massachusetts loan modification

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.

 

{ 0 comments }

You knew this was coming. The politicians smell a big political opportunity with the foreclosure mess in Massachusetts, and are filing legislation left and right.

The latest is legislation filed by State Senator Karen Spilka and Attorney General Martha Coakley mandating loan modifications in certain circumstances. Specifically, the loan modification legislation requires creditors to take “commercially reasonable efforts” to avoid foreclosure upon certain sub-prime loans. The legislation also provides a safe harbor for creditors to comply with this requirement of commercial reasonableness.

The legislation also addresses problems with foreclosures highlighted in the recent decision by the Massachusetts SJC, U.S. Bank v. Ibanez by prohibiting foreclosures where creditors lack the documents supporting their purported right to foreclose, and prohibits passing on certain fees and costs to homeowners.  Specifically, this legislation:

  • Codifies the recent SJC decision in Ibanez by requiring a creditor commencing foreclosure to show it is the current legal holder of record of the mortgage. The bill also forbids misrepresentations to courts concerning holder status;
  • Prohibits passing on to third parties the costs of remedying prior improper foreclosures or absence of recorded assignments;
  • Prohibits “junk fees” (for goods or services not performed) tacked on during foreclosure and prohibits bribes, referral and similar fees for foreclosure business; and
  • Requires recording of assignment establishing the creditor as present holder of the mortgage before it can foreclose on the property.

A violation of this legislation would constitute a violation of the Massachusetts Consumer Protection Act, Chapter 93A which carries triple damages and attorneys fees.

For more information, here is the announcement from Sen. Spilka’s office.

{ 2 comments }

Short Sales Get Boost From New Obama Treasury Guidelines

by Rich Vetstein on December 1, 2009

The Obama administration on Monday set long-awaited guidance on a plan for mortgage companies to speed up short sales of homes and other loan modification alternatives to stem the rising tide of foreclosures. The Home Affordable Foreclosure Alternatives Program (HAFA) provides financial incentives and simplifies the procedures for completing short sales, a growing practice in which a lender agrees to accept the sale price of a home to pay off a mortgage even if the price falls short of the amount owed. The announcement can be found here.obama_hope A complete set of the guidelines can be found here.

The new federal guidelines address barriers that have often sidelined short sales by setting limits on the time it takes a bank to approve an offer, freeing borrowers from debt and capping claims of subordinate lenders. New financial incentives for completing short sales or similar “deed-in-lieu” transactions — in which the deed is simply transferred to the lender — include a $1,000 payment to servicers, and a maximum of $1,000 to go to investors who sign off on payments to subordinate lien holders, the Treasury said. Borrowers would also receive $1,500 in relocation expenses.

While a short sale may be preferable to a foreclosure, they have been frustrating for borrowers, buyers and realtors, because they are often hung up by lengthy negotiations with multiple lien holders and mortgage insurance companies. Realtors have complained that sales fall through as lenders bicker over the sales price, what they should receive from the proceeds, and whether the borrower will be held accountable for the debt in the future.

Under the new rules, mortgage servicers have 10 days to approve or disapprove a request for short sale, and when done the transaction must fully release the borrower from the debt. The rules also prohibits mortgage servicing companies from reducing real estate commissions on the sale, a practice that has dissuaded many agents from taking short sale listings.

This may help, but by how much remains to be seen.

Click here for our most recent post, Will Short Sales Get A Boost From Obama’s HAFA Program?

{ 17 comments }

The Boston Globe is reporting that foreclosures in Massachusetts took a steep dive in May, the second consecutive month they have fallen, according to data released yesterday by Boston real estate tracking firm Warren Group.

According to the Globe, there were 582 foreclosure deeds recorded in May, a 58.6 percent decrease from 1,405 during the same month in 2008, and a 24.3 percent drop from April.

Others attribute the drop to the so-called Ibanez decision by the Massachusetts Land Court in late March that invalidated two foreclosures because the lenders failed to show proof they held titles to the properties. The Ibanez decision is a product of the Massachusetts conveyancing practice struggling to keep up with modern mortgage lending practices. The ownership of a loan may be divided and freely transferred numerous times on the lenders’ books, but the documentation (i.e., the assignments) actually on file at the Registry of Deeds often lags far behind. The Land Court ruled that foreclosures were invalid when the lender brought the ownership documentation (the assignments) up-to-date after the foreclosure sale had already taken place — even if the effective date of the assignment was before the first foreclosure notice. The ruling, which is ultimately expected to head to the Massachusetts Supreme Judicial Court, has prompted concern throughout the conveyancing and mortgage industry, and is stalling sales of foreclosed properties, real estate specialists say.

Based on discussions I have had with other real estate attorneys, up to 20% of all foreclosure titles in Massachusetts may be affected by the Ibanez decision.

This is causing so much angst in the industry that title insurers are refusing to insure foreclosure titles affected by the problem. That means in cases where this issue is present, the lender cannot foreclosure, and the real estate sits barren for the indefinite future. This is bad for the lender who is trying to get rid of a non-performing asset, for the potential buyers interested in purchasing foreclosed properties, and certainly for the neighborhoods affected by blighted foreclosed properties.

Here is a copy of a portion of a memo sent by Stewart Title Company to its local title agents suspending authorizations to issue title insurance over titles derived from foreclosures which are affected by this problem:

Date: April 22, 2009
To: All Massachusetts Issuing Offices
RE: Recent Land Court Decisions Requiring Suspension of Authorization to Insure Massachusetts Titles Based on Foreclosures with Post-Foreclosure Assignments

Dear Associates:

As you may be aware, the Land Court issued two recent decisions that call into question the validity of several titles coming out of foreclosure.

The result of these two decisions is that titles based on foreclosures by an Assignee lender are potentially fatal unless the Assignment in question was executed and held by the foreclosing lender prior to the commencement of foreclosure under M.G.L. c. 244, §14. Foreclosures based on Assignments that were dated after the foreclosure sale were deemed invalid even if the Assignments were “backdated” (i.e., contained an “effective date”) prior to the first c. 244, §14 notices.

Accordingly, subject to certain exceptions discussed later in this Bulletin, until further developments in these cases and the law upon which these cases were decided, Stewart Title Guaranty Company is suspending authorization to insure titles derived from foreclosures where the recorded Assignment into the foreclosing Lender is not dated prior to the date of the first publication under c. 244, §14.

I will be monitoring the Land Court decision through what will surely be an appeal to the Supreme Judicial Court, the highest appellate court in Massachusetts.

Update (Aug. 27, 2009):  I have been informed by attorneys involved in the Ibanez case that the lenders have filed a motion to reconsider the Land Court’s ruling. Also, the Real Estate Bar Association of Massachusetts has taken the unusual step of filing a “friend of the court” brief, urging the Land Court to reconsider its decision. The National Consumer Law Center and well known consumer class action attorney Gary Klein has also joined the fray. As of now, Judge Long of the Land Court has not made a final decision. I will update you when the ruling comes down. Either way, this case is going up to the Supreme Judicial Court, and probably on direct appellate review.

{ 2 comments }