Did Tennessee's 2023 foreign ownership law ban foreigners from buying property in the state?

Subject

Whether 2023 Tenn. Pub. Acts, ch. 369 (codified at Tenn. Code Ann. §§ 66-2-101 to -306) bars foreigners generally from owning Tennessee real property, and what the scope of the prohibition is.

Plain-English summary

Representative Lowell Russell asked whether the 2023 Tennessee law restricting foreign ownership of real property is a blanket ban. The AG's answer is no. The statute, effective July 1, 2023, targets a defined set of "sanctioned" persons and entities, not all foreign owners.

Three categories of regulated persons or entities are covered:

1. Sanctioned foreign business: a corporation incorporated in a sanctioned country, or a business entity in which sanctioned nonresident aliens hold a majority interest, or a corporation/entity identified on OFAC's Sanctions Programs and Country Information List.
2. Sanctioned foreign government: any government other than the U.S., its states, territories, or possessions, that is identified on OFAC's list.
3. Sanctioned nonresident alien: a citizen of a sanctioned foreign government, or a person identified on OFAC's list. The category specifically excludes U.S. citizens and "person[s] lawfully admitted into the United States for permanent residence" (green card holders).

The law:

• Bars regulated persons or entities from purchasing or otherwise acquiring Tennessee real property after July 1, 2023, except by devise or descent.
• Grandfathers in property held before July 1, 2023, but bars buying additional property and bars transferring grandfathered property to another regulated person except by devise or descent.
• Requires divestment within two years of inheritance (with a carve-out: no divestment required if the property is inherited from a sanctioned nonresident alien who acquired it before July 1, 2023).
• Allows acquisition by encumbrance for security, by debt collection, by deed in lieu of foreclosure, by forfeiture of contract for deed, or by lien enforcement, but requires sale within two years.
• Requires divestment within two years if a person becomes a regulated person after acquiring property.
• Requires regulated persons or entities to register the property with the Tennessee Secretary of State, with a civil penalty up to $2,000 per registration violation.
• On a violation, the Secretary of State reports to the Attorney General, who initiates a circuit court action; if the court finds a violation, the property is escheated to the state and sold like a foreclosed mortgage.
• Real estate agents, attorneys, and title insurance agents are explicitly not liable for violations.

What this means for you

If you are a foreign buyer interested in Tennessee real estate

The opinion concludes the law is not a blanket prohibition on foreign ownership. It applies only to "sanctioned foreign businesses," "sanctioned foreign governments," and "sanctioned nonresident aliens" as defined by the statute, with those definitions keyed to OFAC's Sanctions Programs and Country Information List. U.S. citizens and persons lawfully admitted for permanent residence (green card holders) are excluded from the "sanctioned nonresident alien" definition under § 66-2-301(4)(B).

If you are a sanctioned foreign business, government, or nonresident alien

The opinion describes the following as the statute's effect. After July 1, 2023, a regulated person or entity is prohibited from purchasing or otherwise acquiring Tennessee real property except by devise or descent (§ 66-2-302(a)(1)). Property inherited by devise or descent must be divested within two years, unless inherited from a sanctioned nonresident alien who had acquired it before July 1, 2023 (§ 66-2-303(a), (b)). A regulated person or entity that held property before July 1, 2023, is grandfathered and may keep it but may not acquire additional property and may not transfer it to another regulated person except by devise or descent (§ 66-2-302(c), (d)). A regulated person or entity holding or acquiring an interest on or after July 1, 2023, must register the property with the Tennessee Secretary of State (§ 66-2-305).

If you are a real estate agent, attorney, or title insurance agent

The opinion states that the statute expressly does not impose liability for a violation on real estate agents, attorneys, or title insurance agents involved in a transaction in which a regulated person or entity acquired an interest in violation of the law (§ 66-2-306(f)). The opinion offers no further guidance directed at these professionals.

If you are handling a transaction involving a business entity

The opinion notes that a "sanctioned foreign business" includes a business entity, whether or not incorporated, in which a majority interest is owned by sanctioned nonresident aliens (§ 66-2-301(2)(B)), and that ownership in this context refers to the sanctioned nonresident alien's direct or indirect ownership interests, not the ownership interests of the legal entity itself.

If you are an estate planning context with a regulated heir

The opinion explains that inheritance by devise or descent is not barred by the purchase prohibition, but a regulated person or entity that acquires property by devise or descent after July 1, 2023, must divest within two years (§ 66-2-303(a)), unless the property was acquired from a sanctioned nonresident alien who had acquired it before July 1, 2023 (§ 66-2-303(b)).

