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Residential Foreclosures (VA)

August 12, 2019

Resource ID: w-013-7164

Residential Foreclosures (VA)

BENJAMIN P. SMITH, SHULMAN, ROGERS, GANDAL, PORDY & ECKER, P.A.,

WITH PRACTICAL LAW REAL ESTATE

 

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A Practice Note discussing residential foreclosure procedures and proceedings under Virginia law. This Note outlines the primary considerations, requirements, and processes for nonjudicial and judicial foreclosures of real property secured by deeds of trust and mortgages. This Note also addresses the appointment of receivers, deficiency judgments, and the borrower’s right to reinstate the loan and right of redemption.

Foreclosure is the legal process by which a lender (beneficiary or mortgagee) liquidates secured real property to obtain payment following the borrower’s (trustor’s or mortgagor’s) default on the underlying debt.

This Note outlines Virginia law governing residential foreclosure proceedings, including:

  • Nonjudicial foreclosures.
  • Judicial foreclosures.
  • Redemption rights.
  • Deficiency judgments.

This Note also provides step-by-step guidance for conducting residential foreclosures under Virginia law.

Virginia law does not define residential property. For purposes of this Note, residential property means owner-occupied dwellings, including:

  • Single family homes.
  • Condominium units and townhomes.
  • Cooperative units.

The procedures for serving the notice of sale and conducting the foreclosure sale are the same for residential and commercial foreclosures in Virginia.

For more information on commercial foreclosures in Virginia, see Practice Note, Commercial Foreclosures (VA) (W-014-8161).

AVAILABLE METHODS OF FORECLOSURE IN VIRGINIA

Lenders in Virginia most commonly use a deed of trust to secure loans against real property (Va. Code Ann. § 55-58).

Under Virginia law, a lender may foreclose a loan secured by residential real property by either:

  • Nonjudicial foreclosure. Foreclosure is authorized under a deed of trust containing a power of sale clause and is conducted at a public auction without judicial assistance (see Nonjudicial Foreclosure). Nonjudicial foreclosures are the most commonly-used form of foreclosure in Virginia and are governed by Va. Code Ann. §§ 55-58.3 to 55-66.6.
  • Judicial foreclosure. Foreclosure of a mortgage or deed of trust by court order is typically used only when the security instrument being enforced does not contain a power of sale provision or does not name a trustee (see Judicial Foreclosure). Judicial foreclosure is rarely used with deeds of trust due to its lengthy, complicated, and expensive nature. Judicial foreclosure is governed by Va. Code Ann. §§ 8.01-96 to 8.01-113.

For more information on financing real property in Virginia, see State Q&A, Real Estate Finance: Virginia (5-553-7847).

PRE-FORECLOSURE REQUIREMENTS
AND CONSIDERATIONS

PRE-FORECLOSURE NOTICES

Virginia law does not require lenders to deliver any type of written notice of default, demand letter, or similar communication to a borrower in default before starting foreclosure of residential real property. A deed of trust is a contract under Virginia law. Unless a deed of trust conflicts with Virginia law, it will be interpreted as written. (Va. Code Ann. § 55-59 and see Mathews v. PHH Mortg. Corp., 724 S.E. 2d 196, 201 (Va. 2012).) Lender’s counsel should carefully review the terms of the note and deed of trust or mortgage for any contractually required notice requirements before foreclosure.

In Virginia, every deed of trust is presumed to contain an acceleration

provision unless the deed of trust states otherwise (Va. Code

Ann. § 55-59 and see Lipps v. First Am. Serv. Corp., 286 S.E. 2d.

215, 219 (Va. 1982). An acceleration provision allows the lender

to immediately call the entire loan due if the borrower defaults.

At the request of a beneficiary (typically the lender), the trustee

must notify the borrower that it is accelerating the loan. (Va. Code

Ann. § 55-59(6).)

Most Virginia lenders provide defaulting borrowers with a demand letter that includes the notice of acceleration before beginning the foreclosure process. The demand letter should state:

  • The terms of the loan.
  • A description of the default.
  • That the debts secured by the deed of trust are immediately due and payable.
  • That the loan documents will be strictly enforced if any default is not remedied.

ORDER A TITLE SEARCH

Before beginning a foreclosure proceeding, the lender should conduct a title search to identify liens and other encumbrances that affect title to the real property.

