In General
Non-judicial foreclosure is the most common form of foreclosure in the State of Alabama. The mortgage instrument controls the type of foreclosure. Therefore, it is essential that the mortgage instrument contain a "power of sale" provision. The "power of sale" provision allows the lender to proceed with a non-judicial foreclosure sale. The power of sale clause must recite the county in which the sale will occur, the hours of the sale, and the courthouse where the sale will occur.

The mortgage document generally provides for instances of default, upon which the lender may accelerate the loan and subsequently foreclose if the loan is not paid in full. The lender must comply with all notice requirements in the mortgage document, as well as with those requirements of investors and agencies. Once the debt is accelerated, the borrower has no right to prevent foreclosure by paying the arrearage unless the mortgage provides otherwise.

Security Instrument - Mortgage
Alabama is a mortgage state; the mortgage is the security for the Note. The title to the underlying property is not transferred with the security instrument. The borrowers have given a security interest in the property and placed a lien on the property but have not given actual title to the property.

Publication of Notice and Notice to Interested Parties
Alabama law requires no actual notice to the borrower or other interested parties. However, a letter should be sent to the borrower's mailing address or to the property address if the borrower cannot be located, and the content of the letter must comply with the Fair Debt Collection Practices Act.

Federal Law requires that the IRS be notified of any foreclosure sale when of any Federal Tax liens are attached to the property. A 25-day notice is required. State tax liens also require additional notice to the appropriate State authority. As a courtesy, notice regarding the upcoming foreclosure sale is sent to the junior lien holder on record when the lien holder's address is provided.

The foreclosure publication must appear in a newspaper published in all the counties where the land is situated. For most power of sale foreclosures, the advertisement must run for three consecutive weeks, beginning at least nineteen days before the sale date. If the mortgage document does not contain a power of sale provision, or it is silent as the place or terms, the advertisement must run for four consecutive weeks.

The advertisement must include the following:

• Date, time, and location of the sale (time is stated "between the legal hours of sale")
• Legal description of the property to be sold
• The name of the original borrowers, lenders and assignees
• Recording information of the Mortgage being foreclosed
• The name of the current holder of Note and Mortgage

The purpose of the advertisement is to notify the public and encourage competitive bidding. Anything in the advertisement tending to discourage competitive bidding may provide a basis for enjoining the sale.

Foreclosure Sale
The sale must be conducted in front of the main door of the courthouse in the county where the land is located. The sale shall be held during the legal hours of sale between 11:00 a.m. and 4:00 p.m., Monday through Friday, on the day advertised in the notice of sale. The sale is a public auction conducted by the lender's attorney or an agent thereof. If the mortgage document so permits, and it usually does, the lender is entitled to bid at its own foreclosure sale. The lender's representative conducting the sale may make bids on behalf of the lender.

The property is sold to the highest bidder at auction, who must pay either cash or certified funds. If the lender is bidding, the amount should be the lesser of the total debt plus cost, or fair market value as determined by an appraisal. While no exact formula is provided, the bid price cannot be so low as to be unconscionable. If the lender does not intend to pursue a deficiency judgment, it is customary to bid debt plus cost. If the lender does intend to pursue a deficiency judgment, the property should be appraised, and the lender should bid no more than fair market value. Any deficiency must be pursued judicially. Any time the lender bids the debt, the note is deemed paid in full.

Alabama law allows for multiple postponements of foreclosure sales for non-specified reasons. The foreclosure sale may be postponed to a new date by announcement at the time and place of the sale. A publication announcing the new sale date must run one time in the newspaper.

Effects of Foreclosure
In Alabama, the lender holds legal title to the property while the borrower holds equitable title. A foreclosure sale extinguishes the borrower's equitable right and gives rise to a one year statutory right of redemption. Any lien holder, including a junior lien holder, may redeem the property during this one year period by paying the amount of the debt plus other specified costs set forth in the state law. Therefore, any purchaser at the foreclosure sale buys subject to the borrower's (and other lien holders') right to redeem. In order for the borrower to preserve this right, the borrower must vacate the property within ten days of receiving the demand for possession from the purchaser. Failure to vacate in this time period causes the borrower to waive his/her statutory right of redemption.

The Mortgage creates a lien that is superior to most subsequent liens. However, a foreclosure sale does not automatically extinguish federal tax liens, ad valorem liens, mechanic's liens, and certain financing statements filed pursuant to the Uniform Commercial Code (UCC). If the IRS is given proper notice at least twenty-five (25) days prior to the pending foreclosure sale, or if the IRS releases its lien, the IRS lien is extinguished. However, the IRS maintains a lien on any excess proceeds from the foreclosure sale. In addition, the IRS has 120 days after the sale to redeem the property where the sale extinguished a junior federal tax lien.

