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American College of Mortgage Attorneys — Partner with the Best®

Formed in 1974, the American College of Mortgage Attorneys (ACMA) is comprised of over 500 lawyers in North America who are experts in mortgage law.

United States

Tennessee

The deed of trust is the preferred form of security instrument, but there is no statutory or common law prohibition against the use of a mortgage form. The foreclosure of a properly created deed of trust lien is accomplished through a non-judicial sale process. Enforcement of a lien pursuant to a mortgage form would likely require a judicial sale.

SECURITY INSTRUMENT USED

Recording of Instruments is necessary and recorded Instruments have priority as of date of recording (T.C.A. &sect;&nbsp;66-26-101 et seq.). The “land records” in Tennessee are maintained in each County's Register of Deeds Office. The following list describes certain certifications, statements, or information required in connection with certain instruments to be recorded in the Register's Offices: <ul>
 <li>Instruments affecting interests in real property must contain a description of the derivation of title (i.e., source of title such as prior deed of record) (T.C.A. &sect;&nbsp;66-24-110)</li>
 <li>The name and address of preparer of instrument is required (T.C.A. &sect;&nbsp;66-24-115)</li>
 <li>Master form deeds of trust are permitted (T.C.A. &sect;&nbsp;66-24-117)</li>
 <li>Use of a new legal description for conveyance requires inclusion of the name, address, and license number of surveyor who prepared the same in the description (T.C.A. &sect;&nbsp;66-24-121)</li>
 <li>The trustee's county, city, or town of residence must be recited in deeds of trust (T.C.A. &sect;&nbsp;66-24-123)</li>
 <li>With respect to compliance with mortgage/indebtedness tax requirements, the statement, “Maximum principal indebtedness for Tennessee recording tax purposes is $_____,” must appear on the face or in an attached sworn statement to all deeds of trust, assignment of rents, fixture filing, and other instruments to secure a debt (T.C.A. &sect;&nbsp;67-4-409(b)(5)(c)), including financing statements filed in the central filing location, the Tennessee Secretary of State's Office.</li>
 <li>With respect to compliance with conveyance/transfer tax requirements applicable to certain fee simple conveyances (e.g., General or Special Warranty deeds; quitclaim deeds), an affidavit of consideration in accordance with T.C.A. &sect; 67-4-409(a) must be included in the instrument.</li>
 <li>Signatures must be acknowledged per T.C.A. &sect;&nbsp;66-22-101 et seq. (customarily, a notary acknowledgment); the Tennessee approved form of acknowledgment is set forth in T.C.A. &sect;&nbsp;66-22-107, however, forms that are prescribed by the laws of another state or foreign country in which the acknowledgment is taken are acceptable per T.C.A. &sect;66-22-115(a)(2).</li>
 <li>Under T.C.A. &sect;&nbsp;66-24-103, if the property that is the subject of a conveyance lies in 2 counties, recording is permitted in either county, but if there are multiple tracts located in several counties, recording in each county is required.</li>
 <li>Recording costs are mandated by T.C.A. &sect;&nbsp;8-21-1001. In addition to the payment of any applicable mortgage tax or conveyance tax (described above), in all counties, most documents, including deeds and deeds of trust, recording fees are $5 per page, subject to a $10 minimum, plus a $2 document fee. When mortgage tax or conveyance tax is collected, a $1 tax fee is added. For fixture filings, $15 per filing, with $15 for each additional party to be indexed (spouses count as 2 parties), and 50&cent; for each page over 10 pages.</li>
 <li>Tennessee permits registration of certain instruments electronically pursuant to T.C.A. &sect;&nbsp;66-24-101 et seq. and &sect; 66-24-201 et seq.</li>
</ul>

RECORDING REQUIREMENTS

In connection with the delivery of a customary form of deed of trust, the following statutory rights are typically waived: Statutory right of redemption (T.C.A. &sect;&nbsp;66-8-101 et seq.); homestead exemption (Const. Tenn. Art 11, &sect;&nbsp;11 and T.C.A. &sect;&nbsp;26-2-301 et seq.); and statutory right to an elective share (T.C.A. &sect;&nbsp;31-4-101 et seq.).

STATUTES TO BE WAIVED

UNUSUAL TREATMENT OF STANDARD PROVISION

A deed of trust may provide that it secures not only existing indebtedness or advances made contemporaneously with the execution thereof, but also future advances, whether obligatory or optional or both, and whether made under open-end credit agreements or otherwise, to the same extent as if such future advances were made contemporaneously with the execution of the deed of trust, even though no advance is made at the time of the execution of the deed of trust and even though no indebtedness is outstanding at the time any advance is made (T.C.A. &sect;&nbsp;47-28-102 et seq.). An obligatory advance is an advance that the creditor is required to make by agreement with the borrower, whether or not a subsequent event beyond the creditor's control may allow the creditor to cancel the obligation to make such advance. All other advances are optional (T.C.A. &sect;&nbsp;47-28-101 et seq.). In order for the advances to relate back to the time of recording of the deed of trust and become prior and superior to subsequent encumbrances and conveyances; (1)&nbsp;the advances must be either obligatory or optional advances and must be made under an open-end deed of trust when dealing with non-commercial transactions; (2)&nbsp;the advances must be obligatory or optional advances made under a deed of trust securing a revolving credit agreement for commercial purposes (that is not an open-end credit agreement) and under any obligatory or optional extension, renewal or amendment of such revolving credit agreement; provided, that no optional extension, renewal, or amendment shall increase the advances entitled to priority under this section of the Tennessee code above the maximum amount entitled to priority under the original revolving credit agreement for commercial transactions; or (3)&nbsp;under any other deed of trust securing future advances; provided that intervening liens will have priority over optional advances where the lender has actual notice of intervening liens (T.C.A. &sect;&nbsp;47-28-103). “Actual notice” means knowledge in fact from any source by any means. Specific language needs to be included on the face of the deed of trust in order to receive the benefit of the priority provided by the statute (e.g. an open-end mortgage, identified as such; for commercial loan, stating that the loan secures obligatory future advances and is for commercial purposes).

