Tennessee lenders can foreclose on borrowers in default, either through judicial or non-judicial foreclosure procedures. In Tennessee, non-judicial foreclosures are the norm and are more favorable to the lender. It is therefore crucial that borrowers be very cautious before signing the mortgage and deed, ensuring they fully understand the rights and defenses they may be waiving. A Chattanooga business litigation attorney can advise you of your legal options in either foreclosure scenario.
In a judicial foreclosure, the lender files a complaint against the borrower, seeking to obtain a decree of sale from the relevant court. If the borrower is in default, the court should give them time to pay the balance owed, plus lender costs. If the borrower does not pay by the court-ordered date, the court can then order that the property be sold at auction, subject to certain legal requirements. The borrower is entitled to assert defenses, including improper service of the complaint, lack of borrower default, lender fraud, lending violations or usurious interest, where applicable. The majority of foreclosures in Tennessee are non-judicial foreclosures that often do not allow such defenses.
Non-judicial foreclosure occurs when the mortgage or deed contains a power of sale provision. This is where the borrower, in their initial mortgage documentation, has pre-authorized the lender or the lender's agent to sell the property at public auction to pay off any overdue mortgage amounts. The power of sale provision may even take effect when the borrower's default is a minor one (e.g. they missed two or three payments and are able to get current on the loan).
In a non-judicial foreclosure, the borrower, by language in their deed or mortgage, may have waivedtheir right to receive notice and raise defenses to foreclosure. Essentially, borrowers who have deeds or mortgages that include a power of sale provision should be aware that their contract might withhold certain rights, such as:
- An opportunity to prove no default occurred
- Receipt of a notice of delinquency if less than 90 days delinquent
- Ability to raise defenses including fraud or Truth-in-Lending Act violations
- Opportunity to mediate or arbitrate the dispute
- Option to refinance with another lender
- Receipt of personal notice of foreclosure publication by registered (not regular) mail
Publication of a foreclosure sale might only mention the sale in a particular newspaper published only in the county where the sale takes place, or in a trade publication read only by lenders and lawyers. It may not even have to be published where the property is located. A potential property buyer may actually have more notice regarding the foreclosure than the borrower.
If the trustee of the sale violates foreclosure sale procedures, the borrower cannot void the sale but may sue the trustee. Tennessee law gives the borrower two years to redeem the property from foreclosure under certain conditions, but this may be waived in the mortgage you signed. For more information on Tennessee foreclosure defense, contact our seasoned Chattanooga commercial litigation attorneys.
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