In general, Alabama's foreclosure process is entirely non-judicial. However, if the amount of the debt exceeds the fair market value of the property, the lender may wish to collect the deficiency. To obtain the deficiency, an action must be filed in state court to obtain a personal judgment against the borrower. The lender may assign the right to recover the deficiency to a third party purchaser at the foreclosure sale.

Foreclosure Deed
The property is conveyed to the successful bidder at the foreclosure sale through a foreclosure deed. The purchaser is entitled to a deed immediately upon rendering payment. The foreclosure deed conveys full legal title to the purchaser, subject to the right of redemption, outlined above. The foreclosure deed should be recorded upon the day of sale or as soon thereafter as possible.

If the foreclosed property is to be conveyed to an insuring government agency, it is customary for the lender to take title in its own name at the foreclosure sale and transfer title to the agency through a separate special warranty deed. Neither of these events requires a transfer tax in Alabama. Only a sale to a third party purchaser would require the deed tax in addition to the probate-recording fee.

GEORGIA FORECLOSURE

In General
Virtually all foreclosures in Georgia are through the exercise of the private power of sale contained in the security instrument, which, in Georgia, is known as a Security Deed. The procedure is entirely non-judicial and often takes less than 2 months.

In most instances the lender has the right to accelerate the debt and commence foreclosure upon any material breach of the Security Deed or Note, which it secures. Once the debt is accelerated, the borrower has no right to prevent foreclosure by merely paying missed mortgage payments, unless the security deed provides otherwise. Most security deed forms (the conventional FNMA/FHLMC security deed) do provide the borrower the right to cure the default after acceleration, usually up to five days prior to the foreclosure sale.

Publication of Notice and Notice to Interested Parties
Foreclosure is commenced by submitting a foreclosure advertisement to the official county newspaper for publication once a week during each of the four consecutive weeks prior to the sale date. The sale date is always on the first Tuesday of each month (unless that day is New Year's Day or the Fourth of July, in which case foreclosures will be held on the Wednesday of that week).

The advertisement must contain the following:

• Description of the security deed
• A legal description of the property and property address
• Date and place of the sale
• Other requirements dictated by the Security Deed

The purpose of the publication is to notify the public of the sale and encourage competitive bidding. Anything in the advertisement tending to discourage competitive bidding may provide a basis for enjoining the sale.

If the borrower's residence is involved, Georgia law further requires that the lender notify the borrower of the pending foreclosure by mailing a notice at least 15 days before the sale date by certified mail, return receipt requested. Unless the borrower has provided a different mailing address, the notice is sent to the property address and is deemed given on the date it is postmarked. The notice consists of either a copy of the foreclosure advertisement as published, or the advertisement as submitted to the newspaper for publication. A foreclosure of a residence is not valid unless this notification is timely mailed to the borrower.

Most lenders' attorneys also provide the borrower with a "ten-day letter" advising that the lender intends to enforce the provisions in the note and security deed regarding the payment of attorney's fees in addition to principal and interest. The "ten-day letter" must advise the borrower that he/she has 10 days from receipt of the notice to pay all principal and interest without incurring attorney's fees. If the borrower fails to pay all principal and interest within 10 days of the receipt of the notice, then the lender's right to collect the full amount of attorney's fees is perfected. Most Georgia security deeds and notes provide for reasonable attorney's fees, which under Georgia law is 10 percent of principal and interest.

Georgia law does not require that junior mortgagees or other junior lien holders be notified of the pending foreclosure. However, lenders often choose to send notice for practical reasons. If a junior mortgage is foreclosed subject to a senior mortgage, there is no requirement that the senior mortgagee be notified.

Foreclosure Sale
After the foreclosure advertisement is duly published in the county newspaper and the borrower has been provided with the 15-day notice of sale, the foreclosure sale can take place on the first Tuesday of the following month (except those rare cases when the sale will be on the following Wednesday, as explained above). The sale takes place before the door of the superior court for the county in which the land is situated, at the place where the sheriff's sales are conducted. The sale must take place between the hours of 10:00 a.m. and 4:00 p.m. Consistent with the published advertisement, the sale is a public auction of the property, generally conducted by the lender's attorney. If the security deed so permits (and it usually does) the lender is entitled to bid at its own foreclosure sale. The lender's attorney conducting the sale may, and generally does, make bids on behalf of the lender. The property is sold to the highest bidder, who must either pay in cash or certified funds at the time of the sale.

