Federal and state laws regulate loan servicing and foreclosure processes. Many of these laws give protections to borrowers. Servicers generally have to provide borrowers with loss mitigation opportunities, account for each foreclosure step, and strictly comply with foreclosure laws. Also, the majority of people who take out a loan to buy a residential property in Massachusetts sign a promissory note and a mortgage. These documents give homeowners some contractual rights in addition to federal and state legal protections.
In a Massachusetts foreclosure, you'll most likely get the right to:
So, don't get caught off guard if you're a Massachusetts homeowner who's behind in mortgage payments. Learn about each step in a Massachusetts foreclosure, from missing your first payment to a foreclosure sale. Once you understand the process, you can make the most of your situation and, hopefully, work out a way to save your home or at least get through the process with as little anxiety as possible.
The period after you fall behind in payments, but before a foreclosure officially starts, is generally called the "preforeclosure" stage. (Sometimes, people refer to the period before a foreclosure sale actually happens as "preforeclosure," too.) During this time, the servicer can charge you various fees, like late charges and inspection fees, and, in most cases, must inform you about ways to avoid foreclosure. Many Massachusetts mortgages also require the lender to send a preforeclosure breach letter.
If you miss a payment, most loans include a grace period of ten or fifteen days, after which time the servicer will assess a late fee. Each month you miss a payment, the servicer will charge this fee. To find out the late charge amount and grace period for your loan, look at the promissory note you signed. You can also find this information on your monthly mortgage statement.
Also, most Massachusetts mortgages allow the lender (or the current loan holder, referred to as the "lender" in this article) to take necessary steps to protect its interest in the property. Property inspections are performed to ensure that the home is occupied and appropriately maintained. Inspections, which are generally drive-by, are usually ordered automatically once the loan goes into default and typically cost around $10 or $15.
Other types of fees the servicer might charge include those for broker's price opinions, which are like appraisals, and property preservation costs, such as for yard maintenance or winterizing an abandoned home.
Under federal mortgage servicing laws, the servicer must contact, or attempt to contact, you by phone to discuss loss mitigation options, like a loan modification, forbearance, or repayment plan, no later than 36 days after you miss a payment and again within 36 days after each following delinquency. No later than 45 days after missing a payment, the servicer has to inform you in writing about loss mitigation options that might be available and appoint personnel to help you try to work out a way to avoid foreclosure. A few exceptions are in place for some of these requirements, though, like if you've filed bankruptcy or asked the servicer not to contact you pursuant to the Fair Debt Collection Practices Act. (12 C.F.R. § 1024.39, 12 C.F.R. § 1024.40).
Federal mortgage servicing laws also prohibit dual tracking (pursuing a foreclosure while a complete loss mitigation application is pending).
Many Massachusetts mortgages have a provision that requires the lender to send a notice, commonly called a "breach letter," informing you that the loan is in default before the lender can accelerate the loan. The breach letter gives you a chance to cure the default and avoid foreclosure.
Under federal law, the servicer usually can't officially begin a foreclosure until you're more than 120 days past due on payments, subject to a couple of exceptions. (12 C.F.R. § 1024.41). This 120-day period provides most homeowners with ample opportunity to submit a loss mitigation application to the servicer.
If you default on your mortgage payments in Massachusetts, the lender may foreclose using a judicial or nonjudicial method.
A judicial foreclosure begins when the lender files a lawsuit asking a court for an order allowing a foreclosure sale. If you don't respond with a written answer, the lender will automatically win the case. But if you choose to defend the foreclosure lawsuit, the court will review the evidence and determine the winner. If the lender wins, the judge will enter a judgment and order your home sold.
If the lender chooses a nonjudicial foreclosure, it must complete the out-of-court procedures described in the state statutes. After completing the required steps, the lender can sell the home at a foreclosure sale. Most lenders opt to use the nonjudicial process because it's quicker and cheaper than litigating the matter in court.
Again, most residential foreclosures in Massachusetts are nonjudicial (although a court might have some minimal involvement). Here's how the process works.
If your home is a borrower-occupied, principal residence with four or fewer units, the foreclosing lender must personally deliver or mail a notice to you (the borrower) giving 90 days to bring the loan current (called "curing the default"). You get the right to cure the default once during any five-year period. (Mass. Gen. Laws ch. 244, § 35A).
If your loan has certain high-cost, predatory, or unfair features, the lender also has to send a notice explaining the right to pursue a loan modification. (Mass. Gen. Laws ch. 244 § 35B(c)).
The lender has to mail the borrower a "Notice of Intent to Foreclose and of Deficiency After Foreclosure of Mortgage" at least 21 days before the sale date if it wants to get a deficiency judgment (see below). (Mass. Gen. Laws ch. 244 § 17B).
