I’ve said that the Tennessee foreclosure process can be intimidating because it’s, largely, non-judicial. Because there’s no judge involved, it comes down to the foreclosure lawyer strictly following the intricate labyrinth of statutory requirements.
One of the fundamental steps, of course, is to “send” the homeowner a copy of the Notice of Foreclosure Sale. Under Tenn. Code. Ann. § 35-5-101(e), that sale notice “shall be sent on or before the first date of publication provided in subsection (b) by registered or certified mail, return receipt requested.”
When I’m conducting a foreclosure, it’s a great relief to get that signed, certified mail green card back, because I know that my borrower received the Sale Notice and knows about the sale.
But, what about the situations in which the green card doesn’t come back signed?
This has always been an issue, because a borrower in default on his loans likely sees a certified mail green card as bad news and doesn’t rush to the post office to sign for it, especially when a copy is also sent by first class mail.
It became an even bigger issue during the COVID pandemic, when mail delivery was disrupted and people weren’t leaving their house to go to the post office. One of my 2021 foreclosures was challenged because, instead of getting a signature (presumably to avoid human contact), the postman marked it delivered and wrote his badge number on the signature line.
Do I have to prove that the owner received the Notice of Sale?
A new opinion from the Tennessee Court of Appeals reminds us that proof of “delivery” is not necessary.
The case is Jennifer Scharsch v. Cornerstone Financial Credit Union, No. M2020-01621-COA-R3-CV (Tenn. Ct. App. Feb. 28, 2023). There, the borrower disputed “receipt” of the foreclosure sale notice. The Court made short work of this argument.
The Court wrote that Tenn. Code Ann. § 35-5-101(e) “only provides that the trustee shall ‘send’ the notice.” Id. (citing Smith v. Hughes, 639 S.W.3d 627, 640 (Tenn. Ct. App. 2021). Further, “[t]here is no statutory requirement that the notice be received by the debtor.” Davis v. Wells Fargo Home Mortg., No. W2016-02278-COA-R3-CV, 2018 WL 1560077, at *11 (Tenn. Ct. App. Mar. 29, 2018).
Because the foreclosing lender had submitted affidavit proof that it sent the notice, the lender satisfied its obligation under § 35-5-101(e).
“Even if [the borrower] never received the letter, [the foreclosing parties] satisfied the requirements of the deed of trust and Tennessee Code Annotated § 35-5-101. So whether [the borrower] received the notice of the foreclosure sale was not material for purposes of summary judgment.” Id.
On my sales, to be clear, I always want there to be a “receipt.” I want the call that has a payment proposal, or threatens a bankruptcy, or anything that shows that they received what I sent. But, due to the total unpredictability of the green-card signature system (and a borrower’s ability to dodge a signature), I don’t want the responsibility of proving that in order to have a valid sale.
All the good Nashville lawyers I know are so busy right now. This is a good problem to have, but, nevertheless, it is a problem. There’s simply too much demand right now.
I overheard one local lawyer telling a story about a frantic call he received from a client, who was freaking out because they hadn’t filed an Answer to a lawsuit, and it had been more than 30 days after service.
“Have they filed a Motion for Default yet? If not, then it’s not late.”
I’m sure the lawyer was more tactful in the actual conversation, but the reasoning has some basis in local custom. Often, in Davidson County courts, if a defendant files an Answer before the hearing on a Motion for Default Judgment and pleads a tenable defense, a court will not grant a judgment under Tenn. R. Civ. P. 55, under the theory that the justice system prefers that “matters be decided on the merits” not a technicality. (See, generally, Discover Bank v. Morgan, 363 S.W.3d 479, 491 (Tenn. 2012)).
A recent opinion from the Tennessee Court of Appeals shows that there are risks in waiting to file an Answer.