SECURING FUTURE ADVANCES

As long as the instrument so provides, additional advances to protect the collateral or the priority of the deed of trust, such as taxes, insurance, and completion of improvements, are entitled to same priority as original advance, even if the total amount secured exceeds the principal amount stated in the deed of trust.

SECURING ADDITIONAL ADVANCES TO PROTECT THE COLLATERAL, INCLUDING PAYMENT OF TAXES AND INSURANCE

Both are permitted under T.C.A. &sect;&nbsp;66-24-123.

CORPORATION OR INDIVIDUAL

An individual trustee must be a resident of Tennessee and the county of residence must be stated on the deed of trust; a corporate trustee must be organized in Tennessee and have its principal place of business in Tennessee. Tennessee law does permit, however, the naming of non-resident trustees if their state of residence (or incorporation or principal place of business) reciprocates by allowing Tennessee residents to serve as trustees in their state (T.C.A. &sect;&nbsp;66-24-123). SUBSTITUTE TRUSTEE: Unless set forth otherwise in the deed of trust, the beneficiary of the deed of trust may appoint a successor trustee at any time by filing a substitution of trustee in the register's office for the county where the property is located. If the substitution document is not recorded prior to the first date of publication of a foreclosure notice by the substitute trustee, the substitution of trustee instrument, which must be recorded prior to the deed evidencing the trustee's sale, shall contain the following statement: “Beneficiary has appointed the substitute trustee prior to the first notice of publication as required by T.C.A. &sect;&nbsp;35-5-101 and ratifies and confirms all actions taken by the substitute trustee subsequent to said date of substitution and prior to the recording of this substitution.” (T.C.A. &sect;&nbsp;35-5-114 (b)(3)(A)). If the substitute trustee's name is not included in the first publication of notice of the foreclosure sale, then at least 10 business days prior to the sale the substitute trustee must send notice by registered or certified mail to the debtor or any co-debtor and to any interested parties (as provided in T.C.A. &sect;&nbsp;35-5-101), giving the substitute trustee's name and address. If the substitute trustee is not a resident of Tennessee, the notice must include the name and address of a registered agent located in the State. Evidence of mailing of this notice shall be by affidavit from the substitute trustee recorded prior to the deed evidencing the sale or by recitation on the deed (T.C.A. &sect;&nbsp;35-5-114(d)).