If you are a county recorder of deeds

The opinion states that when the Attorney General initiates an enforcement action, the AG must file a notice of the pendency of the action with the recorder of deeds in the county where the property is located (§ 66-2-306(c)).

If you are at the Tennessee Secretary of State or AG's office

The opinion describes a two-step enforcement scheme. The Secretary of State assesses a civil penalty not to exceed $2,000 per registration violation (§ 66-2-306(e)) and reports violations to the Attorney General (§ 66-2-306(a)). The Attorney General then initiates a circuit court action; if the court finds a violation, it declares the property escheated to the state and orders its sale in the manner provided for foreclosure of a mortgage (§ 66-2-306(b)-(d)).

Common questions

Q: Does this affect Chinese, Russian, or Iranian buyers?
A: The opinion does not name any specific country. Whether a particular foreign government, business, or nonresident alien is regulated depends on whether it comes within the statutory definitions, which key to OFAC's Sanctions Programs and Country Information List.

Q: I'm a green card holder. Am I covered?
A: No. Section 66-2-301(4)(B) excludes U.S. citizens and "person[s] lawfully admitted into the United States for permanent residence by the United States immigration and naturalization service, even if such status is conditional."

Q: I bought my house in 2020 and I'm a citizen of a sanctioned country. Can I keep it?
A: Yes, you are grandfathered under § 66-2-302(c). You cannot buy more Tennessee real property and cannot transfer it to another regulated person except by devise or descent.

Q: I bought property in March 2023. Am I grandfathered?
A: If you held the property before July 1, 2023, yes. The grandfather date is July 1, 2023.

Q: What if I become "sanctioned" after I buy?
A: Section 66-2-304 requires divestment within two years from the date of the change in status.

Q: What about U.S. real estate held by a foreign-owned LLC?
A: A "business entity, whether or not incorporated, in which a majority interest" is owned by sanctioned nonresident aliens is a sanctioned foreign business under § 66-2-301(2)(B). Look at the direct or indirect ownership of the natural persons. The opinion notes that ownership in this context refers to the sanctioned nonresident alien's direct or indirect ownership interests, not the ownership interests of the legal entity itself.

Q: What is the registration deadline?
A: The opinion states that registration must occur "within the time and in the manner prescribed by statute" under § 66-2-305. It does not specify a deadline.

Q: What is the penalty for failing to register?
A: Up to $2,000 per violation, assessed by the Secretary of State under § 66-2-306(e).

Q: What happens if a court finds a violation?
A: The property is escheated to the state and sold "in the manner provided by law for the foreclosure of a mortgage on real estate for default of payment" under § 66-2-306(d).

Background and statutory framework

Before July 1, 2023, Tennessee allowed any "alien resident, or nonresident of the United States" to "take and hold property, real or personal, in this state and dispose of or transmit the same as a native citizen." § 66-2-101.

2023 Tenn. Pub. Acts, ch. 369, codified at Tenn. Code Ann. §§ 66-2-101 to -306, narrowed that rule. Effective July 1, 2023, three classes of regulated persons or entities are barred from purchasing or acquiring Tennessee real property except by devise or descent.

OFAC (the Office of Foreign Assets Control of the U.S. Department of the Treasury) administers federal sanctions programs and maintains both the Sanctions Programs and Country Information List and the Specially Designated Nationals and Blocked Persons List. Tennessee's statute keys its definitions to OFAC's lists, so the regulated population shifts as OFAC adds or removes countries and persons.

The statute is layered with exceptions. Inheritance does not trigger the purchase prohibition, but it triggers a two-year divestment obligation (§ 66-2-303(a)) unless the property was inherited from a sanctioned nonresident alien who acquired it before July 1, 2023 (§ 66-2-303(b)). Bona fide encumbrances for security purposes are not "acquisitions" under § 66-2-302(b)(2). Property acquired in debt collection, by deed in lieu of foreclosure, by forfeiture of a contract for deed, or by lien enforcement is permitted but must be sold within two years (§ 66-2-302(b)(3)).

Enforcement: Secretary of State first (registration and civil penalty), AG second (circuit court action seeking escheat and forced sale). Real estate agents, attorneys, and title insurance agents are explicitly insulated from liability under § 66-2-306(f).

