Everbank v. Tommy J. Henson

IN THE COURT OF APPEALS OF TENNESSEE
AT JACKSON
October 23, 2014 Session

EVERBANK ET AL. v. TOMMY J. HENSON ET AL.

Appeal from the Chancery Court for Shelby County
No. CH110570 Walter L. Evans, Chancellor

No. W2013-02489-COA-R3-CV - Filed January 9, 2015

EverBank, the assignee and current owner of a promissory note secured by a previously
recorded second-priority deed of trust, and Mortgage Electronic Registration Systems, Inc.
(“MERS”), which was identified in the second-priority deed of trust as the beneficiary of
record and “nominee for Lender and Lender’s successors and assigns,” filed this action to
set aside a foreclosure sale and to recover damages from the trustee acting pursuant to the
first-priority deed of trust for failure to identify MERS as an interested party in the notice of
the foreclosure sale as required by Tenn. Code Ann. § 35-5-104. The trial court summarily
dismissed the claims against the trustee holding that the plaintiffs failed to record their
interests in the property in order to put creditors or any purchasers on notice. The trial court
also refused to set aside the foreclosure sale upon the ground that the plaintiffs lacked
standing and that the new owners were bona fide purchasers for value; thus, the trial court
found that they acquired the property free and clear of any unrecorded interests. We have
determined that MERS’ interest was of record and that the trustee had an affirmative duty
to identify MERS as an interested party in the notice of the foreclosure sale pursuant to Tenn.
Code Ann. § 35-5-101 et seq., yet the trustee failed to do so. Accordingly, MERS is entitled
to seek restitution from the trustee pursuant to Tenn. Code Ann. § 35-5-107, which provides
that any person referenced in Tenn. Code Ann. § 35-5-106 who fails to comply with this
chapter is “liable to the party injured by the noncompliance, for all damages resulting from
the failure.” As for setting aside the foreclosure sale, although MERS has standing to bring
the claim, it failed to state a claim upon which to set aside the sale, for the mere failure of a
trustee to comply with the provisions of Tenn. Code Ann. § 35-5-101 et seq. is insufficient
to set aside a foreclosure sale. We, therefore, affirm the dismissal of the claim to set aside
the foreclosure sale, reverse the dismissal of MERS’ claim against the trustee to recover its
damages, and remand for further proceedings consistent with this opinion.

Tenn. R. App. P. 3 Appeal as of Right; Judgment of the Chancery Court
Affirmed in Part, Reversed in Part, and Remanded
F RANK G. C LEMENT, JR., P.J., M.S., delivered the opinion of the Court, in which J. S TEVEN
S TAFFORD, P.J., W.S., and A RNOLD B. G OLDIN, J., joined.

T. William A. Caldwell and David B. Herbert, Nashville, Tennessee, for the appellants,
EverBank and Mortgage Electronic Registration Systems, Inc.

JoAnn T. Sandifer, pro hac vice, St. Louis, Missouri, for the appellant, Mortgage Electronic
Registration Systems, Inc.

Tommy J. Henson and Linda S. Henson, Water Valley, Mississippi, pro se.

Glen G. Reid, Jr., Kathryn K. Van Namen, and Jordan Elliot Reifler, Memphis, Tennessee,
for the appellee Bank of Bartlett.

Michael G. Derrick and Phillip C. Bass, Memphis, Tennessee, for the appellee, Wendy
Geurin Smith.

Sam Blaiss, Memphis, Tennessee, for the appellees, James K. Winter and Patsy H. Winter.