The lender should consider paying priority liens, such as income taxes, property taxes, mechanic’s liens, and home owner association liens before the start of the foreclosure proceeding to protect the lender’s interest in the real property.

The lender should also conduct a search of the bankruptcy court records to determine whether the borrower has filed for bankruptcy protection. If the search reveals that the borrower filed bankruptcy, the foreclosure action must stop until the lender applies for and is granted relief from the automatic stay (11 U.S.C. § 362).

ESTABLISH POSSESSION OF THE ORIGINAL LOAN DOCUMENTS AND RIGHT TO FORECLOSE

The lender should locate the original promissory note (see Give Notice of a Lost Note). If the lender cannot locate the original promissory note or if the original note has been lost or destroyed, the lender must file a notice of lost note with the commissioner of accounts.

The lender should also obtain and record any assignments of the deed of trust to ensure it has the right to foreclose.

BORROWER’S RIGHT TO CURE

The Virginia foreclosure statute does not specifically provide a borrower in default with the right to cure or reinstate the loan after the lender has accelerated the note. The borrower’s right to cure a default is determined by the loan documents. Counsel for the lender should review the terms of the note and deed of trust or mortgage for any contractual right to cure a default before beginning foreclosure (see Reinstating the Debt Before Sale).

RESTRICTIONS ON CONSUMER DEBT COLLECTION

Most institutional residential lenders are subject to the oversight of the Consumer Financial Protection Bureau (CFPB). The CFPB imposes additional limitations when seeking to foreclose a consumer loan secured by residential real property. For guidance on the authority of the CFPB, see Practice Note, Summary of the Dodd-Frank Act: Consumer Financial Protection: Subtitle A: Consumer Financial Protection Bureau (2-543-6265).

The CFPB requires that subject lenders wait at least 120 days after a loan becomes delinquent before beginning the foreclosure process (12 C.F.R. § 1024.41(f)). Under the CFPB regulations, a lender cannot file a civil complaint for foreclosure before 120 days have passed in connection with judicial foreclosures.

Counsel for lenders should confirm the 120 day delinquency with the lender before taking any action to foreclose the secured loan.

Virginia does not have a general debt collection statute. The Virginia Consumer Protection Act (VCPA) (Va. Code Ann. §§ 59.1-196 to 59.1-207) prohibits certain fraudulent acts or practices committed by suppliers in consumer transactions. However, the VCPA expressly excludes banks, savings institutions, credit unions, small loan companies, and mortgage lenders (Va. Code Ann. §59.1-199(D)).

For more information on the regulation of consumer finance in Virginia, see State Q&A, Consumer Financial Regulation: Virginia (W-002-2382).

ACCRUAL OF LIMITATIONS

In Virginia, a lender must foreclose its lien within ten years of time the loan matures (Va. Code Ann. § 8.01-241). If the deed or mortgage does not state a maturity date, the limitation period is 20 years (Va. Code Ann. § 8.01-242). If a party in interest to the deed of trust or mortgage dies, the limitation period is extended by a period of one year from the date of death.

If a credit line deed of trust or mortgage does not contain a maturity date, the limitation period is 40 years from the date it was entered into, excluding a period of one year following the death of a party in interest (Va. Code Ann. § 8.01-242).

The limitation period to enforce a deed of trust or mortgage may be extended for an additional period if a certificate in the form set out in Section 8.01-241.1 is filed:

  • Before the expiration of the original limitation period.
  • In the clerk’s office where the deed of trust or mortgage was filed.
  • By the current property owner.
    (Va. Code Ann. § 8.01-241(C).)

CONSIDER APPOINTING A RECEIVER

In cases of both judicial and nonjudicial foreclosure, to the extent a property is in danger of waste or deterioration, a lender may move for the appointment of a receiver to protect and preserve the property.

Lenders may seek a receiver to collect rents (for residential rental property) or to protect and preserve the property.

Virginia law permits the appointment of both general and special receivers (Va. Code Ann. §§ 8.01-582 to 8.01-599). Special receiverships are customary for foreclosure actions (Va. Code Ann. §§ 8.01-591 to 8.01-599).

A party seeking the appointment of a special receiver must file an application with the court. The party should include facts supporting the conclusion that the property is in danger of waste or deterioration. Within ten days after being served, the adverse party (typically, the trustor or borrower) may file a response accompanied by one or more affidavits attesting to facts countering those set out by the party seeking a receiver.