Generally, Georgia law does not require that property in foreclosure be sold at market value or at any particular amount. The sale is valid even if it only brings a nominal amount. Where the lender does not intend to pursue a deficiency judgment, it is customary to bid in the property for debt plus costs. However, where the lender intends to pursue a deficiency judgment, then it is essential that the land be appraised before the sale and that the lender bid no less than FULL FAIR MARKET VALUE of the land. As explained below, a deficiency judgment will not be allowed if the property forecloses at anything less than full fair market value.

Effects of the Foreclosure
Unlike many states, Georgia gives the borrower no right to redeem the property after the sale. If properly conducted, the foreclosure sale divests the borrower of all rights in the property and eliminates all junior liens (other than certain tax liens and liens held by the United States government). A junior federal tax lien encumbers the property and gives the United States 120 days after the sale to redeem the property. This assumes that the IRS has been given proper notice of the foreclosure sale at least 25 days before the sale. If not, the federal tax lien will survive the foreclosure sale. Also, if the United States or any agency thereof has a junior lien, it may claim a one-year right to redeem.

As stated above, Georgia's foreclosure procedure is entirely non-judicial. However, court action concerning the sale is required if the lender intends to file a deficiency judgment action. Before filing a deficiency judgment action, the lender must have the sale "confirmed" by the court. Making a report of the sale to the judge of the superior court within 30 days after the sale commences a confirmation case. A hearing is scheduled shortly thereafter at which time the lender must prove that the foreclosure sale was proper in all respects and that the sale brought the FULL FAIR MARKET VALE. Without solid evidence as to market value (normally through testimony of an appraiser), the judge will not confirm the sale. The borrower may offer his own appraisal to persuade the judge that the sale brought less than fair market value. If not confirmed, the foreclosure sale usually still stands as valid. Generally, the only adverse consequence of denial of the confirmation is that the lender loses the right to file a deficiency judgment action. Additionally, the court may order that the property be re-foreclosed if the circumstances so warrant.

Foreclosure Deed
The Deed Under Power conveys the property to the successful bidder at the foreclosure sale. The holder of the Security Deed executes the deed as "attorney-in-fact" for the borrower. The Deed Under Power vests in the purchaser the same right, title, and interest in the property as the borrower had. No payment of transfer tax is required on a foreclosure.

If the foreclosed property is to be conveyed to an insuring governmental agency, it is customary for the lender to take title in its own name through the Deed Under Power, and then transfer title to the agency through a separate limited warranty deed. Thus, Georgia is a "two-deed state".

MISSISSIPPI FORECLOSURE

In General
The most common form of foreclosure in Mississippi is by auction under the "non-judicial power of sale" provision of the security instrument, or Deed of Trust. This method allows the lender to foreclose without the necessity of using the court system. The procedure is non-judicial and can be accomplished quickly and relatively inexpensively.

Security Instrument - Deed of Trust
When real property secures a loan, lenders require a security instrument along with the Promissory Note, which, in Mississippi, is called a Deed of Trust. In the Deed of Trust, the borrower conveys the real property to a third party known as the Trustee. The Trustee is vested with the power to sell the property at a foreclosure sale if the borrower defaults on any of the provisions of the Promissory Note or the Deed of Trust.

In most cases the lender replaces the original Trustee named in the Deed of Trust with a Substitute Trustee. The current holder of the Deed of Trust executes an Appointment of Substitute Trustee designating the new trustee and authorizing him to act in the place and stead of the original Trustee. The instrument of appointment must be executed properly, acknowledged and duly recorded in the office of the Chancery Clerk of the county in which the Deed of Trust is recorded. Under Mississippi statute, the Trustee or Substitute Trustee may appoint an agent to attend and conduct any foreclosure sale.

To conduct a valid foreclosure sale, the lender must comply with the provisions of the Deed of Trust and any governing state or federal laws. The lender should also follow any regulations promulgated by governmental entities such as FHA, VA, Fannie Mae or Freddie Mac, as appropriate.

Publication of Notice and Notice to Interested Parties
In Mississippi the notice of foreclosure sale is published once each week for four consecutive weeks, with the sale to be conducted within one week of the last publication date. The notice of sale must be in a newspaper of general circulation in the county where the sale is to be conducted and where the property is situated.