RESIDENCY REQUIRED

Foreclosure under a deed of trust typically is a non-judicial sale conducted at the location provided in the deed of trust, usually at the local courthouse door of the county in which the property is located. Foreclosure procedure (default, notice, publication, bidding, sale, etc.) is governed by the deed of trust, but a foreclosure sale must meet certain minimum statutory foreclosure requirements. STATUTORY FORECLOSURE REQUIREMENTS: The trustee or other party conducting the foreclosure sale must send to the debtor and to any co-debtor and to interested parties, on or before the first date of publication of the notice or advertisement of the sale, a copy of that notice or advertisement, by registered or certified mail, return receipt requested. The notice sent to the debtor must be sent to the mailing address of the property, if any, and to the last known residence of the debtor or address provided by the debtor to the creditor at least 30 days prior to publication date, if such residence or last known address is different from the property address. Notice sent to a co-debtor must be sent to the co-debtor's last known residence or other address provided to the creditor at least 30 days prior to publication date, but only if such residence or other address is different both from the property address and from the debtor's address (T.C.A. &sect;&nbsp;35-5-101 et seq.). Publication of the notice of sale (“Foreclosure Notice”) must be made at least 3 different times in a newspaper of general publication published in the county where the sale is to be made, with the first publication being at least 20 days prior to sale is required and must also comply with all provisions of the deed of trust. The statute states that failure to comply does not render the sale void or voidable, but noncompliance is a misdemeanor and in addition to criminal penalties, the noncomplier is liable to the injured parties for all damages resulting from such noncompliance. If the county where the property lies does not have a newspaper or the newspaper refuses to publish the notice, the Foreclosure Notice must be posted for 30 days in at least 5 of the most public places in the county, one of which will be the courthouse door and another in the property's neighborhood (T.C.A. &sect;&nbsp;35-5-103). The Foreclosure Notice must give the name of the plaintiff and defendant (in the case of a judicial sale), and other interested parties, shall describe the land in brief terms, including a street address (note that the address listed by the tax assessor is conclusively presumed to comply with the act), and shall mention the time and place of sale. “Interested parties” includes, without limitation, the 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 10 days prior to the first publication of the Foreclosure Notice. The hours permitted for the sale are between 9:00 a.m. and 7:00 p.m., but noon is traditional. Sales are most commonly held at the courthouse door, but they also may be held at the property or other location authorized in the deed of trust. In addition, a Foreclosure Notice must include a description of every lien or claimed lien of the United States or the State of Tennessee Department of Revenue and state that proper notice has been timely given and that the sale will be subject to the applicable entity's rights of redemption (T.C.A. &sect;&nbsp;35-5-109). The statute also permits the borrower to offer a plan of division of the lands to be sold as late as the morning of sale, but before 10:00 a.m., in which event the property must be sold in the manner prescribed by the plan. This provision is intended to give the borrower an opportunity to preserve the home or some other valuable portion of the property, if the debt may be satisfied upon sale of less than the total. A Foreclosure Notice must include a concise description of the property, which shall include a reference to the deed book and page number of a recorded instrument containing the complete legal description (customarily, the instrument(s) under which the foreclosure is being conducted) and a common description including, if available, the street address and the map and parcel number. A metes and bounds description may be, but it is not required to be, included in the description of the land (T.C.A. &sect;&nbsp;35-5-104 (a)(2)). For deeds of trust that do not clearly authorize the trustee to postpone or adjourn a foreclosure sale without further publication, unless postponement or adjournment of the foreclosure sale is contractually prohibited, any foreclosure sale may be adjourned and rescheduled 1 or more times without additional newspaper publication, but the sale must be held within 1 year of the originally scheduled date. Each postponement or adjournment must be to a specified date and time and must be announced at the date, time, and location of the originally scheduled sale date. If the postponement or adjournment is for more than 30 days, notice of the new date, time, and location must be mailed at least 10 days prior to the sale date via regular mail to the debtor and co-debtor. Notice of the right to postpone or adjourn without additional newspaper publication is not required to be published in any newspaper publication (T.C.A. &sect;&nbsp;35-5-101). SPECIAL RULES FOR HIGH-COST HOME LOANS: The borrower, or anyone authorized to act on behalf of the borrower, has the right to cure a default in a high-cost home loan, as defined in the statute, and reinstate the loan by tendering the amount necessary to cure such default at any time prior to 3 business days before the foreclosure sale (T.C.A. &sect;&nbsp;45-20-104 et seq.). Not less than 30 days prior to publishing notice of foreclosure or commencing an action for judicial foreclosure, a notice of the right to cure must be sent to the borrower informing the borrower of the following: <ul>
 <li>The nature of the default and the borrower's right to cure the default;</li>
 <li>The last date on which cure can be made to avoid the initiation of the foreclosure, which cannot be less than 30 days after the date the notice is sent, and the name, address, and phone number of the person to whom cure must be tendered;</li>
 <li>If default is not cured, steps may be taken to terminate the borrower's ownership by foreclosure; and</li>
 <li>The lender's or servicer's name and address and the phone number of the person who the borrower may contact to dispute whether default has occurred or the amount needed to cure the default.</li>
</ul>

BRIEF DESCRIPTION OF PROCEDURE

Approximately 30 days from issuance of foreclosure notice (except for high-cost home loans).

TYPICAL LENGTH OF NON-JUDICIAL FORECLOSURE PROCESS

While there is no statutory authority for credit bidding, it is the typical practice that the beneficiary may credit bid at the foreclosure sale or exchange checks with the trustee for the bid price. It's the better practice to include in the deed of trust express language authorizing a credit bid by beneficiary/lender except where the bid exceeds all costs and expenses of sale and the secured indebtedness.

FORECLOSURE BID REQUIREMENTS

Real estate sold for debt shall be redeemable at any time within 2 years after the sale by execution decree, judgment, or a deed of trust unless such redemption right is waived in the deed of trust. The redemption price shall be the bid price plus interest at the current composite prime rate published by the federal reserve board as of the date of purchase and, if the holder is a creditor, the holder must pay to the debtor or credit the debt with a sum equal to 10% or more of the sum bid at the original sale or with a sum equal to 10% or more upon judgment of the creditor, at the creditor's election (T.C.A. &sect;&nbsp;66-8-110 et seq.). Redeeming creditors may increase the redemption price, within 20 days after the sale, to include other debts owed to them by the mortgagor through a method known as advancement.

REDEMPTION PERIOD AND PRICE

Almost all deeds of trust include a waiver of redemption, as permitted by T.C.A. &sect;&nbsp;66-8-101. Best practice is to always include such waiver.

