3.2 Tennessee Property Law

Tennessee has several property-law features that differ from neighboring states and appear on the state exam.

Title Theory and the Deed of Trust

Tennessee is a title-theory state for secured lending. Rather than a mortgage, lenders use a deed of trust, a three-party security instrument.

In a title-theory state, legal title is held by the trustee for the lender's benefit during the loan, and the borrower holds equitable title plus the right of possession. When the loan is paid, the trustee releases the deed of trust and full title vests in the borrower.

Contrast: In a lien-theory state, the borrower keeps title and the lender holds only a lien. Tennessee follows title theory, which is why deeds of trust and trustees dominate.

Power of Sale and Non-Judicial Foreclosure

The deed of trust includes a power-of-sale clause that lets the trustee sell the property on default without a court action - a non-judicial foreclosure. This is faster and cheaper than judicial foreclosure.

Tennessee Foreclosure Notice (T.C.A. 35-5-101)

Exam trap: 'Twenty days' refers to the first publication occurring at least 20 days before the sale - and there must be three publications plus mailed notice to the borrower. Stating only '20 days' is incomplete.

Borrower Protections

Tennessee provides only limited post-sale redemption, and redemption is commonly waived in the deed of trust.

Forms of Co-Ownership

Tennessee recognizes tenancy by the entirety, which gives married co-owners a right of survivorship and shields the property from creditors of only one spouse. Neither spouse can unilaterally sever it.

Homestead Exemption (T.C.A. 26-2-301)

Tennessee's homestead exemption protects a portion of equity in a principal residence from unsecured creditors. Effective January 1, 2022, the legislature replaced the old tiered amounts with flat figures:

Critical correction: The exemption is $35,000 / $52,500, not the old $5,000 / $7,500 figures still printed in outdated materials. The homestead protects against unsecured creditors and does not stop a mortgage/deed-of-trust foreclosure or a tax sale.

Deeds and Recording

Deeds are recorded at the county Register of Deeds. Recording gives constructive notice to the world, and Tennessee generally follows a race-notice approach where a later bona fide purchaser who records first can defeat an earlier unrecorded interest.

Equitable Title, Conversion, and the Closing Gap

A concept the exam links to title theory is equitable conversion: once a valid sale contract is signed, the buyer is often treated as holding equitable title even though legal title transfers at closing. This is why questions about risk of loss between contract and closing matter, and why contracts specify who bears the risk if the property is damaged before closing. In a deed-of-trust state, the borrower-buyer's equitable interest coexists with the trustee holding legal title for the lender's benefit until the debt is paid - layering the financing interest on top of the buyer's ownership interest.

Understanding the trustee's role also clarifies reconveyance. When the loan is paid in full, the trustee executes a release (deed of release) that clears the deed of trust from the record, and full legal title rests in the borrower. A buyer's title search at the Register of Deeds should show that prior deeds of trust were released; an unreleased deed of trust is a cloud on title that must be cured before closing.

Encumbrances, Liens, and Marketable Title

Real property is rarely owned free of encumbrances. The exam expects you to distinguish liens (financial claims such as a deed of trust, property-tax lien, judgment lien, or mechanic's lien) from non-financial encumbrances such as easements and restrictive covenants. Property-tax liens generally take priority over most other liens, and a tax sale can extinguish junior interests - one reason the homestead exemption does not stop a tax sale. A mechanic's lien lets unpaid contractors claim against the property, and Tennessee sets specific notice and filing deadlines for perfecting such liens.

Marketable title is title a reasonable buyer would accept - free of undisclosed defects, serious encumbrances, or litigation. Title insurance and a careful records search protect the buyer, while recording establishes priority among competing interests. Because Tennessee follows a race-notice approach, a later buyer who takes without notice of an earlier unrecorded deed and records first can prevail, which is the practical reason every deed is recorded immediately at closing.