Don’t Sue the Messenger: Trustees Aren’t Necessary Parties in Foreclosure Injunction Lawsuits and can be Dismissed under Tenn. Code Ann. § 35-5-116

All my clients hate being sued. You know who else hates to be sued? My law firm.

With the economy going bad, I’ve seen more desperate debtors doing anything they can to fight off foreclosures, evictions, and collections, including filing a lawsuit against the creditor…and the bank’s lawyers.

This is most common in foreclosures, when the debtor tries to stop the foreclosure sale by filing a lawsuit. There are very limited bases by which a foreclosure can be stopped in Tennessee (See Tenn. Code Ann. § 29-23-202 ).

Of course, that doesn’t mean that a borrower won’t  fire off a quick lawsuit, trying to gum up the process by creating a little smoke screen diversion.

But, a borrower or borrower’s lawyer who is trying to enjoin a foreclosure doesn’t need to add the attorneys for the creditor as defendant. Generally, the bank’s lawyers are serving only as “Substitute Trustees” under the Deed of Trust, and the caselaw has consistently held that trustees under a mortgage aren’t necessary parties to such an action.

In response to repeated lawsuits filed by “over-zealous” debtors or “less educated” lawyers, the Tennessee legislature passed Tenn. Code Ann. § 35-5-116 in 2006.

That statute allows a trustee named in a lawsuit to file a verified answer, pleading that the trustee is not a necessary party “stating the basis for the trustee’s reasonable belief that the trustee was named as a party solely in the capacity as a trustee under a deed of trust, contract lien, or security instrument.”

In response, the plaintiff must then filed a “verified response” within 30 days setting forth all factual and legal basis to rebut the trustee’s denial.
The statute also provides a good faith savings clause, under which the trustee “shall not be liable for any good faith error resulting from reliance on any information in law or fact provided by the borrower or secured party or their respective attorney, agent, or representative or other third party.” See Tenn. Code Ann. § 35-5-116 (f).
Of course, this statute will not stop a borrower from suing everybody; most borrowers would sue the mailman  who delivers the foreclosure notice if they thought it would delay the sale. But, the statute provides a relatively efficient way for the trustees to have themselves dismissed from the lawsuit.
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