New Tennessee Foreclosure Deficiency Law In Effect on September 1, 2010
By In this era of decreasing real estate values, it is common for a lender still to be owed money after it forecloses on a piece of real estate. Often, when a lender sues the borrower to collect the deficiency balance, the borrower claims that the lender sold the property for too little at the foreclosure sale. The borrower’s logic is that, since the lender sold the property for too little, the borrower should not be held responsible for the full deficiency.
For Tennessee foreclosures where the first notice is provided after September 1, 2010, that argument may be harder for borrowers to make. According to a new statute, T.C.A. ยง35-5-117, a deficiency judgment will be equal to “the total amount of indebtedness prior to the sale plus the costs of the foreclosure and sale, less the fair market value of the property at the time of the sale.” The statute states that there will be a “rebuttable prima facie presumption that the sale price of the property is equal to the fair market value of the property at the time of the sale.” So, going forward, if a borrower wants to argue that the bank sold the property for too low a price, the borrower will need to overcome this statutory presumption. The new statute explains that the borrower would need to show fraud, collusion, misconduct, or irregularity in the sale process in order to defeat the presumption.
At first blush, this statute seems to limit the arguments available to borrowers. However, in reality, our experience has been that, unless a borrower could show fraud or irregularities in the sale process, most courts have assumed that the foreclosure sale price was a fair market value. Given this, while the statute might streamline some individual lawsuits, it might not change the result in many cases. We will have to see how the statute is used by parties and applied by the courts.
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Someone just sent me a link to your blog. I note the following of the observations that you made in this blog.
1) The law becomes effective September 1, 2010 and in effect for publications on or after after Sept. 1 2010 not just after Sept. 1, 2010
2) I cannont find where the debtor has to prove fraud, collusion, miscoduct or irregularity to defeat the presumption. A preponderance of the evidence of fair market value “at the time of the sale” is required.
Assuming a fair market value of $ 100,000 “at the time of the sale” but the property sells at the foreclosure sale for $ 80,000, the debtor must prove by a preponderance of the evidence that the fair market value is actually $ 100,000. Assuming that the debtor can prove this, this law can be beneficial to the debtor with substantial equity in their property by relieving the debtor of a deficeincy judgement. It could also benefit a creditor where no equity exists by limiting the arguments available to the debtor.
Comment by Dan — September 2, 2010 @ 5:17 pm
Dan,
About #1, you are right.
About #2, see TCA 35-5-117(b) in the link in my post.
Thanks.
Bob Mendes
Comment by Bob Mendes — September 2, 2010 @ 5:35 pm
“unless a borrower could show fraud or irregularities in the sale process, most courts have assumed that the foreclosure sale price was a fair market value.”
On a positive note…. We can prove this,but what is the mechanism or platform that allowes you to do so?
The system can litterlly put you in the Twilight Zone
Why does TN look the other way?
Is there such a thing as “equal access to justice”?
While there has been some visible change to the positive… there still exists a conventional mindset driven by procedural normalcy “that’s just how it works”, & the law is often misinterpreted as a business.
It seems near impossible that anyone can get a clear cut answer.
Lawyers want $25-50k!!
The legal/court sytem can appear as a huge mysterious gauntlet.
So how do civilians who supposedly have rights, afford the ability to prove fraud?
Comment by Theelbow — December 4, 2010 @ 10:30 pm
Bob,
Why is the borrower the person who has to prove fair market value?
There are several factors/people involved when the borrower bought his house and when it sold at foreclosure.
1. Seller set the price when he bought the house.
2. Appraiser assigned a value to the home that the bank accepted.
3. When foreclosure started the bank did a BPO on the house to see where it compared to the mortgage balance.
4. Bank sets the sales price for the house for the foreclosure.
5. A new buyer low balls the list price.
6. Bank wants the house off the books, accepts the low ball offer.
7. Appraiser sets the appraisal off the Low Ball Offer, because that’s what a buyer is now willing to pay for the house and the Bank (seller) is willing to take for the house.(Can be the same appraiser that originally appraised the house.)
8. The bank is happy that it has Sold and now goes after the difference!
Now the foreclosed borrower is STUCK with what the house Sold for.
The borrower listened to the real estate agent, appraiser and the bank to tell him that he was buying a house at a fair market value. Then he signed the stack of papers at the closing.
Tell me where the borrower is in control for what price the house SOLD!
I am a firm believer that one should do everything to avoid a foreclosure.
Mike
Comment by mike — June 1, 2011 @ 2:29 pm