On August 3, 2012, Massachusetts Governor Deval Patrick signed into law what’s been called the new Foreclosure Prevention Law. The text of the law can be found at House Bill No. 4323. The new law makes significant changes to existing foreclosure practices, and also attempts to clean up the recent turmoil surrounding defective foreclosure titles after the U.S. Bank v. Ibanez and Eaton v. FNMA rulings, an issue for which I’ve been advocating for years. It goes into effect on Nov. 1, 2012. A quick summary is as follows with details below:
New requirement that mortgage assignments be recorded
New mandatory requirement to offer loan modifications and mediation to qualified borrowers
New Eaton foreclosure affidavit confirming ownership of note/mortgage loan
Protection for third party buyers of foreclosed properties
Mortgage Assignments Must be Recorded
Going forward, a foreclosure may not proceed unless the entire chain of mortgage assignments from the original mortgagee to the foreclosing entity is recorded. This is a statutory codification of the recommendation of the SJC in U.S. Bank v. Ibanez case, and should provide some well-needed clarity for titles. Under the new law, no foreclosure notice will be valid unless “(i) at the time such notice is mailed, an assignment, or chain of assignments, evidencing the assignment of the mortgage to the foreclosing mortgagee has been duly recorded in the registry of deeds . . . and (ii) the recording information for all recorded assignments is referenced in the notice of sale required in this section.”
Unfortunately, the new law does not address defective foreclosure titles created before the Ibanez decision, as we were hoping. Accordingly, folks who are still waiting for legislative help to cure their defective foreclosure titles may be left without a remedy.
Mandatory Loan Modification Efforts
In a provision pushed hard by housing advocates, the new law will require mortgage lenders to attempt to offer loan modifications instead of foreclosing. The qualification standards are rather complex and beyond the scope of this post. In sum, if the net present value of a modified mortgage exceeds the anticipated net recovery at foreclosure, the lender has to offer the borrower a modification.
Importantly, the new law provides immunity in favor of bona fide purchasers of foreclosed properties from claims by disgruntled borrowers that the lenders did not follow the loan modification rules.
New Eaton Affidavit
The new law also incorporates the SJC’s recent holding in Eaton v. Fannie Mae, where the SJC held that a foreclosing lender must be both the assignee of the mortgage and be either note holder or acting on behalf of the note holder. New Section 35C prohibits a creditor from publishing a foreclosure notice if the creditor “knows or should know that the mortgagee is neither the holder of the mortgage note nor the authorized agent of the note holder.” It also requires the creditor to record an affidavit swearing to its compliance with the new section. The affidavit will shield third-party buyers from title claims, but will not shield creditors from potential liability to the borrowers. Eaton suggested the use of affidavits, but now the statute requires it. Creditors cannot pass the cost of any corrective documentation upon borrowers or third parties.
Impact?
As with any major reform legislation, there will be a learning curve for foreclosing lenders and foreclosure attorneys to get documentation and systems in place to comply with the new requirements. We could potentially see additional litigation coming out of this new law brought by borrowers who feel they were not given a “fair shake” at a loan modification. From a real estate title perspective, the new law is a step in the right direction, but I was very disappointed that nothing was done to help folks who are still saddled with Ibanez title defects. This was the perfect opportunity to address that issue, and I’m afraid it won’t come up again.
Richard D. Vetstein, Esq. is an experienced Massachusetts real estate attorney with an expertise in foreclosure related issues. You can contact him at [email protected].
Concise Disclosures Aimed At Reducing Borrower Confusion and Helping Comparison Shopping
As part of a continuing overhaul of the home mortgage market, the Consumer Financial Protection Bureau on Monday issued proposed rules to bolster fairness and clarity in residential lending, including requiring a new good-faith estimate of costs for homebuyers and a new closing settlement statement.
My understanding is that the new “loan estimate” would replace the current Good Faith Estimate (GFE) and the current Truth in Lending Disclosure (TIL). The new closing disclosure would replace the current HUD-1 Settlement Statement. The new disclosures are open to industry and public comment for 120 days, after which they will be finalized and codified as law. For more details on the new disclosures, go to the CFPB site here.
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.
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.”
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!
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.
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!
In a decision which could impact foreclosure cases involving missing or lost loan documents, the Appeals Court held that a mortgage is unenforceable and must be discharged where the underlying promissory note securing the mortgage could not be found.
Seller Second Mortgage Financing
This case involved an unconventional second mortgage for approximately $15,000 taken back from a private seller. The homeowner subsequently refinanced the first mortgage several times, but the refinancing lenders’ attorneys never obtained a subordination from the second lien-holder. That was a mistake. The first mortgage wound up in Wells Fargo’s hands which realized that due to the lack of recorded subordination, the second mortgage was senior to its first mortgage.
Alas, a title claim arose and the title insurance company had to step in and file an “equitable subrogation” action. In this type of legal action, a first mortgage holder asks the court to rearrange the priorities of mortgages due to mistake, inadvertence or to prevent injustice.
Where’s The Note?
The second mortgage holder had lost the promissory note which secured its mortgage, and notably, could not locate a copy of it. The mortgage itself referenced the amount of the loan and the interest rate but was silent on everything else, including the payment term, maturity date, and whether it was under seal. The second mortgage holder argued that enough of the terms of the missing note could be “imported” from the mortgage, but the Appeals Court disagreed, reasoning that there wasn’t enough specificity on key terms to enforce the mortgage.
