Sale Price and Delays in Sale

    The trustee is under a duty to “use all reasonable diligence to obtain the best price.” 

    If the trustee determines that in order to fulfill his fiduciary duty to realize the highest price for the property, a recess is necessary, he or she should recess the sale.  Arguably, the recess is within the scope of the discretion afforded trustees in the conduct of the foreclosure sale.  For example, if a bidder who previously advised the trustee of his interest in bidding on the property is delayed, the trustee, in his discretion, may recess the sale to a later hour on the same day to allow the bidder to attend the sale.  If the trustee fails to accommodate the bidder and the property is sold for a price less than the bidder was willing to pay, the trustee may have breached his duty to “use all reasonable diligence to obtain the best price.”  A decision by the trustee to recess the sale, however, should not impair the sale by making it impossible or impracticable for the bidders to appear and bid at the recessed sale.

    The postponement of a foreclosure sale to a different day is not a recess and is governed by statute.  Virginia Code §55-59.1(D) provides that the trustee, in his discretion, may postpone the sale to a different day, and no new or additional “notice” must be given.  Presumably, the “notice” referred to in this section is notice of the postponement.  The trustee needs only to announce at the sale that it has been postponed.  §55-59.2(D) provides that if the sale is postponed, the trustee must advertise the “new” sale in the same manner as the original advertisement.  Read in conjunction, these sections require the trustee who postpones the foreclosure to re-advertise the sale in the same manner as the original sale was advertised.  Although the secured obligation will not need to be accelerated again, all other aspects of the foreclosure must be completed.  Effectively, a postponed sale is a new sale in which the trustee must complete all acts that he or she completed in the first sale.

The Virginia Property Owners’ Association Act – Foreclosing on Memorandums of Lien

In previous weeks I discussed the provisions related to filing a memorandum of lien under the Virginia Property Owners’ Association Act.

The Act provides: “At any time after perfecting the lien pursuant to this section, the property owners' association may sell the lot at public sale, subject to prior liens.” In order to conduct a nonjudicial foreclosure, the association must comply with the statutory requirements.

The association must give notice to the lot owner prior to advertising the sale. The notice must include notice of: “(i) the debt secured by the perfected lien; (ii) the action required to satisfy the debt secured by the perfected lien; (iii) the date, not less than 60 days from the date the notice is given to the lot owner, by which the debt secured by the lien must be satisfied; and (iv) that failure to satisfy the debt secured by the lien on or before the date specified in the notice may result in the sale of the lot.” The notice must also inform the lot owner of the right to bring a court action in the circuit court of the county or city where the lot is located to assert the nonexistence of a debt or any other defense of the lot owner to the sale.

If the lot owner (i) satisfies the debt secured by lien that is the subject of the nonjudicial foreclosure sale and (ii) pays all expenses and costs incurred in perfecting and enforcing the lien, including but not limited to advertising costs and reasonable attorneys' fees, then the sale is discontinued. However, if after 60 days and the lot owner has not made those payments, the association may appoint a trustee for the sale and advertise the sale. In addition to advertising the sale, the association must give written notice of the time, date and place of any proposed sale in execution of the lien, and including the name, address and telephone number of the trustee. That notice must be at least given to the owner, lienholders and their assigns by certified or registered mail 14 days prior to the sale.

The association must advertise the sale in a newspaper in the city or county where the property will be sold. The advertisement must be in a section with legal notices or where the property being sold is generally advertised for sale. The advertisement must describe the property by address and general location and have information for the representative or an attorney who can respond to inquiries about the property with their name, address, and telephone number. The advertisement must be in the newspaper for four successive weeks, but if the lot is located in a city or county immediately contiguous to a city, publication of the advertisement for five different days is sufficient. The sale then must be held on any day after the last advertisement but not earlier than 8 days after the first advertisement and not more than 30 days after the last advertisement.

Failure to comply with these and other requirements in the statute will render the sale of the property voidable by the court. The law firm of Lafayette, Ayers & Whitlock, PLC, represents homeowner’s associations and can handle memorandums of lien and foreclosure procedures.

Post Discharge Mortgage Statement Held Not to Be a Violation

    The U.S. District Court in Charlottesville, in the case of Pearson v. Bank of America affirmed a bankruptcy court decision which held that the bank did not violate the discharge injunction against creditor action under bankruptcy code section 524(a) by sending monthly statements.

In Pearson, although the debtor had obtained a Chapter 7 discharge for her debt with the bank, she continued to receive a routine monthly statement from her Bank of America mortgage that provided principal balances, estimated payments, payment instructions and information on how payments would be posted.

The language in the opening section of the Mortgage Statement clearly stated that the debtor’s loans had been discharged, that such discharge insulated debtor from any efforts by anyone to collect this discharged debt as a personal liability, and that the debtor could not be pressured to pay this debt.  The Mortgage Statement’s opening section referenced the fact that some homeowners become concerned after receiving statements and therefore assured the debtor that such letters were sent as a courtesy, and were not a demand for payment.

The statements also provided that no monthly statements would be sent in the future if the debtor would simply make one toll-free telephone call to an identified number.

Considering all of the facts, the court held that the statements did not represent a violation of the discharge injunction.

The Importance of Docketing Judgments

    If the creditor has obtained a judgment in the General District Court, the creditor should ensure that an abstract is recorded in the Circuit Court where the debtor's real property is located. Docketing perfects a lien against the debtor's real estate in that jurisdiction.  Docketing also provides creditors with the right to force the sale of the real property to satisfy the debt. Judgments obtained in the Circuit Court, however, are automatically docketed, but only in that locality, pursuant to Virginia Code §8.01-446. If the debtor owns realty in another jurisdiction, the creditor should have the abstract of the judgment docketed in the Circuit Court of that jurisdiction in order to perfect a lien.