That case is Conserv Equip. Leasing, LLC v. Schubert Enterprises, LLC, No. E2022-00535-COA-R3-CV, 2023 WL 1489768 (Tenn. Ct. App. Feb. 3, 2023). There, the creditor filed a motion for default, and, a few days later, received a phone call from an attorney who “expected to be retained” by the defendants and asked for a 3 week continuance on the motion hearing. After the hearing was so continued, that defense attorney “fax-filed” an Answer at 3:59pm on the Friday before the Monday morning default hearing, with an original copy filed with the Clerk about 33 minutes before the hearing.
Defendant appeared at the hearing, objecting to the relief and presumably with filed Answer in hand, but the default judgment was nevertheless granted. At the trial court level, Defendants later tried to set aside the ruling on excusable neglect grounds and Tenn. R. C. P. 60.02.
The Court of Appeals noted that “[a]lthough courts construe Rule 60.02 ‘with liberality to afford relief from a default judgment,’ the movant bears the burden of showing ‘why the movant was justified in failing to avoid the … neglect’.” Id. at *2. The Court wrote that “[i]f the court finds that the defaulting party has acted willfully, the judgment cannot be set aside on ‘excusable neglect’ grounds…” and “[m]aking ‘deliberate choices’ amounts to willful conduct. Id.
In the end, the issue was remanded back to the trial court, whose order denying the Rule 60 motion failed to include findings of act and conclusions of law (per Tenn. R. Civ. P. 52.01). In short, the trial court didn’t provide any explanation for its ruling.
To be clear, though, the Court of Appeals didn’t say the trial court was wrong; instead, it sent it back down for the trial court to provide more explanation for its refusal to set aside the judgment. The most likely outcome, of course, is that the plaintiff will prepare a properly supported proposed order, the judge will sign it, and, then, that order will be appealed.
It’ll be an interesting case to watch, but, procedurally, it’s also a reminder: Don’t delay when dealing with court deadlines.
When a mortgage or judgment gets paid off, the creditor has to release its lien. It’s not only common sense, but it’s a duty imposed by Tennessee statute (seeTenn. Code Ann. § 66-25-101).
It’s an easy process to prepare a Release of Lien and record it with the register of deeds. Also, it’s not particularly expensive. Depending on how many pages the release is, the fee can be as little as $12.00.
Not too onerous for a lender who just got paid in full, right?
Well, not so fast. Ask any of my creditor clients, and they’ll tell you that “paid in full” means “fully paid, including that release fee.” When I get a payoff request on a deed of trust or judgment lien, I generally include a line for the $12.00 release costs.
Not anymore, in light of a December 2022 Tennessee Court of Appeals opinion, Eudaley v. U.S. Bank Nat’l Ass’n, No. M202100344COAR3CV, 2022 WL 17751378 (Tenn. Ct. App. Dec. 19, 2022). In that case, the mortgage lender got paid in full, recorded the release, and sent a bill to the borrower for $12.00. In response, the borrower filed a class action lawsuit in Davidson County Circuit Court, arguing that, per Tenn. Code Ann. § 66-25-106, “[a]ll costs … for registering a formal release[ ] shall be paid by the holder of the debt secured by the … deed of trust.”
Despite the very clear statutory text, the trial court dismissed the case after finding that federal law allows such fees and preempts the state law. The Court of Appeals affirmed, but not before providing some useful guidance to other lienholders (who may not have a federal banking regulation to hide behind).
Specifically, the Court wrote that “§ 66-25-106 prohibits holders of debt from seeking reimbursement of costs associated with recording a release of a deed of trust” because “[t]he debt holder’s obligation to record a release only arises if the debt has been paid in full or satisfied, indicating that nothing further is owed to the debt holder.” In affirming the trial court’s dismissal, the opinion makes clear that the lienholder bears those costs and can’t seek reimbursement, but, nevertheless, “that prohibition is preempted by federal law when the debt holder seeking reimbursement is a national bank.”
So, what if you’re not a national bank? Tenn. Code Ann. § 66-25-106 applies, and the creditor must chalk up $12.00 as the cost of getting paid.
