Foreclosure - Not a Dirty Word Any More.

Virginia Foreclosure Rules and Time-Lines

Foreclosure as a Reality
Things happen in life, the economy is down and joblessness is a serious issue.  Foreclosures are not just a financial issue, it’s an emotional and deeply personal issue for many. There are options and early intervention is critically important.  Foreclosure proceedings can begin as soon as 15 day from the due date of a missed payment.  You should not ignore documents and mail sent from your lender.  Read everything.  Being a  well informed consumer is your best bet in limiting damages.

Why The Confusion?
There is tremendous misunderstanding about foreclosure time lines and laws in Virginia.  Much of this stems from the fact that lenders aren’t playing by the rules.  Between their own policies and trying to keep up with different state laws, Lenders struggle with how to proceed.  They are poorly staffed and the flood of loan modifications, Short Sales and foreclosures is overwhelming them.  Add the fact that there are hundreds of Lenders trying to proceed in our market, and the application of state laws and their own policies create a myriad of variables.  It’s for that reason that some homes are foreclosed in 60 days and others can takes up to 18 months.  There are very few hard and fast rules, outside of those set by law.  Frankly, the laws were created for a “normal market” and we’re far from normal.

Move Out VS. For Sale Sign
Frequently we’re asked “Why did my neighbor move out last year and today there is a for sale sign in the yard?”  This is typically a result of the lenders process and occasionally the release rate of these foreclosed homes by the Lender.  In other words, many lenders are woefully under prepared to process the foreclosure.  Once they have actually taken the property into inventory, they have a series of legal filings and internal processes before they can put the house back on the Market.

Another consideration is the flooding of the market.  A foreclosed home in your subdivision will affect the value of surrounding homes.  A large number of foreclosed properties can decimate the remaining homes in the subdivision.  Therefore, many lenders are releasing their Real Estate Owned (REO) inventory in a slow stream, instead of all at once.  Many refer to this unreleased inventory as “Shadow Inventory”.  There are varied opinions on if the properties should be released all at once or slowly, but for now lenders are just moving along at a steady pace.

Reuters.com reported on December 17th, 2009 that the pending supply of homes not yet for sale has jumped from a year earlier, and is now around 1.7 million homes, being held by banks.  This “Shadow Inventory” is up from 1.1 million the year before.  As ominous as that number sounds, First America CoreLogic says that’s still only a 3.3 months supply.

It’s estimated that Short Sales and Foreclosures will make up about 50-60% of the active for-sale inventory in many markets.

Time From Missed Payment
The time line, from first payment being missed to actual foreclosure is averaging about six months.  This  seems like a lot of time to try to sort through other options.  It’s not.  Lenders can take many months to even return phone calls of consumers looking for loan work-outs r Short Sales.  If you’re reading this and have missed a payment or are about to, you need to call a real estate professional with specific training in dealing with distressed Property Options.  If you’re anywhere from Stafford to Caroline, Virginia; Jennifer and I would be happy to talk to you about your options.

Not always are foreclosures, nor Short Sales  the only options. There are a number of lender options available.  Loan work-outs are being performed by the lender, but you need to start this process soon.  Lender options and selling your home as a Short Sale (selling the home for less than you owe the lender) do not usually stop the foreclosure process.  it may slow it down, but not always.

Foreclosure Laws in Virginia
There are a number of fallacies in this process and for a short period of time there were people trying to find loop holes in the law to compel a lender to give up on a borrower.  These tactics may buy a little time, but ultimately doesn’t stop the process.

Virginia does not require a legal proceeding to foreclosure a home.  When you signed your mortgage documents, one of the documents was a Deed of Trust.  This Deed of Trust is held by a trustee that is not you nor the lender.  The Trustee is however picked by the lender.  This individual is responsible for handling the foreclosure for the lender and are suppose to be familiar and well versed in Virginia law.  In some occasions our first notice of the foreclosure proceeding, is the “Notice of Transfer of Trustee”.    This  is when the lender has decided that they want another Trustee (usually an attorney) to handle the process.

A Right of Redemption is a process by which the Homeowner can buy back the home after foreclosure.  This does not exist in Virginia.  The lender is not required to hold the REO property awaiting the foreclosed owner to come back and buy the property.

It’s estimated that Lenders can lose use up to $50,000 in a foreclosure process and that doesn’t include the loss of the principal money they initially loaned.  For that reason, lenders may approve Short Sales if things are done quickly and done well.  Not always is this true, but the lenders will usually always look for their bottom line.

Here are a few timelines that will help you in trying to beat the clock:

1.  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, additional requirements must be met, as outlined below in section one (1).

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.

2. 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.

3. 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 dead of trust specifies a higher or lower amount.

In the event of postponement of sale, which may be done at the discretion of the trustee, advertisement of such postponed sale shall be in the same manner as the original advertisement of sale.

4. 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.

Deficiency Judgments
Deficiency Judgments are those personal liens placed against a  former homeowner.  Lenders, after the completion of the foreclosure process, may proceed with suing the former homeowner for money that was lost by the lender.

Only An Overview
The information above is only a brief overview of the extremely complicated process of Foreclosure.  I tried to answer the most commonly asked questions, but sellers who are close to missing even one payment, need to call their lender and a qualified Realtor.  A good Realtor will help you look at options to stay in your home before making the knee-jerk reaction to sell.

All of your decisions when dealing with a lender should be under the consultation of not only your Realtors, but a CPA and attorney.