In a Massachusetts nonjudicial foreclosure, the lender will likely file a lawsuit, often called a "servicemember's case," in the Superior Court Department or the Land Court Department of the Trial Court for a determination as to whether the homeowner is entitled to protections under the federal Servicemembers Civil Relief Act (SCRA). The SCRA provides military servicemembers with protections against a foreclosure while they're on active duty.
Even though a servicemember's case isn't a required part of the Massachusetts foreclosure process, lenders often will file this suit so that the borrower can't later claim that the foreclosure was invalid because the lender failed to comply with the SCRA.
The lender then publishes a notice of sale once a week for three weeks and mails the notice to the homeowner at least 14 days before the sale. (Mass. Gen. Laws ch. 244 § 14).
At the sale, the lender usually makes a credit bid. The lender can bid up to the total amount owed, including fees and costs, or it may bid less. In some states, including Massachusetts, when the lender is the high bidder at the sale but bids less than the total debt, it can get a deficiency judgment against the borrower, subject to some limitations (see below).
If the lender is the highest bidder, the property becomes what's called "Real Estate Owned" (REO). But if a bidder, say a third party, is the highest bidder and offers more than you owe, and the sale results in excess proceeds—that is, money over and above what's needed to pay off all the liens on your property—you're entitled to that surplus money.
A few potential ways to stop a foreclosure might include reinstating the loan, redeeming the property before the sale, or filing for bankruptcy. Of course, if you're able to work out a loss mitigation option, like a loan modification, that will also stop a foreclosure.
As discussed earlier, borrowers usually get 90 days to cure the default and reinstate the loan before the foreclosure officially starts. Again, under Massachusetts law, you can exercise this right to cure only once during any five-year period. (Mass. Gen. Laws ch. 244, § 35A).
Also, the terms of the mortgage might give you additional time to reinstate. Check your contract to see if you get the right to complete a reinstatement and the deadline for doing so. If not, the lender might agree to let you reinstate the loan.
One way to stop a foreclosure is by "redeeming" the property. To redeem, you have to pay off the full amount of the loan before the foreclosure sale.
Some states also provide foreclosed borrowers with a redemption period after the foreclosure sale, during which they can buy back the home. Massachusetts law, however, doesn't provide a post-sale redemption period when it comes to nonjudicial foreclosures. (Mass. Gen. Laws ch. 244 § 18).
If you're facing a foreclosure, filing for bankruptcy might help. In fact, if a foreclosure sale is scheduled to occur in the next day or so, the best way to stop the sale immediately is by filing for bankruptcy. Once you file for bankruptcy, something called an "automatic stay" goes into effect. The stay functions as an injunction, which prohibits the lender from foreclosing on your home or otherwise trying to collect its debt, at least temporarily.
In many cases, filing for Chapter 7 bankruptcy can delay the foreclosure by a matter of months. Or, if you want to save your home, filing for Chapter 13 bankruptcy might be the answer. To find out about the options available to you, speak with a local bankruptcy attorney.
In a foreclosure, the borrower's total mortgage debt sometimes exceeds the foreclosure sale price. The difference between the total debt and the sale price is called a "deficiency." For example, say the total debt owed is $500,000, but the home sells for $450,000 at the foreclosure sale. The deficiency is $50,000. In some states, the lender can seek a personal judgment against the debtor to recover the deficiency. Generally, once the lender gets a deficiency judgment, the lender may collect this amount from the borrower.
In Massachusetts, the lender may get a deficiency judgment after a nonjudicial foreclosure if it:
In this article, you'll find details on foreclosure laws in Massachusetts, with citations to statutes so you can learn more. Statutes change, so checking them is always a good idea.
If you're looking for federal laws, you might want to visit the Library of Congress's legal research website, which provides links to federal regulations and federal statutes.
To find Massachusetts's laws, search online for "Massachusetts statutes" or "Massachusetts laws." Make sure you're reading the most recent, official laws. Usually, the URL will end in ".gov" or the statutes will be on an official state legislature webpage.
For more information on federal mortgage servicing laws, as well as foreclosure relief options, go to the Consumer Financial Protection Bureau (CFPB) website.
Although the programs under the Making Home Affordable (MHA) initiative have expired, the MHA website still contains useful information for homeowners facing foreclosure.
How courts and agencies interpret and apply laws can change. And some rules can even vary within a state. These are just some of the reasons to consider consulting a lawyer if you're facing a foreclosure. If you have questions about Massachusetts's foreclosure process or want to learn about potential defenses to a foreclosure and possibly fight the foreclosure in court, consider talking to a foreclosure attorney.
It's also a good idea to talk to a HUD-approved housing counselor if you want to learn about different loss mitigation options. You can use the CFPB's Find a Counselor tool to get a list of HUD-approved housing counseling agencies in your area. You can also call the Homeownership Preservation Foundation (HOPE) Hotline, which is open 24 hours a day, seven days a week, at 888-995-HOPE (4673).