Massachusetts Real Estate Law

Averting The Apocalypse: Foreclosing Lenders Avoid Disaster and Given More Options To Foreclose In Eaton v. Fannie Mae Case

by Rich Vetstein on June 22, 2012

in Fannie Mae, Foreclosure, Massachusetts Real Estate Law, Mortgage Crisis, Mortgages, Title Defects, Title Insurance

Score One For Lenders and Mortgage Servicers In Long-Awaited Eaton v. Fannie Mae Case

The Massachusetts real estate community has been waiting 8 long months for a decision from the Massachusetts Supreme Judicial Court (SJC) in the much anticipated Eaton v. Federal National Mortgage Association (link) case. The decision came down June 22, and now that the dust has settled, I don’t think there is any question that lenders and the title community have been given a judicial Maalox. ((Some smart foreclosure defense folks disagree with me, but I’m confident in my analysis.))

The SJC held that lenders must establish they hold both the promissory note (indebtedness) and mortgage (a major problem for securitized or MERS mortgages where the note and mortgage are split between securitized trust and servicer). However, responding to pleas from the real estate bar, the Court declined to apply the new rule retroactively, thereby averting the Apocalyptic scenario where thousands of foreclosure titles would have been called into question. This would have been disastrous for folks who purchased distressed and foreclosed properties.

Even better, the Court outlined new procedures, including filing a statutory affidavit, to ensure that foreclosures are fair to borrowers going forward. The ruling gave lenders and the foreclosure industry a huge pass for past errors, and will clear the way for foreclosures to accelerate and run their course in Massachusetts and possibly other states if this case is followed. Let’s break it down.

Background: Borrower Used “Produce the Note” Defense To Stop Foreclosure

As with many sub-prime mortgage borrowers, Henrietta Eaton had defaulted on her mortgage to Green Tree Mortgage. This was a MERS mortgage (Mortgage Electronic Registration System) originally granted to BankUnited then assigned to Green Tree.

Ms. Eaton was able to obtain an injunction from the lower Superior Court halting her eviction on the grounds that Green Tree did not possess the promissory note underlying the mortgage when the foreclosure occurred. This is the “produce the note” defense and has been gaining steam across the country. Superior Court Judge Francis McIntyre bought into that argument, and stopped the foreclosure. Given the importance of the case, the Supreme Judicial Court granted direct appellate review.

FHFA Files Amicus Brief and SJC Asks For More Guidance

This case garnered substantial local and national attention from the lending, title and real estate community on one side, and housing advocates on the other side. Notably, the Obama Administration’s Federal Housing Finance Agency filed a rare friend-of-the-court brief in a state court proceeding, arguing for a ruling in favor of lenders. Spirited oral arguments were held back in October which I briefed here.

In January, when a decision was expected, the Court surprisingly asked the parties for additional briefing on whether a decision requiring unity of the promissory note and mortgage would cloud real estate titles. This was the apocalyptic scenario that the real estate bar and title community urged the Court to avoid. (The Court listened, as I’ll explained below).

 The Opinion: Unity Endorsed, A Foreclosing Lender Must “Hold” Both Note & Mortgage

The first issue considered by the court was the fundamental question of “unity” urged by the Eaton side: whether a foreclosing mortgagee must hold both the promissory note (underlying indebtedness) and the mortgage in order to foreclose. After reviewing Massachusetts common law going back to the 1800’s, the Court answered yes there must be unity, reasoning that a “naked” mortgagee (a holder of a mortgage without any rights to the underlying indebtedness) cannot foreclose because, essentially, there is nothing to foreclose. If the Court stopped there, lenders and MERS would have been in big trouble. But, as outlined below, the Court significantly limited the effect of this decision.

Disaster Averted: Ruling Given Prospective Effect

Swayed by the arguments from the Massachusetts Real Estate Bar Association that retroactive application of a new rule would wreak havoc with existing real estate titles in Massachusetts, the SJC took the rare step of applying its ruling prospectively only. As Professor Adam Levitin (who drafted an amicus brief) noted on his blog, this “means that past foreclosures cannot be reopened because of this case, so the financial services industry just dodged billions in liability for wrongful foreclosures and evictions, and the title insurance industry did as well.” So going forward, lenders must establish unity of both note and mortgage, but past foreclosures are immune from challenge.

MERS System Given Blessing?

Ms. Eaton’s mortgage was a MERS (Mortgage Electronic Registration System) mortgage. MERS is a private system created by the largest national lenders and title companies to track assignments and ownership of loans as they are bought and sold in the secondary mortgage market. MERS has come under fire from distressed homeowners and registrars of deeds (especially our own Essex County Registrar John O’Brien) for robo-signing and bungled foreclosures. Although the Court did not specifically rule on the validity of the MERS system, the decision cited several new MERS policies and said that lenders who follow these new policies will likely be in compliance with the court’s holding. So MERS will continue doing business in Massachusetts for the foreseeable future.

Make Way For the “Eaton” Affidavit

The most important aspects of the Eaton ruling, in my opinion, are what came after the two “headline” rulings above. First, the Court made the explicit point that lenders do not have to physically possess both note and mortgage to be deemed a “holder” able to foreclose. This is huge given the pandemic paperwork deficiencies common with securitized mortgage trusts.

Second, the court also stated in a very important footnote that it will “permit one who, although not the note holder himself, acts as the authorized agent of the note holder, to stand “in the shoes” of the “mortgagee” as the term is used in these [foreclosure statute] provisions.” This footnote opens the door wide open for servicers and MERS to establish that they are authorized to foreclose, and acting on behalf of, the securitized trusts who hold legal title to the mortgages.

Lastly, the court approved the use of a statutory affidavit filed at the county registry of deeds in which the note holder or mortgage servicer confirms that it either holds the promissory note or is acting on behalf of the note-holder. We will surely be seeing these “Eaton” affidavits being prepared and recorded in connection with foreclosures.

For guidance as to how title insurance companies are going to insure foreclosure titles after Eaton, please see this helpful bulletin by Chicago and Commonwealth Land Title Companies. 

Potential Bad News For U.S. Bank v. Ibanez Defect Victims

The Court’s ruling may be bad news for those property owners stuck with defective title issue stemming from a botched foreclosure under the seminal U.S. Bank v. Ibanez case. Last year, the Court, in Bevilacqua v. Rodriguez, suggested that owners could attempt to put their chains of title back together and conduct new foreclosure sales in their name to clear their titles. The legal reasoning behind this remedy is rather complex, but essentially it says that the current owner would be granted the right to foreclosure by virtue of holding an “equitable assignment” of the mortgage foreclosed upon. The Eaton v. Fannie Mae ruling, however, may have killed that remedy because the current owner now needs to hold both the promissory note and the mortgage. Ibanez titles remain toxic, and I am hearing that title insurers who are on the hook for them are not even willing to try to fix them until a legislative fix.

What’s Next?

As a real estate and title attorney, what I appreciate about this decision is that the SJC took into account the disastrous effect a retroactive rule would have on past titles (now held by innocent third party purchasers) and came up with new ground rules for foreclosing lenders to follow going forward. It’s like the court said “what’s done is done, now let’s move forward doing it the ‘right’ way.” We will definitely see foreclosures that were in a holding pattern resume again. On the closing side, when I am reviewing a title with a past foreclosure, my client and I can sleep better knowing that the risk of a defective title just got a reduced substantially. This is good for the housing market and it makes more properties marketable.

However, this is not the end of foreclosure litigation in Massachusetts. As with most landmark cases pronouncing a new rule of law, subsequent litigation to clarify what the court meant is likely to follow in this case. Some remaining unanswered questions include:

  • Is the produce the note defense truly dead for previously completed foreclosures–even where promissory notes are lost and not produced?
  • If challenged, what further documentation, if any, will suffice to establish agency for MERS and mortgage servicers of mortgages held in securitized trusts.
  • Will borrowers be able to challenge new “Eaton” affidavits which appear to be fraudulent or robo-signed?

All things considered, I will agree with Prof. Levitin who opined: “In the immediate term, I’d score the case as a major victory for the financial services industry, which avoided liability for its failure to comply with state law foreclosure requirements. Going forward, however, things are more complicated.”

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Richard D. Vetstein, Esq. is an experienced Massachusetts real estate attorney. He can be reached by email at [email protected] or 508-620-5352.