The notice must contain the following:

• Names of the original borrowers, the current holder of the Deed of Trust,
  and the trustee
• Reference to the recording of the Appointment of Substitute Trustee's
• A description of the Deed of Trust including the date of execution, recording information, and reference to any modifications or assumption agreements
• A legal description of the property
• Assignments from the original beneficiary to identify the current holder of
  the deed
• The date, time, and place of the sale (sale can occur any weekday between the legal hours of sale of 11:00 a.m. and 4:00 p.m.)

Also, the notice of sale must be posted in the courthouse of the county where the land is situated. In most counties a bulletin board is provided for such notices. The notice of sale should be posted at the time of the publication. An affidavit from the Chancery Clerk is a good safeguard to insure that the notice of sale was posted.

Pursuant to the Fair Debt Collection Practices Act, the borrowers should be mailed notice of the foreclosure at least 30 days prior to the sale. If the terms of the Deed of Trust dictate other notice requirements, these requirements must be met. Otherwise, no notice other than publication is required for borrowers or lien holders. The exception to this is the Internal Revenue Service. The IRS must receive notice of the foreclosure at least 25 days prior to the scheduled foreclosure sale date.

Foreclosure Sale
Generally, the foreclosure sale is conducted in the county in which the property is situated. In a county with multiple judicial districts, the Deed of Trust should be specific as to which judicial district courthouse will host the sale. If the Deed of Trust is silent as to the place of the sale, the sale will be conducted at the courthouse in the county in which the land is situated. Many courthouses in Mississippi have four front doors facing opposite directions. Therefore, the best policy is for the notice of sale to designate the direction of the front door of the courthouse.

The Trustee or Substitute Trustee may appoint someone else to serve as auctioneer. If someone else is designated as auctioneer, the Trustee or Substitute Trustee should supply that auctioneer with a letter establishing the auctioneer as an agent of the Trustee or Substitute Trustee. The lender is entitled to bid at its own foreclosure sale and the Substitute Trustee or his agent often bids on behalf of the lender. The foreclosure sale takes place at the courthouse steps between the hours of 11:00 a.m. and 4:00 p.m. The property is sold to the highest bidder. Immediate payment, in cash or certified funds, for the entire amount is required. If the highest bidder fails to deliver the full amount of the bid, the property may not be resold without notice of a new sale date.

Effects of Foreclosure
A foreclosure sale divests the borrower of all rights in the property and effectively wipes out any liens that are junior to the foreclosed mortgage. The only exception is a federal tax lien.

Any suit seeking to recover a deficiency must be commenced within one year from the date of the foreclosure sale.

The foreclosed borrower has no right to redeem the property after the foreclosure sale.

Foreclosure Deed
The property is conveyed to the successful bidder at the foreclosure sale through a foreclosure deed known as a Substitute Trustee's Deed. That Deed is signed by the appointed Substitute Trustee and should be recorded as soon as possible after the conclusion of the sale. Proof of publication from the newspaper must be notarized and attached to the deed as an exhibit. The affidavit by the Chancery Court confirming the notice of sale was posted in the Courthouse should also be attached to the Trustee's Deed.

NORTH CAROLINA FORECLOSURE

In General
While North Carolina is often referred to as a "non-judicial" foreclosure state, the procedure has many trappings of a judicial foreclosure. Thus, as compared to other "non-judicial" states, North Carolina requires additional care and expertise for the foreclosure to proceed smoothly. The following steps must be followed for a valid foreclosure.

Security Instrument - Deed of Trust
In North Carolina, the most commonly used security instrument is the Deed of Trust. In the Deed of Trust, the borrower conveys the property to a third-party trustee ("Trustee") to hold for the lender, subject to the condition that the conveyance shall be void upon payment of the debt secured. Virtually all Deeds of Trust contain a power of sale clause giving the Trustee the ability to foreclose the property in event of default. The Deed of Trust is very similar to a mortgage (rarely used in North Carolina), except that: 1) a mortgage is a two-party instrument between the borrower and lender with no third party trustee involved, and 2) a lender holding a mortgage cannot bid at its own foreclosure sale. This latter difference creates a preference among creditors to use a Deed of Trust.

When the lender elects to commence foreclosure, it is customary to replace the original Trustee on the Deed of Trust with a Substitute Trustee. The Substitute Trustee is usually the lender's attorney hired to conduct the foreclosure. A properly executed Appointment of Substitute Trustee, filed of record in the appropriate county Registry Office, accomplishes the substitution process. The Substitute Trustee may appoint an agent to conduct the foreclosure sale.