WAIVER OF REDEMPTION; REDUCTION OF REDEMPTION PERIOD

The statute of limitations for enforcement of a promissory note is 6 years after the date the cause of action accrues (T.C.A. &sect;&nbsp;28-3-109). The statute of limitations for enforcement of a deed of trust is 10 years from the earlier to occur of maturity of the debt or acceleration due to default. (T.C.A. &sect;&nbsp;28-2-111). Foreclosure proceeds are credited in the order set forth in deed of trust, usually first deducting and paying the sale expenses from the bid price, then applying the remainder of the bid price to the debt. Pursuant to T.C.A. Section 35-5-118(d), the statutory limitation on the period for initiating an action to collect a deficiency after foreclosure is the earlier of (A)&nbsp;2 years after the date of foreclosure, exclusive of any period in which a petition in bankruptcy is pending, or (B)&nbsp;the statutory period for enforcing the indebtedness debt pursuant to T.C.A. &sect;&nbsp;28-1-102 and 28-2-111. Absent a showing of fraud, collusion, misconduct, or irregularity in the sale process, the deficiency judgment is the amount of the debt owed prior to the foreclosure sale, plus the cost of foreclosure, less the property's fair market value at the time of the foreclosure. There is a rebuttable presumption that the foreclosure sale price is equal to the property's fair market value. The presumption may be overcome by the debtor proving by a preponderance of the evidence that the property was sold at foreclosure for an amount materially less than the fair market value. If the presumption is defeated by the debtor, then the court must determine the fair market value for use in computing the recoverable deficiency amount. A creditor may elect to sue on the debt in lieu of, prior to, or contemporaneously with enforcement of the deed of trust or mortgage.

DEFICIENCIES (Period for Collection, Determination of Amount)

Leases senior in priority to a foreclosed deed of trust are unaffected unless subordinated. Junior leases are extinguished by foreclosure.

EFFECT OF FORECLOSURE UPON LEASES

Except as otherwise expressly provided in T.C.A. &sect; 47-14-101 et&nbsp;seq. or by other statutes, the maximum effective rates of interest shall be as follows: (1)&nbsp;for all transactions in which provisions of other statutes fix a maximum effective rate of interest for particular categories of creditors, lenders, or transactions, the fixed rate shall apply; (2)&nbsp;all other written contracts signed by the party to be charged, the Applicable Formula Rate; and (3)&nbsp;all other transactions, the maximum interest rate shall be 10% per year (T.C.A. &sect;&nbsp;47-14-103(1)). The Applicable Formula Rate is the lesser of (i)&nbsp;4 points above the average prime loan rate for the most recent week as published by the board of governors of the Federal Reserve System; or (ii)&nbsp;24% (T.C.A. &sect;&nbsp;47-14-102(7). The Applicable Formula Rate is published by the Tennessee Department of Financial Institutions.

USURY CEILING

All time price differential transactions (T.C.A. &sect;&nbsp;47-14-102).

USURY EXEMPTIONS

With respect to perfecting a security interest on Article 9 property, the proper location for the filing of a financing statement is the office of the Secretary of State located in the state of the debtor's principal office. A fixture filing should be made in the Register's Office of the county where the related real property is located (T.C.A. &sect;&nbsp;47-9-501).

LOCATION(S) FOR FILING

The recording of a security instrument (typically, the deed of trust) as a fixture filing is permitted pursuant to Tenn. Code &sect;&nbsp;47-9-402(c) and 47-9-502(c).

SECURITY INSTRUMENT AS FIXTURE FILING

The tax is payable on the indebtedness secured by financing statements. (Note: the indebtedness tax pursuant to T.C.A. Section 67-4-409(b) is paid only once in connection with instruments that secure the same indebtedness, so if, for example, the same debt is secured by a deed of trust, an assignment or rents, and a financing statement, the indebtedness tax would be paid only with the recording/filing of one of the instruments.) Every recorded instrument (including financing statements) securing an indebtedness must contain on its face or in an attached sworn statement: “Maximum Principal indebtedness for Tennessee recording tax purposes is $___” (T.C.A. &sect;&nbsp;67-4-409(b)(5)(c)). If, however, the tax has been paid in connection with the recording of another instrument, it is appropriate to indicate that the “Maximum principal indebtedness for Tennessee recording tax purposes is $0.00.” Some Registers Offices require a statement of reference to the recorded instrument upon which tax was paid or a copy of the receipt evidencing payment of the tax.

MORTGAGE TAX

A guarantor in a commercial transaction is to be held to the full extent of his/her/its engagements and the words of the guaranty will be taken as strongly against the guarantor as sense will admit.

GUARANTY

UNUSUAL PROVISIONS AND REQUIREMENTS

SPECIAL PROBLEMS OF ENFORCEMENT

. Pursuant to T.C.A. &sect;&nbsp;35-5-118(d), the statutory limitation on the period for initiating an action to collect a deficiency after foreclosure is the earlier of (A)&nbsp;2 years after the date of foreclosure, exclusive of any period in which a petition in bankruptcy is pending, or (B)&nbsp;the statutory period for enforcing the indebtedness debt pursuant to T.C.A. &sect;&nbsp;28-1-102 and 28-2-111. Absent a showing of fraud, collusion, misconduct, or irregularity in the sale process, the deficiency judgment is the amount of the debt owed prior to the foreclosure sale, plus the cost of foreclosure, less the property's fair market value at the time of the foreclosure. There is a rebuttable presumption that the foreclosure sale price is equal to the property's fair market value. The presumption may be overcome by the debtor proving by a preponderance of the evidence that the property was sold at foreclosure for an amount materially less than the fair market value. If the presumption is defeated by the debtor, then the court must determine the fair market value for use in computing the recoverable deficiency amount. A creditor may elect to sue on the debt in lieu of, prior to, or contemporaneously with enforcement of the deed of trust or mortgage.

SEEKING/OBTAINING DEFICIENCY JUDGMENTS

Enforcement of a deed of trust lien is barred 10 years after the earlier of the debt's maturity date or the date the cause of action accrues (T.C.A. &sect;&nbsp;28-2-111), but an amendment may be filed to extend the maturity date. (Note: the mere extension of a maturity date does not require payment of additional indebtedness tax). The statute of limitations for enforcing a promissory note is 6 years after the cause of action accrues (T.C.A. &sect;&nbsp;28-3-109).

