Earlier in the month, I talked about the new Tennessee Court of Appeals decision on Tenn. Code Ann. § 35-5-118, which provided some guidelines on analyzing the adequacy of foreclosure bid prices in Tennessee.
In the Court’s deep analysis of the potential defenses to a foreclosure deficiency lawsuit in the statute, don’t forget my advice from an even earlier post about the new two year statute of limitations.
In Tennessee, a creditor can sue for breach of contract (i.e. to recover unpaid debt) for up to 6 years from the date of the default in payment.
This Tenn. Code Ann. § 35-5-118(d) provides that a post-foreclosure action to obtain a deficiency judgment “shall be brought not later than the earlier of:
(A) Two (2) years after the date of the trustee’s or foreclosure sale, exclusive of any period of time in which a petition for bankruptcy is pending; or
(B) The time for enforcing the indebtedness as provided for under §§ 28-1-102 and 28-2-111.
So, the creditor has to sue on the earlier of two years or within the original 6 year statute of limitations. Two years is generally going to be the earlier of those two.
For many creditors, waiting a few years after a foreclosure is a reasonable move, to see if the debtor’s fortunes turn around. But, under this statute, a creditor can’t wait too long, and no later than 2 years.
Also, a creditor should be especially careful about a forbearance agreement on the deficiency debt. If those voluntary payments extend more than 2 years, then a debtor could argue that the creditor’s cause of action on the debt expires. Long story short, be sure to document either a tolling of the statute or do any sort of long-term payment arrangement as a new Deficiency Note (which, itself, has a new 6 year statute of limitations from default).
Creditors Rights 101 
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If first and second mortgage on property and first mortgage holder forecloses and not enough from sale to pay anything on second mortgage, is amount owed to second mortgage holder considered a deficiency balance so that second mortgage holder must bring action within 2 years under TCA 35-5-118(d)?
I would love to know the aanswer to this myself
If first and second mortgage on property and first mortgage holder forecloses and not enough from sale to pay anything on second mortgage, is amount owed to second mortgage holder considered a deficiency balance so that second mortgage holder must bring action within 2 years under TCA 35-5-118(d)?
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