Accounts of Sale by the Foreclosure Trustee

Is there a Proper Form for the Reporting of the Proceeds of Sale by a Trustee?

There is no statutory form required to be used by a foreclosure trustee in reporting his actions and the application of proceeds from the sale under a foreclosure. 

The form account of sale by a trustee found in the following link is an acceptable form for an account of sale (account of sale).  However, any similar form for an account of sale which includes the information shown on the  form would be acceptable.

General Compliance with the Obligations to Account

The Henrico County Commissioner of Accounts has a policy of  auditing foreclosure accounts, for approval or disapproval, as they are filed with and presented to  the Commissioner.  The Commissioner’s office does not write or call the trustee’s office to request documentation or information missing from the submitted account. 

The Henrico Commissioner of Accounts takes the position that the trustee has a six-month period to gather all information necessary to submit a proper account to the Commissioner, and that when it is submitted it is supposed to be in proper form, fully documented, and ready to be audited.  No account should be submitted if it is not in proper form in an attempt to prevent the loss of a commission by the trustee. If an account is in such form that it cannot be audited either from the failure to  properly account for the proceeds or for the failure to present proper documentation under the foreclosure sale, it will be returned to the trustee as not properly filed and if not resubmitted within the original six-month period, no commission will be allowed to the trustee.

The Henrico Commissioner of Accounts approves or disapproves each account as submitted.  If the account is disapproved a report is made to the Court of such disapproval with a copy to the trustee.  The trustee may take exceptions to the Commissioner’s report and address with the Court any items reported by the Commissioner with which the trustee disagrees.

If exceptions are not taken to the report of the Commissioner it becomes confirmed, and a supplemental report by the trustee is required to be filed within three (3) months of the date of filing with the Court of the initial report by the Commissioner. The supplemental report will correct the reported deficiencies.  Failure to file a report within that time may result in delinquency proceedings by the Commissioner of Accounts.

Where an account by a trustee is disapproved and a supplemental account is filed, additional filing fees are required to be paid to the Commissioner of Accounts as well as the Clerk of Court’s filing fees. With the return to the trustee of a report disapproving the Account of Sale the trustee is advised of those fees. Normally this fee is $75.00 plus Clerk's fees of $16.00, but may vary depending on the extent of the review necessary on the submission of a supplemental account.

Until such time as the trustee has properly accounted under the sale as required by the statutes, disapprovals will be reported by the Commissioner’s office resulting in repeated expense to the foreclosure trustee.

Therefore, initial compliance with the requirements of the foreclosure statutes is beneficial both to the Commissioner’s office in not having to make repeated audits and reports on the same foreclosure, and to the foreclosure trustee in not having to submit supplemental reports and incurring the additional costs and fees associated with those reports.

Who Must Sign the Foreclosure Account?

The account of sale must be signed by the trustee or substitute trustee designated under a substitution of trustee properly recorded at the Courthouse where the property is located.

If the deed of trust requires all of the trustees to act together, then all of the trustees must sign the account.  If the deed of trust designates that any one of the trustees may act, then the acting trustee may sign the account without the necessity of the signature of the non-acting trustee.

What Matters Need to be Reported Under the Account of Sale and how are they Documented and Substantiated?

        NOTE: Documentation of "issuance" of a payment is not documentation of "receipt" of the payment which is what is required. A HUD-1 is not acceptable evidence of receipt by a payee.

  1. Deed of Trust.  A complete copy of the recorded deed of trust under which the foreclosure occurs must be presented to the Commissioner.

    If the trustee foreclosing is a substitute trustee, a complete copy of the recorded substitution of trustee document is required.

    Note that the statute requires the execution of the substitution of trustee document prior to any action by the substitute trustee and recordation prior to recordation of the trustee’s deed. Section 55-59(9), Code of Virginia (1950), as amended.

    Do not send copies of the unrecorded deed of trust or partial copies of the deed of trust with your account.  The account will be disapproved for this failure and a supplemental account will be required.

  2. The Deed of Trust Note.  The foreclosure account must contain the original deed of trust note under which the foreclosure occurred and the originals of any inferior notes held by noteholders who received proceeds from the sale of the foreclosure.