Lesson One: Safeguard Original Loan Docs
This decision underscores the importance of safeguarding original promissory notes and other debt instruments, or at a minimum keeping photocopies so that if enforcement is required, the material terms of the original can be proved to the satisfaction of the court. With all the paperwork irregularities endemic with securitized mortgages these days, missing or lost promissory notes and loan documents have become more prevalent. This decision is potentially problematic for those foreclosures where the original promissory note is lost. The standard Fannie Mae form mortgage does not spell out the loan terms with specificity, instead, it references the promissory note. Indeed, the Fannie Mae mortgage does not even reference the interest rate. Based on this decision, a mortgage without sufficient evidence of a promissory note could be rendered unenforceable and un-forecloseable.
(a) A person not in possession of an instrument is entitled to enforce the instrument if (i) the person was in possession of the instrument and entitled to enforce it when loss of possession occurred, (ii) the loss of possession was not the result of a transfer by the person or a lawful seizure, and (iii) the person cannot reasonably obtain possession of the instrument because the instrument was destroyed, its whereabouts cannot be determined, or it is in the wrongful possession of an unknown person or a person that cannot be found or is not amenable to service of process. (b) A person seeking enforcement of an instrument under subsection (a) must prove the terms of the instrument and the person’s right to enforce the instrument. If that proof is made, section 3-308 applies to the case as if the person seeking enforcement had produced the instrument. The court may not enter judgment in favor of the person seeking enforcement unless it finds that the person required to pay the instrument is adequately protected against loss that might occur by reason of a claim by another person to enforce the instrument. Adequate protection may be provided by any reasonable means.
Lesson Two: Get Subordinations For Junior Liens
This decision also underscores the importance of getting a subordination agreement for second mortgages and other junior lien-holders when closing refinances. A subordination agreement is a contract whereby a junior lien-holder agrees to remain in junior position to a first mortgage or other senior lien-holder during a refinancing transaction. Otherwise, the first in time rule of recording would elevate a junior lien-holder to first, priority position after a refinance. If a subordination was obtained and recorded here, this case would not have occurred.
Disclaimer: I drafted the original complaint in this case while working at my previous law firm. I had long since left when the case was decided at the Appeals Court.
Massachusetts Senate Bill 830 Addresses Toxic Foreclosure Titles
Finally, Massachusetts lawmakers have taken action to help innocent purchasers of foreclosed properties in the aftermath of the U.S. Bank v. Ibanez and Bevilacqua v. Rodriguez decisions, which resulted in widespread title defects for previously foreclosed properties. The legislation, Senate Bill 830, An Act Clearing Titles To Foreclosed Properties, is sponsored by Shrewsbury State Senator Michael Moore and the Massachusetts Land Title Association. Full text is embedded below.
The bill, if approved, will amend the state foreclosure laws to validate a foreclosure, even if it’s technically deficient under the Ibanez ruling, so long as the previously foreclosed owner does not file a legal challenge to the validity of the foreclosure within 90 days of the foreclosure auction.
The bill has support from both the community/housing sector and the real estate industry. Indeed, the left-leaning Citizens’ Housing and Planning Association (CHAPA), non-profit umbrella organization for affordable housing and community development activities in Massachusetts, has filed written testimony in support of the bill.
Properties afflicted with Ibanez title defects, in worst cases, cannot be sold or refinanced. Homeowners without title insurance are compelled to spend thousands in legal fees to clear their titles. Allowing such foreclosed properties to sit and languish in title purgatory is a huge drain on individual, innocent home purchasers and the housing market itself.
A recent case in point: I was recently contacted by a nice couple who bought a Metrowest condominium in 2008 after it had been foreclosed. Little did they know that the foreclosure suffered from an “Ibanez” title defect. Unfortunately, the lawyer who handled the closing did not recommend they buy owner’s title insurance. They have been unable to track down the prior owner who went back to his home country of Brazil, and now they are stuck without many options, unable to refinance or sell their unit. This bill will help people like this who have helped the housing market by purchasing foreclosed properties, and improving them.
All of the Massachusetts registries of deeds now offer free online document search capabilities. The main portal for most registries is www.masslandrecords.com operated by the Secretary of State’s Office. Other registries have their own systems.
Here is a handy list of all registries liked to their online search portals:
In the basic search form, you input the property owner’s last name and first name and hit search. For common names, this will often generate too many names results as the search function is not limited to town.
2. By Name/Advanced
In the basic search form, click the Advanced button on the right side. The search will expand to the screenshot above. This is the optimal search method as you can limit the search by town and document type. I usually leave the search on “all document types.”
3. By Book and Page
Massachusetts Registry of Deeds documents are organized by “book and page.” Before electronic records, land records were recorded in actual thick book volumes. The “book” reference refers to the volume number and the page refers to the page number. Each recorded instrument has its own unique book and page reference at the top of the document’s first page. Even with the proliferation of electronic records, the book and page reference is still in operation in Massachusetts.
4. By Property Address
A newer functionality, you can also search by street address. In my experience, however, the results are often inaccurate so I would not rely on this search method.
