Tennessee is a non-judicial foreclosure state. In order to foreclose on somebody’s house or commercial property, all a lender must do is mail the proper paperwork to the proper parties. A lawsuit or other court involvement is not necessary.
That’s a drastic over-simplification, but, basically, it’s true.
In fact, when I did my first-ever foreclosure 20 years ago, I was so nervous about not having a court involved in such a complex and significant process that I filed a judicial foreclosure action. That way, at the end, I’d have a Judge’s blessing that “This was done correctly.”
What happens to a sale if the foreclosure attorney doesn’t do the paperwork correctly? Is it a valid sale? Can it be challenged?
Yesterday, the Tennessee Court of Appeals reminded us all that even a defective sale can convey good title, at Brady L. Daniels Et Al. v. Vince Trotter, E2020-01452-COA-R3-CV (Tenn. Ct. App. July 20, 2022).
In the case, it was alleged that the creditor did not provide proper notice of the sale, per Tenn. Code Ann. § 35-5-101(e). In the opinion, the Court discussed what, if any, impact of a failure to get the paperwork correct would have on the sale and cited two statutes.
The first, Tenn. Code Ann. § 35-5-106, provides that “[s]hould the officer, or other person making the sale, proceed to sell without pursuing the provisions of this chapter, the sale shall not, on that account, be either void or voidable.”
The second, Tenn. Code Ann. § 35-5-107, provides that the officer or other individual making the sale who fails to comply with the requirements in this chapter of conducting a private foreclosure sale is guilty of a class C misdemeanor and is liable for all damages incurred by the party injured due to his or her noncompliance.
These two statutes, the Court noted, are “intended to eliminate the uncertainty with land titles resulting from foreclosure sales.” Citing the Tennessee Supreme Court, the Court later wrote that a defect in a foreclosure process would not result in the sale being set aside but, instead, the damaged party would simply be entitled to compensatory damages.