STATUTE OF LIMITATIONS PERIOD

When the debt has sufficiently been fully paid or satisfied, the beneficiary/mortgagee must satisfy the record by formal release of deed of trust within 45 days (T.C.A. &sect;&nbsp;66-25-101); penalties of up to $100 plus court costs and attorneys' fees may be imposed on holders who fail to provide a release within 45 days and the penalty increases to $1,000 for failure to respond on written request within 30 days from the second request (T.C.A. &sect;&nbsp;66-25-102). Partial releases as to a portion of the debt paid are required and if the parties agree in the deed of trust instrument to partial releases of land from the lien of the deed of trust, such are also required; failure to provide either following written request subjects holder to penalties of up to $1,100 plus attorneys' fees and court costs (T.C.A. &sect;&nbsp;66-25-103); marginal releases are permitted in Warren County (T.C.A. &sect;&nbsp;66-25-201 et seq.).

REQUIREMENTS FOR RELEASE OF LIEN

There is a homestead exemption in non-commercial real estate that is the principal residence of a person or his/her spouse (T.C.A. &sect;&nbsp;26-2-301). The Homestead Exemption is (a)&nbsp;$5,000 in value of the real estate, or an aggregate of $7,500 for a married couple, (b)&nbsp;$12,500 if the individual is over 62 and unmarried, (c)&nbsp;$20,000 if married and at least 1 spouse is over 62, or (d)&nbsp;$25,000 if both spouses are over the age of 62. If the individual has one or more minor children in the individual's custody, the Homestead Exemption is $25,000.

HOMESTEAD ISSUES

Tennessee is not a community property state.

COMMUNITY PROPERTY

In connection with a deed of trust or other instrument securing repayment of indebtedness, the amount of the indebtedness tax imposed is $1.15 per $1,000 of indebtedness with a one-time exemption on the first $2,000 of indebtedness. Every recorded document securing an indebtedness must contain on its face or in an attached sworn statement: “Maximum Principal Indebtedness for Tennessee Recording Tax purposes is $____.” (T.C.A. &sect;&nbsp;67-4-409(b)). T.C.A. Section 67-4-409(b) sets forth a prescribed method for allocation and calculation of indebtedness tax when an indebtedness is secured by property in multiple jurisdictions, including Tennessee.

DOCUMENTARY STAMP TAX

In connection with the recording of an instrument of conveyance of fee simple title in real estate, the amount of the transfer tax is $3.70 per $1,000 of the greater of (i)&nbsp;consideration paid or (ii)&nbsp;value of the property transferred. This transfer tax is applicable to all deeds, trustee's deeds in foreclosure sales, and deeds in lieu of foreclosure (T.C.A. &sect;&nbsp;67-4-409(a)). Quitclaim deeds (and trustee's deed in foreclosure and deeds in lieu of foreclosure if designated to be quitclaim deeds) are taxed according to the actual consideration (T.C.A. &sect;&nbsp;67-4-409(a)(4)) paid in connection with such transfer. Transfers of leasehold interests are not subject to the transfer tax, and certain other transfers are exempt from this tax under T.C.A. Section 67-4-409(a).

TRANSFER TAX

Tennessee follows the rule of lex loci contractus, which provides that a contract is presumed to be governed by the law of the jurisdiction in which it was executed absent a contrary intent. Ohio Casualty Insurance Company v. Travelers Indemnity Company, 493 S.W.2d 465, 467 (Tenn. 1973).

ENFORCEABILITY OF AGREEMENTS AS TO CHOICE OF LAW

A receiver may be appointed by a court of equity upon filing of a Complaint if the property is insufficient to satisfy the debt, mortgagor is insolvent, or the mortgagor is committing waste on the mortgaged premises. Pope v. Hazen, 4 Tenn. C.C.A. 224 (1914).

RECEIVERSHIP

The collection of fees or other loan charges shall be limited to compensation that is fair and reasonable for the services performed (T.C.A. &sect;&nbsp;47-14-113). Charges must not exceed these parameters and also be fair and reasonable compensation for the detriment suffered or the commitment made, and such charges are excluded from the definition of interest for usury purposes under T.C.A. &sect;&nbsp;47-14-114. Predatory lending practices are regulated under the provisions of the Tennessee Home Loan Protection Act of 2006 (T.C.A. &sect;&nbsp;45-20-101 et seq.). This Act pertains to loans described as “high-cost home loans,” as defined therein. The statute limits when and to whom such loans can be made, the terms of such loans, and the fees that can be charged in connection with them. Penalties for violation of the statute include actual and statutory damages and reformation of the loan.

