Before the foreclosure crisis, federal and state laws regulating mortgage servicers and foreclosure procedures were relatively limited and tended to favor foreclosing lenders. However, many federal and state laws now give protections to borrowers. Servicers generally must provide borrowers with loss mitigation opportunities, account for each foreclosure step, and carefully comply with foreclosure laws.
Also, most people who take out a loan to buy a residential property in Virginia sign a promissory note and a deed of trust, which is like a mortgage. These documents usually give homeowners certain contractual rights after a home loan default.
So, don't get caught off guard if you're a homeowner behind in mortgage payments. Learn about foreclosure laws in Virginia and how the foreclosure process works, from missing your first payment to a foreclosure sale.
In a Virginia foreclosure, you'll most likely get the right to:
Once you understand the Virginia foreclosure process and your rights, you can make the most of your situation and, hopefully, work out a way to save your home or at least get through the process with as little anxiety as possible.
The period after you fall behind in payments, but before a foreclosure officially starts, is generally called the "preforeclosure" stage. (Sometimes, people refer to the period before a foreclosure sale happens as "preforeclosure," too.)
During the preforeclosure period, the servicer can charge you various fees. Also, in most cases, federal law requires the servicer to let you know how to avoid foreclosure, and most mortgage contracts require the servicer to send you a breach letter.
Under federal law, the servicer usually can't officially begin a foreclosure until you're more than 120 days past due on payments, subject to a few exceptions. (12 C.F.R. § 1024.41). This 120-day period provides most homeowners with enough time to apply for loss mitigation application with their servicer.
If you default on your mortgage payments in Virginia, the lender may foreclose using a judicial or nonjudicial method.
A judicial foreclosure begins when the lender files a lawsuit asking a court for an order allowing a foreclosure sale. If you don't respond with a written answer, the lender will automatically win the case.
But if you choose to defend the foreclosure lawsuit, the court will review the evidence and determine the winner. If the lender wins, the judge will enter a judgment and order your home sold at auction.
If the lender chooses a nonjudicial foreclosure, it must complete the out-of-court procedures described in the state statutes. After completing the required steps, the lender can sell the home at a foreclosure sale.
Most lenders opt to use the nonjudicial process because it's quicker and cheaper than litigating the matter in court.
Again, most residential foreclosures in Virginia are nonjudicial. Here's how the process works.
The foreclosing lender must serve you a notice of sale, usually by mail, no less than 60 days (previously, state law required only 14 days) before the sale if the home is owner-occupied and must include information about legal aid and how to contact a HUD-approved housing counselor. (Va. Code Ann. § 55.1-321).
Notice must also be published in a local newspaper of general circulation as provided in the loan agreement, but not less than once per week for two weeks or three days if published on consecutive days. If the loan agreement doesn't provide publishing requirements, the notice must be published once per week for four weeks or on five consecutive days. (Va. Code Ann. § 55.1-322).
The sale may be held eight days after the first publication and no more than 30 days after the last publication. (Va. Code Ann. § 55.1-322).
At the sale, the lender usually makes a credit bid. The lender can bid up to the total amount owed, including fees and costs, or it may bid less.
In some states, including Virginia, when the lender is the high bidder at the sale but bids less than the total debt, it can get a deficiency judgment against the borrower. If the lender is the highest bidder, the property becomes what's called "Real Estate Owned" (REO).
But if a bidder, say a third party, is the highest bidder and offers more than you owe, and the sale results in excess proceeds—that is, money over and above what's needed to pay off all the liens on your property—you're entitled to that surplus money.
A few potential ways to stop a foreclosure and keep your home include reinstating the loan, redeeming the property before the sale, or filing for bankruptcy. Working out a loss mitigation option, like a loan modification, will also stop a foreclosure.
Or you might be able to work out a short sale or deed in lieu of foreclosure and avoid foreclosure. (But you'll have to give up your home with a short sale or deed in lieu of foreclosure transaction.)
Virginia law doesn't provide you with the right to reinstate the loan before the sale. But the deed of trust you signed when taking out the loan probably gives you time to complete a reinstatement. Check the paperwork you signed when you got the loan to find out if you get a reinstatement right. You can also call your loan servicer and ask if the lender will let you reinstate.
One way to stop a foreclosure is by "redeeming" the property. To redeem, you have to pay off the full amount of the loan before the foreclosure sale.
Some states also provide foreclosed borrowers with a redemption period after the foreclosure sale, during which they can buy back the home. Virginia law, however, doesn't provide a post-sale redemption period after a nonjudicial foreclosure.
If you're facing a foreclosure, filing for bankruptcy might help. In fact, if a foreclosure sale is scheduled to occur in the next day or so, the best way to stop the sale immediately is by filing for bankruptcy.
Once you file for bankruptcy, something called an "automatic stay" goes into effect. The stay functions as an injunction, which prohibits the lender from foreclosing on your home or otherwise trying to collect its debt, at least temporarily.
In many cases, filing for Chapter 7 bankruptcy can delay the foreclosure by a matter of months. Or, if you want to save your home, filing for Chapter 13 bankruptcy might be the answer. To find out about the options available to you, speak with a local bankruptcy attorney.
If your home gets foreclosed, you'll have to leave. The new owner doesn't have to give former owner notice before filing eviction lawsuit, though foreclosed owner may receive a five-day notice to vacate.
You might also face a deficiency judgment.
In a foreclosure, the borrower's total mortgage debt sometimes exceeds the foreclosure sale price. The difference between the total debt and the sale price is called a "deficiency." For example, say the total debt owed is $600,000, but the home sells for $550,000 at the foreclosure sale. The deficiency is $50,000.
In some states, the lender can seek a personal judgment against the debtor to recover the deficiency. Generally, once the lender gets a deficiency judgment, the lender may collect this amount—in our example, $50,000—from the borrower.
For more information on federal mortgage servicing laws, as well as foreclosure relief options, go to the Consumer Financial Protection Bureau (CFPB) website.
Get tips on what to do—and what not to do—if you're facing a foreclosure.
Find out if foreclosures are on the rise.
If you have questions about Virginia's foreclosure process or want to learn about potential defenses to a foreclosure and possibly fight the foreclosure in court, consider talking to a foreclosure attorney. It's also a good idea to talk to a HUD-approved housing counselor to learn about different loss mitigation options.