Monday, June 1, 2009

Legislature could permanently extend the notice period to ninety days after the effective date of change for foreclosures to seventy days

TN Attorney General Opinions March 10, 2009 Opinion Number: 09-24

Opinion may be found at the TBA website:

“The first question, then, is whether, in light of all the facts and circumstances, the change in the law would be a substantial impairment of a contractual relationship between the lender and the borrower. The law is procedural in nature, affecting a statutory remedy rather than underlying contractual obligations. Further, to the extent that the change protects owners, it can be argued that it advances the public interest. Nevertheless, we think a court would conclude that the extension would substantially affect the value of the contract to the lender. Under the current law, a lender may complete a foreclosure and recover its security in about three weeks. The extension would add another ten weeks to this period, with no corresponding benefit to the lender. Further, we think a court would conclude that lenders in Tennessee could not foresee such a retroactive change in the law. Of course, foreclosures have long been subject to statutory regulation in Tennessee. But the current law applies only to mortgages entered into after its effective date. Tenn. Code Ann. § 35-5-101(d). Thus, recent changes in the law have applied prospectively. Further, research indicates that the advertisement period has been “at least twenty days” for at least seventy-five years. Annotated Code of Tennessee 1934, § 7793. For these reasons, we think a court would conclude that extending the term would retroactively impair mortgage contracts entered into before the effective date of the change.” Id..

“Under Blaisdell, a law extending the advertisement period before foreclosure must be in response to an emergency. The law itself should describe the emergency. Like the United States Supreme Court in Blaisdell, we think a court would defer to the General Assembly’s findings that present economic conditions constitute an emergency justifying some legislative impairment of mortgage remedies. In Blaisdell, the Court also relied on the temporary nature of the remedy. A retroactive extension of the notice period would clearly be defensible under Blaisdell if it is drafted to last only as long as the emergency to which it responds. At the same time, the United States Supreme Court has upheld a federal law permanently regulating withdrawals of shares from building and loan associations. Veix v. Sixth Ward Building & Loan Ass’n of Newark, N.J., 310 U.S. 32, 60 S.Ct. 792, 84 L.Ed. 1061 (1940). The Court cited Blaisdell but found the fact that the withdrawal regulation was permanent to be insignificant to its Contract Clause analysis. The Court noted that the legislation was passed in response to withdrawals in 1932, but that the weakness in the financial system brought to light by the emergency remained. The Court found that, while the 1932 legislation was in response to an emergency, it did not need to be temporary. Similarly, we think it can be argued that fundamental changes in the mortgage industry, particularly the practice of selling rights under mortgages soon after they are executed, justify a permanent extension of the advertisement period. Id..

“Further, a seventy-day extension is far less burdensome than the delays authorized under the Minnesota law in Blaisdell. See, e.g., Sinclair v. Sinclair, 654 A.2d 438 (Me. 1995) (new statutory notice of foreclosure requirement, even if it added thirty days to grace period in mortgage executed before the statute’s effective date, did not substantially impair the lenders’ rights); State ex rel Lichtscheidl v. Moeller, 189 Minn. 412, 249 N.W. 330 (1933) (statute authorizing a sheriff to adjourn mortgage foreclosure sales for up to ninety days was valid against a Contract Clause challenge; there was no showing that the statute substantially obstructed or retarded enforcement or diminished the value of the mortgage contracts); State v. All Property and Casualty Insurance Carriers Authorized and Licensed to do Business in the State of Louisiana, 937 So.2d 313 (La. 2006) (statute retroactively extending one-year statute of limitations on insurance claims arising from Hurricanes Katrina and Rita valid against Contract Clause challenge). At the end of the advertisement period, the lender may proceed with the foreclosure and will be entitled to the remedies provided under the contract. Presumably, the lender’s remedies under the contract will include interest payments that accrue during the advertisement period. It can be argued, then, that the lender is entitled to compensation for the delay.” Id..