The Foreclosure Process in Tennessee Explained and How It Affects Selling

A house for sale by foreclousre in Tennessee

According to RealtyTrac, there are currently close to two million foreclosed homes. Nearly one-fourth are possessed by the lenders that offered or bought the mortgages on the properties, and the great majority have not yet been put up for auction.

A large number of properties in or near foreclosure may have a significant impact on property values. Home values might be significantly impacted by a huge supply of foreclosed properties. Foreclosed homes usually sell at a discount. Additionally, foreclosures often lower the values of neighboring properties.

This article will teach you everything you need to know about the foreclosure process in Tennessee, its effects on home sales, and some tips on how to avoid it.

What Is the Foreclosure Process in Tennessee?

A Tennessee foreclosure may go along quite rapidly after the 120-day pre-foreclosure period mandated by federal law has expired. If you live in Tennessee and are worried about foreclosure, you should familiarize yourself with the state’s foreclosure laws and processes to avoid being caught off guard.

Prior to losing their house to a foreclosure sale, homeowners had a hard time negotiating a foreclosure alternative (known as “loss mitigation” in the mortgage service sector). New federal legislation, which took effect on January 10, 2014, prohibits banks from foreclosing in the majority of situations unless the loan account has been past due for more than 120 days. 

A borrower’s application lengthens the window since the law forbids dual tracking (going forward with foreclosure actions while a loss mitigation petition is still underway).

The servicer cannot begin the foreclosure process under federal law until it has reviewed the application and one of the following events occurs:

  • The lender declines the borrower’s request for loss mitigation (and the appeal period expires)
  • The borrower decides not to accept any of the loss mitigation offers
  • The borrower disregards a loss mitigation option’s conditions.

Even though the borrower is more than 120 days past due, the foreclosure process cannot start until one of the situations mentioned above takes place or if the borrower files a full application before it does.

Step-By-Step Guide of The TN Foreclosure Process

There are three different types of foreclosure: the power of sale, non-judicial, and judicial. The majority of foreclosures in Tennessee are nonjudicial.

Tennessee is a non-judicial foreclosure state, which means that the bank foreclosure process occurs outside of the courtroom and there is no redemption period. The foreclosure process is similar in most non-judicial states, but the timelines and rules differ by state. In judicial foreclosure states, homeowners typically have much longer redemption and timeliness periods.

1. Notice of Default

A Notice of Default is your mortgage lender’s way of informing you that you have one last opportunity to address past-due mortgage payments before your lender forecloses on your home.

The local property records office for the borrower receives a notice of default from the mortgage trustee. Despite the fact that it is a public record, borrowers are sent a copy by mail or have it posted on their property. It is sometimes also published on a county website or in a local newspaper.

2. Notice of Foreclosure Sale

The lender must post a notice in several public places 30 days prior to the sale or publish a notice of the foreclosure sale in a newspaper at least 20 days prior to the sale. (Tenn. Code Ann. §§ 35-5-101 to 35-5-103). 

The lender must also mail a copy of the written notice of sale to you, the borrower, by the first publication date or earlier. (Tenn. Code Ann. § 35-5-101). The lender then conducts a foreclosure sale.

3. Foreclosure Sale

Public participation is welcome in the auction that will be the sale. Lenders typically place credit bids during the sale. Lenders have the option of bidding more or less than the total amount owed, including fees and costs. In some states, like Tennessee, the lender can obtain a deficiency judgment against the borrower if they are the highest bidder at the auction but offer less than the total amount owed. The property is classified as “Real Estate Owned” (REO) in the event the lender is the highest bidder.

4. REO

REO is the fourth step of foreclosure. REO is an abbreviation for Real Estate Owned, which is a bank phrase. This is a term used to define any property owned by the bank that was gained via default. This occurs when the property returns to the lender following the foreclosure sale. Possession of the REO property may shift hands between financial organizations following the foreclosure sale. A group of REO properties can potentially be sold by the lender to other hedge funds, financial institutions, or huge investment organizations.

5. Eviction

Eviction is the ultimate stage of foreclosure. Most lenders will provide residents who remain on the premises just after a foreclosure auction with monetary relocation assistance. These people might be renters or previous owners. The help is supplied to shorten the time it takes to take control of the residence and to offset the cost of eviction legal fees.

How Does Foreclosure Affect House Selling in TN?

What kinds of discounts are offered on foreclosure properties? According to research done in Massachusetts by Parag Pathak, Stefano Giglio, and John Campbell, the price of homes sold in connection with foreclosures is about 27% lower than the price of similar homes. They calculated that each foreclosure decreased the selling price of other (non foreclosure) properties nearby by roughly 1%. This radius was about 260 feet.

Dan Immergluck and Geoff Smith found a similar result in one of the earliest studies to examine the relationship between foreclosures and home prices: their data revealed that each foreclosure decreased the value of homes nearby by 660 feet by 0.9%

Even though a 1% decline in home values may not seem like much, it can add up because this effect grows as more homes are foreclosed upon. The discount would be approximately 5%, for example, if there were five foreclosures in the same area.