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Breaking: SJC Rules For Lenders and MERS In Eaton v. Fannie Mae Case

by Rich Vetstein on June 22, 2012

in Fannie Mae, Foreclosure, Massachusetts Real Estate Law

Huge Sigh of Relief For Mortgage and Foreclosure Industry

The much awaited opinion by the SJC in Eaton v. Fannie Mae has just been released, and it is a huge Maalox for the banking and real estate community. Case embedded below. I have written a more detailed analysis here but here are the highlights:

  • Although the Court adopted some of the Eaton side’s arguments, I believe that lenders and MERS ultimately came out as the winners, as initial reports indicate. The Court basically gave lenders a pass on prior defective foreclosures and created new “rules of the road” for foreclosures going forward. There will definitely be more litigation after this case to sort out what foreclosing lenders and servicers need to prove in order to foreclose.
  • Agreeing with the Eaton/homeowner side, the Court ruled that going forward, lenders will have establish that they “hold” both the mortgage and promissory note, in order to foreclose. However, the court endorsed several methods in which lenders will be able to satisfy this requirement, thereby potentially creating several exceptions which will swallow the general rule.
  • Agreeing with lenders and Fannie Mae, the Court took the rare step of declining to apply the the key holding retroactively. The ruling will apply prospectively and will have no impact on previously completed or in process foreclosures. Those foreclosures will likely be immune from challenge along the lines Eaton asserted. This saved the lender and title insurance industry millions of dollars in claims.
  • Critically for the lending and title community, the Court ruled that lenders do not need to physically hold both note and mortgage at time of foreclosure, striking a huge blow to the “produce the note” defense:  The court acknowledged that the Massachusetts foreclosure statute, enacted well before the proliferation of securitization and MERS, was unclear in the modern era of securitizing mortgages.
  • The court essentially blesses the current MERS and current servicer system where mortgage servicers can show that they have legal authority to act on behalf of mortgage holder/lender to foreclose. The SJC overturned the injunction against the lender and the case was remanded below where the servicer, Green Tree, will have the opportunity to establish they have the legal authority and agency to foreclose on behalf of the mortgage holder.
  • We will see new attorney and custodian of records affidavits being filed and used to establish the chain of ownership the court said would comply with the foreclosure laws.
  • More Coverage:  Banker & Tradesman, BusinessWeek, Wall St. Journal, Credit Slips (Prof. Adam Levitin)

Eaton v. Fannie Mae SJC Ruling

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Leaving With Keys and Carpal Tunnel: Why Do Buyers Sign So Many Closing Documents?

by Rich Vetstein on June 19, 2012

in Closings, Deeds, Disclosures, Fannie Mae, FHA, HUD, Insurance, Massachusetts Real Estate Law, Mortgages, Real Estate Taxes, RESPA, Safety, Title Insurance, Truth in Lending

Real Estate Crash Has Resulted In Many More Forms and Disclosures

These days buyers are leaving closing rooms with not only their keys but a mild case of carpal tunnel syndrome! The reason for sore forearms and wrists is the voluminous stack of closing documents which are now required to be signed and notarized at every Massachusetts real estate purchase or refinance closing.

One of my opening “break the ice” lines at closings is to suggest that the buyers start massaging their writing hands. Then I show them the 2 inch stack of documents they must review and sign, and they usually say, “Are you serious? We have to sign all that?” Yep, I reply. You can thank Fannie Mae and the real estate collapse for that! All the new rules and regulations passed in the last 5 years have resulted in, you guessed it, more forms. Do you think the Feds and state ever eliminate old or out-dated forms? Nope.

Let me quickly go over some of the more important — and less important — documents signed at a typical Massachusetts real estate closing.

The Closing Documents

  • HUD-1 Settlement Statement. This is arguably the most important form signed at closing. It breaks down all the closing costs, lender fees, taxes, insurance, escrows and more. We did a full post on the HUD-1 and all the closing costs you can expect to pay here. Under the newer RESPA rules, most closing costs must be within 10% tolerance of the Good Faith Estimate provided by the lender (which you will also re-sign at closing).
  • Promissory Note & Mortgage. These two documents form what I like to call the “mortgage contract.” The promissory note is the lending contract between borrower and lender and sets the interest rate and payment terms of the loan. It is not recorded at the registry of deeds. The Mortgage or Security Instrument is a long (20+ page) document and provides the legal collateral (your house) securing the loan from the lender. The Mortgage gets recorded in the county registry of deeds and is available to public view. Read a full explanation of the Note and Mortgage in this post.
  • Truth in Lending Disclosure (TIL). The Truth in Lending should really be called “Confusion In Lending,” as the federal government has come up with a confusing way to “explain” how your interest rate works. This is a complex form and we’ve written about it extensively in this post. Your closing lawyer will fully explain the TIL form to you at closing.
  • Loan Underwriting Documents. With increased audit risk on loan files, lenders today are requiring that borrowers sign “fresh” copies of almost all the documents they signed when they originally applied for the loan. This includes the loan application, IRS forms W-9 and 4506’s.
  • Fraud Prevention Documents. Again, with the massive mortgage fraud of the last decade, lenders are requiring many more forms to prevent fraud, forgeries, and straw-buyers. The closing attorney will also make a copy of borrowers’ driver’s licenses and other photo i.d. and submit the borrower’s names through the Patriot Act database. They include Occupancy Affidavit (confirming that borrowers will not rent out the mortgaged property), and the Signature Affidavit (confirming buyers are who they say they are or previously used a maiden name or nickname).
  • Escrow Documents. Unless lenders waive the requirement, borrowers must fund an escrow account at closing representing several months of real estate taxes and homeowner’s insurance. This provides a cushion in case borrowers default and the taxes and insurance are not paid.
  • Title Documents. For purchase transactions, Massachusetts requires that the closing attorney certify that a 50 year title examination has been performed. Buyers will counter-sign this certification of title, as well as several title insurance affidavits and documents which the seller is required to sign, to ensure that all known title problems have been disclosed and discovered. Of course, we always recommend that buyers obtain their own owner’s title insurance which will provide coverage for unknown title defects such as forgeries, boundary line issues, missing mortgage discharges, etc.
  • Property Safety Disclosures. In Massachusetts, buyers and sellers will sign a smoke/carbon monoxide detector compliance agreement, lead paint disclosure, and UFFI (urea formaldehyde foam insulation) agreement. These ensure that the property has received proper certifications and will absolve the lender from liability for these safety issues.
  • Servicing, EOCA and Affiliated Business Disclosures. Chances are that your lender will assign the servicing rights to your mortgage to a larger servicer, like JP Morgan Chase or CitiMortgage. You will sign forms acknowledging this. You will be notified of the new mortgage holder usually within 30-60 days after closing. In the meantime, the closing attorney will give you a “first payment letter” instructing you where to send your first payment if you don’t hear from the new servicer. You will also sign forms under the federal and state discrimination in lenders laws and forms disclosing who the lender uses for closing services.

Well, those are most of the documents that buyers will sign at the closing. Sellers have a slew of their own documents to be signed at closing, and I’ll cover that in a future post. As I said, at your closing, massage your signature hand, grab a comfy pen, and sign your life away!

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Richard D. Vetstein, Esq. is an experienced Massachusetts real estate attorney. He can be reached by email at [email protected] or 508-620-5352.

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Why The Big Stink? Restroom Access Legislation Would Give Relief To Bowel Disease Sufferers

by Rich Vetstein on June 16, 2012

in Massachusetts Real Estate Law, Premises Liability, Public Accommodation

Update (8/3/12): Restroom Access Bill Signed Into Law

Retailers Regrettably Opposed to Law For Restroom Access To Crohn’s, Colitis Sufferers

I heard about this bill on the radio yesterday, and at first I was caught up in the bathroom-humor word play by the DJ. But when I did some more research on Crohn’s Disease and asked my Facebook friends about it, this became serious, as it should.

Millions of Americans (including just retired Pats lineman Matt Light: read great ESPN piece) suffer from debilitating Crohn’s disease, ulcerative colitis and other inflammatory bowel diseases. Victims suffer from frequent and sudden bowel movements, diarrhea and excessive urination. For these folks, a walk around Boston can turn literally soiled when shopkeepers close the door on restroom access. This is an all too common reaction by insensitive shopkeepers, and State Rep. Louis Kafka wants to change that.

Rep. Kafka (D-Stoughton) filed the “Restroom Access” bill, which the House initially approved this week, on behalf of a Sharon girl with an intestinal disorder who found herself in uncomfortable situations on shopping trips with her mom. “When the problem arises, they need to get to a bathroom quickly and, in some cases, there are no public restrooms,” he said. ((Note: this bill is completely different from the controversial “Bathroom Bill” giving transgendered persons restroom access.))

The new legislation, if passed, will require Massachusetts retailers and restaurants to open their private bathrooms to sufferers of inflammatory bowel diseases — and fine them $100 if they don’t. The law would apply only to people with Crohn’s disease, ulcerative colitis or any other medical condition requiring immediate access to a bathroom, as well as those who wear ostomy bags.

Retailers Opposed, But Why The Big Stink?