What about other sorts of liens, like judgment liens or mechanic’s liens? § 66-25-106 seems to apply to any lienholder, but the judgment creditor may nevertheless have an argument that the release fees are “costs of collection” or allowed court costs/discretionary costs.
Either way, this December 2022 opinion provides pretty compelling authority to support a lender’s decision to simply record the release and write off the $12.00. In a very creditor-friendly state like Tennessee, Tenn. Code Ann. § 66-25-106 is an outlier, but this case is a very good reminder that it exists.
No matter what the actual ailment is. Food poisoning. Anxiety. Indigestion. Insomnia.
When you wake up at 2am, with a racing heart, and a feeling that something isn’t quite right, and get asked “Do you think you might be having a heart attack?”
Well, in that moment, you think one thing. That you might be having a heart attack.
I know this from my own experience, just last month. It was the very early Tuesday morning evening of a very busy week: I had a trial scheduled to start 32 hours later in Memphis and, at the end of the week, a bankruptcy conference in California.
And, in that moment, at 2am, yes, it felt like I was having a heart attack.
Where a foreign judgment is based on substantive law that is inconsistent with Tennessee law, will a Tennessee court deny domestication of that judgment in Tennessee? The short answer is “no.” A Tennessee court will only look at whether the judgment is valid in the foreign state and will not consider substantive defenses based on Tennessee law.
Last week, the Tennessee Court of Appeals that reaffirmed that outcome, in Mantis Funding LLC v. Buy Wholesale Inc., No. M202200204COAR3CV, 2022 WL 17986892, at *1 (Tenn. Ct. App. Dec. 29, 2022).
In Mantis, the judgment creditor sought to enforce a New York judgment in Davidson County Circuit Court. The judgment debtor objected, but Judge Brothers looked only to whether the New York court was willing to set aside or entertain a challenge to the validity of the underlying judgment. When the New York court denied the debtor’s motion to vacate the judgment, the Tennessee decision was easy: “the New York judgment is entitled to full faith and credit in Tennessee pursuant to the Constitution of the United States of America.” Id. at *1.
The Court of Appeals agreed. Sure, confessions of judgment are void under Tennessee law pursuant to Tenn. Code Ann. § 25-2-101, but “full faith and credit” doesn’t require that the sister state’s judgment be consistent with Tennessee law. Instead, assuming that there are no service or procedural issues, the Tennessee Court will consider only whether the judgment debtor has challenged the foreign judgment and/or the substantive legal issues in the foreign jurisdiction. If not, “the decision is res judicata… [and o]nce decided, these issues cannot be raised in another, later case seeking to enroll the foreign judgment.” Id. at *2.
This is a fairly settled issue in judgment enforcement, but, because a judgment debtor has such limited bases to challenge a foreign judgment, the debtor will nevertheless “throw the kitchen sink” at the creditor. This new opinion reaffirms that such challenges should be denied.
I promised a follow-up to my “Best of List,” but, since complaining is more fun, I am writing about some things I disliked in 2022.
The courts system’s quick return to pre-COVID practices. You remember my rant when I caught COVID on a 5 hour docket in July. I think courts were too quick to abandon the pandemic innovations and return “to the way law was practiced when people rode horses to court.” Sure, a court might let you call-in for a hearing, but there is always a risk the technology won’t be up to speed, the judge won’t realize you’re on the line, or she won’t be able to hear you on the invariably staticky line. Having seen the trouble other lawyers had with call-in appearances, I decided to never risk my client’s case on a remote appearance. When in doubt and given the option, lawyers will generally appear in person. How about–for some hearings–there’s a process that allows for no other option other than to call-in?
There’s no state-wide, uniform e-filing system. My law practice has a fairly small foot-print. (My marketing materials call it a “curated practice.”) In the 3-4 counties where I do most of my work, I have separate log-ins for the different courts in each of those counties. Each e-filing system has its own set of rules, exclusions, and peculiarities. E-filing is awesome, so I’ll take a bad system over no system. But, having said that, why can’t the State of Tennessee establish a uniform system?