Tennessee Foreclosure Laws

1. Tennessee’s Right to Reinstate Prior to the Foreclosure Sale

When a borrower offsets the past-due amount, along with costs and fees, to get the mortgage debt present and halt a foreclosure, this is referred to as “reinstating.” However, except if the loan is indeed a high-cost home loan, Tennessee doesn’t have a statute that grants a borrower the chance to cure the delinquency and restore before the sale. (Tenn. Code Ann. § 45-20-104).   However, the loan agreement may grant the borrower enough time to finish a reinstatement.

2. Notice of Foreclosure

In a Tennessee non judicial foreclosure, the lender must:

  • Publish the Notice of Sale in several public places 30 days prior to the sale if there is no newspaper published in the county where it will take place
  • Publish three times in a newspaper published in the county where the sale will take place, with the first publication occurring at least 20 days before the sale. (Tenn. Code Ann. §§ 35-5-101 to 35-5-103).

The trustee shall mail to you (the borrower) a copy of the notice of sale on or prior to the first publication date. Tennessee Code Ann. Section 35-5-101).

3. Breach Letter

In Tennessee, many deeds of trust contain clauses stipulating that if you have missed payments, the lender must issue a breach letter. You are informed by this notification that the debt is in default. The lender has the right to accelerate the loan (call it due) and proceed with the foreclosure if you fail to cure the default.

4. Tennessee’s After-Foreclosure Sale Redemption Period

According to foreclosure laws, as a homeowner who has lost their house to foreclosure, may still be able to buy it back under certain state laws. In Tennessee, unless the deed of trust or mortgage expressly waives the right of redemption, which these contracts frequently do, the borrower has two years following the foreclosure to reclaim the property.

5. Tennessee Deficiency Judgments Following the Sale

A foreclosure sale may not always generate enough revenue to cover the entire debt balance. A “deficiency balance” is the amount that exists between the total amount owed and the sale price. In many states, including Tennessee, the lender is able to obtain a “deficiency judgment” against the borrower for this sum.

After the foreclosure sale, the lender must file a separate case in Tennessee to obtain a deficiency judgment. The deficiency judgment will be restricted to the entire debt less the fair market property’s value at the point of the sale if the borrower can show that the house was sold for a sum that was considerably less compared to the fair market value at the foreclosure sale. (Tenn. Code Ann. § 35-5-118).

How to Avoid Foreclosure in Tennessee

A worried woman sitting on the floor of her house and holding a foreclosure notice in her hands

1. Sell your home quickly and for cash

In Tennessee, the process of foreclosure might take months or years to complete. For most families, the lengthy foreclosure proceedings merely make them more anxious about their finances.

Selling your property to a reputable home buying company like Nexus Homebuyers is among the best financial solutions to think about if you are in Tennessee and facing foreclosure. The procedure is simple, quick, and uncomplicated.

A reputable organization that buys houses assesses your home and provides you with a reasonable offer. They will buy your house for cash in its current state, no matter how damaged it may be. Simply choose whether or not to accept the monetary offer.

2. Consult your lender

Unlike what many people think, most lenders do not want to foreclose on your house. Lenders are often open to working with homeowners to come to a compromise because they want satisfied customers who meet their mortgage loan obligations.

To learn more about a “foreclosure workout,” contact your lender. A workout agreement enables a defaulting borrower to renegotiate loan conditions with their lender. Tell them you want to stay in your home but are unable to make your current loan payments. Not all creditors are open to working out a deal, but it’s worth trying to see if they can provide you with a payment arrangement that suits your needs.

3. Bankruptcy filing strategy

One of the legitimate financial “tools” that might help you prevent foreclosure in Tennessee is filing for bankruptcy. Your creditors are informed that you can no longer pay your debts when you declare bankruptcy.

Filing for bankruptcy forces your creditors to stop all collection efforts against you, which will suspend the foreclosure process. You can also opt for a Chapter 13 bankruptcy. However, bankruptcy has a long-term negative impact on your credit score that may affect your ability to secure a loan for a car, a new house, or even job opportunities.

4. Loan Modification

This entails minimizing your load and permanently changing the terms of your loan payments. You may do this to some or all of your mortgages to prevent the foreclosure of your home. The potential adjustments include:

  • Reduction of the loan’s principal
  • Extending the loan’s term
  • Bringing down interest rates

5. Be Aware of Legal Changes

To learn more, you can find information about Tennessee’s foreclosure laws along with citations to relevant statutes and foreclosure procedures. It is always a good idea to verify the laws because they can change. The law’s interpretation and application by courts and other authorities are subject to change, and certain laws may even differ from state to state. These are just a few reasons why you should speak with a foreclosure lawyer or if you’re going through a foreclosure, to help you understand the foreclosure timeline in TN.

Endnote

According to the Mortgage Bankers Association, which claims that the volume of mortgages facing foreclosure or perhaps more than 90 days past due has hit a record high of almost 4.2 million, additional foreclosures are imminent.

In Tennessee, Nexus Homebuyers purchases properties that are in foreclosure. Additionally, we buy houses Tennessee and specialize in helping homeowners like you avoid paying thousands of dollars in unpaid taxes, fines, or foreclosure expenses. Our staff has assisted several Tennessee homeowners in avoiding foreclosure and even rescuing their houses from a government auction.

Selling to local cash home buyers in Knoxville and Chattanooga may be a great choice if you need to sell a house fast in Chattanooga to avoid foreclosure. Why not give us a call right away?

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