After the application is filed, the court:

  • Sets a hearing on the application.
  • Orders that the court clerk give notice of the hearing to interested parties, including:
  • the borrower;
  • other record owners of the property;
  • lienholders of record; and
  • other lienholders known to the lender.
    (Va. Code Ann. § 8.01-591.)

The Virginia foreclosure statute requires a special receiver to post a surety bond only in emergency cases (Va. Code Ann. § 8.01-592). Counsel should ensure that the special receiver secures a bond in a sufficient amount to protect itself and interested parties.

NONJUDICIAL FORECLOSURE

Nonjudicial foreclosure is a contractual right arising only where the borrower expressly grants the lender a power of sale in the subject deed of trust. The power of sale clause allows a lender to foreclose the security interest and sell the secured property if the borrower is in breach of a material term of the promissory note, the deed of trust, or another contract, without court proceedings.

In Virginia, deeds of trust typically contain a power of sale. Every deed of trust is a contract that allows a trustee, at the request of a beneficiary of the deed of trust (typically the lender), to declare the debts secured by the deed of trust immediately due and payable. Under the terms of the deed of trust and at the direction of the beneficiary, the trustee may take possession of the property and sell it at auction if there is:

  • A failure to make timely payments on the promissory note.
  • A failure to pay taxes when due.
  • A breach of any other promise contained in the deed of trust. (Va. Code Ann. § 55-59.)

THE TRUSTEE

In Virginia, the trustee is a party named in the deed of the trust who is responsible for conducting the foreclosure. The original trustee in a deed of trust is typically:

  • A title company.
  • A servicing agent of the lender.
  • An attorney.

In Virginia, the trustee must be a Virginia resident (Va. Code Ann.

  • 55-58.1(A)). An entity such as a state bank, corporation, limited liability

company, or partnership may be named as a trustee only if it is organized in Virginia. Out-of-state banks chartered under the National Banking Act (12 U.S.C. § 38) may be named as a trustee in Virginia (Jaldin v. Recontrust Co., N.A., 539 F. App’x 97 (4th Cir. 2013)).

The deed of trust must state the trustee’s residence or business address. The trustee’s address may be changed either by:

  • Amending the deed of trust.
  • A separate instrument signed by the trustee or lender.

The document amending the trustee’s address must be recorded in the office of the clerk of the circuit court where the deed of trust was originally recorded (Va. Code Ann. § 55-58.1(B)).

The trustee owes only those duties listed in the deed of trust. It must perform its duties with fairness and impartiality to both debtors and creditors, but its duty does not rise to the level of a fiduciary duty (Goodrow v. Friedman & MacFayden, P.A., 2012 WL 6725617 at *6 (E.D. Va. Dec. 27, 2012)).

Substitute Trustee

The trustee listed in the deed of trust may be unqualified, unwilling, or unable to conduct the foreclosure sale. These situations require a substitution of trustee. The lender or the holders of more than 50 percent of the secured debt have the power to appoint a substitute trustee for any reason, regardless of whether that right is expressly granted in the deed of trust. They may do so by:

  • Executing and notarizing an instrument appointing the substitute trustee.
  • Recording the appointment in the office of the clerk where the original deed of trust was recorded.

(Va. Code Ann. § 55-59(9).)

A mortgage servicer may appoint a substitute trustee as a matter of contract and agency law (Goodrow, 2012 WL 6725617 at *7). When Mortgage Electronic Registration Systems, Inc. (MERS) is named in the deed of trust as nominee for the lender, it has the right to substitute trustees (Tapia v. U.S. Bank, N.A., 718 F.Supp.2d 689 (E.D. Va. 2010)). MERS is used by lenders as a nominee to perform services, including:

  • Tracking residential and commercial mortgage ownership and servicing.
  • Foreclosing and selling property.
  • Taking other actions required by a lender.

Number of Trustees

Virginia law does not limit the number of trustees. If the deed of trust includes the phrase “any trustee may act,” each named trustee has the authority to act individually (Va. Code Ann. § 55-60(10)).

DELIVER THE NOTICE OF SALE

The first step to starting a nonjudicial foreclosure sale under a deed of trust is for the trustee or the lender to give written notice of sale. The notice of sale must include the time, date, and place of a proposed foreclosures sale and include either:

  • The instrument number or deed book and page numbers of the deed of trust.
  • A copy of the executed and notarized appointment of substitute trustee (see Substitute Trustee).