Citations

Statutes:

• 2023 Tenn. Pub. Acts, ch. 369
• Tenn. Code Ann. § 66-2-101 (pre-amendment background)
• Tenn. Code Ann. §§ 66-2-101 to -306 (amended framework)
• Tenn. Code Ann. § 66-2-301(1) (real property)
• Tenn. Code Ann. § 66-2-301(2)(A), (B), (C) (sanctioned foreign business)
• Tenn. Code Ann. § 66-2-301(3) (sanctioned foreign government)
• Tenn. Code Ann. § 66-2-301(4)(A), (B) (sanctioned nonresident alien)
• Tenn. Code Ann. § 66-2-302(a)(1) (general prohibition)
• Tenn. Code Ann. § 66-2-302(b)(1)-(3) (exceptions)
• Tenn. Code Ann. § 66-2-302(c), (d) (grandfather + transfer restriction)
• Tenn. Code Ann. § 66-2-303(a), (b) (inheritance divestment)
• Tenn. Code Ann. § 66-2-304 (post-acquisition status change)
• Tenn. Code Ann. § 66-2-305 (registration)
• Tenn. Code Ann. § 66-2-306(a)-(f) (enforcement, escheat, immunities)

Federal references:

• OFAC Sanctions Programs and Country Information List (U.S. Department of the Treasury)
• Specially Designated Nationals and Blocked Persons List (OFAC)

Source

• Landing page: https://www.tn.gov/attorneygeneral/opinions.html
• Original PDF: https://www.tn.gov/content/dam/tn/attorneygeneral/documents/ops/2023/op23-10.pdf

Original opinion text

STATE OF TENNESSEE
OFFICE OF THE ATTORNEY GENERAL
October 2, 2023
Opinion No. 23-10

Restrictions on Foreign Ownership of Tennessee Real Property Under Tenn. Code Ann. §§ 66-2-101 to 306 (2023 Tenn. Pub. Acts, ch. 369)

Question

Does 2023 Tenn. Pub. Acts, ch. 369 (codified at Tenn. Code Ann. §§ 66-2-101 to 306) prohibit foreign ownership of Tennessee real property, and if so, what is the scope of the prohibition?

Opinion

Public Chapter 369 (codified at Tenn. Code Ann. §§ 66-2-101 to 306) is not a blanket prohibition of foreign ownership of Tennessee real property. It does, however, prohibit the purchase or other acquisition of Tennessee real property by "sanctioned foreign businesses," "sanctioned foreign governments," and "sanctioned nonresident aliens"—including any of their agents, trustees, and fiduciaries—as those terms are defined in the statute.

ANALYSIS

Before the enactment of 2023 Tenn. Pub. Acts, ch. 369, an "alien resident, or nonresident of the United States" was permitted to "take and hold property, real or personal, in this state and dispose of or transmit the same as a native citizen." Tenn. Code Ann. § 66-2-101. But effective July 1, 2023, 2023 Public Chapter 369 amended that law to impose certain restrictions on foreign ownership of Tennessee property. Tenn. Code Ann. §§ 66-2-101 to 306 (2023).

The law as now amended generally prohibits the purchase or acquisition of Tennessee real and personal property by (1) "sanctioned foreign businesses," (2) "sanctioned foreign governments," and (3) "sanctioned nonresident aliens," including any of their "agents, trustees, or fiduciaries" (referred to herein collectively as "regulated persons or entities") as those terms are defined by statute. Tenn. Code Ann. § 66-2-302(a)(1).

Thus, whether Public Chapter 369 prohibits any particular foreign business, foreign government, or nonresident alien from buying or otherwise acquiring any particular Tennessee real property will depend on whether the property, person, or entity is regulated under the amended statute—i.e., comes within the relevant statutory definitions, which are as follows:

Real property "means one . . . or more defined parcels or tracks of land or interests, benefits, and rights inherent in the ownership of real estate, including easements, water rights, agricultural land, or any other interest in real property." Id. § 66-2-301(1).

Sanctioned foreign business is (1) a corporation incorporated under the laws of a foreign country of a "sanctioned foreign government," id. § 66-2-301(2)(A); (2) a "business entity whether or not incorporated, in which a majority interest" is "owned" by "sanctioned nonresident aliens," id. § 66-2-301(2)(B); or (3) "a corporation or business entity, whether or not incorporated, that is identified on the" Sanctions Programs and Country Information List" of the Office of Foreign Assets Control ("OFAC") of the U.S. Department of the Treasury, id. § 66-2-301(2)(C).

