28 Sep Massachusetts Legislative Update
Our August 17, 2012 Compliance Memorandum discussed provisions of House Bill 4323 that were effective August 3, 2012, which required the Massachusetts Division of Banks (the “Division”), to establish a Foreclosed Property Registry and a Foreclosed Property Registry Fund. This memorandum discusses the provisions of House Bill 4323, which are effective November 1, 2012, addressing methods to prevent unlawful and unnecessary foreclosures.
A notice of sale must be sent by registered mail.
The following foreclosure notice has been amended. It may be altered as circumstances require and does not prevent the use of other forms:
“MORTGAGEE’S SALE OF REAL ESTATE
By virtue and in execution of the Power of Sale contained in a certain mortgage given by_______________________________________ to____________________________ dated________________ and recorded with__________________________
Registry of Deeds, Book____________, page_________, of which mortgage the undersigned is the present holder,_________________________________
(If by assignment, or in any fiduciary capacity, give reference to the assignment or assignments recorded with ________________Registry of Deeds, Book__________, page_______, of which mortgage the undersigned is the present holder,________________)
for breach of the conditions of said mortgage and for the purpose of foreclosing the same will be sold at Public Auction at _______o’clock, _____M. on the _____ day of ________ A.D. (insert year), ____________ (place) ___________ all and singular the premises described in said mortgage,
(In case of partial releases, state exceptions.)
To wit: (Description as in the mortgage, including all references to title, restrictions, encumbrances, etc., as made in the mortgage.)
Terms of sale: (State here the amount, if any, to be paid in cash by the purchaser at the time and place of the sale, and the time or times for payment of the balance or the whole as the case may be.)
Other terms to be announced at the sale.
Present holder of said mortgage.”
If a lender holds a mortgage with an assignment, a notice is not valid unless (i) at the time the notice is mailed, an assignment, or a chain of assignments, evidencing the assignment of the mortgage to the foreclosing lender has been recorded in the registry of deeds for the county or district where the land lies and (ii) the recording information for all recorded assignments is referenced in the notice of sale. The notice will not be defective if any holder within the chain of assignments either changed its name or merged into another entity during the time it was the mortgage holder. The notice must include any merger, consolidation, amendment, conversion or acquisition of assets causing the change in name or identity, which is conclusive in favor of any bona fide purchaser, lender, lienholder or encumbrancer of value relying in good faith on the recital.
“Affordable monthly payment” means monthly payments on a mortgage loan, which, taking into account the borrower’s current circumstances, including verifiable income, debts, assets, and obligations enable a borrower to make the payments.
“Certain mortgage loan” means a loan to a natural person made primarily for personal, family, or household purposes secured wholly or partially by a mortgage on an owner-occupied residential property with one or more of the following loan features:
- An introductory interest rate granted for a period of three years or less and the introductory rate is at least 2% lower than the fully indexed rate;
- Interest-only payments for any period of time, except in the case where the mortgage loan is an open-end home equity line of credit or is a construction loan;
- A payment option feature, where any one of the payment options is less than principal and interest fully amortized over the life of the loan;
- The loan did not require full documentation of income or assets;
- Unlawful prepayment penalties by state or federal law;
- The loan was underwritten with a loan-to-value ratio at or above 90% and the ratio of the borrower’s debt, including all housing-related and recurring monthly debt, to the borrower’s income exceeded 38%; or
- The loan was underwritten as a component of a loan transaction, in which the combined loan-to-value ratio exceeded 95%.
If a lender performs reasonable due diligence but is still unable to determine whether the loan has one or more of the loan features above, the loan will still be considered a certain mortgage loan. Loans financed by the Massachusetts Housing Finance Agency (the “Agency”) and loans originated through programs administered by the Massachusetts Housing Partnership Fund board are not certain mortgage loans.
“Creditor” (referred to as “lender”) means a person or entity that holds or controls, partially, wholly, indirectly, directly or in a nominee capacity, a mortgage loan securing an owner-occupied residential property, including, but not limited to, an originator, holder, investor, assignee, successor, trust, trustee, nominee holder, Mortgage Electronic Registration System or mortgage servicer, including Fannie Mae or Freddie Mac. “Lender” also includes any servant, employee, or agent of a lender. “Lender” does not include Massachusetts thrift institutions and its Housing Finance Agency.