Publication of Notice and Notice to Interested Parties
The Trustee must first notify all parties entitled to notice of an upcoming foreclosure hearing before the clerk of the superior court (the "Clerk") of the county where the land is situated. This notice must be given at least ten days prior to the date of the hearing and can be served by registered or certified mail, return receipt requested. If a party cannot be served in this manner, notice may be given by a posting upon the property at least 20 days prior to the date of the hearing.

Within 30 days prior to filing of the Notice of Hearing, the lender must send a written statement to the borrower specifying the outstanding principal balance, accrued interest, per diem interest, and other expenses. The Trustee must receive confirmation that this written statement was sent to the borrowers prior to the filing of the Notice of Hearing.

The Clerk must find the following four factors before authorizing a foreclosure:

• A valid debt held by the party seeking to foreclose.
• A default.
• A right to foreclose under the mortgage or deed of trust.
• Notice properly given to those entitled to it under the statute.

Finding the existence of these factors authorizes the Trustee to give notice of and otherwise proceed with the sale. The Clerk's finding is a "judicial act" which can be appealed to the appropriate district or superior court within ten days after the finding or refusal to find by the Clerk.

At least 20 days immediately preceding the sale, a notice must be mailed by first class mail to each party entitled to notice and posted in the area designated by the Clerk in the county where the property is situated. The notice must publish once a week for at least 2 successive weeks in a newspaper qualified for legal publication in the county where the property is situated. These statutory requirements are in addition to complying with any requirements set forth in the security instrument.

Termination of Power of Sale
The power of sale foreclosure can be terminated if before the sale, or prior to the expiration of the upset bid period, payment is tendered in the amount of the secured obligation along with the expenses of the sale, including compensation for the Trustee's services.

Foreclosure Sale
Pursuant to the Clerk's order authorizing the sale, the Trustee holds the foreclosure sale at the courthouse door between the hours of 10:00 a.m. and 4:00 p.m., where he takes bids and accepts the highest bid. The sale will be held at the day and time stated in the Notice of Sale, and must be held within one hour of that specified time. If the Deed of Trust requires a particular cash deposit the amount so specified must be deposited; if not, the Trustee may require the highest bidder to immediately make a cash deposit not exceeding either five percent (5%) of the bid price or $750.00. If the highest bidder does not comply, the Trustee may immediately offer the property for sale again. The Trustee must make a preliminary report of the sale to the Clerk within five days of the sale.

The foreclosing lender has the option to postpone the sale. The Trustee must announce the postponed sale date and time. Reasons for a postponement include: absence of any bidders, bad weather, illness, numerous other sales or any other good reason. The foreclosure sale may be postponed more than once, but must be held not later than 90 days after the original sale date.

Upset Bid
The foreclosure sale is not complete until after ten days following the filing of the preliminary report of sale. The tenth and final day must fall on a day in which the Clerk is open for business. Until the tenth day, another purchaser may make an upset bid, which must be at least 5% greater than the previous bid. The upset bidder must deposit with the clerk, in cash or certified funds, an amount equal to 5% of the new bid, but no less than $750.00. Once an upset bid has been made, another ten-day period begins which allows other upset bids to be filed. There is no limit on the number of times that an upset bid may be filed.

An upset bid requires the Clerk to notify the Trustee who then mails written notice of the upset bid by first class mail to both the last known address of the previous bidders and the current record owners of the property. The upset bid releases the prior high bidder from any obligations regarding the property. If an upset bid is not filed within the time specified the rights of the parties to the sale or resale become fixed.

Final Report of Sale
A final report and accounting of receipts and disbursements must be filed with the Clerk within 30 days after receiving the proceeds of the sale. The report indicates whether all of the property was sold and if the property was sold whole or in parts. In addition, it must show if the obligation was satisfied completely or only in part. The foreclosing party must also file with the Clerk documentation regarding notices, advertisements and an affidavit that all notices were served to all those entitled. A fee to the Clerk must be paid for auditing and recording the final account as part of the expense of the sale.

Effects of the Sale
The lender may recover a judgment against the borrower for the unpaid balance due on the loan obligation after applying the amount realized at the sale. However, North Carolina's anti-deficiency statute could prevent obtaining a deficiency judgment. The statute precludes a deficiency judgment in certain cases where the secured party in the Deed of Trust is the seller. This is called a purchase money transaction. It does not apply when the secured party is a third party lender. Thus, where there is an exchange of property and the buyer financed a cash portion of the purchase price through a loan from a third party bank, the Deed of Trust securing the bank note is not within the scope of the deficiency statute. The statute has also been construed broadly by the courts to preclude lenders from suing upon the promissory note in a purchase money transaction without a foreclosure.