The Restroom Bill is unfortunately causing a major stink with retailers. “Why single out only retailers?” Retailers Association of Massachusetts President Jon Hurst told the Boston Herald, “Why not banks, why not office buildings, why not government buildings? I walk into the State House and see a lot of locked bathrooms.” Donna DePrisco, vice president of Boston’s DePrisco Diamond Jewelers, said legislative action just isn’t necessary.

The bill has been tweaked to address retailers’ concerns. It applies only to stores with at least two people working, so cash registers aren’t left unmanned; it absolves retailers from liability; and the restrooms must be in accessible areas that don’t pose health or safety risks to customers.

Well-known Condominium Attorney Stephen M. Marcus, who suffers himself from Crohn’s Disease and created the charitable foundation, IntestinalFortitude.com, supports the bill and says that

“Access to restrooms issue is a serious one for the 1.4 million Americans with Crohn’s and colitis, mainly teenagers. I’m sure retailers will adjust to this law in the same way condominium and apartment owners adjusted to the rights of persons with disabilities to make reasonable modifications to their property for persons with disabilities.”

Support the Restroom Access Bill!

My personal opinion is that I strongly support this bill. I think retailers’ concerns are way overblown.  Retailers are worried about lawsuits, but the bill provides immunity from liability for slip & falls and injuries. More importantly, allowing restroom access for people who medically need it is basic human decency and common courtesy.

If retailers were really savvy on public relations, they would turn this into a positive by putting a sign or sticker with “Restroom Open” with the familiar purple Crohn’s Disease ribbon. How’s that for a win-win!

For more information about Crohn’s and Colitis Disease, check out www.ccfa.org. To support the Restroom Access Bill, please email or write to Rep. Louis Kafka and reference House Bill 2366.

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Richard D. Vetstein, Esq. is a Massachusetts real estate and land use attorney. Mr. Vetstein frequently advises Massachusetts property owners concerning their legal obligations under various public accommodations laws.

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Spite Fences Make For Bad Neighbors: Massachusetts Fence Law

by Rich Vetstein on June 12, 2012

in Fences, Massachusetts Real Estate Law, Real Estate Litigation, Safety, Trespass

The old Robert Frost poem Mending Wall goes “Good fences make good neighbors.” But a neighbor can quickly turn from good to bad when a they maliciously construct a “spite fence” on the property line. And that includes Sarah Palin who installed this 14 feet monstrous fence at her Wasilla, Alaska home.

What Is An Illegal Spite Fence?

Spite fences are those which neighbors put up extremely close to the other neighbor’s property for the purpose of annoying or inconveniencing the neighbor, and not for any legitimate other reason. In certain circumstances in Massachusetts, courts can rule that certain types of fences are illegal “spite fences,” and order that they be taken down, decreased in height or award damages to the complaining neighbor.

Under the Massachusetts Spite Fence Law (Gen. Laws ch. 49, § 21) ((Interestingly, Massachusetts was one of the first states to enact a spite fence law in 1887)) a fence is an illegal “spite fence” if:

A fence or other structure in the nature of a fence which unnecessarily exceeds six feet in height and is maliciously erected or maintained for the purpose of annoying the owners or occupants of adjoining property….

Whether a fence is an illegal spite fence depends on the circumstances. Usually spite fences are erected where neighbors have been fighting or in a legal dispute of some kind, and the fence is installed as a form of revenge or pay-back. In the vast majority of towns and cities, fences are allowed to be up to 6 feet tall. If the fence in question is over 6 feet tall, and there is evidence that it was installed maliciously, it may be an illegal spite fence.

In a recent dispute on Concord Street in Wilmington (see photo right), a neighbor has installed a very ugly make-shift plywood spite fence with a blue tarp attached. This precipitated a proposal to pass a new fence by-law in Wilmington. I’m not sure of the circumstances surrounding this particular fence, but it is certainly borders on a classic spite fence. In another reported case, the Land Court ordered a neighbor to take down a makeshift fence with spray painted signs and no trespass warnings.

Most folks who erect spite fences will claim the fence is for privacy, but if the home faces an entirely different direction, you can debunk that as a cover for maliciousness. Neighbors may also try to get around the Spite Fence Law by installing a row of trees over 6 feet tall behind the fence. These, too, may be considered illegal.

What Can I Do If My Neighbor Puts Up A Spite Fence?

Under the Spite Fence Law cited above, you can sue your neighbor and ask the court to take down the fence and also seek damages. Under this law and upon a showing of “irreparable harm” the court has the power to impose an injunction ordering that the fence be taken down or reduced to 6 feet tall. Alternatively, the court can award damages.

The difficulty with these cases is that you need to prove you neighbor acted “maliciously” in installing the fence. You will need to marshal evidence to prove that, and that’s where an experienced Massachusetts real estate litigation attorney would add tremendous value. These cases are complex and judges will often require evidentiary hearings before imposing an order taking down a fence. It’s not a “do it yourself” type of situation!

If you are struggling with a boundary line issue or a potential “spite fence,” don’t hesitate to contact me at [email protected]. I have successfully litigated quite a lot of these cases.

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Richard D. Vetstein, Esq. is an experienced Massachusetts real estate litigation attorney. Mr. Vetstein frequently represents Massachusetts residents in contentious boundary line, fence, and adverse possession cases.

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Get Ya Mitts Off My Dish, Mistah Mayah! Boston Mayor Cracks Down On Unsightly Satellite Dishes

by Rich Vetstein on June 2, 2012

in Condominium Law, Landlord Tenant Law, Massachusetts Real Estate Law, Permitting/Zoning, Zoning

Credit: Boston Globe

Mayor Menino Targets Eyesore Satellite Dishes

Consistent with his reputation as the “urban mechanic,” Mayor Thomas M. Menino, along with the City Council, want to pass a new ordinance to clean satellite dish clutter on residential properties in Boston. As reported by the Boston Globe, the proposal would require the removal of all obsolete satellite dishes and ban new installations from facades and other walls facing the street, unless an installer can prove there is no other place to get a signal. Dishes would have to be placed on roofs, in the rear, or on the sides of buildings. East Boston Councilor Salvatore LaMattina, who has spearheaded the effort, says that this ordinance will help “save the character of our neighborhoods.’’

Ordinance May Run Afoul of FCC Rules

The proposed ordinance, however, may face legal challenge by the satellite dish industry and affected satellite subscribers. The Federal Communications Commission (FCC) has ruled that state or local laws are invalid if they unduly impair the right of a subscriber to receive satellite programming on a one meter dish installed on property within owner or renter’s exclusive use or control. For a person living in a multi-dwelling unit, an area such as a balcony, patio or garden not shared with other tenants would be considered property within the individual’s exclusive control. Under the FCC rule, the only two situations where restrictions are permissible is if (1) the restriction is necessary for a clearly defined, legitimate safety objective; or (2) it is necessary to preserve a historic building.

A Solution: Building Wide Equipment

Granted, the satellite dishes covering buildings in many neighborhoods isn’t the nicest thing to see. See Cambridge Street in Allston, for example. However, since the proposed ordinance is concerned predominantly with aesthetics and not any legitimate safety concerns, it may not survive judicial review.

The FCC rules do, however, permit and encourage building-wide community satellite facilities so all residents can get a strong signal without cluttering up the facade of a building with a myriad of dishes. Perhaps the Mayor and the City Council can work with the satellite providers on getting funding for this equipment rather than waste taxpayer money defending a questionable ordinance.

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Richard D. Vetstein, Esq. is a Massachusetts real estate and zoning attorney. Mr. Vetstein frequently represents Boston residents and companies in zoning matters before City of Boston zoning and licensing boards.

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Claim Denied! Hidden Water Seepage And Dry Rot Not Covered Under Massachusetts Homeowner’s Insurance Policy

by Rich Vetstein on May 29, 2012

in Insurance, Massachusetts Real Estate Law, Safety

Dry Rot Example

Water Damage Originating From Exterior Of Home = Claim Denied

In one of the more important homeowner’s insurance cases decided in recent memory, the Massachusetts Supreme Judicial Court (SJC) considered what is covered under a standard Massachusetts homeowner’s insurance policy when rain, snow melt and runoff create water damage and dry rot to the inside of a home. The case is Boazova v. Safety Insurance Co., SJC-10908 (May 29, 2012).

The Court ruled there was no coverage under the homeowner’s insurance policy where significant hidden water seepage through foundation cracks caused a kitchen floor to turn into a “spongy and mushy” mess. Under the exclusion for damage caused by “surface water,” the court held, there is no coverage for loss covered by rain, flood waters or runoff originating from outside the home, rather than inside the home, like a burst pipe. This interpretation of the Mass. standard homeowner’s policy is not what most insured expect from their insurance coverage, but unfortunately it puts to rest what most homeowners who have suffered a water damage claim know already:  a water damage claim will likely be denied if the source of water is from the natural accumulation of rain, snow melt or ice seeping into the ground, through a roof, or through the foundation.