OPINION

Tommy and Linda Henson owned two parcels of real property in Shelby County,
Tennessee. In 1998, the Hensons obtained a $50,000 loan from the Bank of Bartlett, secured
by both parcels of land through a deed of trust which was recorded by the Bank of Bartlett
in the Shelby County Register’s Office (“Bartlett Deed”). In 2003, the Hensons obtained an
additional loan for $162,000 from Plaza Mortgage Company that was secured by a
second-priority deed of trust (“Plaza Deed”). The Plaza Deed identified MERS as the holder
of legal title to the security lien, it identified MERS as the beneficiary of the Plaza
promissory note acting as “nominee for Lender and Lender’s successors and assigns,” and
it granted MERS, inter alia, the right to foreclose and sell the property.1 The Plaza Deed was

1
The Plaza Deed additionally provides under TRANSFER OF RIGHTS IN THE PROPERTY:

The beneficiary of this Security Instrument is MERS (solely as nominee for Lender and
Lender’s successors and assigns) and the successors and assigns of MERS. This Security
Instrument secures to Lender: (i) the repayment of the Loan, and all renewals, extensions
and modifications of the Note; and (ii) the performance of Borrower’s covenants and
agreements under this Security Instrument and the Note. For this purpose, Borrower
irrevocably grants and conveys to Trustee, in trust, with power of sale, the following
described property.
(continued...)

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duly recorded on July 8, 2003, in the Register’s Office of Shelby County, Tennessee.

Subsequently, Plaza Mortgage assigned its interest in the Plaza Deed and
accompanying promissory note to Flagstar Bank, and, in 2006, Flagstar assigned all of its
interests to EverBank. Neither Flagstar nor EverBank recorded their interest in the subject
property, relying on the fact that MERS was identified in the duly recorded Plaza Deed as
the beneficiary of the Plaza promissory note acting as nominee for “Lender’s successors and
assigns.”

In 2009, the Bank of Bartlett appointed Wendy G. Smith as successor trustee of its
first-priority deed of trust and instructed her to conduct a foreclosure sale of the parcels of
land pursuant to the Bartlett Deed. In the foreclosure notice, Ms. Smith identified the current
owners of record and, under “other interested parties,” she listed only Plaza Mortgage. Notice
of the foreclosure sale was published in the local newspaper, The Daily News, on May 7, 14,
and 21, of 2009. Written notice of the foreclosure sale was also provided to Plaza Mortgage
on May 4, 2009; however, notice was not provided to MERS.

The foreclosure sale took place on May 28, 2009, and the Bank of Bartlett was the
successful bidder and purchased both parcels of land for $20,863.92. The Bank of Bartlett
took title to the property under the Trustee’s Deed, dated June 1, 2009, and recorded with the
Register’s Office. On June 26, 2009, James and Patsy Winter purchased one of the two
parcels of land for approximately $110,000. The Bank of Bartlett transferred the parcel via
a Special Warranty Deed, which the Winters subsequently recorded.

EverBank did not become aware of the foreclosure sale until September 2009. On
April 1, 2011, EverBank and MERS commenced this action against the Hensons, Wendy G.
Smith (“the trustee”), the Bank of Bartlett, and the Winters, to set aside the foreclosure sale
and recover damages against the trustee.

The trustee filed a motion for summary judgment, arguing that MERS was not entitled
to notice of the foreclosure sale because it was not a “party interested” as that term is used

1
(...continued)
...

Borrower understands and agrees that MERS holds only legal title to the interests granted
by Borrower in this Security Instrument, but, if necessary to comply with law or custom,
MERS (as nominee for Lender and Lender’s successors and assigns) has the right: to
exercise any or all of those interests, including, but not limited to, the right to foreclose and
sell the Property; and to take any action required of Lender, including, but not limited to,
releasing and canceling this Security Instrument.

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in Tenn. Code Ann § 35-5-104(d). The Winters joined in the summary judgment motion and
also filed a Tenn. R. Civ. P. 12.02(6) motion to dismiss, arguing that they were bona fide
purchasers for value of the property.

The trial court granted the trustee’s motion for summary judgment, finding:

[T]he trustee discharged her duties under the statute and Deed of Trust and she
had no duty to provide any additional notice to either EverBank or MERS, as
those parties failed to record any instrument in the Shelby County Register’s
Office as required by law to give the substitute trustee notice of the need to
notify either EverBank or MERS of the foreclosure sale or include them as
interested parties in the published notice. In order to protect their interest, if
any, in the property, Everbank and MERS were required to record in the
Shelby County Register’s Office. Their failure to so record, under Tennessee
law, has exposed them to the risk of losing their rights to notice and right to
proceed to protect their interest.