If the lender becomes a purchaser at the foreclosure sale, the debtor can raise a defense to a deficiency action that the amount of the bid was substantially less than the property's true value. Therefore it is imperative to obtain an appraisal of the property prior to the sale so as to ensure that the bid represents the property's fair market value.

Right of Redemption
Until the time for the upset bid expires, the foreclosure is incomplete and the borrower has the continuing right to pay off the debt and redeem the land. The right to redeem ends with the last of the upset bid periods.

Foreclosure Deed
Transfer of title to the foreclosure property is made by a Substitute Trustees Deed, which is recorded at the appropriate county Registry Office.

TENNESSEE FORECLOSURE

In General
The purpose of a foreclosure sale is to terminate any rights, title or interest the borrower or other parties, such as junior lien holders, may have in the property, so that clear title can be passed to the purchaser at the foreclosure sale. The predominant method of foreclosing in Tennessee is by auction under the "nonjudicial power of sale" provision of the security instrument (Deed of Trust). This method allows the lender to foreclose without using the court system. It is generally less expensive and more expeditious to avoid formal court proceedings.

Security Instrument - Deed of Trust
When real property secures a loan in Tennessee, lenders require a Deed of Trust to be executed along with the Promissory Note. In the Deed of Trust, the borrower conveys the real property to a third party known as the Trustee. The Trustee is vested with the power to sell the property at a foreclosure sale if the borrower defaults on any of the provisions of the Promissory Note or the Deed of Trust. The Deed of Trust is very similar to a mortgage in that both instruments secure the repayment of a debt by giving the lender the right to foreclose the property in the event that the borrower defaults on his obligations. The mortgage is different in that it is a two-party instrument between the lender and borrower with no third-party trustee.

It is common practice in Tennessee to replace the original Trustee named in the Deed of Trust with a Substitute Trustee. The original Trustee is typically an officer or employee of the lender, and the Substitute Trustee will usually be the attorney or other party the lender has hired to conduct the foreclosure. The substitution process involves preparing an Appointment of Substitute Trustee form executed by the lender and filing it in the appropriate County Register's Office prior to the foreclosure sale. Under Tennessee statute, the Trustee or Substitute Trustee may appoint an agent to attend and conduct any foreclosure sale.

To conduct a valid foreclosure sale, the lender must comply with the provisions in the Deed of Trust and any governing state or federal laws. The lender should also follow any regulations promulgated by investors or governmental entities such as FHA, VA, Fannie Mae or Freddie Mac, as appropriate.

Publication of Notice and Notice to Interested Parties
Publication of the notice of the foreclosure sale is designed to protect the borrower's interest by encouraging competitive bidding so that the sale may bring the highest possible price. Under Tennessee law, the first publication of the notice of foreclosure sale must be at least 20 days prior to the sale.

The notice must run at least 3 times in the newspaper of the county where the property is located and should contain the following:

• Names of the borrowers, lenders and other interested parties
• A legal description of the property and street address if known
• The time and place of the sale (sale can occur any weekday, but must be between the hours of 10:00 a.m. and 4:00p.m.)
• Information on any IRS or Tennessee State tax liens, including a statement that notice of the sale has been given to the IRS or State of Tennessee. In these cases, there must also be a statement that the sale is subject to the rights of the United States or the State of Tennessee to redeem the property after sale.

If the Deed of Trust requires additional or different notices, these requirements must be met. Under the Tennessee statute, noncompliance with the notice requirements will not cause the foreclosure sale to be void or voidable. However, noncompliance is a misdemeanor and any injured party may sue for damages.

Tennessee also requires written notice be given by mail to the borrowers or other interested parties such as junior lien holders. In addition, borrowers should receive notice pursuant to the Fair Debt Collection Practices Act at least 30 days before the foreclosure sale.

Foreclosure Sale
The foreclosure sale is usually conducted at the courthouse steps in the county where the property is situated and must take place between the legal hours of 10:00 a.m. and 4:00 p.m. The property is sold to the highest bidder at auction sale conducted by the Substitute Trustee or his agent. Immediate payment in cash or certified funds is required. The lender may bid at the sale and will usually bid the remaining loan balance plus any costs of foreclosure. The foreclosure sale may be postponed to a specific date and time, by announcement at the time and place specified in the originally published notice of sale. However, it is recommended that a postponement in excess of two to three weeks be republished for three insertions.

At the conclusion of the foreclosure sale, the Substitute Trustee transfers title to the highest bidder by a Substitute Trustee's Deed. The deed must contain, as exhibits, a copy of any notice to the IRS or the State of Tennessee regarding tax liens and a copy of any written response to these notices. If the deed directly conveys the property to a governmental entity (FHA, VA, Fannie Mae, or Freddie Mac), there is no transfer tax.