“Lender’s representative” means a person who has the authority to negotiate and approve the terms of and modify a mortgage loan, or a person who, under a servicing agreement, has the authority to negotiate and approve the terms of and modify a mortgage loan.
“Modified mortgage loan” means a mortgage loan modified from its original terms including, but not limited to, a loan modified under one of the following:
- The Home Affordable Modification Program (“HAMP”);
- The Federal Deposit Insurance Corporation (“FDIC”) Loan Modification Program;
- Any modification program that a lender uses, which is based on accepted principles and the safety and soundness of the institution and authorized by the National Credit Union Administration (“NCUA”), the Division, or any other instrumentality of the Commonwealth;
- The Federal Housing Administration (“FHA”); or
- A similar federal loan modification plan.
“Mortgage loan” means a loan to a natural person made primarily for personal, family or household purposes secured wholly or partially by a mortgage on residential property.
“Net present value” means the present net value of a residential property based on a calculation using one of the following:
- The HAMP base net present value model;
- The FDIC’s Loan Modification Program;
- The Agency’s loan program used only by the Agency to compare the expected economic outcome of a loan with or without a modified mortgage loan; or
- Any model approved by the Division to consider the total present value of a series of future cash flows relative to a mortgage loan.
“Residential property” means real property located in the Commonwealth, on which there is a dwelling house with accommodations for four or fewer separate households and occupied, or to be occupied, in whole or in part by the borrower on the mortgage debt. Residential property is limited to the principal residence of a person. Residential property does not include:
- An investment property or residence other than a primary residence;
- Residential property taken in whole or in part as collateral for a commercial loan; and
- Property subject to condemnation or receivership.
A lender may not cause publication of notice of a foreclosure sale upon certain mortgage loans unless it has first taken reasonable steps and made a good faith effort to avoid foreclosure. A lender is considered to have taken reasonable steps and made a good faith effort to avoid foreclosure if the lender has considered:
- An assessment of the borrower’s ability to make an affordable monthly payment;
- The net present value of receiving payments under a modified mortgage loan as compared to the anticipated net recovery following foreclosure; and
- The interests of the lender, including, but not limited to, investors.
Unless a contract specifies otherwise, a servicer of pooled residential mortgages may determine whether the net present value of the payments on the modified mortgage loan is likely to be greater than the anticipated net recovery that would result from foreclosure to all investors and holders of beneficial interests in the investment, but not to any individual or groups of investors or beneficial interest holders. The servicer must act in the best interests of all investors or holders of beneficial interests if the servicer agrees to or implements a modified mortgage loan or takes reasonable loss mitigation actions. Any modified mortgage loan offered to the borrower must comply with current federal and state law, including, all rules and regulations pertaining to mortgage loans. The borrower must be able to reasonably afford to repay the modified mortgage loan according to its scheduled payments. Any modified mortgage loan may be made without the consent of the holders of junior encumbrances and without loss of priority for the full amount of the modified loan and will not be construed so as to grant to any holder of a junior encumbrance rights that the holder would not otherwise have.
A lender is presumed to have acted in good faith if, prior to causing publication of notice of a foreclosure sale, the lender:
- Determines a borrower’s current ability to make an affordable monthly payment;
- Identifies a modified mortgage loan that achieves the borrower’s affordable monthly payment, which may include reduction in principal, reduction in interest rate or an increase in amortization period. The amortization period must not be more than a 15-year increase. A modified mortgage loan must not have an amortization period that exceeds 45 years;
- Conducts a compliant analysis comparing the net present value of the modified mortgage loan and the lender’s anticipated net recovery that would result from foreclosure. The analysis will be compliant if the analysis is in accordance with the formula presented in at least one of the following:
- The FDIC’s Loan Modification Program;
- Any modification program that a lender uses, which is based on accepted principles and the safety and soundness of the institution and authorized by the NCUA, the Division, or any other instrumentality of the Commonwealth;
- The FHA; or
- A similar federal loan modification plan; and
- Either (i) in all circumstances where the net present value of the modified mortgage loan exceeds the anticipated net recovery at foreclosure, agrees to modify the loan in a manner that provides for the affordable monthly payment; or (ii) in circumstances where the net present value of the modified mortgage loan is less than the anticipated net recovery of the foreclosure, or does not meet the borrower’s affordable monthly payment, notifies the borrower that a modified mortgage loan will not be offered and provides a written summary of the lender’s net present value analysis and the borrower’s current ability to make monthly payments, after which the lender may proceed with the foreclosure process.
