Is a foreclosure during a global pandemic an "irregular" and invalid sale? (Maybe)

During the coronavirus shut-down, there has been a lot of talk about there being no evictions in Davidson County, based on the Sheriff’s announcement that the Sheriff will not be serving non-essential service of process for the foreseeable future.

But, keep in mind, that announcement doesn’t stop landlord from using a private process server to serve the process.

In fact, the most critical obstacle to detainer proceedings is that the General Sessions Judges have cancelled court hearings through April 10. If there’s no court, then there’s no judgments for possession.

What about foreclosures?

Tennessee is a non-judicial foreclosure sale, so a foreclosing lender doesn’t need a court date, a judge’s approval, or an open courthouse. When they talk about a foreclosure “on the courthouse steps,” they are being literal.

So, as a practical matter, foreclosures can still take place in Tennessee over the next few weeks.

But, is a creditor wise to continue a foreclosure sale to a more stable time? Probably.

That’s because Tenn. Code Ann. §  35-5-118 allows courts to scrutinize the mechanics of a specific foreclosure, with an emphasis on whether a sale is “irregular.”

As I discussed in a blog post last year, pursuant to the Tennessee Supreme Court in Holt v. Citizens Central Bank, 688 S.W.2d 414 (Tenn. 1984), a conscience-shocking foreclosure sale price standing alone, absent some irregularity in the foreclosure sale, is not sufficient grounds for setting aside a lawful foreclosure sale.

What else did Holt say? “If a foreclosure sale is legally held, conducted and consummated, there must be some evidence of irregularity, misconduct, fraud, or unfairness on the part of the trustee or the mortgagee that caused or contributed to an inadequate price, for a court of equity to set aside the sale. ”

So, there remains a question: If a foreclosure sale occurs when the country is facing unprecedented restrictions in public interaction, when we are under orders from local government to “stay home,” is this an irregular sale? Did the unique conditions chill the attendance of competitive bidders?

These are unprecedented times, but we know that the economy is going to take a hard hit and issues like this are going to be litigated. A lender foreclosing on somebody’s business or home in this crazy time may be opening itself up to scrutiny and, yes, a legal challenge.

This would be a great time to continue a sale to a more stable sale date, which is expressly allowed under Tenn. Code Ann. § 35-5-101(f).

Author: David

I am a creditors rights and commercial litigation attorney with Harris Shelton in Nashville, Tennessee.

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