(Va. Code Ann. § 55-59.1(A) and see Conducting the Sale.)

The Virginia statutes set out a permissible notice of sale form (Va. Code Ann. § 55-62).

The notice of sale must be personally delivered or sent by certified or registered mailed within 14 days before the sale of the property to:

  • The present property owner at his last known address.
  • Any subordinate lienholder or its assignee that recorded their lien at least 30 days before the proposed sale.
  • Any condominium unit owners association, homeowners’ association, or proprietary lessees’ association that recorded its lien at least 30 days before the proposed sale.

(Va. Code Ann. § 55-59.1(A).)

Counsel should give notice to all interested parties.

If a written notice of sale is given under Section 55-59.1, there is a rebuttable presumption that the lienholder has complied with any requirements to provide notice of default contained in a deed of trust. Giving improper notice of sale does not affect the validity of the sale. (Va. Code Ann. § 55-59.1(C).)

New notice is not required if the sale is postponed (Va. Code Ann. § 55-59.1(D)).

Give Notice to the IRS

If there is a federal tax lien attached to the property, the trustee must give notice of the foreclosure sale to the IRS at least 25 days before the sale date (26 U.S.C. § 7425(c)(1)). The foreclosure does not extinguish the tax lien if the trustee does not give notice of the sale to the IRS. The IRS has 120 days following the sale to redeem the property. (26 U.S.C. § 7425(a), (d).)

It is rare for the IRS to redeem the property. However, an IRS right of redemption creates a post-foreclosure cloud on title delaying further conveyance of the foreclosed property acquired by the lender after foreclosure.

Give Notice of a Lost Note

If the note or other evidence of the secured debt is lost, the trustee may still proceed with the sale if the lender:

  • Gives the trustee an affidavit stating that evidence of the secured debt cannot be produced.
  • Gives written notice to the debtor-borrower that the note or other evidence is unavailable.
  • States in the notice that a request for sale will be made on the trustee within 14 days from the date of the mailing of the notice. The notice must:
  • be sent by certified mail, return receipt requested, to the last known address of the debtor;
  • contain the name and address of the trustee; and
  • advise the debtor that if he is subject to a claim by another person, he may petition the court for an order requiring the lender to provide protection against that claim.

(Va. Code Ann. § 55-59.1(B).)
4

ADVERTISING THE SALE

After giving notice of sale, the trustee must advertise the sale by publishing the notice of sale in a newspaper with a general circulation in the city or county where at least a portion of the property is located. The publication must be made according to the deed of trust if the deed of trust specifies the number of publications. The number of publications must be at least either once:

  • A week for two weeks if published weekly.
  • A day for three days if published daily.

If the deed of trust does not specify the number of publications, then the notice of sale must be published either once:

  • A week for four consecutive weeks.
  • A day for five days if the property is located in a contiguous city or county.

The sale must be held:

  • After the last advertisement.
  • No sooner than eight days following the first advertisement.
  • No later than 30 days following the last advertisement.

The advertisement must be placed in the legal notices section of the newspaper or where the type of property being sold is generally advertised for sale.

If the trustee postpones a sale, the trustee must advertise the postponed sale in the same manner as the original advertisement of sale.

If a trustee fails to comply with the statutory advertisement requirements, the sale is voidable. If an interested party believes that the trustee has failed to advertise the sale in a manner consistent with the foreclosure statute, the party should petition the court to void the sale. (Va. Code. Ann. § 55-59.2.)

Contents of the Advertisement of Sale

In addition to any requirements set out in the deed of trust, the advertisement of sale must contain:

  • A description of the property. A legal description is not required.
  • The address of the property. If no address is available:
  • its general location with references to streets, routes, or landmarks; or
  • a tax map identification.
  • The time, place, and terms of sale.
  • The identity of the trustee.
  • The name, address, and telephone number of a person who can respond to questions concerning the sale, typically the trustee.

(Va. Code Ann. § 55-59.3(A).)

If the property being sold is a time-share estate, the advertisement of sale must contain:

  • A description of the time-share estate, including:
  • the name of the time share; and
  • the address of the time share or its general location if no address is available.
  • The date, time, and place of the sale.
  • The name of the trustee.
  • The name, address, and telephone number of a person who can respond to questions concerning the sale, typically the trustee.
  • Whatever other information the trustee determines to be appropriate.

