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Virginia Legislature Adds New Sale Notice Requirements for Deceased Borrowers and Their Estates

Posted By USFN, Tuesday, April 17, 2018
Updated: Monday, April 16, 2018

April 17, 2018 and May 1, 2018

by E. Edward Farnsworth, Jr.
Samuel I. White, P.C. – USFN Member (Virginia)

House Bill 755/Senate Bill 422 (relates to foreclosure after death of owner) — For those who practice in both judicial and nonjudicial foreclosure states, the different treatment of deceased borrowers and their estates is readily apparent. In Maryland (quasi-judicial) and the District of Columbia (judicial), for example, the personal representative of the estate must be served with the foreclosure pleadings. If such fiduciary has not yet been established, one must be appointed to proceed. Notices of sale and all other filings are mailed to the personal representative.

By contrast, Virginia, a nonjudicial state, does not require the appointment of a personal representative to foreclose — not even to receive notice of sale. Virginia Code § 55-59.1(A) only compels that sale notice be sent to the present owner at the “last known address as such owner and address appear in the records of the party secured” and does not specifically address heirs and personal representatives. Notices of sale must be mailed no more than 14 days prior to sale.

Although not requiring a personal representative to foreclose, the Virginia legislature’s passage of House Bill 755/Senate Bill 422 does amend Virginia Code § 55-59.1(A) to include additional deceased borrower notice requirements. The amendment expands the source from which entitled notice recipients are derived to also include recorded probate documents. Effective July 1, 2018, Virginia Code § 55-59.1(A) will read in part:

If the secured party has received notification that the owner of the property to be sold is deceased, the notice required by clause (a) shall be given to (1) the last known address of such owner as such address appears in the records of the party secured; (2) any personal representative of the deceased’s estate whose appointment is recorded among the records of the circuit court where the property is located, at the address of the personal representative that appears in such records; and (3) any heirs of the deceased who are listed on the list of heirs recorded among the records of the circuit court where the property is located, at the addresses of the heirs that appear in such records.

The amended statute will legally entitle personal representatives and heirs to notice of sale, if the probate documents have been recorded. The statute does limit the notice address for these individuals to what is specifically referenced in the probate documents.

This statute also presents new concerns and quagmires. In many cases the servicer may be aware of the deceased borrower at referral — but probate instruments have yet to be recorded. Unlike subordinate deeds of trust and association statements of lien, which must be recorded more than 30 days prior to sale to trigger the right to notice, the amended statute does not contain the same “safe harbor” language regarding the recording of the probate documents in relation to the sale date. Where an allegation of failure to notify is advanced, it is uncertain how Virginia courts will interpret this distinction where the probate documents are recorded prior to sale but after the last pre-sale title update and the mailing of notices. How title insurers will treat this scenario is equally uncertain. Another new issue is that not all “heirs” listed on a “List of Heirs” are legal heirs under Virginia law. On face value, the amended statute seems to confer standing to challenge the foreclosure on notice grounds to individuals with no cognizable legal interest in the property.

Virginia best practice has traditionally been to direct notice to heirs and personal representatives appearing on the referral, foreclosure correspondence, and the pre-foreclosure title searches and updates, regardless. To this end, the amendment should not change processing in the ordinary course. However, where a notice might have been missed, resort can no longer be made to the statute’s limiting language confining the entitled recipient to whoever appears in the servicer’s records. With this new statutory amendment and the current industry focus on successors-in-interest, it is more important than ever for Virginia trustee firms and servicers to timely communicate concerning deceased borrowers and any known heirs or personal representatives.

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Note for consideration of the USFN Award of Excellence: This article is not a "Feature."


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