If you default on your home loan payments in Virginia, the servicer (on behalf of the loan owner, called the “lender” in this article) will eventually begin the foreclosure process. The method will most likely be nonjudicial, although judicial foreclosures are also allowed. Virginia law specifies how nonjudicial procedures work, and both federal and state laws give you rights and protections throughout the foreclosure.
If you get a loan to buy residential real estate in Virginia, you'll likely sign two documents: a promissory note and a deed of trust. The promissory note is the document that contains your promise to repay the loan along with the repayment terms. The deed of trust, which is very similar to a mortgage, is the document that gives the lender a security interest in the property and will probably include a power of sale clause. If you fail to make the payments, the power of sale clause gives the lender the right to sell the home nonjudicially so it can recoup the money it loaned you.
If you miss a payment, the servicer can usually charge a late fee after the grace period expires. Most mortgage loans give a grace period of ten to fifteen days, for example, before you’ll incur late charges. To find out the grace period in your situation and the amount of the late fee, review the promissory note or your monthly billing statement.
If you miss a few mortgage payments, the servicer will probably send letters and call you to try to collect. Federal mortgage servicing laws require the servicer to contact you (or attempt to contact you) by phone to discuss foreclosure alternatives—called “loss mitigation” options—no later than 36 days after a missed payment and again within 36 days after each following missed payment. No more than 45 days after a missed payment, the servicer must let you know in writing about loss mitigation options that could be available, and assign personnel to help you. Some exceptions to a few of these requirements exist, like if you file for bankruptcy or tell the servicer not to contact you under the Fair Debt Collection Practices Act. (12 C.F.R. § 1024.39).
Many deeds of trust in Virginia have a provision that requires the lender to send a breach letter if you fall behind in payments. This notice tells you that the loan is in default. If you don’t cure the default, the lender can accelerate the loan (call it due) and go ahead with the foreclosure.
Federal law generally requires the servicer to wait until the loan is over 120 days delinquent before officially starting a foreclosure. However, in a few situations, like if you violate a due-on-sale clause or if the servicer is joining the foreclosure action of a superior or subordinate lienholder, the foreclosure can begin sooner. (12 C.F.R. § 1024.41).
Again, most Virginia foreclosures are nonjudicial. Virginia law doesn't require a lender to do much to complete an out-of-court foreclosure. The minimal steps required include: sending you one notice and publishing a notice of the sale in a newspaper.
Before a foreclosure sale can occur, the lender or trustee has to personally deliver or mail a notice of sale to you (the homeowner) no less than 14 days before the sale. (Va. Code Ann. § 55.1-321).
The lender or trustee also has to publish the notice of sale in a newspaper in the manner specified in the loan contract, though not less than once per week for two weeks or three days if published on consecutive days. If the loan agreement doesn't give 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, which is an auction, may be held no earlier than eight days after the first advertisement and no more than 30 days after the last advertisement is published. (Va. Code Ann. § 55.1-322).
“Reinstating” is when a borrower pays the overdue amount, plus fees and costs, to bring the loan current and stop a foreclosure. Virginia law doesn’t provide the borrower with a right to reinstate the loan. But the deed of trust you signed when taking out the loan might provide a deadline for completing a reinstatement. You can also call your loan servicer and ask if the lender will let you reinstate.
Sometimes, a foreclosure sale doesn’t bring in enough money to pay off the full amount owed on the loan. The difference between the sale price and the total debt is called a “deficiency balance.” Many states, including Virginia, allow the lender to get a personal judgment, called a “deficiency judgment,” for this amount against the borrower. To get a deficiency judgment, the lender has to file a separate lawsuit after the foreclosure sale.
Some states have a law that gives a foreclosed homeowner time after the foreclosure sale to redeem the property. Virginia, however, doesn’t have a law providing a post-sale redemption period. So, you won’t be able to redeem the home following a foreclosure.
After a Virginia nonjudicial foreclosure, the purchaser that bought the home at the foreclosure sale may start a separate unlawful detainer (eviction) action. The foreclosed homeowner might get a five-day notice to quit (leave). While you can stay in the property until you’re forcibly removed through the eviction process, it's generally best to leave before the deadline to move out given in the notice to quit expires.
Foreclosure laws are complicated. Servicers and lenders sometimes make errors or forget steps. If you think your servicer or lender failed to complete a required step, made a mistake, or violated state or federal foreclosure laws, you might have a defense that could force a restart to the foreclosure or you might have leverage to work out an alternative.
Consider talking to a local foreclosure attorney or legal aid office immediately to learn about your rights. A lawyer can also tell you about different ways to avoid foreclosure. Likewise, a HUD-approved housing counselor can provide helpful information (at no cost) about various alternatives to foreclosure.