ANY PROHIBITION OR SPECIAL RULES REGARDING LOAN APPLICATION, LOAN FEES OR COMMITMENT FEES

Non-depository banks and financial institutions engaged in residential mortgage lending are required to be registered with the State, T.C.A. &sect;&nbsp;45-13-201. Residential mortgage loan brokers, lenders, servicers, and originators are licensed and regulated by the Tennessee Department of Financial Institutions. Applicants seeking a Tennessee license are not required to maintain a physical office within the state. Depository Institutions and their qualified subsidiaries are exempt from state licensing, T.C.A. &sect;&nbsp;45-13-201, but residential originators employed by such institutions must be registered through the nationwide mortgage licensing system. T.C.A. &sect;&nbsp;45-13-201(b)(2). A foreign bank or other foreign lender generally is not required to qualify to do business in Tennessee solely as a result of making real estate loans secured by real property in Tennessee or by exercising any right or remedy provided in the loan documents. MODIFICATION - UNUSUAL PROVISIONS OR REQUIREMENTS FOR MODIFICATIONS OF EXISTING MORTGAGE LOANS: There are no unusual requirements for modifications of existing mortgage loans, except the ordinary priority requirements for obligatory and non-obligatory advances. All obligatory advances retain the priority of the original advancement of all monetary obligations. The indebtedness tax will be due in connection with recording of a modification instrument to the extent that it secures principal debt in addition to (or in excess of) the amount of principal indebtedness at the time of modification. Additionally, if the modification reflects another party's assumption of the indebtedness, the recordation of an assumption agreement will trigger the requirement for payment of indebtedness tax on the full amount of the principal indebtedness assumed to the extent that the original borrower is released from liability for the debt.

LENDER QUALIFICATION AND/OR LICENSURE

. The State has a lien on property that it cleans up or on which it otherwise spends money (T.C.A. &sect;&nbsp;68-212-209). The Commissioner of the Department of Environment and Conservation may file notice with the Register of Deeds as soon as a hazardous substance site is placed on the list of Hazardous Substance Sites or wherever the State begins to spend money on investigation or clean-up of a site. The Commissioner may also file a statement of expenses. The filing of a statement perfects the lien on the property that was established by giving notice. The amount of the lien is limited to the lesser of the amount spent by the State at the contaminated site or an apportioned share of the costs spent by the owner of the property as determined under the liability provision of the environmental statute. Counties, municipalities, and solid waste disposal authorities may claim a lien for unpaid solid waste disposal fees by filing a notice with the Register of Deeds of the county in which the property lies. The unpaid fees accrue the same penalty and interest as delinquent property taxes. The Commissioner of the Department of Environment and Conservation may claim a lien for the expense of removal or remediation, plus a 25% penalty, against any property where dangerous and improperly safeguarded radiation sources are located. The lien must be filed in the Register's Office of the County where the property is located and is superior to all liens other than ad valorem property taxes.

ENVIRONMENTAL LIEN LAW ISSUES

. The Tennessee Bar Association's Joint Opinion Committee of the Sections of Real Estate Law and Business Law published a report on Third Party Closing Opinions in 2011. The Joint Opinion Committee's report is intended as a resource to Tennessee attorneys in connection with transactions that require the issuance of third-party opinions. The report does not promulgate specific rules or standards, but is intended to assist Tennessee attorneys as a resource that summarizes and describes “customary practice” in Tennessee. The report can be found at: http://www.tba.org/sites/default/files/Third_Party_Closing_Opinions_07012011.pdf

