As of January 10, 2014, a new federal law went into effect that restricts “dual tracking” in the foreclosure process. The law offers homeowners facing financial difficulties 120 days to catch up on payments or to explore other ways to avoid foreclosure, such as through a loan modification. If the borrower isn’t able to bring the loan current or work out an alternative during the waiting period, the bank can start the foreclosure under state law. In this article, you’ll learn about Tennessee foreclosure procedures and your rights during the process.
(Get a better understanding of how foreclosure works by reading Foreclosure and Your Home: Understanding the Process, Your Rights, and Your Options.)
Federal Dual Tracking Ban
In the past, homeowners often had a difficult time working out a foreclosure alternative before losing the home to a foreclosure sale. The foreclosure process didn’t allow enough time for loss mitigation.
However, on January 10, 2014, a new federal law took effect that prevents a bank from foreclosing until the loan account is over 120 days delinquent. Additionally, a borrower’s application stays the period because the law prevents dual tracking (going forward with foreclosure procedures while a foreclosure alternative application is pending). Now, the servicer cannot initiate the foreclosure process until it reviews the application and one of the following occurs:
- the lender denies the borrower a loss mitigation option (and the appeal period ends)
- the borrower decides not to go forward with any of the loss mitigation offers, or
- the borrower fails to act in accordance with the requirements of a loss mitigation option.
Even if the borrower is over 120 days delinquent, if the borrower submits a complete application before the servicer mails, publishes, or records the first foreclosure document required by law, the foreclosure can't start until one of the events above occurs.
(Read more about the federal mortgage servicing law that restricts dual tracking in Delaying Foreclosure: The Dodd-Frank Act 120-Day Rule.)
Judicial and Nonjudicial Foreclosure Procedure
In Tennessee, the bank can foreclose by filing suit in court (a judicial foreclosure) or by following a series of legal steps that do not involve the court system (a nonjudicial foreclosure). Here’s a short description explaining how each type of foreclosure works.
Judicial foreclosure. The bank will file a complaint in court asking for a decree of sale from the judge (permission to sell the house). If the borrower fails to take action, the bank will automatically get a judgment from the tribunal and a foreclosure sale will occur. However, if the borrower answers the suit, the case enters the “discovery” phase wherein each side can request information from the other. The court will review the evidence and determine whether the bank should be allowed to foreclose.
Nonjudicial foreclosure. With a nonjudicial foreclosure, court action isn’t required. Instead, the bank will follow the out-of-court process outlined in state law. Usually, the process will include mailing the borrower the sale information and publishing the same in a newspaper. After completing the required state procedures, the bank will sell the home at a foreclosure sale. In Tennessee, most banks use the nonjudicial process because it’s faster and cheaper than litigating a lawsuit.
(Get further details about foreclosure procedures in What Are the Differences Between Judicial and Nonjudicial Foreclosures?)
Tennessee Nonjudicial Foreclosure
The bank must publish a notice of the foreclosure sale in a newspaper on three occasions, with the first publication taking place at least 20 days before the sale. If there is no newspaper in the county, the bank must post the notice in several public places 30 days before the sale.
On or before the first publication, the bank must mail a copy of the notice of sale to the borrower. The foreclosure is complete after the sale takes place.
No Right to Reinstate Under Tennessee Law: Check Your Contract
Some states allow a borrower to stop the foreclosure sale by “reinstating” the loan or catching up on all missed payments, fees, and costs in one lump sum. Unless the loan is a high-cost home loan, Tennessee law does not give borrowers the right to reinstate the loan. However, the loan contract might do so, and if not, the bank might informally agree to allow you to reinstate. You’ll want to call your lender to find out your options.
Redemption Period in Tennessee
Some states have a law that permits the borrower to repurchase the home after a foreclosure sale during what’s called a “redemption period.” Under Tennessee law, the redemption period is two years after the foreclosure unless the loan contract expressly waives the right to redeem.
Deficiency Judgment Following a Tennessee Foreclosure
If the foreclosure sale doesn’t bring in enough money to pay off the entire mortgage debt, some states allow the lender to get a deficiency judgment for the difference between the sale price and the total loan balance. In Tennessee, the bank can file a lawsuit after the nonjudicial foreclosure to obtain a deficiency judgment. If you find yourself owing additional money after the foreclosure, be aware that you can get rid of the judgment—along with other debt—by filing for Chapter 7 bankruptcy.
(For more information about deficiency judgments, read Being Chased for Walking Away From Your Home.)
Foreclosure Laws in Tennessee
To find Tennessee’s nonjudicial foreclosure laws, go to the Tennessee Code (sections 35-5-101 to 35-5-111 and 66-8-101 through 66-8-103.)
Questions for Your Attorney
- What action should I take after getting a notice of the foreclosure sale?
- Can I stop a foreclosure with a mortgage modification?
- What will happen after the foreclosure sale occurs?