Home ownership in Massachusetts is on the rise. According to U.S. Census data, home sales in the Bay State have risen more than 6% since 2005. However, some areas in the state, like Boston, are actually seeing a slight decline. This is likely due, in part, to the rising cost of real estate in the area. Some potential buyers in Massachusetts are looking for alternative financing, ways to buy real estate without going through the slow and sometimes painful process of getting a standard mortgage loan. Some are turning to hard money loans to help with purchasing or renovating an investment property or to find an alternative to borrowing from a standard lending institution. Hard money loans usually come through faster than a loan with a large mortgage lender and they also usually require less paperwork. If a property owner is willing to use their home or other real estate as collateral, these loans are a popular way to go.
Massachusetts Foreclosure Laws
Massachusetts has both judicial and non-judicial foreclosure. A judicial foreclosure is one that is managed by the courts. A non-judicial foreclosure happens mostly outside of the courts. Although Massachusetts allows for both judicial and non-judicial foreclosure, the majority of this state's cases are handled in the court system using judicial foreclosure.
Even though Massachusetts does allow for non-judicial foreclosure, there is a rule that forces the lender to file an action with the Land Court to obtain a judgment that says the owners of the property are not protected under the Soldiers' and Sailors' Civil Relief Act of 1940. The complaint would be filed with the court and if accepted, the court provides an Order of Notice that must be served, published and recorded prior to finalizing the sale of the property. A non-judicial foreclosure in Massachusetts technically must start in the courts but after that initial step, things can move quickly without a court's intervention.
The non-judicial process of foreclosure in Massachusetts can be used by a lender when the mortgage document contains a Statutory Power of Sale clause. The "power of sale" clause authorizes the sale of property to pay off the balance on a loan in the event of default. In mortgages where a power of sale clause exists, the power given to the lender to sell the property may be executed by the lender.
Property Redemption in Maryland
In some Massachusetts foreclosure cases, the homeowner can actually reclaim or "redeem" their home after the foreclosure sale takes place. However, if your foreclosure is like most in Massachusetts, you won't be able to get the home back after the foreclosure sale is finalized. However, homeowners do have up until the foreclosure sale occurs to pay off the full amount of the unpaid loan, which will stop the foreclosure. This is one way to redeem the home.
For the most part, in Massachusetts, homeowners do not have a right to redeem after a non-judicial foreclosure (Mass. Gen. Laws ch. 244, § 18; ch. 183, § 21). On the other hand, they can sometimes get what is called an "equitable right of redemption" before the sale occurs. This means they can redeem the home before the sale by paying off the full amount of the loan. If the foreclosure is non-judicial (and remember, most in Massachusetts are) then the homeowner cannot redeem the home before the sale, then they will not be able to save the house.
If a foreclosure is judicial, meaning the lender files a lawsuit in court to foreclose or a foreclosure by possession, another rarely used foreclosure process in Massachusetts, then the homeowner does have the right to redeem the property after the sale (Mass. Gen. Laws ch. 244, § 18). In order to redeem, you'd have to pay the total amount owed on the mortgage, including interest, attorney's fees, and costs (Mass. Gen. Laws ch. 244, § 19). The right to redeem is extinguished if the lender keeps possession of the home for three years. If the homeowner is unable to afford to pay the past due amount and all related fees in order to redeem the home before the sale (or after the foreclosure, if you get the right to redeem), there still may be other options available to save the as long as action is taken before the home is sold in foreclosure. Some are able to catch-up on past payments or work out a special arrangement with the lender to modify the loan, allowing them to keep the home. It is a good idea to talk to the lender or to seek professional legal assistance.
Deficiency Judgment in Massachusetts
In Massachusetts, it is possible for a lender to seek a deficiency judgment against borrowers, even after a foreclosure. When a lender forecloses on a mortgage, the total debt owed by the borrowers to the lender frequently exceeds the foreclosure sale price. The difference between the sale price and the total debt is called a deficiency. In some states, including Massachusetts, a lender can seek a personal judgment against the home owner to recover the deficiency. Generally, once the lender gets a deficiency judgment, the lender may collect this amount from the borrowers by doing such things like garnishing the borrowers' wages or levying the borrowers' bank account.
Foreclosure Mediation Programs
In Massachusetts, there is no statewide foreclosure mediation program, but some cities, including Lynn, Lawrence, and Springfield, have passed city ordinances requiring lenders to participate in pre-foreclosure mediation. Worcester also passed a mediation ordinance. Recently, however, the Massachusetts Supreme Judicial Court struck down the mediation ordinance in the city of Springfield, which does not bode well for the future of the ordinances in Lynn, Lawrence, and Worcester.