With respect to the current owners of the property, James K. Winter and Patsy
H. Winter, the Court concludes that they are bona fide purchasers for value of
the property without notice of any other interest and, thus, take the property
free and clear of any unrecorded interest claimed by EverBank or MERS.
Moreover, the Court concludes that neither EverBank nor MERS has standing
with respect to the purchase of the property by [the Winters].

Pursuant to the above, the trial court summarily dismissed the claims against the
trustee and the Winters and, additionally, granted the Winters’ Rule 12 motion to dismiss the
claim to set aside the foreclosure sale. This appeal followed.

In this appeal, EverBank and MERS (collectively “Plaintiffs”) contend that because
MERS was identified in the Plaza Deed as the beneficiary of record and nominee for the
owner of the promissory note, its successors and assigns, MERS was to be identified as an
interested party in the notice of foreclosure sale pursuant to the Bartlett Deed and Tenn. Code
Ann. § 35-5-104 prior to any sale that would eliminate the interests of MERS or the interests
of those whom MERS served as beneficiary of record. They also contend MERS has standing
to seek damages on its own behalf and on behalf of the owner of the promissory note,
EverBank. Plaintiffs also contend they have standing to set aside the foreclosure sale.

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 A NALYSIS

I. S UMMARY D ISMISSAL OF C LAIM FOR D AMAGES AGAINST T RUSTEE

We begin our discussion with the trial court’s determination that it was undisputed
that both EverBank and MERS “failed to record any instrument in the Shelby County
Register’s Office as required by law to give the substitute trustee notice of the need to notify
either EverBank or MERS of the foreclosure sale or include them as interested parties in the
published notice.” Although EverBank did not record its interest in the property, we
respectfully disagree with the trial court’s finding that MERS did not. Contrary to the trial
court’s finding of fact, it is undisputed that MERS was properly identified in the 2003 Plaza
Deed as the “beneficiary” and “nominee for Lender and Lender’s successors and assigns”
with the right “to exercise any or all of those interests, including, but not limited to, the right
to foreclose and sell the Property; and to take any action required of Lender, including, but
not limited to, releasing and canceling this Security Instrument.”

The foregoing notwithstanding, the trustee asserts that MERS lacks an independent
interest in the property, which precludes it from being entitled to notice as a “party
interested” pursuant to the statute. More specifically, the trustee asserts MERS is not the
“record holder of any mortgage, deed of trust, or other lien.” Tenn. Code Ann. § 35-5-104(d)
(2007) (emphasis added).

The Bartlett Deed required the trustee to give notice of the date, time and place of the
Bartlett foreclosure sale in accordance with applicable law. The applicable law is set forth
in the statutory scheme codified at Tenn. Code Ann. § 35-5-101 et seq. Tenn. Code Ann. §
35-5-104 provides in pertinent part:

(a) The advertisement or notice shall:

(1) Give the names of the plaintiff and defendant, or parties interested;
...

(d) For the purposes of this section, “parties interested” includes, without
limitation, the record holders of any mortgage, deed of trust, or other lien that
will be extinguished or adversely affected by the sale and which mortgage,
deed of trust, or lien, or notice or evidence thereof, was recorded more than ten
(10) days prior to the first advertisement or notice in the register’s office of the
county in which the real property is located.

(Emphasis added).

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 Whether MERS is or is not the “record holder of any mortgage, deed of trust, or other
lien,” as the trustee contends, it cannot be disputed that MERS, at the very least, qualifies as
having a recorded interest in a lien that will be extinguished or adversely affected by the sale.
Accordingly, by the express terms of Tenn. Code Ann. § 35-5-104(d), MERS qualifies as an
interested party and the statute requires that the foreclosure advertisement and notice provide
the names of interested parties.