Search In Action
So, let’s give this a try. Find your registry where you live. Use the Registry County Map if you don’t know. In the basic search form, click advanced. Input your first and last name and click your town in the drop down menu. Press Search. Voilá, there’s a list of all recorded instruments on your title. For viewing and printing, click any of the documents. The details will appear on the right side of the search page. Click View Images and the image will appear in a new window. You can print from there.
Please note that the above is not a substitute from a full title exam by a qualified title examiner and should not be relied upon for any purchase, sale or refinance transactions. A statutory title certification covers a 50 year period and also checks bankruptcy and probate records.
Final product will be a combination of both the final Truth in Lending (TIL) form and the HUD-1 Settlement Statement — a dramatic change from the existing forms.
For the second time in as many years, the federal government is substantially overhauling two of the most important disclosures given to mortgage borrowers, the Truth in Lending Disclosure and the HUD-1 Settlement Statement. The revisions are mandated by the Dodd-Frank Act. The new Consumer Financial Protection Bureau is in charge of re-designing and testing the new forms.
Most real estate industry professionals are unaware that these new changes are on the horizon. The new forms are expected to be implemented in 2013 after rule-making and industry comments are completed.
If you want to track the CFPB’s activity on these forms, I highly recommend the CFPB Monitor. The CFPB’s “Know Before You Owe” website also has updates and is pretty good for a government site.
Here is the new prototype HUD-1 Settlement Statement:
What do you think about the new forms? At first, glance it is easier to read, understand and explain to borrowers. We’ll keep track of this important issue.
In yet another move evidencing the Supreme Judicial Court’s ongoing concern over the impact of the foreclosure crisis in Massachusetts, the SJC is soliciting friend-of-the-court briefs in the next important foreclosure case, HSBC Bank v. JodiMatt.
As we wrote about in our prior post here, the SJC is considering whether a lender holding a securitized mortgage has standing to even begin a foreclosure action in the Land Court under the Servicemembers Civil Relief Act–one of the first steps in the Massachusetts foreclosure process. The SJC will ostensibly decide whether lenders holding mortgages held in a securitized pool, with questions whether they in fact were validly assigned those mortgages, can start foreclosures in Massachusetts. The lower court Land Court opinion can be read here.
The text of the Court’s announcement is as follows:
February 17, 2012 – ANNOUNCEMENT: The Justices are soliciting amicus briefs. Whether the Land Court judge correctly concluded that a bank had standing to commence an action to determine whether the defendant (alleged to be in breach of her mortgage obligations) was entitled to the benefits of the Servicemembers Civil Relief Act, on the ground that the bank had a contractual right to become the holder of the note and mortgage. The case is tentatively scheduled for argument in May.
For more information about how to submit a friend of the court brief, go to the SJC Website.
Banker and Tradesman is reporting that Bristol, Plymouth and Norfolk County Registrars of Deeds plan to file a class action suit against Mortgage Electronic Registration System (MERS), aiming to recoup land recording fees they believe they are owed. B&T reporter Colleen Sullivan reports that:
The counties are being represented by Bernstein Liebhard LLP, a New York firm specializing in class actions which has already brought a similar suit on behalf of all the counties of Ohio. John Mitchell, a Bristol County commissioner, said the board considered pursuing a claim last year, but decided to hold off until the national mortgage settlement between the banks and the states’ attorneys general was resolved. But as it became clear that the vast bulk of the funds in that settlement would go towards foreclosures and loan modifications, he said the county decided to pursue the matter. Bristol County officials estimate the county may have lost out on millions of dollars in fees over the past decade because of the alleged use of MERS as a kind of private registry among large banks. A rough calculation prepared by county officials last year came up with a figure of between $3.1 million and $6.5 million lost, using a conservative estimate of one or two additional non-recorded assignments per MERS- registered property.
“Over the last month, we were approached by [Bernstein Liebhard] and other firms….they already had Norfolk and Plymouth, and we thought it made sense to get as many counties together,” Mitchell told Banker & Tradesman. Mitchell said he wasn’t sure if the remaining Massachusetts counties with county-level governance would join the suit. The relatively small size of counties like Nantucket and Dukes would mean far smaller sums at stake.
County-level governance was abolished in Massachusetts in eight of the state’s 14 counties around the turn of the century. Only Barnstable, Bristol, Norfolk, Plymouth, and Dukes retain county boards; Nantucket has a combined city-county government. The remaining boards retain the right to bring independent actions in court.
“We’re familiar with their claims, and there’s no merit to them,” said Janis Smith, spokeswoman for MERS. Smith said that by registering under the MERS name, banks fulfill the purpose of having a registry, that is, alerting the public of any existing leins on a property. “MERS does not eliminate or replace county records, and the recording fees are paid,” she said. “The MERS business model is legal in all 50 states and has been affirmed by Massachusetts courts.”
“I commend the counties,” said John O’Brien, the registrar of deeds in Essex County, who has been an active critic of MERS for the past two years. O’Brien was the first public official in Massachusetts to calculate how much the MERS system may have cost the state in allegedly lost recording fees, coming up with a figure of $22 million for his county alone. “If I had the authority, I would have filed this suit two years ago.”
