New Tennessee Law Expands Notice Requirements in Foreclosure
Written by Managing Attorney Nick Adler
Tennessee Senate Bill 619, signed into law by Governor Haslam on April 20, 2015, expands the current definition of “parties interested” in a foreclosure sale to include nominees or agents of the owner of the debt obligation being foreclosed. A “party interested” must be listed as such in the published notice of foreclosure sale and, although not specifically required by statute, is customarily mailed a copy of the same notice by the foreclosing trustee or substitute trustee. As currently written, T.C.A. § 35-5-104(d) defines “parties interested” as including “record holders of any mortgage, deed of trust, or other lien that will be extinguished or adversely affected by the sale and which mortgage, deed of trust, or lien, or notice or evidence thereof, was recorded more than ten (10) days prior to the first advertisement or notice in the register’s office of the county in which the real property is located”. As amended, this section will include the following sentence:
“’Parties interested’ also includes a person or entity named as nominee or agent of the owner of the obligation that is secured by the deed or a deed of trust and that is identifiable from information provided in the deed or deed of trust, which shall include a mailing address or post office box of the nominee or agent”.
This legislative change will resolve the recent conflicting Tennessee Court of Appeals decisions in Mortgage Electronic Registration Systems, Inc. v. Ditto, 2014 WL 24439 (Tenn.Ct.App. 2014) and EverBank v. Henson, 2015 WL 129081 (Tenn.Ct.App. 2015). Ditto arose in the context of a tax sale and the Appeals Court held that MERS, as the nominee listed in a properly recorded deed of trust, was not entitled to notice under the Tennessee statute governing tax sales. Although factually different as the underlying context was a foreclosure sale where MERS was not listed as an interested party, the Henson Court sharply disagreed with the Ditto holding and found that MERS, because of its ownership of legal title and interest in the lien as beneficiary of the deed of trust, fit the definition of an “interested party” found in T.C.A. § 35-5-104(d). Although this finding was insufficient to support the claim that the sale should be set aside, the Court did remand the case for a determination of MERS’ right to seek restitution for any harm that it had suffered as a result of it not being listed as an interested party. It should be noted that S.B. 619 also amends T.C.A. § 67-5-2502(c)(1)(B), the statute governing notice in tax sales, to include nominees or agents as “interested persons” requiring notice of such tax sales.
S.B. 619 takes effect on July 1, 2015. From a practical standpoint, lenders and servicers should review their procedures to ensure that nominees or agents of lenders identified in any junior deeds of trust or similar liens are properly noticed and listed in the foreclosure publication. Failure to do so is not only a Class C misdemeanor but could result in liability to any party injured by the noncompliance pursuant to T.C.A. § 35-5-107.