May 13, 2013 by Stefan L. Jouret, Esq. of Jouret & Samito LLP, Boston, Massachusetts
Summary of Key Provision of Mass. Gen. Laws ch. 244, §35B, Effective November 1, 2012.
Too often, abrupt divorces — particularly in the economic times of the past few years — has meant that families fall behind on mortgages on the marital home (in which children most often reside). This can mean foreclosure and eventual loss of the most significant asset most families have acquired. Until last year, among the only options open to families in this situation was to file a Chapter 13 Bankruptcy Petition to stop any foreclosure. But with the requirement to not only pay the mortgage going forward, but also any arrearage, many Chapter 13 plans fail and home is eventually lost anyway.
Last year, a new option became available to many Massachusetts families. The state legislature passed, and the governor signed into law, a new statute entitled “An Act Preventing Unlawful and Unnecessary Foreclosures.” What follows is a thumbnail summary of the key provisions of the Act. Persons wishing to avail themselves of the Act should seek qualified and experienced counsel to assist.
The Act applies to what are characterized “Certain Mortgage Loans.” These are defined as “a loan 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 with 1 or more of the following loan features: (i) an introductory interest rate granted for a period of 3 years or less and such introductory rate is at least 2 per cent lower than the fully indexed rate; (ii) interest-only payments for any period of time, except in the case where the mortgage loan is an open-end home equity line of credit or is a construction loan; (iii) 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; (iv) the loan did not require full documentation of income or assets; (v) prepayment penalties that exceed section 56 of chapter 183 or applicable federal law; (vi) the loan was underwritten with a loan-to-value ratio at or above 90 per cent and the ratio of the borrower’s debt, including all housing-related and recurring monthly debt, to the borrower’s income exceeded 38 per cent; or (vii) the loan was underwritten as a component of a loan transaction, in which the combined loan-to-value ratio exceeded 95 per cent; provided, however, that a loan shall be a certain mortgage loan if, after the performance of reasonable due diligence, a creditor is unable to determine whether the loan has 1 or more of the loan features in clauses (i) to (vii), inclusive; and provided, further, that loans financed by the Massachusetts Housing Finance Agency, established in chapter 708 of the acts of 1966 and loans originated through programs administered by the Massachusetts Housing Partnership Fund board established in section 35 of chapter 405 of the acts of 1985 shall not be certain mortgage loans.”
With respect to “certain mortgage loans,rdquo §35B a mortgage lender “shall not cause publication of notice of a foreclosure sale . . . unless it has first taken reasonable steps and made a good faith effort to avoid foreclosure.” §35B(b). The section describes reasonable steps” and “a good faith effort to avoid foreclosure” as the lender’s consideration of
(i) an assessment of the borrower’s ability to make an affordable monthly payment; (ii) the net present value of receiving payments under a modified mortgage loan as compared to the anticipated net recovery following foreclosure; and (iii) the interests of the creditor, including, but not limited to, investors.
244 Mass. Gen. Laws ch. 244, §35B(b) (emphasis added).
Section 35B(a) defines an “affordable monthly payment” as “monthly payments on a mortgage loan, which, taking into account the borrower’s current circumstances, including verifiable income, debts, assets and obligations enable a borrower to make the payments.” (Emphasis added).
Section 35B(b)(2) creates a presumption of good faith if, prior to causing a publication of notice of a foreclosure sale, the creditor complies with four steps:
- determines a borrower’s current ability to make an affordable monthly payment;
- identifies a modified mortgage loan that achieves the borrower’s affordable monthly payment, which may include 1 or more of the following: reduction in principal, reduction in interest rate or an increase in amortization period; provided, however, that the amortization period shall not be more than a 15-year increase; provided, further, that no modified mortgage loan shall have an amortization period that exceeds 45 years;
- conducts a compliant analysis [as set forth in iii] comparing the net present value of the modified mortgage loan and the creditor’s anticipated net recovery that would result from foreclosure; . . .; and
- either (A) in all circumstances 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; or (B) in circumstances where the net present value of the modified mortgage loan is less than the anticipated net recovery of the foreclosure, or does not meet the borrower’s affordable monthly payment, notifies the borrower that no modified mortgage loan will be offered and provides a written summary of the creditor’s net present value analysis and the borrower’s current ability to make monthly payments. . .
What follows is a series of 30-day periods:
First 30-day Period
The new §35B process commences with a letter from the creditor notifying the borrower of “the borrower’s rights to pursue a modified mortgage loan.” §35B(c). Within 30 days, the borrower must notify the creditor of the borrower’s intention. Id. If that intention is to pursue a modified mortgage loan, the borrower must send information concerning the borrower’s income and debts. Id.
Second 30-day Period
Within 30 days thereafter, the creditor must provide the borrower with the creditor’s assessment of a number of issues, including the net present value analysis of the mortgage loan, the creditor’s anticipated net recovery at foreclosure and “a modified mortgage loan offer under the requirements of [§35B] or notice that not modified mortgage loan will be offered.” §35B(c).
Third 30-day Period
If the creditor offers a modified mortgage loan, the borrower has 30 days to (i) accept the offer of a loan modification; (ii) make a reasonable counteroffer; or (iii) waive rights. Id. Such a counteroffer then starts another 30-day period for the lender to respond. Id.
Family awareness of the provisions of the Act obviously can be a valuable tool in preventing foreclosure of the family home in which most children reside. That gives families options that have been “off the table” for far too many divorcing Massachusetts families in recent years.
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