Senate Bill No. 203
(By Senators Hunter and Bailey)
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[Introduced January 10, 2008; referred to the Committee on the
Judiciary.]
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A Bill to amend the Code of West Virginia, 1931, as amended, by
adding thereto a new section, designated §38-1-2a; to amend
and reenact §38-1-3 and §38-1-4 of said code; and to amend and
reenact §44-14-1 of said code, all relating to updating the
foreclosure process on trust deeds; including procedures for
foreclosure on bank and nonbank loans and right of
reinstatement; fiduciary duties of trustees owed to both
parties; information required to be on notice of sale;
requiring all sales to be under supervision of a resident of
the state; substitute trustees; and authorizing the
Commissioner of Banking to determine eligibility of trustee.
Be it enacted by the Legislature of West Virginia:
That the Code of West Virginia, 1931, as amended, be amended
by adding thereto a new section, designated §38-1-2a; that §38-1-3
and §38-1-4 of said code be amended an reenacted; that §38-1A-3 of said code be amended and reenacted; and that §44-14-1 of said code
be amended and reenacted, all to read as follows:
CHAPTER 38. LIENS.
ARTICLE 1. VENDOR'S AND TRUST LIENS.
§38-1-2a. Fiduciary duty of trustee
The trustee under a deed of trust owes a fiduciary duty at
common law to both the grantee beneficiary and grantor borrower
under the deed of trust. The common law duties of the trustee
include, but are not limited to the duty: (1) To review any
submission for consistency with law; (2) of access to the parties
for purposes of explanation and reinstatement; (3) to act
consistent with the trust in accounting for all moneys received;
(4) to act impartially between the parties and to proceed only in
accord with law; and (5) to await resolution by a court where there
is a significant issue as to the legality of origination of a loan
or amount due. In addition, all parties have the common law duty
of good faith and fair dealing in the performance of duties and
responsibilities under the deed of trust. An attorney serving in
an attorney client relationship to one party to a deed of trust in
the collection of debts outside of the foreclosure sale process may
not serve as a trustee or substitute trustee under a deed of trust
with a fiduciary duty to both parties.
§38-1-3. Sales under trust deeds.
The trustee in any trust deed given as security shall, whenever required by any creditor secured or any surety indemnified
by the deed, or the assignee or personal representative of any such
creditor or surety, after debt due to such creditor or for which
such surety may be liable shall have become payable and default
shall have been made in the payment thereof, or any part thereof,
by the grantor or other person owing such debt, and if all other
conditions precedent to sale by the trustee, as expressed in the
trust deed, shall have happened, sell the property conveyed by the
deed, or so much thereof as may be necessary, at public auction,
having first given notice of such sale as prescribed in the
following section.
(a) Sale upon default. -- The trustee in any trust deed given
as security may sell the property conveyed by the deed, when the
debt secured by the trust deed has become payable and default has
been made in payment of the debt, subject to the provisions and
procedures set forth in this section. The trustee, upon request by
the creditor and notice that default has been made in the payment
of any part of the debt by the grantor of the trust deed or any
other person owing the debt, shall review the original loan and
security instrument, the account record and the value of the
security. If all other conditions precedent to sale by the
trustee, as expressed in the trust deed and in law have happened,
the trustee may then sell the property or so much of the property
as is necessary, at public auction, after giving notice of the sale as prescribed in section four of this article.
(b) Procedure for foreclosure sale. --
(1) Any creditor, who determines that the conditions for
foreclosure sale have been met and all reasonable alternatives to
foreclosure have been explored, may deliver the instrument upon
which the debt is based, the security instrument, a complete copy
of the account record, and all other evidence of its entitlement to
proceed with foreclosure to the trustee. The trustee after
ascertaining those persons to receive notice, shall proceed with
notice and sale as prescribed in sections five, six and seven of
this article. If, in the course of this process, an issue arises
that warrants resolution that cannot be resolved between the
parties, sale shall await resolution by the circuit court of the
county in which the property is located.
(2) If a loan is one other than by an onsite depository
institution and the trustee ascertains that: (1) The market value
of the security appears to be substantially less than the principal
of the loan at the time of origination; or (2) there is misconduct
in servicing by a nonoriginating servicer of the loan, the loan
shall be referred for judicially sanctioned foreclosure or a
declaratory proceeding thereon.
(c) Additional procedures for certain nonbank loans; reference
to designee of the State Housing Development Fund. -- Except for
loans originated by a bank or savings and loan association not solicited by an unaffiliated broker, the creditor, prior to
request of the trustee to initiate foreclosure, shall refer the
loan for a period of forty days to the designee of the West
Virginia Housing Development Fund for consideration for alternative
remedy. The director of that fund shall designate a nonprofit
entity who will serve to review prospective foreclosures for
alternative financing or other remedy in lieu of foreclosure.