The other registries fall under Secretary of State William Galvin’s jurisdiction. O’Brien said he plans to petition the legislature to recover his ability to bring suit on behalf of Essex County as one of its elected officials.
The Registrars are reportedly incensed that the MERS private recording system has deprived them of millions of recording fees. We will keep tabs on this important case.
In the largest national settlement since the tobacco litigation, the Boston Globe is reporting that Massachusetts Attorney General Martha Coakley is expected today to sign on to a settlement brokered by attorneys general nationwide with five major US lenders over the banks’ role in the country’s foreclosure crisis. As we wrote about here, in December of last year AG Coakley pulled out of the settlement and brought a historical lawsuit against the big lenders over foreclosure abuses.
As reported in the Globe, Coakley has been been negotiating for days with lenders over the pact, which has been months in the making. Massachusetts is one of only a few states that have yet to agree to the settlement, which reportedly could total between $25 billion and $30 billion. The money is being promised by Bank of America Corp., JPMorgan Chase & Co., Wells Fargo & Co., Citibank, and Ally Financial Inc.
Massachusetts borrowers will receive an estimated $224 Million in benefits from loan term modifications and other direct relief.
Massachusetts borrowers who lost their home to foreclosure from January 1, 2008 through December 31, 2011 and suffered servicing abuse would qualify for $14.6 Million in cash payments to borrowers.
The value of refinanced loans to Massachusetts underwater borrowers would be an estimated $32.7 Million.
Banker and Tradesman is reporting that homeowners still living in underwater properties may get up to $20,000 each for principal reductions. That may not be nearly enough for many victims of foreclosure abuses. It’s unclear how much money will be available for much needed mortgage principal reduction and loan modifications.
However, the state was told yesterday it could sign on to the pact without giving up its right to litigate other issues related to the five lenders and how they conducted foreclosures, according to the Globe. Under terms of the tentative agreement, Coakley apparently will still be able to pursue claims against MERS and lenders for foreclosures in Massachusetts without having the proper paperwork.
by Brian Cavanaugh, Senior Mortgage Banker, RMS Mortgage and SmarterBorrowing.com
Overall, despite being a fairly light week in terms of economic releases and relate events, it is still relatively crucial for the mortgage market. We saw the yield on the benchmark 10-year Treasury Note spike higher Friday as a result of the stronger than expected employment data. Stocks rallied as a result of that data, extending the 2012 stock rally that has pushed the Dow up over 5% and the Nasdaq up 11% year-to-date. Both indexes are at their highest levels since May 2008 and December 2000 respectively. This has me believing we are due to see a pullback in stocks fairly soon. If/when this happens, we should see funds shift back into bonds for safety, leading to lower mortgage rates. Keep in mind that this is more or less just speculation, but I am expecting to move to a less conservative approach regarding short-term mortgage rates in the near future.
If I were considering financing/refinancing a home, I would….
LOCK if my closing was taking place within 7 days…
LOCK if my closing was taking place between 8 and 20 days…
FLOAT if my closing was taking place between 21 and 60 days…
FLOAT if my closing was taking place over 60 days from now…
This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed
There are only two pieces of monthly economic data scheduled for release this week. Neither of them is considered to be highly important, so we don’t have much to pin our hopes on or to be concerned with this week. There are two Treasury auctions on the calendar that may influence mortgage rates the middle part of the week and the second part of Fed Chairman Bernanke’s testimony to Congress, but no important economic data.
Nothing of concern is due tomorrow, so look for the stock markets and news from Europe- particularly Greece, to drive the markets tomorrow. Fed Chairman Bernanke will speak to the Senate Budget Committee at 10:00 AM Tuesday. I don’t expect him to say anything different than he said last week to the House Budget Committee, but the Q&A portion of his appearance could lead to something new. It is worth watching, but it will probably not lead to a noticeable change in the markets or mortgage rates.
Treasury Auctions Ahead
The two important Treasury auctions come Wednesday and Thursday when 10-year Notes and 30-year Bonds are sold. The 10-year sale is the more important one as it will give us a better indication of demand of mortgage-related securities. If the sales are met with a strong demand from investors, we should see the bond market move higher during afternoon trading the days of the auctions. But a lackluster interest from buyers, particularly international investors, would indicate a waning appetite for longer-term U.S. securities and lead to broader bond selling. The selling in bonds would likely result in upward afternoon revisions to mortgage rates.
Unemployment Numbers
With little monthly and no quarterly economic reports being posted, Thursday’s weekly release of unemployment figures may end up moving the markets and mortgage rates more than it traditionally does. The Labor Department is expected to announce that 370,000 new claims for unemployment benefits were filed last week, rising slightly from the previous week’s total. The higher the number of new claims for benefits, the better the news for the bond market and mortgage pricing as it would indicate weakness in the employment sector.
The first monthly report comes early Friday morning when December’s Goods and Services Trade Balance data will be posted. This report measures the U.S. trade deficit and can affect the value of the U.S. dollar versus other currencies, but it usually does not cause enough movement in bond prices to affect mortgage rates. It is expected to show a $48.2 billion trade deficit.
