Special Problems Associated with Foreclosure Sales
- Interest. The calculation of interest due to the noteholder is normally allowed to the date of sale, not to the date of closing. This may, however, be modified by the language of the deed of trust (not the Note since trust controls the trustee’s duties). The trustee should consult the language of the deed of trust prior to submitting the account if considering the payment of interest accrued between the sale date and the closing date and absent specific language in the deed of trust dictating the payment of interest to the actual closing date, such interest will not be allowed.
- Real Estate Taxes. Numerous foreclosure accounts are submitted and disapproved for failure of the trustee to report and document the payment of real estate taxes to the date of sale. This will result in the disapproval of the account.The documentation of payment of delinquent and pro-rata real estate taxes must identify the foreclosed property and the period of time for which the taxes have been paid. A receipt which lacks such detail is not a valid receipt and the account will be disapproved. Please send a legible statement of tax payments in a font size that is readable. The account will not be approved if we cannot read the statement.
- County Water/Sewer Liens. The failure of a trustee to pay utility assessments for water and sewer charged by the County of Henrico and docketed as liens on the property before the date of sale, shall be paid by the trustee. These charges are treated by a Henrico County Circuit Court decision to be on an equal basis with delinquent real estate taxes. Failure of the trustee to pay docketed utility assessments shall result in the disapproval of the account. Both sides of a cancelled check and release of a reported lien from the County are required to be submitted with the account. If the amount paid does not match the exact amount of the recorded lien, an invoice or statement of the lien amount owed is also required. Water and sewer charges accruing after the sale date should not be charged against the bid price. Please note that the Henrico Public Utilities Department is very aggressive in docketing water/sewer liens immediately prior to scheduled foreclosure sales. A trustee would be well advised to check the recorded judgment liens immediately prior to the sale to verify the docketing (or non-docketing) of such liens.
- Advertisement. Evidence of the payment of the individual advertisement invoice is required by the Commissioner. Those Trustees paying advertising bills in bulk rather than by individual checks must provide, with the account, a paid receipt from the newspaper as proof of payment. A copy of a cancelled check showing the payment of a bulk invoice is not proof of payment of an individual foreclosure advertising bill. A “paid” stamp by the newspaper on the advertising certificate, or a copy of the front and back of the cancelled check for the individual foreclosure invoice is sufficient.
- Distribution of Surplus Proceeds. After the satisfaction of all payments required by statute and the application of the proceeds to the deed of trust note under which the foreclosure occurred, if the trustee has any surplus proceeds they should not be paid to any liens superior to the deed of trust foreclosed. The surplus amounts should be paid to inferior liens in the order of priority and then to the property owner.
***Death of the Property Owner Prior to Sale.
NOTE the FOLLOWING CHANGE IN THE LAW EFFECTIVE JULY 1, 2018:
LAW EFFECTIVE JULY 1, 2018: The trustee shall pay any liens of record inferior to the deed of trust under which the sale is made, with any surplus then remaining being paid to the personal representative of the deceased property owner’s estate. See Section 55.1-331, Code of Virginia (1950).
- No account should show remaining balances held by the trustee. If any such account is filed it will require the filing of a supplemental account dealing with the excess proceeds. If the excess proceeds are payable to the property owners and the property owners cannot be located, the proceeds shall be paid into Court and the receipt of the Clerk of the Court for the proceeds shall be provided to the Commissioner of Accounts.
- Statement of Deficiency Balance Claimed under the Note. The account should not state any amount claimed to be due as a deficiency under the terms of the note secured by the deed of trust. This is a determination to be made by the Court in subsequent court proceedings seeking a deficiency judgment on the note. If the trustee states the amount of a delinquency on an account of sale, the Commissioner will report in his account that he does not adopt, approve or express an opinion as to the alleged deficiency. The trustee should show the credit on the note and the items to which the proceeds were credited (i.e. accrued interest, late fees, escrow advances, principal or any other charges allowed under the note), which should match the lender’s statement provided to the trustee (and then to the Commissioner) of the sums due on the note on the sale date.
- Receipts for all Charges Against the Bid Price. We require evidence of receipt of payments, not simply evidence of the issuance of a check for payment. The invoice can be stamped “paid” by the creditor, or a copy of the cancelled and endorsed check provided (front and back). Real estate taxes should be reflected as paid on the Henrico County real estate tax payment record provided to us. Payment of water/sewer liens docketed before the sale should be accompanied by a copy of the receipt for payment and Release of Lien signed and recorded by the Henrico Department of Utilities.
Do not send a settlement statement with your account as evidence of payment of an obligation as, at best, it is evidence only of charges associated with the closing, and not evidence that the payment was made and received by the creditor.
On a third party sale, if the noteholder has been paid by check as a result of the sale, a receipt is required of the noteholder or a copy of the front and back of the cancelled check payable to the noteholder or specifically authorized attorney in fact. If the note has not been paid in full but the noteholder has been issued a check, a copy of the front and back of the cancelled check with a credit notation on the note is also proper. However, if the note has been paid in full to the noteholder a credit notation on the note without the copy of the cancelled check or a receipt signed by the noteholder is not sufficient.
- Additional Problems Encountered by the Henrico Commissioner of Accounts. A letter to trustees by the Henrico Commissioner of Accounts indicating the procedures adopted by the Henrico County Commissioner’s office and frequently encountered problems to be considered prior to submitting an account should be reviewed.