Before the foreclosure crisis, federal and state laws regulating mortgage servicers and foreclosure procedures were relatively limited and tended to favor foreclosing lenders. However, many federal and state laws now give protections to borrowers. Servicers generally must provide borrowers with loss mitigation opportunities, account for each foreclosure step, and carefully comply with foreclosure laws.
Also, most people who take out a loan to buy a residential property in Tennessee sign a promissory note and deed of trust. These documents usually give homeowners certain contractual rights after a home loan default.
So, don't get caught off guard if you're a homeowner behind in mortgage payments. Learn about foreclosure laws in Tennessee and how the Tennessee foreclosure process works, from missing your first payment to a foreclosure sale.
In a Tennessee foreclosure, you'll most likely get the right to:
Once you understand the Tennessee foreclosure process and your rights, you can make the most of your situation and, hopefully, work out a way to save your home or at least get through the process with as little anxiety as possible.
The period after you fall behind in payments, but before a foreclosure officially starts, is generally called the "preforeclosure" stage. (Sometimes, people refer to the period before a foreclosure sale happens as "preforeclosure," too.)
During this time, the servicer can charge you various fees, like late charges and inspection fees, and, in most cases, must inform you about ways to avoid foreclosure and send you a preforeclosure notice called a "breach letter."
Under federal law, the servicer usually can't officially begin a foreclosure until you're more than 120 days past due on payments, subject to a few exceptions. (12 C.F.R. § 1024.41). This 120-day period provides most homeowners ample opportunity to submit a loss mitigation application to the servicer.
If you default on your mortgage payments in Tennessee, the lender may foreclose using a judicial or nonjudicial method.
A judicial foreclosure begins when the lender files a lawsuit asking a court for an order allowing a foreclosure sale. The lender will automatically win the case if you don't respond with a written answer.
But if you choose to defend the foreclosure lawsuit, the court will review the evidence and determine the winner. If the lender wins, the judge will enter a judgment and order your home sold at auction.
If the lender chooses a nonjudicial foreclosure, it must complete the out-of-court procedures described in the state statutes. After completing the required steps, the lender can sell the home at a foreclosure sale.
Most lenders opt for the nonjudicial process because it's quicker and cheaper than litigating the matter in court.
Again, most residential foreclosures in Tennessee are nonjudicial. Here's how the process works.
The lender must either publish notice of the foreclosure sale in a newspaper at least 20 days before the sale or post notice in several public places 30 days before the sale if the county doesn't have a newspaper. (Tenn. Code §§ 35-5-101 to 35-5-103). The lender must also mail you (the borrower) a copy of the notice of sale on or before the first publication date. (Tenn. Code § 35-5-101). Then, the lender holds a foreclosure sale.
The sale is an auction, which is open to the public. At the sale, the lender usually makes a credit bid. The lender can bid up to the total amount owed, including fees and costs, or it may bid less.
In some states, including Tennessee, when the lender is the high bidder at the sale but bids less than the total debt, it can get a deficiency judgment against the borrower (see below). The property becomes "Real Estate Owned" (REO) if the lender is the highest bidder.
But if a bidder, say a third party, is the highest bidder and offers more than you owe, and the sale results in excess proceeds—that is, money over and above what's needed to pay off all the liens on your property—you're entitled to that surplus money.
A few potential ways to stop a foreclosure and keep your home include reinstating the loan, redeeming the property, or filing for bankruptcy. Working out a loss mitigation option, like a loan modification, will also stop a foreclosure.
Or you might be able to work out a short sale or deed in lieu of foreclosure and avoid foreclosure. (But you'll have to give up your home with a short sale or deed in lieu of foreclosure transaction.)
But many deeds of trust, like the uniform Fannie Mae/Freddie Mac Deed of Trust, provide the borrower the right to cure the default after acceleration and reinstate the loan. Check your loan documents to determine if you get a reinstatement right and, if so, the deadline to complete one.
One way to stop a foreclosure is by "redeeming" the property. To redeem, you have to pay off the full amount of the loan before the foreclosure sale.
Some states also provide foreclosed borrowers a redemption period after the foreclosure sale, during which they can buy back the home. In Tennessee, the borrower gets two years after the foreclosure to redeem the property unless the mortgage or deed of trust expressly waives the right of redemption, which these documents frequently do. (Tenn. Code §§ 66-8-101 through 66-8-103).
Check your loan documents to determine if you waived your redemption rights when taking the loan.
If you're facing a foreclosure, filing for bankruptcy might help. In fact, if a foreclosure sale is scheduled to occur in the next day or so, the best way to stop the sale immediately is by filing for bankruptcy.
Once you file for bankruptcy, something called an "automatic stay" goes into effect. The stay functions as an injunction, prohibiting the lender from foreclosing on your home or trying to collect its debt, at least temporarily.
In many cases, filing for Chapter 7 bankruptcy can delay the foreclosure by a matter of months. Or, if you want to save your home, filing for Chapter 13 bankruptcy might be the answer. To find out the options available, speak with a local bankruptcy attorney.
Under state law, if a member of a reserve or Tennessee National Guard unit entered into a mortgage or deed of trust to purchase a home, and is subsequently called into active military service outside the U.S. during hostilities, the lender can't foreclose until 90 days after the servicemember returns to the state. (Tenn. Code § 26-1-111).
In a foreclosure, the borrower's total mortgage debt frequently exceeds the foreclosure sale price. The difference between the total debt and the sale price is called a "deficiency." For example, say the total debt owed is $300,000, but the home sells for $250,000 at the foreclosure sale. The deficiency is $50,000.
In some states, the lender can seek a personal judgment against the debtor to recover the deficiency. Generally, once the lender gets a deficiency judgment, the lender may collect this amount—in our example, $50,000—from the borrower.
Tennessee law allows the lender to get a deficiency judgment after a foreclosure.
In Tennessee, the foreclosing lender can file a lawsuit after the nonjudicial foreclosure to get a deficiency judgment. The deficiency amount may be limited to the difference between the outstanding debt and the property's fair market value at the time of the sale if the borrower shows that the sale price was materially less than the property's value. (Tenn. Code § 35-5-117).
For more information on federal mortgage servicing laws and foreclosure relief options, go to the Consumer Financial Protection Bureau (CFPB) website.
Get tips on what to do—and what not to do—if you're facing a foreclosure.
Find out if foreclosures are on the rise.
If you have questions about Tennessee's foreclosure process or want to learn about potential defenses to a foreclosure and possibly fight the foreclosure in court, consider talking to a foreclosure attorney. Talking to a HUD-approved housing counselor about different loss mitigation options is also a good idea.