Consumer Sentiment
February’s preliminary reading to the University of Michigan’s Index of Consumer Sentiment will be released late Friday morning. This index measures consumer willingness to spend and usually has a moderate impact on the financial markets. If it shows an increase in consumer confidence, the stock markets may move higher and bond prices could fall. It is currently expected to come in at 74.0, down from January’s final reading of 75.0. That would indicate consumers were less optimistic about their own financial situations than last month and are less likely to make large purchases in the near future. Since consumer spending makes up over two-thirds of the U.S. economy, this would be considered good news for bonds and mortgage pricing.
Are you a possible Massachusetts First Time Homebuyer?
Do you have a Real Estate client inquiring about current Mortgage Rates?
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Should you be thinking about Refinancing out of your ARM (Adjustable Rate Mortgage)?
For interested legal observers of the foreclosure crisis, it really doesn’t get any better than this.
Supplemental and amicus curie legal briefs have been filed in much awaited case of Eaton v. Federal National Mortgage Ass’n, and they make for great reading. The briefs were filed in response to the SJC’s concern, mid-appeal, over whether an adverse ruling against foreclosing lenders will have a disastrous impact on foreclosure titles and, if so, whether its ruling should be applied prospectively rather than retroactively. Click here for our past posts on the case.
Notably, the Federal Housing Finance Association, the congressional conservator of the bailed out Fannie Mae and Freddie Mac, filed a rare amicus brief and laid a shot across the SJC’s bow. It suggested that the congressional bailout law would trump an adverse decision by the SJC to the extent that it interfered with Fannie and Freddie’s mission to secure the health of U.S. secondary mortgage market. This is the first time that I’m aware of the federal agency intervening in a particular foreclosure case.
Not surprisingly, Fannie Mae, FHFA, and REBA (Real Estate Bar Ass’n) and the other industry groups argue against a retroactive application of an adverse ruling, claiming that it would have a disastrous effect on homeowners with foreclosures in their titles.
Eaton (which cited this Blog), the legal services groups and foreclosure defense groups say that the sky will not fall down if the unity rule is applied retroactively; indeed, foreclosures in Mass. have increased post-Ibanez. They also argue that the law is the law, and it’s the lenders fault for creating a securitization scheme in violation of the law, so they should have to deal with the repercussions.
I have also attached REBA’s and Attorney Glenn Russell’s (lead counsel in U.S. Bank v. Ibanez) submissions on the recent Land Court ruling in Wells Fargo v. McKenna where the Land Court Judge Gordon Piper held that Massachusetts does not require the unity rule.
A final decision is expected in February or March.
I recently came across a very interesting and scary case from the Appeals Court, Survillo v. McDonough No. 11–P–290. Dec. 2, 2011. (It’s technically an “unpublished” opinion but it’s available to the public). The case underscores how carefully attorneys must craft the mortgage contingency to protect the buyer’s deposit in case financing is approved with adverse conditions.
“Prevailing Rates, Terms and Conditions”
The buyers, Mr. and Mrs. Survillo, submitted the standard Offer To Purchase the sellers’ home in Walpole. The offer provided it was “Not subject to the Sale of any other home.” The sellers accepted the offer. The buyers received a conditional pre-approval from a local bank for a first mortgage in the amount of $492,000. The pre-approval also stated that anticipated loan was “[n]ot based on sale of any residence.”
The parties then entered into the standard form purchase and sale agreement (P & S), with the typical mortgage contingency provision for a $429,000 mortgage loan:
“In order to help finance the acquisition of said premises, the [buyers] shall apply for a conventional bank or other institutional mortgage loan of $492,000.00 at prevailing rates, terms and conditions. If despite the [buyers] diligent efforts a commitment for such loan cannot be obtained on or before October 5, 2009, the [buyers] may terminate this agreement by written notice to the [sellers] and/or the Broker(s), as agent(s) for the [sellers], prior to the expiration of such time, whereupon any payments made under this agreement shall be forthwith refunded and all other obligations of the parties hereto shall cease and this agreement shall be void without recourse to the parties hereto “
Change In Circumstances: Lender Requires Piggyback Loan & Buyers List Their Residence
Due to the buyers’ debt to income ratios, the lender required that the loan be structured as a “piggyback” — a first mortgage of $417,000 and second mortgage of $73,400, and with the condition that the buyers listing their primary residence for sale prior to the loan closing. The buyers absolutely did not want to list and seller their residence, so they wanted out of the deal.
On the last day of the extended financing deadline, the buyers timely notified the sellers that they had “not received a loan commitment with acceptable conditions,” and attempted to back out of the agreement under the mortgage contingency provision. Ultimately, with the buyers refusing to sell their home, the bank denied the buyer’s the mortgage application based on the fact that the “borrower would be carrying three mortgage payments and the debt to income is too high.”
Focus On “Prevailing Terms” Language
The sellers refused to return the deposit, and litigation over the deposit ensued.
The Court framed the case as follows: “Before the extended mortgage contingency deadline of October 21, the buyers received a commitment from the bank for two mortgages totaling $492,000. The P & S’s mortgage contingency was accordingly satisfied unless the bank’s requirement that the buyers list their home for sale was not a “prevailing” term or condition.”