Severe Wood Rot Discovered

While undertaking a kitchen renovation project, Ms. Boazova, an Arlington homeowner, discovered severe deterioration of the wooden sill plate that rested on top of the concrete foundation at the base of the home’s rear wall, as well as of the adjoining floor joists and wall studs. The kitchen floor and sub-floor was moist, spongy and falling apart. The homeowner’s expert engineer opined that because the concrete patio was poured directly against the house, water and moisture migrated down from the sill plate, below grade to the foundation, causing the water damage. There was no dispute that the origin of the water infiltration and seepage was from outside elements such as rain, sleet and snow melt. The insurance company denied coverage based on the policy’s exclusion for damage caused by “surface water,” and the homeowner sued.

No Coverage For Damage Caused By “Surface Water”

This case is the first in recent memory where the SJC has considered the interplay between the new Limited Fungi, Wet or Dry Rot, or Bacteria Coverage indorsement, the “hidden seepage” provision and the “anti-concurrent cause” exclusion for “surface water damage” in the standard Massachusetts homeowner’s insurance policy. Making sense of the Massachusetts standard homeowner’s policy coverages and exclusions is a bit like reading Egyptian hieroglyphics. Even the SJC justices had some difficulty, albeit they ultimately sided with the insurance company:

“Although the language of the policy and the indorsement is challenging to even the most careful reader because of the way it connects various coverages, exclusions and exceptions, we conclude that Boazova’s claimed loss — the deterioration and rotting of the wooden sill plat, adjoining floor joists, and wall studs — is excluded from coverage by unambiguous provisions in the policy.”

Take-Away: Exterior Surface Water Cause = Claim Denied

The key point is the Court’s conclusion that the surface water exclusion carried the day. Describing “surface water” as “waters from rain, melting snow, springs or seepage, or floods that lie or flow on the surface of the earth and naturally spread over the ground but to not form a part of a natural watercourse or lake,” the judges ruled that there was no coverage because the property damage was a direct result of rain and snow melt migrating down the foundation into the bellow grade kitchen floor. This covers just about every conceivable flooding scenario.

As far as what homeowner’s can take-away from this decision, well unfortunately they should keep an emergency capital reserve fund ready because any claims made for water damage arising out of exterior conditions will likely be denied. The only type of “flooding” claims which will be covered would be burst pipes and possibly overrun interior sump pumps or perimeter drain systems which cause flooding — and even those will likely involve a battle with the insurance company.

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Richard D. Vetstein, Esq. is an experienced Massachusetts real estate and homeowner’s insurance coverage attorney. For more information, please contact him at 508-620-5352 or [email protected].

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Massachusetts Legislature Set To Make Loan Modifications Part Of Foreclosure Process

by Rich Vetstein on May 24, 2012

in Foreclosure, Massachusetts Real Estate Law, Mortgage Crisis

More Help On The Way For Struggling Homeowners

Additional foreclosure relief is one step closer to becoming law as the Massachusetts House of Representatives recently passed House Bill 4087, “An Act to Prevent Unlawful and Unnecessary Foreclosures.” The bill, sponsored by AG Martha Coakley, mandates that banks and foreclosing lenders enter into mandatory loan modification discussions with borrowers before they can start foreclosure proceedings on residential homeowners.

Lenders May Have To Consider Loan Modifications

The key provision of the bill is the requirement that lenders give borrowers a fair shot at a loan modification. Among the factors that banks must consider before foreclosing is the “borrower’s ability to pay,” a provision that will likely be addressed in future drafts of the legislation, or through regulations developed by the Massachusetts Division of Banks. Under the proposed law, if a modified loan is worth more than the amount the bank expects to recover through foreclosure, the lender must offer that modified loan to the borrower. If it doesn’t, then the lender can continue the foreclosure process.

This bill builds on previous legislation, “An Act Relative to Mortgage Foreclosures,” signed into law in August 2010, which made sweeping changes to Massachusetts foreclosure law. That Act extended the 90-day right-to -cure on foreclosures to 150 days, created new requirements for lenders offering reverse mortgages, established mortgage fraud as a crime, and provided additional protections for tenants living in foreclosed properties.

The bill now moves to the Senate, where it is expected that it will be finalized by the completion of the formal legislative session on July 31, 2012. As always, we’ll keep tabs on these developments.

 

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Why Massachusetts Landlord-Tenant Legal Reform Is Needed Now

by Rich Vetstein on May 10, 2012

in Landlord Tenant Law, Massachusetts Real Estate Law, Real Estate Litigation, Rental Housing

Why Would Anyone Want To Be A Landlord In Massachusetts?

I just settled a very troubling landlord-tenant case which demonstrates everything which is wrong and unfair with Massachusetts landlord-tenant and eviction law from the landlord perspective. This horror story is played out every Thursday in the summary process sessions of District and Housing Courts across the state. The laws which favor tenants so dramatically were passed decades ago in the 1970’s when tenements and slumlords still existed. Those days are long gone, but the outdated laws remain on the books, giving Massachusetts the well-deserved reputation of being one of the most unfriendly places to own investment property. The time has come to restore some semblance of legal balance between small property owners and tenants.

A Familiar Horror Story

The landlord is a 70 year old woman who rented out her family’s old farm house. The tenants lived there under a month-to-month tenancy at will agreement for 6 years without incident. The owner wanted to move back into the home for financial reasons, so she informed the tenants who immediately started threatening to call the board of health. Mind you, the owner had the right to ask the tenants to leave for any reason at all under a 30 day tenancy at will. The owner was forced to serve a 30 day notice to quit which resulted in the tenants’ immediate report to the local board of health and withholding of rent. The owners were cited for several minor code violations which they addressed promptly, but every time the health inspector came out, the tenant “reported” new alleged problems (likely caused intentionally by the tenants), and often did not allow the inspector to gain access. When the owner started an eviction action, and the tenants predictably shot back with a slew of counterclaims. Because the law is so favorable to the tenants, as I will discuss below, the owner was forced to pay the tenants money to get them to move out. Even though the owner felt she addressed all the issues promptly and competently, the existence of any code violation, however minor, rendered her case “dead on arrival” in Housing Court. To get rid of the headaches and potential liability, the landlord had to pay ransom money and waive the unpaid rent.

Unfortunately, this story is all too common in Massachusetts eviction courts, and something has to be done.

A Legal Minefield For Landlords

For landlords, navigating Massachusetts landlord-tenant law is like walking barefoot through a IED-filled field in Afghanistan. At some point, you’ll likely blow off a leg. Allow me to outline just a sampling of these laws and the penalties for landlords’ non-compliance:

  • Breach of implied warranty of habitability:  The first thing a savvy tenant will do after receiving an eviction notice is call the board of health to get the owner cited for code violations. Any violation, however minor, effectively enables the tenant to live rent-free during the case by withholding rent, and the owner will be compelled to make the necessary repairs while the eviction is pending. There have been many instances where tenants have intentionally inflicted property damage to claim code violations.  Other penalties:  reduction or elimination of rent owed; tenant cannot be evicted; triple damages; payment of tenant’s attorneys’ fees.
  • Breach of quiet enjoyment: This is another tenant favorite claim. It used to be for when slumlords would shut off utilities to tenants, but that rarely happens anymore. I’ve seen this used when tenants are “inconvenienced” by landlords’ repeated attempts to access the premises to make repairs. Penalties:  tenant gets to stay in possession; up to 3 months’ rent or actual damages, whichever is more; payment of tenant attorneys’ fees.
  • Retaliation:  Even if the landlord can evict a tenant at will for any reason, the landlord cannot “retaliate” against them if they make any complaints about property conditions. This is why tenants will immediately start squawking about property issues when faced with eviction, because the retaliation law will protect them even though they are not entitled to lifetime occupancy.  Penalties:  tenant gets possession; up to 3 month’s rent in damages; payment of tenants’ attorneys’ fees.
  • Security deposit/last month’s rent violations: Oh, where do I start on this one. As I’ve written about extensively here, Massachusetts landlords need a Master’s degree in Accounting to comply with the Security Deposit law and all of its procedural traps. From giving a special receipt and statement of condition, to putting the money in a special separate account, to paying interest every year, even one minor slip up will subject the landlord to mandatory triple damages and payment of tenants’ attorneys’ fees. This can torpedo an eviction case from the get-go.
  • Consumer Protection/Chapter 93A:  If all these minefields weren’t bad enough, at the end of the day, tenants are allowed to claim that any of the above warrants an award of triple damages and attorneys’ fees under the Mass. Consumer Protection Act.

