Helping Neighbors In Need - Foreclosure Facts

Foreclosure is the process by which a lender attempts to recover the amount owed on a defaulted loan by selling or taking ownership (repossession) of the property securing the loan. Though foreclosures are the primary recourse for lenders to recoup their investment, they are very costly and most lenders look for other avenues to address non-performing loans when possible.

Foreclosures are also costly to the borrower/homeowner; they:

Are reported to all three credit bureaus

Typically drop the borrower’s credit score from 85 to 160 points

Typically affect the borrower’s credit score for up to 3 years

Remain on a borrower’s credit history for 10 years

Make a homeowner ineligible for a Fannie Mae backed mortgage for 5 years

Make an investor ineligible for a Fannie Mae backed investment mortgage for 7 years

The foreclosure process differs by state, but all can begin after a single missed payment. Most banks and lenders have a grace period for late payments, usually with a fee added on. Once you fall three months behind, however, most lenders will begin the foreclosure process in one of two ways: a “judicial” sale, which requires that the process go through the court system, or a “power of” sale, which can be carried out entirely by the mortgage holder. All states allow judicial sales, and Virginia is one of 29 states that allow power of sales.

A "power of sale" clause, in a deed of trust or mortgage, pre-authorizes the sale of property to pay off the balance on a loan in the event of their default. In deeds of trust, or mortgages where a power of sale exists, the power given to the lender to sell the property may be executed by the lender or their representative, typically referred to as the Trustee. Regulations for this type of foreclosure process are outlined below in the "Power of Sale Foreclosure Guidelines".

Power of Sale Foreclosure Guidelines

If the deed of trust or mortgage contains a power of sale clause and specifies the time, place and terms of sale, then the specified procedure must be followed. However, even when the deed of trust makes allowances for advertising the foreclosure sale, Virginia Statutes require ads to be published no less than once a day for three days, which may be consecutive days. These requirements are in addition to the advertising terms stipulated in the deed of trust. If the deed of trust does not provide for advertising, then the ad shall be run once a week for four successive weeks. However, near a city, an ad on five different days, which may be consecutive, will be sufficient. A copy of the advertisement or a notice with the same information must be mailed to the borrower at least 14 days before the foreclosure sale.

The foreclosure sale ad must include anything required by the deed of trust and may include a legal description of the property, a street address and a tax map identification or general information about the property's location. The notice must include the time, place and terms of sale. It must give the name of the Trustee and the address and phone number of a person who will be able to respond to inquiries about the foreclosure sale.

Any time before the sale, the borrower may cure the default and stop the sale by paying the lien debt, costs and reasonable attorney's fees.

The sale, which may be held no earlier than eight (8) days after the first ad is published and no more than thirty (30) days after the last advertisement is published, is to be made at auction to the highest bidder. Any person other than the Trustee may bid at the foreclosure sale, including a person who has submitted a written one-price bid. Written one-price bids may be made and shall be received by the Trustee for entry by announcement of the Trustee at the sale. Any bidder in attendance may inspect written bids. Additionally, the Trustee may require bidders to place a cash deposit of up to ten (10) percent of the sale price, unless the deed of trust specifies a higher or lower amount.

Once the sale is complete, the proceeds will go to: 1) the expenses of executing the trust; 2) to discharge all taxes, levies, and assessments, with costs and interest if they have priority over the lien of the deed of trust; 3) to discharge in the order of their priority, if any, the remaining debts and obligations secured by the deed, and any liens of record inferior to the deed of trust under which sale is made; 4) any remaining proceeds go to the borrower.

If the sale of the property doesn't satisfy the amount of the loan there can also be deficiency judgments for the difference. Lenders may obtain deficiency judgments, without limits, in Virginia.

Foreclosure laws also require that any other involved parties be notified of the proceedings. For instance, if the homeowner took out another loan against the house with a third party, that lender must be contacted and its loan amount must be paid from the auction's proceeds

Additional information can be found at Synopsis of Virginia Foreclosure Laws and Foreclosure Summary © ForeclosureLaw.org

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