Deed in Lieu of Foreclosure
A deed in lieu of foreclosure, also known as "cash for keys" is when a home owner gives up ownership of a property to the lender in order to avoid foreclosure proceedings. In a typical deed in lieu of foreclosure scenario, the homeowner has not been making mortgage payments and has fallen behind. Massachusetts does allow for Deed in Lieu of Foreclosure. This option offers some advantages to both the homeowner and the lender. The advantages to the borrower include the potential release from a large debt, less impact to your credit scores than a foreclosure, and also the avoidance of the public embarrassment of going through a foreclosure.
Sometimes, a lender will consider a deed in lieu because it saves them the time and expenses involved with a repossession. Most often when a bank agrees to do a deed in lieu of foreclosure the fair market value of the property is what the lender will be looking to receive. But in many cases the current value of your home is much less than the remaining mortgage balance. In this scenario the bank may or may not agree to a deed in lieu.
Most of the time, a Massachusetts lender will not do a deed in lieu if there are 2nd mortgages, home equity loans, or tax liens against your property.
Short Sales Options in Massachusetts
Another option besides a deed in lieu is what is known as a short sale. A short sale is a legal lender-approved solution designed to assist those home owners who are financially strapped to get out from under their mortgage debt. A short sale can be negotiated so that the lender agrees to take less than what homeowner owes on the property. A short sale is the more common route to avoiding a foreclosure. In today's tough economic environment most lenders will now consider doing a short sale.
Foreclosure Notice Requirements in Massachusetts
A law passed in 2008 now requires lenders send a 90-day demand letter to the borrower prior to starting the foreclosure process. After that, the whole thing can take between four and six months, including the Land Court Soldiers' and Sailors' judgment. Here are the notices that are required for a foreclose in Massachusetts.
Default and Right To Cure Notice
When the homeowner falls behind, the lender will send a Right to Cure notice giving the borrower 150 days to bring mortgage payments current. During this grace period, the lender cannot charge excessive fees or penalties.
If the homeowner does not catch up in that first 150 days, the lender will send an acceleration notice by registered or certified mail. It must be sent at least 21 days before the foreclosure sale and usually includes a notice of intent to sue for deficiency.
Service Members Civil Relief Act Complaint
In Massachusetts, lenders must file a complaint under the Servicemembers Civil Relief Act in Land Court or Superior Court stating their intent to foreclose if the borrower is a military servicemember. Their status as servicemember provides additional protections under the law.
Publication of Sale
This is a public notice of sale that the lender will put in the newspaper and must include date, place and time of the sale and a full description of the property. The notice must be published at least 21 days before the sale and has to appear at least once a week for three consecutive weeks before the sale happens.
Notice of Foreclosure Sale
The lender must send an official notice of foreclosure sale by certified or registered mail to the homeowner and it must be sent at least 14 days before the sale takes place.
Record of Sale
The actual sale of the property must take place at the date, time and place that was specified in the public notice and must be conducted by a licensed auctioneer. The highest bidder will win the property and the lender will execute a foreclosure deed that will be recorded at the Registry of Deeds.
Protections for High Cost Mortgage Loans
A high-cost home loan is a type of mortgage loan that has particular characteristics and the annual percentage rate or points and fees exceed certain amounts. Massachusetts' law provides certain protections to borrowers who take out a high-cost home loan.
If the lender violates Massachusetts' high-cost home loan law, the borrower can rescind the loan and use rescission as a defense to the foreclosure. The high-cost home loan statutes prohibit the lender from, among other things, charging prepayment fees and increasing the interest rate after a default. Mass. Gen. Laws ch. 183C §§ 18, 15.
In this kind of situation, the lender is required to attempt to modify certain high-cost and other predatory loans. Mass. Gen. Laws ch. 244 § 35B. It is highly recommended that any homeowner interested in leveraging this protection seek professional legal advice.
Protection for Military Personnel
In Massachusetts, military service members enjoy a special kind of protection from foreclosure. This does not mean that military borrowers cannot lose their homes in a foreclosure. But it does mean that there are additional notices, opportunities for remedy and recourse made available by the state. These provisions used to be called the Soldiers and Sailors Civil Relief Act and often are referred by that name in present day. However, they are now under a federal rule called the Servicemembers Civil Relief Act. Under this law, servicemembers' protection begins on the date they enter active duty and generally terminates within 30 to 90 days after the date of discharge.