Effects of Foreclosure
The Deed of Trust gives the borrower an equitable right to redeem the property by paying all amounts owed, including interest, late charges, and attorneys fees. The equitable right of redemption is extinguished at the time of the foreclosure sale. Technically, a Tennessee statute gives the borrower the right to redeem the property for two years from the date of the foreclosure sale by paying the purchase price plus accrued interest. However, this redemption right is rarely an issue because the borrower almost always waives it in the Deed of Trust.

The Deed of Trust creates a lien that is superior to most subsequent liens. However, foreclosure does not automatically extinguish federal and state tax liens, mechanic's liens, and certain financing statements filed pursuant to the Uniform Commercial Code (UCC). If the IRS is given proper notice at least twenty-five (25) days prior to the date of sale, a federal tax lien is extinguished by the foreclosure sale. However, the sale is subject to the right of the United States to redeem the property for 120 days following the foreclosure sale. State tax liens will be released following the foreclosure sale, provided that the proper notice is given to the State of Tennessee. Mechanic's liens must be paid off by the foreclosing lender to clear title to the subject property. When a UCC Financing Statement has been filed relating to an item which has become affixed to the property (for example, storm windows, heat pump, central air conditioning system), the debt must be paid off by the foreclosing lender, or the creditor must be allowed to come and repossess the collateral.

Deficiency Judgment
The lender may seek a deficiency judgment against the borrower if the highest bid at the sale is less than the amount owed by the borrower. In Tennessee, it is presumed that the highest bid at the public sale is the market value of the property. The lender is entitled to recover a deficiency unless the borrower can prove the amount bid was inadequate or the sale was not conducted properly. Generally, the borrower must prove some type of fraud in the manner in which the foreclosure sale was conducted to successfully defend against a deficiency action.

Foreclosure Deed
The property is conveyed to the successful bidder at the foreclosure sale through a foreclosure deed known as a Substitute Trustee's Deed. That deed is signed by the Substitute Trustee and conveys full legal title to the purchaser of the property.

If the foreclosure property is to be conveyed to an insuring government agency, it is customary for the lender to take title in its own name at the foreclosure sale and transfer title to the agency through the same Substitute Trustee's Deed. In this instance, the deed becomes a three-party deed.

VIRGINIA FORECLOSURE

In General
The majority of actions to enforce liens in Virginia are foreclosures conducted by Trustees under the powers conferred by the security instrument, or Deed of Trust. The lender's security interest in the property is protected by the terms of the Deed of Trust, which authorizes the sale of the property in the event of default by the borrower. In Virginia, the procedure is entirely non-judicial.

Security Instrument
A deed of trust is the basic document whereby a borrower conveys legal title to real estate to a Trustee who holds such legal title for the benefit of the lender. As such, the standard deed of trust contains three parties: 1. the grantor or borrower who conveys the legal title to secure the debt but retains equitable title to the property; 2. the Trustee, who holds the legal title to the property pursuant to the terms of the deed of trust; and 3. the beneficiary, or lender.

Upon executing the Deed of Trust, the lien exists until properly released by the lender or by the Trustee. Once the loan is paid in full, a lender may execute and record a Certificate of Satisfaction or a Trustee may execute and record a Trustee's Deed of Release to release the lien from the property. However, should the borrower fail to perform the obligations set forth in the Note and/or the Deed of Trust, the Lender may appoint a Substitute Trustee and foreclose the property to satisfy the remaining obligation.

When the lender elects to commence foreclosure, it is customary to replace the original Trustee on the Deed of Trust with a Substitute Trustee. The Substitute Trustee is usually the Lender's attorney hired to conduct the foreclosure. It is well established in Virginia that the Trustee is the agent for both the lender and the borrower, and therefore, must act with fairness and impartiality. A properly executed Appointment of Substitute Trustee accomplishes the substitution. The Appointment of Substitute Trustee need not be recorded prior to the foreclosure to be valid and binding, but must be recorded following the foreclosure sale.

Publication of Notice and Notice to Interested Parties
The Trustee must advertise the sale of the property in a newspaper of general circulation in the city or county where the subject property lies. The sale must be advertised in accordance with the terms of the deed of trust. It is imperative that the Trustee examine the Deed of Trust to determine the proper number of publications necessary to fulfill the Trustee's duty. If the Deed of Trust is silent as to the frequency of advertisement, the Trustee shall advertise once a week for four successive weeks. The sale must be held within 30 days of the last advertisement. The advertisement must contain the following:

• The property description
• The time and place of sale (may be any weekday between the hours of 9:00a.m. and 5:00p.m.)
• The Trustee's identity
• A contact person for information
• The required deposit (usually 10% of the winning bid).