Time for Meaningful Legal Reform

As I mentioned earlier, the vast majority of the laws protecting tenants were passed in the 1970’s when rental housing was far more problematic than it is now in 2012. Due to political pressure from tenant activists and liberal groups, lawmakers have been reluctant to level the playing field. Unfortunately, these draconian laws disproportionately hurt the small property owners who own 80% of the rental stock in Massachusetts. Laws which make investing and managing rental property hurt the economy and result in higher rents. There are several bills pending at the State House which will provide landlords with more incentive to own rental property in Massachusetts. The most sensible proposal is the much-awaited rent escrow law.

A.      Rent Escrow

Massachusetts is one of the minority of states which does not have some form of rent escrow law. The need for one is absolutely critical because without it landlords incur large losses when the tenant’s defensive claims of “bad conditions” turn out to be minor, nonexistent or, worse yet, the result of intentionally inflicted damage to the property by the tenant in order to live rent-free.

A mandatory rent escrow law would require any tenant who is claiming rent withholding to pay the withheld rent to a local court month by month until code violations are repaired. After repairs are done, either the landlord and tenant agree on how the escrowed rent should be divided, or a judge orders a fair settlement. In most cases, the owner will get back most of the withheld escrowed rent. But the most important impact of a mandatory rent escrow law is that those nonpaying tenants who do not escrow can be promptly evicted for nonpayment of rent. Although nonpayment evictions will still take about three months, and owners will lose about three months of rent, much-longer-delayed evictions and the free rent trick will be stopped.

B.      Security Deposit Reform

Presently, the security deposit law provides mandatory triple damages and payment of tenants’ attorneys’ fees for a violation however minor. The law should be reformed to provide a safe-harbor and discretionary penalties for when landlords make a good faith effort to comply but get caught up in the procedural mess, like for example if they put the deposit in a savings account instead of a special deposit account.

C.      Remove Automatic Possession For Tenants

Presently, the law is drafted so that if a tenant prevails on any number of claims for property conditions, etc., they most likely cannot be evicted. This is especially unfair in the tenancy at will context where the landlord does not need any reason to evict a tenant. The result is that tenants get free passes and occupancy for life as long as they can dig up a counterclaim or two. This needs to be changed.

What Property Owners Can Do: Lobby and Speak Out

The tenant community, backed by well-funded public interest legal services groups, have a strong lobby at the Legislature and love to portray these issues as a form of “class warfare.” In the end, however, everyone gets hurt, because if it’s more expensive to own rental property in Massachusetts, those costs will be passed on to tenants.

Property owners should support the lobbying efforts of the Massachusetts Rental Housing Association and their local chapter. The Small Property Owners Association has a good page on how to lobby your local elected officials. Here is a list of all pending rent escrow and landlord-tenant reform bills up at the State House. Senate Bill 779 is the major piece of legislation to bring up.

Visit your local legislator’s office during office hours and speak to them (or their aids) about your concerns on the issues. In many cases, they won’t know about the bills and you will have to educate them. Send letters and emails to your legislators identifying the bill numbers and explaining why you support or do not support these bills. Go to fund raisers for your Representatives and Senators. Let them know that you vote and that you want your vote to count!

____________________________________________

Richard D. Vetstein, Esq. is an experienced Massachusetts real estate and eviction attorney. For more information, please contact him at 508-620-5352 or [email protected].

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REBA Sues To Stop Illegal “Witness-Only” Residential Closings

by Rich Vetstein on May 2, 2012

in Closings, Deeds, Massachusetts Real Estate Law, Title Defects

Bar Assn. Lawsuit Targets Kentucky Based Settlement Service Company Employing Local Contract Attorneys

As first reported today by Massachusetts Lawyers Weekly, the bar association for Massachusetts real estate attorneys (REBA) has filed a lawsuit against National Loan Closers, Inc., a Kentucky closing services company, and a Holyoke attorney for allegedly conducting illegal “witness-only” real estate closings. REBA was behind last year’s landmark Supreme Judicial Court ruling in REBA v. National Real Estate Information Services, which held that Massachusetts attorneys are legally required to oversee all residential real estate closings in Massachusetts.

REBA’s suit against National Loan Closers is notable because NLC is alleged to have side-swiped the REBA v. NREIS court ruling by contracting with local attorneys to attend real estate closings. According to the suit, NLC’s model is for these contract attorneys to act similarly to the robo-signers who sign foreclosure documents, as they are simply there to witness and notarize documents and are contractually prohibited from giving legal advice to the parties at closing. Thus, this model runs afoul of the REBA ruling’s mandate that attorneys “substantially participate” in the closing process by reviewing the title and ensuring that title passes legally.

REBA argues, and I agree, that such closings put home buyers and mortgage lenders at risk, erode the public’s confidence in the state’s recording and registration system, and deprive the Massachusetts Interest on Lawyer Trust Accounts program — IOLTA — of thousands of dollars of revenue.

No home buyer wants to close on the single biggest purchase of their life with a contract attorney who knows nothing about the transaction and cannot answer the most basic of legal questions. In the standard model, a supervisory Massachusetts attorney will examine the title and certify under state law that the title is good, clear and marketable, and often that same attorney (or a junior associate with full familiarity with the file and title) will be the closing attorney.

The complaint filed in The Real Estate Bar Association for Massachusetts, Inc. v. National Loan Closers Inc., et al. can be found by clicking here.

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Court Considers Protections Of New Massachusetts Homestead Protection Act, And Questions Still Remain

by Rich Vetstein on May 1, 2012

in Homestead, Massachusetts Real Estate Law

First Reported Case Considering Scope Of New Massachusetts Homestead Law

Advice To Homeowners: Get Your Homestead Declaration Recorded ASAP

One of the benefits of the new Homestead Protection Act signed into law last year is that homeowners can use homestead protections against many more creditors. Under the old homestead law, debts which arose prior to the recording of a homestead declaration were not affected at all by the homestead protection. For example, if a homeowner recorded a homestead declaration on January 1, 2005, but owed a debt to a contractor which arose on December 31, 2004, the contractor could still pursue the full amount.

Under the new homestead law, however, a homeowner is protected from a pre-existing debt (except mortgages) unless a creditor files an attachment or lien prior to the recording of the homestead declaration or if the contractor obtains a court execution “based upon fraud, mistake, duress, undue influence or lack of capacity.” The new Homestead Act is simply much more favorable to homeowners because most creditors do not file liens fast enough and most consumer debts are not the product of fraud, mistake, duress, etc.

Bad Facts Make Bad Law

A recent Superior Court decision in the case of Tewhey v. Bodkins (embedded below) is one of the first reported decisions interpreting the scope of pre-existing debt protection under the new Homestead Act, and illustrates that some confusion remains as to what it does and doesn’t cover. Unfortunately, this case is a classic example of the saying that “bad facts make bad law.”

In Tewhey, the parties were attorney and his former client who obtained a default judgment against the attorney for professional malpractice in her divorce. (It appears that the attorney did not bother to defend the case at all). In 2010, the client recorded on the title to the attorney’s residence a court execution for just short of $50,000. However, 9 months earlier, the attorney’s wife, who owned the property jointly, recorded a homestead declaration.

Under the new Homestead Act, since the wife recorded the homestead before the client recorded the court execution, the client was seemingly out of luck. Well, not so fast said Superior Court Judge Edward P. Leibensperger. No doubt recognizing that the client would get the short end of the homestead stick, the judge ultimately ruled that the client’s claim fell under the exception of a claim based upon “fraud, mistake, duress, undue influence or lack of capacity,” and thus, the client could proceed against the attorney’s property.

In my opinion, the judge misread the statutory language because legal malpractice is a tort and is not covered under the exclusion. We will see what the Appeals Court says as the case is now on appeal.

Take-Aways

As for take-aways, the case illustrates two important things. First, homeowners should get their homestead declarations recorded ASAP, before creditors take legal action. For most consumer debt such as credit cards, this will give you the maximum $500,000 protection. Second and likewise, for creditors, you need to get liens filed on debtor’s property ASAP before they record homestead protection, otherwise you’ll likely get the short end of the homestead stick.

If you need a homestead declaration prepared and recorded, my office will do it for a nominal fee. Please contact us at [email protected].

________________________________________

Richard D. Vetstein, Esq. is an experienced Massachusetts real estate attorney. They can be reached by email at [email protected] or 508-620-5352.

Tewhey Decision

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Massachusetts High Court To Weigh In On Important Realtor MLS Disclosure Case

by Rich Vetstein on April 26, 2012

in Commercial Real Estate, Disclosures, Massachusetts Real Estate Law, Realtors, Zoning


Realtor Held Liable For Erroneous MLS Information

The Massachusetts Supreme Judicial Court has agreed to hear the case of DeWolfe v. Hingham Centre Ltd. which will consider two very important issues for the real estate community, especially agents. The first issue is the scope of a real estate agent’s duty to disclose and independently verify property information posted on the Multiple Listing Service (MLS). The second issue is whether the exculpatory clause found in the Greater Boston Real Estate Board’s standard form purchase and sale agreement legally prohibits a buyer’s misrepresentation claim against the real estate agent.

