by wholesalers and retail liquor stores, which saw direct shipment as new competition and potentially a method to avoid payment of Tennessee taxes.  Opposition to direct shipment touted the dangers of sales to minors, among other concerns that have apparently not materialized.  Direct shipment of wine was quite controversial at a national level during the 2000’s, but most states have legalized some form of direct shipment and only a handful still have an absolute prohibition.

Tennessee taxes wine at $1.21 per gallon, plus applicable sales taxes.  Despite only being able to ship one case of wine to any individual during a calendar month and an annual limit of 3 cases, the license has proven to be popular.

According to shipcompliantblog.com, “Approximately 35% of wineries that ship wine direct are licensed to ship into Tennessee. The increased market access [to dry areas in Tennessee] is likely to encourage additional wineries to add Tennessee to their direct shipping programs, meaning more consumer choice and increased state revenue.”

 

Stephen Zralek discusses online reputation management with News 2

Stephen Zralek was interviewed by WKRN on Friday in regards to online reputation management and offers his professional insight on how to handle different situations from a legal standpoint.
Posted:   Jun 24, 2011 9:13 PM CDT   


By Tiani Jones, Reporter







NASHVILLE, Tenn. – A  person"s online reputation is becoming increasingly more important as employers take to the Internet as a reference, which is why   lawyers around the country are seeing more cases involving online reputation assault.





Stephen J. Zralek is an attorney at the Bone McAllester Norton law firm in Nashville.

 

Will Cheek moderates panel on beer growlers and wine kegs.

Alcoholic Beverage Team Leader Will Cheek was a prominent attendee at the national liquor conference in Las Vegas.  Cheek moderated a panel on beer growlers and wine kegs, featuring Master Brewer Kevin Reed of the country's largest brew pub chain, CraftWorks Restaurants & Breweries, and growler compliance expert Alex Heckathorn.


Bone McAllester Norton Sponsors Youth Life Learning Centers Girls Benefit Luncheon

Bone McAllester Norton is a sponsor for this year's luncheon.



Youth Life would like to invite all leaders in the community to be a role model to young, at-risk girls at our upcoming Women and Girls Benefit Luncheon on July 28th with keynote speaker, Dr. Bernice King, daughter of Dr. Martin Luther King Jr, and Beckah Shae as musical guest.  Register now and win giveaways in various ways including Trivia Thursdays.


Women and Girls Benefit Luncheon
Time/Date:
July 28, 2011 11:00AM - 1:30PM
Description:
In celebration of its tenth anniversary, the Youth Life Foundation of Tennessee (YLFT) is hosting its first Women and Girls Benefit Luncheon, and welcomes Dr. Bernice King, daughter of Dr. Martin Luther King Jr., as the event’s keynote speaker and Beckah Shae as musical entertainment.


Based in Nashville, the Youth Life Foundation of Tennessee (YLFT) operates the Youth Life Learning Centers, after-school academics for at-risk youth in Nashville and Memphis, and in Jacksonville, Fla. through a partnership with the Boselli Foundation. With a staff of certified teachers and community volunteers, Youth Life provides educational support in academics, character development and service learning for children who live in inner-city neighborhoods. To learn more, visit www.yllc.org.

Location:
Lipscomb University, Allen Arena
One University Park Drive
Nashville TN 37204

 

June 2011 Newsletter Features New Attorney, Stephanie Taylor, Human Relations Award Dinner, Wildhorse Saloon, & Jackalope Brewing Company.

Bone McAllester Norton is thrilled to welcome Stephanie Taylor and congratulate Charles W. Bone on being honored for making a difference at the 40th Annual CommunityNashville Human Relations Award Dinner.  To read the rest of our newsletter, click here.

Jailbirds Don't Tweet

Wildhorse Saloon, 120 2nd Avenue North, Nashville


Stephen Zralek, and the Harmon Group, will present "Jailbirds Don’t Tweet:

How to Build a Social Media Campaign That Won’t Land You In Legal Hot Water”.


Click here to RSVP. When creating your login, please note that you are a guest of Bone McAllester Norton.


Complimentary light breakfast will be served.

Parking is available at the Commerce Garage on

3rd and Commerce.

Bonelaw Client Stays with Trends

Growlers, half gallon jugs used to transport beer, are one of the hottest growth areas in the beer business, most recently expanding to upscale beer stores in the Nashville area.



Nashville's newest brewery, and Will Cheek client, Jackalope, joins a growing trend of breweries selling only kegs and growlers of beer.  This allows the brewery to open without purchasing expensive bottling equipment.  Some say it also enhances the mystique of the craft brewer.