We are mindful that MERS has only been the subject of one appellate decision in
Tennessee, that being Mortgage Electronic Registration Systems, Inc. v. Ditto, No. E2012-
02292-COA-R3-CV, 2014 WL 24439 (Tenn. Ct. App. Jan. 2, 2014), appeal granted (Oct.
20, 2014), which, unlike the case at bar, arises out of a tax sale, not a foreclosure sale, and
we find the facts and circumstances of that case distinguishable from this case. Moreover,
the issues in Ditto are now before the Tennessee Supreme Court. Nevertheless, we shall
discuss Ditto as well as decisions from other jurisdictions to examine the role of MERS as
it pertains to the issues presented.

Generally stated, MERS provides “an electronic registration system for tracking
interests in mortgage loans.” Ditto, 2014 WL 24439, at *1. Lenders who join the MERS
system designate MERS as a beneficiary or nominee when executing a deed of trust. Id.
MERS then “tracks the sale of the mortgage and is tasked with providing the current lender
with any notices concerning the property throughout the life of the mortgage.” Id. As a result,
“the lender is able to sell the mortgage to another MERS member without having to record
the transfer in the county office, thereby avoiding the payment of recording fees.” Id. In
effect, MERS “[avoids] the need to record multiple transfers of the deed by serving as the
nominal record holder of the deed on behalf of the original lender and any subsequent
lender.” Cervantes v. Countrywide Home Loans, Inc., 656 F.3d 1034, 1039 (9th Cir. 2011).2

The federal courts in Tennessee and courts in other jurisdictions have consistently
upheld the validity of MERS’ role as nominee for a lender’s successors and assigns and as
beneficiary under a deed of trust. See Dauenhauer v. Bank of New York Mellon, No.
3:12-CV-01026, 2013 WL 2359602, at *3 (M.D. Tenn. May 28, 2013) aff’d, 562 F. App’x

2
The trustee argues that this court should not consider information regarding MERS’ business model
because it was “not part of the record or available to the chancery court in granting the trustee’s motion for
summary judgment.” However, information regarding MERS and its business model was discussed in
Plaintiffs’ Memorandum in Opposition to Defendant Wendy G. Smith’s Motion for Summary Judgment, and
the trustee did not object in her Reply Brief in Support of Motion for Summary Judgment. Moreover, during
the hearing on the motion, both the trustee’s counsel and MERS’ counsel addressed and explained MERS’
business model without objection from any party.

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473 (6th Cir. 2014) (the court held that MERS could validly assign the Note as nominee of
the lender or lender’s assigns and could assert an interest in the subject property as
beneficiary of the deed of trust); Samples v. Bank of Am., N.A., No. 3:12-CV-44, 2012 WL
1309135, at *3-4 (E.D. Tenn. April 16, 2012) (finding claims based on an invalid assignment
or the role of MERS in mortgage transactions, when MERS is named in the deed of trust as
the beneficiary and nominee for the lender and its assigns, failed as a matter of law); In re
Mortg. Elec. Regis. Sys. Litig., MDL No. 09-2119-JAT, 2011 WL 4550189, at *3-4 (D. Ariz.
Oct.3, 2011) (finding a deed of trust can grant MERS authority as the beneficiary of the deed
and nominee for the note holder); Golliday v. Chase Home Fin., LLC, No. 1:10-cv-532, 2011
WL 4352554, at *7 (W.D. Mich. Aug. 23, 2011) (“Over the twenty years that MERS has
existed, borrowers who have defaulted on their loan obligations have attempted, without
success, to attack the validity of the mortgage based on the involvement of MERS.”).

However, this court, in the recent decision in Ditto, ruled that MERS had no standing
to set aside a tax sale despite being identified as the nominee and beneficiary in a duly
recorded deed of trust. In that case, prior property owners failed to remit the applicable taxes
on the property, and a delinquent tax suit was filed by the county. Ditto, 2014 WL 24439, at
*2. The previous owners and the lender were provided notice of the suit, but MERS was not
provided notice. Id. After the property sold, MERS brought suit to set aside the tax sale
alleging that the sale was unconstitutional and should be set aside because it never received
notice of the delinquent tax suit or the corresponding sale. Id. The trial court refused to set
aside the tax sale, finding that MERS was not entitled to notice because it had “no legal or
equitable interest in the property sold and [was] not a creditor having a lien on the property.”
Id. The trial court “concluded that the delinquent tax attorney fulfilled the notice
requirements of section 67-5-2502 by issuing notice to the [previous owners] and [the
lender], the only parties revealed in the records search that held a valid interest in the
property.” Id. On appeal we held that “MERS was never given an independent interest in the
property,” because the previous owners “were instructed to mail payments and notices to the
current lender that held the promissory note, while MERS solely recouped payment for its
services from the current lender and was specifically relegated to the role of nominee relative
to the interests transferred by the [previous owners].” Id. at *5. Therefore, this court held that
MERS did not have standing to file suit to set aside the tax sale. Id.

