Understanding Tennessee Foreclosure Law
Foreclosure laws in the United States fall into two categories - judicial foreclosures and non-judicial foreclosures. In a state that requires judicial action, the foreclosing lender must initiate a lawsuit against the borrower and obtain a court judgment before obtaining title to the subject property. In a non-judicial foreclosure state, the foreclosing lender does not have to go to court - instead, the foreclosure proceeding can be commenced by filing appropriate notice in a designated newspaper.
Tennessee law allows for non-judicial foreclosures. Lenders can also pursue judicial foreclosures, but judicial actions are extremely rare as non-judicial foreclosure is a much faster process for the lender.
Loan Docs in Tennessee Usually Contain
a Power of Sale Clause in the Deed of Trust
When you buy a home or other property in Tennessee, the lender will require that you sign many documents at closing. In most cases, one of these documents will be a security instrument known as a “deed of trust.” One purpose of the deed of trust is to link the property (your home) to the loan you are taking out. Your home therefore becomes collateral for the loan - if you fail to make payments, the lender has the right to repossess or “foreclose” on your home.
Deeds of trust in Tennessee usually also contain something called a “power of sale” provision. This provision names a trustee of the lenders choosing to hold legal title to your home. In other words, as long as you have an outstanding mortgage debt, you don’t really own your home. You have some important legal rights to live in and maintain your home, but legal title to your property rests with a trustee selected by your mortgage company.
Under the terms of your deed of trust and associated promissory note, you have the right to live in your home without interference from the mortgage lender. However, in the event that you go into default, the trustee has the right to initiate a process that can terminate your ownership interest in your home.
Notice Requirements in Tennessee Foreclosure Advertisements
Before the trustee can sell your house, he must fulfill specific notice requirements set out in Tennessee law. These include publishing a foreclosure advertisement in a newspaper regularly published in the county where the property is located and the foreclosure sale is planned. This advertisement must run a minimum of three (3) times with the first publication being no less than 20 days prior to the sale date. Notice must also be given to the IRS and Tennessee taxing authorities, and usually to other lienholders.
The notice must contain the names of the “parties interested” (i.e. you), a description of the property including the street address and the date, time and place of the foreclosure sale. Usually, foreclosure sales will take place at the courthouse of the county where the property is located.
Once the foreclosure auction is held, the homeowner loses all title right to the property and can thereafter be evicted.
Tennessee and federal law do provide for some post-foreclosure actions if you believe that your property was foreclosed wrongfully. Clark and Washington does not handle wrongful foreclosure actions, but if you want to learn more about wrongful foreclosure in Tennessee, please click on the link to review an informative report about this topic published by the non-profit Southeast Tennessee Legal Services office.
Options for Stopping Foreclosures in Tennessee
Interestingly, Tennessee law does provide for a “right of redemption” whereby a homeowner can redeem his property by paying off all outstanding debt, but, in practice, most loan documents contain a waiver of this right of redemption.
Once the foreclosure process is initiated, lenders are unlikely to engage in negotiations with debtors. Clark and Washington urges you to be very careful about relying on companies that offer “home saving” services. Under Tennessee law, the only payment that will absolutely stop a foreclosure is payment of the entire outstanding mortgage balance. While Clark and Washington can help you even at the last minute, we urge you not to take unnecessary risks with your ownership rights in your home. Finally, be aware that Tennessee law does allow lenders to pursue you for a deficiency balance after foreclosure. Learn more about this risk by clicking on the link.
Besides paying off the entire mortgage balance, the only other tool available to stop a Tennessee foreclosure is a Chapter 13 bankruptcy. Chapter 13 “stop foreclosure” cases make up a large part of our Knoxville practice and we urge you to call us as soon as you recognize that you are facing a foreclosure problem.