(d) Right of reinstatement. -- In order to facilitate the
right of reinstatement, the trustee or designee shall be personally
accessible by telephone (without email or intervening voice mail)
and in person during all regular business hours. The right of
reinstatement shall be available for a minimum forty day period
from the time of estimated receipt of the notice of sale containing
an explanation of the right through the day of sale. Restrictions
shall not be placed on the exercise of the right by the trustee.
§38-1-4. Notice of sale.
(a) Publication. --
(1) Unless property is to be sold under a deed of trust
executed and delivered prior to the first day of July, one thousand
nine hundred eighty, which contains a provision waiving the
requirement of published notice, the trustee shall publish a notice
of a trustee's sale as a Class II legal advertisement in compliance
with the provisions of article three, chapter fifty-nine of this
code, and the publication area for such the publication shall be the county where the property is located: Provided, That any
notice of sale published since the first day of July, one thousand
nine hundred eighty, and prior to the effective date of this
section, shall be deemed to have met the requirements of the
section if such were published as Class II legal advertisements, in
compliance with the provisions of article three, chapter fifty-nine
of this code, in that by the enactment of the Acts of the
Legislature, regular session, one thousand nine hundred eighty, the
Legislature intended that all notice of sales pursuant to trust
deeds were to have been published as Class II legal advertisements.
(2) Except as expressly provided in this section, no trust
deed shall waive the requirements of publication of notice required
by this section. The notice personally served shall include a copy
of the full account record and a description of the right to
reinstate as contained in the security instrument and this section.
(b) Personal Service. --
(1) In all cases, a copy of such the notice shall be served on
the grantor in such the trust deed, or his or her agent or personal
representative, by certified mail, return receipt requested,
directed to the address shown by the grantors on the deed of trust
or such other address given to the beneficiary of said the trust
deed or said beneficiary's agent or assignee in writing by the said
grantor subsequent to the execution and delivery of the trust deed
and notice shall be deemed complete when such notice is mailed to the aforesaid stated address, notwithstanding the fact that such
the mail may be returned as refused or undeliverable and shall be
served by certified mail, at least twenty days prior to the sale,
upon any subordinate lienholder who has previously notified the
primary lienholder by certified mail of the existence of a
subordinate lien. Every trust deed shall state the address to which
such the notice shall be mailed.
(c) Content of notice. -- Every notice of sale by a trustee
under a trust deed shall show the following particulars: (a) The
time and place of sale; (b) the names of the parties to the deed
under which it will be made; (c) the date of the deed; (d) the
office and book in which it is recorded; (e) the quantity and
description of the land or other property or both conveyed thereby;
and (f) the terms of sale.
(d) Notice by mail to subordinate lienholders. -- Notice to a
subordinate lienholder shall be complete when such the notice is
mailed in accordance with the provisions of this section, directed
to the address of the subordinate lienholder as provided by such
the subordinate lienholder in the notice of existence of a
subordinate lien.
(e) Other forms of notice. -- The provisions of this section
relating to the methods of serving notice are not exclusive. In
addition to, but not in lieu of, any service of notice required by
the provisions of this section, service of such the notice may be also made by any other method authorized for the service of
original process in the circuit courts of this state by statute or
by the rules of civil procedure for trial courts of record.
(f) Purchasers re: notice. -- An individual who purchases
property at a trustee's sale is under no duty to ascertain whether
notice was given to subordinate lienholders in accordance with the
provisions of this section, and such right, title and interest as
the purchaser may acquire shall not be affected by defects in such
the notice or the service thereof, if the purchaser is otherwise a
bona fide purchaser for value.
(g) Right to reinstate. -- All borrowers have a right to
reinstate under the terms set forth in the security instrument
prior to the time of the sale, by tendering the amount set forth in
the right to cure.
ARTICLE 1A. TRUSTEES OF SECURITY TRUSTS.
§38-1A-3.
All sales under the direct supervision of a resident
trustee, and access thereto.
The nonresidency of a trustee shall not invalidate or cloud
the title passing under a security trust. Any conveyance made by a
nonresident trustee pursuant to foreclosure of a security trust
shall be as valid as though such trustee were a resident of this
state A foreclosure sale shall be under the direct supervision of
a resident of this state and, if a corporation, the directing
officer of the corporation who is a resident of this state. This supervision shall be from the inception of the foreclosure sale
procedure by notice to the grantor through filing of report of sale
and distribution of proceeds
. Direct supervision means the person
responsible for all actions having to do with the sale, including
review of the file and conduct of the sale. The trustee or
designee shall be available by telephone (without email or
intervening voice mail), United States mail, and in person for
discussion of issues during all regular business hours.
CHAPTER 44. ADMINISTRATION OF ESTATES AND TRUSTS.
ARTICLE 14. SUBSTITUTION OF TRUSTEES; POWERS OF SURVIVING OR
REMAINING TRUSTEES.
§44-14-1. By circuit court or judge, for trustee in deed, will or
other writing; appointment of ancillary trustee under
certain circumstances; substitution of trustee by
party secured by trust deed.
