Don’t Let Your Post-Foreclosure Rights Expire: Tenn. Code Ann. § 35-5-118(d) Imposes a Two Year Statute of Limitations on Deficiency Lawsuits

Last week, a local collections lawyer conceded, in open court, that collection cases rarely have interesting issues involved. This case was different, the lawyer argued, because it involved interpretation of Tenn. Code Ann. § 35-5-118(d), which has not yet been discussed in any Tennessee opinion.

This is the new foreclosure deficiency statute, and I’ve dealt with this law a few different times. Here’s a blog post about the first judicial opinion defining what constitutes a reasonable bid price at foreclosure under the statute.

I’ve also noted that the statute shortens the statute of limitations on pursuing post-foreclosure deficiency lawsuits. Specifically, the statute says:

(d)(1) Any action for a deficiency judgment under this section 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, to collect your debt after a foreclosure, you have to act fast in Tennessee. While two years doesn’t sound like a short time frame, it can be, where the creditor spends time on eviction, selling the property, or even selling the deficiency debt to a third party.

The statute has a September 1, 2010 effective date, so the courts may still be dealing with deficiencies from both the pre-statute and post-statute time periods.

Always be on the look-out for this issue. In the “interesting” case that I mentioned above, the foreclosure occurred in February 2011, with the lawsuit filed in February 2014. In response to this issue, Plaintiff’s counsel confidently cited the general six year statute of limitations on breach of contracts (Tenn. Code Ann. § 28-3-109). The Court rightfully held that the more specific timelines of the foreclosure deficiency statute controlled and dismissed the action.

Who says collection cases aren’t interesting? We made law that day!

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