The court started with the assumption that “the typical loan condition for most borrowers is to require them to sell an existing home before the new loan closes. The condition here required only that the buyers list, not sell, their home and it was accordingly not a typical condition.” The buyers argued that because the condition was unusual, it was not a “prevailing” condition within the meaning of the contingency clause of the P & S, despite the fact that the condition was more favorable to them than the standard condition. The court flat out rejected that argument, citing prior rulings that terms of a mortgage contingency presuppose that the buyers will accept commercially reasonable loan terms. If less is required, the condition becomes an option. The court also noted that the buyers failed to notified the sellers that they were unwilling to list or sell their existing home, nor did they insert a proviso to that effect into the mortgage contingency clause. Subsequent events suggested that if the buyers had timely disclosed their intentions to the bank, the loan would have been disapproved, which may well have given the buyers the shelter they sought under the mortgage contingency clause.
The court ruled against the buyers who had to forfeit their $31,000 deposit.
An Ounce of Prevention Is Worth A Pound of Cure
I’m not sure who is to blame here, the buyer’s attorney or the buyers themselves. Probably both.
From a legal drafting approach and as the court pointed out, the buyer’s attorney could have insisted on language into the mortgage contingency provision that the buyers’ financing could not be conditioned on the listing or sale of the buyers’ present residence. After all, the language was in the Offer, so it could have easily been carried over into the P&S. There was no indication from the decision that this was raised or negotiated.
It also seems apparent that the buyers were not particularly up front with anyone on their insistence that they would not list and sell their current residence. If they had been more forthcoming about that, perhaps they could have avoided this situation.
A commenter on Boston.com also places some blame on the loan officer: “Not all pre-approvals are created equal. For a few minutes of work and adherance to a common standard of practice by the mortgage professional, a true pre-approval is supported by a credit report, the main criteria for ability to qualify for a mortgage. This is generated in a few seconds, and the pre-approval letter usually states subject to verification of income, assets, and property appraisal. Had this been done, THE DEBT TO INCOME RATIO ISSUE WOULD HAVE SURFACED EARLY.”
Based on the loan amount, this mistake or gamble cost the buyers around $31,000 plus legal fees. Ouch!
The Supreme Judicial Court has just issued an unusual order in the very important Eaton v. Federal National Mortgage Association case, indicating its deep concern over whether an adverse ruling against foreclosing lenders will have a disastrous impact on foreclosure titles and, if so, whether its ruling should be applied prospectively rather than retroactively. The Court is seeking supplemental briefing and friend-of-the-court briefs on these decisive issues. A final decision is expected in February or March.
As outlined in my prior post on the case, the Court is considering the controversial question of whether a foreclosing lender must possess both the promissory note and the mortgage in order to foreclose. This is the essence of the “produce the note” defense. In a securitized mortgage pool, in which over 60% of all U.S. mortgage are part, the note and mortgage are separated between securitized trusts, mortgage services or Mortgage Electronic Registration System (MERS).
If the SJC rules against lenders, it could render the vast majority of securitized mortgage foreclosures defective, thereby creating mass chaos in the Massachusetts land recording and title community. If you thought U.S. Bank v. Ibanez was bad, Eaton v. FNMA could be the Nuclear Option.
The text of the order is as follows:
ORDER :Having heard oral argument and considered the written submissions of the parties and the various amici curiae, the court hereby invites supplemental briefing on the points described below. Supplemental briefs shall not exceed fifteen pages and shall be filed on or before January 23, 2012. 1. It has been claimed that requiring a unity of the mortgage and the underlying promissory note, in order for there to be a valid foreclosure, would cloud any title that has a foreclosure in the chain of title, regardless of how long ago the foreclosure occurred. The parties are invited to address whether they believe that such a requirement would have such an effect, and if so, what legal or practical measures exist that might limit the consequences of such a requirement. 2. It also has been suggested that, if the court were to hold that unity of the mortgage and note is required under existing law, the court’s holding should be applied prospectively only. The parties are invited to indicate on what authority they believe (or do not believe) the court could make such a holding prospective only.
Reading into this order, perhaps a majority of the justices are already leaning towards ruling against the lenders and want to limit the potentially disastrous effect it could have on existing titles and pending and future foreclosures. Interestingly, lenders in the U.S. Bank v. Ibanez case asked the SJC to apply its ruling prospectively, but it declined, thereby leaving hundreds to thousands of property owners and title insurers to clean up toxic foreclosure titles.
In my opinion, an adverse ruling against lenders in Eaton could be the apocalyptic scenario, rendering open to challenge any title with a previous foreclosure in it and inserting a fatal wedge into the current securitized mortgage system. Hopefully this time around the Court is more sensitive to how its ruling will impact the real estate community. It will be interesting to see how this case continues to develop. We will continue to monitor it.
It’s time again for our annual review of highlights in Massachusetts Real Estate Law for the past year. It’s been a very busy year. From the foreclosure fallout, to Occupy Boston, to the new homestead law, there’s been lots to report on. We’ll start in order of importance this year.
SJC Decides Controversial U.S. Bank v. Ibanez Case
2011 started off with a bang with the Supreme Judicial Court’s decision in the widely publicized foreclosure case of U.S. Bank v. Ibanez. Our coverage of the case can be read here and here. The Court’s ruling was rather elementary: you need to own the mortgage before you can foreclose. But it’s become much more complicated with the proliferation of securitized mortgages bought and sold numerous times on Wall Street. The Court held that the common industry practice of assigning a mortgage “in blank” — meaning without specifying to whom the mortgage would be assigned until after the fact — does not constitute a proper assignment, at least in Massachusetts. The ruling left many innocent homeowners and title insurance companies scrambling to deal with titles rendered defective due to the ruling. The fallout continues to this day with no resolution by lawmakers.