(Va. Code Ann. § 55-59.3(B).)
Reinstating the Debt Before Sale

In Virginia, the right of the borrower or any other person to reinstate the indebtedness after a nonjudicial foreclosure but before the foreclosure is completed is determined by the deed of trust. If the deed of trust contains the words “renewal, extension, or reinstatement permitted,” or words to that effect, the borrower has the right to cure a default and reinstate the debt either:

  • According to the loan’s schedule of maturity at acceleration.
  • As the parties may otherwise agree.
    (Va. Code Ann. § 55-60(5a).)

The trustee should allow the borrower or any other party who has the right to cure a default to do so up to the time of sale.

CONDUCTING THE SALE

The trustee typically conducts the foreclosure sale. Unless otherwise stated in the deed of trust, nonjudicial foreclosure sales may be conducted at:

  • The property.
  • The courthouse for the circuit court for the county where the property is located.
  • In the city or county where the property or the great part of the property lies.
  • In the corporate limits of any surrounding or contiguous city. (Va. Code Ann. § 55-59(7).)

Any person other than the trustee may bid on the property. At the sale, the trustee may receive:

  • Oral bids in person.
  • Written one-price bids from:
  • the beneficiary; and
  • any other bidder that wishes to submit a written one-price bid.

The trustee cannot bid on the property at the sale for the trustee’s own benefit. If the trustee bids on the property, the sale is voidable (Harrison v. Manson, 29 S.E. 420 (Va. 1898)). The trustee may, and often does, submit the written bids on behalf of the beneficiary or any other party that submitted a written one-price bid.

Any person other than the trustee may bid at the foreclosure sale, including a person who has submitted a written one-price bid. Any bidder in attendance has the right to inspect written bids by making a request to the trustee. (Va. Code Ann. § 55-59.4(A)(1).)

The trustee may require any bidder at sale to make a cash deposit of as much as ten percent of the sale price before his bid is received unless the deed of trust specifies a different amount. If the bid is

unsuccessful, the trustee refunds the deposit. If the successful bidder fails to complete the purchase promptly, then:

  • The deposit will be applied to pay the costs and expense of sale.
  • Any remaining balance will be retained by the trustee as compensation for that sale.
  • The trustee may resell the property.
    (Va. Code Ann. §55-59.4(A)(2).)

The lender-beneficiary may credit bid on the property but is not obligated to bid the full amount of its debt if it believes the debtor has sufficient assets to meet any remaining deficit (Va. Hous. Auth. v. Fox Run Ltd. P’ship, 497 S.E. 2d 747, 752 (Va. 1998)).

A full credit bid is typically the outstanding loan balance. However, the lender-beneficiary may include the following when calculating the credit bid:

  • Costs of sale, including:
  • advertising the sale;
  • issuing notices of the sale;
  • title search costs; and
  • other costs directly incident to the sale.
  • Any property taxes or insurance premiums that the lender has paid up to the date of the sale.

POST-SALE REQUIREMENTS
Memorandum of Sale

The buyer signs a written memorandum of sale when the trustee completes the sale. The trustee maintains a copy of the memorandum in the trustee’s file and provides a copy of the memorandum to the commissioner of accounts for review. The memorandum of sale is not recorded.

Trustee’s Deed

The trustee conveys the property to the buyer by a trustee’s deed.

Disbursement of Proceeds After a Nonjudicial Foreclosure

After the trustee has received the sale proceeds, the trustee must:

  • Make an accounting to the commissioner of accounts of the circuit court where the deed of trust was first recorded under Va. Code Ann. § 64.2-1309.
  • Distribute the sale proceeds in the following order of priority:
  • discharge the expenses of executing the trust, including a reasonable commission to the trustee;
  • discharge all taxes, levies, and assessments with priority over the deed of trust, including costs and interest (Va. Code Ann. § 58.1-3340);
  • discharge in the order of their preference any remaining debts secured by the deed of trust and any subordinate liens of record, including interest; and
  • pay any remaining proceeds to the borrower, any assignee of the borrower, or any heir of the borrower of which the trustee has received actual notice.

(Va. Code Ann. § 55-59.4(A)(3).)

Accounting of Sale by the Trustee

The trustee must file an account of sale proceeds:

  • With the commissioner of accounts for the circuit court of the county where the deed of trust was first recorded.
  • Within six months after the date of sale.