Our Tennessee foreclosure system is entirely based on physical newspapers. Until recently, I had a newspaper subscription, even though: (a) for the past 20 years, I’ve gotten 99% of my news online; (b) my local newspaper had shrunk to about 10 pages (total); and (c) my newspaper carrier generally delivered my morning paper either 8 hours late, the next day, or not at all. Physical newspapers are possibly the worst way to convey information in our modern age, but, nevertheless, Tennessee’s entire foreclosure and UCC sale system is tied directly to published notices in physical copies of newspapers. All over the country, newspapers are going to an online-only model (followed, most likely, by going out of business). But our foreclosure laws haven’t been updated. We’re headed for trouble unless we change these laws.
There’s no penalty for bogus lien filings in Tennessee. Sure, there’s the toothless “exaggeration of lien” statute (Tenn. Code Ann. § 66-11-139) or the confusing “slander of title” cause of action, but, by and large, if somebody records a piece of paper with “Notice of Lien” written somewhere on it (and includes the owner name and property address), they’ve got a totally un-lawful, but also practically-effective, lien. A few years ago, the Tennessee Legislature passed Tenn. Code Ann. § 66-21-108, which gave property owners a nuclear bomb to deal with invalid lien claims, but it was repealed within a year. As it stands now, there’s no useful remedy, other than to pay the invalid lien or to cancel your transaction.
Big Mortgage Lenders refuse to provide payoffs on their debts with impunity. One of the weirdest sub-plots throughout my 2022 was how near-impossible it was to get a payoff from mortgage lenders. In December, I had to sue a mortgage lender to get a payoff (and to stop an immediately pending foreclosure sale). It might have been the dumbest lawsuit I’ve ever filed (dumb as in the other side was dumb to make me go to the trouble): Within 24 hours of my getting a foreclosure injunction, the lender provided the payoff and, within a few hours of that, it was paid off in full. A win, except it cost more than $5,000 in unrecouped legal fees to address an unnecessary situation. There needs to be a law that imposes penalties, including attorney fees, in these situations.
I spent the entire year in a sales funnel. In 2022, after a full year as a small business owner, I took some time to evaluate my existing legal technology and services and what needed to be upgraded. On legal tech websites, I’d enter my email in order to download some awesome “Free Guide To _____” that promised a magical solution or explanation for some common problem or process. Having downloaded a number of those (none of which solved any problem), my phone rang all year long, over and over, with sales calls. It’s not “free,” if I end up in a Sales Funnel. My advice to service providers: How about sharing your expertise, impressing me with your vast knowledge, and leaving me alone, confident that I’ll return to you for my buying needs?
Phone calls from Tom James Company custom clothiers were the worst. If I ever find out who sold my name and phone number to Tom James Company, I will immediately sever ties with that organization (I suspect one of the bar associations did it). Tom James representatives were relentless in 2022. They called me so many times that I remembered the caller’s name (from the prior week’s call), could recite their opening line back to them, and remind them that I was the person who wasn’t interested because I buy all my suits from South Korea, just like BTS (not true, but why not go big, right?). After maybe 25 calls in 2022, I reached out to Tom James corporate, and asked if I could pay them something to be added to a no-call list.
Dealing with global, multi-state law firms. All of Nashville’s medium to big law firms are slowly selling out to mega-law firms. For the most part, I still deal with local folks on my litigation matters, but, on matters where a Tennessee law license may not be required, I have to deal with out-of-towners, and it’s rarely a pleasant, easy relationship. It’s a trend I’m dreading, as these firms bring their billable rates, minimum hourly requirements, other customs into the work they do in the local market. In short, their weirdness makes my job harder.
I miss old twitter. Many years ago, while waiting at a docket call in Montgomery County, I tweeted that I forgot to bring a pen for court. Within a minute, a local lawyer who follows me on twitter introduced himself and handed me a pen. Over the past decade plus of very-regular twitter use, I have found a vibrant and diverse lawyer community who post updates, victories, and advice. It’s awesome. Over the last few months, it’s gotten less active. If twitter as we once knew it goes away, we will have truly lost something.