AG Coakley Sues Major Banks For Foreclosure Fraud
2011 was certainly the Year of Foreclosure Fallout. Earlier in December, Attorney General Martha Coakley filed a huge consumer protection lawsuit over wrongful foreclosures against the top 5 U.S. lenders, Bank of America Corp., J.P. Morgan Chase & Co., Wells Fargo & Co., Citigroup Inc. and Ally Financial. Coakley also names Mortgage Electronic Registration System, or MERS, the electronic mortgage registration system which proliferated during the securitization boom of the last decade. The lawsuit said it sought “to hold multiple banks accountable for their rampant violations of Massachusetts law and associated unfair and deceptive conduct amidst the foreclosure crisis that has gripped Massachusetts and the nation since 2007.” The case remains pending.
Massachusetts Real Estate Attorneys Win Legal Victory Ensuring Their Place At Closing Table
In the closely watched case of Real Estate Bar Association (REBA) v. National Estate Information Services (NREIS), Massachusetts real estate attorneys won a huge legal victory reaffirming their long-standing role to oversee the closing process and conduct closings in Massachusetts. The case pitted Mass. attorneys vs. out of state notary companies who were trying to conduct notary real estate closings without trained attorneys. Siding with the consumer, the court required “not only the presence but the substantive participation of an attorney on behalf of the mortgage lender.”
All Massachusetts homeowners receive an automatic homestead exemption of $125,000 for protection against certain creditor claims on their principal residence without having to do anything.
All Mass. residents are eligible for a $500,000 “declared homestead exemption” by filing a declaration of homestead at the registry of deeds. For married couples, both spouses will now have to sign the form–which is a change from prior practice.
Homesteads are now available on 2-4 family homes, and for homes in trust.
The existing “elderly and disabled” homestead will remain available at $500,000.
If you have a homestead as a single person, and get married, the homestead automatically protects your new spouse. Homesteads now pass on to the surviving spouse and children who live in the home.
You do not have to re-file a homestead after a refinance.
More Foreclosure Fallout With Bevilacqua and Eaton Cases
The U.S. Bank v. Ibanez case was the start, but certainly not the ending of the foreclosure fallout. The case of Bevilacqua v. Rodriguez considered property owners’ rights when they are saddled with defective titles stemming from improper foreclosures. The ruling with a mix of good and bad news. The bad news was that victims of defective foreclosure titles could not seek redress through the Land Court “quiet title” procedure. The good news was that the court left open whether owners could attempt to put their chains of title back together (like Humpty-Dumpty) and conduct new foreclosure sales to clear their titles.
Eaton v. Fannie Mae is the next foreclosure case awaiting final decision. As outlined in my prior post on the case, the Court is considering the very important question of whether a foreclosing lender must possess both the promissory note and the mortgage in order to foreclose. Using the “produce the note” defense which has been gaining steam across across the country, the borrower, Ms. Eaton, was able to obtain an injunction from the Superior Court halting her eviction by a foreclosing lender. The SJC heard arguments in the fall and is expected to issue a final ruling early in 2012. A ruling against lenders would be as big, or even bigger, than the Ibanez case.
Lastly, another case to watch for in 2012 is HSBC Bank v. JodiMatt which will decide whether a lender holding a securitized mortgage has standing to even begin a foreclosure action in the Land Court under the Servicemembers Civil Relief Act–one of the first steps in the Massachusetts foreclosure process. The case is should be ready for oral argument in late winter, early spring 2012.
Judge Evicts Occupy Boston Protesters
What would 2011 be without a homage to the Occupy Movement! Citing property and trespass law from centuries ago, Massachusetts Superior Court Justice Frances A. McIntyre issuing a ruling clearing the way for the eviction of the Occupy Boston protest which has taken over Dewey Square in downtown Boston. Our coverage of the ruling is here.
Well, that’s it for a very busy year 2011 in Massachusetts real estate law! The year 2012 is expected to be just as busy, and of course, we’ll be on top of all the breaking news here on the Blog.
First Reported Mass. Ruling On Home Affordable Modification Program Liability
The fallout from the sub-prime and mortgage crisis continues in Massachusetts courts, and some judges are reacting in favor of sympathetic borrowers. In Parker v. Bank of America, Massachusetts Superior Court (Dec. 15, 2011), Judge Thomas Billings considered what is unfortunately now a very common fact pattern in borrowers’ quest to have their lenders approve loan modifications, or loan mods. The ruling is embedded below.
A Common Story of Lost Paperwork and Ineptitude
In 2007, Valerie Parker granted first and second mortgages on her home in Lowell to Bank of America. She paid the loans on time for the first 24 months. As the economy worsened, however, she anticipated difficulty in making payments, and so she called BofA for advice. The bank told her that because the loan was not in default they could not help her, and that she would have to cease payments if she wanted their assistance. (Is this not one of the most ridiculous, yet common, responses lenders give to troubled borrowers?)
