Massachusetts' foreclosure prevention law, which went into effect in 2012, helps keep defaulting homeowners in their homes. Homeowners can avoid foreclosure if the lender would benefit more from a loan modification than from a foreclosure. Read on to learn more about Massachusetts’ Act Preventing Unlawful and Unnecessary Foreclosures and find out how it can help you if you are a struggling homeowner in danger of foreclosure in Massachusetts.
(For more articles on foreclosure in Massachusetts, including foreclosure mediation programs in various Massachusetts' counties, visit our Massachusetts Foreclosure Law Center.)
Most foreclosures in Massachusetts are nonjudicial, which means the lender does not have to go through state court to get one. (To learn more about the difference between judicial and nonjudicial foreclosure, and the procedures for each, see Will Your Foreclosure Take Place In or Out of Court?)
Learn more about the Massachusetts foreclosure process.
Massachusetts Foreclosure Prevention Law
On August 2, 2012, Massachusetts Governor Deval Patrick signed “An Act Preventing Unlawful and Unnecessary Foreclosures.” The law expanded important consumer protections for homeowners in Massachusetts and created a series of new steps that lenders must take before foreclosing on homeowners who have fallen behind in mortgage payments.
Lenders Must Make a Good Faith Effort to Help Homeowners Avoid Foreclosure
The major component of this law is that lenders must make a good faith effort to work with delinquent homeowners and take reasonable steps to avoid foreclosure. Specifically, a lender must determine the value of modifying a loan before foreclosing on a home. If a modification will bring in a greater financial advantage, then lenders must opt for a modification over a foreclosure.
Presumably, a lender would modify a mortgage if it thought it would be more cost-effective than a foreclosure, even without the government telling it to do so. However, this hasn’t always been the case. Lenders have not always given homeowners a meaningful opportunity to obtain available loss mitigation options. (To find evidence of this, just look at the national mortgage settlement and independent foreclosure review settlement.)
This law ensures that borrowers will be given every reasonable opportunity to find an alternative to foreclosure.
(To get information about loss mitigation options to avoid foreclosure, see our Alternatives to Foreclosure area.)
The law covers residential properties with four or fewer units. The borrower must reside in one of the units as a principal residence. (Investment, vacation, and commercial properties are not protected.)
150-Day Right-to-Cure Notice
Massachusetts law requires that lenders send a 150-day right-to-cure notice to borrowers. First, the lender must notify the borrowers of their right to pursue a modified mortgage loan or other alternative to foreclosure. If the borrowers fail to respond within 30 days to a written offer to negotiate loss mitigation options, they are deemed to have forfeited the right to a 150-day right-to-cure period and the lender may use a 90-day notice instead of a 150-day notice.
How the Lender Determines if a Modification is More Beneficial than a Foreclosure
When determining if a loan modification or foreclosure is more financially valuable, the lender must:
- consider the borrower's ability to make an affordable monthly payment (by reviewing the borrower’s income, debts, and expenses)
- evaluate the net present value of receiving payments under a modified mortgage loan as compared to the anticipated net recovery following foreclosure, and
- take into account the interests of the lender, including, but not limited to, investors.
Net Present Value Analysis. Net Present Value (NPV) is a method used to compare the current value of money with the value of money in the future. The analysis determines the expected economic value of the loan for both modification and foreclosure scenarios. If the result is NPV positive, the value of the modification is greater than a foreclosure. Mortgage servicers and lenders typically use NPV assessments when deciding whether or not to offer a borrower a loan modification. (Learn more about NPV assessments.)
Ultimately, if modifying the loan for the homeowner has a greater net present value than the net present value of what the house would be worth sold as a foreclosed property, then the lender must offer the modification to the homeowner.
A borrower who receives a loan modification offer from the lender must respond within 30 days. A borrower will be presumed to have responded if the borrower provides:
- confirmation of a facsimile transmission to the lender
- proof of delivery through the United States Postal Service or similar carrier, or
- a record of a telephone call to the lender captured on a telephone bill or pin register.
A borrower who fails to respond to the lender's offer within 30 days of receipt of a loan modification offer will be deemed to have forfeited the 150-day right to cure period and will be subject to a right to cure period lasting 90 days.
The Massachusetts foreclosure prevention law also includes provisions which:
- force lenders to prove loan ownership before foreclosing on a home (by ensuring that 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 is located), and
- prohibit lenders from assessing unfair costs and adding fees for services not performed in connection with a foreclosure.
Massachusetts Enhances Foreclosure Protections in 2013
In 2013, the Division of Banks filed regulations that prevent national and state lenders from foreclosing on a property if an application for a loan modification is in process. To comply with the new regulations, loan servicers will have to:
- provide a single point of contact for the borrower
- follow detailed loan modification procedures, and
- communicate with borrowers in a timely manner.
The new regulations were established as a result of the 2012 law.
Finding Massachusetts’ Foreclosure Statutes
To read the statutes that govern foreclosures in Massachusetts, go to the Massachusetts Legislature’s webpage at https://malegislature.gov and click on “General Laws.” Look in Part III, Title III, Chapter 244.