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The Tennessee Consumer Protection Act is Inapplicable to Wrongful Foreclosure Actions

With the increase in wrongful foreclosure actions, courts have likewise seen an increase in consumer protection act claims related to the foreclosures.  For example, in Tennessee, plaintiffs routinely assert that a bank’s actions in furtherance of the foreclosure are “unfair and deceptive”, which is a violation of the Tennessee Consumer Protection Act, Tenn. Code Ann. § 47-18-101 et seq.  (hereinafter the “TCPA”).  Presumably, TCPA claims are attractive to plaintiffs because they offer the potential to recover treble damages and attorneys’ fees.

Until recently, Tennessee appellate courts had not expressly determined whether the TCPA applied to wrongful foreclosure actions.  Despite that fact, federal courts interpreting the TCPA have consistently held that the TCPA is inapplicable to wrongful foreclosure proceedings.  See, e.g., Simms v. CIT Group Consumer Fin., 2009 U.S. Dist. LEXIS 30124, 2009 WL 973011, at *9 (W.D. Tenn. 2009)) (“this Court and others applying Tennessee law have held that ‘the TCPA does not provide a cause of action for the conduct of foreclosure”‘); see also Vaughter v. BAC Home Loans Servicing, LP, 2012 WL 162398 (M.D. Tenn. 2012); Gibson v. Mortgage Elec. Registration Sys., Inc., 2011 U.S. Dist. LEXIS 91621, 2011 WL 3608538, at *5 (W.D. Tenn. 2011);  Flynn v. GMAC Mortgage, LLC, 2011 WL 4708858 (E.D. Tenn. 2011); Hunter v. Washington Mut. Bank, 2008 U.S. Dist. LEXIS 71587, 2008 WL 4206604 (E.D. Tenn. 2008).

In reaching their decisions, several federal courts relied upon the Tennessee Supreme Court’s decision in Pursell v. First American Nat’l Bank, 937 S.W.2d 838, 841-42 (Tenn. 1996).  In Pursell, the plaintiff debtor filed a TCPA against the defendant bank alleging that the bank acted unfairly and/or deceptively regarding the repossession of the plaintiff debtor’s truck.  In granting the defendant bank’s motion to dismiss the TCPA claim, the Tennessee Supreme Court held:

The parameters of the Act … do not extend to every action of every business in the State. The terms “trade or commerce” are specifically defined to limit the Act’s application. The actions of the Bank and its agent, even if considered to be unfair or deceptive, did not affect the “advertising, offering for sale, lease or rental, or distribution of any goods, services, or property, tangible or intangible, real, personal, or mixed, and other articles, commodities, or things of value wherever situated.”

Id. at 841 (quoting Tenn. Code Ann. 47-18-103(9)).  Although Pursell did not involve a wrongful foreclosure action, federal courts have found it instructive on the proper application of the TCPA.

Now, the federal and state trial courts have express direction from the Tennessee Court of Appeals.  In Paczko v. SunTrust Mortgage., Inc., 2012 Tenn. App. LEXIS 671, 6, 2012 WL 4450896 (Tenn. Ct. App. Sept. 25, 2012), the Tennessee Court of Appeals finally confirmed what the federal courts have been assuming – the TCPA is inapplicable in wrongful foreclosure actions.  Relying on the Tennessee Supreme Court’s holding in Pursell, the Tennessee Court of Appeals held that “the TCPA does not apply to allegedly deceptive conduct in foreclosure proceedings.”

Accordingly, based upon the holding of Paczko, banks can now summarily dismiss a TCPA claim arising in a wrongful foreclosure action and, thereby, prohibit a plaintiff’s efforts to recover treble damages and attorneys’ fees.

– Kevin Baltz