Virginia Courthouse Auctions Explained: How to Find Good Deals

Betty Westerlund (Keller Williams Realty) — Mon, 25 Oct 2010 12:35:37 -0700

Have you ever searched the classified section fo your local newspaper? If so, then you've probably seen ads for "Sheriff's Sales or "Trustee Sales". These terms are used interchangeably. There are a lot of great deals to be had in purchasing homes auctioned on the courthouse steps, but be careful. The uninformed buyer may not know exactly what he/she is purchasing; therefore, it is vital to define the real estate terms and understand the process.

What exactly is a Trustee? First, it is important to understand that Virginia is a non-judicial foreclosure state. Simply put, this means that the lending institution named on a deed of trust (mortgage) does not need to go to court to get a formal court order that allows them to move forward with a foreclosure. That is required in many states, but not Virginia.

When you get a mortgage in Virginia, you sign a promissory note pledging to pay back the amount borrowed. The property is pledged as collateral. As mentioned, the borrower signs a Deed of Trust in Virginia. The Deed of Trust's sole purpose is to set forth what powers the lending institution has and what covenants the borrower can't break. Pay your mortgage, taxes and insurance--don't default! Another important thing the Deed of Trust does is nominate a Trustee.

A Trustee is a neutral third party between the borrower and the lender. The trustee sells the property to cure the default so the bank is made whole. the trustee can be the county sheriff or a law firm, such as Samual I. White or Shapiro & Busron. The trustee coordinates the advertisements and subsequent auction at the courthouse steps. Lenders benefit from the trustee because if the borrower defaults, they don't have to take the borrower to court (which is expensive). Instead, they activate the trustee for a predetermined fee.

The auction at the courthouse steps is so simple that it doesn't even seem real. For example, meet at the Fairfax County courthouse on November 2 at a certain time. Legally, the trustee must advertise in a local newspaper for at least 3 days in any one week or once a week for two weeks concurrently. The date, time and location of the sale must be in the ad.

The foreclosure trustee sends an authorized attorney to the courthouse and they will literally auction the property on the courthouse steps. It is very simple --a 1 or 2 page contract-- the way real estate used to be back in the day. There are no financing contingencies, no home inspections and no study periods. Important tip: have your financing in place prior to bidding. You will need to bring certified funds payable to the trustee. In order to be super prepared and if you can afford to do so, bring multiple certified fund checks to the auction. For example, bring one check for $10,000 and another for $15,000. After the auction, you can deposit the unused certified fund check back into your account. Also, you will be charged a per diem if you can't close on time (typically over $100/day). You will be charged for any and all extensions.

Title issues? You should get the property's title exampined prior to bidding at the courthouse. If not, you could be stuck with someone else's title issues (or forfeit your deposit). For as little as $100, you can get a 60-year title exam. You NEED to do this. The title exam will let you know if there are any back taxes, multiple liens and how manymortgages there are. Be sure you are not buying the second mortgage at the courthouse. Most title exams come back relatively clean with only one mortgage, but verify this with a title exam.

What does the lender want? The lender wants to recoup their costs or gain possession of the property. To be clear, the lender has not had ownership of the property to this point. If the foreclosing lender is the successful bidder at the auction, it will take control of the property for the very first time. Typically, the lender will hire a Realtor to list and market the foreclosed property; now it can be labeled a "foreclosure" or REO (real estate owned) property.

Basic Tips Prior to Bidding:

1.) Get a market analysis done to determine market value

2.) Have financing in place

3.) Get a full title exam to determine liens

4.) Bring your money to the auction in certified funds

5.) Call the trustee to verify the auction will still take place as advertised--auctions are sometimes postponed or canceled

6.) Arrive early to make sure you are at the corrent location

In order to find the best deals, make sure you know the current market value of the property. You may want to speak to a real estate consultant like myself. If you have any questions about the process or need a market analysis report, I am happy to assist. Call me directly (703) 592-9059 or email me at ATHOMEINVA@KW.com. Also, check out my website www.ATHOMEINVA.com

Happy Bidding,

Betty Westerlund, Real Estate Consultant

To Short Sale or not to Short Sale. That is the question.

Betty Westerlund (Keller Williams Realty) — Wed, 24 Feb 2010 22:56:02 -0800

When you bought your home, you signed a lot of documents that day. But one of those documents is the Promissory Note (3 page document) which is your personal liability and the Deed of Trust (18 page doc) which is personal liability secured by your house. This is where the bank really digs their teeth into your property. Virginia is a Deed of Trust state in that a trustee is assigned to you. In event of default, the trustee is activated. And if bank wants to foreclose, the bank transfers power to their attorney (for example Sam White, a Virginia foreclosure attorney)

What if you are thinking about doing a Short Sale and you have 401K filled up with cash? What if you have a hefty savings account? The bank is going to look at the whole picture; they are very fact driven. Can the Lender seek a deficiency judgment against the Seller? Well, it depends on whether the loan is recourse or non-recourse loan. Virginia is a very conservative state. There are deficiency judgments in VA and they MAY come after you.

The closing documents that you signed are contractual. And if you miss ONE payment you are in breach of contract. They will send you a "Notice of Default" letter wanting you to "cure" it by XYZ date. They want the FULL amount and will reject partial payments; a partial payment is still breach of contract. The bank is not here to negotiate with Owners. After 3 missed payments, they typically begin foreclosure proceedings. That is when you receive a "Notice of Foreclosure" letter. At this point, the bank has paid attorney's fees and you know they are serious. The bank is required to put an ad for the foreclosure in the newspaper three times.

BOA is a big bank, merged with Countrywide. They have sooo much toxic assets that they don't have the staff to keep up with it all. So Owners can go months not paying their mortgage and NOT be foreclosed upon. But that is a risk you take. You never know when they will start the foreclosure process. If you go the short sale route and get an offer to buy, the banks will not necessarily halt the foreclosure process. It is true that the Short Sale arm of the bank does not ususally communicate with the Foreclosure arm. You can be in the middle of a Short Sale and be Foreclosed.

Sellers should always try to work it out. Always try a loan modification or any other avenue deemed appropriate; the options are repayment plan, workout agreement, loan mod, deed in lieu of foreclosure and short sale. Deed in lieu of foreclosure are for the true victims of life and the banks don't want to own any more property in this downturned market. Deed in lieu of foreclosure is rare. My title attorney only did 3 in the past 10 years.

To be blunt, why are the banks jacked up? Are they not concerned about their bottom line? It seems like they make weird, thoughtless decisions. Banks accept a Short Sale for one house and reject the next at random, it seems. Well, banks don't make sense. They are an institution and the negotiators have guidelines they must follow and they only want a certain amount of losses on their balance sheets. To confuse things even more, each bank is unique in the way it deals with short sales. There is different paperwork, different requirements and different timelines.

So where does that leave the honest, hard working, god-fearing citizens of Virginia stuck in a tight situation? To be sure, always keep paying your mortgage if possible. I can never recommend anyone to stop paying. My general advise is this, subject to the nuances of an individuals situation: if you have a bonifide hardship and want to stay in your home, try a loan mod. If you have a bonifide hardship and want to move, try a short sale. If either are with BOA, it will take a while.

Betty Westerlund

Betty Westerlund's Blog

Virginia Courthouse Auctions Explained: How to Find Good Deals

To Short Sale or not to Short Sale. That is the question.