    The noteholder designated on the note must be the same as the noteholder receiving the proceeds from the sale of the property.  The note, therefore, must be properly endorsed or recorded assignments of the note and deed of trust must be presented to the Commissioner.

    If the original note cannot be found, the noteholder is obligated to provide to the trustee, and the trustee to the Commissioner of Accounts, a lost note affidavit with a copy of the original note (if available) indicating the original note cannot be produced. Additionally, evidence of notice by the noteholder to the obligors on the note must be presented that the obligors have been given notice by certified mail that the lender claims to be the rightful owner of the note, that the note is unavailable and that the noteholder will nonetheless request the trustee to proceed with foreclosure 14 days from the date of mailing, which notice shall also advise the obligors of the right to contest the assertion by petition to the Circuit Court.(Lost note affidavit) (Section 55-59.1 (B), Code of Virginia)

    If a lost note affidavit is filed, the trustee shall pay to the Commissioner of Accounts an additional fee of $165.00, which fee may not be charged to the property owner, but shall be charged to the noteholder.

    ELECTRONIC NOTES

    If you are foreclosing pursuant to the terms of an electronic note, you will be unable to provide an original note as required with your account, because the note exists only in electronic form through the MERS registry. In such circumstances, the noteholder is required to provide to the trustee, and the trustee to the Commissioner, a proper affidavit certifying the name of the registered holder of the note according to the MERS registry.

    The Henrico Commissioner considers this situation in the same category as a lost note as the note "cannot be produced" pursuant to the requirements of Section 55-59.1, Code of Virginia. As such, an additional fee of $165.00 is payable to the Commissioner with the required affidavit. This fee is payable by the noteholder and may not be charged to the property owner, unless specific language exists in the note or deed of trust which allows the fee to be charged against the bid price.

  3. Evidence of Statutory Publication (Advertisement).  The trustee is obligated to provide the original affidavit of publication from the newspaper publishing the required statutory notice of sale.  The terms of the deed of trust shall be complied with by the trustee.  It is important that each deed of trust be reviewed for the required number of publications of the advertisement of the foreclosure sale.  The numbers vary with each deed of trust and the failure to comply with the number of publications dictated by the deed of trust will be reported under the report by the Commissioner of Accounts.

  4. In the absence of contractual specification of publication requirements, the statutory requirements shall be met.  Section 55-59.2, Code of Virginia.

    The newspaper’s Affidavit of Publication and a copy of the original advertisement shall be submitted to the Commissioner stamped "paid" by the newspaper.

    The advertising expense charged to the foreclosure shall be documented and a cancelled check or paid receipt from the newspaper indicating the precise charge and a receipt of payment for each individual foreclosure shall be presented to the Commissioner. Presentation of a cancelled check or paid invoice to the newspaper for multiple advertisements is not acceptable. That is evidence only of the payment to the newspaper of an outstanding bill, but not the particular sale unless the particular foreclosure is individually identified by the newspaper in "the bill"  in question. ***** The certificate of publication must be stamped "paid" by the newspaper or a copy of both sides of the cancelled check for the individual foreclosure presented.

  5. Bid Price by the Bidder on a Written Bid.  If the trustee has received written bids prior to the date of sale, a copy of the written bid submitted to the trustee by the successful bidder shall be presented to the Commissioner of Accounts. This includes a written bid by the noteholder.
     
  6. Satisfaction of Real Estate Taxes.  By statute the trustee is obligated to satisfy all real estate taxes to the date of sale and to submit to the Commissioner of Accounts evidence that those taxes have been paid.  Section 55-59.4, Code of Virginia.

    If the real estate taxes are paid from the proceeds of the sale, they should be prorated and shown on the account prorated to the date of the sale and charged to the owner of the property.  A receipt from the Treasurer’s office or Director of Finance for the amount paid to the date of sale is required.  Otherwise, a cancelled check shall be submitted to the Commissioner. The tax receipt provided must identify the property for which the taxes were paid and the period for which the payment is made. A tax receipt provided to us which does not identify the property or state the period of time covered by the payment is not accepted as proof of payment of delinquent or pro-rata taxes. If you have a receipt for pro-rata taxes which does not identify the property or the fact that the payment is for pro-rata taxes to the date of sale, but have your transmittal letter identifying the property and period of time represented by the payment, submit the County receipt and the letter and the two together will be accepted as evidence of payment of pro-rata real estate taxes. A record from the County identifying the property and showing tax payments for delinquent and pro-rata taxes is preferred.