The Next Tidal Wave in Social Media: Video, Apps, QR Codes and Location-based Software

Video, apps, QR Codes and LBS (for location based software, not pounds) are about to be the next tidal wave in social media. It's not that Facebook, Twitter and LinkedIn are losing any prominence (yet), but more and more businesses are waking up to see new ways to connect with their audiences. When law firms and banks (conservative by nature) start adding video to their home pages, you know something's catching on.

As these forms of social media become more popular, they raise new issues for the law to grapple with. Who owns the content? Did you get permission to include an image of that person or that song in your video? Have you informed your users that you plan to sell information about their visiting patterns whenever they view your site? Thoughts for businesses, legislatures and the courts to consider...

The Next Tidal Wave in Social Media: Video, Apps, QR Codes and Location-based Software

Video, apps, QR Codes and LBS (for location based software, not pounds) are about to be the next tidal wave in social media. It's not that Facebook, Twitter and LinkedIn are losing any prominence (yet), but more and more businesses are waking up to see new ways to connect with their audiences. When law firms and banks (conservative by nature) start adding video to their home pages, you know something's catching on.

As these forms of social media become more popular, they raise new issues for the law to grapple with. Who owns the content? Did you get permission to include an image of that person or that song in your video? Have you informed your users that you plan to sell information about their visiting patterns whenever they view your site? Thoughts for businesses, legislatures and the courts to consider...

Bone McAllester Norton Welcomes Stephanie Taylor!

Bone McAllester finds musician to lead entertainment group


Classically trained violinist joins law firm
Published June 10, 2011 by NashvillePost.c...

Bone McAllester Norton has hired an attorney and accomplished musician to lead its entertainment law group.

Stephanie R. Taylor, a classically trained violinist and country/bluegrass fiddle player, joins Bone McAllester after running her own local firm. Taylor represents artists and music industry professionals and negotiates entertainment industry contracts for artists, as well as licensing and distribution deals for original television programs. She has been a professor of music business at Middle Tennessee State University and directed MTSU’s Recording Industry Exchange program with Russia.

“We are pleased to announce Stephanie in her new role. She brings experience and a vast knowledge of the entertainment industry and has an excellent track record in her representation of clients in the business," said Charles W. Bone, firm chairman.

Taylor earned her law degree and bachelor's in music education from the University of Nebraska-Lincoln. She received master's degree in business administration with an emphasis on music business from Belmont University.

Taylor's musical career has included eight years as a contract violinist with the Lincoln Symphony Orchestra in Lincoln Nebraska, and she has played with numerous big-name musicians, including with Grammy nominated Chris Young, award winning singers/songwriters Billy Yates and Billy Falcon, bluegrass talent Dana Romanello and country duo Joey and Rory. She was recently inducted into the South Dakota Old Time Fiddlers Hall of Fame.

Click here for the whole article (subscription needed)

 

Bone McAllester Norton welcomes attorney James E. Mackler to our team!

James is a graduate of Duke University, where he graduated cum laude with a degree in public policy studies.  He received his law degree, with honors,  from the University of Washington School of Law where he served as the president of the Moot Court Honor Board.
After spending seven years developing a successful private practice in Colorado, James was inspired by the events of September 11, 2001 to join the Army.  He spent three years as a Blackhawk helicopter pilot with the 101st Airborne Division, including a one year deployment to Iraq.  After returning from Iraq, James transferred to the Judge Advocate General Corps where he served as a legal advisor to high level commanders and as a senior trial counsel.



James lives in Nashville with his wife Shana, and their two daughters, Hanna and Sylvie. He continues to serve in the Army Reserves.   He is actively involved in the Nashville community, including service on the board of Jewish Family Services.


Along with his litigation practice, James will provide legal assistance to members of the military transitioning into the civilian sector, including entrepreneur start-ups, fundamental business issues, and the day to day legal issues that veterans encounter with a new business.

Will Cheek Named Renaissance Man by NFocus Magazine

Will Cheek


That tow-headed guy in the convertible that just passed you was William T. Cheek, III or “Will.” An active volunteer for several local charities, Will has served as chairman of the Board of the Center for Nonprofit Management, the Metro Nashville Arts Commission, The Belcourt Theatre and Community Resource Center. He serves on the board of Children’s House of Nashville, Inc., the Belcourt Theatre, and as legal counsel to Artrageous, Inc., and Nashville Pride.

