On August 3, 2012, Massachusetts Governor Deval Patrick signed House Bill 4323, An Act Preventing Unlawful and Unnecessary Foreclosures (the “Act”) into law on an emergency basis. The Act, which became Chapter 194 of the Acts of 2012, will have a profound and immediate impact on the manner in which foreclosures are conducted in Massachusetts. Also on August 3rd, the Massachusetts Office of Consumer Affairs and Business Regulation issued Guidance on Compliance with Chapter 194 of the Acts of 2012, An Act Preventing Unlawful and Unnecessary Foreclosure (the “Guidance”), which provides guidance on complying with the new procedures for executing a power of sale under Massachusetts law.
The Act, among other things, requires the following:
Compliance with the Right to Modify Notice provisions is required as of August 3, 2012.
This article provides a summary of the Act and Guidance, including required compliance dates and suggestions for complying with the Act.
Changes to Notice of Sale, Effective November 1, 2012.
Section 1 of the Act rewrites 244 M.G.L.A. § 14, which outlines the procedures for foreclosures under a power of sale in Massachusetts.
First of all, the amendments to Section 14 clarify that the Notice of the Sale, which is required to be sent to the borrower at least 14 days prior to the foreclosure sale, must be sent by registered mail.[1]
More importantly, the amendments require that assignees of mortgages are required to record an assignment or chain or assignments at the appropriate registry of deeds prior to the mailing of the Notice. In addition, the recording information for all recorded assignments must be included in the Notice as well as any merger, consolidation, amendment, conversion or acquisition of assets causing a change in the name or identity of the mortgage holder. Failure to comply with these requirements renders the Notice invalid.[2]
The new Notice of the Sale has been revised.
New Pre-foreclosure Modification Rights Notice for “Certain Mortgage Loans,” Effective August 3, 2012.
Section 2 of the Act adds two new sections to the foreclosure statutes. The first is 244 M.G.L.A. § 35B, which requires creditors[3] to send a new Right to Modify Notice to borrowers who have “certain mortgage loans.”[4] Essentially, this notice applies to certain ARMs with low introductory rates, loans with interest-only provisions, negatively amortizing loans, loans that do not require documentation of income, loans with high prepayment penalties, and loans with a low loan-to-value ratio or high debt-to-income ratio. The Guidance also requires a creditor to maintain written documentation of its determination with regard to whether a mortgage loan qualifies as a “certain mortgage loan.” The Right to Modify Notice must be sent concurrently with the Right to Cure Notice mandated by 244 M.G.L.A. § 35A and the Massachusetts Division of Banks regulations at 209 C.M.R. Part 56.00.[5]
Given the emergency nature of the Act, if a creditor sends a Right to Cure Notice after August 3rd, it must also develop and send the new Right to Modify Notice.[6] According to the Guidance, however, notice is not required for mortgage loans where the Right to Cure Notice was sent prior to August 3rd, and for loans that have proceeded through the foreclosure process through a complaint being filed in the land or superior court or if the pre-auction foreclosure Notice of Sale has already been mailed or published.
The elements of the Right to Modify Notice are found in both the Act and the Guidance. The notice must include the following:
Provision of the Right to Modify Notice triggers an obligation on the part of the borrower to respond with an indication of whether s/he would like to proceed with modification. If the borrower fails to respond within 30 days, the 150 Right to Cure period will be trimmed from 150 to 90 days.[8]
If the borrower responds and indicates an intent to proceed with the modification, then s/he must provide the information requested in the Right to Modify Notice necessary for the creditor to assess whether a modified mortgage loan[9] can be offered.[10] Once this information is provided by the borrower, the creditor will have 30 days during which to make this assessment.
The creditor must determine whether or not to modify the mortgage in a reasonable and good faith manner. Under the Act, there is a form of safe harbor where the creditor will be deemed to have taken appropriate steps to avoid foreclosure if it does all of the following:
If the creditor concludes that the net present value of the modified mortgage loan exceeds the anticipated net recovery on foreclosure, the creditor should agree to modify the loan in a manner that permits the borrower to make affordable monthly payments. Where this is not so, or in those instances where the modified mortgage loan would not result in an affordable monthly payment for the borrower, the creditor must inform the borrower that no modified mortgage loan will be offered.