    Evidence of the payment of taxes through the date of sale may be satisfied by providing to the Commissioner of Accounts a copy of the title report which reports the taxes as being paid through the date of sale.

    Remember that the “date of sale” is the auction date and not the closing date.

  7. Substitution of Trustee Deed.  If the trustee foreclosing on the property is a substitute trustee, a copy of the recorded substitution of trustee deed shall be presented to the Commissioner of Accounts and if that charge is to be made against the owner of the property, a copy of the recording receipt provided as substantiation.

  8. Certified Mailing Costs.  If any additional certified mailing costs by the trustee are being charged under the foreclosure sale, the receipts for such certified mail should also be presented to the Commissioner.

  9. Title Examination Cost.  If the trustee has had a title examination performed prior to the foreclosure, the cost of that title examination, if charged to the owner, shall be shown on the account and documentation in the form of an invoice and cancelled check or paid receipt shall be provided to the Commissioner. 

  10. Payment of Grantors’ Recording Tax.  If the account charges to the owner the grantors’ tax required to be paid upon the recordation of the trustee’s deed, the cost of the grantors’ tax shall be shown on the account and a copy of the Clerk’s receipt for the grantors’ tax shall be provided.

    If the Trustee's deed was not recorded on instruction of the purchaser, no grantor's tax will  be allowed  to be charged against the bid price. The grantor's tax must actually have been paid to be allowed as a charge on the account.

  11. Attorney’s Fees.  Attorney’s fees and trustee’s commission are not one and the same.  A trustee is a   fiduciary with fiduciary obligations to both the noteholder and the property owner.  The trustee’s fees are allowed for services in such fiduciary position.

    Attorney’s fees, however, are fees associated with work performed on behalf of a client.  Litigation, bankruptcy proceedings or other legal services are often performed outside of the role of the foreclosure trustee.  Reasonable attorney’s fees may be charged to the property owner in addition to the trustee’s commission in the proper case.  These attorney’s fees must, however, be properly documented by invoice and cancelled check.  The invoice should show the specific services for which the attorney’s fees are claimed. Generally these attorney's fees are reflected in the lender's statement of the sums owed on the note and not on the account of sale as payments to the trustee, unless the trustee is actually deducting the fees from the proceeds and has not been paid in advance by the lender.

  12. Trustee’s Commission.  Please note that the trustee’s commission should be shown as such on the foreclosure account and not be shown as attorney’s fees.

    If an account is not timely filed and trustee’s commission is disallowed, the Commissioner of Accounts for Henrico County will not approve an account which merely re-categorizes the disallowed trustee’s commission as attorney’s fees.

    Trustee’s commissions in Henrico County are determined, as in all other jurisdictions, on the basis of a review of the language of the deed of trust for the particular foreclosure submitted for audit.

    If the deed of trust provides a specific percentage or fixed amount as a trustee’s commission, the Commissioner of Accounts for Henrico will approve that percentage or fixed amount.


                                            
    GUIDELINES FOR "REASONABLENESS"
                                                              OF COMMISSION

  13. If the deed of trust provides for “reasonable” commission to the trustee, the Commissioner of Accounts has established, as a guideline of reasonableness only, the fees allowed to a special commissioner under the provisions of Section 8.01-109, Code of Virginia.  That statute allows  a commission to a special commissioner of 5% of the first $100,000.00 of the sale price and 2% of the remaining sale price. This is not a fixed rule, or presumption. 

    If the trustee feels that there are extenuating circumstances or additional reasons why a commission in excess of this guideline should be allowed, the trustee may submit that evidence or argument with or before the filing of the account so that it may be considered by the Commissioner at the time of the review of all other information on the account of sale.

  14. Several instances have been experienced by the Commissioner with deeds of trust which have been typed with the entry of 0% commission to the foreclosure trustee. If reference to allowance of a "reasonable" commission is also made in the deed of trust, the Henrico Commissioner of Accounts takes the position that  a reasonable commission is payable to the trustee. However, if the deed of trust specifically states that 0% commission is payable, without other language indicating that a reasonable commission is payable, the Commissioner treats this as a contractual agreement, and  the lender should be responsible to the trustee for those expenses, and they should not be charged against the bid price on the account of sale.