The Lawyer-Industrial-Complex has gotten out of hand. Have you tried to hire a lawyer lately? If so, you were probably shocked by their hourly rates. The Clio 2022 Legal Trend Report (warning, you have to enter your email to access it) says that, in fact, lawyer rates are too low and haven’t risen with the general rate of inflation. I don’t know about that, but, holy smokes, lawyers and all the law adjacent services are so expensive right now. I’m using a Westlaw Rules of Civil Procedure book from 2020 because a new set (that will be obsolete in a month) is nearly $1,000. Some lawyers say that this isn’t a problem (more money in my own pocket, right?), but, frankly, it’s a trend that I don’t like. Prices are going up, but the quality of service is staying the same.
Having said that, where are all the good, reasonably priced Nashville lawyers? As noted above, I keep a small footprint for my law practice, and I refer out about 2/3 of the “new client” calls I get. My biggest problem with referrals has been “To whom”? I only refer cases to lawyers who will make me look good and will do an awesome job. Everybody on my existing list is swamped right now. What Nashville lawyer does good, competent, cost-efficient work? And, also, is looking for more work? I can’t find him or her. But I’m looking.
Everybody’s doing “end of the year” lists, so this is my list of law-related things that I’ve enjoyed in 2022, in no particular order:
Best Show About Lawyers?Extraordinary Attorney Woo: This South Korean legal dramedy follows Woo Young-woo, a new law school grad starting her career at a white shoe law firm. It debuted in summer 2022 to record-breaking ratings, and is currently streaming on Netflix.
The show offers commentary on the legal profession through a novel lens: Attorney Woo has autism spectrum disorder, so many of the profession’s customs and courtesies are lost on her. Through her unique perspective, the show thoughtfully examines universal issues facing lawyers everywhere, like burnout, imposter syndrome, and nuanced ethical issues (i.e. should an attorney care if their clients are corporate “bad actors”).
Maybe it’s the South Korean cultural influence, but the show presents a thoughtful and refreshing alternative to the typical blinged-out, L.A. Law-style lawyer portrayal. Added bonus? After watching the show, my kids think lawyers are really cool…
Best Lawyer Jokes on the Internet?Alex Su. Lawyer jokes are pretty bad, mainly because they play on misconceptions and miss their mark. Alex Su, a reformed corporate lawyer turned legal tech sales guru, knows exactly where to aim his mockery.
He may be the funniest lawyer on the internet, but, whatever you doand no matter how brilliant and hilarious you think one of his clips is, never try to explain your favorite videos to a non-lawyer. They will not laugh. Alex has invented the niche category of “lawyer-jokes-for-lawyers-by-lawyers.”
Best third-party service that has made my job easier?Proof Technology, Inc. The most frustrating part of a new lawsuit is often service of process. Especially when you’re dealing with an out-of-state defendant, and you have to hire an out-of-state process server and have no idea who to hire. In my experience, whoever you hire will not care about speed, customer-service, or communication with a “one-off” customer. Unfortunately, your own client will care desperately about all of that.
That’s where Proof comes in. Proof is a nationwide service of process company, who–after you upload your legal documents to their site–does all the work to hire, monitor, and make sure you get your documents served, using their network of servers. Due to their nationwide network, you get the benefit of their buying power.
In the past, I’ve just used a random google search and hoped for the best, but generally expected (and gotten) the worst. Since I’ve started using Proof, I’ve been shocked at how easy this process is. I can’t recommend them enough.
Best One-Stop-Shop for a lawyer logo, website, and everything else? Huckleberry Branding. I left my big law firm 2.5 years ago, and, since then, I’ve had three websites and three logos (well, the “third” incarnation is going to be unveiled in a few weeks). Of course, there’s an entirely different post about that, but I want to talk about Huckleberry for a moment. They are genius branders, artists, and designers, and they really learn your story and incorporate your vision into building a unique and representative brand concept.