The case was originally decided by the Appeals Court, and I wrote a full post about it here. The original opinion can be read here.

In summary, the real estate agent, relying on what turned out to be erroneous information supplied by his client, listed a Norwell property on Multiple Listing Service (MLS) and newspaper advertising as “zoned Business B.” The property was not, in fact, zoned for business use; it was zoned residential, thereby prohibiting the hair salon the buyer wanted to open at the property. Despite the general disclaimer on the MLS system and in the purchase and sale agreement, the Appeals Court held that the Realtor could be held liable for misrepresentation and Chapter 93A violations due to providing this erroneous information.

This will be a very important case for the real estate brokerage industry, and we will be monitoring it. Oral arguments are expected to be held in late summer or early fall, with a final ruling coming a few months thereafter.

In the meantime, my advice remains the same:

  • Do not make any representations concerning zoning. Advise the buyer to go to the town/city planner or hire an attorney for a zoning opinion.
  • Never trust your client. I hate to say this, but when it comes to disclosures, it’s true.
  • Always independently verify information about the property from available public sources. Here, the agent could have simply gone down to the town planning office to verify whether the property was zoned commercial or residential. (The buyer or his attorney could have done so as well—this was a complete failure on all sides).
  • When it comes to zoning, which can be complex and variable, think twice before making blanket statements. Better to be 100% sure before going on record about whether certain uses are permissible. You can always get a zoning opinion from a local attorney.

*Hat tip to a new real estate blog on the scene, Disgruntled Neighbors by Attorney Andrew Goldstein, for bringing this to my attention.

~Rich

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Back-Up Offers & Bidding Wars: Should Agents Or Sellers Be Concerned With Legal Liability?

by Rich Vetstein on April 26, 2012

in Disclosures, Massachusetts Real Estate Law, Offer To Purchase, Real Estate Litigation, Real Estate Marketing, Realtors

Are There Liability Concerns For Accepting Back Up Offers?

My colleague Rona Fischman at the Boston.com Real Estate Now Blog had an intriguing question on the legalities surrounding accepting back-up offers. This question is especially timely with the rise of bidding wars in the Greater Boston real estate market. Rona asks:

I have been told that a back up offer cannot be presented to a seller because it is inducement to interfere with a contract in place (the accepted offer.) I have also been told that a back up offer must be presented, forthwith, like any other offer. Since I never list property, I don’t know which one is true. Can you give a legal and practical explanation for the blog?

Answer:  I do not believe that merely soliciting and presenting a back-up offer can give rise to a legal claim for interference with contractual relations as long as the seller does not break the existing contract with the buyer. Moreover, I believe that real estate agents have a legal and ethical obligation to present to their seller clients all offers made on the property, but it is the seller’s preference whether or not to solicit back up offers once he has already accepted an offer.

What Is a Back-Up Offer?

For those who do not know, a back-up offer is an offer made after the seller has already accepted and signed an offer to purchase with a buyer, in the hopes that the first offer will fall through and the seller will select the back-up offer. It is the seller’s decision whether to accept back-up offers at all. Back-up offers are common in bidding wars where there is frenzied competition for a well-priced property. Most buyers who submit a back-up offer will continue with their home search because the probability that their back-up offer is ultimately accepted is usually a long-shot.

Unlawful Interference with Contract?

Rona is worried that accepting back-up offers could expose an agent to liability for interfering with an existing contract. I don’t think she has much to worry about unless the seller tries to cancel the existing deal without legal right.

In the real estate context, the requirements to make out a valid claim for unlawful “interference with contractual relations” are the following:

  • There must be an accepted and signed offer to purchase between the buyer and seller which is sufficient to form an enforceable contract under Massachusetts law;
  • The competing buyer (making the back-up offer) must have knowledge of the contract;
  • The competing buyer must have intentionally induced or persuaded the seller not to perform its contractual obligations, i.e, not proceed with the transaction;
  • The interference was improper in motive or means; and
  • The plaintiff was legally harmed.

Under this legal definition, there is liability only where the seller unlawfully breaks the existing offer/contract with the first buyer. As a general matter, merely submitting a back-up offer (and not formally accepting it) will not support a legal claim because there has been no breach of the first contract.

A thornier question is what happens if the seller tries to wriggle his way out of the first offer in favor of a better offer? Those are the situations which often result in litigation and the filing of a lis pendens. I would advise any seller and their agent to consult an attorney before they try to break an offer or purchase and sale agreement with a buyer. On the other hand, if a buyer loses his financing and cannot proceed with the transaction, and therefore has defaulted on his contractual obligations, then it may be clear to accept a back up offer. It is always the prudent course to obtain a release and waiver from the first buyer before dealing with a back-up offer. I cannot stress this enough.

What Are Realtors’ Legal & Ethical Duties With Back-up Offers?

There are no specific legal rules surrounding back-up offers. The regulations governing real estate agents in Massachusetts provide that “All offers submitted to brokers or salespeople to purchase or rent real property that they have a right to sell or rent shall be conveyed forthwith to the owner of such real property.” If a listing agent is a Realtor©, they have an additional ethical obligation to “continue to submit to the seller all offers and counter-offers until closing … unless the seller has waived this obligation in writing.”

Back-up offers are on a slightly different footing than offers made while the property is still actively listed. I would say that if a prospective buyer makes an unsolicited back-up offer, that offer must be conveyed to the seller regardless of whether or not she has decided to accept back-up offers. The agent should not make the decision to decline an offer for the client. The seller may, of course, decide to not solicit back-up offers or to solicit them. Such a decision should be noted on the MLS. It’s always the client’s prerogative to solicit back-up offers. For agents, the safe practice is always to convey any offer which comes in, and to have the seller state in writing that she is refusing to accept back-up offers.

If you have any “war stories,” questions, or comments, please post them in the comment section below.

_______________________________________________________

Richard D. Vetstein, Esq. is an experienced Massachusetts real estate attorney. They can be reached by email at [email protected] or 508-620-5352.

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Move It Or Lose It! Freddie Mac and Fannie Mae Tell Banks To Speed Up Short Sale Decisions

by Rich Vetstein on April 18, 2012

in Condominium Law, Foreclosure, Massachusetts Real Estate Law, Short Sales

Lenders Given 30 Days For Short Sale Decisions

Well, someone in government has been listening to the chorus of complaints about lenders taking too long to make short sale decisions. In a *rare* move of federal government housing competence, the Federal Housing Finance Agency has instructed Fannie Mae and Freddie Mac to impose new guidelines which should accelerate short sale decisions. The new rules require that short sale lenders make a decision on a short sale within 30 days of a complete application, and if more time is needed, they must give weekly status updates. This will make short sale agents, sellers and buyers much happier. The new requirements go into effect June 15.

However, how much of an impact this will have on national short sales remains to be seen. Freddie Mac has jurisdiction over a small percentage of short sales, mostly HAFA short sales as well as a limited number of traditional short sales, totaling about 45,000 last year. (Bank of America did over 150,000 short sales last year, by comparison). This is certainly a step in the right direction, and hopefully will lead to more regulatory pressure on the big banks to speed up short sales.

I asked expert short sale negotiator, Andrew Coppo of Greater Boston Short Sales, for some commentary on this news, and he has a more tempered reaction:

It is no secret that both lenders and loan servicers have made continued efforts during recent months to vastly improve their short sale approval time-frames. As someone who exclusively negotiates short sales, I think it is important to note that the new Freddie Mac regulations don’t include any penalties or sanctions for loan servicers or lenders who fail to comply. What’s more, the new rules appear to only require short sale lenders to “make a decision on a short sale within 30 days of a complete application, otherwise they need to send weekly updates.” Most lenders will simply comply with the new requirements by sending out a weekly letter stating that the file is incomplete and request more short sale documents from the homeowner (most lenders already do this). Lenders could also comply with the new rules by simply making an unreasonably high counter-offer. What most people fail to realize is that most lenders, such as Bank of America, Chase, Wells Fargo, and GMAC all utilize an automated short sale processing software, known as Equator, that enables them to approve a short sale in as little as 30 days. The majority of short sales that take more than 60 days to get approved do so because the person submitting the paperwork fails to submit a complete package or the lender “loses” a portion of the submitted paperwork. While the new guidelines are a step in the right direction, without any sanctions or penalties I don’t see them having much of an effect on the time in which the lenders and loan servicers process short sale requests. 

