Deficiency judgments Virginia residents are required to pay result when a court orders a borrower whose home has been sold at a foreclosure auction for less than the loan amount, to pay the difference. Virginia ranks sixteenth in the nation in foreclosures and notices of foreclosure, with over 16,000 filed in the third quarter of 2009. There are additional short sales and deeds in lieu of foreclosure that may add to the number of people potentially threatened by deficiency judgments. However, not every foreclosure ends in a deficiency judgment; and there are ways of avoiding them.
Dealing with Default in Virginia
When a homeowner is unable to continue to keep up their payments on their mortgage, they often fear that they will soon face foreclosure. That is a costly end to the American dream, with many consequences, including deficiency judgments. If possible, a homeowner may want to consider other options, including:
- Credit counseling
- Bankruptcy – either chapter 7, in which the home may be exempt; or chapter 13, in which the homeowner protects their property and pays their debts at a reduced rate
- Short sale – whereby the homeowner obtains a buyer who makes an offer lower than the mortgage amount, the lender accepts that sale price, and the mortgage is satisfied
- Deed in lieu of foreclosure – whereby the borrower gives their property to the lender outright, with a written agreement that the property transfer satisfies the mortgage
Every homeowner’s situation is different, and these options are not right for everyone. In some cases, the beleaguered homeowner has no alternative to foreclosure. In Virginia, the title for a property is held in trust until the mortgage is paid in full. If it cannot be paid in full, most lenders are allowed to initiate non-judicial foreclosure proceedings as a result of the power of sale clause in the mortgage. This allows them to reclaim the property and sell the property at auction. When the mortgage does not contain a power of sale clause, the lender must take the defaulted homeowner to court in a judicial foreclosure action, which also leads to an auction of the property.
Virginia Deficiency Laws
Once a property is foreclosed upon, Virginia law does allow the lender to seek a deficiency judgment against the debtor if there is a difference between the sale amount of the property and the remaining mortgage amount. However, while the lender may allow the debtor to sign a promissory note for the amount, or the lender may place a lien on other property the debtor owns, it can often be too costly for the lender to pursue a deficiency judgment at all.
A debtor may also face a deficiency judgment after a short sale if they have not negotiated the terms well and have not received a written agreement from the lender that they accept the short sale price as payment in full for the remaining mortgage amount. Generally, when a lender accepts a deed in lieu of foreclosure, such a written agreement already relieves the debtor of any deficiency judgments.
Getting Legal Help with Virginia Deficiency Judgments
It is important to consider the options to foreclosure carefully, often with the help of a knowledgeable foreclosure attorney. If they determine that there is no alternative to foreclosure, an attorney can often negotiate effectively to allow the debtor avoid deficiency judgments that could plague them for years to come.
