COMMUNITY DEVELOPMENT LAW CORNER
By Steve Barlow & Danny Schaffzin
In 2018, the Tennessee Legislature passed amendments to the Tennessee Neighborhood Preservation Act (NPA), found at Tennessee Code Annotated Section 13-6-101. As frequent litigators of NPA cases seeking to abate the public nuisance caused by abandoned derelict real estate in Memphis, we were glad to be part of the team that drafted the needed changes to the statute.
We believe that the changes represent new hope for reclaiming large numbers of vacant houses and buildings across Memphis, saving them from neglect and abandonment, avoiding unnecessary demolition and restoring them instead to productive use.
Prior Rules Stalled Reclamation
Before the amendments, the NPA required lawsuits to be filed personally against owners. This often created a misimpression that cases were aiming to take the owner’s property or obtain a judgment against the owner for money damages when the real purpose was merely to resolve the property’s badly blighted condition. Perhaps more problematically, plaintiffs were often unable to obtain the certified mail notice of the lawsuit required by the statute to be provided to all owners, including those who were deceased (individuals), defunct (corporations), or just plain hard to find because of where they lived (e.g., states or countries far away from Memphis). Unable to overcome these notice challenges, many NPA lawsuits stalled as soon as they were filed, leaving the properties on which they were focused continuing to stagnate.
Claims On Property vs. Owners
The amended NPA addresses this challenge by requiring instead that lawsuits be filed against the property itself. This means that instead of “City of Memphis vs. John Doe” the cases are now titled “City of Memphis vs. 123 Main Street.”
Why does this matter? Because the United States Supreme Court has clarified a distinctive standard for giving constitutionally adequate notice when properties – rather than their owners – are named in lawsuits involving claims about the properties themselves (e.g. that the property is a public nuisance). Consistent with this “in rem” standard (rem: latin for “against the thing”), the amended NPA mandates the plaintiff to complete a comprehensive title search – the most extensive examination of records possible – and to give notice of the lawsuit by U.S. mail to the last known address of every owner and lienholder identified in that search. The owners, the mortgage holders, any creditors, and any other person or company identified in that title search as having an interest in the property is put on notice from the very beginning.
In addition, the NPA plaintiff must post a copy of the lawsuit on the property, mail a copy to “occupant” at the property address, and publish notice of the lawsuit in a local newspaper.
At the first setting in court, the attorney who filed the case must certify that notice has been given to all those people and companies. Once that certificate is filed, notice is complete.
New Process a Game-Changer
While a lot of work is required to provide notice at the earliest possible point, it is worth it! Thereafter, if no owner or interested party appears before the court to respond to the lawsuit and assume responsibility, and if the court otherwise finds the property to be an uninhabitable public nuisance, no further notice is required. The court is authorized at that point to order prompt resolution of the nuisance property without any further involvement of owners or other interested parties.
Compared to the arduous, often impossible task of searching for ghosts under the old NPA, this new process is a game changer.
Another game changer comes once the court determines that the owner or others with an interest in the property cannot or will not fix a property the court has labelled an uninhabitable public nuisance.
In the Business of Fixing Nuisance Properties
The main purpose of the NPA is to authorize the court at this point in the case to designate a “receiver” to demolish, fix and/or sell the nuisance property. But under the NPA prior to this amendment, only municipalities and nonprofits were eligible to be appointed as “receiver.” The new NPA opens the pool of possible receivers to any qualified person or entity approved by the court. We are optimistic that there are many potential receivers who will step forward to get in the business of fixing nuisance properties under the new law.
Notably, the earlier version of the NPA limited the possible activity of receivers appointed by the court to either demolish the property or to make allrepairs required to make the property livable again. But a full rehabilitation can be quite an expensive proposition for an abandoned house or building.
The new NPA authorizes the receiver, once appointed by the court, to demolish, repair or auction the nuisance property to qualified buyers in as-is condition, with just minor stabilization prior to the auction. Since the receiver’s lien still has priority over all other liens on the property, such an auction sale will be free and clear of all liens.
Transforming Blighted Properties
We hope that the auctions that are ordered under the new NPA will offer a meaningful business opportunity for small local real estate investors who know how to make repairs and just need to get control of neglected houses in need of attention.
As we have written before, blighted properties present a largely legal challenge, and we are working to develop student lawyers who will be capable of taking on the challenge one by one. Armed with the amended NPA, lawyers, the courts, receivers, and buyers at receivers’ auctions will transform blighted properties all over Memphis, one property at a time. <>
The amended NPA was sponsored in the Tennessee House by Representative Mark White and in the State Senate by Senator Ed Jackson.
Barlow and Schaffzin co-direct the University of Memphis School of Law’s Neighborhood Preservation Clinic where they supervise law students handling Environmental Court lawsuits on behalf of the City of Memphis. Schaffzin is an associate professor of law and director of experiential learning and Barlow is adjunct faculty and part time staff attorney for the City. Barlow serves as President of Neighborhood Preservation, Inc. Together, Steve and Danny are partners in law at Barlow & Schaffzin PLC.