While there are similarities between Ditto and the case at bar, including similar
language found in the deed of trust regarding MERS, we respectfully disagree with the
holding in Ditto and find more persuasive the reasoning in the cases decided by the federal
courts and courts in other jurisdictions referenced above. See Dauenhauer, 2013 WL
2359602; Samples, 2012 WL 1309135; In re Mortg. Elec. Regis. Sys. Litig., 2011 WL
4550189; Golliday, 2011 WL 4352554.

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 The Plaza Deed identified MERS as the beneficiary of record with the express
authority to act as the nominee of the lender, its successors and assigns. According to Black’s
Law Dictionary, a “nominee” is “a person designated to act in place of another, usu[ally] in
a very limited way,” and a “party who holds bare legal title for the benefit of others or who
receives and distributes funds for the benefit of others.” B LACK’S L AW D ICTIONARY 1211
(10th Ed. 2014). In fact, the Plaza Deed further states that MERS “holds only legal title to the
interests granted by Borrower in this Security Instrument,” and grants MERS the right “to
exercise any or all of those interests, including, but not limited to, the right to foreclose and
sell the Property; and to take any action required of Lender, including, but not limited to,
releasing and canceling this Security Instrument.” As a result, MERS holds legal title to the
secured interest and is the beneficiary of record, as the nominee or agent for the lender, its
successors and assigns, of which EverBank is the current assignee.

Moreover, an interest in legal title has been held to be sufficient to bring an action at
law, and, therefore, a property interest protected by due process. Sprint Communications Co.
v. APCC Services, Inc., 554 U.S. 269 (2008); see also Mortgage Elec. Registration Sys., Inc.
v. Bellistri, No. 4:09-CV-731 CAS, 2010 WL 2720802, at *9 (E.D. Mo. July 1, 2010). The
Plaza Deed expressly conveys unto MERS the right to enforce the lien on the property,
including, but not limited to, the right to foreclose and sell the property. The Supreme Court
of the United States has held that such a lien is a “substantive right . . . in specific property,”
including the “right to retain the lien until the indebtedness thereby secured is paid.”
Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555, 590, 594 (1935); see also
Bellistri, 2010 WL 2720802, at *14.

The Plaza Deed was duly recorded in 2003 with the Shelby County Register’s Office.
As a consequence of its recording, the trustee was on notice of MERS’ role as beneficiary
of the deed as nominee for lender, its successors and assigns. As the beneficiary and nominee
for the Lender’s successors and assigns, MERS was the entity entitled to enforce the deed
of trust because it was identified as the holder of legal title to the security lien. Moreover, the
Plaza Deed granted MERS power to exercise all of the rights of the note owner under the
security instrument. Limiting notice to simply the original lender, when the recorded
document clearly indicates the lender may assign his interest to another lender, would, as it
did here, allow elimination of the security instrument without any notice to the entity holding
legal title to the security interest and the current note holder, which would adversely affect
the note owners’ ability to collect the debt from the security.

Therefore, based on MERS’ ownership of legal title and its interest in the lien as
beneficiary of the recorded Plaza Deed, MERS is a “party interested” pursuant to Tenn. Code
Ann. § 35-5-104(d) because it is “the record holders of any mortgage, deed of trust, or other
lien that will be extinguished or adversely affected by the sale and which mortgage, deed of

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trust, or lien, or notice or evidence thereof, was recorded more than ten (10) days prior to the
first advertisement or notice in the register’s office of the county in which the real property
is located.” As a result, the trustee failed to comply with the notice requirements and, as such,
“is . . . liable to the party injured by the noncompliance, for all damages resulting from the
failure.” Tenn. Code Ann. § 35-5-107 (2007). Thus, we reverse the summary dismissal of the
claim against the trustee for damages pursuant to Tenn. Code Ann. § 35-5-107.