Is it time to upgrade from a bunch of people’s last names yet?
If so and/or if one your New Years resolutions to update your brand, call Mariko.
Other best items? I’ll probably supplement this list a few more times over the next few days, so stay tuned. It’s sort of hard to remember an entire year all at once. Tune in for Part 2 later.
The Tennessee Rules of Civil Procedure are being updated to reflect how lawyers use e-mail in the year 2022 (well, really, how lawyers have been using email for the past 20 or so years).
Lawyers email each other all day long. Constantly. It’s awful.
Law TikTok Superstar, Alex Su, showing us how lawyers email. He is, truly, a national treasure.
But, when it comes to sending opposing counsel a copy of a court filing, lawyers generally mail it.
This is largely due to custom (i.e. “the way it’s always been done”), but also due to the current version of Tenn. R. Civ. P. 5.02, which–even though it does allow for e-mail service–does not make it easy.
Under the current version, an attorney can serve via email, but only if there’s an attorney on the other side, and the sender must also send by “mail, facsimile, or hand-delivery” a separate notice that: says a document has been emailed; has a conspicuous subject line that a court pleading was e-mailed; includes the case caption; includes the official title of the e-mailed pleading(s); discloses the total number of pages being e-mailed and time of e-mail; contains a full statement of all the sender’s contact information and all email addresses of the recipients; and include a statement for recipients to notify the sender if the email is not received.
Faced with all these extra hoops to jump through, I have generally emailed the other lawyer a copy and, then, instead of doing all that extra stuff, would just print and mail a full duplicate set of the pleadings.
It was a complete waste of time, paper, and postage, but way less hassle.
Yesterday, the Tennessee Supreme Court issued an administrative Order that would modernize Tenn. R. Civ. P. 5.02(2)(a) in two important ways.
First, service by email can be effected on another attorney or “party” (so pro se and unrepresented parties can receive e-mailed pleadings, where they’ve provided an e-mail address). And, second, there is no longer a requirement to mail/fax/hand-deliver the other attorney or party a separate written notice of the email. E-mail service no longer requires the use of the United States Postal Service.
Many lawyers are switching to remote and non-traditional office space set-ups, and, across the board, e-mail is truly the easiest way to send notice of filings. In fact, in the rare instances when I’ve only first-class mailed pleadings, I wonder if the other lawyers are offended that I didn’t also email the pleadings for immediate receipt.
Sure, lawyers tend to hate change, and the amendments allow the “old guard” will continue to mail printed copies of documents, just like we’ve done for 100 or so years.
You can’t change old habits, I guess, but I’m glad to see these changes. They are an acknowledgement of how law is practiced in the modern world.
In 95% of Tennessee foreclosures, the foreclosing lender has appointed a substitute trustee to conduct the sale but, of those, about 10% mess the process up and conduct a defective sale.
First, some background. When a borrower grants a lien pursuant to a deed of trust, the real property is conveyed to a specific trustee named in the instrument “to hold title to the property in trust” pending the repayment. If there is a default, the trustee can later sell and convey title to the property.
These trustees are generally a closing lawyer or trust officer at the bank, but they are rarely the same lawyer who does the foreclosures for the bank. (Note: There’s no reason that they can’t be same.)
Later, if the bank decides to foreclose, one of the first steps is to appoint a “foreclosure” lawyer to be the successor trustee under the deed of trust. This is done by simply preparing an Appointment of Substitute Trustee, having the lender sign and notarize it, and recording it with the register of deeds in the relevant county.
Sounds easy, right?
Here’s where the mistake happens. When the decision to foreclose is made, the bank (or the lawyers) sometimes rush it out the door and start the foreclosure either before the Appointment of Substitute Trustee is signed or before it is recorded. (Spoiler: One of those is fatal to the foreclosure.)