The method by which the creditor will communicate this determination will be in the form of a “Modification Assessment” that it will send to the borrower. Under the Act, the Modification Assessment must include the following:
If the Modification Assessment contains an offer to make a modified mortgage loan, it must also include the contact information (first and last name and phone numbers) of no more than two creditor representatives responsible for negotiating and approving the terms of and modifying the mortgage loan. The Modification Assessment should be sent to the borrower by first class and certified mail.
Borrowers who receive an offer of a modified mortgage loan will then have 30 days to respond in writing to either accept the offer, make a reasonable counteroffer with supporting documentation (which may be accepted, rejected or be the subject of a responsive counteroffer by the creditor) or waive his/her rights to the modified mortgage loan and proceed to foreclosure. Similar to the initial Right to Modify Notice, if the borrower fails to respond at this juncture s/he will be deemed to have forfeited the 150 Right to Cure period in favor of the shorter 90-day period.[14]
The process developed by Section 35B is designed to require creditors to consider modifications to “certain mortgage loans” prior to proceeding to foreclosure.[15] In light of this, the Act requires that the Right to Modify Notice be provided – and all the analysis that accompanies it be completed – before the creditor publishes the Notice of Sale. If all of this fails, however, and the creditor still is moving forward with foreclosure it must (also before publishing the Notice of Sale) certify its compliance with the requirements of Section 35B by filing an affidavit of compliance in the appropriate registry of deeds.[16]
Two final thoughts on the Right to Modify Notice are worthy of mention. First, there is a limit to the number of times that such an offer must be made. Under the Act this right need only be granted once every three years, regardless of mortgage holder.[17] Second, creditors will be required to file a bi-annual report on the final outcome of each loan modification on all mortgage loans for which the creditor sent to a borrower a Notice of Right to Modify. [18]
Prohibition against Publishing Notice of Sale when Creditor Knows (or Should Know) that Mortgagee is Not a Holder of the Mortgage (nor Authorized Agent of Holder), Effective November 1, 2012.
The second of the new sections inserted into Chapter 244 of the General Laws by Section 2 of the Act is 244 M.G.L.A. § 35C. This new provision codifies the recent holding of the Massachusetts Supreme Judicial Court, Eaton v. Fannie Mae. For more information on this case, please see our article in the last issue of Basis Points, “Recent Massachusetts Case Clarifies Foreclosure Standing Requirements.”
Under Section 35C, a creditor[19] may not publish the Notice of Sale described above 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.[20] In addition, prior to the publication of the Notice of Sale, the creditor must certify to the foregoing in an affidavit, and must record the affidavit in the appropriate registry of deeds.[21]
Certain Additional Acts Also Deemed Violations of Section 35C, Effective November 1, 2012.
In addition to the requirements specific to proper transfer of the underlying mortgage loan note, Section 35C deems a variety of other acts to also be violations of the statute.
(A) Imposing Documentation Cure Costs on Third Parties
A creditor cannot impose the costs of correcting, curing or confirming any documentation related to the sale, transfer or assignment of a mortgage loan – including costs that are related to curative action because a foreclosure was commenced without the creditor’s possession of a properly executed assignment of the mortgage – on a third party. A third party is permitted to recover all of its costs, including reasonable attorney’s fees for having to correct, cure or confirm documentation related to the sale, transfer or assignment of a mortgage loan.[22]
(B) False Statements
Section 35C is also violated when a creditor makes false statements (or statements that the creditor should know are false) to a court related to foreclosure, including statements about offering a modified mortgage loan, the borrower’s payment history, the validity of the mortgage assignment, that the creditor is the holder of the loan or the creditor’s compliance with any other requirements of the Commonwealth’s foreclosure statute.[23]
(C) Imposing Fees for Services Not Rendered
Under Section 35C, it is a violation of law if the creditor imposes a fee upon a borrower for goods not rendered or services not performed in connection with a foreclosure.[24] In addition, no person can give, and no person can accept, any portion of any charge made or received for the rendering of a service in connection with a transaction involving a foreclosure other than for services actually performed.[25]
(D) Placing Limits on Property Purchases by Non-Profits
Finally, under Section 35C, it is a violation of law for a creditor to require, as condition of sale or transfer to a 501(c)(3) (or an entity controlled by a 501(c)(3)), any affidavit, statement, agreement or addendum limiting ownership or occupancy by the borrower and any such document may not provide a basis to avoid a sale or transfer and shall be unenforceable against the 501(c)(3) or other party related to the sale or transfer.[26]
Extension of In-Person Counseling on Reverse Mortgages, Effective August 3, 2012.
