As a lifelong Northern Virginian, I have seen the real estate market go up and then, way up. I have also seen it come down, way down. Unfortunately, for many Northern Virginian homeowners, the continuing recession and economic downturn created financial problems. With high levels of unemployment and falling home prices, many of our area’s homeowners experienced difficulty paying their mortgages each month. This article covers the nuances of real estate law and foreclosure proceedings.
Virginia is a Recourse State
Virginia is a recourse state. Your lender can sue you for a deficiency judgment if you owe more than your home is worth. You may have heard the term “recourse” loan. In a few states, lenders have limited legal options against homeowners after foreclosure. States such as California and Arizona place many restrictions as to when lenders can sue homeowners for a deficiency. In other states, including Virginia, lenders can sue homeowners for any deficiency. A “deficiency” is the amount you owe after your lender sells your house. For example, if you owe $500,000 to Bank of the U.S., but the Bank of the U.S. can only sell your house for $200,000 during a foreclosure auction, Bank of the U.S. can sue you for the deficiency, i.e., $300,000 in the example above in Virginia.
Foreclosure Sales Price
Although lenders in Virginia can sue homeowners for a deficiency judgment in most cases, some legal restrictions protect homeowners during foreclosure sales. For example, your lender cannot sue you for a deficiency judgment in every situation. In most cases, your lender must first attempt to sell your home at fair market value before attempting to sue you for a deficiency. Without this legal restriction, your lender would be able to sell your home for an artificially low price without regard to fair market value because your lender would be able to sue you for the difference. In other words, why would your lender care about selling your home for what it’s worth if it can sue you for the balance?
Generally, lenders have financial incentives to avoid foreclosure if there are other viable options. The financial incentives include loss of goodwill from unwanted negative media publicity. Lenders also receive less money from a distress sale than they would from a non-foreclosure or non-distress sale. Finally, property values typically plummet during foreclosure because homeowners are less likely to make necessary repairs to their homes. The Federal Trade Commission (FTC) has some practical tips for homeowners facing foreclosure. Read them here.
Shameless Self-Promotion: If you’re looking for a Virginia real estate attorney, contact Keithley Law, PLLC today by calling (703) 454-5147 and schedule an initial consultation in our Fairfax law office.
Legal Disclaimer: The information provided on “Keithleylaw.com” is strictly for educational purposes and to provide you with general educational information about Virginia laws. Since state laws are subject to change, please schedule an appointment with our office to further discuss your personal situation. This public information is neither intended to, nor will, create an attorney-client relationship.