The text of the press release (which can be read in full here) is below:

In an effort to make the short sale process more transparent, Freddie Mac (OTC: FMCC) is updating its timelines and also requiring servicers to provide weekly updates when decisions take more than 30 days after the receipt of a complete application for a short sale under the Obama Administration’s Home Affordable Foreclosure Alternative (HAFA) initiative or Freddie Mac’s traditional requirements. All decisions must be made within 60-days.  Today’s announcement marks the newest part of the Servicing Alignment Initiative (SAI) Freddie Mac and Fannie Mae launched in 2011 at the direction of their regulator, the Federal Housing Finance Agency, to set consistent servicing and delinquency management requirements. Last year Freddie Mac completed 45,623 short sales, a 140 percent increase since the housing crisis began.

News Facts

  • Freddie Mac’s new short sale timelines require servicers to make a decision within 30 days of receiving either 1) an offer on a property  under Freddie Mac’s traditional short sale program or 2) a completed Borrower Response Package (BRP) requesting consideration for a short sale under HAFA or Freddie Mac’s traditional short sale program.  (BRPs are standardized assistance applications developed as part of the Servicing Alignment Initiative.)
  • If more than 30 days are needed, borrowers must receive weekly status updates and a decision no later than 60 days from the date the complete BRP is received.  This will help servicers who may need more time to obtain a broker price opinion or a private mortgage insurer’s approval on a BRP or property offer.
  • In the event a servicer makes a counteroffer, the borrower is expected to respond within five business days. The servicer must then respond within 10 business days of receiving the borrower’s response.
  • Freddie Mac will use the new timelines to evaluate servicer compliance with the SAI and its own servicing requirements.
  • Freddie Mac completed 45,623 short sales in 2011, a 140 percent increase since 2009.  Overall, Freddie Mac has also helped more than 615,000 distressed borrowers avoid foreclosure since the housing crisis began.

____________________________________________________

Richard Vetstein, Esq. is an experienced Massachusetts short sale attorney. For more information, please contact him at info@vetsteinlawgroup or 508-620-5352.

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Everything You Wanted To Know About Massachusetts Easements, But Were Afraid To Ask

by Rich Vetstein on April 18, 2012

in Easements, Massachusetts Property Values, Massachusetts Real Estate Law, Title Defects

Utility, Gas Pipeline, Access, Drainage & Prescriptive Easements, and More!

When you are considering purchasing a home in Massachusetts, the property may have the benefit or burden of an easement. Most easements and restrictions are quite “harmless” and standard, however, some can have a major impact on future expansion possibilities and the right to use portions of the property. In this post, I’m going to go through the most common types of easements and how they can affect the value and use of your property.

What Is An Easement?

In plain English, an easement is a right that another person or company has to use your property. They don’t own your property, but the easement gives them the legal right to use your property as specified in the easement instrument. The property that enjoys the benefit of the easement is sometimes referred to as the “dominant estate,” and the property over, under, or through which the easement runs is sometimes referred to as the “servient estate.” Easements are usually recorded in the registry of deeds, but sometimes they can arise from “implication” or “by necessity.” I’ll explain those later.

Utility Easements

The most common types of easements in Massachusetts are utility easements for such things as overhead and underground power lines, cable lines, gas lines, and water mains. These easements allow the utility companies to use portions of residential property to provide their respective utility services. Sometimes, the easements will show up on a plot plan or survey, and some will be found recorded in the title, usually when the lot was first laid out. The majority of these easements do not materially affect the use and expansion of your property, however, the one type of easement to take note of are high pressure gas line easements.  For obvious safety reasons, these easements usually carry with them strict restrictions on what can be built on or near them. Here is a good article on gas pipeline easements, albeit from Pennsylvania, but the law is generally the same here.

Driveway or Access Easements

Another common type of easements that are found in Massachusetts are access easements for driveways and the like. Properties with shared driveways will often have easements enabling such sharing– or they should! These easements should also provide for common maintenance and upkeep responsibilities and expense. Other types of access easements include walking and bike paths and beach access – very common down the Cape and on the Islands.

Drainage Easements

Another common type of easements are drainage easements which are typical for newer subdivisions. Drainage easements allow for one lot to drain its storm water onto another or into a detention pond.

Prescriptive Easements

If you have heard of adverse possession, then you know what a prescriptive easement is all about. An easement by prescription is an easement acquired through adverse possession – which is the hostile adverse use of someone else’s property for 20 or more continuous years. Prescriptive easements arise where people have acted as though an easement has existed but there is no instrument of easement recorded at the registry of deeds. For example, a prescriptive easement can arise if a neighbor’s family has used a walking path on the neighbor’s property for over 20 years. twenty years. I’ve written extensively on adverse possession in this post.

Easements by Implication and by Necessity

An easement by implication is found in the law when there is no recorded easement, but where the circumstances show an easement was intended to exist. It usually exists where there is common ownership of a lot, the seller conveys a portion of the land under current ownership, and both parties intended to create an easement at the time of conveyance. If someone claims an easement by implication which negatively affects one’s property, the owner’s title insurance policy, if any, will typically cover that situation. Easements by necessity occur when a property is sold in a land-locked configuration without any legal access. An easement is therefore created “by necessity” to prevent the land-locking. An adverse easement by necessity would also be covered by an owner’s title insurance policy.

________________________________________________________

Richard D. Vetstein, Esq. is an experienced Massachusetts real estate attorney. They can be reached by email at [email protected] or 508-620-5352.

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Driveways, Drainage, and Dirt Paths, Oh My! Massachusetts Easements Explained

by Rich Vetstein on April 17, 2012

in Easements, Massachusetts Property Values, Massachusetts Real Estate Law, Permitting/Zoning, Premises Liability, Safety, Title Defects, Title Insurance

When you are considering purchasing a home in Massachusetts, the property may have the benefit or burden of an easement. Most easements and restrictions are quite “harmless” and standard, however, some can have a major impact on future expansion possibilities and the right to use portions of the property. In this post, I’m going to go through the most common types of easements and how they can affect property.

What Is An Easement?

In plain English, an easement is a right that another person or company has to use your property. They don’t own your property, but the easement gives them the legal right to use your property as specified in the easement instrument. The property that enjoys the benefit of the easement is sometimes referred to as the “dominant estate,” and the property over, under, or through which the easement runs is sometimes referred to as the “servient estate.” Easements are usually recorded in the registry of deeds, but sometimes they can arise from “implication” or “by necessity.” I’ll explain those later.

Utility Easements

The most common types of easements in Massachusetts are utility easements for such things as overhead and underground power lines, cable lines, gas lines, and water mains. These easements allow the utility companies to use portions of residential property to provide their respective utility services. Sometimes, the easements will show up on a plot plan or survey, and some will be found recorded in the title, usually when the lot was first laid out. The majority of these easements do not materially affect the use and expansion of your property, however, the one type of easement to take note of are high pressure gas line easements.  For obvious safety reasons, these easements usually carry with them strict restrictions on what can be built on or near them.

Driveway or Access Easements

Another common type of easements that are found in Massachusetts are access easements for driveways and the like. Properties with shared driveways will often have easements enabling such sharing– or they should! These easements should also provide for common maintenance and upkeep responsibilities and expense. Other types of access easements include walking and bike paths and beach access – very common down the Cape and on the Islands.

Drainage Easements

Another common type of easements are drainage easements which are typical for newer subdivisions. Drainage easements allow for one lot to drain its storm water onto another or into a detention pond.

Prescriptive Easements

If you have heard of adverse possession, then you know what a prescriptive easement is all about. An easement by prescription is an easement acquired through adverse possession – which is the hostile adverse use of someone else’s property for 20 or more continuous years. Prescriptive easements arise where people have acted as though an easement has existed but there is no instrument of easement recorded at the registry of deeds. For example, a prescriptive easement can arise if a neighbor’s family has used a walking path on the neighbor’s property for over 20 years. twenty years. I’ve written extensively on adverse possession in this post.

Easements by Implication and by Necessity

An easement by implication is found in the law when there is no recorded easement, but where the circumstances show an easement was intended to exist. It usually exists where there is common ownership of a lot, the seller conveys a portion of the land under current ownership, and both parties intended to create an easement at the time of conveyance. If someone claims an easement by implication which negatively affects one’s property, the owner’s title insurance policy, if any, will typically cover that situation. Easements by necessity occur when a property is sold in a land-locked configuration without any legal access. An easement is therefore created “by necessity” to prevent the land-locking. An adverse easement by necessity would also be covered by an owner’s title insurance policy.

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Richard D. Vetstein, Esq. is an experienced Massachusetts real estate attorney. They can be reached by email at [email protected] or 508-620-5352.