Section 3 of the Act extends the effective date for in-person counseling requirements for certain reverse mortgage applicants from August 1, 2012, to August 1, 2014.[27] The Guidance clarifies that the in-person requirements do not apply for applications taken on August 1st or 2nd.
Creation of Task Force to Encourage the Prevention of Unnecessary Vacancies.
Section 4 of the Act creates a task force of interested parties to study ways in which Massachusetts can encourage the prevention of unnecessary vacancies following foreclosures. The task force is required to submit its findings to the joint committee on financial services and judiciary no later than December 31, 2013.
Thomas P. Quinn Jr. is a partner in the Massachusetts office of Hudson Cook, LLP. Tom can be reached at 774-365-4758 or by email at tquinn@hudco.com.
Frank H. Bishop Jr. is an associate in the Maine office of Hudson Cook, LLP. Frank can be reached at 207-541-9554 or at fbishop@hudco.com.
Danielle Cardona (J.D. Candidate, 2013, Unversity of Maine School of Law) is a summer associate in the Maine office of Hudson Cook, LLP.
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[1] 244 M.G.L.A. § 14, as amended by § 1 of Chapter 194 of the Acts of 2012. The Massachusetts statute also requires publication of the Notice of Sale in a paper published in the town where the property is located or in a paper of general circulation in that town, once per week for three weeks leading up to the foreclosure sale.
[2] Id.
[3] “Creditor” means the person that holds or controls (whether such control is partial or whole, direct or indirect, or in a nominee capacity) a mortgage loan securing an owner-occupied residential property, which includes the originator, holder, investor, assignee, successor, trust, trustee, nominee holder, MERS or mortgage servicer – including Fannie Mae and Freddie Mac. Employees, servants and agents of such parties are also considered “creditors.” 244 M.G.L.A. § 35B(a), as added by § 2 of Chapter 194 of the Acts of 2012.
[4] “Certain mortgage loan” means a loan made for personal, family or household purposes that is secured (in whole or in part) by a mortgage on a 1 to 4 household owner-occupied residential property that is used as the principal residence of the borrower and has one (1) or more of the following seven (7) features:
(a) An intro rate granted for a period of 3 years or less, with an intro rate 2% lower than the fully-indexed rate;
(b) Interest-only payments for any period of time (except where the mortgage is a HELOC or a construction loan);
(c) A payment option feature where any 1 of the payment options is less than principal and interest fully amortized over the life of the loan;
(d) The loan did not require full documentation of the borrower’s income or assets;
(e) Prepayment penalties that exceed the limits found in 183 M.G.L.A. § 56 or federal law;
(f) The loan was underwritten with an LTV > 90% and the debt-to-income ratio (including all housing-related and recurring monthly debt) > 38%; or
(g) The loan was underwritten as a component of a loan transaction in which the combined LTV > 95%.
If the creditor is unable, after conducting a reasonable due diligence, to determine if the loan has one or more of the above features the loan is presumed to be a “certain mortgage loan.” Loans financed by the Massachusetts Housing Finance Agency (“MHFA”) and those originated through programs administered by the Massachusetts Housing Partnership Fund are exempted from this definition. Id.
[5] 244 M.G.L.A. § 35B(c), as added by § 2 of Chapter 194 of the Acts of 2012.
[6] A copy of the Right to Modify Notice must also be filed with the Attorney General at the following address: Office of the Attorney General, ATTN: HomeCorps Director, One Ashburton Place, Boston, MA 02108.
[7] 244 M.G.L.A. § 35B(d), as added by § 2 of Chapter 194 of the Acts of 2012. The Attorney General’s HomeCorps website includes information regarding this contact at: http://www.mass.gov/ago/news-and-updates/initiatives/addressing-the-foreclosure-crisis/homecorps/.
