In July, I wrote about a July 2022 Court of Appeals opinion holding that even a defective foreclosure sale conveys valid title to real property. That’s because Tenn. Code Ann. §§ 35-5-106 and 35-5-107 expressly say that title is not impacted by a defective sale and, instead, the foreclosing trustee is liable for monetary damages.
Within a few minutes, a local banker commented on the post and asked: Yeah, but did you see this one from last month?
He was talking about Terry Case v. Wilmington Tr., N.A. as Tr. for Tr. MFRA 2014-2, No. E202100378COAR3CV, 2022 WL 2313548 (Tenn. Ct. App. June 28, 2022)– issued less than a month earlier–which held (sort of) exactly the opposite: “[A] trustee’s mere failure to comply with the terms of a deed of trust will render the foreclosure sale invalid.” Id. at *8.
How does the law reconcile these drastically different outcomes, based on the same wrongful foreclosure allegations?
Tennessee is a non-judicial foreclosure state, but don’t be lulled into a sense that foreclosures are simple (i.e. just “paperwork”). Instead, a foreclosing lender must simultaneously adhere to two separate processes, one of which is found in Tennessee statutes and the other in the underlying deed of trust.
Sometimes, they match; sometimes, they don’t.
If the lender doesn’t comply with any of the requirements of both tracks in full, though, this developing caselaw imposes drastically different remedies for non-compliance. Fail to satisfy the statutes? No big deal. Fail to satisfy the deed of trust? Here’s a nuclear bomb to your title.
Needless to say, this is confusing to creditors, borrowers, and buyers at foreclosure sales.
The plaintiff in the June 2022 case has filed an Application for Permission to Appeal to the Supreme Court (a full copy is attached below), seeking clarification on the splintered issues of law surrounding wrongful foreclosure claims. The Application opens with a direct message: “Tennessee wrongful foreclosure law is in a state of disarray.”
On behalf of the Tennessee Bankers Association and the Tennessee Mortgage Bankers Association, my office filed an Amicus Brief in support of the request to have the Supreme Court step in (also below).
This is a big deal. If this caselaw stands, title to foreclosed real properties will remain clouded until the wrongful foreclosure claims expire (6 years from the sale date). And, sure, a title company can vet the sale process, but title companies don’t like any risk, no matter how small.
This will render post-foreclosure title completely uninsurable. This isn’t good for anybody. Borrowers, lenders, buyers–everybody loses here.