AccountAffidavits Related to the NoteProcedure

Foreclosure Administration Account

In all foreclosure sales, trustees must file an account of the sale within six months after the sale date.1

Interim

When a foreclosure trustee files an account that shows that the proceeds of foreclosure have not yet been fully disbursed, the account cannot be approved as a final account of the foreclosure sale. The commissioner will accept such accounts as an interim report of the transactions of the trustee, subject to the following exception: The trustee’s commission shown on the interim account will not be approved when the interim account is filed.

If the trustee is unable to determine who is to receive the surplus proceeds, interpleader of the funds into Court is the appropriate resolution.  If the trustee is unable to distribute the funds to the proper person, either payment to the Clerk or payment to the Treasurer of Virginia as unclaimed property is appropriate.

When an interim account is filed, the foreclosure trustee will be required to file a final accounting within one year after the date of the foreclosure sale. An additional fee for such final account is due upon its filing, in the same amount as for the interim report, with the exception that any charges for clerk’s fees or filing a lost note affidavit shall be paid only once. Failure to file a final account within such time will result in forfeiture of any trustee’s commission allowable in connection with such sale.

Upon the filing of a final account, the commissioner will determine whether and in what amount such commission may be allowed. The trustee shall be required to pay any commission that is forfeit to the debtor or to subordinate lienholders as their priorities may appear, unless such commission is otherwise allowed by the court.

Final

The final account of a fiduciary is subject to special scrutiny.  The fiduciary must distribute all of the remaining proceeds from the sale.2 The account must show a zero balance on hand. Any distributions to the lender, subordinate creditors, or the former owner must conform to the requirements of the Virginia Code.

Generally the effect of a foreclosure sale is to terminate the rights of the lender in the mortgaged property. Subsequent to that sale, any interest that the lender may claim is limited to the proceeds of sale and not to the property. Similarly, the foreclosure sale ends the lien upon the property sold and the lender’s right to recover further value therefrom. Subsequent to the sale, the mortgagee may not look to the property for the payment of any portion of the mortgage debt.

In Virginia, interest is generally allowed to the date of sale, not to the date of closing.3 The adjustment of interest as of the date of sale is based upon the rule that the foreclosure sale is effective when the auction occurs, not at the subsequent closing upon that sale. In the leading case of In re Rolen,4 the Bankruptcy Court had occasion to examine Virginia law to determine the effective date of a foreclosure sale. The court stated, “Virginia law appears conclusive on this point. In a sale by a trustee under a Deed of Trust, the sale is complete when the trustee knocks the land down to the bidder, makes a memorandum of the sale and its terms, and signs the same.”5  Based upon the effective date of the foreclosure sale, the accrual of interest payable from the foreclosure proceeds should end upon the date of sale.

Virginia Code § 55-59.4 provides that the trustee shall disburse the proceeds of sale  “first, to discharge the expenses of executing the trust, including a reasonable commission to the trustee; secondly, to discharge all taxes, levies, and assessments, with costs and interest if they have priority over the lien of the deed of trust, including the due pro rata thereof for the current year; thirdly, to discharge in the order of their priority, if any, the remaining debts and obligations secured by the deed, and any liens of record inferior to the deed of trust under which sale is made, with lawful interest; and, fourthly, the residue of the proceeds shall be paid to the grantor or his assigns.”  Thus, the trustee is required to pay liens inferior to the deed of trust foreclosed and not to pay superior liens other than real estate taxes.  This rule remains in effect for all sales of real estate other than sales of condominium units.  In Colchester Towne Condominium Council of Co-Owners v. Wachovia Bank, N.A.,6 the Supreme Court of Virginia held that in sales of condominium units for delinquent assessments under Virginia Code § 55-79.84 (which has language substantially similar to the direction in Virginia Code § 55-59.4), prior liens must first be satisfied before payment of the assessment lien foreclosed.  Sales of condominium units under deeds of trust would remain subject to the requirements of Virginia Code § 55-59.4.  Trustees should be aware of this trap for the unwary.


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1  Va. Code. Ann. § 64.2-1309.

2  See Va. Code. Ann. § 55-59.4.

3  See, e.g., Manual for Commissioners of Account at § 16.406.

4  39 B.R. 260 (W.D. Va. 1983).

5  39 B.R. at 264.

6  266 Va. 46, 581 S.E.2d 201 (2003).





 



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