[8] 244 M.G.L.A. § 35B(c), as added by § 2 of Chapter 194 of the Acts of 2012.
[9] A “modified mortgage loan” means a loan modified from its original terms including those modified under (a) the HAMP, (b) the FDIC’s Loan Modification Program, (c) modification programs based on accepted safety and soundness principles and authorized by the NCUA, the Massachusetts Division of Banks or other Commonwealth agencies, (d) the FHA or (e) similar federal loan modification programs. 244 M.G.L.A. § 35B(a), as added by § 2 of Chapter 194 of the Acts of 2012.
[10] 244 M.G.L.A. § 35B(c), as added by § 2 of Chapter 194 of the Acts of 2012.
[11] An “affordable monthly payment” is defined in the Act to mean a monthly payment that enables a borrower to make payment, taking into account his/her current circumstances, including verifiable income, debts assets and obligations. 244 M.G.L.A. § 35B(a), as added by § 2 of Chapter 194 of the Acts of 2012.
[12] “Net present value” means the present net value of the property based on a calculation that uses one of the following: (a) the HAMP base net present value model, (b) the FDIC’s loan modification program, (c) the MHFA loan program used by the agency to compare the expected economic outcome of a loan with or without a modified mortgage loan or (d) any model approved by the Massachusetts Division of Banks to consider the total present value of a series of future cash flows relative to a mortgage loan. 244 M.G.L.A. § 35B(a), as added by § 2 of Chapter 194 of the Acts of 2012. 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 such investment, but not to any individual or groups of investors or beneficial interest holders. The servicer must act in the best interests of all such investors or holders of beneficial interests if the servicer agrees to or implements a modified mortgage loan or takes reasonable loss mitigation actions. 244 M.G.L.A. § 35B(b)(1), as added by §2 of Chapter 194 of the Acts of 2012.
[13] 244 M.G.L.A. § 35B(c), as added by § 2 of Chapter 194 of the Acts of 2012.
[14] Id.
[15] Section 35B does clarify, however, that the right to modify provisions do not prevent a creditor from offering or accepting an alternative to foreclosure, such as a short sale or deed-in-lieu of foreclosure, if the borrower requests such an alternative, rejects a modified mortgage loan offer or does not qualify for a modified mortgage loan. See: 244 M.G.L.A. § 35B(e), as added by § 2 of Chapter 194 of the Acts of 2012.
[16] 244 M.G.L.A. § 35B(f), as added by § 2 of Chapter 194 of the Acts of 2012.
[17] 244 M.G.L.A. § 35B(c), as added by § 2 of Chapter 194 of the Acts of 2012.
[18] 244 M.G.L.A. § 35B(g), as added by § 2 of Chapter 194 of the Acts of 2012. These reports will be used by the Division of Banks, in consultation with the Attorney General, to track the final outcome of loan modification process. This tracking will result in annual reports by the Division of Banks to the General Assembly Joint Committee on Financial Services. See: § 5 of Chapter 194 of the Acts of 2012.
[19] “Creditor” is defined the same as in Section 35B above. 244 M.G.L.A. § 35C(a), as added by § 2 of Chapter 194 of the Acts of 2012.
[20] 244 M.G.L.A. § 35C(b), as added by § 2 of Chapter 194 of the Acts of 2012.
[21] Id.
[22] 244 M.G.L.A. § 35C(c), as added by § 2 of Chapter 194 of the Acts of 2012.
[23] 244 M.G.L.A. § 35C(d), as added by § 2 of Chapter 194 of the Acts of 2012.
[24] 244 M.G.L.A. § 35C(e), as added by § 2 of Chapter 194 of the Acts of 2012.
[25] 244 M.G.L.A. § 35C(f), as added by § 2 of Chapter 194 of the Acts of 2012.
[26] 244 M.G.L.A. § 35C(h), as added by § 2 of Chapter 194 of the Acts of 2012.
[27] 258 M.G.L.A.§ 13, as revised by § 3 of Chapter 194 of the Acts of 2012. The counseling requirements apply to applicants with gross income less than 50% of the area median income and assets valued at less than $ 120,000, excluding the primary residence. See: 167E M.G.L.A. § 7A(a) and 171 M.G.L.A. § 65C1/2(a).
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