Demystifying the Foreclosure Process in Virginia

Discover the ins and outs of the foreclosure process in Virginia and gain a clear understanding of what it entails.

Understanding Foreclosure in VA: A Brief Overview

Foreclosure is a legal process that occurs when a homeowner fails to make their mortgage payments. It is a serious situation that can result in the loss of your home. Understanding the basics of foreclosure is essential to protect your property.

The foreclosure process typically begins when the homeowner becomes delinquent on their mortgage payments. After a certain period of non-payment, the lender can initiate foreclosure proceedings.

During the foreclosure process, the lender will file a lawsuit against the homeowner to recover the outstanding debt. This can result in the sale of the property to pay off the mortgage.

It's important to note that foreclosure laws and procedures can vary from state to state. In Virginia, the foreclosure process is primarily judicial, meaning it goes through the court system.

But before we delve into the labyrinthine paths of Virginia's foreclosure process, let's set the stage. Unlike some states, Virginia utilizes both judicial and non-judicial foreclosures. The type you face depends on the terms of your mortgage.

Non-judicial foreclosures, the more common of the two, are swifter and less expensive for lenders. If your loan agreement contains a power of sale clause, the lender (or trustee) can bypass the courts and sell your property directly after sending you a notice of sale at least 60 days prior (and publishing it in a newspaper). This notice, a harbinger of impending loss, outlines your rights and options, including the crucial 240-day redemption period after the sale to repurchase your home by paying the full debt plus interest.

But the numbers paint a stark picture: only 5.6% of Virginia homeowners manage to redeem their properties during this period, highlighting the immense financial burden it entails.

If your loan lacks a power of sale clause, you'll face a judicial foreclosure, a lengthier and more complex process involving a lawsuit filed by the lender. While offering more time and opportunities for legal defense, it's also a costlier and more emotionally draining ordeal.

The foreclosure process in Virginia can be divided into several stages, each with its own key features and requirements. By familiarizing yourself with these stages, you can navigate through the process more confidently and make informed decisions.

Let's explore the different stages of the foreclosure process in Virginia to gain a better understanding of what they entail.

1. The Pre-Foreclosure Stage

The pre-foreclosure stage is the initial phase of the foreclosure process. It begins when the homeowner falls behind on their mortgage payments and lasts until the property is scheduled for auction. During this stage, the lender sends the homeowner a notice of default, informing them of the delinquency and giving them a chance to bring the mortgage payments up to date.

Common Causes of Foreclosure in Virginia

Foreclosure can occur due to various reasons in Virginia. Some common causes include:

1. Job loss or reduced income: If you experience a sudden loss of employment or a significant reduction in income, it can become challenging to make your mortgage payments.

2. Illness or medical expenses: Unexpected medical expenses can quickly add up and make it difficult to keep up with your mortgage payments.

3. Divorce or separation: The financial strain of a divorce or separation can make it challenging to maintain mortgage payments.

4. Adjustable-rate mortgages: If you have an adjustable-rate mortgage, your monthly payments can increase over time, making it more difficult to afford.

5. Poor financial management: Mismanagement of finances can lead to difficulties in making mortgage payments and ultimately result in foreclosure.

It's essential to be aware of these common causes and take proactive steps to prevent foreclosure if you find yourself in a difficult financial situation.

If you find yourself in the pre-foreclosure stage as a homeowner in Virginia, it's crucial to take proactive measures to prevent foreclosure. There are several options you can consider, such as exploring loan modification, entering into a forbearance agreement, opting for a deed in lieu of foreclosure, refinancing your mortgage, or even selling your home to a cash buyer in its current condition. Let's dive deeper into these solutions below:

• Loan Modification

  A loan modification simply means to change or modify the terms of your original loan. There are several types of loan modifications that may be available to you depending on the type of loan you have (Conventional, FHA, VA, etc.) and who is holding your loan. In some cases, this can be having the payment reduced and/or having some or all of the delinquent payments added on to the end of your loan.

  Loan modifications are not automatic and you have to qualify to receive one. You may be contacted by various entities that want to “help” you get a loan modification. Virtually, all of them charge an upfront fee that may range up to thousands of dollars, with no guarantee that you will actually receive the modification. You should avoid dealing with such people at all costs. They are out to take your money and NOT help you.

   

  You can work directly with your lender, but be very leery of what they tell you. Don’t take anything you are told on faith, get it in writing. If they tell you they are delaying the foreclosure, verify that with the Public Trustee. There have been many instances of people who thought their foreclosure had been delayed or cancelled while they were talking to their lender, only to find out after the fact that their home had been sold at auction.

