Navigating Tennessee’s Successor Trustee Statute

September 26, 2014

By: Ryan Martinez, Associate

As one of the basic steps in the Tennessee foreclosure process, the current beneficiary of a Deed of Trust is required to appoint a successor trustee by filing a Substitution of Trustee (commonly referred to as a “SOT”). Tennessee statute § 35-5-114 sets out the general requirements surrounding the SOT, including the timing of when it should be recorded in the county where the property is located. However, there are two portions of this statute that appear to contradict one another regarding the specific timing of when the SOT is required to be recorded.

One subsection states that “[a] substitute of trustee shall be recorded prior to any sale” (emphasis added). T.C.A. § 35-5-114(c). Yet, another subsection states that the SOT “shall be recorded prior to the deed evidencing sale” (emphasis added). T.C.A. § 35-5-114(b)(3)(A). Not surprisingly, these two portions of the statute have created some confusion as to the latest acceptable point when the SOT must be recorded.

Given the contradictory language in the statute, we decided to conduct further research on this topic. We contacted a local Tennessee underwriter at a major title insurance company to get their opinion on the two differing ways in which this statute can be interpreted for the timing of recording the SOT. The underwriter was able to clarify that the language in the statute can be consistently read as meaning that the SOT has to be recorded prior to the recording of the deed evidencing the sale. In Tennessee, this deed is called the Substitute Trustee’s Deed or simply the foreclosure deed. Therefore, the SOT can be recorded at any point, including after the sale has been held, as long as it is recorded before the foreclosure deed.

It is also important to note that the SOT must include some specific language contained in the statute if it will not be recorded prior to the first publication date. Therefore, any SOT that is recorded after the first advertisement has been published must also include the following language:

Beneficiary has appointed the substitute trustee prior to the first notice of publication as required by T.C.A. § 35-5-101 and ratifies and confirms all actions taken by the substitute trustee subsequent to the date of substitution and prior to the recording of this substitution.

This is a key provision that must be included in any SOT that is not recorded before the first publication in the appropriate newspaper. In order to fully comply with the statute, the SOT must contain the “magic language” above and be recorded prior to the foreclosure deed.

Our firm regularly requests and records the SOT prior to setting the property for sale. We hold ourselves to this standard as a best practice to avoid any potential issues and to ensure that all of our SOT’s are in full compliance with Tennessee’s successor trustee statute. However, our experience has shown that there can be situations that arise where the SOT has to be recorded at a different point in the foreclosure process. Understanding that flexibility may be required to meet all of our clients’ needs, it is important for us to highlight that there is some wiggle room when it comes to the timing of recording the SOT. This is crucial information to have for all of the unexpected and unavoidable scenarios where the SOT has to be recorded at a different time in the foreclosure process than normal. We believe that our knowledge and expertise involved with the SOT process will benefit all of our clients when it comes to helping them navigate Tennessee’s successor trustee statute.