OPINION PRACTICES

<ol>
 <li> INCEPTION OF M&M LIEN (PRIORITY OF LIEN OF DEED OF TRUST OR MORTGAGE): The general rule is that for priority over M&M liens, the deed of trust must be recorded prior to visible commencement of operations. M&M Liens attach as of the visible commencement of operations, excluding however, demolition, surveying, excavating, clearing, filling or grading, placement of sewer or drainage lines or other underground utility lines or work preparatory therefor, erection of temporary security fencing, and the delivery of materials therefor (T.C.A. &sect;&nbsp;66-11-104(a)). Visible commencement of operations means the first actual work of improving upon the land or the first delivery to the site of the improvement of materials that remain thereon until actually incorporated in the improvement, of such manifest and substantial character as to notify interested persons that an improvement is being made or is about to be made on the land (T.C.A. &sect;&nbsp;66-11-101(16)). If work at the site ceases for 90 days and an intent on the part of the owner or prime contractor to cease operations permanently, or at least for an indefinite period, and is thereafter resumed, liens for labor or materials performed or furnished after the resumption of work will relate back only to the date of such resumption (T.C.A. &sect;&nbsp;66-11-104 (b)).</li>
</ol> The Tennessee Mechanic and Materialman's Law (adopted in 2007) defines “Prime Contractor” as any person or entity, including a land surveyor, licensed architect, or licensed engineer, who supervises or performs work or labor or who furnishes material, services, equipment, or machinery in furtherance of any improvement by a contract directly with the owner. “Remote Contractor” is defined as any person or entity, including a land surveyor, licensed architect, or licensed engineer, who provides work or labor or who furnishes material, services, equipment, or machinery in furtherance of any improvement under a contract with a person other than the owner. On commercial real property, a lien may be filed in favor of any Prime Contractor or Remote Contractor. Only a Prime Contractor has lien rights on residential real property (defined as a building consisting of one dwelling unit in which the owner of the real property intends to reside or resides as the owner's principal place of residence, including improvements to or on the parcel of property where such residential building is located, and also means a building consisting of 2, 3, or 4 dwelling units where the owner of the real property intends to reside or resides in one of the units as the owner's principal place of residence, including improvements to or on the parcel of property where such residential building is located). In such cases subcontractors (contracting with the Prime Contractor) have no lien rights (T.C.A. &sect;&nbsp;66-11-146(a)). If the residential real property is a parcel upon which the building constructed or to be constructed consists of 1 dwelling unit and the owner and general contractor either are the same person or are controlled by the same person, then lien rights extend to subcontractors contracting directly with such owner/general contractor, but Remote Contractors have no such lien rights (T.C.A. &sect;&nbsp;66-11-146(b)). <ol>
 <li> PRIORITY AS TO REMOVABLE FIXTURES (PRIORITY OF LIEN OF DEED OF TRUST OR MORTGAGE): General rule is that the first to file has priority (remember that the priority for a M&M Lien relates back to the visible commencement of operations as explained under A. above) (T.C.A. &sect;&nbsp;47-9-334(e)(1)). However, there are a few exceptions, most notable of which are described as follows:</li>
</ol> <ul>
 <li>No security interest exists in ordinary building materials incorporated into an improvement on the land (T.C.A.&sect;&nbsp;47-9-334(a)).</li>
 <li>Purchase money security interests perfected by filing before the goods become fixtures or within 20 days thereafter have priority over prior recorded deed of trust liens on fixtures, except for construction deed of trust liens (T.C.A. &sect;&nbsp;47-9-334(d)(3)).</li>
 <li>Security interests in readily removable factory or office machinery or readily removable replacements of domestic appliances that are consumer goods, which security interests are perfected by any method allowed by law before such goods have become fixtures, have priority over prior recorded deed of trust liens on fixtures that fall within this category (T.C.A. &sect;&nbsp;47-9-334(e)(2)).</li>
</ul> If none of the above rules apply, then the security interest in fixtures is subordinate to a conflicting interest of an owner or encumbrances of the related real property other than the debtor (T.C.A. &sect;&nbsp;47-9-334(c)). A conflicting interest is a lien on the real property obtained by legal or equitable proceedings. Article 9 security interests perfected by any means have priority over later perfected judicial liens (T.C.A. &sect;&nbsp;47-9-334(e)(3)). Perfected Article 9 security interests in fixtures have priority over encumbrances or owners of the real property as to manufactured homes in a transaction defined in T.C.A. &sect;&nbsp;47-9-102 (T.C.A. &sect;&nbsp;47-9-334(e)(4)). Perfected Article 9 security interests in crops as fixtures have priority over encumbrances or owners of the real property, except for landlord and laborers liens created under Title 66 (Tenn. Code. Ann. &sect;&nbsp;47-9-334(i)).

MECHANICS AND MATERIAL LIEN CLAIMS (“M&M Lien”) - PRIORITY ISSUES

Currently promulgated American Land Title Association (“ALTA”) forms for policy and endorsements.

Form Usually Required By Lender

There is no list of approved endorsements by the Tennessee Department of Commerce and Insurance or similar agency. All endorsements offered by a title company or as may be negotiated with title company are available; however, requests for endorsements are subject to underwriting requirements and approval by the title insurance company. Costs of endorsements are set by each individual title company. The following is a list of commonly requested endorsements:

Endorsements Available

Zoning coverage for vacant land, construction in progress and completed structures. Additional fees apply.

ALTA Forms 3-06 and 3.1-06

Condominium coverage with respect to restrictions, survey and real estate taxes.

ALTA Form 4-06

PUD coverage with respect to title to common areas, borrower's interest in same, restrictions, regulations of homeowner's association, assessments, right of others to common areas and priority of insured mortgage over any assessment lien.

ALTA Form 5-06

Variable Rate Mortgage coverage with respect to validity, enforceability, loss of priority, capitalization of interest, negative amortization and conversion to fixed rate.

ALTA Forms 6-06 and 6.2-06

Coverage with respect to affixation of manufactured housing in so permanent a fashion as to constitute a part of the real estate.

ALTA Form 7-06

Coverage against the existence of environmental protection liens filed against residential real estate.

ALTA Form 8.1-06

Coverage with respect to restrictions, easements, and minerals (a/k/a REM).

ALTA Form 9-06 and 9.7-06

Coverage with respect to possible private rights of parties (rights of first refusal, etc.).

ALTA Form 9.6-06

Coverage that the land abuts upon a physically open and publicly dedicated street, or from indirect access to a physically open and publicly dedicated street.

ALTA Form 17-06 and 17.1-06

Coverage for lack of utility access to a parcel.

ALTA 17.2-06

Coverage for future monetary advances under a loan agreement.

ALTA 14-06

Coverage for loss due to invalidity of a post-policy modification of a mortgage.

ALTA 11-06

Coverage that the land comprises a single parcel for tax purposes and designating such parcel. The ALTA Form 18.1-06 (multiple tax parcel), however, contains provisions that are inconsistent with Tennessee law.

ALTA Form 18-06

Coverage that separately described parcels are contiguous without any intervening strips, gaps or gores.

ALTA Form 19-06

ALTA Form 27-06

Coverage with respect to the validity, enforceability and refinancability of 7-year balloon mortgages.

ALTA Unnumbered FNMA Form

Coverage as to the priority of future advances.

Revolving line of Credit

Coverage that a particular type of building located at a designated street address is accurately reflected on the survey prepared in connection with the transaction.

ALTA Form 22-06 and 22.1-06

Coverage that the land described in Schedule A is the same as the land delineated on the survey prepared in connection with the transaction.