   

  Remember, only a small percentage of loan modification applicants receive an approval. In the unlikely event you are approved for a loan modification, there is a 5-to-6-month trial process. During this time, if you are even 1 day late or $1 short, you will be immediately accelerated back into foreclosure.

   

  Again, only a small percentage of applicants are approved, and even a smaller percent makes it through the trial period, therefore ending up back in foreclosure, further in debt with less chance of being bought out by a cash buyer.

• Forbearance Agreement  

  If you don’t qualify for a loan modification, then the Forbearance Agreement may be better for you. The Forbearance Agreement is a worked-out agreement with the bank. Here is how a forbearance agreement works. The bank will ask for attorney fees and then approximately 40% to 50% of the back payments. The remaining back payments will be equally divided between the next 6 to 12 payments, raising your monthly payment for that 6-to-12-month time. At that time, the payments will return to their former lower payments.

   

  Remember these 2 important points:

  • 90% of homeowners fall out of their forbearance agreement in the first 2 to 3 months because of failure to pay.
  • Just because you worked out a deal with the bank, doesn’t mean you’re out of foreclosure. You are still in foreclosure until your increased payments are made. Then and only then, will you receive a foreclosure withdrawal letter from the bank, stating your loan is current. In the meantime, the bank will keep extending the foreclosure sale date every month.
• Deed in Lieu of Foreclosure  

  The deed in lieu of foreclosure is when you give ownership of your home and deed it back to the bank. The bank will always accept this. However, it is not a good option for you. In most cases, the bank will place a foreclosure on your credit and you could end up with a 1099-C sent to the IRS for additional income, if the bank sells the property for less than what you owe.

  This could be one of your best options. They will buy your home outright. They will buy your home from you, pay off the balance and all late back payments, place cash in your hands and relieve you from your dilemma.

• Refinance Your Mortgage 

  It is impossible to refinance your mortgage if have been late on payments or in foreclosure. However, sometimes the mortgage broker is not completely honest. They might charge you appraisal fees, loan fees, and broker fees before letting you know that you do not qualify

• Sell Your Home to a Cash Buyer  
  

  This could be one of your best options. They will buy your home outright. They will buy your home from you, pay off the balance and all late back payments, place cash in your hands and relieve you from your dilemma.

• Sell Your Home Subject To  

   

  This is another great option. You, the homeowner, will convey the property to a investor buyer, in most cases, by Warranty Deed. In exchange, the buyer will pay all of your late payments to make the mortgage current. The buyer will make the monthly mortgage payments until the property is sold or refinanced, whichever comes first. Then, they will file the deed at the courthouse to protect their interests and yours. They will pay you an agreed-upon amount of money when the property is deeded to them and then we will discuss a date for you to vacate the premises.

  The objective of this method is for the buyer to take over the existing loans, bring the payments current, keep them current for the length of our agreement, and therefore relieving you of the monthly debt. The longer they make the payments for you, the better your credit will become. If they pay the mortgage off immediately, your credit will not get any better and it will take years for you to rebuild your credit and buy another home. In every option, including this one, make sure that all parties involved are made aware of the details in this transaction. Remember, your name will remain on the mortgage and the buyer will be making the mortgage payments on your behalf.

2. The Foreclosure Auction

If the homeowner fails to resolve the default during the pre-foreclosure stage, the property moves on to the foreclosure auction. In Virginia, foreclosure auctions are typically conducted on the courthouse steps or at a designated location. The property is sold to the highest bidder, and the proceeds are used to pay off the outstanding mortgage debt.

It's crucial to note that in Virginia, foreclosure auctions are non-judicial, meaning they do not require court involvement. However, certain legal requirements and timelines must be followed to ensure a fair and lawful auction process.

3. The Redemption Period

After the foreclosure auction, Virginia provides a redemption period during which the homeowner can reclaim the property by paying off the outstanding debt in full. The length of the redemption period varies depending on the circumstances and can range from a few days to several months.

During the redemption period, the homeowner has the opportunity to explore alternatives to foreclosure, such as negotiating with the lender for a loan reinstatement or pursuing a short sale. It's important to act quickly during this period to avoid losing the right to redeem the property.

4. The Post-Foreclosure Stage

If the homeowner does not redeem the property during the redemption period, the foreclosure process enters the post-foreclosure stage. At this point, the lender takes possession of the property and can proceed with eviction if the former homeowner is still occupying the premises.

In Virginia, the lender is required to provide notice to the occupant before initiating eviction proceedings. The property will then be sold on the open market, typically through a real estate agent, to recover the lender's investment.

It's important to note that going through foreclosure can have long-lasting financial and credit implications. Therefore, it's advisable to seek professional advice and explore all possible alternatives to foreclosure before reaching this stage.