After the trustee records the trustee’s deed, the trustee must promptly deliver a copy of the deed to the commissioner of accounts.

The commissioner of accounts reviews the trustee’s report and files it with the clerk of courts for recording as a fiduciary report and the court’s approval (Va. Code Ann. § 64.2-1309).

Taking Possession of the Property

If the borrower has abandoned the property at the time of the sale, the purchaser may take possession immediately. If the borrower remains in the property after the sale, the lender may take possession by bringing an unlawful detainer (eviction) action against the borrower (Va. Code Ann. § 8.01-124 and see Lewis v. Nationstar Mortg., LLC, 2014 WL 325259 (W.D. Va. Jan. 29, 2014).)

Beneficiaries that end up owning the property after the sale often negotiate voluntary delivery of possession with the occupants of the property. This arrangement is typically referred to as cash for keys and many lenders attempt this to avoid the time and expense of an eviction action.

Virginia did not adopt a state equivalent of the federal Protecting Tenants at Foreclosure Act. Virginia law does not provide tenants with any rights under the lease and the foreclosure extinguishes the lease at the time of the foreclosure sale. The tenant may remain in possession of the premises on a month-to-month basis on the terms of the terminated lease until the new owner either terminates the month-to-month tenancy or the parties enter into a new lease. (Va. Code Ann. § 55-225.10(C).)

A residential landlord who has received a notice of mortgage default, mortgage acceleration, or notice of foreclosure sale must give written notice to the tenant within five business days after it received the notice from the lender. If the landlord fails to give timely notice to the tenant, the tenant may terminate the lease by giving the landlord notice of termination within five business days of the lease’s termination date. (Va. Code Ann. § 55-225.10(A), (B).)

JUDICIAL FORECLOSURE

Virginia law authorizes judicial foreclosures, though they are rarely used for deeds of trust. Judicial foreclosure is typically used when the deed of trust:

  • Does not name a trustee.
  • Lacks a power of sale clause.

A mortgagee (lender) may either:

  • Foreclose the security interest in the real property.
  • Sue directly on the debt (suit for breach of contract for failure to pay).

FILE A FORECLOSURE COMPLAINT

To start a judicial foreclosure, the foreclosing party must file a complaint with the circuit court for the county where the real property

is located, seeking a decree for sale (Va. Code Ann. § 8.01-96). The complaint should name the following parties (and any additional party with an interest in the subject property) as defendants:

  • The mortgagor (borrower).
  • The borrower’s successor and assigns, if any.
  • The owner of the property, if different from the borrower (for example, a guarantor who pledged the property as collateral for a loan).
  • Any party with a recorded interest in the real property.
  • Junior lien holders, such as:
  • subordinate lenders;
  • judgment lien holders;
  • mechanic’s and materialmen’s lien holders;
  • the US government, by and through the IRS or other governmental agency, for federal tax liens; and
  • property owners’ association lien holders (Va. Code Ann. § 55-516).

(Va. Sup. Ct. R. 3:2(b).)

Counsel for the lender should consider obtaining a litigation report from a litigation support services company and a litigation guarantee from a reputable title company. They can provide the lender with all information regarding the necessary and indispensable parties to the judicial foreclosure.

The foreclosing party must serve a copy of the complaint on the other named parties to the action (Va. Sup. Ct. R. 3:5 and 3:6).

After filing the foreclosure complaint, the lender should immediately record a notice of lis pendens with the clerk’s office in the county where the real property is located (Va. Code Ann. § 8.01-268). Recording the notice of lis pendens:

  • Puts third parties on record (constructive) notice that pending litigation affects the title to the real property.
  • Prevents third persons from acquiring an interest in the property during the foreclosure litigation, which could prevent the court from granting suitable relief.

