Foreclosure Laws in the State of Tennessee: Can I Be Sued by the Mortgage Lender?
As in most states, in Tennessee, the foreclosure process begins with the mortgage lender suing you in court for default. If the court sides with the bank, it can sell your property in a foreclosure auction. However, you have the right to appeal the foreclosure.
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Tennessee Foreclosure Process
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In Tennessee, a lender may seek a judicial or nonjudicial foreclosure. The judicial process uses the court system; whereas a nonjudicial procedure takes places out of court. After several unsuccessful attempts to bring your mortgage current, a lender files a decree of sale through the court system. If the court rules in favor of the lender, it may sell your property at a foreclosure auction. A nonjudicial foreclosure circumvents the court process, allowing the lender to sell your property through a preauthorization clause in the mortgage deed of trust in the event of default. In both instances, the lender has to give you notice of the impending foreclosure sale, usually no later than 20 days before the auction date.
Your Rights
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As with other states, Tennessee allows a borrower to appeal foreclosure. There is no guarantee of a win in your case. However, valid arguments such as usury terms, fraud, and violations of the Truth in Lending Act are plausible defenses against foreclosure. For instance, Tennessee limits the legal interest rate to no more than 4 percent above the bank prime rate. In addition, Tennessee allows the right of redemption within two years after foreclosure, meaning a borrower can reclaim his property within that time. You also have the right to mediation or arbitration whereby a third party brings both parties together to work out an acceptable resolution. However, mediation does not prevent foreclosure should you fail to reach an agreement with the lender.
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Loan Modification
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If you face foreclosure, contact your mortgage lender to rework your loan through the federal government's Home Affordable Modification Program. To qualify, your new mortgage cannot be more than 31 percent of your monthly income. The bank is more than willing to work with you to avoid foreclosure, which costs it time and money, as the bank usually settles for an amount less than the full loan value through a foreclosure sale.
Bankruptcy Protection
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Filing bankruptcy is another option if you do not have the financial means to rework your mortgage. Consumer advocates suggest filing bankruptcy to homeowners facing bankruptcy to buy themselves more time. Chances are you do not have the income to keep your home if you qualify for Chapter 7. However, Chapter 13, which reorganizes your debts, provides you with an opportunity to rework your loan with the mortgage lender.
Alternatively, you could try to preempt the foreclosure process by selling your home in a short sale, which means you sell it for less than you owe. You're still on the hook for the balance after the short sale; however, you may be able to negotiate a higher selling price than if the bank sells the property at auction.
Credit Impact
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Tennessee law gives lenders the right to pursue deficiency judgments on properties that sell for less than the amount of the mortgage. Besides the foreclosure, a deficiency judgment also shows up on your credit report and remains there for seven years. According to Keller Williams Realty, which does business in Tennessee, a foreclosure drops your credit score by 300 points.
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