When a lender refers me a deed of trust for foreclosure, there are a lot of things I immediately look for. Is the deed of trust recorded? Is this recording in the correct county? Is it signed? Is the collateral description correct? Does the deed of trust even allow foreclosures? (You’d be surprised how often these easy parts get messed up.)
Finally, are the borrower’s redemption and exemption rights waived?
These last ones are easy to overlook, but really important. In fact, I’ve never foreclosed real property on deed of trust without those waivers.
Remember, deeds of trust are contracts between a borrower and a lender. In Tennessee, when borrowers sign a deed of trust, they’re not just pledging their property as collateral—they’re often agreeing to give up certain statutory protections that would otherwise apply if things go sideways.
Two of the most important rights are the right of redemption and the homestead exemption.
The right of redemption, found in Tenn. Code Ann. § 66-8-101, would otherwise allow a borrower two years to reclaim the property after a foreclosure sale by paying the debt. This right to “buy back” the property would hardly ever be exercised, but the mere fact that it existed would cloud the post-foreclosure title and limit the re-sale value of foreclosed properties. This waiver allows the lender (or foreclosure purchaser) to obtain immediate, final title upon completion of the foreclosure sale, eliminating post-sale uncertainty.
The homestead exemption, at Tenn. Code Ann. § 26-2-301, is designed to protect a portion of a homeowner’s equity from creditors. When things go absolutely wrong for a homeowner and they lose their house, the law allows a borrower to protect up to $35,000 before it goes to certain creditors.
As indicated in each of these statutes, both of these rights can be waived in a deed of trust, allowing a mortgage lender the ability to foreclose with clear title.
The absence of these waivers do not prevent a sale, but they drastically change the outlook for the foreclosure process.
Creditors Rights 101 