Under Tenn. Code Ann. § 35-5-114(b)(3), if the Appointment is not recorded by the first publication date, there is specific “savings” language that must be included in the foreclosure sale notice. This text says, basically, that, even though the appointment hasn’t been recorded, the lender “has appointed the substitute trustee prior to the first notice of publication as required by Tenn. Code Ann. § 35-5-101…”
As a result, it’s still a valid sale, as long as that text is included. But, as this text also suggests, it may not be a valid sale if the actual Appointment of Substitute Trustee was not signed until after the foreclosure sale notice was published. If that’s the case, a court may find that the successor trustee was a stranger to the property at the time he or she issued the sale notice. (And strangers have no power to start a sale.)
Tennessee foreclosure statutes are non-judicial, which means it’s all just paperwork, but there’s an exact sequence of steps that must be followed.
This particular error is an easy one to avoid, but also an easy one to make. Many creditors want to foreclose quickly, which requires the lender and its counsel to satisfy strict publication deadlines to get the sale notice published and to obtain a sale date.
In doing so, they can often overlook the necessity of getting the initial paperwork executed in advance (whether it’s the rush of getting the sale notice to the local newspaper or the simple hassle of finding a notary for the appointment of substitute trustee).
As we have seen in recent cases, the failure to follow the technical requirements of Tennessee law and deeds of trust can result in a challenge to a foreclosure. It’s all paperwork, but make sure you get it right.
The short version of today’s post is: Always pay your homeowner’s association assessments in Tennessee.
In general, an HOA is created by the recording of a Master Deed for the community, and this Master Deed imposes a number of duties and responsibilities on the lots, generally via declarations and by-laws.
Because the Master Deed is recorded before any properties are conveyed to owners, it pre-dates those deeds and, to be doubly certain, the deeds to the lots generally contain language that expressly state that the transfer is subject to the obligations in the Master Deeds and By-Laws.
Every Master Deed you’ll ever see allows the HOA to make monetary assessments against the lots, assert liens against the lots for any unpaid assessments, and foreclose the property as a way to enforce the lien.
In some cases, the HOA’s lien rights relate back all the way to the recording of the Master Deed.
HOA foreclosures used to be rare, but, in this awful economy, I’m starting to see more of them. As a result, I’ve been spending more time with Tenn. Code Ann. § 66-27-415, a little-known (and very confusing) statute that provides the broad outline of the foreclosure process for homeowner’s association liens.
In short, the process is similar to the standard “deed of trust” foreclosure process found at Tenn. Code Ann. § 35-5-101, et. seq., but with some notable exceptions.
Notice. Per Tenn. Code Ann. §§ 66-27-415(a)(3) and (4), the HOA must provide notice of the sale via “United States mail, postage prepaid,” with that notice “deemed received three (3) days after deposit” in the mail. The notice is to be sent to “the unit” unless the owner has provided an alternate address to the HOA. (Note: A deed of trust foreclosure requires notice to be sent via certified mail, return receipt requested.)
Priority. Per §§ 66-27-415(b)(1), the HOA lien will be ahead of “all other liens and encumbrances” except: (A) liens that pre-date the Master Deed; (B) a “first” mortgage on the unit; and (C) ad valorem taxes. To be clear, a HOA lien may be able to jump ahead of second mortgages and judgment liens, even where those liens were recorded before the assessment came due.
Limited Super-Priority. Notwithstanding the carve-out for first mortgages, under § 66-27-415(b)(2), a owner’s association may claim a super-priority of six months’ of assessments from a first mortgage’s foreclosure.
Rights of redemption are statutorily waived. Per § 415(b)(3), the HOA lien “is not subject to the statutory or other right of redemption, homestead, or any other exemption, unless specifically reserved in the declaration.”
No Notice of Lien is Required. Under § 415(d)(1), the notice to the world of the lien is in the Master Deed.
Sure, the first step is to look at what the Declarations and By-laws say about foreclosure. Most likely, you’ll find a broad and inconsistent range of requirements. That’s why Tenn. Code Ann. § 66-27-415 is so useful. It is designed to impose a level of uniformity to the process.
Creditors Rights 101 