Sanctioned foreign government is "a government other than the government of the United States, its states, its territories, or its possession, that is identified by" OFAC's Sanctions Programs and Country Information List. Id. § 66-2-301(3).

Sanctioned nonresident alien includes (1) "a citizen of a sanctioned foreign government" and (2) a person identified on OFAC's Sanctions Programs and Country Information List. Id. § 66-2-301(4)(A). It does not include a citizen of the United States or "a person lawfully admitted into the United States for permanent residence by the United States immigration and naturalization service, even if such status is conditional." Id. § 66-2-301(4)(B).

A regulated person or entity that held Tennessee real property before July 1, 2023, is grandfathered in and may continue to own or hold that particular property but may not buy or otherwise acquire additional real property after July 1, 2023. Id. § 66-2-302(c). Nor may a regulated person or entity transfer title or interest in that real property to another regulated person or entity, except by devise or descent. Id. § 66-2-302(d).

The restriction on ownership by a regulated person or entity does not apply to real property acquired through inheritance—i.e., by devise or descent. Id. § 66-2-302(b)(1). But if a regulated person or entity acquires Tennessee real property by devise or descent after July 1, 2023, that person or entity must "divest itself of all right, title, and interest in the real property within two . . . years from the date of acquiring the real property or interest." Id. § 66-2-303(a). Divestment is not required, however, if the property is acquired from a sanctioned nonresident alien by devise or descent as long as the nonresident alien had acquired the property before July 1, 2023. Id. § 66-2-303(b).

Nor does the restriction on the purchase or other acquisition of real property by a regulated person or entity apply to "bona fide encumbrance[s] on real property taken for purposes of security." Id. § 66-2-302(b)(2). And the restriction similarly does not apply to real property that is acquired by law "in the collection of debts; by a deed in lieu of foreclosure; pursuant to a forfeiture of a contract for deed; or by a procedure for the enforcement of a lien or claim on the real property." Id. § 66-2-302(b)(3). But real property that is acquired by a regulated person or entity pursuant to this exception must be sold or otherwise disposed of within two years after the title is transferred. Id. And pending sale or disposition, the regulated person or entity may only use the property as it "was used . . . immediately prior to the time the property was put up for sale" and only by "lease to an individual, trust, corporation, partnership, or other business entity not subject to the" statute. Id.

If a person or entity that is not regulated by the statute—i.e., that is not within the definition of "sanctioned" person or entity—buys or otherwise acquires real property in Tennessee except by devise or descent after July 1, 2023, and then later "becomes a sanctioned nonresident alien, sanctioned foreign business, or sanctioned foreign government, or an agent, trustee, or fiduciary thereof" that person or entity must "divest itself of all right, title, and interest in the real property within" two years from the date of the change in status to regulated person or entity. Id. § 66-2-304.

Any regulated person or entity that holds or acquires an interest in Tennessee real property on or after July 1, 2023, must register that property with the Tennessee Secretary of State within the time and in the manner prescribed by statute. Id. § 66-2-305. If a regulated person violates the registration requirement, the Secretary of State "shall assess a civil penalty not to exceed" $2,000 per violation. Id. § 66-2-306(e).

If the Secretary of State finds that a regulated person or entity has acquired or holds property in violation of the statute, the Secretary of State is required to report the violation to the Attorney General. Id. § 66-2-306(a). The Attorney General then "shall initiate" a circuit court action in the county in which the property is located and "shall file" a notice of the pendency of the action with the recorder of deeds in the county where the property is located. Id. § 66-2-306(b), (c). If the court finds a violation, it "shall declare the real property escheated to the state and order the sale of the real property in the manner provided by law for the foreclosure of a mortgage on real estate for default of payment." Id. § 66-2-306(d). The statute expressly does not impose liability for a violation on real estate agents, attorneys, or title insurance agents involved in the transactions in which a regulated person or entity acquired an interest in Tennessee real property in violation of the statute. Id. § 66-2-306(f).

JONATHAN SKRMETTI
Attorney General and Reporter

ANDRÉE SOPHIA BLUMSTEIN
Solicitor General

ALICIA GILBERT
Office of Solicitor General Honors Fellow

Requested by:
The Honorable Lowell Russell
State Representative
634 Cordell Hull Building
425 Rep. John Lewis Way
Nashville, TN 37243