  15. Statutory Notice.  Section 55-59.1, Code of Virginia (1950), requires, in addition to the advertisement to be published in local newspaper, that the trustee or secured party give written notice of the time, date and place of any proposed sale in execution of a deed of trust.  The specific requirements to be included within that notice are set forth in the statute.  Section 55-59.1(a), Code of Virginia.

    If the deed of trust contains no provision regarding publication of an advertisement of sale, the provisions of Section 55-59.2, Code of Virginia (1950), as amended, should be consulted.

    The provisions of Section 55-59.3, Code of Virginia (1950), as amended, should be consulted for the content of the advertisement of sale which is required, in addition to any other content required by the deed of trust.

    Proof of the giving of the statutory notice is required to be furnished to the Commissioner’s office.

    Please note that the notice shall be given to the present owner of the property to be sold at the last known address as such address appears on the records of the secured party.  This requires notice to all owners if there are multiple owners of the property.  The failure to give notice to all of the owners will result in a report on the Commissioner’s report of sale.

    Mailing of a copy of the advertisement to be published or a notice containing the same information by certified or registered mail not less than fourteen (14) days prior to the sale shall be, under the statute, satisfactory compliance with the statutory requirement of notice.  Note that the statute provides that notice of the sale when given as stated in the statute is deemed an effective exercise of the right of acceleration.  However, although outside the jurisdiction of the Commissioner of Accounts, such notice may not satisfy the contractual obligations of specific notices required to be given as a condition precedent to the right to foreclose. (Bayview Loan Servicing Decision).

    While the failure to comply with the notice requirements of the Section does not affect the validity of the sale, the Commissioner’s office reports the failure to comply with the statute in approving the trustee’s account of sale.

  16. Trustee’s Deed to Purchaser. The trustee shall provide a complete copy of the recorded trustee’s deed conveying the property to the successful purchaser at the foreclosure auction.

    If the purchaser has directed that the deed not be recorded, a letter from the purchaser indicating that desire should be provided to the Commissioner.

    Only the grantors’ tax is a proper charge to the foreclosure account.  The remainder of the recordation cost for the trustee’s deed is to be paid by the purchaser.

  17. Lender’s Statement of Amount Due at Time of Sale.  The noteholder shall provide to the trustee who shall provide to the Commissioner of Accounts a statement showing the amounts due on the note at the time of the foreclosure.  This statement shall itemize the amount of principal owed at date of sale, the accrued interest and the period during which interest has accrued, any late charges, escrow deficits or any other specific charges allowed under the deed of trust.

    On the back of the note or on an allonge to the note, the amount of the proceeds of the foreclosure sale under the account should be designated with the noteholder’s signature or trustee’s signature.

  18. Lender's Written Bid or Memorandum of Sale. The written bid instructions by the lender or a memorandum of sale with the successful bidder must be presented with the account of sale.

  19. Advances by Trustee for Which there is Reimbursement Reported. If the trustee has advanced costs and reports a reimbursement on the account, the reimbursements must be individually identified, an invoice for each advance must be presented and proof of trustee's payment of the expense by cancelled check is required. For example, an entry of $1,375.00 as reimbursement to trustee for advances is not acceptable. It must be reported as $1,375.00 reimbursement for advertising... $750; title search...500.00; and postage for certified mailing $125.00, and the individual invoices from each creditor provided with proof each was paid by trustee.

  20. Water and Sewer Liens. Henrico County is very agressive in docketing unpaid water and sewer liens against a property to be foreclosed. A title rundown prior to the actual sale is recommended to determine if any such liens have been docketed before the sale. If so, they must be paid from the bid price or otherwise satisfied by the lender on a noteholder buy in. You will need a copy of the lien, payoff statement and release of lien from the County. NOTE: Only liens docketed prior to the sale are required to be satisfied by the trustee. Payment of any liens for periods after the date of sale would be an improper charge against the bid price. Contact the Henrico Department of Public Utilities for the payoff information.