5.1 Tennessee Closing & Settlement
Key Takeaways
- Tennessee has no state income tax on wages and no general real estate transfer 'stamp' beyond the state recordation/transfer tax
- The Tennessee realty transfer tax is $0.37 per $100 of value/consideration; the mortgage recordation tax is $0.115 per $100 over $2,000
- Closings in Tennessee are commonly handled by title companies and closing attorneys; RESPA and TRID govern federally related mortgage loans
- Buyers receive a Loan Estimate and a Closing Disclosure (delivered at least 3 business days before consummation) on most residential loans
- Proration of taxes, interest, and prepaid items is calculated to the closing date; recording occurs at the county Register of Deeds
Closing (settlement) is where the deed and money change hands. Tennessee layers a few state-specific taxes on top of the federal closing framework.
Tennessee Transfer and Recordation Taxes
Tennessee does not use 'documentary stamps' like some states, but it does impose recordation taxes collected when documents are recorded at the county Register of Deeds.
| Tax | Rate | Typically Paid By |
|---|---|---|
| Realty transfer tax | $0.37 per $100 of the greater of consideration or value | Negotiable; often the buyer |
| Mortgage (indebtedness) recordation tax | $0.115 per $100 of the amount of indebtedness over $2,000 | Borrower |
Worked example: On a $300,000 sale, the realty transfer tax is $300,000 / 100 x $0.37 = $1,110. On a $240,000 loan, the mortgage tax is ($240,000 - $2,000) / 100 x $0.115 = $273.70.
Exam note: Tennessee has no state income tax on wages (the Hall tax on investment income was fully repealed in 2021), so there is no state income-tax withholding at a typical resident closing.
Who Handles the Closing
Tennessee permits closings to be conducted by title companies and closing/settlement attorneys. Practices vary by region, but the closing agent typically:
- Orders title work and issues title insurance
- Prepares the settlement statement and collects/disburses funds
- Records the deed and deed of trust at the Register of Deeds
Real estate licensees do not practice law; drafting custom contract language or giving legal advice can constitute the unauthorized practice of law.
Federal Closing Disclosures (RESPA / TRID)
Most residential closings involve a federally related mortgage loan subject to RESPA (Real Estate Settlement Procedures Act) and the TRID (TILA-RESPA Integrated Disclosure) rule.
| Disclosure | Timing |
|---|---|
| Loan Estimate (LE) | Within 3 business days of the loan application |
| Closing Disclosure (CD) | Delivered at least 3 business days before consummation |
Exam point: The CD's three-business-day rule is heavily tested. Certain changes (e.g., a higher APR beyond tolerance, a prepayment penalty added, or a loan-product change) restart the three-day clock.
RESPA Prohibitions
RESPA bans kickbacks and unearned referral fees for settlement services. A licensee cannot accept a thing of value for referring buyers to a particular lender, title company, or inspector.
Prorations
At closing, ongoing costs are prorated so each party pays only for the period they own the property.
| Item | How Prorated |
|---|---|
| Property taxes | Allocated to the closing date (paid in arrears in most of Tennessee) |
| Loan interest | Per diem to/from the closing date |
| HOA dues, prepaid insurance, rents | Split between seller and buyer as of closing |
Debit and credit basics:
- A seller credit / buyer debit means the buyer owes that amount.
- Unpaid property taxes (arrears) are typically a seller debit / buyer credit because the buyer will pay the full bill later.
- The buyer's earnest money already in escrow is a buyer credit at closing.
Worked example: If annual taxes are $3,650 (or $10/day) and closing is on day 200 of the year with taxes paid in arrears, the seller owes roughly 200 days x $10 = $2,000 to the buyer as a proration credit.
Title Insurance
Two policies are common in Tennessee:
| Policy | Protects |
|---|---|
| Owner's policy | The buyer's ownership against title defects |
| Lender's policy | The lender's lien priority (usually required by the lender) |
A title search and the public records at the Register of Deeds establish marketable title; recording the new deed gives constructive notice and protects the buyer's priority.
Reading a Settlement Statement
The practical skill behind closing questions is reading debits and credits. A debit is a charge to a party; a credit is an amount in that party's favor. The purchase price is a debit to the buyer and a credit to the seller. Earnest money already in escrow is a credit to the buyer. New loan proceeds are a credit to the buyer; the payoff of the seller's existing loan is a debit to the seller. Closing costs are assigned per the contract, and prorations move taxes and prepaid items to the correct party as of the closing date. If you can place each item on the correct side, the math of 'cash to close' and 'seller net' follows.
Tennessee's recordation taxes belong on this statement too. The realty transfer tax of $0.37 per $100 is collected when the deed records, and the mortgage tax of $0.115 per $100 of indebtedness over $2,000 is collected when the deed of trust records. Allocation of these between buyer and seller is negotiable, but the borrower customarily bears the mortgage tax because it attaches to the loan.
TRID Timing Traps and the Role of the Closing Agent
The TRID disclosures are a favorite exam topic because the timing is precise. The Loan Estimate goes out within three business days of application, and the Closing Disclosure must be in the borrower's hands at least three business days before consummation. The trap is the redisclosure rule: only three specific changes restart the three-day waiting period - the APR becomes inaccurate beyond tolerance, a prepayment penalty is added, or the loan product itself changes (for example, fixed to adjustable). Routine fee adjustments do not reset the clock.
A buyer who is rushing to close cannot waive the three-day rule except for a bona fide personal financial emergency.
Because Tennessee closings run through title companies and attorneys, the licensee's lane is narrow: facilitate the transaction, deliver documents, and never give legal advice or draft custom legal language, which would be the unauthorized practice of law. The closing agent, not the real estate licensee, prepares the settlement statement, handles the funds, and records the documents. Knowing where the licensee's role ends and the closing professional's begins prevents the distractor that has the agent practicing law or disbursing closing funds.
What is the Tennessee realty transfer tax rate?
Under the TRID rule, when must the buyer receive the Closing Disclosure?
On a $300,000 sale, what is the Tennessee realty transfer tax?
RESPA prohibits which of the following at a Tennessee closing?