We next address whether the complaint stated a claim upon which relief can be
granted to set aside the foreclosure sale.

II. D ISMISSAL OF C LAIM TO S ET A SIDE F ORECLOSURE S ALE

The trial court dismissed the claim to set aside the foreclosure sale upon a Tenn. R.
Civ. P. 12.02(6) motion by the successful purchasers at the foreclosure sale, the Winters.
More specifically, the court granted the Rule 12.02(6) motion upon the findings that the
Winters took the property free and clear of any unrecorded interest claimed by EverBank or
MERS because they were bona fide purchasers for value of the property without notice of
any other interest. The trial court also held that neither EverBank nor MERS has standing
with respect to the purchase of the property by the Winters.

We have already determined that MERS is a “party interested” pursuant to Tenn. Code
Ann. § 35-5-104(d) because it is the record holder of a lien that will be extinguished or
adversely affected by the foreclosure sale, and for this reason MERS has standing to pursue
the claims asserted in this action. Therefore, standing is not a ground upon which to dismiss
any of MERS’ claims. Because MERS has standing, we shall now address whether the
complaint states a claim upon which the foreclosure sale can be set aside.

The standards by which Tennessee courts are to assess a Rule 12.02(6) motion to
dismiss are well established. As our Supreme Court stated in Webb v. Nashville Area Habitat
for Humanity, Inc., 346 S.W.3d 422, 426 (Tenn. 2011), “[a] Rule 12.02(6) motion challenges
only the legal sufficiency of the complaint, not the strength of the plaintiff’s proof or
evidence.” Id. “The resolution of a 12.02(6) motion to dismiss is determined by an
examination of the pleadings alone.” Id. By filing a motion to dismiss, the defendant “‘admits
the truth of all of the relevant and material allegations contained in the complaint, but . . .
asserts that the allegations fail to establish a cause of action.’” Id. (citations omitted). When
a complaint is challenged by a Rule 12.02(6) motion, the complaint should not be dismissed
for failure to state a claim unless it appears that the plaintiff can prove no set of facts in
support of his or her claim that would warrant relief. Doe v. Sundquist, 2 S.W.3d 919, 922
(Tenn. 1999) (citing Riggs v. Burson, 941 S.W.2d 44, 47 (Tenn. 1997)). Making such a
determination is a question of law. Our review of a trial court’s determinations on issues of

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law is de novo, with no presumption of correctness. Id. (citing Stein v. Davidson Hotel Co.,
945 S.W.2d 714, 716 (Tenn. 1997)).

The statutory scheme for the sale of land to foreclose a deed of trust is set forth in
Tenn. Code Ann. § 35-5-101 et seq., and the statute that pertains to the claim to set aside the
foreclosure sale is Tenn. Code Ann. § 35-5-106, which provides that should a sale proceed
without complying with “the provisions of this chapter, the sale shall not, on that account,
be either void or voidable.” As noted earlier, Tenn. Code Ann. § 35-5-104 requires that the
advertisement and notice of the foreclosure sale identify “parties interested” in the land,
which includes the record holders of any mortgage, deed of trust, or other lien that will be
extinguished or adversely affected by the sale. However, the mere failure to identify or
provide notice to an interested party does not provide sufficient grounds to set aside a
foreclosure sale. McSwain v. Am. Gen. Fin., Inc., 1994 WL 398819, at *2-3 (Tenn. Ct. App.
July 22, 1994) (failure to notify junior lien holder of foreclosure sale pursuant to statute did
not render sale void or voidable); see also Nationstar Mortg., LLC v. Humphrey, No. 11-
2185-STA, 2011 WL 3273077, at *4-5 (W.D. Tenn. July 29, 2011); Federal Nat. Mortg.
Ass’n v. Robilio, No. W2007-01758-COA-R3-CV, 2008 WL 2502114, at *7 (Tenn. Ct. App.
June 24, 2008) (citing Doty v. Fed. Land Bank of Louisville, 89 S.W.2d 337 (Tenn. 1936);
Williams v. Williams, 156 S.W.2d 363, 369 (Tenn. Ct. App. 1941).

