I received an interesting question/comment on this 2013 post, (in)artfully titled “Don’t forget that Tenn. Code Ann. § 35-5-118(d) also has a two year statute of limitations on collection of foreclosure deficiency.” The question is this:
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)?
The statutory text doesn’t expressly address this issue. In fact, subpart (a) only references the generic term “creditor” (which could apply to any and all lien creditors). Then, when referencing a foreclosure sale, it doesn’t reference a specific creditor’s sale, but, instead, says “after a trustee’s or foreclosure sale of real property secured by a deed of trust or mortgage…” (which, again, could describe a sale by any and all lien creditors).
When I look at that text, I see so many places where a specific, limiting reference to that specific creditor could have been made, but no such limitation is included in the text. I might have said: After that creditor’s foreclosure sale of real property secured by that creditor’s deed of trust…
Now, if you take the entire statute as a whole, there’s a reasonable inference that the two year limitation of actions only applies to the “creditor” who actually engages in the foreclosure process. Subpart (b) references aspects of the sale process that “the creditor” will be impacted by (suggesting that the statute applies to one creditor, i.e. the creditor who foreclosed, and not all creditors).
Having dealt a lot recently with new statutes or with amended statutes with hastily amended text, I’ve seen how the Legislature can sometimes introduce a fix to correct one problem and, inadvertently, cause 3 new ones.
This seems to be that. Here, the original legislative intent appears to be to require that foreclosing creditor to take quick action, not impose a statute of limitations on creditors who had no active role in the foreclosure.
But, some judges take a liberal, progressive stance on legislative interpretation. Depending on what county you find your client in, this very well be an argument to make. If you’re in front of a debtor-friendly judge who views a judge’s role to be one that works backwards from the judge’s preferred outcome…well, this statute could support that judge’s inclination.
Creditors Rights 101 