For certain mortgage loans, the lender must send notice, concurrently with the notice of the borrower’s right to cure a default, of the borrower’s right to pursue a modified mortgage loan. The notice is considered delivered to the borrower when sent by first class mail and certified mail or similar service by a private carrier to the borrower at the last known borrower’s address. A copy of the notice must be filed with the Attorney General. The process for determining whether a modified mortgage loan is offered must not take longer than 150 days.
Within 30 days following delivery of the notice, a borrower who holds a certain mortgage loan must notify a lender of the borrower’s intent:
- To pursue a modified mortgage loan which must include a statement of the borrower’s income and a complete list of total debts and obligations, as requested by the lender, at the time of receipt of the notice;
- To pursue an alternative to foreclosure, including a short sale or deed-in-lieu of foreclosure;
- Not to pursue a modified mortgage loan and pursue the right to cure period; or
- To waive the right to cure period and proceed to foreclosure.
A borrower who holds a certain mortgage loan and fails to respond to the lender within 30 days of delivery of the notice will be considered to have forfeited the right to cure period and will be subject to a right to cure period of 90 days. A borrower will be presumed to have notified the lender if the borrower provides proof of delivery through the U.S. Postal Service or similar carrier.
Within 30 days of receipt of the borrower’s notification that the borrower intends to pursue a modified mortgage loan, a lender must provide the borrower with its assessment in writing. The assessment must include, but is not limited to:
- A written statement of the borrower’s income, debts, and obligations as determined by the lender;
- The lender’s net present value analysis of the mortgage loan;
- The lender’s anticipated net recovery at foreclosure;
- A statement of the interests of the lender; and
- A modified mortgage loan offer or notice that a modified mortgage loan will not be offered.
If a lender offers a modified mortgage loan, the offer must include the first and last names and contact phone numbers of the lender’s representative. The lender may not assign more than two representatives to be responsible for negotiating and approving the terms of and modifying the mortgage loan.
The assessment must be provided by first class and certified mail. A lender will be presumed to have provided the assessment to the borrower if the lender provides proof of delivery through the U.S. Postal Service or similar carrier. A borrower who receives a modified mortgage loan offer from a lender must respond within 30 days of receipt of the assessment and offer of a modified mortgage loan. The borrower may accept the offer of a loan modification as provided by the lender, make a reasonable counteroffer, or state that the borrower wishes to waive the borrower’s rights and proceed to foreclosure. The borrower’s response must be in writing and, if a counteroffer is proposed, must include substantiating documentation in support of the counteroffer. The response must be provided by first class and certified mail.
A borrower will be presumed to have responded if the borrower provides proof of delivery through the U.S. Postal Service or similar carrier. A borrower who fails to respond to the lender within 30 days of receipt of a modified mortgage loan offer will be considered to have forfeited the 150 day right to cure period and will be subject to a right to cure period of 90 days. Where a counteroffer is proposed, the lender must accept, reject, or propose a counteroffer to the borrower within 30 days of receipt. Additional offers by both parties will be considered during the right to cure period. A borrower may at any time state in writing that the borrower wishes to waive the borrower’s rights and proceed to foreclosure. This does not prevent a lender and a borrower from negotiating the terms of a modified mortgage loan by telephone or in person following the initial offer of a modified mortgage loan by a lender. All offers, whether by a lender or a borrower, must be in writing and signed by the offeror. The right to a modified mortgage loan may be granted once every three years, regardless of the mortgage holder.
The notice the lender sends to the borrower must, at a minimum, include the appropriate contact information for modification assistance within the Attorney General’s office. The notice must be similar in substance and form to the notice promulgated by the Division of the borrower’s right to cure a default.