One part of the protections included in this law involves foreclosure. Prior to entry into active duty, if the homeowner entered into an installment contract for the purchase of real personal property (a mortgage), they can be protected from court proceedings if their ability to make payment is materially affected by their military service. Additional information and details about the various protections included in this statue are outlined on this page http://www.mass.gov/veterans/benefits-and-services/national-guard-and-reserve/servicemembers-civil-relief-act.html
Additional State Laws
In Massachusetts, when a borrower takes out a home loan, they are required to sign a promissory note - a promise to the lender to pay back the loan in a specific amount of time. Some states allow a deed of trust to take the place of a mortgage note but in Massachusetts, most loan actually require a deed of trust. The primary difference between a deed of trust and a mortgage is in who holds the title of the property while the loan is being paid back.
Home loans that are backed by a deed of trust require the title of the property to be held by a third party, known as the trustee that is neutral. The trustee can be a bank, a lawyer or any individual or entity that is neutral to both the lender and the purchaser of the property. While the borrower is repaying the loan, the trustee will hold the title and upon complete repayment of the loan, the lender will direct the trustee to release the title to the borrower. If you are in Massachusetts, it is extremely likely that your mortgage is actually a Deed of Trust agreement.
The maximum legal interest rate on a personal loan in Massachusetts is 6%. The legal maximum interest rate in Massachusetts is 6% but there is an exception is the parties involved sign an agreement with a higher rate. It is important to note that consumers, sometimes unknowingly, agree to waive the limit and pay higher rates by clicking "I agree" online or by signing a contract that outlines a higher interest rate than is outlined by the law. While most states, including Massachusetts, have usury laws on the books that are meant to prevent unfair interest rates, most courts will defer to contract law over these simple statutes. That means that in Massachusetts, if you agree to a contract that has a higher interest rate, or additional points or fees to be paid, you are accepting that rate regardless of the state's current usury law. It is not illegal to charge a borrower fees, points or higher interest rates, if they agree to the terms of the contract in writing.
Massachusetts is a homestead state, which means that property owners can file their primary residence as a homestead and will enjoy some protections designed for homeowners to keep them from losing their house or property as a result of economic hardship. The homestead exemption applies to real and personal property used as your residence, including a house, mobile home, co-op or condominium. In Massachusetts, the homestead exemption has the following parameters:
- Automatically protects up to $125,000 in home equity without filing
- Protects up to $500,000 for those filing for protection
- Allows both spouses to file
- Does not require re-filing after refinancing a property
- Provides additional coverage for homes that are kept in a trust
Lender Licensing Requirements
To obtain a license to conduct business as a mortgage broker or mortgage lender in the Commonwealth of Massachusetts, an applicant must satisfy the requirements of 209 CMR 42.06(2) or 209 CMR 42.03(2), as applicable. Both sections contain a Business Experience requirement whereby "[a]n applicant shall demonstrate to the Commissioner's satisfaction that the Applicant, and its applicable officers and employees, possess the necessary educational and business experience to engage in the business of a mortgage lender [, or mortgage broker]." The Division's Regulatory Bulletin 5.1-102 sets forth the Business Experience requirement in greater detail.
Massachusetts is one of the most difficult states to obtain a Mortgage Lender License. The state will review a number of factors and requirements before issuing a license. Some of those include: Financials, Warehouse Line Management Capacity, Experience For Qualifying Individual, Mortgage Call Reports, Disclosure Questions, Out-of-State Examinations, In-State Examinations as well.
Additional Information about licensed lenders can be found on the state website here http://www.mass.gov/ocabr/licensee/license-types/banks-banking/application-forms-banking/apply-for-or-amend-a-license/mortgage-companies/licensing-faq.html
Regulatory Investigations/Hard Money Legislation
A recent ruling on military protections in Massachusetts: http://statesidelegal.org/servicemembers-civil-relief-act-and-recent-ruling-hsbc-v-matt-ma-supreme-court
The state doesn't have foreclosure mediation, but some cities decided to put in regulations of their own. One of those was already repealed by the state supreme court and additional action is expected to impact the cities with mediation programs. More information is below:
- Massachusetts Supreme Judicial Court Strikes Down Springfield's Mediation Ordinance - On December 19, 2014, the Supreme Judicial Court struck down (invalidated) Springfield's mediation ordinance along with an ordinance requiring the lender to maintain the home during the foreclosure process. In the end, the court stated that state law preempted the city ordinances, and that the state should regulate foreclosures and related procedures - not cities. (Learn more in Nolo's article Special Foreclosure Rules in Lynn, Lawrence, and Springfield, Massachusetts.)
- How the Supreme Judicial Court Decision Impacts Lynn, Lawrence, and Worcester - Since the Massachusetts Supreme Judicial Court determined that the Springfield mediation ordinance is invalid, the future of the mediation ordinances in Lynn, Lawrence, and Worcester doesn't look good. While the Supreme Judicial Court's decision about Springfield does not immediately render the other ordinances void, any judge reviewing arguments against the ordinances in Lynn, Lawrence, and Worcester will likely follow this decision.