Massachusetts Passes Act to Prevent Unlawful and Unnecessary Foreclosures
by Marissa Aquila Blundell, Esq.
Sr. VP & General Counsel
The Massachusetts legislature recently approved an Act to Prevent Unlawful and Unnecessary Foreclosures, which Governor Patrick is expected to sign in the next few days. Major provisions in the bill will be effective immediately upon its being signed and will impact the Massachusetts foreclosure process significantly.
The legislation prohibits creditors from foreclosing unless the Creditor first takes reasonable steps, in good faith, to avoid foreclosure. Among the provisions given immediate effect, is the requirement that creditors provide a Notice of Right to Pursue a Modified Mortgage Loan, pursuant to new Section 35B (35B Notice), concurrently with the required Notice of Right to Cure if the delinquent mortgagor holds a “Certain Mortgage Loan”.
“Certain Mortgage Loan” is defined as a loan made 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 and which has one or more of the following features:
- Introductory interest rate granted for period of 3 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 where mortgage loan is an open-end HELOC or is a construction loan
- Payment option feature, where any option is less than principal and interest fully amortized over life of loan
- Loan did not require full documentation of income or assets
- Prepayment penalty exceeds limits set in by Massachusetts or federal law
- Loan underwritten with an LTV ratio at or above 90% and a borrower DTI ratio exceeding 38%
- Loan underwritten as a component of a transaction with CLTV exceeding 95%
A loan is also considered a “Certain Mortgage Loan” if, after reasonable diligence, a creditor is unable to determine whether or not the loan has one or more of the features listed above. An important, albeit limited, exception in the law excludes loans financed by the Massachusetts Housing Finance Agency, and loans originated through programs administered by the Massachusetts Housing Partnership Fund from the “Certain Mortgage Loan” category.
Servicers and creditors holding Massachusetts mortgages must address a number of implementation issues on a very brief time-table in order to avoid additional delay in the foreclosure process. Aside from the initial determination as to whether or not a delinquent loan is a “Certain Mortgage Loan” and the development of the new 35B notice, mortgagees and services must be prepared to carry out additional steps in accordance with additional timetables contained in the law triggered by the provision of the new notice.
For example, a borrower has 30 days to respond to the new 35B notice containing the additional rights. If no response is received, a borrower shall be considered to forfeit the 150 day right to cure period and shall be subject to a right to cure period of 90 days.
Upon receipt of borrower’s response indicating intent to pursue a modified loan, the Creditor must provide a written assessment within 30 days containing at a minimum:
- Statement of borrower’s income, debts and obligations
- Net present value analysis
- Anticipated net recovery at foreclosure
- Statement of the creditor’s interests
- A modified mortgage loan offer or notice that no modified mortgage loan will be offered
- If assessment includes modified mortgage loan offer, the offer shall list contact information for no more than two creditor representatives (creditors may not assign more than two reps responsibility for negotiating and approving modified loan)
The new law prohibits creditors from pursuing Foreclosure unless first reasonable steps are taken in good faith to avoid foreclosure. A creditor will be deemed to have complied with this requirement if it:
- Determines the borrower’s ability to make an affordable monthly payment
- Identifies a modified mortgage loan that achieves the borrower’s affordable monthly payment
- Conducts an analysis comparing the net present value of the modified mortgage loan and the creditor’s anticipated net recover that would result from foreclosure
- 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
- Where the net present value of the modified mortgage loan is less than the anticipated net recovery at foreclosure, notifies borrower that no mortgage loan will be offered and provides written summary of the net present value analysis and borrower’s current ability to make monthly payments
“Affordable monthly payment” is defined as the monthly payment on a mortgage loan which enables a borrower to make the payment taking into account the borrower’s current circumstances, including verifiable income, debts, assets, and obligations.
“Modified mortgage loan” is defined as a loan modified from its original terms including, but not limited to, a loan modified under HAMP, the FDIC’s loan mod program, a modification program of the NCUA, DOB or other instrumentality of the Commonwealth, FHA or a similar federal loan modification plan.
“Net present value” is defined as the present net value of a residential property based on a calculation using the HAMP base net present value model, the FDIC’s loan modification program model, the MHFA’s loan program used solely by the agency to compare the expected outcomes, and any model approved by the Massachusetts Division of Banks.
If no modified mortgage loan will be offered; prior to publishing Notice of Foreclosure, creditor must file an affidavit, based upon a review of business records, with the appropriate Registry of Deeds to certify compliance with the requirements of Chapter 244, Section 35B. An affidavit certifying compliance with this section shall be conclusive evidence in favor of an arm’s length their party purchaser for value that the creditor has fully complied with this section and the mortgagee is entitled to proceed with foreclosure. Creditors may not impose the cost of correcting, curing or confirming documentation relating to the sale, transfer or assignment of a mortgage loan, upon a third party.
The remaining provisions in the law will be effective November 1, 2012. Creditors must track the final outcome of each loan modification and report on a bi-annual basis to the Massachusetts Division of Banks. The legislation also requires the Massachusetts Division of Banks to issue rulemakings to carry out the administration and enforcement of various provisions in the new law.
About the Author
Marissa is Senior Vice President and General Counsel of Bankers Advisory. She received her Juris Doctor from New England School of Law and admitted to the Massachusetts bar. She is Co-chair of the Massachusetts Mortgage Bankers Association Legislative Committee. She can be reached at marissa@bankersadvisory.com
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