Minimum Facts for the Foreclosure Complaint
The foreclosure complaint must, at a minimum:

  • Identify the parties.
  • Describe the property (see Contents of the Advertisement of Sale).
  • Describe each party’s interest in the real property.
  • Describe the mortgage or deed of trust and the secured obligation.
  • Describe the default.
  • Include any facts showing the lender’s compliance with statutory or contractual pre-foreclosure requirements, if any.
  • Request foreclosure of the mortgage or deed of trust.
  • Request that the court appoint a special commissioner to conduct the sale (Va. Code Ann. § 8.01-96).
  • Request that the court or commissioner determine delinquent taxes (Va. Code. Ann. § 8.01-97).
  • Request that the commissioner file a report of sale.
  • Request authorization to credit bid at the sale.
  • State that the plaintiff is entitled to enforce the deed of trust and ask that it be granted a decree of sale.
  • Include facts supporting any requests for special relief, such as requests:
  • to reform or amend the loan documents;
  • to subrogate another lien or to determine priority; or
  • to obtain a deficiency judgment against the borrower.
  • Request that the court:
  • confirm the sale;
  • determine the amount of any deficiency; and
  • enter a deficiency judgment in favor of the plaintiff-lender (see Deficiency Judgment After a Judicial Sale).

Attach Exhibits to the Foreclosure Complaint

The lender should attach legible copies of the following instruments as exhibits to the foreclosure complaint:

  • The vesting deed.
  • The signed promissory note. While it is not required by statute, counsel should ensure that the lender provide an original note unless it has given lost note notice to the trustee (see Give Notice of a Lost Note).
  • The recorded deed of trust or mortgage.
  • Any recorded assignments of mortgage or deed of trust (or substitution of trustee), if applicable.
  • Any other recorded liens or interests in the real property.

JUDGMENT

The lender often prevails without a trial.

If the defendant borrower does not respond to the foreclosure complaint, the lender should seek judgment through an entry of default (Va. Sup. Ct. R. 3:19(a)).

If defendant debtor does file a response to the complaint, the lender may be able to prevail by moving for summary judgment. If no material facts are contested, the court will issue summary judgment in favor of lender. (Va. Sup. Ct. R. 3:20.)

Judgment in favor of lender includes:

  • An order for the entire amount due to plaintiff lender, including costs and disbursements.
  • A determination of attorneys’ fees owed (Va. Sup. Ct. R. 3:25).

For more information on litigation procedures in Virginia, see State Q&A, Litigation Overview: Virginia (W-012-3697).

Judgment by Default

If the defendant borrower does not respond or appear, the lender may file a motion for default judgment, including:

  • An application for default.
  • Any supporting affidavits, including:
  • an affidavit in support of application for entry of default;
  • an affidavit of non-military status (50 U.S.C. § 3931);
  • an affidavit of counsel in support of request for attorneys’ fees and expenses;
  • a sum certain affidavit; and
  • an affidavit of service of the summons and complaint.
  • A motion for entry of default judgment.
  • A statement of the costs and notice of taxation.
  • A proposed entry of default judgment. (Va. Sup. Ct. R. 3:19.)

EXECUTING ON THE DECREE OF FORECLOSURE SALE

The court renders a judgment in foreclosure by a decree of sale (decree). The decree directs the special commissioner to sell the property and sets out the requirements for the sale. The process for the sale of property after a decree of sale in a judicial foreclosure action is generally the same as the process for conducting a nonjudicial foreclosure sale. The court is likely to order that a notice of sale be given to record owners, junior lienholders, and occupants of the property:

  • By certified mail, return receipt requested.
  • By first class mail.
  • At least 14 days before the sale date.

(See Deliver the Notice of Sale.)

The decree also sets out the requirements for publishing the notice of sale. The court typically orders that the lender publish the notice of sale:

  • Once a week for four successive weeks before the sale date.
  • In a newspaper of general circulation in the county where the property is located.

(See Advertising the Sale.)

The advertisement of sale should be substantially the same as that of an advertisement of a nonjudicial sale. It should also include the name, address, and telephone number of the special commissioner (see Contents of the Advertisement of Sale).

The special commissioner must conduct the judicial foreclosure sale. Otherwise, the procedure for conducting a judicial foreclosure sale is the same as the procedure for conducting a nonjudicial foreclosure sale (see Conducting the Sale).

DISBURSEMENT OF SALE PROCEEDS
AFTER A JUDICIAL FORECLOSURE

After the judicial foreclosure sale concludes, the special commissioner must disburse the proceeds in order of priority as follows:

  • Discharge the expenses of executing the trust, including a reasonable commission to the trustee.
  • Discharge all taxes, levies, and assessments with priority over the deed of trust, including costs and interest (Va. Code Ann. § 58.1-3340).
  • Discharge in the order of their preference any remaining debts secured by the deed of trust and any subordinate liens of record, including interest.

 

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