 

 

To Drink or Not To Drink

2011 has seen several cities voting on whether to expand liquor sales, either on premises or off premises.  Below are a few of the 2011 developments.

  • In May, voters in the city of Lawrenceburg overwhelmingly approved the sale of liquor, 806 to 597.

  • Also in May, Pigeon Forge voters defeated liquor in restaurants for the second time in 2 years, 590 to 482.  Establishments in the city were already allowed to sell beer and wine, but not liquor.  We see this as unusual since Pigeon Forges’ largest business is tourism, and many tourists expect full liquor service at restaurants.  We hear that the town’s biggest attraction, Dollywood, worked against LBD, perhaps to foster aold-fashioned family-oriented appeal.

  • Around the same time, voters in Sevierville rejected allowing liquor stores in the city, 785 to 614.  Gatlinburg remains the only city in the tourism-dominated county.

  • Early this year, the Sparta BOMA unanimously approved liquor-by-the-drink (“LBD”) sales.  It appears the measure was approved in order to increase city revenue through the 15% LBD tax (50% of which goes to the city) and through a new annual privilege tax.


Undoubtedly, these, and other locations, will continue to vote on the expansion of liquor sales.  Stayed tuned for future developments in and around your part of the state.

Will Cheek talks about the new TN law that lets bars be bars

Ruble Sanderson, the proprietor of four of Lower Broadway’s iconic honky-tonks, has paid more fines than he can remember over the years for violating the state’s liquor laws.


He chalked it up to the cost of doing business in Tennessee.


The violations had nothing to do with the way he served alcohol or how responsible his wait staff was with customers and were not because he intentionally decided to break the rules, Sanderson said.


Rather, he was cited for not persuading the tourists, night owls and after-dinner crowd who frequent his live music venues to buy more food with their drinks.


Now a new state law is giving Sanderson and other business owners the chance to legally operate their establishments without penalty as they essentially were intended to be: as bars. Saloons, pubs, watering holes, taverns. Until now — and probably unbeknownst to most social drinkers — all were illegal in Tennessee.


"They were stupid and archaic rules that we are glad to see go," said Sanderson, who, along with his wife, Brenda, owns Legends Corner, Second Fiddle, The Stage on Broadway and Nashville Crossroads. "There was this tremendous pressure to get people to buy food. But that’s not why people come to our places."


The new liquor laws, quietly passed last year by state lawmakers, for the first time allow establishments to operate as bars, selling more booze than food.


The old law required food to be the biggest single sales item for any establishment with a liquor license. The new law still requires that food be sold, but new "limited service licenses" give business owners the option of cutting their food sales to as little as 15 percent without breaking the law.


Boost to small clubs


The new rules also allow smaller bars to open for the first time, by lowering the number of seats required in a liquor serving establishment from 75 to 45 and adding bar stools to the seat count.


Thus far, between 40 and 50 establishments in the state have sought the new designation, according to the Alcoholic Beverage Commission, the state agency that issues the licenses.


It’s a small number compared to the 2,700 liquor-by-the-drink establishments in the state, but officials expect more new bars to crop up and point out that hotels, private clubs and single-occasion events also are included in that number.


Most of Nashville’s downtown honky-tonks have made the transition, cutting back on food served to focus on drinks. The seating changes have been a boon for clearing a wider space on their dance floors, too, which previously had to be small enough to accommodate a larger number of seats.


So, what was the first actual bar in Tennessee? The answer: Tribe Restaurant & Night Club in the 1500 block of Church Street, regularly voted at the top of "best gay bar in Nashville" contests.


Small bars are beginning to pop up as well.


Three weeks ago, Jody Myers opened the Neighbors of Sylvan Park bar, squeezed into a narrow space between a hair salon and pet shop.


Before the revamped rules, Myers couldn’t have opened the place.


"I just wanted to open a kind of Cheers for regulars" in the Sylvan Park neighborhood, Myers said. The tab for the new license totaled $4,000, a much steeper license fee than former liquor license fees ranging from $750 to $1,200 under the old rules.


Some small-business owners say they’re concerned about the size of the fee hike.


"I expect this will cause some to go beer only, which ultimately could hurt their competitiveness and possibly put them out of business," said Mervin Louque, a sound engineer who operates the small music and drink venue Douglas Corner Cafe on Eighth Avenue South.


Attorney Will Cheek, who represents food- and liquor-serving establishments, said that most of his clients are getting by a lot cheaper with the new fees.


Enforcement activities by the Alcoholic Beverage Commission had temporarily shut down clients including Buck Wild Saloon and Traxx, establishments patrons would visit after dinner. Other places would routinely pay $4,000 a quarter in fines after ABC audits of their receipts showed food constituted less than 50 percent of their sales, Cheek said.


