When dealing with the foreclosure of a residential or commercial mortgage on a home, business, or other real property, it is crucial to have a trusted and capable attorney on hand to guide you through the process. Foreclosure laws differ in each state and territory, and local foreclosure practice can be highly idiosyncratic. However, whether you are a lender with a portfolio of delinquent mortgage loans, a borrower who has fallen behind on payments, or a buyer who is interested in purchasing a property in foreclosure, it is important to understand what a foreclosure action involves, how the foreclosure process works in the U.S. Virgin Islands, and what alternatives to foreclosure might be better for your situation.
A foreclosure is a judicial process in which real property (usually a home or business) that a borrower has offered as security for a loan is sold by the court to satisfy the borrower’s delinquent loan debt. The formal cause of action in the U.S. Virgin Islands may be called an “action for foreclosure of real property lien” or an “action for debt and foreclosure”. Under either cause of action, the borrower’s rights in the property (as well as the rights of any junior lienholders) will be judicially terminated by the court, and the property will be sold at a public auction (called a “Marshal’s sale”) to satisfy the loan debt.
Here are some key points to consider regarding foreclosures in the U.S. Virgin Islands.
- Length of time: One of the most common foreclosure questions that we receive is how long will the process take. There are actually two parts to this question: How long will it take to get a foreclosure judgment from the court, and how long will it take to get a deed to the foreclosed property? Although every case is unique, an uncontested foreclosure action (i.e., where a borrower does not respond to the complaint) theoretically could go to judgment in about a year. Due to the court’s caseload and other factors, however, a timeline of between 18 and 24 months from complaint to judgment is more typical. After judgment is entered, it takes about 90 to 120 days for the property to go to sale, and it can take at least another 30-90 days (and sometimes longer) for the sale to be confirmed by the court. Furthermore, all foreclosed property in the Virgin Islands is subject to a six-month post-sale redemption period that cannot be shortened or waived without the consent of the borrower. All together then, it can take two or more years for a foreclosure action to go from complaint to deed. In extreme circumstances (such as in the aftermath of Hurricanes Irma and Maria in 2017, or in the case of the COVID-19 pandemic), the process can take longer.
- Price: The other most common foreclosure question concerns how much it will cost. Again, every case is different depending on the property and the loan in question. The short answer for a lender is that the cost of an uncontested foreclosure action will run between $3,000 and $5,000, but the cost of a contested foreclosure (especially a commercial foreclosure) can be much higher. This is because the judicial foreclosure process in the Virgin Islands cannot be fast-tracked or avoided (except by a deed-in-lieu of foreclosure, discussed below). Like most litigation, foreclosure is expensive for lenders and their loan servicers, and it is also expensive for the borrower, who stands to lose any accrued equity in the property (and, if the foreclosure is against a residential property, the emotional and financial cost of losing a home).
- REO properties: In many cases, the only bidder at a foreclosure sale is the lender who made the original loan. REO (“real estate owned”) properties are properties that the lenders or their loan servicers acquire through the foreclosure process, which they generally will market and sell to new buyers in order to recoup their losses on the loan. If the acquired properties are backed by institutions such as Fannie Mae, Freddie Mac, HUD, or the VA, the lender or servicer will convey those properties to these entities for eventual marketing and sale.
- Deed in lieu of foreclosure: The most common method for avoiding foreclosure is for the borrower to voluntarily deed the property to the lender in exchange for a partial or complete discharge of the loan debt. A deed-in-lieu of foreclosure (“DIL”) avoids the longer and more expensive foreclosure process, and it also dispenses with the six-month redemption period. Although a DIL can be a beneficial solution for both lenders and borrowers, it is not a feasible option in every case, such as when there are second mortgages on the property or the borrower does not meet the lenders hardship criteria for a DIL. Even where a DIL is warranted, a knowledgeable and experienced foreclosure or real estate attorney should draft the DIL and the supporting documents to avoid title issues or other conveyance problems.
- Short sales: Short sales are a less common alternative to foreclosure, but they, too, avoid the cost and expense of litigation. Short sales occur when the lender agrees to allow the borrower to sell the property to a third party for less than what is owed on the loan. To qualify for a short sale, the borrower must meet the lender’s hardship criteria, and the buyer’s offer usually must be within a certain range of the property’s fair market value. However, a short sale can be a long process, and short sale buyers need both patience and persistence (and a good real estate attorney) if they want to see it through.
Given the financial stakes facing both lenders and borrowers in a foreclosure action, it is critical for both parties to have skilled legal representation. To learn more about the foreclosure process in the U.S. Virgin Islands, contact an experienced foreclosure or real estate attorney at BoltNagi PC today.
A. Jennings Stone is an attorney in the litigation practice group and concentrates his practice in the area of foreclosures at the law firm of BoltNagi PC. BoltNagi PC is a full-service business law firm in St. Thomas, U.S. Virgin Islands.