USFN Report: No Common Law Cause of Action for Wrongful Foreclosure in Tennessee

BY COURTNEY MCGAHHEY, ESQ.
WILSON & ASSOCIATES*
USFN MEMBER (AR, MS, TN)

As published in the Winter 2025 USFN Report

In November 2024, the Tennessee Supreme Court held that there is no common law cause of action for “wrongful foreclosure” in Tennessee. See Case v. Wilmington Trust, N.A. et al., No. E2021-00378-SC-R11-CV, 2024 Tenn. Lexis 432 (Tenn. Nov. 14, 2024). Over the past two decades, a handful of opinions in Tennessee using “wrongful foreclosure” terminology have led some to argue that a wrongful foreclosure is an independent cause of action. In Case, the Court specifically addressed the issue, finding that “wrongful foreclosure” is not a stand-alone claim. Id. at 32-41.

The Case appeal arose from a lawsuit filed by Terry Case (“Mr. Case”) in the Chancery Court of Hamilton County, Tennessee, which asserted a claim for “wrongful foreclosure,” among others. Mr. Case claimed the defendants, Wilmington Trust, N.A. (“Wilmington”) and Wilson & Associates, PLLC (“Wilson”), wrongfully foreclosed his property by failing to give him written notice of the postponed sale pursuant to the terms of the notice of sale. The relevant facts that gave rise to his complaint are as follows: Mr. Case was delinquent on his mortgage payments. Wilmington appointed Wilson as substitute trustee and initiated foreclosure. Wilson prepared the notice of sale which was mailed to Mr. Case and published in the newspaper. Prior to the scheduled foreclosure sale, Mr. Case filed suit and obtained a temporary restraining order (“TRO”) preventing the sale. As a result of the TRO, Wilson verbally announced the sale’s postponement at the date, time, and place of the original sale pursuant to §35-5-101 of the Tennessee Code. On the postponed sale date, the property was sold at foreclosure sale. Mr. Case then amended his complaint and asserted claims for “wrongful foreclosure,” breach of contract, slander of title, and to quiet title. He claimed Wilmington and Wilson wrongfully foreclosed the property by failing to give him written notice of the postponed sale pursuant to the terms of the Notice of Sale.

The trial court dismissed Mr. Case’s claims for slander of title and to quiet title, and ultimately granted defendants’ motions for summary judgment on the remaining breach of contract and wrongful foreclosure claims. See Case v. Wilmington Trust, N.A. et al, No. 20-0144 (Tenn. Ch. 2021). Mr. Case appealed, only challenging the dismissal of the wrongful foreclosure claim. He argued that the defendants failed to provide written notice of the foreclosure sale’s postponement and failed to properly identify the location of the foreclosure sale in its notice of sale. Case v. Wilmington Trust N.A. et al., 2022 Tenn. App. LEXIS 251 (Tenn. App. June 28, 2022). The appellate court held that the lack of written notice of the foreclosure sale postponement was a breach of the deed of trust. Thus, they reversed the trial court’s order granting defendants’ motion for summary judgment as to Case’s wrongful foreclosure claim and ordered the foreclosure sale be set aside. Id. at 40-44. Wilmington then appealed to the Tennessee Supreme Court.

At issue before the Tennessee Supreme Court was whether Mr. Case had standing to bring his claim, whether Tennessee recognizes an independent common law cause of action for wrongful foreclosure, and whether the Fannie Mae/Freddie Mac Uniform Tennessee Deed of Trust requires written notice of postponement in addition to an oral announcement according to section 35-5-101(f) of the Tennessee Code. Case v. Wilmington Trust, N.A. et al., No. E2021-00378-SC-R11-CV, 2024 Tenn. Lexis 432, (Tenn. Nov. 14, 2024). The Court determined that Mr. Case held a private interest in the real property at issue, which is a private right, and that he alleged injuries to his contract rights and property rights. Thus, the Court found Case to have constitutional standing to bring his claim. Id. at 31.

The Court then tackled whether “wrongful foreclosure” is actionable in Tennessee. The court reviewed the history of appellate case law in the state that has used the “wrongful foreclosure” terminology. The Court specifically analyzed the case of Garner v. Coffee Cnty. Bank, No. M2014-10956-COA-R3-CV, 2014 Tenn. App. LEXIS 873 (Tenn. App. Oct. 23, 2015), and its reliance on Overholt v. Merchants & Planters Bank, 1982 Tenn. App. LEXIS 377 (Tenn. App. March 10, 1982), for the idea that “wrongful foreclosure” can be asserted “as a primary cause of action when a mortgagor asserts that a foreclosure action is improper under a deed of trust.” Wilmington at 33-38. The Tennessee Supreme Court ultimately disagreed with the Court of Appeals in Garner, and all subsequent citations thereto as to its analysis relating to wrongful foreclosure. The Court explained that Overholt did not hold that wrongful foreclosure is an independent cause of action under Tennessee law, but merely discussed a bank’s failure to satisfy its obligations under a deed of trust. Id. In Overholt, the court’s decision was based upon whether the bank had complied with the acceleration clause contained within the deed of trust in light of Tennessee law regarding the tender of payment after default. Therefore, the Court here found the Garner court’s analysis of Overholt does not support the proposition that wrongful foreclosure is an independent common law claim in Tennessee. Id.

The Court stated “there can be breaches of contact, torts and statutory causes of action based on allegations of ‘wrongful foreclosure,’ but the use of the terminology to describe the claim does not transform it into its own separate cause of action.” Id. at 38-39. The Court reasoned that just as “negligence” is a cause of action, “bad driving” is not a cause of action. And while “breach of contract” is a cause of action, “wrongful foreclosure” is merely a description of the breach. Id. at 39. Analysis was also given to the fact that if Tennessee recognized a common law cause of action for wrongful foreclosure, there would be case law detailing its elements and affirmative defenses, but none exist. The Court’s review of the case law in the state revealed simply that “wrongful foreclosure” is only “a description of the underlying factual basis for the substantive cause of action actually being asserted.” Id.

Ultimately, the Court was clear to point out that while borrowers who believe their property was wrongfully foreclosed cannot bring a cause of action for wrongful foreclosure, they can still present claims for breach of contract, tort, and statutory violations. Id. at 40.

Because there is no common law cause of action for wrongful foreclosure in Tennessee, the Court found Mr. Case had no remaining claims in the case. As a result, the Court did not reach the final issue of whether the Fannie Mae/Freddie Mac Uniform Tennessee Deed of Trust requires written notice of postponement, in addition to an oral announcement, according to section 35-5-101(f) of the Tennessee Code. The court reversed the Court of Appeals’ decision and remanded the case to the trial court. Id. at 41.