Nevertheless, a foreclosure sale may be set aside if the interested party can show
evidence of “irregularity, misconduct, fraud, or unfairness on the part of the trustee or the
mortgagee that caused or contributed to an inadequate price.” Holt v. Citizens Central Bank,
688 S.W.2d 414, 416 (Tenn. 1984); B & H Invs. v. Brooks, No. W1999-01252-COA-R3-CV,
2000 WL 1141566, at *2 (Tenn. Ct. App. Aug. 10, 2000). Furthermore, the parties to a deed
of trust are not limited to the terms of the sale provided in the foreclosure statutes; they may
vary the terms of foreclosure by contract, and “where a deed of trust provision varies from
the statutory requirements, that term will generally supersede the statutory requirement.”
Wells Fargo Bank, N.A. v. Lockett, No. E2013-02186-COA-R3-CV, 2014 WL 1673745, at
*2 (Tenn. Ct. App. April 24, 2014) (quoting CitiFinancial Mortg. Co., Inc. v. Beasley, No.
W2006-00386-COA-R3-CV, 2007 WL 77289, at *9 (Tenn. Ct. App. Jan. 11, 2007)).

With these legal principles in mind, we shall examine the allegations in the complaint,
which we accept as true for purposes of a Tenn. R. Civ. P. 12.02(6) motion to dismiss, to
determine whether they are sufficient to state a claim to set aside the foreclosure sale. Webb,
346 S.W.3d at 426. The allegations that relate to the claim to set aside the foreclosure sale
read as follows:

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 18. The Bartlett Deed of Trust required that Smith, as successor trustee, give
notice of the date, time and place of the Bartlett Foreclosure Sale in
accordance with applicable law.

19. The applicable law, namely Tennessee law, requires that notice be given
to all “parties interested.” MERS, as the named beneficiary under the Plaza
Deed of Trust, would have been one of the “parties interested” to whom notice
of the Bartlett Foreclosure Sale should have been given.

20. The purpose of MERS being named as beneficiary under the Plaza Deed
of Trust was to ensure that any assignee or successor of the original note
secured by the Plaza Deed of Trust would receive notice, as assignments of
deeds of trust are generally not recorded in most states, including Tennessee.

21. Smith, as successor trustee, failed to give notice of the Bartlett Foreclosure
Sale to MERS. Had MERS received notice, it would have contacted EverBank,
as successor to Plaza Mortgage, and EverBank would have bid at that such sale
to protect its secured interest (namely, a loan secured by the Real Property that
had an original principal balance of $160,000).

22. The price obtained by the successor trustee at Bartlett Foreclosure Sale of
$20,863.92 was grossly inadequate or unfair, especially in light of the fact that
a cursory review of the public records would have shown that the indebtedness
originally incurred by the Hensons to the Plaza Mortgage was in the original
principal amount of $160,000; therefore, the Real Property must have been
worth far more than the bid price. Furthermore, there was an irregularity in the
Bartlett Foreclosure Sale in that the Smith [sic], as successor trustee, failed to
comply with the express terms of the Bartlett Deed of Trust requiring her to
advertise the sale in accordance with applicable law. The successor trustee’s
power of sale contained in the Bartlett Deed of Trust was expressly
conditioned upon her complying with applicable Tennessee law.

23. The Winters are not bona fide purchasers for value of the Real Property,
as they would have had constructive notice of the defect in the non-judicial
foreclosure proceedings conducted by Smith. The Notice, which did not
include MERS as an interested party, is available and should have been
reviewed by the Winters (or their advisors) prior to their purchase of the Real
Property.

(Emphasis added).

