Tennessee is one of a handful of states which allows non-judicial foreclosures. This means that the lender does not have to go to court to get permission to foreclose on your property. In short, if a lender has a deed of trust (often called a mortgage) that lists your property as collateral, then that lender can sell your property on the Courthouse steps if you are in default. Failure to pay your loan payments or failure to keep the property insured are examples of events that constitute default. The deed of trust is the document you likely signed when you took out a loan to purchase the property.
Notice of Foreclosure Requirements
In Tennessee, foreclosures are controlled by statutes which require that your lender provide you notice of the foreclosure. Typically your loan agreement will require your lender to give you notice that you are in default and allow you time to cure (fix) the default. However, loan documents vary in this regard so you must read your loan documents to understand your rights. Assuming you are in default and have not cured the default properly, then the lender must send you notice by certified mail of their intent to foreclose. If you live on the property being foreclosed then the lender’s notice must be at least 20 days prior to the foreclosure date. If you do not live on the property then the notice must be at least 30 days prior to the first publication of the foreclosure notice in the newspaper (as a practical matter this means someone not living on the property gets at least 50 days’ notice compared to the minimum 20 days’ notice for someone who does live on the property being foreclosed).
Publication of Foreclosure
The lender must publish a notice of the foreclosure 3 times in a local newspaper. Typically the notice is published once a week for a three week time period but that can vary. The publication must describe the property that is being foreclosed and provide the exact date, time, and location of the foreclosure sale.
The Foreclosure Sale
At the foreclosure sale an authorized agent of the lender will ask for bids on the property. The highest bid will win and take title to the property and you will no longer own the property at that point. Most lenders will enter what is called a “creditor bid” which is a bid based on how much the lender is owed. Some lenders bid less than the actual amount they are owed based on the value of the property and other factors the lenders weigh internally.
Deficiency Judgments and Surplus
Your obligation to repay the loan does not cease just because the lender foreclosed your property. For example, if you owed $100,000 and the high bid was only $90,000, you still owe the bank $10,000. This is called a deficiency and the lender can sue you to obtain a judgment for the deficiency and try to sell other assets or garnish your bank accounts and wages to attempt to collect the deficiency. In rare cases, where the high bid is greater than the amount you owed to the bank, there could be a surplus owed to you. For example, if you owed $100,000 and the high bid was $120,000, then you would be entitled to the excess $20,000.