A lender may offer or accept an alternative to foreclosure, such as a short sale or deed-in-lieu of foreclosure, if the borrower requests the alternative, rejects a modified mortgage loan offer, or does not qualify for a modified mortgage loan.
Before publishing a notice of a foreclosure sale, the lender, or if the lender is not a natural person, an officer or duly authorized agent of the lender, must certify compliance in an affidavit based upon a review of the lender’s business records. The lender, or an officer or duly authorized agent of the lender, must record this affidavit with the registry of deeds for the county or district where the land lies.
The affidavit certifying compliance is conclusive evidence in favor of an arm’s-length third party purchaser for value, at or after the resulting foreclosure sale, that the lender has fully complied and the lender is entitled to proceed with foreclosure of the mortgage under the power of sale contained in the mortgage and any one or more of the authorized foreclosure procedures. The arm’s-length third party purchaser for value relying on the affidavit will not be liable for any failure of the foreclosing party to comply, and title to the real property that is acquired will not be set aside on account of the failure. The filing of the affidavit will not relieve the affiant, or other person on whose behalf the affidavit is executed, from liability for failure to comply, including by reason of any statement in the affidavit. The term “arm’s-length third party purchaser for value” includes the purchaser’s heirs, successors and assigns.
On a bi-annual basis, a lender must report the final outcome of each loan modification on all mortgage loans for which the lender sent to a borrower a notice of the right to pursue a modified mortgage loan to the Division.
The Division can adopt, amend, or repeal regulations to aid in administration and enforcement, including the minimum requirements of a good faith effort by the borrower to respond to the notice of the borrower’s right to pursue a modified mortgage loan. The regulations may include requirements for reasonable steps and good faith efforts of the lender to avoid foreclosure and safe harbors for compliance. The Division can make any available net present value models accessible to all lenders.
It is unlawful for a lender to impose upon a third party the cost of correcting, curing or confirming documentation relating to the sale, transfer, or assignment of a mortgage loan, including, but not limited to, costs related to curative actions taken because a foreclosure began without the lender’s possession of a valid, written, signed, and dated assignment evidencing the assignment of the mortgage. A third party may recover all of the third party’s costs including reasonable attorneys’ fees for having to correct, cure, or confirm documentation.
It is unlawful for a lender to make statements to a state or federal court related to foreclosure, orally or in writing, that it knows or should know are false, including, but not limited to, statements about the offering of a loan modification, the borrower’s history of payments, the validity of the assignment of the mortgage loan, that the lender is the record holder of the mortgage loan, or the lender’s compliance with any other foreclosure or redemption of mortgages requirements.
It is unlawful for the lender to impose a fee upon a borrower for goods not rendered or services not performed connected to a foreclosure.
A person may not give and a person may not accept any portion, split, or percentage of any charge made or received for rendering a service connected to a transaction involving a foreclosure upon a mortgage loan except for services actually performed.
In all circumstances where an offer to purchase either a mortgage loan or residential property is made by an entity that is tax-exempt as a charitable organization, or an entity controlled by an entity with this status, a lender cannot require as a condition of sale or transfer to any entity any affidavit, statement, agreement, or addendum limiting ownership or occupancy of the residential property by the borrower. If obtained, the affidavit, statement, agreement, or addendum cannot provide a basis to avoid a sale or transfer or be enforceable against the acquiring entity or any real estate broker, borrower, or settlement agent named in the affidavit, statement, or addendum. For purposes of this paragraph, “residential property” means real property located in the Commonwealth on which there is a dwelling house with accommodations for four or fewer separate households and occupied, or to be occupied, in whole or in part, by the borrower on the mortgage debt. Residential property is limited to the principal residence of a person and does not include an investment property or residence other than a primary residence or residential property taken in whole or in part as collateral for a commercial loan.
The Division will, in consultation with the Attorney General, annually track the final outcome of the loan modification process on all certain mortgage loans for which the lender sent to a borrower a notice of the right to pursue a modified mortgage loan and provide a report of the results to the Joint Committee on Financial Services within 90 days of the end of each calendar year.