The Legislature last Thursday sent a finished bill to Gov. Deval Patrick that will prevent unnecessary and unlawful foreclosures, reduce the number of abandoned properties across the Commonwealth and help remove one of the biggest remaining barriers to the state’s ongoing economic recovery.
“One of my top priorities this legislative session has been protecting our residents and communities from the adverse affects of the foreclosure crisis,” said Sen. Sal DiDomenico. “This legislation takes a critical step towards helping struggling families keep their homes, ensuring fair negotiations with lenders, and preventing unnecessary vacancies.”
Said State Rep. Gene O’Flaherty, “As Massachusetts continues to climb out of the worst economy since the Great Depression, it is incumbent upon us to ensure communities remain intact and stable. I am happy to be a small part of the solution to keeping families in their homes, clarify standards for foreclosures and implement responsible business practices for financial institutions and their clients.”
Rep. Kathi-Anne Reinstein said it was important to set up a clearer process.
“This bill is essential to addressing the foreclosure crisis and protecting struggling homeowners from unlawful practices across the Commonwealth,” said Reinstein. “By setting up a process which holds lenders more accountable, encourages modification options and promotes foreclosure prevention assistance, we can protect families and keep them in their homes.”
State Attorney General Martha Coakley – who has been out in front of the foreclosure situation in Massachusetts – said this was one of the first such bills in the nation.
“We commend the House and Senate for passing this critical legislation to assist struggling homeowners and help Massachusetts fully recover from the foreclosure crisis,” she said. “This bill establishes first-in-the-nation standards that will promote reasonable loan modifications and keep people in their homes without requiring banks to sacrifice the bottom line. We thank Speaker DeLeo, Senate President Murray, Chairman Costello, Chairman Petruccelli and the Conference Committee for their leadership on this important issue and for working so diligently on behalf of the residents of the Commonwealth.”
One of the drafters and biggest champions of the bill was Eastie Sen. Anthony Petruccelli, who said that the bill was meaningful and will help those choked up in the foreclosure process.
“As I noted when the bill emerged from the committee, we have worked extremely hard over the course of the session, and throughout the conference committee process, to produce a meaningful, reasonable approach to address the outstanding foreclosure crisis,” he said. “I am extremely appreciative to my House Chair, Representative Costello, and to all the members of the conference committee for their constructive and insightful input.”
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 loan and offer a modification if it would be more beneficial to receive lower monthly mortgage payments than to foreclose on the home.
There is a 150-day timeframe 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 mortgages with teaser rates, loans made with no income documentation, and interest-only loans. Borrowers who qualify will be provided with contact information for loan modification specialists in the Attorney General’s Office who assist borrowers in their negotiations with lenders.
The bill also incorporates two recent Supreme Judicial Court decisions requiring lenders to prove they are the current legal holder of a mortgage and the holder of the mortgage note before beginning a foreclosure.
The legislation also prohibits lenders from passing along costs of prior improper foreclosures or imposing fees for services not provided in connection with a foreclosure. Furthermore, it 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.
The Legislature had consistently worked to protect homeowners and residents. In 2010, legislation passed that prevented tenants in foreclosed buildings from being evicted without just cause. It also required written notice with proper contact information to be posted and delivered before evicting a tenant for failure to pay rent.
For homeowners, that legislation 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.