"The issue just came to a head, and you had a lot of bar owners throwing their support behind each other," Cheek said. "Now, you’ve got a lot of Tennessee icons that can issue a sigh of relief that don’t have to worry that the ABC is breathing down their necks."


David Anthony discusses changes in foreclosure laws

 A 2010 change in foreclosure laws is helping bring some pricing sanity back into the market


Published May 31, 2011 by J.R. Lind


What’s the market value of something when the market isn’t functioning? If there are no buyers — no matter the price — figuring that value can be as impossible as dividing by zero.


When the housing market was hopping along, there was no shortage of buyers when a bank needed to sale a property at foreclosure and any difference between the sale at public outcry and the outstanding amount of the loan could be sought through the court system. If a home with a $500,000 mortgage sold for $400,000, a bank could easily come for the remaining $100,000.


That worked just fine when there are plenty of buyers. But what if, as has happened during this housing crisis, the buyers disappear and the banks are stuck buying back the foreclosed tracts?


The logical answer is that if there is only one bidder — in this case, the banks themselves — the rational choice would be to bid as low as possible and, again, seek the deficiency in the courts.


"When the economy hit the skids, foreclosure sales for a while were getting prices at 20 percent of the loan value — crazy low — and I don’t think that was a function of the real value being 20 percent. We just stopped having a functioning market," said Bob Mendes, a member at MGLaw. "If you are a bank, you have to make a decision: Would you rather bid in at 20 percent and be able to sue for $400,000 deficiency or bid in at 80 percent and sue for $100,000 deficiency?"


In an effort — spearheaded by a reeling development community — to keep bankers from systemically underbidding, the state legislature last year enacted a change in the foreclosure law that has given legal recourse to the borrower. Under a handful of appellate cases, borrowers already had a right to sue if the market value was too low, but as is often the case from court decisions, there were lots of gray areas.


And while the legislature sought to protect the borrowers through legislation, the law may have actually had the opposite effect, said Bone McAllester Norton attorney David Anthony.


"The clarity of the new statute provides an obstacle for attacks on the foreclosure bid price," he said. "In the past, the standard was unclear. Now, it’s a clear test and easier to overcome… The burden is clearly on the debtor to prove by a preponderance of the evidence that the property sold for an amount materially less than the fair market value… That’s not an easy standard to meet."


So in a way, the law managed to both benefit and hinder each side in the creditor/defaulted borrower battle.


"Before the law changed, our advice to lenders was, ‘Start the bidding on the low end of the range of market value,’" Mendes said. "Post the law changing, there’s a little more art, because there’s not as many bidders. But under the statute, if you have successfully predicted something in the range of market, you have defended yourself… If we’ve seen any impact, it’s that banks are back to bidding into a price where the market is."


In a recent sale, Mendes said, the bank put up a property for outcry that held a $2.1 million debt. Eventually, the lender bought back the property at $1.5 million, a hefty tag that still left a $600,000 deficiency for the borrower to overcome. A year ago, Mendes said, the bid could have come in "hundreds of thousands of dollars lower."


Anthony said most bankers already were careful to make fair bids, even in the tough economy, in large part because a too-large deficiency might trigger a bankruptcy for the borrower, in which case they would likely not see the money anyway.


What he sees as the major change is the tightening of the statutory window, the time lenders have to seek those deficiencies, from six years to two.


"Bankers are getting tired of these legal fees, so they’d do these foreclosures … and then sit on them. Some banks would even sell the deficiency on the note," Anthony said. "Now you only have two years to sweat it out. Six years is a long time to kick the tires. I think banks are desensitized to chasing down deficiencies, but now they don’t have forever."


Anthony said he wasn’t sure the law was a "gut reaction" to the rash of foreclosures that beset most parts of the country when the housing bubble burst. That affliction has inspired a slew of proposed changes to Tennessee’s foreclosure procedures, the most widely debated of which has been a plan to no longer require that foreclosure notices be printed in newspapers of record.


SouthComm, the parent company of Post, is one of a number of media companies that have hired lobbyists to oppose the change. But, Mendes said, in a normal market, these things become less of a hot-button issue.


"This statute only matters in a historically ridiculous time. As soon as we get back to a functioning economy, bidders will set the price, but in the absence of bidders, banks are," he said. "It’s just brought everybody back to what the norm has always been: Foreclosures should be priced at market value."


Click here for the entire story in the Nashville Post.