HUD Deeds of Trust & Judicial Foreclosures (AYU July 2025)

Presented by Kay M. Creasman | VP & Virginia State Counsel

Q: You recently featured a Title Byte segment about the "Show Me" case from Missouri, in which needed to be a judicial foreclosure if there were any federal subordinate liens being foreclosed. Usually, HUD deeds of trust in second or third position is what we see in the land records. How are foreclosure trustees dealing with this? What do I do as a title underwriter?

A: Trustees seem to be taking one of four avenues to respond to the case. In the first three situations, they are essentially professional trustees who do lots of foreclosures and are aware of the case. These trustees do one of the following:

1. Continue to foreclose as they always have done. Once the foreclosure has occurred, HUD is contacted, informed of the foreclosure, and sent any funds in excess of the amount due the foreclosing lender. Regardless of whether there are excess funds or not, a copy of the settlement statement is provided to HUD with a request to release their lien(s), which they have been doing. They can see from the settlement statement that no value remains in the property which can be used to satisfy their lien. It doesn’t necessarily release the borrower from the debt, but it does release the property from the deed of trust. With this situation, we rely on an affidavit from the foreclosure trustee that notice has been given to HUD and releases are in the works.

2.    Proceed with a judicial foreclosure in the applicable Virginia court, follow all statutory procedures, and give the federal government notice under 28 U.S.C. § 2410(c)--while following the procedures required by the Code of Virginia, including, but not limited to, § 55.10316 et seq.

3.     Proceed with a judicial foreclosure in the applicable federal court, follow all statutory procedures, and give the federal government notice under 28 U.S.C. § 2410(c),

NOTE: Litigation is more expensive in fees and time than a non-judicial foreclosure, with a federal case being more expensive than one brought in a Virginia state court.

4.    The last category is a foreclosure trustee who only does the work on occasion and may not be familiar with the Show Me case. In these instances, the trustee needs to be educated as to the title requirements that allow the transaction to be insured. If necessary, refer the trustee to the ORT Underwriters for more information.