Lots and lots of people want to live in Washington, D.C., and Washington D.C. foreclosure laws are some of the strictest in the country. Historically, D.C. foreclosure processes have changed quickly to adjust with the times; at one point in 2010 there had not been any foreclosures in the area for nearly a year due to the district’s robust response to robo-signing issues at many national foreclosure servicers. In 2020, the district also responded to the COVID-19 health crisis by placing a moratorium on the majority of evictions and foreclosures. Real estate investors who want to invest in Washington D.C. foreclosures must stay up-to-date and informed about the latest evolutions of the process.
Homebuyers in Washington D.C. usually sign two separate documents when they take out a home loan: the promissory note and the deed of trust. The former simply states that the borrower will repay the loan and the terms under which they will do so. The latter gives the lender security interest in the property, which enables the lender to sell the home at a foreclosure sale if the borrower fails to meet the terms of the loan. Because Washington D.C. foreclosures can be judicial or nonjudicial, deed of trust gives lenders the option to forego the court process unless the borrower brings suit.
Washington D.C. foreclosures can take about 47 days or they can stretch out much longer. The biggest factors affecting the D.C. foreclosure timeline are whether the foreclosure will be judicial and what types of foreclosure policies are currently in place. For example, during the 2020 COVID-19 pandemic, D.C. mayor Muriel Bowser signed legislation prohibiting all residential foreclosures as long as the mayor’s public health emergency declaration was in effect and 60 days after it ended. However, that legislation did not protect investment properties, so foreclosures could continue on commercial properties and rental properties. Many lenders created deferment programs to assist the owners of these properties and hopefully help them avoid foreclosure, but many of those owners may still be interested in selling their properties before the deferment period ends.
While court (judicial) foreclosures do occur in the District of Columbia, most foreclosures are out-of-court proceedings. This is because the mortgage or deed of trust usually contains a clause that allows the lender the right to sell the property. Once a borrower is in default, the lender starts foreclosure proceedings after sending a notice to the borrower that the terms of the mortgage or deed of trust have been violated.
The borrower can reinstate the loan up to five days before the foreclosure sale by paying the default amount, including late charges and costs. This can occur no more than once in any two years.
The typical timeline for an out-of-court foreclosure is at least 47 days. Before the lender can begin the foreclosure process on a Washington D.C. foreclosure, they may be required by the terms of the deed of trust to send a “breach letter” to the borrower. This serves as notice that the loan is in default and requests the borrower cure it. If the borrower fails to catch up payments, the breach letter may also serve as notice that the lender will accelerate the loan and move forward with the foreclosure.
A lender must send a notice of foreclosure sale by certified mail to the owner of the property at least 30 days prior to the sale. The lender must also record the notice of sale with the recorder of deeds and mail a copy to the mayor or the mayor’s agent within this time frame. Traditionally, lenders also inform any lien holders about the sale.
The mortgage or deed of trust may include a particular time and place of the sale. If so, the procedure must be followed. If not, the lender or trustee acquires a court order specifying the sale terms. Likewise, the lender abides by any advertising requirements stipulated in the mortgage or deed of trust. If no requirements are included, the lender typically advertises the foreclosure sale in The Washington Post or The Washington Times five times prior to sale date.
The foreclosure sale is conducted by a licensed auctioneer and typically occurs at the auctioneer’s office. If a trustee postpones the sale, a new notice of sale is republished and resent. Once the sale is complete, the trustee’s deed is recorded.
The borrower has no rights of redemption after a deed of trust foreclosure sale.
Historically, most Washington D.C. foreclosures have been nonjudicial. However, that may change in the wake of the COVID-19 pandemic as it did in the wake of the housing crash in the mid-2000s. Judicial foreclosures in Washington D.C. occur when the lender gives notice of suit by serving the borrower with a summons and complaint. If the borrower fails to answer, then the lender may receive a default judgment. If the borrower responds, the case will be litigated. This can extend the pre-foreclosure timeline, giving you, the real estate investor, more time to work toward a solution that will not necessitate the homeowner having to go all the way through a foreclosure.
The Washington D.C. real estate market is very competitive. If a real estate investor is able to create or access a source of leads on pre-foreclosure properties in Washington, D.C., this information and the potential acquisitions may both be extremely valuable. The first step is understanding the D.C. foreclosure process so that you can identify opportunities whenever possible.
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