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 Based upon the above, we accept as true: (1) that the Bartlett Deed of Trust required
Smith to give notice of the foreclosure sale in accordance with applicable law; (2) Tennessee
was the applicable law, which required that notice be given to all “parties interested”; (3) that
MERS, as the named beneficiary under the Plaza Deed of Trust, was one of the “parties
interested” to whom notice of the Bartlett Foreclosure Sale should have been given; and (4)
that the price obtained at the foreclosure sale was “grossly inadequate or unfair.” Accepting
these alleged facts to be true, the question is whether they are sufficient, as a matter of law,
to set aside the foreclosure sale and the resulting deed. See Webb, 346 S.W.3d at 426.

We have already noted that the mere failure to give notice of the foreclosure sale in
accordance with applicable law is not sufficient to set aside a foreclosure sale. See Tenn.
Code Ann. § 35-5-106; McSwain, 1994 WL 398819, at *2-3; Nationstar, 2011 WL 3273077,
at *4-5. Therefore, the failure to provide notice to MERS fails to state a viable claim to set
aside the foreclosure sale.

As for a sale price that is “grossly inadequate or unfair,” this fact alone is also
insufficient to state a claim to set aside a foreclosure sale. Holt, 688 S.W.2d at 416; see also
Brooks, 2000 WL 1141566, at *2. As these two cases make clear, a foreclosure sale may be
set aside if the interested party can show evidence of “irregularity, misconduct, fraud, or
unfairness on the part of the trustee or the mortgagee that caused or contributed to an
inadequate price”; yet, in the complaint here, there are no allegations of irregularity,
misconduct, fraud or unfairness on the part of the trustee. Therefore, the mere fact that the
sale was for a price that was grossly inadequate or unfair fails to state a claim to set aside the
foreclosure sale.

Finally, we note that the complaint makes a passing reference to the trustee’s failure
to comply with the contractual provisions of the Deed of Trust; however, this allegation is
merely derivative of the trustee’s failure to comply with applicable law as distinguished from
a failure to comply with a specific provision of the Deed of Trust that varies the applicable
law. As noted earlier, the parties are free to “vary the terms of foreclosure by contract, and
where a deed of trust provision varies from the statutory requirements, that term will
generally supersede the statutory requirement,” CitiFinancial Mortg. Co., 2007 WL 77289,
at *9; however, the complaint merely states that “The Bartlett Deed of Trust required that
Smith, as successor trustee, give notice of the date, time and place of the Bartlett Foreclosure
Sale in accordance with applicable law.”3 The complaint does not allege that the substitute

3
In Nationstar Mortg., LLC v. Humphrey, 2011 WL 3273077, at *5, the court found that similar
language in the deed of trust did not vary the statutory requirements. In that case, the deed of trust stated, “If
Lender invokes the power of sale, Trustee shall give notice of sale by public advertisement in the county in
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trustee failed to comply with a term of the Deed of Trust that varied from applicable law. In
that the complaint fails to identify any specific term of the Deed of Trust that varies from the
statutory requirements as having been violated by the trustee, this fact provides no basis upon
which to set aside the deed. See Nationstar, 2011 WL 3273077, at *5 (finding that plaintiff
failed to state a claim to set aside the foreclosure sale based on the failure to comply with a
notice provision originating in the deed of trust because parties to the deed of trust did not
vary any of the statutory requirements).

Having concluded that MERS has failed to state a claim for setting aside the
foreclosure sale, we affirm the trial court’s decision to dismiss this specific claim without
prejudice to MERS’ right to seek restitution from the substitute trustee as provided in Tenn.
Code Ann. § 35-5-107 pursuant to which “Any officer, or other person, referenced in §
35-5-106 who fails to comply with this chapter . . . is . . . liable to the party injured by the
noncompliance, for all damages resulting from the failure.”

I N C ONCLUSION

The judgment of the trial court is affirmed in part and reversed in part, and this matter
is remanded for further proceedings consistent with this opinion. One-half of the costs of
appeal are assessed against EverBank and MERS, and one-half are assessed against Wendy
Geurin Smith and the Bank of Bartlett.

______________________________
FRANK G. CLEMENT, JR., JUDGE

3
(...continued)
which the Property is located for the time and in the manner provided by applicable law.” (Emphasis added.)

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