By the time a loan gets referred to me for foreclosure–after we add interest (sometimes at a default rate), collection costs (attorney fees), and foreclosure expenses (somehow, newspaper publications have gotten more expensive)–the unpaid debt sometimes exceeds the original amount of the deed of trust.
This can create confusion, because my bank’s deed of trust will always include a line that says: “Maximum principal indebtedness for Tennessee recording tax purposes is $______.”
Are we capped at that “maximum” amount? Can we really enforce those other amounts?
All good questions, since the text literally says that. Deeds of trust are contracts, and words in contracts usually mean what they say. Here, not so much.
This specific language is required on all Tennessee deeds of trust under Tenn. Code Ann. § 67-4-409(b)(6), and it exists only for taxes. As the statute explains, the statement “may be relied upon only by the department of revenue and by the receiving official charged with the duty of recordation and collection of tax, and such statement shall not constitute notice of any kind to any other party of the amount of indebtedness secured by the instrument.”
Tenn. Code Ann. § 67-4-409(b)(11)(A) doubles down on this interpretation, by expressly providing that “nonpayment or underpayment” of the tax “shall not affect or impair the effectiveness, validity, priority, of enforceability of the security interest or lien…”
This same reasoning applies, even when a bank is enforcing other debts pursuant to a cross-collateralization provision, meaning the deed of trust can also secure past, present, and other future debts. See Tenn. Code Ann. § 47-28-102. Your deed of trust with a $100,000 maximum for tax purposes can, conceivably, secure debts that are ten times that amount.
But, as a warning, be sure to look for text imposing a maximum debt limit text in the body of the deed of trust. Those words mean what they say.
As a result, if the deed of trust contains a specific cap that is embodied in the substantive text, it’s considered part of the agreement and will be enforced (something like a provision securing a note “or for any renewals, extensions, or additional advances not to exceed a total indebtedness of $65,000.00”).
Just like my first grade teacher said, there are no dumb questions. Here, I get it.
Creditors Rights 101 