(a) Substitute trustee appointment by judge. -- When the
trustee, or, if there is more than one trustee, one or more of the
trustees, in any will, deed or other writing, die or remove beyond
the limits of this state, or decline to accept the trust, or having
accepted, resign, the same or refuse to act as trustee, or be
unable due to physical or mental disability to perform his, her, or
their duties under the trust, the circuit court of the county in
which such the will was admitted to probate, or such the deed or
other writing is or may be recorded, may, on motion of any party interested, and upon satisfactory evidence of such the death,
removal, declination, resignation, refusal or inability, appoint a
trustee or trustees in the place of the trustee or trustees named
in such that instrument and so dying, removing, declining,
resigning or refusing, or being unable to perform his, her, or
their duties under the trust.
(b) Substitute trustee appointment by certain lenders. -- As
an alternative to the method of substitution provided for in
subsection (a) of this section, in the case of a trust deed to
secure a debt or obligation if the trust deed does not by its terms
prescribe a method for substitution, the party secured by the trust
deed, or any surety indemnified by the deed, or the assignee or
personal representative of any such secured party or surety has the
authority, in the event of such death, removal, declination,
resignation, refusal or inability as is described in subsection
(a), to substitute a trustee or trustees in the place of the
trustee or trustees named in such instrument, independent of any
court action otherwise required by the provisions of subsection (a)
If a consumer loan secured by real property: (1) Originated by a
bank or savings and loan association, or an affiliate, and not
solicited by an unaffiliated broker; (2) is held by a federal home
loan bank, the federal National Mortgage Association, the federal
Home Loan Mortgage Corporation, the Government National Mortgage
Association, the West Virginia Housing Development Fund; or (3) is insured or guaranteed by the Farmers Home Administration, the
Veteran's Administration, Department of Housing and Urban
Development, as an alternative to the method of substitution
provided in subsection (a) of this section, the party secured by
the trust deed, or any surety indemnified by the deed, or the
assignee or personal representative of any such secured party or
surety may, on the death, removal, declination, resignation,
refusal or inability of the trustee, as is described in subsection
(a), substitute a trustee or trustees in the place of the trustee
or trustees named in the instrument, independent of any court
action otherwise required by the provisions of subsection (a).
(c) Substitute trustee appointment for nonqualified
corporation. -- If any such trust, other than a security trust,
include real property situate in this state, and the trustee, or,
if there be more than one trustee, one or more of the trustees,
appointed by or under the will, deed or other writing creating such
trust and required under the provisions thereof to act in respect
of such real property, be a corporation or association chartered
under the laws of any other state or jurisdiction which is not
qualified under the laws of this state to hold property or transact
business in this state, and refuses or is unable to so qualify,
such court may in like manner appoint an ancillary trustee of such
trust to act with respect to such real property situate in this
state pursuant to, and with all the powers and authorities granted to the trustee or trustees of such trust by, the provision of the
will, deed or other writing creating such trust.
(d) Retaliatory substitution of trustee. -- Any lender or
beneficiary of a trust to secure a debt or obligation which
attempts to replace a trustee who has, on account of actions or
directives of the trustee acting in the trustee's belief of proper
exercise of the fiduciary duty of such trustee, is subject to an
action for actual and punitive damages.
(e) Ineligibility for service as trustee or substitute
trustee. -- Any person, firm or corporation that is not in
compliance with applicable law, or who has in the past acted in
violation of the fiduciary duty as a trustee, may not serve as
trustee or substitute trustee in this state. The Commissioner of
the Division of Banking may, or upon application of any citizen
shall, determine whether a person, firm or corporation is
disqualified from serving as a trustee or substitute trustee.
NOTE: The purpose of this bill is to update the trust deed
foreclosure process. These statutes have not been significantly
amended since their adoption in the nineteenth century. These
changes are in response to the complete restructuring of the
mortgage lending market and resulting failure of the current
statutes to curb abuses in foreclosure processing by out-of-state
mortgage lenders and their collection agents who are routinely
substituted as trustees at the time of foreclosure in the place of
the trustee agreed upon by the parties. The bill sets out the
parameters of the fiduciary duties of the trustees to both parties.
The bill sets out the needed information to be contained in the
notice to the consumer. The bill designates the West Virginia
Housing Development Fund to review mortgage company loans headed
for foreclosure for alternative financing or other remedies prior to initiation of foreclosure. The bill requires the lender to
provide adequate documentation to the trustee to carry out the
trustee's fiduciary duties to the consumer and the lender. The
bill remedies the lack of a procedure for exercising reinstatement.
The bill gives the banking commissioner the authority to disqualify
a trustee that has engaged in malfeasance.
§38-1-2a is new; therefore, strike-throughs and underscoring
have been omitted.
Strike-throughs indicate language that would be stricken from
the present law, and underscoring indicates new language that would
be added.
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