ALTA Form 25-06

Coverage that the land is in compliance with state and local subdivision laws, ordinances and regulations and may be conveyed without violation of the foregoing.

ALTA Form 26-06

Provides for deletion of the arbitration provision from the Conditions of the Policy.

ALTA Unnumbered Form for Deletion of Arbitration

Coverage for identified risk to provide uniformity to affirmative coverage over exceptions contained on Schedule B-II.

ALTA 34-06

Coverage loss of priority related to construction loans, mechanics liens and materialmen's liens.

ALTA 32-06, 32.1-06 and 32.2-06

Coverage for a lender in a mezzanine loan provided in addition to an existing Owner's Policy.

ALTA 16-06

Coverage for damage or forced removal of improvements as a result of use or enforcement of an easement.

ALTA 28-06

Title insurance underwriters are required to file a schedule of their premiums/rates with the Tennessee Department of Commerce and Insurance.

Title Insurance Rates.

If a lien on all or any portion of the real estate comprising a condominium has priority over the declaration, and the lien has been released with respect to any unit, then the lien shall be deemed subordinate to the declaration (T.C.A. &sect;&nbsp;66-27-318(i)). T.C.A. &sect;&nbsp;66-27-318(g) states that a creditor of the association holding a lien on a unit before termination of the condominium, may enforce the lien in the same manner as any lienholder. All other creditors of the association are treated as if their interest in the condominium was perfected immediately before the termination of the condominium; If a lender obtains a security interest in the condominium project before the declaration is recorded, but subsequently executes a partial release for any unit, the lender cannot claim that a foreclosure under a deed of trust wipes out the condominium documents. Any lien for homeowners' association assessments or dues has priority over a first deed of trust for all assessments and dues for the previous 6-month period, provided, however no such priority is given if the name and address of the mortgage holder has been provided to the homeowners' association and the association fails to notify the mortgagee of the delinquency within 30 days of the date that 6 months of assessments are delinquent (T.C.A. &sect;&nbsp;66-27-415).

CONDOMINIUM LAW

Effect of foreclosure on Declarant's rights and obligations. Pursuant to T.C.A. &sect;&nbsp;66-27-404(c), the general rule is that the purchaser at the foreclosure sale succeeds to all rights and obligations. The purchaser at foreclosure may disclaim those rights and obligations by recording an instrument to that effect in the Register's Office within 120 days after the foreclosure. Or, pursuant to T.C.A. &sect;&nbsp;66-27-404(e)(4), the purchaser at foreclosure may elect to hold those rights and obligations solely for transfer to another person, by recording a document to that effect within 120 days after acquiring title. In this event, the purchaser may control the board of directors, while it holds such rights and obligations for resale.

CONDOMINIUMS

Manufactured homes are included within the definition of “goods” under Tennessee UCC law. T.C.A. &sect;&nbsp;47-9-102(a)(44). The term “goods” means all things that are moveable when a security interest attaches. The terms “manufactured home” and manufactured home transaction” are also defined under Tennessee UCC law. T.C.A. &sect;&nbsp;47-9-102(a)(53) and (54). A “manufactured home transaction” is a secured transaction that either creates a purchase-money security interest in a manufactured home or in which a manufactured home is the primary collateral. The definition does not include a manufactured home held as inventory. T.C.A. &sect;&nbsp;47-9-102(a)(54). T.C.A. &sect;&nbsp;47-9-310 establishes the general rule and exceptions as to when filing a financing statement is necessary to perfect a security interest. A perfected security interest in fixtures has priority over a conflicting interest of an encumbrancer or owner of real property if the security interest is created in a manufactured home in a manufactured home transaction and perfected pursuant to a certificate of title statute. T.C.A. &sect;&nbsp;47-9-334(e)(4). The owner of both the real estate and the manufactured or mobile home may convert a manufactured home to real property by surrender of the certificate of title to the Department of Safety for cancellation if the manufactured home has been permanently affixed to the real property, and if an Affidavit of Affixation is recorded in the register's office (T.C.A. &sect;&nbsp;55-3-138).

MANUFACTURED HOMES

“GOOD FUNDS”: In mortgage transactions involving 1-4-family residential property, a vacant lot intended for residential use (but not a lot sold to a builder for the purpose of constructing a house for resale), or agricultural land, the loan funds may be delivered only in the following forms: <ul>
 <li>cash</li>
 <li>federal funds wire transfers</li>
 <li>checks issued by the state of Tennessee or a political subdivision of the state</li>
 <li>cashier's checks</li>
 <li>teller's checks issued by a financial institution and drawn on or payable through a financial institution</li>
 <li>checks issued pursuant to the Farm Credit Act of 1971</li>
 <li>direct deposits by a financial institution into the account of the settlement agent maintained in that same institution</li>
 <li>checks issued from the escrow or trust account of a real estate broker not exceeding the amount of earnest money and payable through a financial institution whose checks are processed in the same Federal Reserve Region that the settlement agent is located in (T.C.A. &sect;&nbsp;47-32-102)(3)).</li>
</ul> &nbsp; &nbsp;

Tennessee

Mortgage Law Summary

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Mortgage Law Summary for Tennessee

Tennessee

Mortgage Law Summary

Continue reading theMortgage Law Summary for Tennessee

Continue reading the
Mortgage Law Summary for Tennessee