Virginia Code requires that the Trustee provide written notice of the sale. The notice contains the time, date, and place of the proposed sale and must be sent to the following: the present owner; subordinate lienholders or their assignees who have recorded liens more than 30 days prior to the proposed sale; condominium unit owners' associations; homeowner associations that have filed liens; proprietary lessees' associations that have filed liens; and any other person or entity required by the deed of trust. Thus, it is imperative that the Trustee examine the title report carefully and examine the deed of trust for any further notice requirements. All notices must be given at least 14 days prior to the proposed sale and be sent certified or registered mail.

It is important to note that Virginia law does not require that a notice of sale be sent to the tenants of the property. However, it is common practice to send a notice of the proposed sale addressed to "Tenants and/or Occupants".

Foreclosure Sale
After the advertisement has run and notice has been given to the appropriate parties, the foreclosure sale can take place. The sale is an auction conducted by the Trustee, or an agent thereof, at the front steps to the Circuit Court in the county or city in which the property lies. The sale is held at the day and time stated in the Notice of Sale. The lender is entitled to bid at its own foreclosure sale and often the lender's attorney conducting the sale makes bids on the lender's behalf. The Trustee also may accept written one-price bids which should be fixed and not in the nature of "one dollar over the last highest bid". Under no circumstances should the Trustee accept such bids as they may be construed as participation in the bidding process and invalidate the sale. The property is sold to the highest bidder. If the Deed of Trust requires a particular cash deposit, the amount so specified must be deposited with the Trustee at the sale.

Under Virginia law, the property need not be sold at market value. Even when seeking a deficiency judgment, there is no minimum requirement. The general rule for the adequacy of price at a foreclosure sale is that a foreclosure sale will not be set aside for mere inadequacy of price, unless the bid is so grossly inadequate as to shock the conscience and raise a presumption of fraud. The Courts have recognized that a foreclosure sale is a forced sale that rarely brings the equivalent of full fair market value. Thus, attacks on foreclosure sales based upon inadequacy of price are rarely successful.

The Trustee may recess the sale to a later time on the same day by making an announcement at the scheduled sale date and time. Such a duty to recess the sale may arise if, for example, the Trustee has knowledge that a particular bidder interested in the property has become inadvertently delayed arriving at the sale. In such a case, the Trustee should recess the sale to a later time on the same day. Failure to do so may risk an attack on the foreclosure sale for failure to obtain the best price.

The Trustee may also postpone the sale. Postponement requires, re-advertising the "new" sale in the same manner as the original advertisement. Therefore, the Trustee should be very cautious regarding postponement as the requirement to re-advertise might involve substantial delay as opposed to recessing a sale.

Effects of Foreclosure
In Virginia, borrowers have no right to redeem the property after the foreclosure sale. If properly conducted, the foreclosure sale divest s the borrower of all rights in the property and eliminates all junior liens (other than certain tax liens and liens held by the United States government).

Following the sale, the Trustee requires the highest bidder to execute a "Memorandum of Sale" which, in effect, is a contract. The Memorandum should identify the parties, the sale price and the closing date. It is also prudent to include risk of loss, default, and remedy provisions unless contained in the notice of sale as incorporated in memorandum.

Settlement and Accounting
Following the sale, the Trustee executes a Trustee's Deed containing a special warranty of title in exchange for the full purchase price. The Trustee's Deed should recite sufficient facts to demonstrate substantial compliance with the advertising and notice provisions of the Deed of Trust and the Virginia Code. The purchaser's failure to tender the full purchase price at settlement is grounds for the Trustee to declare the deposit forfeited and to resell the property.

The Trustee is also required to file with the Commissioner of Accounts a Trustee's Report which shall include the following: the original note; vouchers for expenses; proof of advertising; a copy of the original Deed of Trust; verification of balance due from the Lender; a copy of the Substitution of Trustee; real estate tax receipts; a copy of any assignments; proof of notice; and a copy of the recorded Trustee's Deed. The Trustee's Report must be filed within six months of the date of the sale or risk fines and penalties assessed by the Commissioner. There is no basis to invalidate a sale for failure to file a final Trustee's Report. However, it is essential that the foreclosing Trustee file the reports promptly and effectively in order to maintain a good working relationship with the Commissioner of each particular city and county.