For bankruptcy lawyers, hard times are good business

It's 10 a.m. on a weekday at the Wilson County Courthouse and nobody is much listening to Tom Lawless, who is standing in the foyer foreclosing on a handful of partially built homes in Mt. Juliet.

A man from Fifth Third Bank sits on a bench and rubs his tired eyes before rousing himself long enough to put in the bank's bid on property from bankrupt homebuilder Corinthian Custom Homes.

It's a scenario playing out at many courthouses in Middle Tennessee, as individual bankruptcies rise and the wreckage of homebuilders' assets are auctioned off to the highest bidder.

The economic downturn, precipitated by an overheated housing market, has hurt financial markets worldwide, battered the U.S. stock market and caused the loss of thousands of jobs.

But the disaster has been good news for bankruptcy attorneys like Lawless.

"When we're at functions, we talk to each other and we smile because of the way the economy is going,'' said Lawless, who is 54. He says his workload is up 40 percent this year, and he's had to turn away business or farm out clients to other lawyers.

Billing at $250 to $300 an hour, Lawless is able to afford a Lexus sedan and take frequent international trips with second wife, Sandi. They went to Rio de Janeiro for Carnival this year. He lunches three or four times a week at The Palm, a stylish steak restaurant near Sommet Center downtown.

He and his wife live in a home in Oak Hill near the governor's official residence. Lawless bought their five-bedroom home on more than two acres for $242,000 15 years ago. The city tax assessor now values it at close to $800,000.

Lawless says he works long hours to get the job done, somewhere between 12 and 18 hours a day. He works alone — without even a secretary — in the Customs House in downtown Nashville, the home of the U.S. Bankruptcy Court in Middle Tennessee. Lawless says he loves his work.

"There's a tremendous adrenaline rush,'' he said. "Sometimes I get excited to look at a file. I shake my head and it's not just about the borrowers. Sometimes it's the client, and you wonder what they were thinking."

Cases get more complex

Other attorneys report a similar surge in business. Bill Norton, who handles mostly commercial bankruptcies for Boult, Cummings, Conners & Berry here, estimates his workload has increased 25 percent since last year.

Business bankruptcies in the form of Chapter 11 filings jumped in July to 14 from just five during the same month a year ago — and they are on track to beat last year's total numbers. Norton said the size and complexity of cases have increased even if the number of filings doesn't appear overwhelming.

"All it takes is one or two pretty big-sized (business reorganization) cases and all of a sudden we're all busy,'' Norton said.

"There are hundreds of creditors involved and all kinds of local counsel needed, and there are issues to be resolved in either reorganization or liquidation."

Attorney Edgar Rothschild, who handles mostly personal bankruptcies for his firm, Rothschild & Associates, said he's had to hire extra employees and work until 9 or 10 many nights to handle the additional work.

Although bankruptcy filings were slashed in half after a 2005 change in U.S. bankruptcy law, they have begun to creep higher again. Bankruptcy filings are up 22 percent to 5,631 in Middle Tennessee during the first half of this year compared with the same period a year earlier.

Lawless doesn't handle many personal bankruptcies. Instead, he represents mostly banks or other financial clients in bankruptcies and foreclosure sales. These days, many of his banking clients have watched their profits plunge on bad loans, poor investments and a withering real estate market.

Fifth Third Bancorp, one of Lawless' clients, charged off $344 million worth of loans during the most recent quarter, with residential real estate accounting for 34 percent of that loss.

"Deteriorating credit trends remain disproportionately attributable to commercial and residential real estate loans, particularly in Florida and Michigan, and we continue to be very active in taking steps to address these issues that we and the industry are facing,'' the company said in a statement.

Nashville weathers storm

Bankers have said that Middle Tennessee remains relatively strong economically compared to markets in Florida or Michigan, for example. But a slowdown in the local real estate market continues to affect homebuilders and businesses linked to housing.

Franklin-based Corinthian, which built mostly middle market and a few high-end homes, owed money to Fifth Third and several other banks. More than 150 Corinthian lots and partially built homes are being sold to satisfy various creditors and banks.

Greeneville, Tenn.-based Green Bankshares Inc., another Lawless client, saw its profits drop 79 percent in the most recent quarter, mostly from bad residential construction loans.

Lawless isn't afraid to blame some of the problems on the banks. He said the loss of experienced bankers over the years and sales incentives that rewarded loan officers for volume rather than credit quality were partly to blame.

"He's very opinionated,'' said Rothschild, who considers himself a friend of Lawless. "He tells it like he sees it."

Lawless always wears a bow tie, and more recently, a pair of clear plastic reading glasses he picked up in the Cayman Islands. He wears them on the tip of his nose. At the start of the presidential primaries, he puts a flag pin on his lapel.

As chairman of the Davidson County Republican Party, he sees himself as a maverick, a fiscal conservative and social moderate. He's a frequent contributor to Republican candidates, including U.S. Sen. Lamar Alexander.

He dislikes the recently passed congressional and President Bush-sanctioned housing bailout package for homeowners and lenders, despite the fact that the deal probably will benefit his clients.

He doesn't think taxpayers should be saddled with the fallout from what he sees as irresponsible lenders and homebuyers.

To relieve stress, he goes on scuba diving vacations and swims with sharks. "It's professional courtesy,'' he jokes.

Lawless volunteers once a month for the Nashville Bar Association's Dial-A-Lawyer, where people call in to get free legal advice. He thinks he's more sympathetic with bankruptcy clients after watching his father lose the family business in a fire while Lawless was still a child.

"I don't go into it trying to beat people up,'' Lawless said. "If you want to, you can really, really destroy somebody. You can really be horrible to people. When you file a lawsuit, you start taking people's wages or their cars.

"You can strip somebody of their dignity, of everything they have if you really want to. Some people do that. The last thing you want is to do that to people. I've never filed for bankruptcy, but I've been as poor as a church mouse. Running my business there was many a time when I couldn't cash my paycheck.

"Anybody can fall on hard times. They can have domestic issues. They can have health issues. They can be in a business that's going away. You've got to treat people with the same respect you would want," he said.

"I don't always do it. I'll be the first to admit that. It may be that my client's best interest is to be just horrible to somebody, not because I want to be, but because I have to protect my client — and I do it relatively well."

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