If you default on your mortgage payments in Tennessee, the servicer (on behalf of the loan owner, called the “lender” in this article) will eventually begin the foreclosure process. The method will most likely be nonjudicial (out of court), although judicial foreclosures are also allowed. Tennessee law specifies how nonjudicial procedures work, and both federal and state laws give you rights and protections throughout the foreclosure.
If you get a loan to buy residential real estate in Tennessee, you'll likely sign two documents: a promissory note and a deed of trust. The promissory note is the document that contains your promise to repay the loan along with the repayment terms. The deed of trust, which is very similar to a mortgage, is the document that gives the lender a security interest in the property and will probably include a power of sale clause. If you fail to make the payments, the power of sale clause gives the lender the right to sell the home nonjudicially so it can recoup the money it loaned you.
If you miss a payment, the servicer can usually charge a late fee after the grace period expires. Most mortgage loans give a grace period of ten to fifteen days, for example, before you’ll incur late charges. To find out the grace period in your situation and the amount of the monthly late fee, review the promissory note or your monthly billing statement.
If you miss a few mortgage payments, the servicer will probably send letters and call you to try to collect. Federal mortgage servicing laws require the servicer to contact you (or attempt to contact you) by phone to discuss foreclosure alternatives—called “loss mitigation” options—no later than 36 days after a missed payment and again within 36 days after each following missed payment. No more than 45 days after a missed payment, the servicer must let you know in writing about loss mitigation options that could be available, and assign personnel to help you. Some exceptions to a few of these requirements exist, like if you file bankruptcy or tell the servicer not to contact under the Fair Debt Collection Practices Act. (12 C.F.R. § 1024.39).
Many deeds of trust in Tennessee have a provision that requires the lender to send a breach letter if you fall behind in payments. This notice tells you that the loan is in default. If you don’t cure the default, the lender can accelerate the loan (call it due) and go ahead with the foreclosure.
Federal law generally requires the servicer to wait until the loan is over 120 days delinquent before officially starting a foreclosure. However, in a few situations, like if you violate a due-on-sale clause or if the servicer is joining the foreclosure action of a superior or subordinate lienholder, the foreclosure can begin sooner. (12 C.F.R. § 1024.41).
Again, most Tennessee foreclosures are nonjudicial.
In a nonjudicial Tennessee foreclosure, the lender has to:
On or before the first publication date, the trustee has to mail you (the borrower) a copy of the notice of sale. (Tenn. Code Ann. § 35-5-101).
The sale is an auction, which is open to the public.
“Reinstating” is when a borrower pays the overdue amount, plus fees and costs, to bring the loan current and stop a foreclosure. Tennessee, however, doesn’t have a law that gives a borrower the right to cure the default and reinstate before the sale, unless the loan is a high-cost home loan. (Tenn. Code Ann. § 45-20-104). But the loan contract might provide time for the borrower to complete a reinstatement.
Sometimes, a foreclosure sale doesn’t bring in enough money to pay off the full amount owed on the loan. The difference between the sale price and the total debt is called a “deficiency balance.” Many states, including Tennessee, allow the bank to get a personal judgment, called a “deficiency judgment,” for this amount against the borrower.
To get a deficiency judgment in Tennessee, the lender has to file a separate lawsuit after the foreclosure sale. If the borrower can prove that the property sold for an amount materially less than fair market value at the foreclosure sale, then the deficiency judgment will be limited to the total debt minus the fair market value of the property at the time of the sale. (Tenn. Code Ann. § 35-5-118).
Some states have a law that gives a foreclosed homeowner time after the foreclosure sale to redeem the property. In Tennessee, the borrower gets two years after the foreclosure to redeem the home unless the mortgage or deed of trust specifically waives the right of redemption, which these documents often do. (Tenn. Code Ann. §§ 66-8-101 through 66-8-103).
Foreclosure laws are complicated. Servicers and lenders sometimes make errors or forget steps. If you think your servicer or lender failed to complete a required step, made a mistake, or violated state or federal foreclosure laws, you might have a defense that could force a restart to the foreclosure or you might have leverage to work out an alternative.
Consider talking to a local foreclosure attorney or legal aid office immediately to learn about your rights. A lawyer can also tell you about different ways to avoid foreclosure. Likewise, a HUD-approved housing counselor can provide helpful information (at no cost) about various alternatives to foreclosure.