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Massachusetts Appeals Court Drops The Eviction Hammer On Post-Foreclosure Squatters

by Rich Vetstein on April 10, 2012

in Foreclosure, Landlord Tenant Law, Massachusetts Property Values, Massachusetts Real Estate Law, Mortgage Crisis

Common Eviction Defenses Ruled Unavailable To Squatters Who Lived Rent/Mortgage Free For 3 Years

In a April 10, 2012 ruling, the Massachusetts Appeals Court just made it easier for foreclosing banks to evict squatters of foreclosed properties. This is one of the few pro-bank Massachusetts decisions coming out of the foreclosure crisis, and should help speed up the disposition and sale of foreclosure and REO properties which, in turn, should help the housing market.

The case is Deutsche Bank v. Gabriel, and can be downloaded here. The defendants were all members of a single family living  at 195-197 Callender Street in Dorchester for over 28 years. In 2009, the property went into foreclosure, and Deutsche Bank acquired title by foreclosure deed. As has become common in neighborhoods throughout Boston, the foreclosed upon family refused to leave, and Deutsche Bank brought eviction proceedings against them.

The family fought the eviction tooth-and-nail, and asserted the very common statutory defense based on poor property conditions. This defense, if successful, can prevent a landlord from recovering possession. Aside from irony that the family had been living at the premises for 28 years and was therefore the clear cause of any bad property conditions, the Appeals Court held that the family were squatters (and not tenants) with no legal entitlement to raise this defense. Barring another appeal, the court cleared the way for the eviction, some 6 years after the foreclosure and presumably with the tenants living rent and mortgage free the entire time.

With the housing market turning around, this decision is some long-awaited good news for those dealing with REO and foreclosed properties. Squatting tenants will be easier to evict and properties should be back on the market faster. Bad news for those fighting foreclosure, but good news for the real estate market.

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Richard D. Vetstein, Esq. is an experienced Massachusetts real estate and eviction attorney. For more information, please contact him at 508-620-5352 or [email protected].

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Boston Magazine Selects Us As A “Real Estate Blog Worth Reading”

by Rich Vetstein on April 9, 2012

in Massachusetts Real Estate Law

Marc and I are very humbled and honored to have been selected by Boston Magazine as one of their Top 5 Real Estate Blogs Worth Reading (click for article). We got a little write up which was amusing (and kind of a back-handed compliment and knock on our site design).

Be warned: the look of this one will probably bum you out after scrolling through the nicer-looking blogs above. But I include this one because it is filled with rich, expert content from two well-known Boston-area real estate attorneys. Blogs with stock photos usually send me clicking away instantly, but as an agent, I find the content compelling and valuable. Here is a great one on legal issues surrounding bidding wars (which are back, baby!)

Well, no one ever said lawyers were known for their design taste (although I think our site is smartly designed!). Seriously, it was nice to have been recognized. This will be our 4th year writing the blog, so this award is especially cool. Thanks to all our loyal readers, commentators, contributors, sponsors, and to our families who have put up with many nights writing blog posts!

And while Boston Magazine has their own Top 5 blog list, here is our own Top 5 List of “Real Estate Blogs Worth Reading”:

Live In Sudbury, Mass. (A blog all about my hometown, Sudbury, Mass.)

MetroWest Homes and Living (all about Metrowest MA real estate by a long-standing local independent agency)

Living in Weston Wellesley (a talented up-and-comer Traci Shulkin. What out for her!)

SmarterBorrowing.com (One of the best mortgage bankers around, Brian Cavanaugh)

Massachusetts Mortgage Blog (Another fantastic senior mortgage guy, David Gaffin. Extremely knowledgeable)

ModernMass.com (very cool blog showcasing modern architectural styles throughout Greater Boston)

L’Chaim!

–Rich and Marc

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Massachusetts Real Estate Tax Payments And Mortgage Escrows Explained

by Rich Vetstein on April 5, 2012

in Closings, Massachusetts Real Estate Law, Mortgages, Real Estate Taxes

Massachusetts Real Estate Taxes

The Massachusetts closing attorney is responsible for verifying the correct amount of real estate taxes assessed against the property, collecting sufficient amounts to pay for any outstanding and/or upcoming tax bills, and to adjust between buyer and seller any payments already made by the seller. The way in which Massachusetts real estate tax bills are due and payable, however, often creates confusion for parties at the closing.

For most Massachusetts cities and towns, real estate tax bills are mailed and taxes are collected on a quarterly basis. The fiscal year for property tax is July 1 to June 30. The schedule of mailings, due dates, and the three months each payment covers is outlined on the following chart:

Quarter    Mailed By  Due Date    Payment is For
1st June 30 Aug 1 July, Aug. Sept.
2d Sept. 30 Nov. 1 Oct., Nov, Dec.
3rd Dec. 31 Feb. 1 Jan, Feb., March
4th March 31 May 1 April, May, June

 

 

 

 

The confusion is caused because most folks are not aware that the tax bill which is due on Aug. 1 covers taxes due for the preceding month of July and the following month of September.

So, if you are closing on March 1 and the seller has already paid the tax bill due on Feb. 1, the buyer will be responsible for an adjustment due the seller for the 31 days of March.

Now, here’s the kicker. As part of the mortgage escrow account requirement, explained below, the lender will most likely require the borrower to pay the real estate taxes due May 1 in advance, thereby requiring the borrower to bring a lot more to closing than he or she was expecting. The lender wants to ensure that all real estate taxes are paid in advance so no tax lien gets filed on the property. This is very common, but not often explained by the loan officer ahead of time, thereby falling on the closing attorney to break the “bad news.”

Mortgage Escrows

All lenders are now requiring that borrowers establish an escrow account for the payment of real estate taxes, homeowner’s insurance, and mortgage insurance (if lower than 20% down payment). The escrow account is like an insurance policy to ensure that real estate taxes, insurance and PMI is paid by the homeowner. The escrow account will typically be funded with up to 3-4 months of payments in advance, paid at closing. Some lenders will allow for a waiver of the escrow account, but often with an increase in the interest rate.

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Richard D. Vetstein, Esq. is an experienced Massachusetts real estate attorney. They can be reached by email at [email protected] or 508-620-5352.

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Because I Said So! Satisfying Rigorous Loan Documentation Requirements Key To Mortgage Approval

by Rich Vetstein on March 28, 2012

in Fannie Mae, FHA, Massachusetts Real Estate Law, Mortgages

Borrowers, Shut Up, Listen, And Do What Your Lender Asks–Even If It’s The Third Time They’ve Asked For The Same Documentation!

When I was a kid, my dad would often answer my questions with “because I said so,” and it would drive me crazy! Now it’s prudent advice to borrowers says Mark Greene at Forbes.com. Mr. Greene recently wrote one of the best articles I’ve seen in a long time about the current state of mortgage underwriting. It’s called The Perfect Loan File (click for link). It’s a must read for consumers and real estate professionals alike.

The point Mr. Greene makes so well is that lenders are going absolutely nutty over borrower financial documentation to create a “put-back” immune loan file. (A put-back is when Fannie Mae or Freddie Mac make lenders buy back bad loans). Mr. Greene tells to borrowers to give their lender everything they ask for even if they want to stick needles in their eyeballs, and don’t talk back. I will just highlight some gems from the article:

When I was a kid, my father occasionally issued directives that I naturally thought were superfluous, and when asked why I needed to do whatever it was he wanted me to do, his answer was often: “Because I said so.” This never seemed to address my query but always left me without a retort, and I would usually comply. This is exactly what consumers should do during the mortgage approval process. When your lender requests what seems to be over-documentation and you wonder why you need it, accept the simple edict – “because I said so.” You will find the mortgage approval process much less frustrating.

Every nook and cranny of your financial life has to be corroborated, double- and triple-checked, and reviewed again before closing. This way, if the originating lender has created a loan file that is exactly consistent with published underwriting guidelines and has documented while adhering to those guidelines, the chances are that your loan will not be subject to repurchase.

It all comes down to your proof. If the lender asks for a specific document, give them exactly what they are asking for, not what “should be OK,” – because it won’t be.  This is where the approval process tends to go off the rails, when the lender asks for specific documentation and the borrower supplies something else. Here, too, is where both sides get frustrated. So if the lender asks for a bank statement and there are 5 pages for that bank statement, send them all 5 pages, and not just the summary. If you send them the summary page and they ask again, don’t complain that the lender keeps asking for the same thing when you never sent it in the first place. This may sound elementary, but the vast majority of mortgage approval process woes stem from scenarios just like this.

So when your loan officer or underwriter responds to another one of your questions with “because I said so,” do him or her a favor and do it.  Your loan approval will go a lot smoother and quickly if you do.

Borrowers, agents, and loan officers, feel free to share your thoughts and advice on this article!

~Rich

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