General Obligations of Trustee under a Deed of Trust

The obligations of a trustee under a deed of trust are governed by the specific provisions of the deed of trust or by the Code of Virginia, all of which should be reviewed and analyzed prior to commencement of the foreclosure proceedings.  Section 55.1-316, et seq., Code of Virginia.  See also, Section 55.1-324, Code of Virginia, for specific statutory powers and duties. (eff.10/1/2019)

Allowable Trustee commissions, unless specifically stated as to amount in the deed of trust, vary from jurisdiction to jurisdiction. The Henrico Commissioner of Accounts utilizes the commissions allowed to special commissioners as set forth in Section 8.01-109, Code of Virginia, in the absence of mitigating circumstances, as a guideline for “reasonableness” of commission. Commonly referred to as the “5/2 rule“, this guideline allows 5% of the first $100,000.00 of the bid price, and 2% of the excess, as a commission.

This rule is used to establish a standard of reasonableness, however, the Commissioner will consider evidence of circumstances which may justify a deviation from this guideline if such evidence is submitted with the account or the issue of commission has been discussed with and approved by the Commissioner prior to submission of the account.

Accounting Obligations 

Under the provisions of Section 64.2-1309, Code of Virginia (1950), a trustee acting under a deed of trust shall, within six (6) months after the date of sale made under the deed of trust, return an account of the sale to the Commissioner of Accounts of the Court for the county or city wherein the instrument was first recorded.  This obligation to account is mandatory and not optional.  The Henrico County Commissioner of Accounts maintains on a monthly basis a report of all trustee’s deeds recorded at the Henrico County Circuit Court and verifies that accounts are filed within six (6) months.

If the Commissioner of Accounts becomes aware that an account required by this section has not been filed, the Commissioner of Accounts is obligated to proceed against the trustee and seek the imposition of penalties provided by Section 64.2-1215, Code of Virginia (1950).

Failure of a trustee to comply with the six month filing deadline shall,  by statute ( Section 64.2-1309, Code of Virginia ), result in a forfeiture of commission on the sale unless the trustee’s commission is allowed on petition to the Henrico County Circuit Court.  The Henrico Commissioner of Accounts has no authority to approve a commission when an account is filed after the six (6) month filing deadline.

Additionally, any attorney licensed to practice in the Commonwealth of Virginia who serves as a trustee and fails to file the required account within thirty (30) days after the issuance of a summons by the Commissioner shall be reported to the Court and to the Virginia State Bar. 

An account of sale must document “receipt” by the payee for all disbursements/charges made against the bid price, not simply evidence of “issuance” of a payment. A HUD-1 settlement statement does not satisfy that documentation requirement.

Trustee as Fiduciary

Foreclosure trustees should keep in mind that they are not legal counsel for the noteholder, but stand in a fiduciary relationship to the property owner as well as to the noteholder.  Even though the trustee is acting at the request of the noteholder, he is not serving as legal counsel for the noteholder but as a fiduciary with an obligation to all parties.  In the reporting of fees taken by the trustee under an account of sale, the entry therefore should be an entry as a trustee’s commission and not as “attorney’s fees”.  The entry of attorney’s fees should be reserved for the reporting of legal services rendered outside of the functions of the trustee as a fiduciary under the deed of trust.

What Does the Commissioner Review Under An Account of Sale?

The Commissioner of Accounts is charged with determining compliance with the terms of the deed of trust and statutory obligations of the foreclosure sections of the Virginia Code.  Foreclosure is a statutory right and the mandates of the Virginia Code and deed of trust must be complied with by all trustees.  It is the function of the Commissioner of Accounts not only to determine the mathematical correctness of the accounting filed by the trustee, but to determine statutory compliance by the trustee with the various provisions of the Code.  “No question of law, equity or disputed fact should be insulated from a Commissioner’s inquiry”.  In re. Trustee’s Sale of the Property of Willie Brown, etc., opinion of The Honorable Charles E. Poston, Circuit Court, City of Norfolk, Virginia, March 25, 2005. (Poston Decision).

Contractual Compliance by a Trustee

Not only does a trustee have statutory obligations with which to comply, but there are contractual obligations under the note, deed of trust or other documents or agreements entered into by the lender and the property owner at the time the loan was made and the deed of trust signed.  The trustee should closely scrutinize the obligations under the contractual provisions of those documents to ensure full and complete compliance.  In particular, notices may be required to be given under the note or deed of trust which are not required to be given under the statutory obligations of a trustee.

The Henrico County Commissioner of Accounts does not review a trustee’s account for compliance with all contractual obligations.  This fact is reported on a report filed with every approved account.  The failure of a trustee to comply with contractual provisions may result in liability for damages as a result of the failure to satisfy a condition precedent to the institution of a foreclosure proceeding.  (Bayview Loan Servicing Decision).

Account of Sale Filing Date by a Foreclosure Trustee

Under the terms of Section 64.2-1309, Code of Virginia (1950), as amended, the trustee shall file an account of the proceeds of the sale within six (6) months from the date of sale.

The date of sale is the date advertised in the advertisement of sale required under the statute and is the date that the property is “knocked down” by the trustee at the sale.  It is not the date of settlement under the sale to the purchaser at the foreclosure.  Therefore, if the foreclosure was advertised to occur on January 1st and the property was auctioned on that date by the trustee, the foreclosure account is due to be filed by July 1st irrespective of the date that closing under the foreclosure sale occurred.  Even if the foreclosure sale was delayed until June, the six (6) month period is not extended by the lateness of that closing under the foreclosure sale.

The statutes regulating conduct by the trustee require that if the trustee fails to file an account of sale within the six-month period, such trustee shall forfeit the right to any commission except on application and approval by the Court.  Section 64.2-1309, Code of Virginia (1950), as amended. Please note that a foreclosure account submitted to the Henrico County Commissioner of Accounts which disallows the commission taken by a trustee for failure to timely file and which requires the trustee to refund a commission taken in violation of the statute, will not thereafter be approved where the account merely shows the commission as “attorney’s fees” rather than commission.  Once forfeited it is forever forfeited unless allowed by the Henrico County Circuit Court on petition by the trustee or on exceptions to the Commissioner’s report disallowing the commission.