BOSTON – In its latest effort to establish greater protections for homeowners, the Senate passed legislation preventing unnecessary and unlawful foreclosures, reducing the number of abandoned properties across the Commonwealth and helping to remove one of the biggest remaining barriers to our ongoing economic recovery.
“A foreclosure is a crisis not just for one family, but for the whole community. Rising foreclosure rates and increasing numbers of abandoned properties negatively affect neighborhoods, leading to reduced property values for other homeowners and increased rental rates,” said State Senator Jamie Eldridge. “This legislation will put more pressure on lenders to work with homeowners to modify loans and avoid foreclosures.”
The bill requires banks and other lenders to offer loan modifications to borrowers in certain circumstances to avoid foreclosures. Lenders must conduct a complete financial analysis of the borrower and determine if it would be more beneficial to receive lower monthly mortgage payments or the anticipated recovery from a foreclosure.
The legislation also includes a provision, added by an amendment strongly supported by Senator Eldridge, that gives borrowers the right to go into mediation with lenders prior to foreclosure proceedings to work out renegotiated loan terms through a neutral third-party. Under the bill, the mediation program will be run by the Massachusetts Office of Public Collaboration at the University of Massachusetts Boston.
There is a 150-day timeframe in the bill for deciding whether or not to offer the loan modification, which may come in the form of a reduced interest rate or principal, or an extension of the loan repayment period. The modified loans would allow borrowers to stay in their homes, lenders to avoid foreclosure costs and potential market losses, and neighborhoods to avoid the problem of abandoned properties and vacant lots.
Loan modifications would be available for owner-occupied homes and apply to loans that are considered risky, such as adjustable rate mortgages and interest-only loans. The bill compliments the work of loan modification specialists in the Attorney General’s Office who assist borrowers in their negotiations with lenders.
The bill also incorporates a recent Supreme Judicial Court decision requiring lenders to prove they are the current legal holder of a mortgage before commencing a foreclosure. Senator Eldridge had also filed legislation this session to address this problem.
The legislation also does the following:
- Prohibits lenders from passing on to third parties the costs of correcting prior improper foreclosures;
- Prohibits lenders from imposing a fee upon a borrower for goods or services not provided in connection with a foreclosure; and
- Requires the Division of Banks, in consultation with the Attorney General’s Office, to track the resolution of certain mortgage loans and report to the Joint Committee on Financial Services within 90 days of the end of each calendar year through December 31, 2017.
In 2010, the Legislature passed legislation that states tenants in foreclosed buildings can only be evicted for just cause and that lenders cannot evict a tenants for failure to pay rent unless a written notice with proper contact information has been posted and delivered. For homeowners, that legislation also temporarily extended the 90-day right-to-cure period, enacted by the Legislature in 2007, to 150 days. The 2007 law gave homeowners 90 days to come up with past due payments on their mortgage before the lender could require full payment of the unpaid balance. This was intended as a cooling off period for the lender and homeowner to work out a new payment plan to avoid foreclosure.