After a lengthy period of lost and repeatedly re-submitted paperwork, BofA informed Parker she qualified for HAMP (Home Affordable Modification Program) relief, underwent a lengthy financial audit over the telephone, and was promised followup documentation and a halt to further collection and foreclosure efforts. BofA repeatedly lost her paperwork; she had to submit and re-submit documents; and she spent hours at a time on hold, waiting to speak with a human being. She did, however, receive the bank’s verbal assurance that she was “pre-qualified” for the HAMP program and that confirmatory paperwork would be forthcoming. BofA never sent the promised documentation, however, and refused to approve a loan modification. Lengthy and repeated telephone calls produced no documents, no approval, and no progress. Finally, BofA told Parker there was no record of her having qualified for the program. She requested and was given the opportunity to reapply, but the documentation still never came. All while, the collection calls continued and the late fees kept mounting, and the loan was at some point placed in foreclosure.
“Inertia Is Not An Option”
Parker asserted a number of different claims against BofA, but the two which stuck, according to the judge, were her claims for fraud and breach of contract. The judge went through a lengthy history of the recent sub-prime crisis, the TARP bailout plan, and the HAMP program, concluding that BofA’s actions against Parker were unfair under these consumer protection programs.
In a great line, the judge said that “inertia is not an option” when a lender considers a borrower’s legitimate request for a HAMP loan modification. Under HAMP, there are strict deadlines by which lenders must respond to a borrower’s application, and foreclosure activity must stop during the consideration period. The judge lamented that federal regulators had failed to pass enforcement mechanisms to protect borrowers from lenders dragging their heels on loan modifications. Noting that borrowers have no other forum in which their claims may be heard and adjudicated other than the courts, Judge Billings held that Parker could claim “third party beneficiary” status of BofA’s participation in the TARP/HAMP program–diverging from several colleagues opinions to the contrary.
Lastly, in a boon for borrowers, the court left open whether lenders could face Chapter 93A liability — with its triple damages and attorneys’ fees — for similar conduct. While Parker’s counsel dropped the ball by not sending BofA a required demand letter prior to filing suit, this option may be open for other borrowers.
Impact of Ruling
This is one of the first court rulings siding with a borrower on a lender’s liability for dropping the HAMP ball. Clearly, this particular judge is well-educated on what’s been going on with the mortgage crisis and was likely fed up with lenders’ shoddy treatment of some borrowers. But is his legal reasoning correct? The judge can certainly be accused of legislating from the bench here, as the vast majority of other court rulings have rejected his reasoning. (At least 6 opinions by my count, mostly from federal court).
But his reasoning does have some intrinsic appeal inasmuch as HAMP is clearly a consumer driven program and the judge is basically saying that lenders must treat HAMP applicants fairly in accordance with the program rules. If what Ms. Parker says is true, there is a minimum level of fairness that she did not receive. But the problem is what if she simply doesn’t qualify for a loan modification? And every lender who entertains a modification request can be subject to civil liability for rejecting an applicant? Would that chill HAMP modifications even more? Rest assured, we will see more cases like Parker reaching the Superior Court and the Massachusetts appellate courts in the near future.
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Overall, I am expecting to see some movement in the markets and mortgage rates, especially if we get some surprising results from the week’s data or news about Europe’s financial crisis. Despite the holiday season, we need to keep a cautious approach toward rates because we are likely to see very thin trading (light volume) as a result of many traders keeping short hours or home for the holiday altogether. This means that firms that trade bonds will likely be keeping only a skeleton staff the latter part of the week and raises the possibility of a stronger reaction to surprises in the economic data than we normally would see.
The least important day for mortgage rates will likely be tomorrow unless something drastic happens overnight. We will probably see the most movement in rates Friday, but Thursday’s economic data can also move mortgage pricing noticeably. With the Christmas holiday next weekend, it is being observed next Monday. The bond market will close early this Friday afternoon ahead of the holiday and will reopen next Tuesday morning. Accordingly,proceed cautiously this week if still floating an interest rate and closing by the end of the year. proceed cautiously this week if still floating an interest rate and closing by the end of the year.
If I were considering financing/refinancing a home, I would….
LOCK if my closing was taking place within 7 days…
LOCK if my closing was taking place between 8 and 20 days…
LOCK if my closing was taking place between 21 and 60 days…
FLOAT if my closing was taking place over 60 days from now…
This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed.
Richard D. Vetstein, Esq. is regarded as one of the leading real estate attorneys in Massachusetts. With 25 years in practice, he was voted a "Super Lawyer," a "Top Lawyer" by Boston Magazine and "Best of Metrowest." For Rich's professional biography, click here. If you are interested in hiring Rich or have a legal question, email or call him at [email protected] or 508-620-5352.
Two Year Effort To Overhaul Foreclosure Practices
Richard D. Vetstein, Esq. is an experienced Massachusetts real estate attorney with an expertise in foreclosure related issues. You can contact him at [email protected].
In yet another move evidencing the Supreme Judicial Court’s ongoing concern over the impact of the foreclosure crisis in Massachusetts, the SJC is soliciting friend-of-the-court briefs in the next important foreclosure case, HSBC Bank v. Jodi Matt.
Standard Mortgage Contingency Language At Issue
